Executive Summary

The present report attempts to give an overview of the Ratio Analysis with special reference to
Durgapur Steel Plant (DSP), a unit of SAIL. Financial Management has emerged as interesting
and exciting area for academic studies as well as for the practical financial managers. Financial
management covers the decisions taken by an individual for a business firm, which has financial
implications. So, the decisions process is oriented towards the objective of maximizing the
wealth of shareholders as reflected in market price of share.
As an integrated unit of SAIL, Durgapur Steel Plant is a public sector firm, whose 85% share is
with Government of India.
The study seeks to describe the importance of ratio analysis in manufacturing firms. An effort
has also been made to understand different financial implications and to make a detailed study of
various elements of ratio analysis in DSP. Here, the Ratios for Durgapur Steel Plant has been
compared with the other steel plants of Bokaro, Bhilai and Rourkela for three years, i.e. 2012,
2013, 2014.
Financial Management covers the decisions taken by an individual for a business firm, which
results in financial implication and hence improving the liquidity and also increases the ability to
invest in productive assets such as plant & machinery, so as to affect the profitability.

COMPANY PROFILE

2.1 AN OVERVIEW OF STEEL AUTHORITY OF INDIA LTD:

Steel Authority of India Ltd (SAIL) is the leading steel-making company in India. It is a fully integrated
iron and steel maker, producing both basic and special steels for domestic, construction, engineering,
power, railway, automotive and defence industries and for sale in export markets.
Ranked amongst the top public sector companies in India in terms of turnover, SAIL manufactures and
sells a broad range of steel products, including hot and cold rolled sheets and coils, stainless steel,
galvanized sheets, electrical sheets, railway product, plates bars and rods, and other alloy steels. SAIL
produces iron and steel at five integrated plants and three special steel plants located principally in the
eastern and central regions of India and situated close to domestic sources of raw materials including
companys iron-ore, lime stone and dolomite which are inputs for steel making.
SAILs wide range of long and flat steel products are much in demand in the domestic as wells as the
international market. This vital responsibility is carried out by SAILs own Central Marketing
Organization (CMO) that transacts business through its network of 37 Branch Sales Offices spread across
the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 Customer contact Offices.
CMOs domestic marketing effort is supplemented by its ever widening network of rural dealers who
meet the demands of the smallest customers in the remotest corners of the country. With the total number
of dealers over 2000, SAILs wide marketing ensures availability of quality steel in virtually all over the
country.
SAILs International Trade Division (ITD), in New Delhi an ISO 9001:2000 accredited unit of CMO,
undertakes exports of Mild Steel products and Pig Iron SAILs five integrated steel plants. With technical
and managerial expertise and know-how in Steel making gained over four decades, SAILs Consultancy
Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide.
SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which
helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its
own in-house Centre for Engineering and Technology, Management Training Institute and safety
organization in Ranchi. The captive mines are under the control the Raw Materials Division in Kolkata.
The Environment Management Division and Growth Division of SAIL operate from their headquarter in
Kolkata.

2.2 History of the Company

The precursor
SAIL traces its origins to the formative years of an emerging nation-India. After independence
the builders of modern India worked with a vision to lay the infrastructure for rapid
industrialization of the country. The steel sector was to propel the economic growth. Hindustan
Steel Limited was set up in January, 1954.
Expanding horizon (1959-1973)
Hindustan Steel (HSL) was initially designed to manage only one plant that was coming up at
Rourkela. For Bhilai and Durgapur Steel Plants, The preliminary work was done by Iron and
Steel Industry.
On the basis the concept of creating a holding company to manage inputs and outputs under one
umbrella. This led to the formulation of Steel Authority of India Ltd (SAIL), incorporated in
1973 with an authorized capital of 2000crore. This was responsible for managing integrated steel
plants at Bhilai, Bokaro, Durgapur, Rourkela.

Since its inception, SAIL has been instrumental in laying a sound infrastructure for the industrial
development of technical and managerial expertise.

Target Vision
TO BE A RESPECTED WORLD CLASS CORPORATION AND THE LEADERS IN
INDIAN STEEL BUSINESS IN QUALITY, PRODUCTIVITY, PROFITABILITY, AND
CUSTOMER SATISFACTION.

