FINANCIAL ANALYSIS OF SAIL at Academic Research Writing Services

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March 25, 2016 by admin

OBJECTIVES:

The main objectives of the study are as follows:

1) To study the financial position of the company.

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

3) To analyse and interpret the trends as revealed by various ratios of the company in particular.

4) To analyse the profitability & solvency position of the unit with the existing tools of financial analysis.

5) To study the changes in the assests,liabilities structure of the company during the period of study.

METHODOLOGY:

For the detailed analysis of the data, I have adopted different Costing and Accounting procedures and methods like- Cost Sheet, Cash Flow Statement, Ratio Analysis, Sensitivity Analysis, and Discounting Cash Flow technique(NPV Method). SWOT Analysis was carried out on the financial aspects of the SME sector of the Indian Steel Industry.

For expressing various results into graphs and charts, spread-sheet software MS EXCEL was used.

Finance is one of the most primary requisites of a business and the modern management obviously depends largely on the efficient management of finance. Financial statements are prepared mainly for decision making.

They play a dominant role in setting the frame work of managerial decisions. The finance manager has to adhere to 5 R’s with regard to money. The right quantity of money for liquidity consideration of right quality. Whether owned or borrowed funds, at the right time to preserve solvency from the right sources and at the right cost of capital.

The term financial analysis also known as “analysis & interpretation of financial statements”refers to the process of determing financial strength and weaknesses of the firm

By establishing strategic relationship between the items of the balance sheet ,profit & loss account and other operative data.

The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm.

Limitations of the study :

The analysis & interpretation are based on secondary data contained in the published annual reports of SAIL for the study period.

SOURCES OF DATA :

Sources of date are collected from annual reports of the company

From the year 2010-11 & 2011-12.

METHODS OF DATA ANALYSIS :

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

The analytical tools used in this study are :

Analytical tools applied :

1) Comparative Statement

2) Common Size Statement

3) Trend percentage

4) Ratio Analysis

ANALYSIS AND INTERPRETATION :

Financial statement is an organized collection of data according to logical and consistent accounting procedures.Its purposes to convery an understanding of some financial aspects of a business firm. It may show a position at a moment of time,as in the case of a balance sheet,or may reveal a series of activities over a given period of time, as in the case of a Income statement.Thus the “Financial Statements” refers to two basic statements : (i) the Income statement & (II) Balnace Sheet.

RATIO ANALYSIS:

Ratio Analysis of the Cost Statement of the production process of hot metal (without using sinter):

1) RAW MATERIAL COST: WORK COST=13,695:15,190=1:1.1

2) IRON ORE COST: WORK COST=4,420: 15,190=1:3.4

3) COKE COST: WORK COST=8,800:15,190=1:1.7

4) IRON ORE: COKE=4,420: 8,800=1:2

5) IRON ORE: COKE: FLUX=4,420:8,800:475=9.3:18.5:1

6) FLUX COST: WORK COST=475:15,190=132

7) IRON ORE COST: TOTAL RAW MATERIAL COST=4,420:13,695=1:3

8) COKE COST: TOTAL RAW MATERIAL COST=8,800: 13,695=1:1.6

9) FLUX COST: TOTAL RAW MATERIAL COST=475: 13,695=1:29

10) LIMESTONE: DOLOMITE: QUARTZ=220:225:30=7.3:7.5:1

11) LABOUR COST: WORK COST=500:15,190=1:30

12) DIRECT LABOUR: INDIRECT LABOUR=400:100=4:1

13) UTILITY COST: WORK COST=535:15,190=1:28

14) POWER: WATER=525:10=52.5:1

15) OVERHEAD: WORK COST=100:15,190=1:152

16) STORES & CONSUMABLES: WORK COST=500:15,190=1:30

17) PRIME COST (MATERIAL+DIR. LABOUR): WORK COST=(13,695+400):15,190=14,695:15,190=1:1.034

18) PBDIT: WORK COST=3,060:15,190=1:5

Ratio Analysis of the Cost Statement of the production process of hot metal (WITH SINTER 40 %):

