INTRODUCTION

Steel Exchange India Ltd was incorporated in February 1999 as

Pyxis Technology Solutions Ltd. The company promoted by team of technocrats,
friends and relatives.
Promoters were originally into trading of steel and steel related
products under the name of Vizag profiles. In December 1999 the Steel Exchange
India Ltd was incorporated as 100 percent subsidiary of Pyxis Technologies.

As demand for steel started growing from 2000 onwards the promoters
gradually ventured into steel manufacturing by acquiring Simhadri Steels, a
company having rolling mill at Vizag, and setting up an ingot manufacturing unit
at Kothapeta in 2004.

Under a Scheme of Amalgamation approved by the

Members of the Companies, SEIL (subsidiary) and Simhadri Steels were merged
with Pyxis Technologies under the name of Steel Exchange India Ltd.
over the years company has acquired sick units and turning them into profitable
ventures. The company today has the 0.5 million ton capacity of producing mts
per annum of steel products

The largest of the units, an integrated steel manufacturing hub

consisting of 0.5 million ton sponge iron unit, 0.3million ton billet unit and 220,
00 TPA rolling mill. The steel manufacturing hub is located on 400 acres of land,
35km from Visakhapatnam city at Malliveedu Village in Andhra Pradesh. The
company has a land of more than 500 acres.

1
 has set up a Simhadri Power Limited (SPV) a
captive 60MW captive power plant. SEIL unit generates of about 16MW from
waste heat recovery of DRI Kilns and about 18MW from CHAR and WHRB.
Simhadri Power Ltd was later merged to Steel Exchange India Ltd In the Year
2014.

Vision: We aspire to be a growing industry with high quality products and

benchmark for corporate citizenship.

Mission: To attain one million ton finished steel capacity adopting upgraded
technologies and capacity expansion with state of art technological processes.

Objectives:

 To set up a 600,000 tpa iron ore fines pellet manufacturing unit by 2016.

 The company plans to expand its steel manufacturing to 1million tons per
unit in various phases.
 Blast Furnace of 600 cum capacity supported by suitable coke Oven
Batteries by 2020.
 SMS through BOF route with LRF, Air Separation Plant and Billet Caster
by 2020.
 Heavy, Medium and Light Structural Mill of 0.5 MT Capacity by 2020.

Values:

 Exhibiting Entrepreneurship.
 Adopting new technologies for better productivity.

2
MEANING OF RATIO ANALYSIS:

According to J.Batty “The term accounting ratio is used to describe

significant relationship which exist between figures shown in a balance
sheet, in a profit and loss account, in a budgetary control system or in any
other part of the accounting organization.
The relationship between two figures expressed mathematically is
called a ratio.It is a numerical relationship between two numbers which are
related in some manner.

DEFINITION:

“The relation of one amount, a to another b, expressed as the ratio of

a to b”

KHOLER

“Ratio is the relationship or proportion that one amount bears to another

the first number being the numerator and the later denominator”.

H.G.GUTHMANN

CLASSIFICATION OF RATIOS:

Classification from the point of view of financial management or

objective:

 Liquidity ratios.
 Activity ratios.
 Profitability ratios.
 Leverage ratios.

3
 LIQUIDITY RATIOS :( Short term solvency)

‘Liquidity’ means ability of a firm to meet its current obligations. The liquidity
ratios, try to establish a relationship between current liabilities, which are the
obligations soon becoming due and current assets, which presumably provide the
source from which these obligations will be meet. The following ratios are
commonly used to indicate the liquidity of business.

 Current Ratio.
 Quick Ratio.
 Absolute Liquidity Ratio.

ACTIVITY RATIOS:

Turnover ratios are used to indicate the efficiency with which

assets and resources of the firm are being utilized. These ratios are
known as turnover ratios because they indicate the speed with which assets
are being converted or turned over into sales. A higher turnover ratio
generally indicates better use of capital resources which in turn has a
favorable effect on the profitability of the firm.

Important Turnover ratios:

 Inventory Turnover Ratio.

