55410154 Ratio Analysis PROJECT in Steel Plant

8/13/2019 55410154 Ratio Analysis PROJECT in Steel Plant

1/89

A STUDY ON RATIO ANALYSIS

AT

RASTRIYA ISPAT NIGAM LIMITEDVISAKHAPATNAM

A Project report submitted in partial fulfillment of the requirements for

the award of`

MASTER OF BUSINESS ADMINISTRATIONBy

EMANY VSNV CHANDRA

Regd.No. 096G1E0010

Under the esteemed g!d"n#e $%

Sr!&K&SANYASI RAOASST& GENERAL MANAGER '()A*

V!s"+h","tn"m Stee- P-"nt

V!s"+h","tn"m

Pr$.e#t G!de

VARAHA LAKSHMI NARASIMHA S/AMY

EDU0ATIONAL TRUST GROUP O( INSTITUTIONS1

NARAVA

2334566

0ERTI(I0ATE O( PRO7E0T GUIDE

IN

1


2/89

RASTRIYA ISPAT NIGAM LIMITED

This is to certify that EMANY VSNV !AN"#A the project

report entitled a study on RATIO ANALYSIS !n RASTRIYA ISPAT

NIGAM LIMITED is a bonafide wor$ done and submitted in partial

fulfillment of the requirement for the award of Master of %usiness

Administration by #e&d' No& 096G1E0010 under my &uidance (

super)ision durin& the period 3856252363to 6953652366'

St"t!$n: V!s"+h","tn"m

D"te * +,-.+-/.++

K&SANYASI RAO

ASST& GENERAL

MANAGER '()A*RASTRIYA ISPAT NIGAM LIMITED

V!s"+h","tn"m Stee- P-"nt

2


3/89

DE0LARATION

01EMANY VSNV 0HANDRAhere by solemnly declare that the

project report entitled a study on theR"t!$An"-ys!s& Submitted by me is

a bonifide wor$ done and it is not submitted to any other uni)ersity or

published anytime before' This project wor$ is in partial fulfillment of

the requirements for the award of the M"ster $% Bs!ness

Adm!n!str"t!$n fromVARAHA LAKSHMI NARASIMHA S/AMYEDU0ATIONAL TRUST GROUP O( INSTITUTIONS1 NARAVA&

P-"#e: VISAKHAPATNAM

D"te: 6;53652366

EMANY VSNV 0HANDRA

3


4/89

A0KNO/LEDGEMENT

The satisfaction that accompanies the successful completion

of any tas$ would be incomplete with out mentionin& people who made it

possible and whose encoura&ement and constant &uidance crowned my

effort with success' 0 wish to e2press my deep sense of &ratitude to

Dr P SRINIVAS RAO1 DIRE0TOR1 VARAHA LAKSHMI

NARASIMHA S/AMY EDU0ATIONAL TRUST


5/89

0HAPTER 6

5


6/89

GENERAL INTRODU0TION

The end products of the business transactions are the 3inancial Statements

comprisin& the position statement or %alance Sheet and the 0ncome Statement or

Profit and 4oss Account' 3inancial statements are the basics for the decision ma$in&

by the Mana&ement and as well as all other Sta$eholder who are interested in the

affairs of the firm such as in)estors1 creditors 1 customers 1suppliers 1 financial

institutions 1 employees 1potential in)estors 1 &o)t'1 and the &eneral public'

0n this project an attempt is made to $now the financial performance of

RASHTRIYA ISPAT NIGAM LIMITED1 VISAKHAPATNAM STEEL PLANT

throu&h #atio Analysis'

OB7E0TIVES O( THE STUDY:

The main objecti)e of the study is to apply theoretical concepts to the practical

situations of #0N4 so as to compare and correlate the actual achie)ements with a

theoretical conclusion'

The main objecti)es of the study are*

To $now the e2tent to which #0N45VSP is efficiently utili6in& its sources to

its operations'

To study the efficiency of o)erall operations'

To analy6e the financial position of the #0N45VSP'

To understand the capital structure of the #0N45VSP throu&h calculatin& of

le)era&e ratios'

To $now the profitability of the #0N45VSP throu&h calculation of profitability

ratios'

To &i)e appropriate su&&estions to the best performance of the or&ani6ation'

6


7/89

METHODOLOGY O( THE STUDY:

Methodolo&y is a systematic procedure of collectin& information in order to

analy6e and )erify a phenomenon' The collection of information is from two

principle sources' They are*

6& Pr!m"ry D"t"

2& Se#$nd"ry D"t"

6& Pr!m"ry D"t":

0t is the information collected directly with out any references' 0n this study it

is &athered throu&h inter)iews with concerned officers and staff1 either indi)idually or

collecti)ely1 sum of the information has been )erified or supplemented with personal

obser)ation conductin& personal inter)iews with the concerned officers of 3inance

"epartment of Visa$hapatnam Steel Plant'

2& Se#$nd"ry D"t":

The Secondary "ata was collected from already published sources such as1

Pamphlets of Annual #eports1 #eturns and 0nternal #ecords1 reference from Te2t

%oo$s and 7ournals relatin& to 3inancial Mana&ement' The data collection includes*

(a) ollection of required data from Annual #eports of Visa$hapatnam

Steel Plant'

(b) #eference from Te2t %oo$s and 7ournals relatin& to 3inancial

Mana&ement'

7


8/89

LIMITATIONS O( THE STUDY:

Thou&h the project is completed successfully a few limitations may be there'

Since the procedure and polices of the company will not

allow to disclose some confidential financial information1 the

project has to be completed with the a)ailable data &i)en to us'

The study is carried basin& on the information and

documents pro)ided by the or&ani6ation and based on the

interaction with the )arious employees of the respecti)e

departments'

Analysis is limited to the results of #0N45VSP and not

compared to industry standards 5 results'

"ata in some of the ratios has been directly ta$en from

the prepared reports of #0N4 due to non-disclosure of input data

due to confidentiality'

8


9/89

0HAPTER5II

9


10/89

DEVELOPMENT O( STEEL INDUSTRY IN INDIA:

7apan remained the lar&est e2porter of semi-finished and finished steel

products in /../ followed by #ussia and 8$raine'

9ther si&nificant recent de)elopments in The "e)elopment of Steel 0ndustry

in 0ndia should be )iewed in conjunction with the type and system of :o)ernment that

has been rulin& the country' !owe)er1 its production in si&nificant quantity startedonly after +;..' The &rowth of steel industry can be studied by di)idin& the period

into pre and post independence era' %y +; MT by the ;.?s'

+'+ Gr$=th $% Stee- Indstry:

The &rowth in a chronolo&ical order is depicted below*

S No Year :rowth

+' +@=. 9sier Marshall heather constructed the first manufacturin&

plant at port-motor in Madras Presidency'

/' +@, 7ames Ers$in founded the %en&al 3rame Bor$s'

=' +@;; 7amshedji TATA initiated the scheme for an inte&rated

Steel Plant

' +;.> 3ormation of T0S9


11/89

#our$ela1 %hilai1 and "ur&apur' T0S9 started its

e2pansion pro&rammed'

;' +;-+;>+ Second 3i)e-Year Plan - A bold decision was ta$en up to

increase the in&ot steel output in 0ndia to > million tones

per year and its production at #ou$ema1 %hilai and

"ur&apur Steel Plant started'

+.' +;>+-+;>> Third 3i)e-Year Plan F "urin& the plan the three Steel

Plants under !S4 ( T0S9 were e2panded'

++' +;> %o$aro Steel Plant came into e2istence

+/' +;>>-+;>; #ecession Period F Till the e2pansion pro&rams were

acti)ely e2isted durin& this period

+=' +;>;-+;, 3ourth 3i)e-Year Plan F Salem Steel Plant started'

4icenses were &i)en for settin& up of many Mini Steel

Plants and re-rollin& mills :o)ernment of 0ndia' Plants in

south are each in Visa$hapatnam and Carnata$a' SA04

was formed durin& this period on /th7anuary +;,='

+' +;,-+;,; 3ifth 3i)e-Year Plan F The idea of settin& up the f ifth

inte&rated Steel Plant1 the first re-based plant at

Visa$hapatnam too$ a definite shape' At the end of the

3ifth 3i)e-Year Plan the total installed capacity from si2

inte&rated plants was up to +.'> million tons'

+' +;@.-+;@< Si2th 3i)e-Year Plan F Bor$ on Visa$hapatnam Steel

Plant started with a bi& ban& and top priority was accorded

to start the plant' Schemes for moderni6ation of %hilai

Steel Plant1 #our$ela Steel Plant1 "ur&apur steel plant and

T0S9 were initiated' apacity at the end of Si2th 3i)e-

Year Plan from si2 inte&rated plants stood ++'


12/89

around @,


13/89

were completed durin& this period' They started production durin& the end of this

plan'

The salient features are &i)en below*

Plant apacity 4ocation ollaboration Production DTons

#SP Sundar&arh1 9rissa :ermany ,/.1...

