EXECUTIVE SUMMARY

This project includes the Ratio Analysis of South Eastern Coalfield Limited (A
Subsidiary of Coal India Limited). Title of the project is ‘Ratio Analysis of
Financial Statement Of SECL Baikunthpur Area for preceding two years.’

The first part of the project includes the detail of Coal India Limited and South
Eastern Coalfield Limited a subsidiary of CIL. This part includes the History,
Formation of CIL.

The second part of the project contains about the Product, Marketing Strategy of
CIL and SECL.

The forth part of the project includes Research Methodology, Suggestion and
Conclusion. This explains about the real work of the project. This states about the
Ratio Analysis of the Financial Statements of SECL a subsidiary of CIL.

1
 ABSTRACT

South Eastern Coalfields Limited (SECL) is the largest coal producing company
in the country. It is one of the eight subsidiaries of Coal India Limited (A Govt.
OF India undertaking) under the ministry of Coal. SECL was carved out of CCL
and WCL in 1985 along with NCL. The company was adjudged the best PSU in
the country for 97-98 and was awarded Jawaharlal Nehru Memorial National
Award for pollution control and energy conservation in the year 2003 and
excellence award in 2004 & 2006. SECL has been awarded “Mini Ratna” Status
by Govt. of India in 2007. The project work has been conducted in South Eastern
Coalfields Limited, Baikunthpur area with a motive to ascertain the “Financial
Performance” of the company.

Statement of the Problem

The main problem under the study is to analyse the Financial Performance of the
company on the basis of its Financial Records and to find reason for the present
performance.

Objective of the Study

Primary Objectives:-

To ascertain the financial position and profitability of South Eastern Coalfields

Limited, Baikunthpur Area.

Secondary Objectives:-

 To analyse the Liquidity position of the firm

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  To find out the profitability of the firm

 To evaluate the Financial position of the company for the past two
years

 To identify how effectively and efficiently the company’s resources

are being utilize.

Research Methodology

Research Methodology is a Science. It is a method that can be used to solve the

research problem. Research Methodology provides various steps that can be
adopted by the researcher in studying the research problem.

Sources of Data collection

Secondary data- These are data which have already available or collected by some
other person for some other purpose. Secondary data can be collected from
company profile, company records, broachers, etc. The required data for the
analysis is obtained from secondary sources. The data with respect to current
asset, current liabilities, sales, purchases and other balance sheet items were
collected from the published annual reports and records of the company.

Tools and Techniques of Data analysis

 Ratio Analysis

 Comparative analysis of accounts of two years on the basis of ratios.

Data analysis and Interpretation

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Collected data are edited and tabulated. The tabulated data is further taken for
analysis by using ratios such as - Liquidity Ratios, Leverage Ratios, Activity
Ratios, Profitability Ratios and column charts are used to give a better outlook of
the company.

Key Findings

• The Liquidity position of the company was satisfactory i.e. the company
has the ability to pay its current obligations in times as and when they
become due.

• The debt equity ratio of the company was satisfactory, because the
company seems to be not much dependent on the outsiders fund but on the
shareholders fund which is constant from a long period.

Suggestions

The company may invest their surplus money in better options which may
provide them better and higher rate of returns.

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 CHAPTER – 1

INTRODUCTION

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6
 1.1 INTRODUCTION OF THE TOPIC

Ratio Analysis :- Alexander Wall made the presentation of an elaborate system

of ratio analysis in 1919. He criticized the bankers for their lopsided development
owing to their decisions regarding the grant of credit on current ratio alone.
Alexander Wall one of the foremost proponents of ratio analysis, pointed out that
in order to get a complete picture it is necessary to consider the other relationship
in the financial statement than current ratio. Since ten more and more types of
ratios have been developed and are used for analysis and interpretation point of
view.

Ratio may be defined as “a number expressed in terms of another number”. It

shows relationship of one figure with another figure. It is found by dividing one
number by the other number. It may be expressed as a percentage or in terms of
“times” or proportion or as quotient.

According to Robert N. Anthony “A ratio is simply one number expressed in

terms of another”.

Ratio analysis therefore mean the process of computing, determining and

presenting the relationship of by the other number. It may be expressed as a
percentage or in terms of “times” or proportion or as quotient.

According to Robert N. Anthony “A ratio is simply one number expressed in

terms of another”.

Ratio analysis therefore mean the process of computing, determining and

presenting the relationship of related items and group of items of the financial
statement.

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The main four ratios which are used in a firm to analyse their performance are –
liquidity, leverage, activity and profitability. These ratios are required for
managements’ own evaluation and decision-making. Moreover, it is responsible
for the overall performance of the firm-maintaining its solvency so as to be able to
meet short-term and long-term obligations to the creditors and at the same time
ensuring an adequate rate of return, consistent with safety of funds to its owners.

The first task of financial analyst is to select the information. The second step
involved in financial analysis is to arrange the information in a way so as to
highlight significant relationship. The final step is interpretation & drawing of
inferences and conclusions. In brief, financial analysis is the process of
selection, relation and evaluation.

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 1.2 UTILITY OR OBJECTIVES OF RATIO ANALYSIS

Ratio – analysis serves the purpose of various parties interested in financial

statements. Primarily, the objective of ratio-analysis is to help management
in analyzing and interpreting the financial statements, to get adequate
information useful for the performance of various functions like planning,
co-ordination, control, and communication and forecasting.

 To estimate about the performance efficiency and managerial ability

by the management of a business concern.
 To determine short-term and long-term solvency of the business
concern with the help of statement of position.
 To enquire about ‘the financial position and ability to pay’ of the
concerns seeking loans and creditors.