2.3 ABOUT DURGAPUR STEEL PLANT (DSP)

Durgapur Steel Plant was set up in the late 50s with an initial annual capacity of one million tons
of ingot steel, which was subsequently expanded to 1.6 million tons per year. The Colombo plan
mission headed by Sir Geric coates visited India in 1955 and recommended Durgapur as the
choice for setting up the integrated steel plant, to be built with British collaboration.
Durgapur Steel Plant was the third integrated steel plant of the then Hindustan Steel Limited, the
predecessor of todays Steel Authority of India ( SAIL) under the public sector in India. The first
two were Rourkela Steel Plant at Rourkela in Orissa and Bhilai Steel Plant at Bhilai in MadhyaPradesh today Chhattisgarh. Hindustan Steel limited was merged into SAIL. Durgapur Steel
Plant (DSP) was incorporated into SAIL on 1st May 1978. It produced its first steel on 25th April
1960.

TECHNOLOGICAL STATUS OF DURGAPUR STEEL PLANT

The modernized DSP now has the state of heart technology for quality steel making. The
Modernized units have brought about improved productivity, substantial improvement in energy
conservation and better quality products. DSPs steel making complex and the entire mills zone,
comprising its blooming & billet mill, skelp mill, section mill and axle plant are covered under
ISO:9002 Quality Assurance Certification.

PRODUCTION ACTIVITY OF THE COMPANY

DSP has seven major production units and all the units are making saleable goods individually. The
departments and products are shown in the table
TABLE 1: PRODUCTION ACTIVITY OF THE COMPANY
SL NO.

DEPARTMENT

PRODUCT

Wheel & Axle

Wheels, Axle and Wheel Sets

Skelp Mills

Skelps and Strips

Blooming & Billet mills

Blooms, Billets & Slabs

Merchant Mills

Plain rounds & TMT bars

Continuous Casting Plant

Billets

Blast Furnace

Pig Iron

Section Mills

Angels, Channels & joists

TABLE 1: PRODUCTION ACTIVITY OF THE COMPANY

Outline of the problem

To study the importance of Ratio Analysis and understand its various objectives.
To understand in general the management process of public sector companies.
To know how these are applied in practical life.
To understand financial management decisions taken by an individual or a business firm,
which have financial implications with respect to Durgapur Steel Plant (DSP).

METHODOLOGY AND PROCEDURE OF WORK

This study is focussed on the ratio analysis in the Durgapur Steel Plant. It also gives me a
comparative ratio analysis with the other steel plant. To conduct this study, I joined DSP as Intern
Trainee under the supervision of Mr V.K.BAJPAI, Assistant General Manager (Finance &
Accounts). In this study I have use both primary and secondary data.

For the study, I have collected primary data as well as secondary data. Primary data was
collected by interviewing one or two executives from each section of the finance department,
with special assistance of Mr V.K.Bajpai. Whenever any executive got time, I was referred to
him for my interview.
Sections visited: -1) Raw Material section

2) Main Account Section

3) Cash Section

4) Excise Section

5) Sales tax section

6) Pay accounts section

7) Cost and budget section

1. INTRODUCTION TO FINANCIAL RATIO ANALYSIS

MEANING OF RATIO
In mathematics, a ratio expresses the magnitude of quantities relative to each other. Specifically,
the ratio of two quantities indicates how many times the first ratio is contained in the second and
may be expressed algebraically as their quotient.
For example: if the total population of a town is 20,000 where 12,000 are males and 8,000 are
females, then the male female ratio can be expressed as 12,000:8,000 which is 3:2.
RATIO ANALYSIS
An accounting ratio or a financial ratio is a ratio of two selected numerical values taken from an
enterprises financial statement. Financial Analysis is the process of identifying the financial
strength and weakness of the firm and establishing relationship between the items of the balance
sheet and profit & loss account.
Ratio analysis, which uses accounting ratio, measures the profitability, efficiency and financial
soundness of business. The relationship between two facts, i.e., gross profit and sales or current
assets and current liabilities is studied and the result is presented in the form of simple ratio.
According to Myers, Ratio analysis is a study of relationship among the various financial
factors in a business.

5.1 SOURCES OF DATA FOR FINANCIAL RATIOS

Values used in calculating financial ratios are taken from the balance sheet, income statement,
and statement of cash flows or sometimes the statement of retained earnings. These comprise the
firms accounting statements or financial statements. The statements data is based on the
accounting method and accounting standards used by the organization.

5.2 METHODS OF EXPRESSING ACCOUNTING RATIOS

The analysis of the financial statement can be presented through any of the financial statement
can be presented through any of the following methods:-

1. Percentage method
The relationship between two figures is expressed in percentage. For example, if sales is
Rs. 1,00,000 and gross profit is Rs. 25,000, the relationship can be presented as gross
profit to be 25% of sales.

2. Rate or so many times Method

According to this method, one figure is expressed in terms of the other relative figure.
Taking the previous example into consideration, gross profit is seen to be 0.25 times or
1/4th of sales.