 Debtors Turnover Ratio.
 Total Assets Turnover Ratio.
 Fixed Assets Turnover Ratio.

4
PROFITABILITY RATIOS:

Profitability ratios are a class of financial metrics that are used to assess a
business’s ability to generate earnings compared to its expenses and other relevant
costs incurred during a specific period of time.

 Gross Profit Margin.

 Return on Investment.
 Operating Ratio.
 Net Profit Ratio.

LEVERAGE RATIO:

A Leverage ratio is any one of several financial measurements that look

at how much capital comes in the form of debt or assesses the ability of a company
to meet its financial obligations.

 Debt Equity Ratio.

5
 PROBLEM OF THE CASE

Steel Exchange India Limited has emerged as a force to reckon with in

the emerging steel markets in southern India with a special focus on potential
markets in Andhra Pradesh. During this tenure, the company has developed a large
market network for retailing the steel products of main producers like
RINL/Visakhapatnam Steel Plant, SAIL and TISCO.

Now here we focus upon the financial performance of the Steel

Exchange India Limited. The performance aspect consists of liquidity position,
current position of assets and the liabilities of the company, the inventory position
of the company. Now we use the ratio analysis tools for the evaluation of this
financial performance.

6
 ANALYSIS OF CASE

1. LIQUIDITY RATIOS :( Short term solvency)

 CURRENT RATIO:

Formula:

Current asset

Current ratio =

Current liabilities

(in Crs in Rs)

YEAR CURRENT CURRENT CURRENT

ASSETS LIABILITIES RATIO
2011-2012 801 794 0.106
2012-2013 846 801 1.129
2013-2014 937 880 1.065
2014-2015 119 105 1.057
2015-2016 121 114 1.008

7
The current ratio for the period of 2012-16

CURRENT RATIO
1.2

1.129
1 1.065 1.057
1.008
0.8

0.6
CURRENT RATIO

0.4

0.2
0.106
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

INTERPRETATION :

As a conventional rule a current ratio of 2:1 or more is considered

satisfactory. The company SEIL shows ranging between 1.008-0.106 during
the years of study. Therefore, it may be interpreted to be insufficiently liquid.
The higher the current ratio the greater the margined of safety. However, an
arbitrary standard must be followed. This is because the current ratio is the
test of quantity not quality. So, the company might be struggling to meet their
obligation in recent years.

8
 QUICK RATIO:

Formula:

Liquid assets

Quick ratio = _____________________

Liquid liabilities

(in Crs in Rs)

YEAR LIQUID LIQUID QUICK RATIO

ASSETS LIABILITIES

2011-2012 451 794 0.568

2012-2013 429 801 0.536

2013-2014 351 880 0.399

2014-2015 510 105 0.484

2015-2016 496 114 0.434

9
The quick ratio during the period 2012-16:

QUICK RATIO
0.6
0.568
0.5 0.536
0.484
0.4 0.434
0.399
0.3
QUICK RATIO

0.2

0.1

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION :

Generally, a ratio of 1:1 is considered to represent satisfactory

ratio.Recent financial ratio of SEIL shows a balanced level of output where quick
ratio has always been half of current liabilities. A quick ratio 1:1 are more does not
necessary imply sound liquidity position. Thus if SEIL inventories do not sell and
it should pay all its current assets it may find it difficult to meet its obligation
because its quick assets are o.43 times of current liabilities.

10
 ABSOLUTE LIQUIDITY RATIO:

This ratio extends the logic further and eliminates accounts

receivable also.

