Ajay Naidu

8/11/2019 Ajay Naidu

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Chapter 1: Introduction

We know business is mainly concerned with the financial activities. In order toascertain the financial status of the business every enterprise prepares certain

statements, known as financial statements. Financial statements are mainly prepared for

decision making purposes. But the information as is provided in the financial

statements is not adequately helpful in drawing a meaningful conclusion. Thus, an

effective analysis and interpretation of financial statements is required.

nalysis means establishing a meaningful relationship between various items of the

two financial statements with each other in such a way that a conclusion is drawn. By

financial statements we mean two statements !

"i# $rofit and loss ccount or Income %tatement

"ii# Balance %heet or $osition %tatement

These are prepared at the end of a given period of time. They are the indicators of

profitability and financial soundness of the business concern. The term financial

analysis is also known as analysis and interpretation of financial statements. It refers to

the establishing meaningful relationship between various items of the two financial

statements i.e. Income statement and position statement. It determines financial

strength and weaknesses of the firm.

nalysis of financial statements is an attempt to assess the efficiency and performance

of an enterprise. Thus, the analysis and interpretation of financial statements is very

essential to measure the efficiency, profitability, financial soundness and future

prospects of the business units. Financial analysis serves the following purposes!

&. Measuring the profitability: The main ob'ective of a business is to earn a

satisfactory return on the funds invested in it. Financial analysis helps in

ascertaining whether adequate profits are being earned on the capital invested in

the business or not. It also helps in knowing the capacity to pay the interest and

dividend.(. Indicating the trend of Achievements: Financial statements of the previous

years can be compared and the trend regarding various e)penses, purchases,

sales, gross profits and net profit etc. can be ascertained. *alue of assets and

liabilities can be compared and the future prospects of the business can beenvisaged.


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+. Assessing the growth potential of the business: The trend and other analysis

of the business provide sufficient information indicating the growth potential of

the business.. Comparative position in relation to other firms: The purpose of financial

statements analysis is to help the management to make a comparative study of

the profitability of various firms engaged in similar businesses. %uch

comparison also helps the management to study the position of their firm in

respect of sales, e)penses, profitability and utilising capital, etc.-. Assess overall financial strength: The purpose of financial analysis is to

assess the financial strength of the business. nalysis also helps in taking

decisions, whether funds required for the purchase of new machines and

equipments are provided from internal sources of the business or not if yes, howmuch nd also to assess how much funds have been received from e)ternal

sources./. Assess solvency of the firm: The different tools of an analysis tell us whether

the firm has sufficient funds to meet its short term and long term liabilities or

not.

PARTI! I"TR!T#

nalysis of financial statements has become very significant due to widespread interest

of various parties in the financial results of a business unit. The various parties

interested in the analysis of financial statements are!

1$ Investors: %hareholders or proprietors of the business are interested in the well

being of the business. They like to know the earning capacity of the business

and its prospects of future growth.%$ Management: The management is interested in the financial position and

performance of the enterprise as a whole and of its various divisions. It helps

them in preparing budgets and assessing the performance of various

departmental heads.&$ Trade unions : They are interested in financial statements for negotiating the

wages or salaries or bonus agreement with the management.'$ (enders : 0enders to the business like debenture holders, suppliers of loans and

lease are interested to know short term as well as long term solvency position of

the entity.)$ !uppliers and trade creditors : The suppliers and other creditors are

interested to know about the solvency of the business i.e. the ability of the

company to meet the debts as and when they fall due.


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*$ Ta+ authorities : Ta) authorities are interested in financial statements for

determining the ta) liability.,$ Researchers : They are interested in financial statements in undertaking

research work in business affairs and practices.

-$ mployees : They are interested to know the growth of profit. s a result of

which they can demand better remuneration and congenial working

environment..$ /overnment and their agencies : 1overnment and their agencies need

financial information to regulate the activities of the enterprises2industries and

determine ta)ation policy. They suggest measures to formulate policies and and

regulations.10$ !toc e+change : The stock e)change members take interest in financial

statements for the purpose of analysis because they provide useful financial

information about companies.Thus, we find that different parties have interest in financial statements for different

reasons.

Techni2ues and Tools of financial statement Analysis:

Financial statements give complete information about assets, liabilities, equity,

reserves, e)penses and profit and loss of an enterprise. They are not readily

understandable to interested parties like creditors, shareholders, investors etc. Thus,

various techniques are employed for analysing and interpreting the financial

statements. Techniques of analysis of financial statements are mainly classified into

three categories!

1$ Cross3sectional analysis: It is also known as inter firm comparison. This

analysis helps in analysing financial characteristics of an enterprise with

financial characteristics of another similar enterprise in that accounting period.

