A STUDY ON OPERATING AND FINANCIAL PERFORMANCE OF SOUTHERN IRON AND STEEL COMPANY, SALEM.

S. JOTHIMANI Reg.No 71104631021

of KONGU ENGINEERING COLLEGE, PERUNDURAI.

A PROJECT REPORT
Submitted to the

FACULTY OF MANAGEMENT SCIENCE

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

JUNE 2006

BONAFIDE CERTIFICATE

Certified that this project report titled A STUDY OPERATING ON FINANCIAL PERFORMANCE OF SOUTHERN IRON AND STEEL COMPANY, SALEM. is the bonafide work of Ms. S. JOTHIMANI. Who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Supervisor

Director

Viva voice held on _____________

Internal Examiner

External Examiner

ABSTRACT
The topic taken for this study is Operating and Financial Performance. This study have been carried out at Southern Iron and Steel Company Private, ltd., Pottaneri, Mettur, Salem. The study has attempted to analyze the need and importance of financial performance and the present state of the same of SISCOL company. The study is fully based on secondary data from records, annual reports and profile of the company. This study has been organized into three chapters. The first chapter includes three main categories. The first one is introduction about steel industry, which includes history of steel development, introduction about Indian steel industry. Second one is introduction to design and execution of the study, which includes significance of the study, meaning and concept of finance and financial statement analysis, tools of financial statement analysis, objectives of the study, limitations of the study, research methodology and chapter scheme. Third one is about the company which includes raw material procurement, products consumers, financial pattern and organization chart of SISCOL. The Second chapter is Research Methodology which includes objectives, limitations, research design, sampling design. The third chapter is Analysis and Interpretation which includes Methodical classification, Ratio analysis, Common-size financial statements, Trend analysis, Dupont charts. The fourth chapter includes the Findings and suggestions of this study. after that it includes reference which are used to my project.

AKNOWLEDGEMENT
If words are considered as symbols of approval of acknowledgement then let the words play the heralding role of expressing my gratitude to all those who have helped me directly (or) indirectly this project. I express my sincere thanks to our Principal Dr.A.M. Natarajan, B.E., M.Sc., (Engg) Ph.D., MISTE, MCSI, MIEE, F.I.E. I have great pleasure to express my obligation to Prof.P.Sureshkumar, M.Sc., (Agri), MBA., Director of Department of Management Studies, Kongu Engineering College, Perundurai for his valuable advice for the completion of this project. I am greatly privilege to express my faculty guide Mr.S.Murugappan, P.G.D.E.D., MBA, Department of Management studies, Kongu Engineering college, perundurai for his valuable suggestions and encouragement for the completion of this project. I am greatly privilege to express my deep sense thankfulness to Mr. Boopalan, B.Com., ACA., ACS., company secretary (Financial and Accounts), SISCOL who provided me the necessary information and guiding for completion of this project with in the short period. I wish to express my sincere thanks to all my Friends for their co-operation, motivation which they gave me at every stages of this project work.

CONTENTS CHAPTER LIST OF TABLES 1 INTRODUCTION 1.1 Introduction about industry 1.2 Introduction about Indian steel industry 1.3 Introduction about SISCOL 2 RESEARCH METHODOLOCY 2.1. Objective 2.2. Limitation 2.3. Research Design 2.4. Sampling Design 3 ANALYSIS AND INTERPRETATION 3.1. Methodical classification of 3.1.1. Income statement 3.1.2. Balance sheet 3.2. Ratio Analysis 3.1.1. Profitability Ratios 3.2.2. Activity Ratios 3.2.3. Liquidity Ratios 3.2.4. Capital structure ratios 3.3. Common size Financial statements 3.4. Trend Percentages 3.5. Dupont Analysis 4 FINDINGS AND SUGGESTIONS 4.1. Findings 4.2. Suggestions REFERENCES PARTICULARS Page. No

LIST OF TABLES

SL.NO 3.1 Gross Profit ratio 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 Net profit ratio Operating ratio Earning Per share Price earnings ratio Earning yield ratio Return on Equity

PARTICULARS

Page.No

Return on Investment Return on total assets Fixed assets turnover ratio Debtors Turnover ratio Inventory turnover ratio Working capital turnover ratio Current ratio Quick ratio Net working capital ratio Cash Ratio Debt equity ratio Proprietary ratio Debt ratio

CHAPTER 1 INTRODUCTION 1.1. INTRODUCTION ABOUT INDUSTRY 1.1.1. HISTRORY OF STEEL INDUSTRY The global economy has been an upturn in 2004 with a strong recovery in some of the major economies of the world. Steel production is closely related to the growth in Gross Domestic Product (GDP). China remained the worlds largest crude steel producer in 2003 also followed by Japan and USA. India occupied the 8th position. 1.1.1.1. PRODUCTION / CONSUMPTION For the year 2003-2004, the production of finished steel in the country was up 7.4% to 36.15 mtpa while the consumption was 30.4 mtpa . The production had grown 6.7% during 2002-2003. 1.1.1.2. TYPES OF STEEL All steel Products are made from semi-finished steel the comes in the form of slabs, billets and blooms. Though today there are over 3500 varieties of regular and special steel available, steel products can be broadly classified into two basic types according to their shape. Flat products Derived from slabs this category includes plates and hot Rolled Steel such as Coil/sheets. While plates are used for applications such as shipbuilding etc., Long products Long products derive their name from their shape. Made using billets and blooms they include rods, bars, pipes, ropes, and wires, which are used largely by the housing / construction sector. There also other products like rail tracks inh the category.