%SP "ur&apur1 M'P' 8'S'S'# ,,.1...

"SP %urdwan1 B'%' 8C @..1...

0n addition to the abo)e %SP and "SP each were ha)in& the capacity to

produce =..1... tons of pi& iron for sale'

Th!rd %!>e5ye"r ,-"n '6486 t$ 6488*:

"urin& this period1 the three steel plants under !S41 T0S91 and 00S9 were

e2panded as shown below' !owe)er1 these could be completed only by +;>@ F +;>;'

#ecession Period D+;>> F +;>;*

The amblin& e2pansion pro&ram ta$en up durin& the Third 3i)e-Year Plan

could not be completed durin& that period' All the e2pansion pro&rams were acti)ely

e2ecuted durin& this period

($rth (!>e5Ye"r P-"n '6484 ? 64;@*:

%alancin& facilities were incorporated in all the steel plants' Salem Steel Plant

wor$ was ta$en up durin& this period' 4icenses were &i)en for settin& up of many

Mini Steel Plants and #ollin& Mills' :o)ernment accepted the idea of settin& up two

more Steel Plants in the South one at Visa$hapatnam and other at !ospet in

Carnata$a' %oth of them were en)isa&ed to produce plain low arbon Steel Products

13


14/89

initially with a capacity of / MT5year of in&ots' Steel authority of 0ndia 4td'1 was also

formed durin& this period on /nd 7an +;,=' entral #esearch and "e)elopment

9r&ani6ation was set up in 7une1 +;,= to tac$le the research and de)elopment

problems of 0ron and Steel 0ndustry'

(!%th (!>e5Ye"r P-"n '64;@ t$ 64;4*:

Bor$ on Salem project pro&ressed well' %o$aro with +', MT capacities

started in 3eb +;,@' The e2pansions of %hilai Steel Plant form /'< MT to MT and

%o$aro from +', MT to '. MT pic$ed up momentum' The idea of settin& up the MT5year'

Annual plans +;,; to +;@.* )arious plans named abo)e were re)iewed and the

pro&ress on different plants consolidated' So)iet F 8nion has a&reed to help in settin&

up the Vi6a& steel plant'

S!th (!>e5Ye"r P-"n '643 ? 649*:

Bor$ in e2pansion of %hilai and %o$aro Plant was pro&ressed' %o$aroHs

intermediate sta&e of /'< MT completed' Many of the units were commissioned e'&' a

Salem steel plant was commissioned b on =+';'@+ wor$ on Vi6a& Steel Plant started

with a ban& and c top priority was accorded to moderni6e the plant at T0S9'

Schemes for moderni6ation of %SP1 #SP1 "SP1 and 00S9 were initiated at the end of

si2th fi)e-year plan' The capacity from si2 inte&rated steel plants stood at ++' MT'

Se>enth (!>e5Ye"r P-"n '649 t$ 6446*:

Almost all the units in the e2pansion wor$ of %hilai and %o$aro to MT

completed' Pro&ress of Vi6a& Steel Plant pic$ed up and the rationali6ed concept has

been introduced to commission the plant with = MT liquid steel capacities by +;;.'

E!ghth (!>e5Ye"r P-"n '6442 t$ 644;*:

14


15/89

All units of Vi6a& Steel Plant were commissioned by 7uly1 +;;/' :o)ernment

of 0ndia has &i)en permission to set up Mini Steel Plants in Pri)ate Sectors'

N!nth (!>e5Ye"r P-"n '644 t$ 2332*:

National "e)elopment ouncil under entral :o)ernment has deposited #s'

@


16/89

As a result of these economic de)elopments 00S0 has projected an increase by

>'/G or


17/89

0nte&rated Steel Plants

Mini Steel Plants

#e-rollin& Mills

Alloy ( Special Steel Plants

0nte&rated Steel Plants ha)e lar&er capacity and produce Steel from basic raw

materials and the other three cate&ories mentioned are characteri6ed by low

in)estment and low brea$-e)en point'

0h"r"#ter!st!#s $% Integr"ted Stee- P-"nts:

They ha)e lar&e capacities'

!i&hly capital intensi)e'

They ha)e lon& &estation period'

4abour intensi)e'

They would ha)e all facilities includin& raw materials resources1 water supply1

power supply1 testin& and inspection facilities1 township facilities1 medical1

educational and recreational etc'

0nter dependency of all the processin& units on the proceedin& and succeedin&

units in the path of materials flow'

A potential source for earnin& forei&n e2chan&e throu&h e2ports'

They ser)e as centers for the de)elopment of ancillary industries'

They are major consumer of refractory materials'

The !ntegr"ted Stee- P-"nts !n Ind!" "re:

#our$ela Steel Plant

17


18/89

%hilai Steel Plant

%o$aro Steel Plant

"ur&apur Steel Plant

0ndian 0ron and Steel ompany D00S9

Tata 0ron and Steel ompany DT0S9

Visa$hapatnam Steel Plant DVSP

E!m P$-!#y '23325233;*:

To facilitate sustained &rowth in e2ports to attain a share of +G of &lobal

merchandise trade'

To stimulate sustained economic &rowth by pro)idin& access to essential raw

materials1 intermediates1 components1 consumables and capital &oods required

for au&mentin& production and pro)idin& ser)ices'

To enhance the technolo&ical stren&th and efficiency of 0ndian a&riculture1

industry and ser)ices1 thereby impro)in& their competiti)e stren&th while

&eneratin& new employment opportunities1 and to encoura&e the attainment of

internationally accepted standards of quality'

To pro)ide consumers with &ood quality &oods and ser)ices at internationally

competiti)e prices while at the same creatin& a le)el playin& field for the

domestic producers

The Ne= Indstr!"- P$-!#y Reg!me:

The New 0ndustrial policy has opened up the iron and steel sector for pri)ate

in)estment by

Da #emo)in& it from the list of industries reser)ed for public sector and

Db E2emptin& it from compulsory licensin&'

18


19/89

0mports of forei&n technolo&y as well as forei&n direct in)estment are freely

permitted up to certain limits under an automatic route' Ministry of Steel plays the

role of facilitator1 pro)idin& broad directions and assistance to new and e2istin& steel

plants1 in the liberali6ed scenario'

The Gr$=th Pr$%!-e:

STEEL:

The liberali6ation of industrial policy and other initiati)es ta$en by the

:o)ernment ha)e &i)en a definite impetus for entry1 participation and &rowth of the

pri)ate sector in the steel industry' Bhile the e2istin& units are bein&

moderni6ed5e2panded1 a lar&e number of new5&reen field steel plants ha)e also come

up in different parts of the country based on modern1 cost effecti)e1 state of-the-art

technolo&ies'

At present1 total Dcrude steel ma$in& capacity is o)er = million tons and

0ndia1 the @thlar&est producer of steel in the world1 has to its credit1 the capability to

produce a )ariety of &rades and that too1 of international quality standards' As per the

ratin&s of the presti&ious IBorld Steel "ynamicsJ1 0ndian !# products are classified

in the Tier 00 cate&ory quality products- a major reason behind their acceptance in the

world mar$et' E81 7apan has qualified for the top slot1 while countries li$e South

Corea1 8SA share the same class as 0ndia'

0n pi& iron also1 the &rowth has been substantial' Prior to +;;+1 there was only

one unit in the secondary sector' Post liberali6ation1 the A030s has sanctioned /+ new

projects with a total capacity of appro2 ='; million tones' 9f these1 +> units ha)e

already been commissioned' The production of millions in /../-.n ton=' "urin& the

year /..=-.1 the production of Pi& 0ron was


20/89

M"r+et S#en"r!$:

After liberali6ation1 with hu&e scale addition to steel ma$in& capacity'

Apparent consumption of steel increased from +'@ million tons in

+;;+-;/ to =.'/>< million tons in /..=-.'