For e)ample, if company has earned &-3 profit on capital invested. This doesnot say whether it is adequate or not. If we analyse further and find that a

similar company has earned &/3 during the same period, then only we can

make a conclusion that company B is better. Thus, it turns into a meaningful

analysis.%$ Time series analysis: It is also called as intra4firm comparison. ccording to

this method, the relationship between different items of financial statement is

established, comparisons are made and results obtained. The basis of

comparison may be !


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5 6omparison of the financial statements of different years of the same business

unit.

5 6omparison of financial statement of a particular year of different business

units.&$ Cross3sectional cum time series analysis: This analysis is intended to

compare the financial characteristics of two or more enterprises for a defined

accounting period. It is possible to e)tend such a comparison over the year. This

approach is most effective in analysing of financial statements.The analysis and interpretation of financial statements is used to determine the

financial position. number of tools or methods or devices are used to study the

relationship between financial statements. 7owever, the following are the important

tools which are commonly used for analysing and interpreting financial statements!a. 6omparative financial statements.b. 6ommon si8e statementsc.c. Trend analysisd. 9atio analysis.e. Funds flow analysis.f. 6ash flow analysis.

Comparative financial statements: In brief, comparative study of financial statements

is the comparison of the financial statements of the business with the previous year:s

financial statements. It enables identification of weak points and applying corrective

measures. $ractically, two financial statements "balance sheet and income statement#

are prepared in comparative form for analysis purposes.

1$ Comparative 4alance !heet:

The comparative balance sheet shows the different assets and liabilities of the firm on

different dates to make comparison of balances from one date to another. The

comparative balance sheet has two columns for the data of original balance sheets.

third column is used to show change "increase2decrease# in figures. The fourth column

may be added for giving percentages of increase or decrease. While interpreting

comparative Balance sheet the interpreter is e)pected to study the following aspects!

"i# 6urrent financial position and 0iquidity position"ii# 0ong4term financial position"iii# $rofitability of the concern

"i# For studying current financial position or liquidity position of a concern one

should e)amine the working capital in both the years. Working capital is the

e)cess of current assets over current liabilities.


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"ii# For studying the long4term financial position of the concern, one should

e)amine the changes in fi)ed assets, long4term liabilities and capital."iii# The ne)t aspect to be studied in a comparative balance sheet is the profitability

of the concern. The study of increase or decrease in profit will help the

interpreter to observe whether the profitability has improved or not.

fter studying various assets and liabilities, an opinion should be formed about the

financial position of the concern.

Comparative Income statement: The income statement provides the results of the

operations of a business. This statement traditionally is known as trading and profit and

loss 2c. Important components of income statement are net sales, cost of goods sold,

selling e)penses, office e)penses etc. The figures of the above components are matched

with their corresponding figures of previous years individually and changes are noted.

The comparative income statement gives an idea of the progress of a business over a

period of time. The changes in money value and percentage can be determined to

analyse the profitability of the business. 0ike comparative balance sheet, income

statement also has four columns. The first two columns are shown figures of various

items for two years. Third and fourth columns are used to show increase or decrease in

figures in absolute amount and percentages respectively.

The analysis and interpretation of income statement will involve the following !

a. The increase or decrease in sales should be compared with the increase or

decrease in cost of goods sold.b. To study the operating profits.c. The increase or decrease in net profit is calculated that will give an idea about

the overall profitability of the concern.


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Chapter %: Review of Related

literatureRATI5 A"A(6!I!:In mathematics ratio is defined as a medium of e)plaining the interrelation between

two numerals or variables. 9atio is computed by dividing one numeral by the other.

By means of ratio generally the times by which one numeral is greater than the

other or the proportion of one in relation to the other is e)pressed. If of the total

population of (,;;; of a village &,(;; are male and


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depth analysis of such financial statements is required. In e)ecution of managerial

functions like planning, decision making, controlling, etc. management needs a steady

supply of only that financial information which is duly processed and analysed. s a

supplier of such information the financial analysts or the management accountants

make a solicitous and in4depth analysis of financial data e)pressed in financial

statements. In making analysis of finanal statements the financial analysts use two

specific tools. They are! "i# preparation of Fund Flow and 6ash Flow %tatements and

"ii# ratio analysis.

ccounting 9atio analysis stands for computation of various ratios on the basis of

different information e)pressed in financial statements and establishment of inter.

relationship between the components of each ratio. %uch analysis through ratios is a

much effective device having a very wide use since a long past. It is a very popular

means of communicating processed information in a nut and shell form to the

management as per its requirement.

The ratios computed in the process of analysis through ratios may be e)pressed in four

types.

They are as follows!

"a# In multiples: In this case a quotient is obtained by dividing one figure by the other.

