Financial Ferformance

A study on Financial Performance With Reference to Visakhapatnam Steel Plant Rastriya Ispat Nigam Limited

SUBMITTED BY BONAM.SREENIVASULU MBA(FINANCE) Under Guidance of Mr. V. Ramesh Kumar, Asst. Finance Manager (Vizag Steel Plant) SIR C.R.REDDY COLLEGE OF ENGINEERING (ELURU)

1

Certificate

This is to certify that project: study on “Financial Performance ” in Visakhapatnam Steel Plant is beneficed work done and submitted by BONAM.SREENIVASULUin partial fulfillment of the requirements for the awards of Master of Business Administration (MBA), from SIR C.R.REDDY COLLEGE OF ENGINEERING (ELURU).

DATE

PROJECT GUIDE

PLACE

Mr V.Ramesh Kumar

Asst manager (F&A)

2

STUDENT DECLARATION

I BONAM.SREENIVASULU declare that the project report entitled “Financial Performance” with Regard to Rastriya Ispat Nigam Limited, Visakhapatnam submitted by me under guidance of Mr.V.Ramesh Kumar, Asst. Manager. F. A .Department); RINL of my own work and not has been submitted to any university or institute or published earlier.

Date

signature of the student

Place

Bonam.Sreenivasulu Regd no:111277102008

3

PREFACE

This intenship report is a presentation of my effort to study the practice of Financial Management Topics in public sector enterprises, referring to Visakhapatnam Steel Plant. The report presents the fields of practical approaches in the subject of Financial Management in FINANICAL PERFORMANCE.

This report intends to provide brief knowledge of various concepts, principles, approaches, considerations relevant to this field. Though the basic idea is to supply my study in the project, the report has undergone a realistic survey of actual theory and practices in Visakhapatnam Steel Plant although there is much gulf to be bridged.

This report seeks to cover the topics of Financial Performance, mainly focusing the respects like Comparative balance sheet and Common size balance sheet and many other aspects. The report has been divided into five chapters and the arrangements of topics in various chapters have been grouped according to the analysis of the subject.

4

ACKNOWLEDGEMENT I take this opportunity to express my deepest and heart full gratitude to SIR C.R.REDDY COLLEGE OF ENGINEERING (ELURU)for providing me an opportunity to take of this project. I

also

wish

CHOWDARYgaru,Sir

to

thank

our

internal

C.r.reddycollege

of

guide

engineering

Dr.K.KRISHNAIAH for

his

valuable

guidance, encouragement and co-operation throughout the completion of the project. This project is a result of the hard work & sincere effort put by many

hands.

I

render

my

sincere

thanks

toMr.O.R.M.RAO,

AssistantGeneral Manager (HRD)Mr.M.L.S.VARMA, Assistant Manager(HRD) Visakhapatnam Steel Plant for giving me this opportunity to do my project work in Visakhapatnam steel plant. I express

thanks to Mr.V.RAMESH KUMAR,

my sincere

Assistant Manager(Trg) whose supervision, valuable guidance & help enabled me to complete this project work. I also wish to express my sincere thanks to all the staff members of VSP who have directly or indirectly lend me a helping hand in completing my project work.

5

S.NO.

CONTENTS

1

INTRODUCTION

2

INDUSTRY PROFILE

3

COMPANY PROFILE

4

THEORATICAL FRAME WORK

5

ANALYSIS AND INTERPRETATION

6

SUMMARY SUGGESTIONS FINDINGS & CONCLUSIONS

7

BIBLIOGRAPHY

6

PAGE NO.

7

INTRODUCTION Steel comprises one of the most important inputs in all sectors of the economy. Economy of any country depends on the strong base of the iron and steel industry. Steel is a versatile material with multitude of useful properties making it indispensable for furthering and achieving continuing growth of the economy-be it construction, manufacturing, infrastructure or consumable. The level of steel consumption has long been regarded as an index of industrialization and economic maturity attained by country. The growth of any organization depends on the overall performance such as production, marketing, human resource and financial performance of the organization. The financial performance of any organization reflects the strengths, weakness, opportunities and threats of the organization with respect to profits Earned, investments, sales realization, turnover, return on investment, and net worth of capital efficient management of financial resources and deliberate analysis financial results are prerequisites for success of an enterprise. In that, financial performance is one of the major and important areas of financial management. Every organization requires study on financial performance about business transactions, which includes managing current

8

assets like cash, inventory, account receivable, loans& advances and current liabilities like sundry creditors.