The production of steel in /..=-. is =>'+;= million tons as a&ainst

=='>, million tons in /../-.= thereby re&isterin& ,'


21/89

"emand- A)ailability of iron and steel in the country is projected by Ministry

of Steel annually'

:aps in A)ailability are met mostly throu&h imports'

0nterface with consumers by way of Steel onsumer ouncil e2ists1 which is

conducted on re&ular basis'

0nterface helps in redressin& a)ailability problems1 complaints related to

quality'

Pr!#!ng ) D!str!Ct!$n

Price re&ulation of iron ( steel was abolished on +>'+'+;;/'

"istribution controls on iron ( steel remo)ed e2cept < priority sectors1 )i6'

"efence1 #ailways1 Small Scale 0ndustries orporations1 E2porters of

En&ineerin& :oods and North Eastern re&ion'

Allocation to priority sectors is made by Ministry of Steel'

:o)ernment has no control o)er prices of 0ron ( Steel'

9pen mar$et prices are &enerally on rise'

Price increases of late ha)e ta$en place mostly in lon& products than flat

products'

Im,$rts $% Ir$n ) Stee-:

0ron ( Steel are freely importable as per the e2tant policy'

0ndia has been annually importin& around /'.< Million Tones of Steel'

21


22/89

0mport duty on se)eral raw materials used by the steel sector li$e non-co$in&

coal1 met co$e and nic$el has been reduced to


23/89

The :o)ernment has ta$en a number of steps to ensure the a)ailability of iron

and steel items which inter-alias includes reduction in E2cise "uty by +>G with

addition to Educational ess /G on +>G'

Le>!es $n Ir$n ) Stee-:

D( LEVY:

This was a le)y started for fundin& moderni6ation1 e2pansion and

de)elopment of steel sector' The fund1 inter-alias1 supports*

+ apital e2penditure for moderni6ation1 rehabilitation1 di)ersification1

renewal ( replacement of 0nte&rated Steel plants'

/ #esearch ( "e)elopment

= #ebates to SS0 orporations

E2penditure on E#8 of 7P

S"3 le)y was abolished on /+'';

abinet decided that corpus could be recycled for loans to Main

producers

0nterest on loans to Main Producers is set aside for promotion of #("

on steel etc'

An Empowered ommittee has been set up to &uide the #(" effort in

this sector'

23


24/89

0HAPTER5III

0OMPANY PRO(ILE

The :o)ernment of 0ndia has decided to set up an inte&rated Steel Plant at

Visa$hapatnam to meet the &rowin& domestic needs of steel' Visa$hapatnam Steel

24


25/89

Plant was the effect of the persistent demands and mass mo)ements' 0t is another step

towards increasin& the country?s steel production'

The decision of the :o)ernment to set up an inte&rated steel plant was laid

down by the then Prime Minister Smt' 0ndira :andhi' The Prime Minister laid the

foundation stone on /.th 7anuary +;,+'

The consultant1 M5s M N "astur ( o DP)t 4td' submitted a techno-

economic feasibility report in 3ebruary +;,/1 and detailed project report for the plant1

with an annual capacity of =' million tones of liquid steel'

The :o)ernment of 0ndia and 8SS# si&ned an a&reement on +/ th7une +;,;

for the co-operation in settin& up =' million tones inte&rated Steel Plant' The project

was estimated to cost to #s'=1 @;,'/@ crores based on prices as on th Luarter of

+;@+'!owe)er1 on completion of the construction and commissionin& of the whole

Plant in +;;/1 the cost escalated to #s'@1 , million tones of saleable steel'

0t has set up two major %last 3urnaces1 the :oda)ari and the Crishna1 which

are the en)y of any modern steel ma$in& comple2'

The economy of a nation depends on core sector industries li$e iron and steel'

Steel is the basic input for construction1 machines buildin& and transport industries'

Ceepin& in )iew the importance of steel the followin& inte&rated steel plant with

25


26/89

forei&n collaborations was constructed in the public sector in the post independence

era'

ORGANIATION 0HART

VISION:

To be a continuously &rowin& world-class company'

Be shall*

!arness our &rowth potential and sustain profitable &rowth'

26

CHAIRMAN CUM MANAGING DIRECTOR

"irector

D3inance"irector

Dommercial

"irector

DPersonnel

"irector

D9perations"irector

DVi&ilance

E"

D3inance

ompany

Secretary

A:MD0nt' Audit

E" DMM

Addl' :M

DM$t&

Addl' :M

DM$t&

- Ser)ices

( E2ports

":M

DM(!S 05

:M DP(A

Addl' :M

DP(0#

":M DTr&

":M D!#"

":M D4e&al

Affairs

:M

DBor$s

Addl' :M

DLAT"

Addl' :M

DAudio (Telco

Addl' :M

DSer)ices

Addl' :M

DSteel

Addl' :M

D1 S (

E"

DMaint'

:M

DMaint'

Addl' :M

D#(#M

":M

DSystem

:M

D"(E(

05 PES

Addl' :M

DVi&'

AM

Dordon


27/89

"eli)er hi&h quality and cost competiti)e products and be the first choice of

customers'

reate an inspirin& wor$ en)ironment to unleash the creati)e ener&y of people'

Achie)e e2cellence in enterprise mana&ement'

%e a respected corporate citi6en1 ensure clean and &reen en)ironment and de)elop

)ibrant communities around us'

M!ss!$n:

To attain +> million tone liquid steel capacity throu&h technolo&ical up

-&radation1 operational efficiency and e2pansion1 to produce steel at international

standards of cost and quality1 and to meet the aspirations of the sta$eholders'

0$re V"-es:

ommitment

ustomer satisfaction

ontinuous impro)ement

oncern of en)ironment

reati)ity and inno)ation&

BRIE( IDEA ABOUT STEEL MAKING PRO0ESS

The modern era in steel ma$in& be&an with the introduction of !enry

%essemerHs ( %essemer process in the late +@


28/89

in lar&e quantities cheaply1 so that Mild Steel is now used for most purposes for

which wrou&ht iron was formerly used' This was only the first of a number of

methods of steel production' The :ilchrist-Thomas process Dor basic %essemer

process was an impro)ement to the %essemer process1 linin& the con)erter with a

basic material to remo)e phosphorus' Another was the Siemens-Martin process of

open hearth steelma$in& which li$e the :ilchrist-Thomas process complemented1

rather than replaced1 the ori&inal %essemer process'

These were rendered obsolete by the 4in6-"onawit6 process ofbasic o2y&en

steel ma$in&1 de)eloped in the +;


29/89

29


30/89

HUMAN RESOUR0ES

HRD PHILOSOPHY IN VISAKHAPATNAM STEEL PLANT

Employees of the or&ani6ation are &reatest and most )aluable resources'

Bhole on the one hand1 !#" should appropriately harness the employee

potential for the attainment of the company objecti)es1 the company on the

other1 as its corporate responsibility1 should create an enablin& climate where

in human talent &ets the best opportunity for self e2pression1 all round

de)elopment and fulfillment'

People are more than mere resources and therefore it will be the company?s

sincere endea)or to treat people with all the respect and that is warranted when

employees are seen as more mere instrumentalities'

!#" as a mana&ement function will be &i)en a place of strate&ic priority1

alon& with function li$e production1 maintenance1 materials on finance in the

o)erall scheme of mana&ement action in the company'

!#" does not refer to trainin& alone1 nor it is just a new name for trainin&' 0n

#0N45VSP !#" refers to creati)e and inno)ati)e initiati)es in se)eral

mana&ement functions for the de)elopment and &rowth of employees

!#" should e)entually be a core philosophy of all mana&ement actions and

should not remain merely a departmental 5 sectional acti)ity'

All functional and di)isional heads responsible for )arious acti)ities of the

company will imbibe the !#" spirit and suitability inte&rate !#" into their

plans1 decisions and actions

30


31/89

HRD OC.e#t!>es $% V!s"+h","tn"m Stee- P-"nt:

To pro)ide initially a suitable match between employee competence le)el and

company?s wor$ requirements

To foster an appropriate climate and culture which nurtures employee

competence and adequate moti)ational le)els for the application of their

abilities to assi&ned jobs5roles with required commitment'

To enable employees see$ &reater identification with the company by fusin&

mana&ement decisions and actions with the requisite care1 concern and

de)elopmental approach'

To initially enable the employees and the or&ani6ation achie)e its mission and

objecti)es and business &oals throu&h !#"'

OHSAS5 6336 0ert!%!#"t!$n:

0t is widely reco&ni6ed that the wor$ itself and the wor$ en)ironment are

factors are paramount importance for health and well-bein& of the wor$in& and

&eneral population' Most industrial jobs are inherently associate with certain wor$in&

conditions which are inimical to health and wor$ers e2posed to them sooner or later

succumb to their ad)erse influence unless adequately protected' The principles of

occupational ris$ mana&ement may be the same in de)eloped and de)elopin&

countries' !owe)er1 there can be a wide di)ersity in practice' A major trend in the

re&ulation of industrial ris$s to human health and the en)ironment is the pro)ision of

rele)ant information to all sta$eholders and ris$ bearers' The %ritish Standard

0nstitute D%S0* 9ccupational !ealth and Safety Assessment Series D9!SAS

specification pro)ide theoretical insi&hts to enable an or&ani6ation to control its

occupational health and safety D9!(S ris$s and impro)e its performance'

31


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Visa$hapatnam Steel Plant DVi6a& Steel is an 0S9 ;..+1 0S9 +..+1 and