3. Ratio Method
The relationship between two figures is presented in a ratio. From the above example, the
ratio of gross profit to sales will be 25000:100000 or 1:4.

CLASSIFICATION OF FINANCIAL RATIO

Financial ratios quantify many aspects of a business and are an integral part of financial
statement analysis. They may be further classified into two categories: Liquidity ratio or short term financial ratio like current ratio and quick ratio
Solvency ratio or long term financial ratios like debt to equity ratio, proprietary
ratio and so on.
Profitability ratios measure the firms use of its assets and control of its expenses to generate an
acceptable rate of return, like gross profit ratio, net profit ratio, return on investment ratio etc.

Activity or turnover ratio measure how quickly a firm converts on-cash assets to cash assets.
Example of such ratios includes stock or inventory turnover ratio, debtors turnover ratio,
working capital turnover ratio, current assets turnover ratio and so forth.

ANALYSIS OF RATIO
In context to SAIL, we shall now discuss the theory and analyze certain ratios with the help of
the collected data. Here, the ratio for Durgapur Steel Plant has been compared with the other
steel plants of Bokaro, Bhilai and Rourkela, for three year, i.e., 2011-2012, 2012-2013, 20132014.

CURRENT RATIO
Current ratio indicates the short term financial soundness of the company. It judges whether
current assets are sufficient to meet current liabilities or not. Current assets include those assets
which can be converted into cash within a year, such as cash in hand, cash at bank, Debtors or
Book Debts and stock or Inventory. Similarly current liabilities are those liabilities which are to
be paid within a year, such as creditors, short term loans and Bills or Notes Payable.

CURRENT RATIO = CURRENT ASSETS

CURRENT LIBILITIES

Traditionally the conventional ratio is taken to be 2:1(for every current liability of Re.1, there
should be current assets of Rs.2).

Significance: - According to the ideal current ratio 2:1, current assets of a business should, at
least, be twice of its current liabilities. Higher the ratio better is the liquidity position of the firm.
However if in case it is too high, it will indicate idleness of funds while if it is too low, there will
be short term financial scarcity.

TABLE 1 : YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs in Crores )
YEAR(31ST
CURRENT
CURRENT
CURRENT RATIO
MARCH)
ASSETS
LIABILITIES
2011-2012
1087.59
439.65
2.47
2012-2013
1325.01
793.71
1.67
2013-2014
1194.89
983.98
1.21
Analysis: - In order to judge the liquidity position, current ratio is very important. The current
ratio of DSP in 2011-2012 is 2.47:1, after that it continuously decreasing which means company
having more debtors and having less liquidity in the year of 2013-2014.

Graphical Representation 1:-

10

TABLE 2: INDUSTRY WISE PERFORMANCE OF DUGAPUR STEEL PLANT (2013-14)

(Rs
YEAR(31ST
MARCH)
DURGAPUR STEEL
PLANT (DSP)

CURRENT ASSETS

in Crores)

CURRENT RATIO

1194.89

CURRENT
LIABILITIES
983.98

BOKARO STEEL
PLANT(BSL)

5480.96

2075.04

2.64

ROURKELA STEEL
PLANT(RSP)

2547.76

1458.70

1.75

BHILAI STEEL
PLANT(BSP)

3347.24

4000.64

0.84

1.21

Analysis: - The standard current ratio has been set up to be the maximum out of the industry
current ratio. The current ratio of Bokaro Steel Plant (BSL) is higher than the other industry
standard; due to high inventory BSL current ratio is high. The short term solvency position is
better at the present perspective but this might be temporary due to accumulation of inventory.

Graphical Representation 2 :-

QUICK
RATIO
Quick ratio,
also known
as acid test
ratio
or
liquidity
ratio shows
liquidity of
the business
in
real
sense.
It
establishes a relationship between quick/liquid assets and current liabilities. Cash is the most
liquid asset, other assets which are considered to be relatively liquid and included in quick assets
11

are debtors and bills receivable and marketable securities. Inventories are considered to be
relatively liquid and included in quick assets are debtors and bills receivable and marketable
securities. Inventories are considered to be less liquid.

QUICK RATIO = LIQUID ASSETS

CURRENT LIABILITIES

Generally a quick ratio of 1:1 is said to represent a satisfactory current financial condition.

Significance: - liquidity ratio shows very short term liquidity or capacity of the business to meet
its obligations at short notice (ordinarily within a month). The ideal norm of 1:1 implies that
liquid assets should be equal to current liabilities. Higher the ratio, better will be the capacity of
the business to meet its current obligations.