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 CHAPTER – 2

ABOUT THE INDUSTRY

&

THE COMPANY

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 2.1 INDUSTRIAL PROFILE

COAL INDIA LIMITED (CIL)

2.1.1 EARLY HISTORIES (CIL) :-

The Indian coal industry has its origins in the early 19th century, when mining
activity, became commercial in conjunction with the expansion of the railway
network, particularly in the west of the country. The monopoly interests of the
British East India Company were reveled on 1813. Initially, the coal fields were
operated by a large number of Indian private companies which possessed captive-
or company-owned-coalfields to support their iron and steel works. By 1900 there
were 34 companies producing 7 million tons of coal from 286 mines. Production
continued to grow in the first half of the 20th century, especially during World
War I. Demand continued to grow during World War II, and production reached
29 million tons by 1945 mines to 673. The trend continued for almost a decade
after India’s independence in 1947. However, India’s ambitious economic
development plans led to a tremendous demand for energy and in the absence of
alternative sources, coal was targeted as the major source of power for
industrialization. Under the government’s Second Five Year Economic

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Development Plan 1957-1961, a target of 60 million tons was set for the end of
the plan period. However, government economic planners were convinced that the
private sector would be unable to meet this target. Hence, the National Coal
Development Corporation (NCDC) was formed, which took the old railway
collieries as its nucleus and opened new mines as well. Production of coal
increased from 38 million tons in 1956 to 56 million tons in 1961.

2.1.2 ABOUT COAL INDIA LIMITED:-

It is wholly owned Government of India Company, under the administrative

control of the Ministry of Coal, involved in the mining and production of coal. It
is the single industry in India for the production of coal. So it has no competitors
in the Indian market.

Coal India is one of the largest coal producing companies in the world. The
Company’s operations include 470 underground and open cast mines, 20
beneficiation plants, and one coal carbonization plant. Coal India provides a wide
range of extraction, coal reserve identification and exploration activities,
Established in 1975 the holding company operates through eight subsidiaries,
including Eastern Coalfields, Bharat Coking Coal, and Mahanadi Coalfields. Coal
India offers consulting services through its Central Mine Planning & Design
Institute subsidiary.

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Date of incorporation : Coal India Limited was formed as ‘Holding Company
with 9 subsidiaries on 21.10.1975.

Corporate Status : The Company is incorporated under the Companies Act,

1956 and is wholly owned by the Government of India (GOI)

Business : Engaged in the mining of coal, coal based products and mining
consultancy.

The HEADQUATER of South Eastern Coalfields Limited, Baikunthpur

(C.G.)

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2:1.3 COMPANY PROFILE

SOUTH EASTERN COALFIELDS LIMITED (SECL)

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South Easter Coalfields Limited is the largest coal producing company in the
country. It is one of the eight subsidiaries of Coal India Limited (A Govt. Of India
Undertaking) under the Ministry of Coal. The company was adjudged the best
PSU in the country for 97-98 and was awarded Jawaharlal Nehru Memorial
National Award for pollution control and energy conservation in the year 2003
and Excellence award in 2004 and 2006. SECL Has been awarded “Mini Ratna”
Status by Govt. of India in 2007. In year 2008-2009, total coal production by
Baikunthpur area was 2148478 tones of 101.15 million tones of SECL from open
cast and underground mines which is highest among all subsidiaries of Coal India
Limited. And among all coal producing companies in India. In the year 2007-08
Baikunthpur area production was 2025081tones only out of total coal production
by SECL 93.79 million tons.

SECL GM office of Baikunthpur area is located in Baikunthpur , District

court road, Baikunthpur , Pin 497339(C.G.)

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 CHAPTER – 3

PRODUCT OF

MARKETING STRATEGY

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 3:1 MARKETING STRATEGY

COAL MARKETING SYSTEM

Reaching Coal To Core Sector

 Presently following categories are classified as Core Sector Consumers.

 Power (Utilities including IPPs)
 Power (Captive)
 Defence
 Railways
 Fertilizer
 Steel including Sponge Iron & Pig Iron and other metallurgical Industries,
who use Coal/Coke for their end use.
 Cement
 Aluminum Industries
 Paper Industry
 Central PSU for consumption and use (as distinguished from Trading)
 Export of Coal to neighboring countries as part of bilateral negotiation held
under auspices of Ministry of External Affairs.
DISTRIBUTION OF COAL UNDER CORE SECTOR :

Distribution of Coal under Core Sector is as under:-

For Power, CMT and CPPs:-

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 Coal linkages are decided by Standing Linkage Committee (Long term as well
as Short Term), an inter-ministerial body with Addl. Secretary as Chairman
and having members from Ministry of Railways, Power and Coal Companies.
The terms of reference of the Committee is to review time to time the coal
requirements of the units and establish rational linkages for supply of coal,
considering availability of coal, Quantity/Quality of required by Units,
Transport logistics available with Railways and other agencies

Steel plants:
Coking Coal requirement of Steel plants and metallurgical consumers is
decided by Ministry of coal. Based on such long term allocations monthly
allocations of coal are made at CIL through deliberations amongst Steel Sector,
Railways and Coal Companies representatives.

Sponge Iron:
SLC under the aegis of Ministry of Coal decide long term linkages to Sponge
Iron Plants and individual linkages are issued by MOC. Based on such
linkages, source-wise, quarterly allocations are made by CIL.

Fertilizer:

Annual recommendation/Sponsorships are issued by Fertilizer Industries

Coordination Committee under Ministry of Chemical & Fertilizers in favour of
various Fertilizer Units and Coal supplies are effected by Coal Companies on
the basis of recommendation/Sponsorship.

Defence:

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Demand for this sector is decided by defence Coal Cell at Kolkata under the aegis
of Ministry of Defence in Consultation of CIL and railways. Supplies is as per
monthly allocation issued by Coal Cell Wing (Ministry of Defence)

Railways:
Demand of Coal for Loco has decreased to negligible level over the years.
Exports:

Quantity of export to neighboring countries is decided as per the bilateral

negotiations held under the auspices of Ministry of External Affairs and
ministry of Coal.

Paper, Aluminum and Central PSU:

They were in Non Core Sector prior to 01/01/2004. Distribution of Coal has
been so far guided by MPQ (Maximum Permissible Quantity), which was
determined by on the basis of highest order booking in the preceding three
years. Application of MPQ hereinafter stands lifted and MPQ of 2004 is
considered to be their entitlement.