It is known as times:. 7ere one figure is e)pressed in terms of times: of .he other.

%tock Turnover 9atio is an e)ample of ratio e)pressed in terms of tinies. If %tock

Turnover 9atio is + times Indicates that the =et %ale or 6ost of 1oods %old is + times

of verage %tock or Inventory.

"b# In time element: In this case the relationship between numerical figures is

e)pressed in time element measured either in terms of months or in terms of days. If

Aebtors Turnover 9atio is e)pressed as ( months it indicates that a credit period of two

months is received from the debtors.

"c# In proportion: 9atios can also be e)pressed in the form of proportion between the

two figures. 6urrent 9atio e)pressed in the form of (! & implies that for every current

liability

of 9e.& current asset is 9s. (.

"d# In percentage: 7ere one figure is e)pressed as a percentage of the other by

dividing the former by the latter and then multiplying the quotient by &;;. For

e)ample, =et $rofit is often e)pressed as a percentage of %ales. If this ratio is &;3 it

means that for %ales of 9s.&;; =et $rofit is 9s. &;.


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%ometimes the tool of: ratio analysis is compared with the blood pressure, pulse or

temperature of a human being. s a medical e)pert diagnose the disease and comes to a

conclusion as to the health of an individual with the help of such symptoms, similarly a

financial analyst makes a critical assessment of an organisation:s financial health with

the help of different ratios.

7e also suggests for the measures needed to overcome the weakness, if any detected

through such analysis. The importance and utility of ratio analysis as a tool of financial

management may be discussed under the following heads!

"i# +pression in a simplified and condensed form! The detailed information

e)pressed in financial statements can be presented through ratio analysis in a simple,

easily understandabhC and brief form. %uch simple presentation helps even the non4

accounting persons to understand various information easily and quickly.

"ii# Analysis of financial position: The financial position of an organisation can be

'udged through ratio analysis. What is the financial position of the concern and what

are the reasons responsible for that can be analysed with the help of ratios. The

financial analyst does not only identifies the weak points of the financial position, he

also gives advice on the remedial measures.

"iii# Measurement of overall efficiency: 9atio analysis is often used as an inde) of

measuring efficiency. 9atios can be used not only for measuring individual and

departmental efficiency! efficiency in managerial performance can also be determined

through ratios. For this reason the system of ratio analysis is often used as a controlling

instrument in the hands of management.

"iv# Inter3firm and inter3department comparison: With the help of ratio analysis the

financial position, capital structure, profitability, solvency, efficiency, etc. of an

organisation can be compared with the same of the other firms belonging to the same

industry and also with the overall industry standard. Besides, this tool can also be

utilised for effecting comparison among different departments of the same firm in

relation to the targets set, works performed and relative efficiency. %uch inter4firm and

inter. departmental comparisons are helpful to evaluate the real financial condition of

any organisation.

"v# Measurement of solvency: n idea about the short4run and long4run loan

repayment capacity or solvency of a concern can be made by computing different ratios

for this purpose and making an in.depth analysis of the same. The present solvency

position of a firm can be assessed by means of drawing a comparison of the current


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ratios with the ratios of earlier years. %uch measurement of solvency does not only help

management in its decision making process, it also helps the investors and creditors to

take their investment decisions.

"vi# Measurement of profitability: scertainment of the profitability trend of a firm is

another benefit of ratio analysis. 6omputation of certain ratios like 1ross $rofit 9atio,

=et $rofit 9atio. Dperating $rofit 9atio, 9eturn on 6apital Employed, etc. helps

measuring a firm:s current year:s profitability. %imilarly comparison of the current

year:s ratios with those of the earlier years helps pro'ecting the profitability trend of the

firm. 6omparison of the profitability ratios of one firm with the same of its

counterparts belonging to the same industry gives a clearer picture of the profit earning

capacity.

"vii# 8elp in planning and forecasting: Trends of different strategic ratios help

management in planning and forecasting. By using different ratios computed on the

basis of information published in financial statements of past years, forecasting of saes,

different revenue e)penses, capital e)penditure, etc. is made and budgets are prepared.

Information revealed by past ratios is also used in the formulation of future financial

policies.

"viii# 8elp in decision maing: Drganisational and departmental efficiency are

evaluated through ratio analysis. The assessment of work performed and measurement

of the efficacy in the use of resources make the trends indicated by such analysis

dependable. For this reason management often takes many vital decisions on the basis

of computed ratios.

"i)# 8elp in taing corrective measures: The financial analysts and management

accountant identify the areas of weakness and inefficiencies on the basis of the trend

indicated by ratios and suggest remedial measures to overcome them. This helps the

management to control financial affairs and take corrective actions to rectify the wrong

decisions.