TABLE 3: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs

YEAR(31ST
MARCH)

LIQUID ASSETS

LIQUID LIBILITIES

in Crores)

QUICK RATIO

12

2011-2012
2012-2013
2013-2014

1050.75
1285.13
1193.48

582.21

846.06
1162.37

1.80
1.52
1.03

Analysis: - there are some elements of current assets as well as current liabilities that are less
liquid such as bank overdraft, stock, prepaid expenses etc. The quick ratio of DSP in 2013-2014
is 1.02:1.which indicates that the short term solvency position is very much comfortable for trade
payable and company having enough cash to pay its creditors.

Graphical Representation 3:-

TABLE 4: INDUSTRY WISE PERFORMANCE OF DUGAPUR STEEL PLANT

(Rs
YEAR(31MARCH,2014)
DSP

LIQUID ASSETS
1193.48

LIQUID LIBILITIES
983.98

in Crores)

QUICK RATIO
1.21
13

BSL
RSP
BSP

5478.10
2526.04

3344.39

2075.04
1458.70
4000.64

2.64
1.73
0.84

Analysis: - The standard quick ratio has been set up to be the maximum out of the industry quick
ratio. The quick ratio of BSL is higher than the industry standard (BSL= 2.64:1), which indicates
that its short term solvency position is better than the other plants.

Graphical Representation 4:-

GROSS PROFIT RATIO

It shows the relationship between gross profit and sales. The ratio shows the margin of gross
profit on sales and reflects the efficiency with which each unit of product is produced.
14

GROSS PROFIT RATIO = GROSS PROFIT

NET SALES

Here,

Net sales= sales sales return

For gross profit ratio, generally a range of 25% to 30% is taken as acceptable norm. However in
this case, the industry standards are followed.

Significance: - this ratio reveals profit earning capacity of the business with reference to its sale.
Increase in gross profit ratio will mean reduction in cost of production or direct expenses or sale
at reasonably good price, and decrease in the ratio will mean increased cost of production or
sales at lesser price. There is no ideal standard measure for this ratio but it should be sufficient to
cover selling expenses of the firm.

TABLE 5: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs

in Crores)

YEAR(31MARCH,2014)

GROSS PROFIT

SALES

GROSS PROFIT RATIO

2011-2012

844.14

6975.81

12.10

15

2012-2013

902.99

7649.82

11.80

2013-2014

778.91

7492.85

10.40

Analysis: - The gross profit ratio is used to explain the relation between sales and gross earnings.
According to above data, the gross profit ratio of DSP in 2012 was 12.10 % and afterwards it is
continuously in decreasing trend. Gross Profit Ratio falls to 10.40 % in 2014 due to huge amount
of direct expenses incurred. So, DSP have to reduce its expenditure in direct expenses and
increase its sale.

Graphical Representation 5: -

TABLE 6: INDUSTRY WISE PERFORMANCE OF DUGAPUR STEEL PLANT

(Rs
YEAR(31MARCH,2014)

GROSS PROFIT

SALES

in Crores)

GROSS PROFIT RATIO

16

DSP

778.91

7492.85

10.40

BSL

715.60

13594.42

5.26

RSP

792.60

9126.69

8.68

BSP

2651.92

17585.41

15.08

Analysis: - The Gross Profit Ratio of DSP is lower than BSP due to the decrease in the net
sales in 2014, which indicates that the profitability position of DSP is not good. But in
comparison to other two industries i.e. BSL and RSP, Gross Profit Ratio is better. So, DSP should
increase its income and reduce its expenditure as much as possible to improve the Gross Profit
Ratio.

Graphical Representation 6 :-

NET PROFIT RATIO

Net profit shows the relationship between net profit and sales. It measures the rate of net profit
earned on sales. This ratio helps in determining the operational efficiency of the business
operations.

17

NET RATIO =

NET PROFIT

X 100

NET SALES

Here,

Net sales = sales sales return

For net profit ratio, an ideal norm is absent. The industry standards are followed.

Significance: - An increase in the ratio over that of the previous year shows improvement in the
overall efficiency and profitability of the business. Decrease in the ratio indicates managerial
inefficiency and selling and distribution expenses.

TABLE 7: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs

YEAR(31MARCH,2014)

NET PROFIT

SALES

in Crores)

NET PROFIT RATIO

18

2011-2012

503.46

6975.81

7.22

2012-2013

552.66

7649.82

7.22

2013-2014

415.60

7492.85

5.55

Analysis:- Net Profit Ratio or Net margin Ratio measures the overall profitability and the
efficiency of the management. According to the above table, the net profit ratio of DSP in 2012
was 7.20 % and in 2013 it decreased to 7.18 %. In 2014, it decreased to 5.54% which shows a
negative trend. It indicates that in 2014 it has excessive indirect expenses. For that reason, it
needs to decrease its expense in the near future.