Wide rods Wire rods is a hot rolled steel product and is manufactured in a round section. The diameter of the wire rod ranges between 5.5 to 14 mm and is supplied in coil form. Reinforcing rods Reinforcing rods are used bars / rods used to give adequate tensile strength and additional compressive strength to concrete mass. These are also kebars and are mostly supplied in the form of ribbed bars. High strength rebars These are produced either by cold twisting of standard rebars or through minor addition of alloys to steel, such as vanadium or niobium, which cause precipitation hardening in steel. 1.2. INTRODUCTION ABOUT INDIAN STEEL INDUSTRY The Indian steel industry is almost 100 years old now. Till 1990, the Indian steel industry operated under a regulated environment with insulated markets and large-scale capacities reserved for the public sector. Production and prices were determined and regulation by GOI. The Indian steel sector witnessed entry of several domestic private players and large private investments flowed into the sector to add fresh capacities. Today, India produces steel of international standards in almost all grades / varieties and has been a net exporter for the past few years which shows the growing acceptability of its products in the global markets. The Indian steel industry expects to see some momentum in the domestic market in the country. Apparent consumption of finished carbon steel increased from 14.8 mtpa in 1991-92 to 31.7 mtpa in 2003-2004. The Indian Steel industry improved performance in 2002-03 has attracted attention. The lending and investment community id tracking the industry progress with keen interest, from the point of view of recovering its past investments as well as for evaluating proposals for new investments. According to CRIS INFAC, the improved

performance of the industry is likely to continue through 2003-2004 to 2007-08 through the risk return. 1.3.INTRODUCTION ABOUT SISCOL The company was incorporated in September 1991 as public Limited Company promoted by M/s. Lakshmi Machine Works ltd. And Tamilnadu Industrial Development Corporation Ltd. The company is in the business of manufacturing Pig Iron, Billets, Bars and Rods at its integrated steel plant located at Pottaneri, M.Ksalipatti villages. In terms of CDR approval and as per approval of the shareholders of the company, LMV gas sold its entire shareholding in the company to the group. Main objectives of the company: To carry on the business of smelting, manufacturing , prospecting, raising operating, buying, selling,. Importing, exporting, purchasing or producing or otherwise dealing in pig iron of all grades / types / kinds, by products grinding media balls, steel shots and grits, steel. To carry on the business of founders manufacturing of ferrous and non-ferrous metals, sheet, metal works, mechanical, electrical, railway, agriculture, domestic mining, hydraulic, sanitation, civil, metallurgical, constructional engineers. To carry on the business of manufacturing and fabricators, of and merchants and dealers in iron and steel and non-ferrous bar, rounds, rods, angles, channels, sheets, wires, wire-nails, steel and non ferrous ingots, castings in any other form and shape.

1.3.1. MEANING AND CONCEPT OF FINANCE Finance is the life blood of business. Finance is of the basic foundations of all kinds of economic activities. Like any other functional management firm (such as production, marketing, finance etc) Finance is a vital functional organ of the firm. If the finance function does not operate well, the whole organizational activity will be collapsed. The subject matter of financial management has been defined in many ways depending upon the study of the subject. 1.3.2 CONCEPT OF FINANCIAL STATEMENT ANALYSIS Financial statement analysis is the collective name for the tools and techniques that are intended to provide relevant information to decision makers. The purpose of financial statement analysis is to access a company financial health and performances Financial statement analysis consists of comparisons for the same company over periods of time and comparisons of different companies either in the same industry or in different industries. Financial statement analysis enables investors and creditors to evaluated past performance and financial position, and to predict future performance.

CHAPTER 2

RESEARCH METHODOLOGY

2.1. OBJECTIVES OF THE STUDY 1. To measure the operating performance of the company. 2. To measure Liquidity position of the company. 3.To measure long term solvency of the company 2.2. LIMITATIONS OF THE STUDY This study mainly depends on the Secondary data i.e., Annual reports of SISCOL. Operating and Financial performance of the company is analyzed using 5 years data alone. The Study does not consider the time value of money. The validity of analysis and suggestions depends on the financial statements and reports alone, provided by the company. 2.3 RESEARCH DESIGN The research design that is adopted in this study is descriptive design. Descriptive research is used to obtain information concerning the current status of the phenomena to describe, "what exists" with respect to variables or conditions in a situation.