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 CHAPTER-4

ABOUT The

PROJECT WORK

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 4.1 RATIO ANALYSIS

An Analysis of the financial statements on the basis of ratio is known as ratio-

analysis. A ratio is a mathematical relationship between two or more related items
taken from the financial statement. In fact, ratio analysis involves the process of
computing, determining, and presenting the relation of items and groups of items
of the financial statements. It also embraces the comparison and interpretation of
these ratios and use of them for future projections. Ratio analysis is very useful to
outsiders as well as to the management.

Alexander wall is considered to be pioneer of ratio analysis. He presented detailed

system of ratio analysis in 1909. He explains that the work of interpretation can be
made easier by establishing quantitative relationships between the facts given in
the financial statements.

It is a device to diagnose the financial health of a

business concern. It signifies whether the financial health of the concern is vital,
strong, good or poor and weak. Like doctor’s prescription, ratios represent the
figures containing the condensed report of the position, process and problems of
the concern. They facilitate the work or gauging the profitability, solvency and
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activity of the concern. Like management, outsiders, viz., creditors, bankers,
shareholders etc., may also use ratio-analysis as a tool for financial analysis and
interpretation. Ratio-analysis may highlight upon the few phases of the business
operations in which the outsiders are most interested by ascertaining the rate and
direction of change and future potentialities. Thus, ratio-analysis is a very
powerful tool for both internal and external analysis.

4.1.1 IMPORTANCE OF RATIO ANALYSIS

The importance of ratio-analysis lies in the fact, that it presents facts on a
comparative basis and enables the drawing of interferences regarding the
performance of a firm. Ratio-analysis relevant in assessing the performance of a
firm in respect of the following aspects:-

1) LIQUIDITY POSITION :-
With the help of ratio-analysis conclusion can be drawn regarding the liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is
able to meet its current obligations when they become due. A firm can be said to
have the ability to meets its short-term liabilities if it has sufficient liquid funds to
pay the interest on its short maturing debt usually within a year as well as the
principal.

2) LONG-TERM SOLVENCY:-
Ratio-analysis is equally useful assessing the long-term financial viability of a
firm. This aspect of the financial position of a borrower is of concern to the long-
term creditors, security analysts and the present and potential owners of a

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business. The long term solvency is measured by the leverage/capital structure
and operating efficiency Ratio-analysis reveals the strength and weakness of a
firm in this respect.

3) OPERATING EFFICIENCY:_
Another dimension of the useful of the ratio-analysis, relevant from the viewpoint
of the management, is that it throws light on the degree of efficiency in the
management and utilization of its assets. It would be recalled that the various
activity ratio measure this kind of operational efficiency.

4) OVERALL PROFITABILITY :-
Unlike the outside which are interested in one aspect of the financial position of
the firm, the management is constantly concerned about the over-all profitability.
That is, they are concerned about the ability of the firm to meets its short-term as
well as long-term obligations to its creditors to ensure a reasonable return to its
owners and secure optimum utilization of the assets of the firm.

5) INTER-FIRM COMPARISON :-
Ratio-analysis not only throws light on the financial position of a firm but also
serve as a stepping stone to remedial measures. This made possible due to inter
firm comparison with the industry averages. A single figure of particular ratio is
meaningless unless it is related to some standard or norm. One of the popular
techniques is to compare the ratios of a firm with the industry average. It should

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be reasonably expected that the performance of a firm should be in broad
conformity with that industry to which it belongs.

4.1.2 LIMITATIONS OF RATIO ANALYSIS

 A single ratio in itself is not important, or has limited value because trend
is more significant in the analysis. At the same time, a change in a
particular ratio is meaningful, only when it is studied with reference to
other ratios.
 Another limitation is that of standard ratio with which the actual ratios may
be compared. Generally, there is no such ratio which may be treated as
standard for the purpose of comparison, because condition is one concern
differ significantly from those of another concern.
 The accuracy and correctness of ratio are totally dependent upon the
reliability of the data contained in financial statements on the basis of
which ratio are calculated.

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  The analyst must be able to examine the nature of the data carefully. If
accounting data lack uniformity particularly definitional uniformity, then
ratios calculated on the basis of them will be misleading.

4.1.3 TYPES OF RATIOS

Ratio-analysis can be classified, for purposes of exposition, into four broad groups
:

I. Liquidity Ratios.
II. Leverage Ratios/Solvency Ratios/Capital Structure
III. Activity Ratio/Turnover Ratio
IV. Profitability Ratio

I. LIQUIDITY RATIO
The importance of adequate liquidity in the sense of the ability of a firm to meet
current/short-term obligations when they become due for payment can hardly be
over-stressed. Liquidity is a pre-requisite for the very survival of a firm. The
short-term creditors of the firm are interested in the short-term solvency or
liquidity of the firm. But liquidity implies, from view point of utilization of the
funds of the firm, that funds are ideal or they earn very little. A proper balance

25
between the two contradictory requirements, i.e. liquidity and profitability is
required for efficient financial management.

The ratios which indicate the liquidity of a firm are :-

1. Current ratio
2. Liquid Ratio / Quick Ratio / Acid Test Ratio
3. Cash Ratio

1. CURRENT RATIO :_
The different between current assets and current liabilities is called working
capital. It shows an enterprise ability to cover its current liabilities with its current
assets. It is commonly held higher is the amount of working capital greater will be
the liquidity of the business. Thus working capital may be considered as a
measure of ratio liquidity. The ratio of current assets and current liabilities is
called “Current Ratio’ or ‘Working Capital Ratio’.