Graphical Representation 7:-

TABLE 8: INDUSTRY WISE PERFORMANCE OF SAIL

(Rs

in Crores )

YEAR(31MARCH,2014)

NET PROFIT

SALES

NET PROFIT RATIO

DSP

415.60

7492.85

5.55
19

BSL

202.01

13594.42

1.49

RSP

212.20

9126.69

2.33

BSP

2084.84

17585.41

11.86

Analysis: - The net profit ratio of DSP is 5.55 % which is less than BSP. It indicates that the
firm is unable to maintain its expenses in a proper way. In respect of that standard the
profitability of DSP becomes much poorer. But the net profit ratio of other two integrated
plants i.e. BSL and RSP is less than DSP. So, DSP have to improve its excessive indirect
expense in order to match with BSP.

Graphical Representation 8:-

STOCK TURNOVER RATIO

This ratio establishes a relationship between costs of goods sold and average stock, and reflects
the speed of turning over the stock into sales. It is also knows as inventory turnover ratio.

20

STOCK TRUNOVER RATIO =

TURNOVER
AVERAGE STOCK

TURNOVER= NET SALES

AVERAGE STOCK= (OPENING STOCK + CLOSING STOCK)/2

For stock turnover ratio, the ratio followed in the industry may be taken as the ideal norm.

SIGNIFICANCE: - This ratio shows the effectiveness of the stock policy of the management.
Higher stock or inventory turnover ratio is immediately sold and is not blocked. Every business
has to keep optimum amount of stock, so that production work maybe carried on smoothly. If the
average inventory kept during the year is more than ordinary requirement, the amount spent in its
purchase will be unnecessarily blocked and there will also be the problem of storing it. In case
the average stock is lesser than the ordinary requirement, the production work will suffer. So it is
advisable to maintain an optimum quantity of stock.

TABLE 9: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs
YEAR(31MARCH,2014)

TURNOVER

AVERAGE STOCK

in Crores)

STOCK TURNOVER RATIO

21

2011-2012

6395.85

1251.14

5.11

2012-2013

6903.61

559.72

12.33

2013-2014

6758.79

569.28

11.87

Analysis: - If the stock turnover ratio is too high it is an indication of holding a very low level
of inventory. Holding very low level of inventory is the risk of frequent shortage of stock, which
may adversely affect the production process. It is always desirable for a firm to maintain a
balance level of inventory. From the above data, we can see that in the year 2012 this ratio of
DSP is 5.11 times and in the year 2013 it increased to 12.33 times. But after that in the year 2014
it was decreased at 11.87 times. It indicates a projectile state of inventory level, and it should be
managed properly.

Graphical Representation 9:-

TABLE 10: INDUSTRY WISE PERFORMANCE OF SAIL

(Rs
YEAR(31MARCH,2014)

TURNOVER

AVERAGE STOCK

in Crores )

STOCK TURNOVER RATIO

22

DSP

6758.79

569.28

11.87

BSL

12298.21

3718.80

3.31

RSP

8198.53

1327.14

6.18

BSP

15777.81

1701.54

9.27

Analysis: - From the above table we can see that the stock turnover ratio of DSP is much better
than other three integrated steel plants i.e. BSL, RSP, and BSP. The Stock turnover ratio of DSP
is 11.87 times which is taken as the standard form. It is the sign of efficient inventory
management. It indicates the low inventory level and quick conversion of inventory into sales.

Graphical Representation 10:-

TOTAL EXPENSE RATIO

Total Expense Ratio is calculated to establish relationship between the various expenses incurred
by a business enterprise and it sales.

23

This ratio indicates the economy and efficiency with the various expenses are incurred to attain
the goal of maximizing profit and minimizing cost.

Total Expense Ratio =

Total Expense
Net Sales

Ideal norms: - Varies from industry to industry.

Significance: - Total Expense Ratio when compared with the same ratio of the previous year
gives a very important indication whether these expenses in relation to sales are increasing,
decreasing, or remaining satisfactory. If the total expense ratio is lower, the profitability will be
greater and if the total expense ratio is higher, the profitability will be lower.