2.4.

SAMPLING DESIGN

2.4.1. SAMPLIE SIZE:The sample size for this study is 2000 2004 annual reports of Profit and Loss Account, Balance Sheet. 2.4.2. SAMPLE UNIT:One year Financial Report will constitute a sample unit. 2.4.4. DATA SOURCES:Data were collected through both secondary data sources. The Secondary data was collected mainly from 1. Annual Reports 2. Internal Records 3. Books 2.4.4. TOOLS USED:The collection of data were tabulated and presented in the appropiate places of various chapters. Besides the performance of business was evaluated by analyzing and interpreting financial statement with the help of Ratio Analysis, Trend Percentages, Common Size financial statement, Dupont Analysis. 3.3.COMMON-SIZE FINANCIAL STATEMENT Common-size Financial statements are those in which figures reported are converted into percentages to common base. The comparative common-size financial statements show the percentage of each cash item to the total in each period but from period to period.

3.4. TREND PERCENTAGES The method of calculating trend percentage involves the calculation of percentage relationship that each item bears to the same item in the base year. Any year may be taken as the base year. It is usually the earliest year. Any intervening year made be taken as the base year. Each item of base year is taken as 100 and on that basis percentages for each of the items of each of the years are calculated. These percentages can also be taken as index numbers showing relative changes in the financial showing relating changes in the financial data resulting with the passage of time. The method of trend percentages is a useful analytical device for the management since by substituting percentages for absolute figure. However, Trend percentages are not calculated for all of the items in financial statements. They are usually calculated only for major items since the purpose is to highlight important changes.

3.2. RATIO ANALYSIS Ratio analysis is widely used tool of financial analysis. Ratios are relationships expressed in mathematical terms between figures which are connected with each in some manner. It is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. This relationship can be expressed as Percentages, Fractions and proportion of numbers. Financial ratios are used to evaluate Profitability, Liquidity, Capital structure of the Company. Types of ratios: Ratios can be classified for the purpose of exposition into four broad groups. 1. Profitability Ratios 2. Activity Ratios 3. Liquidity Ratios 4. Capital structure Ratios ADVANTAGES: 1. Ratio simplifies Financial statements. 2. Ratio facilities inter-firm and intra-firm comparison. 3. It helps in decision-making.

3.2.1. PROFITABILITY RATIOS: The profitability ratios are calculated to measure the overall efficiency of the business. The management is naturally eager to measure its operating efficiency. Profitability ratios are used as an indicator of the efficiency with which the operation of the business. The following ratios are calculated: 1. Gross profit ratio 2. Net profit ratio 3. Operating profit ratio 4. Earning per share 5. Price earnings ratio 6. Earnings yield ratio 7. Return on equity 8. Return on investments 9. Return on total assets

3.2.1.1. GROSS PROFIT RATIO: This ratio expresses the relationship between gross profit and net sales of the firm. This ratio indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm. Gross profit Gross profit ratio = ------------------* 100 Net sales Table 3.1 Gross Profit ratio for the year 2000-2004 Loss) 2000 (225318002) 824579978 2001 (227819364) 880858939 2002 (83384350) 493038078 2003 (146370534) 2684443491 2004 (339301967) 3414455800 (source: SISCOL Annual Reports yea 2000-2004) Year Gross profit (Gross Net sales Gross profit ratio % (27.32) (25.86) (16.91) (5.40) (9.93)

The table dealt with the gross profit ratio from the year 2000 to 2004. In the year 2003 it deceased to (5.40)% again in 2004-05 it decreased to 9.93%. Hence, the company has not earned profit, the company has to take necessary steps to increase its sales or reduce it cost (expenses).

3.2.1.2. NET PROFT RATIO: Net profit ratio indicates net margin earned on sales. Net profit Ratio expressed the relationships between the net profit and net sales. This ratio helps in determining the efficiency with which affairs of the business are being managed. Net profit after tax Net profit Ratio = ---------------------------- x 100 Net sales Table 3.2 Net profit ratio for the yea 2000-2004 (Net Loss) 2000 (267846018) 824579978 2001 (288234026) 880858939 2002 (277142816) 493038078 2003 (457047331) 2684443491 2004 (1534049433) 3414455800 (Source: SISCOL Annual Reports year 2000-2004) Year Net profit after tax Net sales Net profit ratio % (32.48) (32.72) (56.21) (17.02) (44.92)

The company has not earned profit for the five years, it indicates the poor administration capability of the concern. This ratio also indicates that firms capacity to face adverse economic conditions such as price competition, lower demand etc. If the profit of the firm is not sufficient or the firm incurred loss, the firm shall not be able to achieve a satisfactory return on its investment.