Formula:

Absolute Liquidity Ratio = Super quick current ratio

Quick liabilities

(in Crs in Rs)

YEAR SUPER QUICK QUICK ABSOLUTE

CURRENT RATIO LIABILITIES LIQUID RATIO

2011-2012 386 794 0.486

2012-2013 118 801 0.148
2013-2014 325 880 0.369
2014-2015 298 105 0.283
2015-2016 362 114 0.317

11
The Absolute Liquidity Ration during the period 2012-16:

ABSOLUTE LIQUID RATIO

0.6

0.5
0.486
0.4

0.369
0.3
0.317 ABSOLUTE LIQUID RATIO
0.283
0.2

0.1 0.148

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION :

The acceptable norm of this ratio is 50% or 0.5:1 form the above
graph the SEIL shows an impressive result by maintain the absolute liquidity
which has always been between 0.2 to and 0.4 during the year of study. Thorough
these we can understand SEIL has its ability to pay its liabilities in time as worth
of the absolute liquid assets are considered to be adequate.

12
 2. ACTIVITY RATIOS:

 INVENTORY TURNOVER RATIO:

Formula:

Cost of goods sold

Inventory turnover ratio= _______________________

Average stock

(in Crs in Rs)

YEAR OPENING CLOSING AVERAGE

INVENTORY INVENTORY INVENTORY

2011-2012 367 350 358

2012-2013 350 417 383
2013-2014 417 586 501
2014-2015 586 680 633
2015-2016 680 718 699

(in Crs in Rs)

YEAR COST OF GOODS AVERAGE STOCK INVENTORY

SOLD TURNOVER
RATIO
2011-2012 129 383 3.37
2012-2013 838 558 1.5
2013-2014 106 710 1.5
2014-2015 132 926 1.43
2015-2016 144 103 1.39

13
The inventory turnover ratio during the period 2012-16:

INVENTORY TURNOVER RATIO

4

3.5
3.37
3

2.5

2 INVENTORY TURNOVER
RATIO
1.5
1.5 1.5 1.43 1.39
1

0.5

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION:

The higher is the ratio the greater is the efficiency on control of

merchandise in the company, apparently SEIL does not show a very
impressive ratio which means the company’s inventory is not liquid, it was
good at the beginning of the study but later it is the declining.

14
  DEBTORS TURNOVER RATIO:

This ratio indicates the relationship between net credit and

trade debtors. It shows the rate at which cash is generated by the
turnover of debtors.

Formula:

Credit sales

Debtors turnover ratio= Average debtors

(in Crs in Rs)

YEAR OPENING CLOSING AVERAGE

DEBTOR DEBTOR DEBTORS

2011-2012 308 262 442

2012-2013 212 391 367

2013-2014 261 412 343

2014-2015 212 428 393

2015-2016 308 266 347

15
 (in Crs in Rs)

YEAR CREDIT SALES AVERAGE DEBT TURNOVER

DEBTORS RATIO

2011-2012 170 442 3.85

2012-2013 102 367 2.801

2013-2014 142 343 3.851

2014-2015 161 393 4.116

2015-2016 208 347 5.001

The Debtor’s Turnover ratio of the years 2012-16:

DEBTOR'S TURNOVER RATIO

6

5
5.18
4
4.116
3.85 3.851
3 DEBTOR'S TURNOVER
2.801 RATIO
2

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION:

The ratio of SEIL is observed to be fluctuating around 3 which mean the

company in the period of 5 years collected its receivables 3-4 times in a year. This
shows that the company to meet its obligations by paying its bills sooner.

16
  TOTAL ASSET TURNOVER RATIO:

This ratio shows the firm’s ability in generating sales from

all financial resources committed to total assets.

Formula:

Sales

Total Asset turnover Ratio=

Total Assets

(in Crs in Rs)

YEAR SALES TOTAL ASSETS TOTAL ASSET

TURNOVER

2011-2012 170 117 1.446

2012-2013 981 846 1.158
2013-2014 125 937 1.338
2014-2015 156 186 0.84
2015-2016 167 186 0.894

17
The Total Asset Turnover ratio during the period 2012-16:

TOTAL ASSET TURNOVER RATIO

1.6

1.4
1.446
1.338
1.2 1.28
1.158
1

0.8 TOTAL ASSET TURNOVER

0.84
RATIO
0.6

0.4

0.2

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION :

The total assets turnover ratio of SEIL is 1.44 in the year 2012 which
implies that the company generates a sale of rs.1.44 for 1 rupee invested in the
fixed assets and current assets together.