")# 8elp in controlling : nalytical data available through ratio analysis helps

controlling the trading and non4trading activities of the firm and the related costs. The

trend of different e)pense ratios makes management aware of the necessity of

controlling4different costs and identifies the specific areas of control.

")i# 8elp in communication: $robably ratio analysis is one of the popular most:

techniques of conmunicating accounting information in brief. It is possible to

communicate flamboyant and composite data in a nut and shell and simple form


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ratio analysis it is the sole technique. For this reason u is said that ratio analysis is only

a partial analytical process, not a complete one.

"ii# #ifficult to fi+ up definite standards: The real significance of a particular ratio

can be understood by curiiparing it with any ideal or standard norm of that ratio. But

the standard already fi)ed on for a ratio may change over time. oreover, standard

ratios of the industry to which the firm belongs may be fi)ed up on different basis and

may vary widely with the computed ratios of the firm. %tandards may also differ

according to the nature of the situations. %o fi)ing up acceptable standards for all the

ratios is not doubt an uphill task.

"iii# #ependence on financial statements: 9atios are always based on information

disclosed in basic financial statements like the $rofit and 0oss ccount and the Balance

%heet. Financial statements have their own limitations. %o ratios computed on the basis

of information disclosed in those financial statements cannot also be free from such

limitations.

For getting rid of these limitations before computing ratios some ad'ustments are

required to be made in the information disclosed in financial statements. In reality it is

not done and so ratios always suffer from the limitations of the financial statements.

"iv# Problem of inter3firm comparison: In case there is significant variations in

accounting policies adopted by different firms belonging to the same industry the inter4

firm comparison through ratio analysis does not become effective. For e)ample it can

be said that if the policies relating to inventory valuation, depreciation, treatment of

contingent liabilities, etc. of two firms under the same industry are different the trend

indicated by an inter4firm comparison through ratios does not carry any effective

meaning.

"v# Personal influence: The utility of ratio analysis depends a lot on the skill and

'udgement of the interpreter. If the personal sense of 'udgement and analytical power of

different interpreters vary a particular ratio may indicate different trends. %o presence

of personal aptitude reduces the effectiveness of ratio analysis. oreover, the

interpreters may e)ert undue influence on their analysis with unfair motives.

"vi# 5nly 2uantitative analysis: 9atios are often called quantitative tools because their

computations are based on only quantitative or numerical figures. The qualitative

aspects of the concerned numerals are totally ignored in the process of ratio analysis.

Ignoring qualitative aspect may mislead the users of ratios. For e)ample, a high current

ratio indicates a satisfactory loan repayment capacity of a firm. But if its current assets


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consist of a large quantity of obsolete stock or its debtors are slow paying the

satisfactory trend of loan repayment capacity as indicated by the current ratio may

prove to be only a paper 'ugglery.

"vii# Ratios indicate trend9 do not prove: common criticism against the ratio

analysis technique is that it only indicates trend but does not prove anything. By

comparing the computed ratios with the ideal or standard ratios, last year:s ratios and

similar ratios of other firms belonging to the same industry the inference that is arrived

at by the interpreter is nothing but a trend on any particular event. Whether the trend of

the item of consideration is favourable or unfavourable, satisfactory or unsatisfactory a

general notion as to that can be inferred upon through ratio analysis. Whether the item

is really favourable or unfavourable, satisfactory or unsatisfactory that can never be

authenticated or proved through such analysis. The considerations that are needed for

coming to such a conclusive decision are not taken care of in ratio analysis. Two

reasons work behind this proposition that ratios indicate, they do not prove. The first

one is that ratios do not measure numeral or quantities they e)press the numerical or

quantitative relation in a brief manner.

If the ratio of current assets and current liabilities is ( ! I the amount of current assets

and current liabilities may be 9s. (;,;;; and 9s. &;,;;; respectively or they may also

be 9s. (,;;,;;; and 9s.&,;;,;;; respectively. The second reason is that for arriving at a

conclusive decision through any technique the same must have the basic feature of

assessing the qualitative aspect along with the aspect of quantity.

"viii# Inclusion of window dressing: The term window dressing: stands for showing

the numerical

fi0:ures more than what they are in reality in financial statements with a fraudulent

intention and by means of manipulation. If an effort is made to e)aggerate the values of

incomes, e)penses, asset.s and liabilities in the financial statements for the4purpose of

concealing the true and fair financial position of the firm, ratios computed also reflect

the same and do not speak of the real financial scenario. It indicates that there is every

possibility of ratios being biased and influenced by the window dressing process. %uch

window dressing may also be made for showing the ratios higher than what they are in

reality with unfair intention. For e)ample, stock turnover ratio may be e)aggerated by

deferring the purchase of inventory or showing the inventory less than the actual value

for showing better managerial efficiency.