Current ratio is used to measure the liquidity position of the concern and thus it
reflects the short-term solvency of concern. In others words, it shows the ability of
the concern to meets its all current obligations as and when these are due during
short-term period. Current ratio is calculated as under:-

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 Current Ratio _ Current Assets

Current Liabilities

Current Assets include:

1. Interest accrued on investment

2. Inventories
3. Debtors
4. Cash at bank/hand
5. Loan and advances
6. Bill Receivable

Current Liabilities includes:

1. Creditors
2. Bill Payable
3. Outstanding
4. Bank Overdraft

Current Ratio of 2:1 is ideal for any concern i.e. current ratio should be twice the
amount of current liabilities. If current assets are two times the current liabilities
there will be no adverse effect on business when current liabilities are paid off. If
the ratio is less than 2 it difficulties may be experienced in the payment of current
liabilities & day to-day operation of business, on the other hand it shows the
blockage of cash which is not favourable for the firm.

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2. QUICK RATIO:-
The current ratio in the study of solvency may be some times misleading due to
high ratio of the stock to current assets. It is suggest that current ratio should be
supplemented by another ration know as ‘Quick Ratio” . This ratio is the
relationship between quick assets and current liabilities. It shows an enterprise
ability to meet current liabilities with its most liquid. Quick assets comprise of
Cash in Hand, Bank Balance, Book Debts, Bills Receivables and readily Saleable
Securities.

Quick Ratio = Quick Assets

Current liabilities

Quick Assets include:

1. Cash in Hand
2. Bank balance
3. Bill Receivable
4. Book Debts
5. Loan and Advances
6. Interest accrued on investment
Quick Assets = Current Assets – Inventory (Stock)

Higher the ratio, better the ability to honour current obligations. Since quick
assents are also known as liquid assets, quick ratio also is also Liquid Ratio or
Acid Test Ratio. It is commonly held that quick ratio should be 1:1. If ratio is less

28
than 1:1, i.e. liquid assets are less than current liabilities, the financial position of
the concern shall be deemed to be unsound and real cash will have to be provided
for the payments of the liabilities. On the other hand if the ratio is more than 1:1,
it can be surmised that the financial condition of the enterprise is sound and good.

3. CASH RATIO:-
Cash is the most liquid assets. Trade investment or marketable securities are
equivalent of cash. This is the ratio between cash and balances to current
liabilities. Such as:-

Cash Ratio = Cash + Bank

Current Liabilities

Higher the ratio the better it is and if it is less than the liquidity position of the
company is not satisfactory.

II. LEVERAGE RATIO / SOLVENCY RATIO

The second category of financial ratio is leverage or capital structure ratios. The
leverage or capital structure rations may be define as financial ration which throw
light on the long-term solvency of a firm as reflected in it ability to assure the
creditors with regard to (i) periodic payment of interest during the period of the
loan and (ii) repayment of principal on maturity or in pre-determined installments
at due dates.
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 Leverage ratio may be calculated from the balance sheet items to
determine the proportion of debt in total financing. The important
leverage/solvency ratio are as follows-

1. Proprietary Ratio

1. PROPRIETARY RATIO :-
It is the ratio which indicates the relation between proprietor’s funds to
Total Assets. It is also called Net Worth to Total Assets Ratio because
proprietor’s fund is also known as Net Worth. It indicates the strength of financial
foundation of the concern and serves as a measure of ultimate or long-term
solvency. This ratio is also used in the study of ‘Capitalisation’ of a business
concern. It is founded as under:-

Proprietary Ratio = Shareholder’s Funds

Total Tangible Assets

OR

= Proprietor’s Funds

Total Assets

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 Total Assets = Fixed Assets+Current Assets

The higher the ratio the more safety for the creditors. 50% is supposed to be the
satisfactory proprietary Ratio for the creditors, less than 50% is the sign of risk for
creditors.

III. ACTIVITY RATIO / TURN OVER RATIO

The third category of ratios is the activity ratio. The other ratios, as tools of
financial analysis are called to evaluate a firm from the view-point of parties
interested in the firm. The liquidity ratios and leverage ratios, it may be recalled,
are relevant for the short-term and long term creditors of the firm. Activity ratios
are concerned with measuring the efficiency in assets management. Sometime,
these ratios are also called efficiency ratios. The efficiency with which the assets
are used would be reflected in the speed and rapidity with which assets are
converted into sales. The greater the rate of turnover or conversion the more
efficiently the utilization management, others things being equal. For this reason,
such ratios are also designated as turnover ratios. Turnover is the primary mode
for measuring the extent of efficient employment of assets by relating the assets to
sales. An activity ratio may, be defined as a test of the relationship between sales
and the various assets of a firm.

1. Sales to Capital Employed

2. Sales to fixed Assets

3. Sales to Working Capital

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4. Total Assets T/O Ratio

5. Inventory or Stock T/o Ratio

1. SALES TO CAPITAL EMPLOYED (OR CAPITAL TURNOVER)

RATIO :-

Sometimes the efficiency and effectiveness of the operations are judged by

comparing the cost of sales or sales with amount capital invested in the business
and not with assets held in the business, though in both cases the same result is
expected. Capital Turnovers are calculated to study the uses of various type of
capital.

Sales to Capital Employed Ratio = ______ Sales _________

Capital Employed

Capital Employed = Share holders Fund + Long Term Liability

The higher the ratio, the greater the profits. A lower capital T/O ratio would
mean that sufficient sales are not being made that sufficient sales are not being
made and profits are lower.

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2. SALES TO FIXED ASSETS (OR FIXED ASSETS) TURNOVER RATIO :-

This ratio measures the efficiency of the assets use. The efficient use of assets will
generate greater sales per rupee invested in all assets of a concern. This ratio show
how the fixed assets are being used in the business. The ratio is important in case
of manufacturing concern because sales are produce not only use of current assets
but also by amount invested in fixed assets.

Sales to Fixed Assets = ________Sales__________

Net Fixed Assets

Net fixed Assets = Fixed Assets – Depreciation

Higher the ratio the better is the performance. A low ratio indicates that fixed
assets are not being efficiently utilized.