3.2.1.3. OPERATING RATIO: The operating expense ratio explains the changes in the profit margin (EBIT to Sales) ratio. This ratio is computed by dividing operating expenses viz. cost of goods sold plus operating expenses. The Ratio is a complementary of net profit ratio. This ratio is measure of the operating efficiency with which the businesses is being carried. A comparison of the cost component is high or low in the figure of sales. Operating costs Operating Ratio = -------------------------- *100 Net sales (Operating cost = Cost of sales + Operating Expenses) Table 3.3 operating ratio for the year 2000-2004 Year Operating cost Net sales Operating ratio % 128.86 129.90 154.01 104.20 116.54

2000 1062627346 824579978 2001 1144244182 880858939 2002 759350798 493038078 2003 2797260863 2684443491 2004 3979453602 3414455800 (Source: SISCOL Annual Reports year 2000-2004)

It indicates operating efficiency of the firm. The operating ratio of the firm was increased for the first three years. In this periods the firm has spent more operating expenses. Hence it indicates the low efficiency of the firm. But there after in the year 2004 operating cost is decreased. So in this period the has tried to reduce the cost.

3.2.1.4. EARNING PER SHARE: Earning Per Share highlights the overall success of the concern from owners point of view and it is helpful in determining market price of equity share. Net profit after tax Earning per share = -----------------------------------------------------Number of Equity Shares Table 3.4 Earning per share Ratio for the year 2000-2004 (Net Loss) shares 2000 (267846018) 173741655 2001 (288234026) 173741655 2002 (277142816) 173741655 2003 (457047331) 173741655 2004 (1534049423) 173741655 (Source: SISCOL Annual Reports year 2000-2004) Year Net profit after tax No.of equity Earning per share % (Rs.) (1.54) (1.65) (1.59) (2.63) (8.82)

This table reflects the capacity of the concern to pay dividend to its equity sharesholders. The earning per share of the firm is negative from the year reputation of the firm as well as interest of the shareholders of the company. 2000-01 to 2004-05. Comparatively it has heavy loss in the year 2004-05. Hence it degrade the

3.2.1.5. PRICE EARNINGS RATIO: This ratio indicates the number of times the earning per share is covered by its market price. Price earning ratio helps the investor in deciding whether to buy or not Market price per share Price earnings ratio = --------------------------------Earnings per share buy the shares of a company at a particular market price.

Table 3.5 Price Earnings Ratio for the year 2000-2004 Share 2000 10 2001 10 2002 10 2003 10 2004 10 (Source: SISCOL Annual Reports year 2000-2004) Year Market Price per Earning per Share (Rs.) (1.54) (1.65) (1.59) (2.63) (8.82) Price Earnings Ratio (6.49) (6.06) (6.28) (3.84) (1.13)

Usually higher the Price earnings ratio, better it is. The Management should look into the causes that have resulted into the fall of this ratio. Hence Price Earnings Ratio negative, it affects the market price of shares, and also the company fails to get good name from its shareholders.

3.2.1.6. EARNINGS YIELD RATIO: The earning yield may be defined as the ratio of earnings per share to the market value per ordinary share. The earning yield ratio is also called the earning price ratio. Earning per share Earning yield = ----------------------------- x 100 Market price per share Table 3.6 Earning yield Ratio for the year 2000-2004 (Rs.) Share 2000 (1.54) 10 2001 (1.65) 10 2002 (1.59) 10 2003 (2.63) 10 2004 (8.82) 10 (Source: SISCOL Annual Reports year 2000-2004) Year Earning per Share Market Price per Earning yield (15.4) (16.5) (15.9) (26.3) (88.2)

Earnings yield shows negative value. It is also increasing trend. It reveales the poor performance of the company.

3.2.1.7. RETURN ON EQUITY: In real sense, equity shareholders are the real owners of the company. They assume the highest risk in the company. Equity shareholders are getting residual claim after paying interest and performance dividend. Return on equity capital, which is the relationship between profits of a company an its equity capital, can be calculated as: Net profit after tax Return on Equity = -------------------------------Net worth Table 3.7 Return on equity for the year 2000-2004 (Net Loss) 2000 (267846018) 1328866391 2001 (288234026) 1040632365 2002 (277142816) 763489549 2003 (457047331) 306442219 2004 (1534049433) (1227607214) (Source: SISCOL Annual Reports year 2000-2004) Year Net profit after tax Net worth ROE % (20) (27.69) (36.29) (149.14) 124.96

Here, the company has not earned profit, hence, the net loss erode the shareholders net worth year after year. The return on equity ratio has also showed increasing trend negative. The companys profitability position was not good.

3.2.1.8. RETURN ON INVESTMENT: The Conventional approach of calculating return on investment is to divide PAT by investment. Investment represent pool of funds supplied by shareholders ad lenders, while PAT represent reside income of shareholders therefore it is conceptually unsound to use PAT in the calculation of ROI. Operating profit ROI = -------------------------------- *100 Capital employed Table 3.8 Return on investment for the year 2000-2004 Year Profit after tax Capital employed 2000 (267846018) (4451542722) 2001 (288234026) (924333373) 2002 (277142816) (1110118486) 2003 (457047331) (8621366070) 2004 (1534049433) (8194190563) (Source: SISCOL Annual Reports year 2000-2004) Ratio (0.0601) (0.3118) (0.2496) (0.0530) (0.1872)

In the year 2000-2004 the company has incurred operational loss. Eventhough the company employed huge amount of capital but due to its inefficient operation, its operating profit turned into loss.