TABLE 11: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

24

(Rs in Crores)
YEAR

TOTAL EXPENSE

NET SALES

TOTAL EXPENSE
RATIO

2011-12

5994.87

6991.15

85.74 %

2012-13

6692.9

7694.7

86.98 %

2013-14

6589.53

7492.85

87.94 %

( 31stMARCH,2014)

Analysis: - Form the above table, we can analyses that the Total Expense Ratio of DSP shows
the increasing trend from 2012 to 2014. It increases from 85.74 % to 87.94 %. Clearly, Total
Expense Ratio is not in favour of Durgapur Steel Plant. So, DSP should try to reduce its total
expense further and increase net sales to increase its profit.

Graphical Representation 11:-

TABLE 12: INDUSTRY WISE PERFORMANCE OF SAIL

(Rs in Crores)
25

YEAR
(31stmarch 2014)

TOTAL
NET SALES
EXPENSE

TOTAL EXPENSE
RATIO

DSP

6589.53

7492.85

87.94 %

BSL

11896.88

13594.42

87.51 %

RSP

8307.8

9126.69

91.02 %

BSP

14497.49

17585.41

82.44 %

Analysis:- Total Expense Ratio of DSP is more than BSL and BSP. It shows that DSPs control
over expenses and cost is poor in comparison to BSL and BSP. The higher the ratio, the bad the
position of the management. So, DSP should reduce its expenses and cost for better result. They
should also try to increase their sales by targeting their customers.

Graphical Representation 12 :-

FIXED ASSET TURNOVER RATIO

Fixed Asset Turnover Ratio is calculated to measure the adequate or otherwise of investment in
fixed asset.
26

This ratio reveals how efficiently the fixed asset is being utilized.

Fixed Asset Turnover ratio =

Net Sales
Net Fixed Asset

Net Sales = Sales Excise duty Return

Net fixed Asset = Fixed Asset Depreciation

Significance: - A high fixed assets turnover ratio indicates efficient utilization of fixed assets
in generating sales. A firm whose plant and machinery are old may show a higher fixed assets
turnover ratio than the firm which has purchase them recently.

TABLE 13: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

( Rs in Crores)
27

YEAR

Net Sales

Net Fixed
Asset

Fixed Asset
Turnover Ratio

2011-12

6991.15

1379.77

5.06 Times

2012-13

7694.7

1195.97

6.43 Times

2013-14

7492.85

1242.35

6.03 Times

( 31st March )

Analysis:- From the above table, we can analyses that Fixed Asset Turnover Ratio of DSP has
a parabolic trend . In 2013 there was a improvement in the ratio to 6.43, but in 2014 it decreases
to 6.03 times. This means that the efficiency in work performance of DSP has a positive slope
and it needs improvement.

Graphical Representation 13 :-

TABLE 14: INDUSTRY WISE PERFORMANCE OF SAIL

( Rs in Crores )
YEAR
(31st march

Net Sales

Net Fixed
Asset

Fixed Asset
Turnover
28

2014)

Ratio

DSP

7492.85

1242.35

6.03 times

BSL

13594.42

3006.76

4.52 times

RSP

9126.69

6840.46

1.33 times

BSP

17585.41

3770.24

4.66 times

Analysis:- Fixed Asset Turnover Ratio of DSP is more than other three integrated steel plants
i.e. BSL, RSP, and BSP. The Fixed Asset turnover ratio of DSP is as per the industry standards.
So, DSP needs to maintain its Fixed Asset Turnover Ratio by effectively utilizing its Fixed
Assets.

Graphical Representation 14 :-

INTEREST COVERAGE RATIO

29

The ratio is also termed as Debt Service Ratio. This ratio is calculated by dividing the profit
before charging interest and income-tax by fixed interest charges.

Interest Coverage Ratio = Profit before Interest & Tax (PBIT)

Fixed Interest Charges
Profit before interest and income -tax is to be taken for the calculation of this ratio because this is
the amount of profit out of which interest and income-tax is to be paid out.
Profit before interest and tax (PBIT) = Net profit + Interest Charges+ Tax.

Fixed interest charges include interest on fixed (long-term) loans or debentures.

Significance: - This ratio indicates how many times the interest charges are covered by the
profit available to pay interest charges. A long-term lender is interested in finding out whether
the business will earn sufficient profits to pay the interest charges regularly.
An interest coverage ratio of 6 to 7 times is considered appropriate. It also indicates the extent to
which profit can decline without in any way affecting the firms ability to meet its fixed interest
obligations.