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"i)# (inage among different contradictory figures: In case of mi)ed ratios one

component is taken from the $rofit and 0oss ccount and another from the Balance

%heet. gain an average of two figures shown in two Balance %heets may also be taken

as one of the components of a particular ratio. The numeral shown in the $rofit and

0oss ccount e)hibits the outcome of some events occurred during a particular span of

time "generally in one year#. Dn the other hand the numeral shown in the Balance %heet

indicates the position of that item on a particular point of time "i.e. on a specific date#.

gain the average of two numerals shown in two different Balance %heets e)presses

the average of the positions as on two separate dates. %o such mi)ed ratios draw up the

relationship between the figures having contradictory status and are not truly

comparable.

")# Problem of use: 6omputation of a single ratio is in no case sufficient to analyse

any matter. For this purpose a series of ratios need to be calculated. There are also no

hard and fast guideline for using specific ratios for specific purpose. %election in most

of the cases rests on the choice of the analyst. Dften different analysts use different sets

of ratios to analyse the same matter. gain using of the same ratios for different

purposes create confusions. That is why it is said that the use of ratios is problematic in

many cases.

")i# "ot effective without cause and effect relationship : The relationship between

those numerals having cause and effect mutual relations between them can only be

e)pressed through ratios. =umerals without having any cause and effect relationship

are not the sub'ect matter of ratio analysis. For e)ample, there is no cause and effect

relation between the purchase figure and the provision for ta)ation. %o it is impossible

to draw up any relationship between these two variables through ratio analysis.

")ii# (ac of depth: 9atio analysis is a primary tool used in financial statement

analysis. It is only used to develop a general notion about the relationship between the

related variables or to analyse the trend of the said relation. s this technique does not

assess the qualitative aspect of the concerned variables it is not possible to make an in4

depth assessment through it. The relationships indicated by ratio analysis need to be

further analysed in4depth through other techniques for making the information more

useful.

")iii# Ignoring the effect of inflation: The increase in general price level in the market

due to inflationary trend makes the ratio.based comparison futile. The return on fi)ed

assets purchased many years back obviously becomes more than the return on recently


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purchased fi)ed assets. pparently looking this difference indicates higher efficiency in

the use of old fi)ed assets, but in reality that is not the case. The rise in market price

due to inflationary trend may be responsible for such variation, s the effect of change

in market price is ignored ratio analysis on the basis of past data often creates

confusions in the minds of the users and misleads them.


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Chapter &: Profile of !teel

Authority of India (td$


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A457T I"#IA" !T( I"#7!TR6

8I!T5R6 5 T8 I"#7!TR6:

The Indian %teel industry is almost &;; years old now. Till &GG;, the Indian

steel industry operated under a regulated environment with insulated markets and large

scale capacities reserved for the public sector. $roduction and prices were determined

and regulated by the 1overnment, while %I0 and Tata %teel were the main producers,

the latter being the only private player. In &GG;, the Indian steel Industry had a

production capacity of (+ T. &GG( saw the onset of liberali8ation and the Indian

economy was opened to the world. Indian steel sector also witnessed the entry of

several domestic private players and large private investments flowed into the sector toadd fresh capacities.

%teel Industry in India is on an upswing because of the strong global and

domestic demand. IndiaHs rapid economic growth and soaring demand by sectors like

infrastructure, real estate and automobiles, at home and abroad, has put Indian steel

industry on the global map. ccording to the latest report by International Iron and

%teel Institute "II%I#, India is the seventh largest steel producer in the world.

The origin of the Indian steel industry can be traced back to &G-+ when a

contract for the construction of an integrated steelworks in 9ourkela, Drissa was signed

between the Indian government and the 1erman companies Fried rupp und Aemag

1. The initial plan was an annual capacity of -;;,;;; tonnes, but this was

subsequently raised to & million tonnes. The capacity of 9ourkela %teel $lant "9%$#,

which belongs to the %I0 "%teel uthority of India 0td.# group, is presently about (

million tonnes. t a very early stage the former J%%9 and a British consortium alsoshowed an interest in establishing a modern steel industry in India. This resulted in the

%oviet4aided building of a steel mill with a capacity of & million tonnes in Bhilai and

the British4backed construction in Aurgapur of a foundry which also has a million

tonne capacity.

The Indian steel industry is organi8ed in three categories i.e., main producers,

other ma'or producers and the secondary producers. The main producers and other

ma'or producers have integrated steel making facility with plant capacities over ;.- T


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and utili8e iron ore and coal2gas for production of steel. The main producers are Tata

%teel, %I0, and 9I=0, while the other ma'or producers are E%%9, I%$T and >*%0.