3.2.1.9. RETURN ON TOTAL ASSETS: The ROTA may also be called profit to asst Ratio. of the calculation of the ratio. The ROTA based on this ratio would be an under estimate as the interest paid to the creditors is excluded from the net profits. Net profit after Tax ROTA = ------------------------------------- * 100 Total assets Table 3.9. Return on total asset for the year 2000-2004 Year Net profit After Tax Return on Total asset Total Assets % (3.71) (3.49) (3.05) (4.80) (16.32) There are various

approaches possible to define net profits and assets, according to the purpose and intent

2000 (267846018) 7220804013 2001 (288234026) 8246161284 2002 (277142816) 9097237597 2003 (457047331) 9513779919 2004 (1534049423) 9395934277 (Source: SISCOL Annual Reports year 2000-2004)

In the year 2000-2004 the company incurred net loss. The return on total assets showed negative (loss) balance in all the 5 years. It was not good indication to conduct the business in forthcoming years.

3.2.2. ACTIVITY / TURNOVER RATIOS:

Turnover ratios are also known as Activity or Efficiency ratios. These indicate the efficiency with which the capital employed is rotated in the business. Activity ratio measures the efficiency of asset management. Turnover ratio indicates the number of times the capital has been rotated in the process of doing business. The following ratios are calculated: 3.2.2.1. FIXED ASSETS TURNOVER RATIO: Fixed assets turnover ratio indicates the extent to which the investments in fixed assets contribute towards coast of goods sold. If compared with a previous period it indicates whether the investment in fixed assets has been judicious or not. Cost of goods sold Fixed assets turnover ratio = -------------------------------------Fixed assets Table 3.10. Fixed assets turnover ratio for the year 2000-2004 Year Cost of goods sold 2000 1026302079 2001 1085499769 2002 713705801 2003 2757442192 2004 3814339033 (Source: SISCOL Annual Reports year 2000-2004) Fixed Assets 4599847844 1317459132 1233959900 8727028918 8195640982 Ratio 0.22 0.8 0.57 0.31 0.46

The above table dealt with fixed assets turnover ratio. Higher the ratio, more is the efficiency in probability of a business concern. A lower ratio is the indication of under utilization of fixed assets in the year 2000-01 and 2003-04 is lower, is indicates lower utilization of fixed assets.

3.2.2.2. DEBTORS TURNOVER RATIO: Debtors turnover is found out by dividing credit sales for average debtors. Debtors turnover indicates the number of times debtors turnover each year. The higher the value of debtors turnover, the more efficient is the management of credit. The average number of days for which debtors remain outstanding is called the average collection period. Net credit sales Debtors Turnover Ratio = ----------------------------------Closing debtors Table 3.11 Debtors turnover ratio for the year 2000-2004 Debt Year Net Credit Sales Closing Debtors Turnover Ratio 2000 824579978 50389479 2001 880858939 9583656 2002 493038078 110986542 2003 2684443491 100018767 2004 3414455800 66929427 (Source: SISCOL Annual Reports year 2000-2004) 16.36 91.91 4.44 26.83 51.01 Debt collection period (Days) 32 4 82 14 7

Debtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover more efficient in the management of debtors. Similarly, lower debtor turnover implies inefficient management of debtor. From the table the ratio for the year 2002-03 was very low, when compared with other remaining years performance.

3.2.2.3. INVENTORY TURNOVER RATIO: This ratio shows the number of times a companys inventory is turned into sales. This ratio indicates whether investment in inventory is efficiently used or not. indicated whether there is over-stocking materials. Cost of goods sold Stock turnover ratio = -----------------------------------Average inventory It

12 months (or) 365 days Inventory Holding period = -------------------------------------Inventory Turnover ratio Table 3.12 Inventory Turnover Ratio for the year 2000-2004 Inventory Year Cost of Goods Sold Average Inventory Stock Turnover Ratio 6.68 7.35 3.43 8.90 8.19 holding period in pays 54 49 112 41 44

2000 1026302079 153592765 2001 1085499769 147541313 2002 713705801 218289469 2003 2757442192 309736779 2004 3814339033 465419465 (Source: SISCOL Annual reports year 2000-2004)

The above table deals with inventory turnover ratio of the company. Inventory turnover ratio for the year 2000-01, 2001-02, 2003-04 and 2004-05 were satisfactory. But it was very poor in 2002. A high inventory turnover indicates efficient management of inventory, because more frequently the stocks are sold.