9!SAS +@..+1 certified public sector or&ani6ation in 0ndia' 0t is the only steel plant

in 0ndia1 had all the three certificates' This paper re)iews $ey aspects li$e ha6ard

identification and ris$ assessmentD!0#A carried out in es:

E2pand plant capacity to >'=mT by /..@-.; with the mission to e2pand

further in subsequent phases as per the corporate plan

Sustain &ross mar&in to turno)er ration /


33/89

3ollow clearly documented procedures for achie)in& e2pected quality standard

of products and ser)ices'

ontinuously stri)e to impro)e quality of all material1 processes and products'

Maintain an enablin& en)ironment1 which encoura&es acti)es in)ol)ement of

all employees to pursue continuous impro)ement of quality'

Te#hn$-$g!#"- H!gh-!ghts $% VSP:

3irst shore based inte&rated steel plant'

Selecti)e crushin& with pneumatic separation of coal blend'

, Meter tall o$e 9)ens'

"ry Luenchin& of hot co$e and production of steam and power from hot inert

&ases'

%ase-mi2 yard for the Sinter Plant'

=/.. cu' m %last 3urnace ha)in& belled-less top equipment with con)eyor

char&in&'

:ranulation of +..G molten sla& at the ast !ouse'

%'3' top pressure reco)ery turbine for power &eneration'

"esulphuri6ation facilities for pre-treatment of hot metal'

Sub lance measurement of dynamic blowin& control with computer'

+..G continuous castin& of liquid steel'

!i&h capacity1 hi&h speed1 computer controlled multi-line mills'

8se of on-line heat treatment ITemp coreJ processes for reinforcement bars'

8se of No twist rollin& and controlled coolin& IStelmoreJ of wire rods'

0ncorporation of peripheral yard for incomin& and out&oin& materials'

33


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3irst inte&rated steel plant to recei)e 0S9 ;../ certification for all its products'

M".$r s$r#es $% R"= M"ter!"-s:

0ron 9re lumps ( fines %ailadilla1 M'P

%3 4ime Stone 7a&&ayyapeta1 A'P

SMS 4ime Stone 8AE

%3 "olomite "ubai

SMS "olomite Madharam1 A'P

Man&anese 9re hipuripalli1 A'P

%oiler oal Talcher1 9rissa

o$in& oal Australia

Bater supply Yeluru canal1 Andhra Pradesh

Power supply apti)e power plant

Medium coo$in& coal :idi5Swan&5#ajarappa5Car&il

M".$r Un!ts:

"EPA#TMENTS

ANN8A4 AP'

DK...T 8N0TS D='. MT STA:E

9CE 9VE#NS /1/>+= %atteries each of >, o)ens ( , Mts

!ei&ht

S0NTE# P4ANT


35/89

YEA# EE8T0VES N9N-EE8T0VES

=+-=-+;;, />+, ++, ++, +.@,

=+-=-/... />@= +=, ++,/,

=+-=-/..@ ;>, ++;

=+-=-/..;


36/89

Engineering

Diploma

Graduation/PG

ITI

iterate!

0

2000

4000

6000

8000

10000

12000

14000

16000

EXECUTIVES NON-

EXECUTIVES

31-3-1997

31-3-1998

31-3-199931-3-2000

31-3-2001

31-3-2002

31-3-2003

31-3-2004

31-3-2005

31-3-200631-3-2007

31/03/2008

31/03/2009

31/03/2010

Error* #eference source not found"-!%!#"t!$n Pr$%!-e "s $n F6&3F&2363:

En&ineerin& -+'=G

"iploma -+.'==G

:rad5P: -++'>


37/89

"or#!

Pro$e%t!

&ine!

't(er!

DIVISION5/ISE MAN PO/ER:

Bor$s -@/'.=G

Projects -/'+.G

Mines -/'+G

9thers -+=',/G

A/ARDS:

+' 0S9 ;../ for SMS and all the down stream units F a unique distinction in

the steel industry'

/' 0ndira Priya "arshini Vri$sha Mitra award +;;/-;=1 Nehru memorial

national award for pollution control +;;/-;= ( +;;=-;'

=' EEP e2port e2cellence award F +;;-;'

>' Steel ministries trophy I%est safety performance F +;;>'J

,' 00M national quality commitment award F +;;,'

@' :old star award for e2cellent performance in producti)ity'

;' 8dyo& e2cellence &old medal for e2cellence in steel plant'

+.' E2cellence award for out standin& performance in producti)ity mana&ement1

quality and inno)ation'

++' 0SPAT Sura$sha Puras$ar D+stpri6e for lar&est accident free period +;;+-;'

+/' PM Trophy for the year /../-.= as the %est 0nte&rated Steel Plant

+=' Borld quality commitment international star award in /..

+' ll-:% National Award in /..$->ement ) Pr$#ess !m,r$>ements:

The ima&ination and creati)ity of employees ha)e always been $ey success

factors for the company' Employees of #0N4 ha)e always been at the forefront in

contributin& ideas for process impro)ements' Voluntary in)ol)ement of

employees in /


39/89

0HAPTER5IV

0$n#e,t"- (r"me /$r+

39


40/89


41/89

The term ratio refers to the numerical or quantitati)e relationship between two

items5)ariables' This relationship can be e2pressed as*

+' Percenta&es1 say1 Net Profits are /


42/89

As a tool of financial mana&ement1 ratios are of crucial si&nificance' The

importance of ratio analysis lies in the fact that presents facts on a comparati)e basis

and enables the drawin& inference re&ardin& the performance of a firm' #atio

analysis is rele)ant in assessin& the performance of a firm in respect to the followin&

aspects'

+' 4iquidity position

/' 4on&-term sol)ency

=' 9perational efficiency

' 9)erall profitability

en#y:5#atio analysis is equally useful for assessin& the lon&-term financial )iability

of a firm' This aspect of the financial position of a borrower is of concern to

the lon&-term creditors1 security analysts and the present and potential owners

of a business' The lon&-term sol)ency is measured by the le)era&e5capital

structure and profitability ratios1 which focus on earnin& power and operatin&

efficiency' #atio analysis re)eals the stren&th and wea$nesses of a firm in this

respect' The le)era&e ratios1 for instance1 will indicate whether a firm has a

reasonable proportion of )arious sources of finance or if it is hea)ily loaded

42


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proportion of )arious sources of finance or if it is hea)ily loaded with debt in

which case its sol)ency is e2posed to serious strain' Similarly the )arious

profitability ratios would re)eal whether or not the firm is able to offer

adequate return to its consistent with the ris$ in)ol)ed' 0t includes "ebt-equity

ratio1 ash co)era&e ratio1 the times interest earned ratio etc'

F& O,er"t!ng E%%!#!en#y:5

Another dimension of the usefulness of the ratio analysis1 rele)ant from the

)iew point of mana&ement1 is that it throws li&ht on the de&ree of efficiency in

the mana&ement and utili6ation of its assets' The )arious acti)ity ratios

measure this $ind of operational efficiency'

@& O>er"-- Pr$%!t"C!-!ty:5

8nli$e the outside parties1 which are interested in one aspect of financial

position of a firm1 the mana&ement is constantly concerned about the o)er-all

profitability of the enterprise' That is1 they are concerned about the ability of

the firm to meet its short-term as well as lon&-term obli&ations to its creditors1

to ensure a reasonable return to its owners and secure optimum utili6ation of

the assets of the firm' This is possible if an inte&rated )iew is ta$en and all the

ratios are considered to&ether'

9& Inter5%!rm 0$m,"r!s$n:5

#atio analysis not only throws li&ht on the financial position of a firm but also

ser)es as a steppin& stone to remedial measures' This is made possible due to

inter-firm comparison and comparison with industry a)era&es' A sin&le fi&ure

of a particular ratio is meanin&less unless it is related to some standard or

norm' 9ne of the popular techniques is to compare the ratios of a firm with

the industry a)era&e' An inter-firm comparison would demonstrate the firm?s

position )is-Q-)is its competitors'

8& Trend An"-ys!s:5

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#atio analysis enables a firm to ta$e the time dimension into account' 0n other

words1 whether the financial position of a firm is impro)in& or deterioratin&

o)er the years' This is made possible by the use of trend analysis' The

si&nificance of a trend analysis of ratios lies in the fact that the analysis can

$now the direction of mo)ement1 i'e'1 whether the mo)ement is fa)orable or

unfa)orable' 3or e2ample1 the ratio may be low as compared to the norm but

the trend may be upward' 9n the other hand1 thou&h the present le)el may be

satisfactory but the trend may be a declinin& one'

R"t!$ An"-ys!s5L!m!t"t!$ns:

#atio Analysis is a widely used tool of financial analysis' Yet1 it suffers from

)arious limitations' The operational implication of this is that while usin& ratios1 the

conclusions should not be ta$en on their face )alue' Some of the limitations1 which

characteri6e ratio analysis1 are

i' "ifficulty in comparison'

ii' 0mpact of 0nflation1 and

iii' onceptual "i)ersity

!& D!%%!#-ty !n #$m,"r!s$n:5

9ne serious limitation of ratio analysis arises out of the difficulty associated

with there comparability' 9ne technique that is employed is inter-firm

comparison' %ut such comparison is )itiated by different procedures adopted

by )arious firms'

"ifferences in basis of in)entory )aluation De'&'*- last in first out1

a)era&e cost and cost

"ifferent depreciation methods Di'e' strai&ht line Vs' written down

basis

Estimated wor$in& life of assets1 particularly of plant and equipment

Amorti6ation of deferred re)enue e2penditure such as preliminary

e2penditure and discount on issue of shares

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apitali6ation of lease

Treatment of e2traordinary items of income and e2penditure and so

on'

Secondly1 apart from different accountin& procedures1 companies may ha)e

different accountin& procedures1 implyin& differences in the composition of assets1

particularly current assets' 3or these reasons1 the ratios of two firms may not be

strictly comparable'

!!& Im,"#t $% In%-"t!$n:5

The second major limitation of the ratio analysis is associated with price le)el

chan&es' This is a wea$ness of the traditional financial statements1 which are

based on historical cost' An implication of this feature of the financial

statements as re&ards ratio analysis is that assets acquired at different periods

are1 in effect1 shown at different prices in the balance sheet1 as they are not

adjusted for chan&es in the price le)el' As a result1 ratio analysis will not be

strictly comparable'

!!!& 0$n#e,t"- D!>ers!ty: 5

The factor that influences the usefulness of ratios is that there is difference of

opinion re&ardin& the )arious concepts used to compute the ratios' There is

always room for di)ersity of opinion as to what constitutes shareholderRs

equity1 debt1 assets1 profit and so on'

3inally1 ratios are only a post-mortem analysis of what has happenedbetween two balance sheet dates' 3or one thin& the position in the interim

period is not re)ealed by ratio analysis' Moreo)er1 they &i)e no clue about the

future'

0n brief1 ratio analysis suffers from some serious limitations' The

analysis should not be carried away by its o)er simplified nature1 easy

computation with hi&h de&ree of precision' The reliability and si&nificance

attached to ratios will lar&ely depend upon the quality of data on which they

45


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The comparison of calculated ratios with the standards will help the analyst in

formin& his opinion about financial situation of the concern'

The ratios are only the tools of analysis but their interpretation will depend

upon the caliber and competence of the analyst' !e should be familiar with

)arious financial statements and the si&nificance of chan&es etc'

A wron& interpretation may create ha)oc for the concern since wron&

conclusions may lead to wron& decisions' The utility of ratios is lin$ed with

e2pertise of the analyst'

The ratios are only &uidelines for the analyst he should not base his decisions

entirely on them' !e should study any other rele)ant information1 situation in

the concern1 &eneral economic en)ironment etc'1 before reachin& final

conclusions'

The study of ratios in isolation may not always pro)e useful' The

interpretation should use the ratios as &uide and may try to solicit any other rele)ant

information which helps is reachin& a correct decision'

R"t!$ An"-ys!s5Ty,es:

Se)eral ratios1 calculated from the accountin& data1 can be &rouped into

)arious classes accordin& to financial acti)ity or function to be e)aluated' As stated

earlier1 the parties interested in financial analysis are short-term and lon&-term

creditors1 owners and mana&ement' Short-term creditorsR main interest is in the

liquidity position or the short-term sol)ency of the firm' 4on&-term creditorsR1 on the

other hand1 are more interested in the lon&-term sol)ency and profitability of the firm'

Similarly1 owners concentrate on the firm?s profitability and financial condition'

Mana&ement is interested in e)aluatin& e)ery aspect of the firm?s performance' They

ha)e to protect the interests of all parties and see that the firm &rows profitably' 0n

)iew of the requirements of the )arious users of ratios1 we may classify them into the

followin& four important cate&ories*

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40L80"0TY #AT09S

4EVE#A:E #AT09S

AT0V0TY #AT09S

P#930TA%040TY #AT09S

LIUIDITY RATIOS:

0t is e2tremely essential for a firm to be able to meet its obli&ations as they

become due' 4iquidity ratios measure the firm?s ability to meet current obli&ations'

0n fact1 analysis of liquidity needs the preparation of cash bud&ets and cash

and 3und 3low statements but liquidity ratios1 by establishin& a relationship between

cash and other current assets to current obli&ations pro)ided a quic$ measure of

liquidity' A firm should ensure that it does not suffer from lac$ of liquidity1 and also

that it does not ha)e e2cess liquidity' The failure of a company to meet its obli&ations

due to lac$ of sufficient liquidity1 will result in a poor creditworthiness1 loss of

creditorsR confidence1 or e)en in le&al tan&les resultin& in the closure of the company'

A )ery hi&h de&ree of liquidity is also bad idle assets earn nothin&' The firm?s fundswill be unnecessarily tied up in current assets' Therefore1 it is necessary to stri$e a

proper balance between hi&h liquidity and lac$ of liquidity' The most common ratios1

which indicate the e2tent of liquidity or lac$ of it1 are*

+' 8##ENT #AT09

/' L80C #AT09

=' AS! #AT09

6& 0URRENT RATIO:

The current ratio is calculated by di)idin& current assets by current liabilities'

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urrent assets

urrent #atio

urrent liabilities

urrent assets include cash and those assets1 which can be con)erted into cash

within a year1 such as Mar$etable Securities1 "ebtors and 0n)entories' Prepaid

e2penses are also include in current assets as they represent the payments that will not

be made by the firm in future' urrent 4iabilities include reditors1 %ill payable1

Accrued e2penses1 Short-term ban$ loan1 and 0ncome Ta2 4iability and 4on&-term

debt maturin& in the current year'

The current ratio is a measure of the firmsR short-term sol)ency' The hi&herthe current ratio1 the lar&er is the amount of rupees a)ailable per #upee of current

liability1 the more is the firmsR ability to meet current obli&ations and the &reater is the

safety of funds of short-term creditors'

2& UI0K RATIO:

The Luic$ ratio is calculated by di)idin& quic$ assets by quic$ liabilities'

Luic$ assets

Luic$ #atio

Luic$ liabilities

Luic$ assets or 4iquid assets mean those assets which are immediately

con)ertible into cash without much loss' All current assets e2cept prepaid e2penses

and in)entories are cate&ori6ed in liquid assets' Luic$ liabilities means those

liabilities1 which are payable within a short period' Normally1 %an$ o)erdraft and

ash credit facility1 if they become permanent mode of financin& are in quic$

liabilities'

As this ratio concentrates on cash1 mar$etable securities and recei)ables in

relation to current obli&ation1 it pro)ides a more penetratin& measure of liquidity than

current ratio'

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F& 0ASH RATIO:

The cash ratio is calculated by di)idin& cash mar$etable securities by

current liabilities

ash #atio ash Mar$etable Securities

urrent liabilities

Since cash is most liquid asset1 a financial analyst may e2amine cash ratio and

its equi)alent to current liabilities' Trade in)estment or mar$etable securities are

equi)alent of cash therefore1 they may be included in the computation of cash ratio'

LEVERAGE RATIOS:

The short-term creditors li$e ban$ers and suppliers of raw material are more

concerned with the firmsR current debt-payin& ability' 9n the other hand1 lon&-term

creditors li$e debenture holders1 financial institutions etc'1 are more concerned with

the firmsR lon&-term financial stren&th' 0n fact1 a firm should ha)e stron& short-as

well as lon&-term financial position' To jud&e the lon&-term financial position of the

firm1 financial le)era&e1 or apital structure1 ratios are calculated' These ratios

indicate mi2 of funds pro)ided by owners and lenders' As a &eneral rule1 there should

be an appro2imate mi2 of debt and owner?s equity in financin& the firmsR assets'

The manner in which assets are financed has a number of implications' 3irst1

between debt and equity1 debt is more ris$y from the firmsR point of )iew' The firm

has a le&al obli&ation to pay interest on debt holders1 irrespecti)e of the profits made

or losses incurred by the firm' 0f the firm fails to debt holders in time1 they can ta$e

le&al action a&ainst it to &et payment and in e2treme cases1 can force the firm into

liquidation'

Secondly1 use of debt is ad)anta&eous for shareholders in two ways*

a' They can retain control of the firm with a limited sta$e and

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b' Their earnin&s will be ma&nified1 when the firm earns a rate of return on the

total capital employed hi&her than the interest rate on the borrowin& funds'

The process of ma&nifyin& the shareholders return throu&h the use of debt is

called Ifinancial le)era&eJ or Ifinancial &earin&J or Itradin& on equityJ'