18
 FIXED ASSET TURNOVER RATIO:

This ratio is used to know its efficiency of utilizing fixed assets

Formula:

Sales

Fixed Asset Turnover Ratio=

Net Fixed Assets

(in Crs in Rs)

YEAR SALES NET FIXED FIXED ASSET

ASSETS TURNOVER
2011-2012 170 329 5.157
2012-2013 981 328 2.989
2013-2014 125 358 3.497
2014-2015 156 660 2.369
2015-2016 167 644 2.59

19
The Fixed Assets Turnover ratio in the period 2012-16

FIXED ASSET TURNOVER RATIO

6

5
5.157

3 3.497 FIXED ASSET TURNOVER

2.989 RATIO
2 2.369

1 1.43

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION:

The ratio seems to be increasing all throughout the years of study

indicates that are being utilized efficiently and large amount of sales are being
generated. This is particularly through in a manufacturing company like SEIL
where, companies have large and expensive equipment purchase because the
machinery used in such companies is expensive.

20
3. PROFITABILITY RATIOS:

 GROSS PROFIT MARGIN:

This ratio is in relation to sales is the gross profit margin. It is

calculated by dividing the gross profit by sales.

Formula:
Gross Profit Margin = Gross Profit
Sales
(in Crs in Rs)
YEAR GROSS PROFIT SALES GROSS PROFIT
MARGIN
2011-2012 406 170 23.80
2012-2013 190 102 18.50
2013-2014 256 132 19.40
2014-2015 292 161 18
2015-2016 292 174 16.80

21
The Gross Profit Ratio during the period 2012-16:

GROSS PROFIT MARGIN

25

23.8
20
19.4
18.5 18
15 16.8

GROSS PROFIT MARGIN

10

0
2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION :

The computed ratios of 5 years show a continuously

increasing values of gross profit ratio which tells that the company SEIL shows
stability of management to develop the volume of sales volume which
produces higher results there by making it possible for the company to buy
goods in large quantities. This indicates a favorable purchasing of goods.

22
  RETURN ON INVESTMENT:

This is the ratio of a profit or loss made in a fiscal year expressed in

terms of an investment and shown as a percentage of increase or decrease in
the value of investment during the year.

Formula:

ROI = Earnings Before Interest Tax

Total Assets

(in Crs in Rs)

YEAR NPAT TOTAL ASSETS ROI

2011-2012 268 228 0.117

2012-2013 532 282 0.188

2013-2014 358 317 0.112

2014-2015 284 375 0.075

2015-2016 739 382 0.019

23
The Return on Investment during the period 2012-16:

RETURN ON INVESTMENT
5
4.5
4 4.3
3.5
3
2.5
RETURN ON INVESTMENT
2
1.5
1
0.5
0.188 0.112 0.075 0.019
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION :

Through the graph, we can see that the return of SEIL’s investing was
very high in the beginning years and later it gradually came down, this means the
profits when compared to the investment by the company are not satisfying.

Through graph, it is evident that SEIL, had every high of 0.188 in the
year 2012-13 but it came down to 0.112 in 2013-14 and lattes to 0.07in 2014-15
and finally to 0.019 in 2015-16.

24
 OPERATING RATIO

Operating margin is a measurement of what proportion of a

company’s avenue is left over after paying for variable cost of production such
as wages, raw materials, etc.,.

FORMULA:

Operating Ratio = Operating income

Net Sales

(in Crs in Rs)

YEAR OPERATING NET SALES RATIO
INOME
2011-2012 257 167 0.151
2012-2013 108 156 0.11
2013-2014 146 125 0.116
2014-2015 144 156 0.922
2015-2016 158 167 0.949

25
The operating ratio for the period 2011-16:

OPERATING RATIO
1
0.9 0.949
0.922
0.8
0.7
0.6
0.5
OPERATING RATIO
0.4
0.3
0.2
0.1 0.151
0.11 0.116
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION :

This ratio has been ideal in the recent years of the company SEIL but in
the beginning years of the study i.e. 2011-12, 2012-13 it showed us a small
margin which implies its incapability of meeting its interest charges, dividend
expenses and other corporate needs the variations seen in the ratio are
temporary in nature and arise due to some temporary conditions. The higher
level of operating ratio will leave us small amount of operating income to the
company to meet its payment interest and dividence.