3.2.2.4. WORKING CAPITAL TURNOVER RATIO: A firm may also like to relate net current assets (or net working capital gap) to sales. It may thus compute net working capital turnover by dividing sales by net working capital. Net sales Working capital turnover ratio = ----------------------------------------Net working capital Table 3.13. Working turnover ratio for the year 2000-2004 Year Net sales Net working Capital Working capital turnover ratio (5.56) (2.24) (3.98) (25.41) (2354.12)

2000 824579978 (148305122) 2001 880858939 (393125759) 2002 493038078 (123841414) 2003 2684443491 (105662848) 2004 3414455800 (450419) (Source: SISCOL Annual reports year 2000-2004)

The table deals with working capital turnover ratio. Current liabilities of the concern, exceeds the current assets, then net working capital was negative A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. Comparatively, in the year 2003-04 and 2004-05, the net sales were increased more than that of earlier years.

3.2.3. LIQUIDITY RATIOS

Liquidity is the ability of company meets its short-term obligations when they fall due. As company should have enough cash and the current assets, which can be converted into cash so that it can pay its suppliers and lenders on time. The following ratios are calculated: 1. Current ratio 2. Quick ratio / Liquid ratio 3. Net working capital ratio 4. Cash ratio

3.2.3.1. CURRENT RATIO:

Current ratio is a widely used indicator of companys ability to pay its debts in the short-term. It is the relationships between current assets and current liabilities. Current assets are those assets which can be easily converted into cash within a short period of time or with in an operating cycle generally one year. Current liabilities are those which are payable with in a short period of time generally one year. Current assets Current ratio = ------------------------------------Current liabilities Table 3.14 Current Ratio for the year 2000-2004 Year Current Assets Current Liabilities Ratio 0.76 0.45 0.85 0.88 0.99 2000 494312614 642617736 2001 332579945 725705704 2002 752664529 876505943 2003 786751001 892413849 2004 1200293495 1202743914 (Source: SISCOL Annual Reports (year 2000-2004)

From the table, it reveals with the current ratio from the year 2002-2004. Internationally accepted current ratio is 2:1 i.e., current assets shall be 2 times of current liabilities. The ability of the concern also depends on current asset position. Here, current assets are not sufficient to meet its current liabilities. Hence the companys solvency position is not good for all the years indicated above.

3.2.3.2. QUICK RATIO This ratio is also termed as Acid Test Ratios and Liquidity Ratio. This ratio is ascertained by comparing the liquid assets to current liabilities. Prepaid expenses and stock are not taken as quick assets. Bank overdraft is not taken as quick liability. Quick assets Quick Ratio = ---------------------------Quick liabilities Table 3.15. Quick ratio for the year 2000-2004 Year Quick assets Quick liabilities 2000 340719849 642617736 2001 191090083 725705704 2002 457575452 876505943 2003 462366519 892413849 2004 5938390418 1202743914 (Source: SISCOL Annual Reports year 2000-2004) Ratio 0.53 0.26 0.52 0.51 0.49

From the above table in 2000-2004 the ratio is less than the ideal ratio 1. Here, quick liabilities are twice when compared with quick assets. Hence, this position is not healthy for the soundness of the business.

3.2.3.3. NET WORKING CAPITAL RATIO: Net working capital represents the excess of current assets over current liabilities. Net working capital measures the firms potential reservior of funds. Net working capital is a measures of liquidity. Net working capital Net Working capital ratio = --------------------------------Capital employed Net working capital = Current assets Current liabilities Table 3.16 Net working capital ratio for the year 2000-2004 Year Net working capital (in Rs.) Net Assets (or) Capital employed (in Rs.) 4451542722 924333373 1110118486 8621366070 8194190563 Ratio (0.0333) (0.4253) (0.1115) (0.0122) (0.0001)

2000 (148305122) 2001 (393125759) 2002 (123841414) 2003 (105662848) 2004 (1450419) (Source: SISCOL annual reports year 2000-2004)

The table revealed the networking capital ratio from the year 2001 to 2005. The company borrowed loan for its working capital requirements, because current liabilities were higher than that of current assets, in every year. Hence liquidity position is not good.

3.2.3.4. CASH RATIO Cash ratio means the availability to meet out the current liabilities. This ratio is also named as Absolute Liquid Ratio. It is the Relationship between the Absolute liquid assets include cash in hand, cash at bank and marketable securities or temporary investments. Cash Cash ratio = ------------------------Current liabilities Table 3.17 Cash ratio for the year 2000-2004 Year Cash Current liabilities 2000 189664386 642617736 2001 56876726 725705704 2002 196924654 876505943 2003 162590000 892413849 2004 355096130 1212743914 (Source: SISCOL Annual Reports year 2000-2004) Ratio 0.29 0.07 0.22 0.18 0.29

An ideal cash ratio is 0.75:1. This ratio is more regorious measure of a firms liquidity position. The table indicates from the year 2000 to 2004. For the 5 years the companys cash position is not sufficient to meet its obligations. Because the five years its position is lower than ideal ratio.