4e)era&e ratios may be calculated from the balance sheet to determine the

proportion of debt in total financin&' Many )ariations of these ratios e2ist but all

these ratios indicate the same thin&-the e2tent to which the firm has relied on debt in

financin& assets' 4e)era&e ratios are also computed from the profit and loss items by

determinin& the e2tent to which operatin& profits are sufficient to co)er the fi2edchar&es'

DEBT ? EUITY RATIO:

The relationship describin& the lender contribution for each rupee of the

owner?s contribution is called "E%T-EL80TY #AT09' "E%T F EL80TY

#AT09 is directly computed by the followin& formula'

"E%T

"ebt-Equity #atio

EL80TY

PROPRIETARY RATIO:

This ratio states relationship between share capital and total assets'

Proprietor?s equity represents equity share capital1 preference share capital and

reser)es and surplus' The latter ratio is also called capital employed to total assets'

EL80TY S!A#E AP0TA4

Proprietary #atio

T9TA4 TAN:0%4E ASSETS

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P#9P#0ET9#S EL80TY

D9#

T9TA4 TAN:0%4E ASSETS

INTEREST 0OVERAGE RATIO:

This ratio indicates the e2tent to which earnin&s can decline without resultant

financial hardship to the firm because of its inability to meet annual interest cost' 3or

e2ample1 co)era&e of < times means that a fall in earnin&s unto D+5< th le)el would be

tolerable1 as earnin&s to ser)ice interest on debt capital would be sufficientlya)ailable' This ratio is measured ad follows*

E%0T

0nterest o)era&e #atio ---------------------------------

0NTE#EST !A#:ES

(IED ASSETS TO NET /ORTH:

This ratio indicates the e2tent to which Equity capital is in)ested in the net

fi2ed assets' 0t is e2pressed as follows*

30E" ASSETS

3i2ed Assets To Net Borth

NET B9#T!

Net Borth is represented by Equity Share apital plus #eser)es and Surpluses' 0f thefi2ed assets are more than the Net Borth1 difficulties may arise1 as the depreciation

will reduce profit' This also means that creditors ha)e contributed to fi2ed assets'

The hi&her this ratio1 the less will be the protection to creditors' 0f this ratio is too

hi&h1 the firm may find itself handicapped1 as too much capital is tied up in fi2ed

assets but not circulatin&'

A0TIVITY RATIOS:

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3unds creditors and owners are in)ested in )arious assets to &enerate sales and

profits' The better the mana&ement of assets1 the lar&er the amount of sales' Acti)ity

ratios are employed to e)aluate the efficiency with which the firm mana&ers andutili6es its assets' These ratios are also called Turno)er #atios because they indicate

the speed with which assets are bein& con)erted or turned o)er into sales' Acti)ity

ratios1 thus1 in)ol)e a relationship between sales and assets' A proper balance

between sales and assets &enerally reflects that assets are mana&ed well' Se)eral

acti)ity ratios can be calculated to jud&e the effecti)eness of asset utili6ation'

INVENTORY TURNOVER RATIO:

0n)entory turno)er ratio indicates the efficiency of the firm in producin& and

sellin& its products' 0t is calculated by di)idin& the cost of &oods sold by the a)era&e

in)entory'

The a)era&e in)entory is the a)era&e of openin& and closin& balance of

in)entory'

0n a manufacturin& company in)entory of finished &oods is used to calculate

in)entory turno)er'

ost of &oods sold

0n)entory Turno)er #atio

A)era&e in)entory

DEBTORS TURNOVER RATIO:

A firm sells &oods for cash and credit' redit is used mar$etin& tool by a

number of companies' Bhen the firm e2tends credits to its customers1 debtors

Daccounts recei)ables are created in the firmsR accounts' The debtors are e2pected to

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be con)erted into cash o)er a short period and1 therefore1 are included in current

assets' The liquidity position of the firm depends on the quality of debtors to a &reater

e2tent' "ebtors turno)er ratio indicates the )elocity of debt collection of a firm' 8n

simple wards it indicates the number of times a)era&e debtors are turned o)er durin& a

year'

redit Sales

"ebtors Turno)er #atio --------------------------------

A)&' Accounts #ecei)able

(IED ASSETS TURNOVER RATIO:

The fi2ed assets turno)er ratio measures the efficiency with which the firm is

utili6in& its in)estments in fi2ed assets1 such as land1 buildin&1 plant and machinery1

furniture1 etc' 0t also indicates the adequacy of sales in relation to the in)estment in

fi2ed assets' The fi2ed assets turno)er ratio is sales di)ided by net fi2ed assets' The

firm assets turno)er ratio should be compared with past and future ratios and also with

ratio of similar firms and the industry a)era&e' The hi&h fi2ed assets turno)er ratio

indicates efficient utili6ation of fi2ed assets in &eneratin& sales1 while low ratio

indicates inefficient mana&ement and utili6ation of fi2ed assets'

This ratio indicates the e2tent to which the debts ha)e been collected in time'

The debt collection period indicates the a)era&e debt collection period' This ratio is a

&ood indicator to the lenders of the firm1 because it e2plains to them whether their

borrower is collectin& from its debt in time' An increase in this period indicates

bloc$a&e of funds in debtors'

Sales

3i2ed Assets Turno)er #atio

Net fi2ed assets

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/ORKING 0APITAL TURNOVER RATIO:

Bor$in& capital turno)er ratio indicates the )elocity of the utili6ation of net

wor$in& capital' This ratio indicates the number of times the wor$in& capital is

turned o)er in the course of a year' This ratio measures the efficiency with which the

wor$in& capital is bein& used by a firm' A hi&her ratio indicates efficient utili6ation

of wor$in& capital and low ratio indicates otherwise' %ut a )ery hi&h wor$in& capital

turno)er ratio is not a &ood situation for any firm and hence care must be ta$en while

interpretin& the ratio' Ma$in& of comparati)e and Trend Analysis can at best use this

ratio for different firms in the same industry and for )arious periods' This can be

calculated as follows*

SalesBor$in& apital Turno)er #atio

Net Bor$in& apital

Net Bor$in& apital urrent Assets - urrent 4iabilities

DE2cludin& short-term ban$

%orrowin&s

PRO(ITABILITY RATIOS:

A company should earn profits to Sur)i)e and :row o)er a lon& period of

time' Profits are essential1 but it would be wron& to assume that e)ery action initiated

by mana&ement of a company should be aimed at ma2imi6in& profits1 irrespecti)e of

social consequences'

Profit is the difference between re)enues and e2penses o)er a period of time Dusually

a year' Profit is the ultimate I9utputJ of a company1 and it will ha)e no future if it

fails to ma$e sufficient profits' Therefore1 the financial mana&er should continuously

e)aluate to the efficiency of the company in term of profits' The profitability ratios

are calculated to measure the operatin& efficiency of the company' %esides

mana&ement of the company1 creditors and owners are also interested in the

profitability of the firm' reditors want to &et interest and repayment of principle

re&ularly' 9wners want to &et a required rate of return on their in)estment' This is

possible only when the company earns enou&h profits'

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:enerally two major types of profitability ratios are calculated'

PRO(ITABILITY IN RELATION TO SALES

PRO(ITABILITY IN RELATION TO INVESTMENT

PRO(ITABILITY RATIOS IN RELATION TO SALES

+' :#9SS P#930T MA#:0N

/' AS! MA#:0N

=' 9PE#AT0N: MA#:0N

' NET P#930T #AT09

6& GROSS PRO(IT MARGIN:

:ross profit mar&in reflects the efficiency with which the mana&ement

produces each unit of product' This ratio indicates the a)era&e spread between

the cost of &oods sold and the sales re)enue'

This shows profits relati)e to sales after the deduction of production

costs1 and indicates the relation between Production costs and sellin& price' A

hi&h &ross profit mar&in relati)e to the industry a)era&e implies that the firm

is able to produce at relati)ely lower cost'

A hi&h &ross profit mar&in ratio is a si&n of &ood mana&ement' A &ross

mar&in ratio may increase due to any of the followin& factors'

i' !i&her sales prices1 cost of &oods sold remainin& constant1

ii' 4ower cost of &oods sold1 sales prices remainin& constant1

iii' A combination of )ariations in sales prices and costs1 the mar&in widenin&1

and

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i)' 0ncreases in the proportionate )olume of hi&her mar&in items'

The analysis of these factors will re)eal to the mana&ement that how a

depressed &ross profit mar&in can be impro)ed'

A low &ross profit mar&in may reflect hi&her cost of &oods sold due to the

firmsR inability to purchase raw materials at fa)orable terms1 inefficient utili6ation of

plant and machinery1 resultin& in hi&her cost of production' The ratio will also be low

due to fall in prices in the mar$et1 or mar$et reduction in sellin& price by the firm in

an attempt to obtain lar&e sales )olume1 the cost of &oods sold remainin& unchan&ed'