The secondary sector is dispersed and consists of!

" Backward linkage from about &(; sponge iron producers that use iron ore and non4

coking coal, providing feedstock for steel producersK

"(# ppro)imately /-; mini blast furnaces, electric arc furnaces, induction furnaces

and energy optimi8ing furnaces that use iron ore, sponge iron and melting scrap to

produce steelK and

"+# Forward linkage with about &,(;; re4rollers that roll out semis into finished steel

products for consumer use.

PR!"T !TAT7! 5 T8 !T( I"#7!TR6:

&. Indian economy growing L < to G 3, is one of the fastest growing economies in

the world.

(. Industrial prodn. %howing encouraging trends. Inde) of industrial production for

6apital goods is growing L


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i. 6rude steel production of &&; million tones by (;&G4(; at 619 of N.&3 from

(;;4;-.

ii. The demand of steel by (;(; is likely to be G; million tones at 619 of /.G3

from ;4;-.

iii. %teel e)ports by (;(; are likely to grow at 619 of &+.+3 from ;4;- to (/

million tones.

iv. %teel imports to the country by (;(; shall grow at 619 of N.&3 from ;4;-

to / million tones.


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iii. Imports were around +.( million tones which was an increase by

/+3 over pril4%eptH;/.

&. Aue to infrastructure focus, production of long products is gradually increasing

and ratio of flat to long products is narrowing.

&-. Auring p4%eptH;N non flat steel produced at &(. million tones showed an

increase of around G3 over pril4%eptH;/.

&/. In case of flat products prodn. during pril4%eptH;N at &(.( million tones was

almost at same level of last year.

&N. pparent 6onsumption of steel during pril4%eptH;N was (( million tones

which was an increase by && 3 over pril4%eptH;/. While long products "e)cl.

semis# at &(.+ million tones registered a growth of G3, the flat products

consumption at &(.- million tones indicated an increase of &(3.

&


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one billion people, the groundwork would have to begin right now. The Indian %teel

Industry will be required and is willing to play a critical role in achieving this target.

With abundant iron ore resources and well4established base for steel production

in the country, steel is poised for growth in the coming decades. $roduction has

increased from &N T in &GG; to +/ T in (;;+ and // T is targeted for (;&&.

While steel will continue to have a stronghold in traditional sectors such as

construction, housing, ground transportation, special steels will be increasingly used in

hi4tech engineering industries such as power generation, petrochemicals, fertilisers etc.

%teel will continue to be the most popular, versatile and dominant material for wide

ranging applications. While India may not become a leader in world steel market, it can

become a powerful force.

To help the Indian %teel Industry achieve its potential and play a meaningful

role in India:s development some steps need to be taken!

%teel is yet to touch the lives of millions of people in India. $er capita

consumption of steel in India is only (G kg and has to go a long way to

reach consumption levels of around ;; kg in developed countries like

J% and world average of &; kg.

There is a need to continue the current thrust on infrastructure related

activities and e)tend them to rural India. 9ural Indian today presents a

challenge for development of the country and the opportunity to

increase usage of steel in these areas through pro'ects such as rural

housing etc.

6urrent shortage of inputs has pushed up the costs for the steel industry.

1overnment should ensure that quality raw material such iron4ore and

coke are available to the industry. With inistry of %teel targeting an

output of &;; T of steel by (;(; there is an urgent need to develop

raw material resources for inputs like iron4ore and coal within or outside

the country. 6ountries like >apan have already taken similar steps to

safeguard their industries.


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dequate enabling infrastructure such as power, ports, roads, rail

transport is pre4requisite for the Indian steel industry to remain

competitive.

1overnment should not regulate prices and free market forces should

prevail. Intervention by the 1overnment is only a short4term solution to

the issue of steel prices in the country. Dnce left alone, market dynamics

will automatically ensure price corrections and determine the optimum

price of steel.

The Indian steel Industry is amongst the least protected in the world.

While developed countries have put numerous tariff and non4tariff

barriers on steel e)ports from the country, the domestic industry is

e)posed to cheaper imports from competing nations. s in case of other

important industries, the 1overnment should give reasonable levels of

protection to the domestic steel industry, which is 'ust starting to get

back on its feet.

Industry should be allowed to have a fair return on investment and

contribute to the overall health of the Indian manufacturing segment.

The steel industry has invested a capital of over 9s G;, ;;; crores.

69I%I0 in a recent study has concluded that given the large e)posure

that banks and financial institutions have to the steel industry.

Today, Indian producers employ world4class standards of technology.

%teel from Indian finds growing acceptability in international markets.

But despite this India:s share in world trade steel is a miniscule (3.