TABLE 15: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs

in Crores )

30

DSP ( 31sT MARCH )

PBIT

Interest Charges

Interest
Coverage Ratio

2011-12

550.57

47.11

11.68 Times

2012-13

634.27

81.61

7.77 Times

2013-14

519.55

103.95

4.99 Times

Analysis : - From the above table, we see that the Interest Coverage Ratio of DSP in 2012 is
11.68 times which is much greater than 2013 and 2014. Then it is constantly decreasing at a
faster rate. In 2014 the Interest Coverage Ratio is 4.99 times, which is not good for the creditors
of DSP at all. It indicates that lenders have low safety of return on investment.

Graphical Representation 15 :-

TABLE 16:
INDUSTRY
WISE

PERFORMANCE OF SAIL
(Rs in Crores )
YEAR

PBIT

Interest
charges

INTEREST
COVERAGE RATIO

519.55

103.95

4.99 Times

( 31st March, 2014)

DSP

31

BSL

400.50

198.49

2.01 Times

RSP

422.29

210.09

2.01 Times

BSP

2320.31

235.47

9.85 Times

Analysis :- From the above table, we analyses that Interest Coverage Ratio of BSP is 9.85
times which is more than other three integrated steel plants of SAIL. DSPs interest coverage
ratio is higher than BSL and RSP which is good from industry point of view, but less than the
standard Interest Coverage Ratio. So, DSPs capacity of Debt servicing is very poor.

Graphical Representation 16 :-

RETURN ON INVESTMENT
This is one of the most important ratios for the measure of overall profitability of the business. It
indicates the relationship of net profit with capital employed in the business. This ratio is usually
in percentage and is also known as return on capital employed or yield on capital.

32

RETURN ON INVESTMENT = PROFIT BEFORE INTEREST AND TAX

CAPITAL EMPLOYED
HERE,
CAPITAL EMPLOYED = NON CURRENT ASSETS + WORKING CAPITAL
In case of yield on capital, that prevailing in the industry may be taken as the
standard rate.
Significance: - Return on investment ratio measures the operational efficiency and borrowing
policy of the enterprise. It also shows how effectively the capital employed in the business is
used. It shows the earning capacity of the net assets of the business. The ratio judges the
performance of the business. It can be used for comparing the performance of the business. It can
be used for comparing the performance of even dissimilar business or different department of the
same business.

TABLE 17: YEARLY PERFORMANCE OF DURGAPUR STEEL PLANT

(Rs in Crores )
YEAR(31MARCH,2014)
2011-2012
2012-2013
2013-2014

PBIT
550.57
634.27
519.55

capital employed
3108.47
3789.40
3805.11

ROI
17.71
16.74
13.65

33

Analysis: - This ratio is a real test of the probability from the view point of investors. From the
above table we can see that in 2011-2012 the return on investment of DSP is 17.71% which is
good. After that it is continuously decreased in the year 2012-2013 it is16.73%. & in 2013-2014
it is 13.65%. We know that higher return on investment is always favourable to the shareholder.
Therefore DSP need to work for increasing its rate of return.

Graphical Representation 17 :-

TABLE 18: INDUSTRY WISE PERFORMANCE OF SAIL

(Rs
YEAR(31MARCH,2014)
DSP
BSL
RSP

PBIT
519.55
400.50
422.29

capital employed
3805.11
11308.83
14928.78

in Crores )
ROI
13.65
3.54
2.83

34

2320.31

BSP

16470.15

14.09

Analysis: - Return on investment of DSP is more than other firm i.e. 14.09% in comparative to other
firm which is good. There is a better probability that the investor invest their investment in DSP in order
to avail more benefits, but DSP keep on focus to improve its rate of investment.

Graphical Representation 18 :-

Activity chart

Week

Activity Done

Week1

Induction, discussion of topic with guide,

prepared weekly schedule.

35

Week2

Introduction to topic, Detailed study of the

topic

Week3

Introduction of the various products and their

manufacturing process

Week4

Data collection and calculation of ratio

analysis

Week5

Data collection and calculation of ratio

analysis

Week6

Data collection and calculation of ratio analysis

Week7

Data interpretation and analysis, found the

roots of problem and their solutions

Week8

Preparation of report and presentation and its

submission to get training certificate.

KEY LEARNING
Through this 8 week of internship, I came to know how the industry actually works,
especially company in project industry.

36

 In the period of 8 weeks, I learned how to behave in the organization means the
organizational behaviour and the organization culture.

While doing this project, the most important thing which I came to know that how the
company analysis its financial statement with the help of ratio analysis.

This project gives me the knowledge that the company works according to the customers
demand.

I learned how to analyze and do the interpretation from the given data i.e. annual report
of the company.

It was a great opportunity to do a project at at Durgapur Steel Plant a unit of SAIL, where
I got the chance to apply my theoretical knowledge to practical.