The financial mana&er must be able to detect the causes of a fallin& &ross mar&in andinitiate action to impro)e the situation'

Sales F ost of &oods sold

D9r

:ross profit

:ross Profit Mar&in #atio

Sales

Net Pr$%!t M"rg!n R"t!$:

Net profit is obtained when operation e2penses1 interest and ta2es are

subtracted from the &ross profit'

0f the non-operatin& income fi&ure is substantial1 it may be e2cluded from

PAT to see profitability arisin& directly from sales' Net profit mar&in ratio establishes

a relationship between net profit and sales and indicated mana&ement?s efficiency in

manufacturin&1 administerin& and sellin& the products' This ratio is the o)erall

measure of the firmsR ability to turn each rupee sales into net profit' 0f the net mar&in

is inadequate1 the firm will fail to achie)e satisfactory return on shareholderRs funds'

This ratio also indicates the firmsR capacity to withstand in ad)erse economic

conditions' A firm with a hi&h net mar&in ratio would be in an ad)anta&eous position

to sur)i)e in the case of fallin& sellin& prices1 risin& costs of production or declinin&

demand for the product' 0t would really be difficult for a low net mar&in firm to

withstand these ad)ersities' Similarly1 a firm hi&her net profit mar&in can ma$e better

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use of fa)orable condition1 such as risin& sellin& prices fall in costs of production or

increasin& demand for the product' Such a firm will be able to accelerate its profits at

a faster rate than a firm with a low net profit mar&in will'

An analyst will be able to interpret the firm?s profitability more meanin&fully

if he5she e)aluates both the ratios-&ross mar&in and net mar&in-jointly' To illustrate1

if the &ross profit mar&in has increased o)er years1 but the net profit mar&in has either

remained constant or declined1 or has not increased as fast as the &ross mar&in1 this

implies that the operatin& e2penses relati)e to sales ha)e been increasin&' The

increasin& e2penses should be identified and controlled' :ross profit mar&in may

decline due to fall in sales price or increase in the cost of production'

Profit after Ta2

Net Profit Mar&in #atio

Sales

0ASH MARGIN RATIO:

ash profit e2cludes depreciation' 0t means Net profit after interests and ta2es

but before depreciation' This ratio indicates the relationship between the profit1 which

accrues in cash and sales' :reater percenta&e indicates better position and Vice-Versa

as it shows the correct profit earned by the firm'

This ratio is e2pressed as cash profit to sales'

ash profitash Mar&in #atio +..

Sales

OPERATING MARGIN RATIO:

9peratin& mar&in ratio is also $nown as 9peratin& Net profit ratio' 0t is the

ratio of operatin& profit to sales' This ratio establishes the relationship between the

total cost incurred and sales' 9peratin& profit is the Net profit after depreciation but

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%efore 0nterests and Ta2es' The purpose of computin& this ratio is to find out the

o)erall operational efficiency of the business concern' 0t measures the const of

operations per rupee of sales'

This ratio is e2pressed as operatin& profit to sales'

9PE#AT0N: MA#:0N #AT09 9peratin& profit +..

Sales

PRO(ITABILITY RATIOS IN RELATION TO INVESTMENT:

+' #ET8#N 9N 0NVESTMENT

/' #ET8#N 9N NET B9#T!

=' #ET8#N 9N AP0TA4

' #ET8#N 9N :#9SS %49C

RETURN ON INVESTMENT:

The term in)estment refers to Total Assets' The funds employed in Net assets

are $nown as apital Employed' Net assets equal net fi2ed assets plus current assets

minus urrent liabilities e2cludin& %an$ loans' Alternati)ely1 apital employed in

equal to Net worth plus total debt'

The con)entional approach of calculatin& return on in)estment D#90 is todi)ide PAT by 0n)estment' 0n)estment represents pool of funds supplied by

shareholders and lenders1 while PAT represents residual income of shareholders

therefore1 it is conceptually unsound to use PAT in the calculation of #90' Also1 as

discussed earlier1 PAT is affected by capital structure' 0t is1 therefore more

appropriate to use one of the followin& measures of #90 for comparin& the operatin&

efficiency of firms'

E%0T D+-T

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in two ways' 3irst1 it is equal to non-current liabilities Dlon&-term liabilities plus

owner?s equity' Alternati)ely1 it is equi)alent to Net Bor$in& apital plus 3i2ed

Assets' Thus1 the apital Employed pro)ides a basis to test the profitability related to

the sources of lon&-term funds' A comparison of this ratio with similar firms1 with

the industry a)era&e and o)ertime would pro)ide sufficient insi&ht into how

efficiency the lon&-term funds of owners and creditors are bein& used' The hi&her the

ratio1 the more efficient is the use of apital Employed'

NET P#930T A3TE# TA5E%0T

#9E +..

A)era&e Total apital Employed

RETURN ON GROSS BLO0K:

This ratio establishes a relationship between net profit and &ross fi2ed assets'

This ratio emphasi6es the profit on in)estment in 3i2ed Assets' This ratio is

e2pressed as follows*

Net profit

#ET8#N 9N :#9SS %49C +..

:ross %loc$

NET P#930T is profit before Ta2' :ross %loc$ means :ross fi2ed assets i'e'1 3i2ed

assets before deductin& depreciation'

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0HAPTER5V

DATA ANALYSIA ) INTERPRETATION

R"t!$ "n"-ys!s !n VSPRINL

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63/89

L!!d!ty r"t!$s:

urrent assets

urrent ratio -------------------------------------------

urrent liabilities

TABLE SHO/S YEAR /ISE 0URRENT RATIO

D#s' 0n rores

Particulars /.. /..>-., /..,-.@ /..@-.; /..;-

+.

0n)entory +/+>'< +/.='/ +,>+'+< =/+>/'+, =+'@ /;/'= /='@ + /+.'=. =+;+'>/ +@+'=/ =.,'@

urrent ratios


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As the current ratio is hi&her than the ideal current ratio1 the liquidity

position is said to be &ood'

LIUIDUI0K RATIO:

4iquid assets

4iquid ratio ---------------------------

urrent liabilities

TABLE SHO/ING YEAR /ISE LIUID RATIOS

D#s in rores

P"rt!#-"rs 2339538 233853; 233;53 233534 2334563

Sundry debtors +>>/'+, =+'@ /;/'= /='@ +


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As the quic$ ratio durin& the period of study is hi&her than that of then

ideal ratio1 the liquidity position is )ery &ood'

ABSOLUTE LIUID 0ASH RATIO:

A%S948TE ASSETS

Absolute liquid5 cash ratio* --------------------------------------

8##ENT 40A%040T0ES

TABLE SHO/ING YEAR /ISE ABSOLUTE LIUID RATIO

'Rs& !n #r$res*

P"rt!#-"rs 2339538 233853; 233;53 233534 2334563

ash ( ban$ /+',. ,+;'>@ ,>;;'++ >>/'+, >/'+, /+.'=. =+;+'>/ +@+'=/ =.,'@

ABSOLUTE

LIUID RATIO

F&9 F&@2 2&@6 6&9 6&28

0

1000

2000

3000

4000

5000

6000

7000

8000

2005-06 2006-07 2007-08 2008-09 2009-10

Cas% & !an'

(!s)lute (ssets

Current la!ltes

(*SO"UTE "I+UI,

(TIO

INTERPRETATION: 0deal #atio .*


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The absolute liquid5 cash ratio of VSP is more than the ideal ratio' 0t means

the company is enjoyin& hi&h liquidity and secured position'

LEVERAGE RATIO:

9utsider?s funds

"ebt Equity #atio ----------------------------------------

Shareholders? funds

TABLE SHO/ING YEAR /ISE DEBT EUITY RATIO

'Rs& !n #r$res*

,"rt!#-"rs 2339538 233853; 233;53 233534 2334563

Secured loans +,='@, >.'< ==/',@ ;.,',/ .,'/@

8nsecured loans =>;' =+/'';> .',= +..,',> +/=='


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0t can be concluded that the company is maintainin& less percent of debt in its

capital structure'

INTEREST 0OVERAGE RATIO:

E%0T

0nterest co)era&e ratio---------------------------------------

30E" 0NTE#EST

TABLE SHO/ING YEAR /ISE INTEREST 0OVERAGE RATIO

'Rs& !n #r$res*

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-10

E%0T +;/.'