3. SALES TO WORKING CAPITAL (OR WORKING CAPITAL) T/O

RATIO:-

This ratio is shows the number of times working capital is T/O in a stated per

Sales to W.C. T/O Ratio = Sales

Net W.C.

The higher the ratio, the lower is the investment in working capital and the greater
the profits. However, a very high T/O of W.C. is a sign of overtrading which may

33
put the concern into financial difference. On the hand, a low W.C. T/O ratio
indicates that W.C. is not efficiently utilized.

4. TOTAL ASSETS T/O RATIO :-

This shows the relation between total assets and sales (or cost of sales) of the
concern. Total assets are taken at the value shown at the end of the years as a
whole. This ratio indicates the utilization of total assets in the working/operation
of the concern. It is used to judge the effectiveness of the use of total assets and to
study the trend of over-investments in assets. The formula is :

Total Assets T/O Ratio = __________ Net Sales___________________

Total Assets

Total Assets = Net Fixed Assets + Investment + Current Assets

A high ratio is an indicator of over trading of total assets while a low ratio reveals
ideal capacity. The traditional standard for this ratio is two times.

5. INVENTORY OR STOCK T/O RATIO:-

This is also called stock velocity. This ratio is calculated to consider the adequacy
of the quantum of capital and its justification for investing in stock or inventory.
Inventory turnover is the number of times obtained by dividing cost of sales by
Average Stock.

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Inventory T/O Ratio = Cost of Good Sold

Average Inventory (stock)

Average Inventory = Opening Inventory + Closing Inventory

Cost of Good Sold = Sales - Gross Profit

If opening Stock is not available then:

Inventory T/O Ratio = Cost of Good Sold

Closing Stock

OR inventory T/O Ratio = Net sales

Inventory

Stock T/O is used to measure the efficiency of sales. If a concern is able to effect
higher volume of sales with lower quantum of stock, then it can be concluded that
marketing efficiency of the concern is very sound and high. Concerns having too
high stock turnover ratio may be operating with low margin of profit and vice-
versa. If the stock T/O is low or of smaller magnitude then it may be assumed to
indicate (i) that there is slum in the business (ii) that there is over investment in
stock, (iii) the stock has been valued incorrectly or in properly. So, higher T/O
ratio is better.

IV. PROFITABILITY RATIO

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Profitability ratio is the fourth and the last ratio of ratio-analysis. Profit-earning is
the main objectives of each business concern. To the same time, it is the effort of
every concern to earn maximum profit not only in absolute terms but also in
relative terms. i.e., profit should be maximum use of available resources by the
business concerns is known as ‘Profitability’. The status of profitability depends
upon the quantum of sales, nature of costs and proper use of financial resources.
Profit is an absolute measure of earning capacity and profitability is the relative
measure of earning capacity. Types of profitability ratios are :

1. Gross Profit Ratio

2. Net Profit Ratio

3. Operating Expenses Ratio.

1. Gross Profit Ratio :-

This ratio expresses the relationship between Gross Profit and Sales. The formula
for computing this ratio is as under:

Gross Profit Ratio = Gross Profit x 100

Sales

A higher ratio is always considered good and serves as an index of higher

profitability.

2. NET PROFIT RATIO:-

It is also called as Net Profit to Sales Ratio. It measures relationship between Net
Operating Profit and Sales and as such is expressed as percentage to sales as

36
indicated elsewhere, while ascertaining the net operating profit, items of non-
operating incomes and non-operating expenses are not taken into account. The
formula for computing this ratio is as under:-

Net Profit Ratio = Net Profit After Tax

Net Sales

Higher the ratio the better is the operational efficiency of the concern.

3. OPERATING EXPENSES RATIO:-

This ratio establishes the relationship between Operating Expenses and Sales. It is
important to note that operating ratio reflects upon the efficiency or otherwise of
the business as a whole. Sometimes it becomes imperative that each aspect of cost
of sales or operating expenses should be analysed in detail just to find out as how
far the concern is able to save or is making over-expenditure in respect of
different items of expenses. The formula for computing this ratio is as under:

Operating Expenses Ratio = Operating Expenses x 100

Sales

Operating Expenses = Net Sales – Net profit After Tax.

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A low ratio is favorable while a high ratio is unfavorable. The implication of a
high expenses ratio is that only a relatively small percentage share of sales is
available for meeting financial for meeting financial liabilities like interest, tax
and dividends, etc.

SOUTH EASTERN COALFIELDS LIMITED

(A SUBSIDIARY OF COAL INDIA LIMITED)

[BALANCE SHEETY AS AT 31st MARCH 2009]

AREA: BAIKUNTHPUR

(FIGURE IN RS)

As at As at

Schedule 31st mar 09 31st mar08

SOURCES OF FUNDS:

i) Share capital A 0.00

0.00

ii) Reserves & Surplus B 0.00

51,88,81,120.34

38
 0.0 51,88,81,120.
34

2. LOAN FUNDS:

i) Secured sch-C(a) 0.00 0.00

ii) Unsecured sch-C(b) 0.00 0.00

0.0 0.
0
0

3. INTER AREA CURRENT ACCCOUNT

i) for sale transaction sch-AA 0.00

0.00

ii) for transaction other

than sales sch-BB 4,87,64,08,936.26 3,51,60,45,306.51

4,87,64,08,936.26

3,51,60,45,306.51

TOTAL 4,87,64,08,936.26
4,03,49,26,426.85

APPLICATION OF FUNDS

1. FIXED ASSETS sch-D

Gross Block 3,63,48,90,659.23 3,52,39,11,875.07

Less: dep & impairment 1,71,68,70,058.51 1,35,14,05,821.04

Net block 1,91,80,20,600.72 2,17,25,06,054.03

Add: Capital W.I.P. 2,34,44,351.04 3,72,85,966.91

39
 1,94,14,64,951.76 2,20,97,92,020.94

2. CURRENT ASSETS, LOANS, AND ADVANCES

i) Inventories sch-F 14,95,73,029.33 10,59,02,831.52

ii) Sundry debtors sch-G 0.00 0.00

iii) Cash & Bank Balances H 86,61,581.30 21,99,009.43

iv) Loans & Advances I 3,24,22,894.65 3,35,02,548.91

19,06,57,505.28 14,16,04,389.86

Less: C.L. & provisions J 1,19,75,57,057.16 1,90,70,22,469.35

- 1,00,68,99,551.88 -1,76,54,18,079.49

3. Profit & Loss a/c k 1,50,77,209.85 0.00

4. Inter Area Current A/C

i) For sales transactions AA 3,92,22,67,678.48 3,57,90,77,918.54

ii) For transaction other

than sales BB 44,98,648.05 1,14,74,566.86

3,92,67,66,326.53 3,59,05,52,485.40

TOTAL 4,87,64,08,936.26 4,03,49,26,426.85

SOUTH EASTERN COALFIELDS LIMITE

[A SUBSIDIARY OF COAL INDIA LIMITED]

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31st MAR 2009

AREA: BAIKUNTHPUR

(FIGURE IN RS)

40
INCOME SCH 31st MAR 09 31st MAR08

Sales 1 3,23,67,28,175.89 2,97,07,24,878.90

Coal issued for

Other purpose 2 14,07,150.00 14,33,076.20

Accreation/Decreation

In stock 3 5,10,97,025.02 4,59,38,187.28

Other receipts 4 11,56,74,641.62 8,63,54,847.57

NET LOSS FOR THE

YEAR CARRIED DOWN 1,50,77,209.85 0.00

TOTAL 3,41,99,84,202.38 3,10,44,50,989.95

EXPENDITURE SCH 31St MAR09 31st MAR08

Internal consumption

Of coal 14,07,150.00 14,33,076.20

Employee remuneration

& benefits 5 2,16,54,49,531.44 1,47,89,86,708.92

Consumption of stores

& spares 6 47, 06, 06,339.75 39, 52, 73,437.28

Power & fuel 7 17, 62, 57,195.00 16, 05, 35,975.00

Repairs 8 2, 75, 78,898.76 2, 11, 26,216.13

Contractual exp. 9 13, 84, 00,712.75 7, 66, 18,696.45

Social overheads 10 22, 47, 74,395.32 21, 86, 57,261.26

Other expenditure 11 8, 36, 70,838.19 8, 81, 60,901.09

41
Interest 12 0.00 1, 02,656.00

Depreciation 12, 97, 68,475.14 14, 62, 99,809.82

Provisions 14 20, 53,272.06 3, 39,602.60

Prior period adjustment 15 17,393.97 19, 64,471.14

Net profit for the

Year carried down 0.00 51, 88, 81,120.34

TOTAL 3,41,99,84,202.38 3,10,44,50,989.95

42
 CHAPTER – 5

CALCULATION

& INTERPRETATION

CALCULATION AND INTERPRETATION

43
Calculation of some ratios and their comment on the basis of Annual Account of
South Eastern Coalfield Limited are as below:-

1.LIQUIDITY RATIO

A. CURRENT RATIO

Current Ratio = current assets/current liabilities

YEAR 2007-2008 2OO8-2009

Current Ratio 141604389.86/1907022469.35 190657505.28/1197557057.16

=0.07 =0.15

Current Ratio

0.2
2009
Column1
2009 2008
0
2008 2009

INTERPRETATION:-

Current Ratio is used to measure the short term solvency of the concern. The
current ratio of 2:1 is ideal for any concern and greater than is better for the

44
business. Current ratio of 2008-2009 is less than 2 which shows friction in
liquidity operation of the business of the firm.

B.QUICK RATIO

Quick Ratio = Quick Assets

Current Liabilities

YEAR 2007-2008 2008-2009

Quick 35701558.34/1907022469.35 41084475.95/1197557057.16

Ratio
=0.018 =0.034

Quick Ratio

0.05

0
2008 2009

2008 2009

INTERPRETATION:-

45
 Quick Ratio should be 1:1. If this ratio is less than 1:1, i.e. liquid assets are
less than Current liability, on the other hand if the Quick ratio is more than
1:1, it means that the financial position of the enterprise is sound and good .
The Quick ratio of 2008-2009 is 0.034 which is less than 1:1 and it also
shows that the financial position of the firm is sound less.

C. CASH RATIO

Cash Ratio = cash

Current Liabilities

YEAR 2007-2008 2008-2009

Cash Ratio 2199009.43/1907022469.35 8661581.30/1197557057.16

=0.0011 =0.0072

Cash Ratio

1
2009
2008
0
2008 Column1
2009

46
 INTERPRETATION

Cash is the most liquid asset. Higher the ratio the better it is and if it is less
than the liquidity position of the company is not satisfactory. Increase in cash
ratio is an indicator of strong liquidity position of the company. As compared
from the year 2007-2008, the cash ratio has been increased from 0.0011 to
0.0072 in the year 2008-2009 and this shows that the company have good
paying capacity.

2. LEVERAGE/SOLVENCY RATIO

A.PROPRIETARY RATIO:-

Proprietary Ratio = Shareholders Fund

Total Assets

YEAR 2007-2008 2008-2009

Proprietary Ratio 926771269.00/141604389.86 518881120.34/190657505.28

=6.54 =2.72

47
 Proprietary Ratio

7
6.5 2009
6
5.5
5
4.5
4
3.5 2008
3
2.5
2
1.5
1
0.5
0
2008 2009

INTERPRETATION:-

The higher the ratio the better it is because proprietary ratio shows the strength of
the financial foundation of the concern. But the ratio for the year 2008-2009 has
decreased from 6.54 to 2.72, which is not good for the financial position of the
firm.