1) RAW MATERIAL COST: WORK COST=12,194:13,389=1:1.1

2) IRON ORE COST: WORK COST=2,629: 13,389=1:5

3) COKE COST: WORK COST=8,250: 13,389=1:1.6

4) IRON ORE:COKE=2,629: 8,250=1:3.14

5) IRON ORE:COKE: FLUX=2,629: 8,250:280=9.4:29.5:1

6) FLUX COST: WORK COST=280: 13,389=1:48

7) IRON ORE COST: TOTAL RAW MATERIAL COST=2,629:12,194=1:4.6

8) COKE COST: TOTAL RAW MATERIAL COST=8,250: 12,194=1:1.5

9) FLUX COST: TOTAL RAW MATERIAL COST=280: 12,194=1:44

10) LIMESTONE: DOLOMITE: QUARTZ=110:150:20=5.5:7.5:1

11) LABOUR COST: WORK COST=350:13,389=1:38

12) DIRECT LABOUR: INDIRECT LABOUR=150:200=3:4

13) UTILITY COST: WORK COST=535: 13,389=1:25

14) POWER: WATER=525:10=52.5:1

15) OVERHEAD: WORK COST=150: 13,389=1:89

16) STORES & CONSUMABLES: WORK COST=300: 13,389=1:45

17) PRIME COST (MATERIAL+DIR. LABOUR):WORK COST=(12,194+150): 13,389=12,344:

13,389=1:1.08

18) PBDIT: WORK COST= 4,861: 13,389=1:2.75

Financial ratio analysis groups the rations into categories that tell us about the different facets

Of a companies financial state of affairs .Some of the categories of ratios described below :

1) Liquidity Ratios : Give a picture of companies short term financial situation or solvency.

2) Turnover Ratios : show how efficient a companies operations and how well it is using its assets.

3) Profitability ratios : show the quantum of debt of companies capital structure.

Liquidity Ratios : 1) Current Ratio 2) liquid ratio 3) Net working capital ratio.

1) Current Raio = CURRENT ASSESTS/CURRENT LIABILITIES

An Ideal solvency ratio is 2. The ratio of 2 is considered as a safe margin of Solvency due to the fact that if current assests are reduced to half i.e. 1 instead of 2, then also the creditors will be able to get their payments in full.

2) Liquid Ratio : Quick Ratio= Total Quick Assest/Total current liabilities

Quick Assets = Total current Assest- Inventory.

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

3) NET WORKING CAPITAL RATIO :

NET WORKING CAPITAL /CAPITAL EMPLOYED.

Net working capital measures the firm’s potential reserve of funds. It can be related to NET ASSETS. This ratio represents the availability of working capital in realtion with Capital employed.

4) TURNOVER RATIO : i) Fixed Assets turnover ratio ii) Working capital turnover ratio

iii) Debtors Turnover Ratio iv) Stock Turnover ratio.

i) Fixed Assets Turnover ratio : Net Sales/Net Fixed Assets

Higher the ratio is the better. A high ratio Indicates your business has less money tied up in fixed assets for each dollar of sales revenue.

ii) Working capital turnover ratio : NET SALES /NET WORKING CAPITAL:

iii) Debtors Turnover ratio : a) Debtors turnover ratio b) Debt collection Period

DTR = CREDIT SALES/AVERAGE ACCOUNTS RECEIVABLE

Average accounts receivable = Opening balance of debtors+ Closing balance of debtors/2

In SAIL, There has been increase in the DTR, which shows the efficiency of collection deptt.

iv) Stock Turnover Ratio = Net Sales/Average Inventory

Average Inventory= Opening stock of Inventory + Closing Stock of Inventory/2

Profitability Ratio : 1) Return on Investment 2) Return on Shareholder’s funds.

4) Return on total assets 4) Earning per share (EPS) 5) Net Profit Ratio 6) Operating ratio

1) Payout ratio 7) Dividend yield ratio

Return on Investment = Operating Profit/Capital EmployedX100

The term operating profit means “Profit before interest & Tax” and Capital employed means sumtotal of long terms funds employed in the business.

i.e. Share capital + Reserves & surplus + long term loans-(non business assets + fictitious assets)

Return on Shareholder’s funds : Net profit after Interest and Tax/Shareholder’s fund X100