1iven the capabilities of the Indian steel industry there is tremendous

scope to increase this share further. While the steel industry will

continue servicing the domestic demand there is a lot of untapped e)port

potential with the industry. The 1overnment, in line with ERI policy

(;;(4;N, should take steps to make Indian e)ports more competitive.


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!TR7CT7RA( ;A="!!! 5 I"#IA" !T( I"#7!TR6:

lthough India has moderni8ed its steelmaking considerably, however, nearly

/3 of its crude steel is still produced using the outdated open4hearth process.

0abour productivity in India is still very low. ccording to an estimate crude

steel output at the biggest Indian steelmaker is roughly & tonnes per worker

per year, whereas in Western Europe the figure is around /;; tonnes.

India has to do a lot of catching in the production of stainless steel, which is

primarily required by the plant and equipment, pharmaceutical and chemical

industries.

%teel production in India is also hampered by power shortages.

India is deficient in raw materials required by the steel industry. Iron ore

deposits are finite and there are problems in mining sufficient amounts of it.

IndiaHs hard coal deposits are of low quality.

Insufficient freight capacity and transport infrastructure impediments too

hamper the growth of Indian steel industry.

!TR"/T8! 5 I"#IA" !T( I"#7!TR6

0ow labour wage rates.

bundance of quality manpower.

ature production base.

$ositive stimuli from construction industry.

Booming automobile industry.

A457T !T( A7T85RIT6 5 I"#IA

8I!T5R6 5 T8 !AI(:

T8 PRC7R!5R:%I0 traces its origin to the formative years of an emerging

nation 4 India. fter independence the builders of modern India worked with a vision 4

to lay the infrastructure for rapid industriali8ation of the country. The steel sector was


25/64

to propel the economic growth. 7industan %teel $rivate 0imited was set up on >anuary

&G, &G-. The $resident of India held the shares of the company on behalf of the people

of India.

?PA"#I"/ 85RI@5" 1.).31.,&B:

7industan %teel "7%0# was initially designed to manage only one plant that was

coming up at 9ourkela. For Bhilai and Aurgapur %teel $lants, the preliminary work

was done by the Iron and %teel inistry. From pril &G-N, the supervision and control

of these two steel plants were also transferred to 7industan %teel. The registered office

was originally in =ew Aelhi. It moved to 6alcutta in >uly &G-/ and ultimately to

9anchi in Aecember &G-G.

new steel company, Bokaro %teel 0imited, was incorporated in >anuary &G/

to construct and operate the steel plant at Bokaro. The & T phases of Bhilai and

9ourkela %teel $lants were completed by the end of Aecember &G/&. The & T phase

of Aurgapur %teel $lant was completed in >anuary &G/( after commissioning of the

Wheel and )le plant. The crude steel production of 7%0 went up from .&-< T

"&G-G4/;# to &./ T. The second phase of Bhilai %teel $lant was completed in

%eptember &G/N after commissioning of the Wire 9od ill. The last unit of the &.< T

phase of 9ourkela 4 the Tandem ill 4 was commissioned in February &G/


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%teel $lant and the %alem %teel $lant. In &GN< %I0 was restructured as an operating

company.

%ince its inception, %I0 has been instrumental in laying a sound infrastructure

for the industrial development of the country. Besides, it has immensely contributed to

the development of technical and managerial e)pertise. It has triggered the secondary

and tertiary waves of economic growth by continuously providing the inputs for the

consuming industry.

!AI( Today

%I0 today is one of the largest industrial entities in India. Its strength has been

the diversified range of quality steel products catering to the domestic, as well as the

e)port marketsanda large pool of technical and professional e)pertise. Today, the

accent in %I0 is to continuously adapt to the competitive business environment and

e)cel as a business organi8ation, both within and outside India.

T6P 5 5R/A"I!ATI5":

!teel Authority of India 3 a /overnment of India nterprise and one of the

largest and profit making public sector steel products manufacturing company$

!teel Authority of India produces for both basic and special steels for

construction, engineering, power, railway, automotive and defense industries and caters

to Indian and International markets. !teel Authority of India has five steel plants, one

subsidiary, three special steel plants, multi marketing units at all regions and nine other

speciali8ed units to support growth and development of the !teel Industry in India$ Its

produces are 4looms9 4illets9 !labs9 Crane Rails9 4ars9 Rods D Re3bars9 ;ire

Rods9 8R Coils9 !heets9 Plates9 CR Coils D !heets9/C !heets9/P !heets and Coils9

Tinplates9 lectrical !teel9 Tubular Products9 Pipes9 Railway Products9 Rails9

;heels9 A+les9 ;heel !ets$

Activities: !teel Authority of Indiaproduction lines are 4

7ot 9olled 6oils, %heets

6old 9olled $roducts.