3. ACTIVITY RATIO/ TURNOVER RATIO

A. SALES TO CAPITAL EMPLOYED RATIO (OR CAPITAL T/O)

Capital Employed T/O Ratio Net Sales

Capital Employed

YEAR 2007-2008 2008-2009

Sales to Capital 2970724878.90/926771269.00 3236728175.89/518881120.34
Employed Ratio
=3.20 =6.24
48
 Sales to Capital Employed Ratio

10 2009
2008

0
2008 2009

INTERPRETATION:-

The efficiency and effectiveness of the operations are judged by comparing the
sales with amount of capital invested in the business. The ratio has increased from
3.20 to 6.24which shows than the firm is having using its fund effectively. It
indicates the better performance of the company.

B.SALES TO FIXED ASSETS (OR FIXED ASSETS T/O) RATIO:-

SALES TO Fixed Assets T/O Ratio = SALES

Net Fixed Assets

YEAR 2007-2008 2008-2009

49
 Sales to 2970724878.90/2172506054.03 3236728175.89/1918020600.72
Fixed
=1.37 =1.69
Assets
Ratio

Sales to Fixed Assets Ratio

3 2009
2 2008
1
0
2008 2009

INTERPRETATION:-

As we know an increase in this ratio is the indicator of efficiency in work

performance and a decrease in this ratio speaks of improper investment in fixed
assets. The data shows that the ratio is increased from 1.37 in 2007-2008 to 1.69
in 2008-2009. This means that the utilization of fixed assets is more effective as it
was in 2007-08.

C. SALES TO WORKING CAPITAL ( OR WORKING CAPITAL)

RATIO:-

50
 W.C. T/O Ratio = Net Sales

W.C.

YEAR 2007-2008 2008-2009

Sales to Working 2970724878.90/- 3236728175.89/-

Capital Ratio 1765418079.49 1006899551.88
= -1.68 = -3.21

Sales to Working Capital Ratio

2009
1.5
1 2008
0.5
0
2008 2009

INTERPRETATION:-

This ratio shows the number of times working capital is turnover in a stated
period. The higher the ratio, the lower is the investment in working capital and
may be the greater the profit. The ratio is low in 2008-2009 than 2007-2008 which
indicates that the utilization of fixed assets is not effectively done in 2008-2009
with high working capital.

d. INVENTORY OR STOCK T/O RATIO:-

51
Inventory Turnover Ratio = Net Sales

Inventory

YEAR 2007-2008 2008-2009

Inventory T/O 2970724878.90/105902831.52 3236728175.89/149573029.33

Ratio
= 28.05 = 21.64

40
2009
20 Column1
2008
0 2009
2008 2009

INTERPRETATION:-

This ratio is calculated to consider the adequacy of the quantum of capital and its
justification for investing in inventory. If a concern is able to affect higher volume
of sales with lower quantum of stock than the marketing efficiency of the concern
is very sound and high.

E.TOTAL ASSETS TURNOVER RATIO:-

52
 Total Assets T/O Ratio = Net Sales

Total Assets

YEAR 2007-2008 2008-2009

Total Assets 2970724878.90/2351396410.80 3236728175.89/2132122457.04
T/O Ratio
=1.26 =1.52

Total Assets T/O Raito

2 2009
1.5
1 2008
0.5
0
2008 2009

INTERPRETATION:-

Total assets of the company increased in the year 2008-2009 than the year 2007-
2008 but sales have not increased in that proportion in the year 2008-2009. This
shows that the company could not utilized its assets effectively in 2008-09.

4. PROFITABILITY RATIO:-

A. GROSS PROFIT RATIO:-

53
 Gross Profit Ratio = Gross Profit X 100

Net Sales

YEAR 2007-2008 2008-2009

Gross Profit Ratio 51691664920/2970724878.90 1509460382/3236728175.89
= 17.40 = 0.47

Gross Profit Ratio

20 2009
10 2008

0
2008 2009

INTERPRETATION:-

The decrease in the ratio shows poor performance of the company. In 2008-2009
the ratio is 0.47 and in 2007-2008 the ratio is17.40.

b. NET PROFIT RATIO

Net Profit Ratio = Net Profit After Tax

54
 Sales

YEAR 2007-2008 2008-2009

Net Profit 518881120.34/2970724878.90 -
Ratio = 0.17 15077209.85/3236728175.89
= - 0.0047

Net Profit Ratio

0.2 2009
2008

0
2008 2009

INTERPRETATION:-

Net Profit along with operational ratio is an indicator or inefficiency. Higher the
ratio of Net profit to sales is better is the operational efficiency of the concern.
Decrease in the ratio does not shows the better operational efficiency of the
concern as well as does not shows the better performance of the company.

C. OPERATING EXPENSES RATIO:-

Operating Expenses Ratio = Operating Expenses

55
 Net Sales

YEAR 2007-2008 2008-2009

Operating 2451843758.56/2970724878.90 3251805385.74/3236728175.89
Expenses Ratio = 0.83 = 1.00

Operating Expenses Ratio

1 2009

0.5 2008

0
2008 2009

INTERPRETATION:-

As we know that low ratio is favorable but increase in the ratio of 2008-2009 as
compared to the ratio of 2007-2008 which is not good for the company.

5.1.1 finding ratio

56
S.No Ratios 2007-2008 2008-2009

A. Liquidity Ratio:

a) Current Ratio 0.07 0.15

b) Quick Ratio 0.018 0.034

c) Cash Ratio 0.0011 0.0072

B. Leverage ratio:

a) Propietary Ratio 6.54 2.72

57
58
C. ACTIVITY RATIO:-

a) Capital T/O Ratio 3.20 6.24

b) Fixed T/O Ratio 1.37 1.69

c) Working Capital T/O

Ratio
-1.68 -3.21

d) Total Assets T/ O Ratio

1.26 0.66

59
D. PROFITABILITY RATIO:-

a) Gross Profit Ratio 27.86 29.09

b) Net Profit Ratio 0.19 0.18

c) Operating Expenses 0.72 0.71

Ratio

60
Chapter – 6

Research

Methodology

61
MEANING OF Methodology

Information is lifeblood of any research report which in minimizing the risk and
uncertainty through systematic decision making. Using research techniques can
control this information, which helps in making effective research report.