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INTERPRETATION:

ompany?s 0nterest o)era&e #atio is )ery hi&h and e2traordinarily

satisfactory' 0t indicates that &reater ability of the firm to handle fi2ed char&es'

!i&h interest co)era&e ratio does not indicate unutili6ed debt capacity in case

of

#0N41 since the company is ha)in& its own funds'

PROPRIETARY RATIO:

Share holders funds

Proprietary ratio-----------------------------------------

Total assets

TABLE SHO/ING THAT YEAR /ISE PROPRIETARY RATIO

D#s'in rores

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

Share holders funds ,@/,'=+ ,@/,'=+ ,@/,'=/ ,@/,'=/ ,@/,'=+

Total assets +.


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0

5000

10000

15000

20000

2005-06 2006-07 2007-08 2008-09 2009-10

S%are %)l$ers .un$s

T)tal assets

OIET( (TI

INTERPRETATION:

Proprietary ratio is a test of lon& term financial position'

E2cept for the year /..;-+.1 all other years showin& hi&her ratio1 this

indicates sound lon& term financial position'

0t is also indicatin& the sufficient use is bein& made of equity to finance the

business'

SOLVEN0Y RATIO:

Total 4iabilities of outsiders

Sol)ency ratio -------------------------------------------

Total assets

TABLE SHO/ING YEAR /ISE SOLVEN0Y RATIO:

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D#s' 0n rores

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

Secured loans +,='@, >.'< ==/'.@ ;.,',/ .,'/@

8nsecured loans =>;' =+/'';> .',= +..,',> >en#y r"t!$ 9&6J ;&6J 2&J 9&8J F&96J

0

5000

10000

15000

20000

2005-06 2006-07 2007-08 2008-09 2009-10

T)tal la!ltes t) )uts$er

T)tal assets

INTERPRETATION:

Sol)ency ratio of VSP ltd durin& the year /..>-., is hi&h as compared to other years'

0t sol)ency ratio is stable for last three years' 0t indicates the the sol)ency position of

VSP ltd is more satisfactory'

(UNDED DEBT TO TOTAL 0APITALIATION:

38N"E" "E%T

3unded "ebt To Total apitali6ation --------------------------------------

T9TA4 AP0TA40AT09N

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TABLE SHO/ING YEAR5/ISE (UNDED DEBT TO TOTAL

0APITALIATION RATIO D#s' in crores

P"rt!#-"rs 2339538 233853; 233;53 233534 2334563

Secured loans +,='@, >.'< ==/',@ ;.,',/ .,'/@

8nsecured loans =>;' =/+'';> .',= +..,',> +/=/''>.G ;'>.G ='@.G @G ;'


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"urin& the year /..;-+.1 the funded debt to total capitali6ation is

;G'0t is hi&h as compared to other periods but in the real sense it is

quite low'

There is enou&h scope for the company to raise lon& term loans fromoutsiders'

A0TIVITY RATIO:

INVENTORY TURNOVER RATIO:

NET SA4ES

0n)entory Turno)er #atio -----------------------------

AV: 0NVENT9#Y

TABLE SHO/ING YEAR /ISE INVENTORY TURNOVER RATIO

D#s' in crores

PARTICULARS 2005-06 2006-07 2007-08 2008-09 2009-

10

Net sales ,=.> ;.@@'=, ;+/@'=@ ;@.;'+';; +/+.'@. +@/'/. +>//'+ /@=='.

0n)entory Turno)er

#atio

/

Times

='>

Times

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0

2000

4000

6000

8000

10000

2005-06 2006-07 2007-08 2008-09 2009-10

Net sales

( nent)r;

INTERPRETATION:

The 0n)entory Turn 9)er #atio durin& the year /..;-+. was ='>

Normally hi&her the ratio indicates the better in)entory mana&ement'

!i&her ratio also indicates that the company is not able to met the customers

demand properly'

INVENTORY 0ONVERSION PERIOD:

No of wor$in& days

0n)entory on)ersion Period ---------------------------------------------

0n)entory turno)er ratio

TABLE SHO/ING YEAR /ISE INVENTORY 0ONVERSION PERIOD

'Rs& !n #r$res*

P"rt!#-"rs 2339538 233853; 233;53 233534 2334563

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No' of wor$in&

days =>< =>< =>< =>< =>@ times + times times


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"ebtors turno)er

ratio

>.';, +'@ @ >,'+/

A)&'collection

period

< days ; days > days > days < days

0>

20>

40>

60>

80>

100>

2005-06 2006-07 2007-08 2008-09 2009-10

,e!t)rs t)urn)er rat)

N) ). =)r'n $a;s

INTERPRETATION:

The a)& collection period durin& the year /..;-+.1 is < days* it represents the

a)&' no of days for which the firm has to wait before its recei)ables are

con)erted into cash'

"urin& the period of study it has been obser)ed that debt collection period

)aries from < to ; days

!owe)er1 the a)&' collection period durin& different periods is quite low' 0t

indicates the better quality of debtors and the efficiency of the debt collection

department'

/ORKING 0APITAL TURNOVER RATIO:

Net sales

Bor$in& capital turno)er ratio -------------------------------------------------

Bor$in& capital

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TABLE SHO/ING YEAR /ISE /ORKING 0APITAL TURNOVER RATIO

'Rs& !n #r$res*

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

a'net sales ,=.> ;.@@'=, ;+/@'=@ ;@.;'+,@'..


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PRO(ITABILITY RATIOS:

GROSS PRO(IT RATIO:

:ross profit

:ross profit ratio ---------------------------------U+..

Net sales

TABLE SHO/ING YEAR /ISE GROSS PRO(IT RATIO

'Rs& !n #r$res*

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

a' &ross profit +;/+'.. //,+'.. =./,'.. /++'=.G /@',.G =='=.G /='/.G+='>.G

0

2000

4000

6000

8000

10000

12000

2005-06 2006-07 2007-08 2008-09 2009-10

a


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Sales are in increasin& trend but the profit ratio is decreasin&' 0t is due to

increased cost of production'

OPERATING PRO(IT RATIO:

9peratin& profit

9peratin& profit ratio ----------------------------------------U+..

Sales

TABLE SHO/ING YEAR /ISE OPERATING PRO(IT RATIO

'Rs& !n #r$res*

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

9peratin& profit /.++'/+ /==;'/+ ==/


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NET PRO(IT RATIO:

Net profit

Net profit ratio ----------------------------------------U+..

Sales

TABLE SHO/ING YEAR /ISE NET PRO(IT RATIO

D#s' in crores

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

A'net profit +/ ;.@@'=, ;+/@'=@ ;@.;'+

20>

40>

60>

80>

100>

2005-06 2006-07 2007-08 2008-09 2009-10

*


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E)en thou&h the return on equity capital is in decreasin& position1 the rate of

return in comparison with the mar$etin& conditions is )ery satisfactory'

:lobal mar$et conditions1 increasin& in operatin& costs1 decrease in net profits

are the main reasons for the recordin& of low ratio'

EARNING PER SHARE:

Earnin& a)ailable to equity share holders

Earnin& Per Share ------------------------------------------------

No' of equity shares

TABLE SHO/ING YEAR /ISE EARNING PER SHARE

D#s' in crores

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

Earnin& a)ailable to

equity shareholders

+/


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Since the company is in e2pansion acti)ity1 the future earnin&s per share will

increase'

RETURN ON 0APITAL EMPLOYED:

Net profit

#eturn on capital employed -----------------------------------------

apital employed

TABLE SHO/ING YEAR /ISE RETURN ON 0APITAL EMPLOYED

D#s' in crores

PARTI0ULARS 2339538 233853; 233;53 233534 2334563

A'net profit +/

20>

40>

60>

80>

100>

2005-06 2006-07 2007-08 2008-09 2009-10

etur )n atal e?l);e$

*


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0HAPTER5VI

85


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SUGGESTIONS

The followin& su&&estions will impro)e the financial position of the VSP'

PRODU0TION

+ Need for continuous up &radation of technolo&y for impro)in& the

processes'

/ Effort should be made at cost sa)in&s particularly in spares and ener&y

consumption'

= 8sin& the natural &as reser)es of C: basin1 !ot metal production

capacity can be enhanced with the present %3 facility with ne&li&ible

in)estment'

(INAN0E

+ 0mpro)in& financial le)era&e ratio for better returns'

PERSONNEL:

+ #ationali6ation of e2istin& man-power with effecti)e trainin& for future

e2pansion of the plant'

/ 0mpro)in& efficiency throu&h better !#" pro&rams'

= Pro)idin& better moti)ation'

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Stri)in& towards becomin& the most chosen employer'

MARKETING

+ ontinuously monitorin& the indi&enous sale1 e2port sale ratio to

capture the best of mar$ets'

/ 0ncreasin& the net reali6ation by sellin& in the most profitable re&ion'

= 0dentifyin& new mar$ets and new application of the company?s

product'

0mpro)in& reali6ation by identifyin& )alue added products and

pro)idin& feedbac$ to production department'


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55410154 Ratio Analysis PROJECT in Steel Plant

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