27/64

Bars and 9ods.

%emi4Finished $roducts.

9ailway $roducts.

%pecialty $roducts.

$lates.

%tructurals.

lloy and %tainless $roducts.

oreover, !teel Authority of India offers technological services in the following

domains 4

now4how transfer of technologies developed by its 9MA wing.

6onsultancy services.

%peciali8ed testing services.

6ontract research.

Training

A457T !A(M !T( P(A"T

steel plant in %alem was a long cherished dream. 1overnment of India decided in

ay &-, &GN( to set up an integrated special steel plant in %alem in the state of Tamil =adu

for the production of sheets and stripe of electrical , stainless and other special and mild

steel on the basis of sound techno4 economic consideration.

The construction of plant was inaugurated in >une &+, &GN( by the late %hri

ohan umaramanglam, the minister of steels and mines. Thus a dream of having a steel

plant in %alem started taking shape in the foot hills of kan'amalai. The company ? !A(M

!T( (IMIT#E was registered on Dct(-, &GN(. it was 1overnment of India

undertaking subsidiary of %teel authority of India limited "%I0#.The plant was designed

to roll out +(;;; tonnes of cold rolled stainless steel strips and wide sheets per annum in


28/64

the first phase. In the second phase, the production capacity was increased to N;;;; tonnes

per annum by installing %end8imir mill.

s one steps ahead in reaching the goal of backward integration. 7DT 9D00I=1

%TE6E0 I00 was commissioned during =ov +, &GG- with an installed capacity of

around ( lakhs tonnes with an appropriate investment of 9s.


29/64

India only one blanking line for production blank coins on (.&(.G+. Dn &&.;G.G-

e)panding the 7ot 9olling ill on &&.;G.G- at a cost of


30/64

%hri =ilotpal 9oy 4 Burnpur

%hri *. %hyamsundar 4 Aurgapur

%hri B.=. %ingh 4 9ourkela

%hri *.. %rivastava 4 Bokaro

%hri 9. 9amara'u 4 Bhilai

7"CTI5"A( #IRCT5R!:

%hri %hoeb hmed 4 6ommercial

%hri %. Bhattacharya 4 Finance

%hri 1. D'ha 4 $ersonnel

%hri .. hanna 4 Technical

A##R!! 5 R/I!TR 5IC A"# IT! 4RA"C8!:

Corporate 5ffice Ispat 4hawan,

0odi 9oad, =ew Aelhi &&;;;+

$hone ! ;&&4(+/N


31/64


32/64

The nature of the data required for the purpose of study are information relating to

current assets and current liabilities, pattern of working capital financing by the

B$60 as well as earning of the business with respect to =et $rofit, operating profit

etc. Further, information relating to nature of industry, si8e and age of B$60

and its contribution to total industry and their annual

financial statements from (;;4;- to (;;G4&; are also needed.

Primary #ata:

In some cases data will also be collected as and when required for the successful

completion of the research directly from the company officials through personal

interview or structural questionnaire.

!econdary #ata:

For the purpose of this research, ma)imum data required is of secondary in nature.

!57RC! 5 #ATA:

The sources of data are from the annual reports of the company from the year (;;4

(;;&-to (;;G4(;&;.

MT85#! 5 #ATA A"A(6!I!:

The data collected were edited, classified and tabulated for analysis. The analytical

tools used in this study are!

A"A(6TICA( T55(! APP(I#:

The study employs the following analytical tools!

1$ 6omparative statement.

%$ 6ommon %i8e %tatement.

&$ Trend $ercentage.


33/64

'$ 9atio4nalysis


34/64

6hapter -! A"A(6!I! A"#

I"TRPRTATI5"

Financial statement is an organi8ed collection of data according to logical and

consistent accounting procedures. It purposes is to convey 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 an Income %tatement. Thus the term ?Financial %tatement ?generally refers to

two basic statements! "i# the Income %tatement and "ii# the Balance sheet.

A"A(6!I! A"# I"TRPRTATI5" 5 I"A"CIA( !TATM"T:

The financial statements are indicators of the two significant factors!

&. $rofitability and

(. Financial soundness

nalysis and interpretation of financial statement therefore, refers to such a treatment

of the information contained in the Income %tatement and Balance %heet so as to afford full

diagnosis of the profitability and financial soundness of the business.

Classification of 4alance !heet of !teel Authority of India (imited from %00'3%00) to %00. %010


35/64

Rs$in CroresB

PARTIC7(AR! %00'30) %00)30* %00*30, %00,30- %00-30. %00.310

A!!T!

Fi)ed ssets

Investment

6urrent ssets

is.E)penditure

$M0 a2c

&/+G

Documents

Ajay Naidu