Research is a systematic and objective for analysis of information element to

the identification and solution of any problem in any field.

Research comprises defining and redefining problems formulating hypothesis,

systematic collecting, organizing and evaluating data, making deductions and

62
reaching conclusion and at last carefully testing the conclusion to determine
whether they fit the formulating hypothesis.

It may be defined in one sentence as – “Systematized effort to gain new

knowledge.”

PROCESS:

A research has to proceed systematically in an already planned direction with

the help of a number of steps in a sequence, which is called Research process.

Research Methodology is a Science. It is a method that can be used to solve the

research problems. Research Methodology provides various steps that can be
adopted by the researcher in studying the research problem. These steps include
the selection of the research problem, the presentation of the problem, the
formulation of hypothesis, conceptual clarity and methodology, survey of
literature and documentation, bibliography, data collection, testing of hypothesis,
interpretation, presentation and report writing.

RESEARCH DESIGN

Fundamental to the success of any formal research report is sound research

design. It is a conceptual structure with in which research is conducted. It
constitutes the blue print for the collection, measurement and analysis of data.

A research design constitutes of decisions regarding what, where, when, how

much, by what means this research design includes on outline of what the
researches will do form writing hypothesis and its operational implications to the
final analysis of data.

63
Descriptive Research Design has been used for describing the characteristics of
descriptive of the state of affairs, as it exists as present.

Data collection technique:-

Once the appropriate research design is selected the task is to look for the type
and sources of data, which may be, yield derived result. The type of data available
to researches is:-

Secondary Data:-

1. Company Magazine

2. Manual

3. Website

Interpretation and Analysis:-

1) Tabulation of the collected data.

2) Conclusion and drawn from the collected data to accomplish the

objectives.

64
 CHAPTER – 7

SUGGESTION

&

RECOMMENDATION

SUGGESTIONS AND RECOMMENDATION

This Project is concerned with the Ratio Analysis of Financial Statement of

S.E.C.L. for preceding two years. In this project lots of information has been
about Coal India Limited (CIL) and South Eastern Coalfields Limited,
65
Baikunthpur area (S.E.C.L.) as well. This includes the theoretical and practical
part of the project. The data provide in this part has been taken from different
sources like Internet, Annual Report, etc.

In the analysis of Ratio of S.E.C.L. there are ratios which have been matched with
fixed standard and some are not.

LIQUIDITY RATIO:-

Liquidity of the company as shown by ratio concerned is reasonable good. The

current ratio is the simplest ratio give the estimation of Current assets and Current
liabilities. The current or Quick assets is more than its standard value which is
good but on the other hand excess Liquid assets means blockage of cash which is
unfavourable for the firm. It should be equivalent to the standard value.If the
company increase the level of the performance with increasing profit and better
utilization of its resources, the liquidity position will further improve in future,
this shows sound financial health of the company.

LEVERAGE RATIO:-

This means Capital is largely provided by the shareholders. Loans constitute only
a marginal amount overall capacity. Thus, the company enjoys high financial
leverages more specifically high long term liquidity. Besides with the current
structure of the capital it will be easy for the company to raise funds from the
market in case of requirement. This again indicates sound financial health of the
company.

66
ACTIVITY/TURNOVER:-

In the ratio sales to capital employed in the year 2008-2009 value is more due to
sufficient of sales, and in total assets turnover value is decrease in the year 2008-
2009 also for insufficient sales but it does not affect the profit so much according
to profit & loss a/c for the year ended 31st March 2008. Sales should be increased
for the company.

PROFITABILITY:-

The profit of the company is increased as compared to the last year, which may be
seen with increasing profitability ratio and decrease in operating expenses ratio.
This shows better performance of the company as compared to last year.

67
 CHAPTER – 8

CONCLUSION

CONCLUSION

68
SECL has been one of the major public undertaking companies in India and
Baikunthpur area also part of S.E.C.L.. I t has been established with huge amount
of capital, to maintain its productivity it has to utilized its resources very
effectively.

This project deals with different Financial Ratios of SECL. These ratios have been
compared with the standard value and then deviation have been noticed and
according to the deviation suggestion has been given. A high current ratio may
indicate a strong liquidity position but excess inventory may not be suitable.
Similarly, high turnover of the fixed assets may indicate efficient utilization of
plant and machinery or continued flogging of more or less fully depreciation worn
out and insufficient Plant and Machinery.

Liquidity ratio gives a picture of a company’s short term financial position. In

other word it shows how fastly the company is able to convert its current
liabilities into cash. Leverage ratio gives the detail about debt and equity. In
simple words it can be said that it helps in the calculation loan, funds & equity
funds of the business. If a company has more loans, funds than equity it is not
considered as healthy sign of the business, for a healthy business loan, funds
should be lower than equity funds. Operational ratio is used to measure the
turnover of the business. Profitability ratio which gives light on the profit part
business. Almost all the financial ratios have been covered in the project. The
analysis is done through the annual report of SECL.

After the 45 days study I found that the company is able to meet its short term
obligations in the event of adversity through its short term resources. Company
enjoys high financial leverage, more specifically high long term liquidity. The

69
company is earning increasing profit. Company is showing a constant growth
from past year as far as sale is concerned. On verification it is found that the
company is earning at lesser rate of cash balance that what it is paying out of loan.

Therefore, I conclude on the basis of my project work that on all front the
company fulfills all the criteria, which is expected from a financially sound
company. The company has therefore, a very bright future.

70
 CHAPTER – 9

BIBLIOGRAPHY

&

REFERENCE

71
 BIBLIOGRAPHY

a) Dr. S.P. Gupta, Management Accounting

b) I.M. Pandey, Financial Management

c) Annual Report (2007-2008) of South Eastern Coalfields

Limited Baikunthpur Area.

d) S.E.C.L. – A Profile 2008-2009, Released by S.E.C.L., Baikunthpur Area.

e) Website of CIL & S.E.C.L.

72