CONCLUSIONS
There is a proverb called Old Wine in a New Bottle. If the company is able to get that
correctly it will definitely succeed in the future. Why Old wine and why in a new bottle.
If the company wants to win in the race it must innovate some out of the box ideas to
implement in the journey. New Bottle here is used in that sense only that if the company
can implement the idea properly it can win in the race of competition.
37

 Ratio Analysis represents the strength and the financial soundness of a firm so that its
efficiency and profitability improves and it carries out its operation successfully.
Through the study of one particular firm, I can conclude the importance of ratio analysis
in other manufacturing firm as well. Also, taken into account are the operations carried in
Durgapur Steel Plant and the working of the finance section, both of which have been
analysed to the best possible extent.

BIBLIOGHAPHY

Analysis of Financial Statement XII

Background & History, Company ,SAIL

Durgapur Steel Plant, Plants & Units, SAIL

http://sail.co.in/pnu.php?tag=durgapur
38

http://sail.co.in/aboutus-php?tag=company-background

ANNEXURE
DURGAPUR STEEL PLANT
BALANCE SHEET
AS AT 31ST MARCH 2015
PARTICULARS

31ST March
2014

31ST March
2013

31ST March
2012

Equities & Liabilities

39

Shareholders Fund:
a) Share Capital

0.00

0.00

0.00

1716.63

1301.03

748.37

c) Money received against share warrants.

Share application money pending
allotment.
Non-Current Liabilities:

0.00

0.00

0.00

a) Long term Borrowings

0.00

0.00

0.00

b) Deferred Tax Liabilities (Net)

0.00

0.00

0.00

42.88

37.83

21.53

449.26

519.43

439.06

10.33

9.76

4.92

b) Trade Payables

236.40

218.93

167.48

c) Other Current Liabilities

807.71

665.49

493.08

d) Short-Term Provisions

165.28

210.17

145.88

Inter Unit Current Account

8780.92

8906.60

8499.14

Total

12209.41

11869.24

10519.46

b) Reserve & Surplus

c) Other Long Term Liabilities

d) Long Term Provision
Current Liabilities:
a) Short-term borrowings

Particulars

31st March
2014

31st March
2013

31st March
2012

ASSETS:
NON CURRENT ASSETS
a) Fixed Assets
1. Tangible Assets
2. Intangible Assets
3. Capital Work In Progress

1499.46

1458.65

1665.27

2.25

6.05

9.86

2050.36

1753.70

902.08
40

b) Non-Current Investments

0.01

0.01

0.01

42.12

39.70

47.33

0.00

0.00

0.00

953.13

1103.24

898.13

1.41

39.88

36.84

c) Cash & Bank balances

17.19

0.42

21.37

d) Short Term Loans&

Advances
e) Other Current Assets

42.41

29.78

33.92

180.75

151.69

97.33

7420.32

7286.13

6807.32

12209.41

11869.24

10519.46

c) Long Term Investments

d) Other Non-Current Assets
CURRENT ASSETS:
a) Inventories
b) Trade Receivable

f) Inter Unit Current Account

Total

Statement of Profit& Loss

For the Year ended 31st March 2014
31st March
2014
Revenue from Operations
Less:- Excise Duty
Other Income
Stock transfer to other units
Total Revenue

31st March
2013

31st March
2012

7554.28

7712.62

7031.60

795.49

809.01

635.75

39.41

18.16

22.92

621.18

473.39

480.13

7419.38

7395.16

6898.90

41

Expenses
Cost of materials consumed

3481.03

3806.39

3515.94

0.00

0.00

0.00

132.35

-157.88

-0.93

1037.32

995.35

883.94

Finance Cost

103.95

81.61

47.11

Depreciation and Amortisation

expenses

259.36

268.72

293.57

Purchase of stock in trade

Changes in inventories of finished
goods, Work in progress and stock in
trade
Employee Benefit expense

Share of expenditure over income

Corporate Office

62.40

71.68

72.82

CMO

62.82

67.66

50.20

CCSO

4.16

3.74

3.81

Other expenses

1837.85

1666.47

1421.05

Total Expenses

6981.24

6803.74

6287.51

438.14

591.42

611.39

-0.12

0.00

-3.03

438.02

591.42

608.36

22.42

38.76

104.90

0.00

0.00

0.00

415.60

552.66

503.46

Add: Adjustments pertaining to earlier

years
Profit before tax and exceptional
items
Less:-Exceptional Items
Foreign Exchange Loss(+)/Gain(-)
Write back of entry tax liability
Exchange variants treated as interest
cost
Profit before tax

42