3.2.4. CAPITAL STRUCTURE RATIOS: Capital structure ratios are also called as Leverage Ratios and Solvency Ratios. The long term solvency of a company is affected by the extent of debt used to finance the assets of the company. These ratios explain how the capital structure of firm is made up or the debt equity mix adopted by the firm. Long term solvency ratios indicate a firms ability to meet the fixed interests and repayment schedules associated with its long-term borrowings. The important capital structure ratios are: 1. Debt-Equity ratio 2. Proprietary ratio 3. Debt ratio 3.2.4.1. DEBT EQUITY RATIO: The debt-equity ratio is calculated to ascertain the soundness of the long-term financial policies of the company. It is also known as External - Internal equity ratio. The relationship between borrowed funds and owners capital is popular measure of the long-term financial solvency of the firm. The relationship is shown by the debt-equity ratio. The ratio is Long-term debt Debt - equity ratio = -----------------------------------Shareholders funds Table 3.18 Debt equity ratio for the year 2000-2004 Year Long-term debt Share holders funds 138866391 1040632365 763489549 306442219 -1227607214 Debt Equity Ratio % 37.80 6.23 9.77 27.13 -7.67

2000 5249319886 2001 6479823215 2002 7457242105 2003 8314923851 2004 9421797777 (Source: SISCOL Annual reports year 2000-2004

The table dealt with debt equity ratio from the year 2000 to 2004. The standard norm is 1:1. The company has borrowed more long-term debt for its operation. It is not healthy for the soundness of the firm. A high debt-equity ratio indicates that the claim of outsiders are greater than those of owners. Hence, this position affect the financial position of the concern. 3.2.4.2. PROPRIETARY RATIO:

Proprietary ratio is variant of debt-equity ratio. Proprietary ratio establishes relationship between the proprietors funds and the total tangible assets. This ratio focused the attention on the general financial strength of the business enterprise. This is of particular importance to the creditors who find out the proportion of shareholders funds in the total assets employed in the business. Total Shareholders Fund Proprietary Ratio = ----------------------------------Total Tangible Assets Table 3.19 Proprietary ratio for the year 2000-2004 Year Share holders funds Total tangible Assets Proprietary ratio % 0.2020 0.1383 0.0928 0.0355 (0.1498)

2000 1328866391 6578186277 2001 1040632365 7520455580 2002 763489549 8220731654 2003 306442219 8621366070 2004 (1227607214) 8194190563 (Source: SISCOL Annual Reports year 2000-2004)

The proprietary ratio for the year 2001 is 0.18% and subsequently it deceased to (0.13 in 2004-05). The company fails to improve or retain its shareholders funds. Higher the ratio or the share of shareholders in the total capital of the company, better is the long term solvency position of the company.

3.2.4.3. DEBT RATIO: Debt ratios may be used to analyze the long-term solvency of a firm. The firm may be interested in knowing the proportion of the interest bearing debt in the capital structure. It may therefore, compute debt ratio by dividing total debt by capital employed or net assets. Total debt Debt ratio = ----------------------------Net asset Table.3.20 Debt ratio for the year 2000-2004 Year Total debt Total Tangible Assets Debt ratio % 0.79 0.86 0.91 0.96 1.15

2000 5249319886 6578186277 2001 6479823215 7520455580 2002 7457242105 8220731654 2003 8314923851 8621366070 2004 9421797774 8194190563 (Source: SISCOL Annual Reports year 2000-2004)

The debt ratio for the year 2000 is 0.79% and it is has increased subsequently to 1.15 in the year 2004-05. This position was not good to conduct business in future. Hence, the company has to take necessary step to avoid borrowing loan from bank or others. Huge debts carries huge amount of interest, it affects the profitability of the concern.

CHAPTER 4 FINDINGS AND SUGGESTIONS

4.1. FINDINGS 1. The gross profit has been decreased again and again. The company has not earned any profit during past five years. 2. The net profit ratio is indicating that the company has not earned profit for the past five years. 3. The return of equity ratio on 2005 has increased, while compared with 2001 to 2004. 4. The company has incurred operational loss because of the depreciation written off heavily during those year. 5. The fixed assets turnover ratio was picked up in the year 2002 and 2003. But in the year 2004 it did not show the hike. 6. Current ratio is indicating that the companys current assets are not sufficient to meet its current liabilities. So, the companys liquidity position is not good. 7. The cash ratio is indicating that the companys cash position is not sufficient to meet its obligations. Because, past five years position was deteriorated gradually. 8. The quick ratio is indicating that the companys quick liabilities are twice when compared with quick assets. This position is not healthy for the sound business. 9. The companys rate of interest was high and also cost of production was high. So the company could not earn profit during past five years. 10. The Dupont analysis is indicating that loss on equity in the year 2003 has increased while comparing it with previous years. Capital gearing in the year 2003 has increased as compared to 2002 data.