26
 NET PROFIT RATIO:

Net profit ratio is a popular profitability ratio that shows relationship

between net profit after tax and net sales.

FORMULA:

Net Profit ratio= Net Profit

Net Sales

(in Crs in Rs)

YEAR NET PROFIT NET SALES RATIO

2011-2012 268 170 1.50

2012-2013 532 981 5.40

2013-2014 358 125 2.80

2014-2015 284 156 1.80

2015-2016 739 167 0.40

27
 The Net Profit Ratio for the period 2011-16:

NET PROFIT RATIO

6

3
NET PROFIT RATIO

0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION:

This ratio helps to understand the profitability of the company and the
graph does not produce a good amount of ratio as the lower number of ratios
means that the profitability of the company is less in betterment is recommended
by increasing the net profit after taxes over net sales.

28
4. LEVERAGE RATIOS:

 DEBT EQUITY RATIO:

This is the ratio indicating the relative proportion of share holders equity
and debt used to finance a company’s assets. Closely related to leveraging.

Formula:

Debt Equity Ratio = Total Debt

Net worth

(in Crs in Rs)

YEAR TOTAL DEBT NET WORTH DEBT EQUITY

RATIO
2011-2012 948 228 4.14
2012-2013 935 282 3.31
2013-2014 102 317 3.22
2014-2015 148 375 3.96
2015-2016 148 382 3.89

29
The Debt-Equity Ratio during the period 2012-16:

DEBT EQUITY RATIO

10
9
8 8.72

7
6
5
DEBT EQUITY RATIO
4
4.14 3.96
3
3.31 3.22
2
1
0
2011-12 2012-13 2013-14 2014-15 2015-16

INTERPRETATION :

SEIL’s debt ratio shows the extent which debt financing has been
used in business. It shows high levels of debt ration ranging up to 3.87 in the
financing year 2015-16.

A high ratio means that claims of creditors are greater than those of
owners. A high debt company is able to borrow fund on very restrictive terms and
conditions. The higher the debt equity ratio the larger the shareholder’s earnings.
Thus, there is needed to strike a proper balance between debt and equity.

30
 OUTCOMES OF THE STUDY

The below are the outcomes that we could observe form the data
analysis made above:

 It is found that the current ratio of Steel Exchange India Ltd is below the
acceptable level because of the decrease in its current assets and current
liabilities.

 It is also found that the quick ratio of this company is not very much satisfying
due to its accumulations of inventory in huge quantities.

 It is keenly seen that SEIL has borrowed more money rather than bifurcating
ownership.

 It is found that the inventory is less liquid and this tells its inefficiency on
control of stock.

 The SEIL is collecting its bills very firmly and possess the ability to pay it
debts in time.

 It is found in SEIL by calculating its gross profit ratio that SEIL has no issues
in performing its day to day operations.

31
 RECOMMENDATIONS

The following are the recommendations that are taken based upon the data
analysis:

 SEIL should improve its current ratio as it is seen below the accepted rate, this
can be done by increasing its amount of current assets to its current liabilities.

 According to the study SEIL Can be suggested to start improving the quick
ratio by reducing the amount of inventory it keeps in hold.

 The company whose capital structure is built through funds form debts and
this should be reduced as they are seen to be risky.

 SEIL is promptly colleting from its debtors for every 3 months in a year but on
the other hand it is seen that SEIL is paying its debts only once in a year this
may effects the company in borrowing any further.

 The management should try investing wisely on its fixed and current assets
through which returns will be increased and a greater life span of company can
be assured.

32
33