11. The common size statement was indicating that the equity share capital and reserves & surplus in the year 2000-2003 has decreased. In the year 2004 it has increased due to new issue of shares.

12. The trend percentage analysis was indicating that Earning Before Tax in the year 2004 has decreased that the growth in sales. Total assets have frown faster that net worth. SUGGESTIONS: Because of the cost of production and heavy interest rate the company has incurred heavy loss also because of the high depreciation written off the companys profitability position has been pull down. So the company can try to minimize the cost of production and redeem the debt finance in order to improve the profitability finance of the company.

3.5. DUPONT ANALYSIS 3.5.1. Dupont Chart for the Financial year 2000
Profit Margin = EBIT / SALES = (.11)% Return on Net Assets = EBIT / NA = (0.0203)% Assets Turnover = SALES / NA = 0.1852 Income Gearing = PAT / EBIT = 2.962

ROE = PAT / NW = (20)%

Capital Gearing = NA / NW = 3.3498 PAT NW NA = Profit After Tax = Net Worth = Net Assets

EBIT = Earning Before Interest and Tax SALES = Net Sales The Loss on Net Assets of company for the year 2000 was 0.0137%. The Income Gearing and Capital Gearing of the company was 2.963 times and 3.3498 times respectively. The Loss on Net Assets has been magnified 2.962 times and 3.3498 times. So the loss on equity was (20)%.

3.5.2. Dupont Chart for the Financial year 2001

Profit Margin = EBIT / SALES =(.12)% Return on Net Assets = EBIT / NA = (0.1193) Assets Turnover = SALES / NA = 0.9529 Income Gearing = PAT / EBIT = 2.611

ROE = PAT / NW = (27.69)

Capital Gearing = NA / NW = 0.8882

The Loss on Net Assets of company for the year 2001 was 0.1193%. The Income Gearing and Capital Gearing of the company was 2.611 times and 0.882 times respectively. The Loss on Net Assets has been magnified 2.611 times and 0.882 times. So the loss on equity was (27)%.

3.5.3. Dupont Chart for the Financial year 2002

Profit Margin = EBIT / SALES = (0.2149) Return on Net Assets = EBIT / NA = (0.0954)

ROE = PAT / NW = (36.29)

Assets Turnover = SALES / NA = 0.4441

Income Gearing = PAT / EBIT = 2.61

Capital Gearing = NA / NW = 1.4540

The Loss on Net Assets of company for the year 2002 was 0.0954%. The Income Gearing and Capital Gearing of the company was 2.61 times and 1.4540 times respectively. The Loss on Net Assets has been magnified 2.61 times and 1.4540 times. So the loss on equity was (36)%.

3.5.4. Dupont Chart for the Financial year 2003

Profit Margin = EBIT / SALES = (0.0430) Return on Net Assets = EBIT / NA = (0.0134)

Assets turnover = SALES / NA = 0.3114

ROE = PAT / NW = (149.15)

Income Gearing = PAT / EBIT = 3.9546

Capital Gearing = NA / NW = 28.1337

The Loss on Net Assets of company for the year 2003 was 0.0137%. The Income Gearing and Capital Gearing of the company was 3.9546 times and 28.1337 times respectively. The Loss on Net Assets has been magnified 3.9546 times and 28.1337 times. So the loss on equity was (149)%.

3.5.5. Dupont Chart for the Financial year 2004

Profit Margin = EBIT / SALES = (0.1477) Return on Net Assets = EBIT / NA = (0.0615) Assets Turnover = SALES / NA = 0.4166

ROE = PAT / NW = 124.96

Income Gearing = PAT / EBIT = 3.0412

Capital Gearing = NA / NW = (6.6749)

The Loss on Net Assets of company for the year 2004 was 0.0615%. The Income Gearing and Capital Gearing of the company was 3.0412 times and 6.6749 times respectively. The Loss on Net Assets has been magnified 3.0412 times and 6.6749 times. So the loss on equity was 124%.

REFERENCES

1. Dr. S.N. MAHESWARI (2000) Tenth edition Principles of Management Accounting Sultan Chand & Sons, Delhi-53. 2. I.M. PANDEY eighth edition financial Management Vikas Publishing House Pvt Ltd., New Delhi-110014 3. M.Y.KHAN & P K JAIN (2002) Third edition Management Accounting Tata McGraw-Hill Publishing Company Limited, New Delhi 4. SISCOL 5 years annual reports from 2000-2004.

BONAFIDE CERTIFICATE

ABSTRACT

AKNOWLEDGEMENT

CONTENTS

LIST OF TABLES

CHAPTER 1 INTRODUCTION

CHAPTER 2 RESEARCH METHODOLOGY

CHAPTER 3 ANALYSIS AND INTREPRETATION

CHAPTER 4 FINDINGS AND SUGGESTIONS

RATIO ANALYSIS

COMMON SIZE STATEMENTS

TREND ANALYSIS

DUPONT ANALYSIS

METHODICAL CLASSIFICATIONS

REFERENCES