INTRODUCTION TO FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing between the items of the balancesheet and profit and loss account. There are various methods or techniques used in the analysis of financial statements such as comparative statements, trend analysis, common size statements,schedule of changes in working capital, funds flow and cash flow analysis, Cost Volume Profit Analysis and Ratio Analysis.

Meaning and Concept of Financial Analysis The

terms

‘financial

analysis’

also

known

as

analysis

and

interpretation of financial statements refers to the process of determining financial strength and weaknesses of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data.

NEED FOR THE STUDY

9

The main aim of any firm is to maximize the wealth of the profits. Which in turn depend on successful sales activity? To generate sales, investment of sufficient funds in current assets is required. The need Of current assets should be emphasized, as the sales don’t cash immediately but involved a cycle of operations, namely operating cycle.

Rashtriya Ispat Nigam limited is a multi-product steel-manufacturing unit with varying cycle time for each product. The capital required by each department in a largeorganization like RINL depends on the product target for that year.

The study on financial performance position of which using financial statement. It is very much essential to know the RASHTRIYA ISPAT NIGAM LIMITED financial performance for overcome the problem of the company. This comparative statement analysis will help us to know the exact financial position of the VSP through the financial performance. This company is selected as it helps us to known even the exact position our country as steel industry is backbone of every country.

Here in this project an attempt is made by financial statements for knowing the financial performance of the company.

OBJECTIVES OF THE STUDY

The study is purely based on the financial performance that is been taken into consideration i.e, Finanacial Statements and Analysis.

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•

To know the current position of various assets, liabilities and results of operation activities

•

To find out Financial Strengths and weaknesses of the firm

•

To know the Liquidity Position of a firm

•

To know the causes of changes in the Cash Position

•

To find out important tools of Short-term, Long-term Financial Planning

•

To know the ability of the firm to meet its current obligations

•

To know the overall operation efficiency and performance of the firm

•

To find out foremost important Financial Decisions

•

To know the detailed information about comparative and common size balance sheets

•

To know the current position of various assets, liabilities and results of operation actives

•

To find out Financial Strengths and weaknesses of the firm

•

To know the Liquidity Position of a firm

•

To know the causes of changes in the Cash Position

•

To find out important tools of Short-term, Long-term Financial Planning

•

To know the ability of the firm to meet its current obligations

•

To know the overall operation efficiency and performance of the firm

•

To find out foremost important Financial Decisions

•

To know the detailed information about comparative and common size balance sheets

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SCOPE OF THE STUDY Financial analysis depends primarily on financial statements to diagnose financial performance there are three principle reasons.  As longer as the accounts bases remain more or less the some overtime, meaningful mitered is can be drawn by examining trends in raw data and financial ratios.  Since similar basis characterize various firms in the same industries, incur firm comparisons are useful.  Experience seems to suggest the financial analysis works one is accounting basis and more adjustments for the same. The following points explain the nature of the financial statement analysis in steel industries. The records are maintained on the boards of actual costs data.  Certain

neither

accounts

nor

conversions

are

followed

while

preprimary financial statement.  Still personal judgment of the accountant phrases on important part.

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RESEARCH METHODOLOGY Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The data can be collected through two principle sources.

They are as follows:-

 Primary data  Secondary data Primary data It is the information collected directly without any references. In this study it is gathered through interviews concerned officers and staff either individually or collectively, sums of the information has been verified or supplemented with personal observation conducting personal interviews with the concerned officers of finance department of Visakhapatnam steel plant.

Secondary data The secondary data was collected from already published sources such as, pamphlets of annual reports, returns and internal records. The data collection includes:-



Collection of required data from annual records of RINL.



Reference

from

textbooks

and

performance and management.

13

journals

relating

to

financial

14

LIMITATIONS OF THE STUDY

 The period of study that is 8 weeks as not enough to go in the detailed aspects of the study.

 The study is carried basing on the information and documents provided by the organization and based on the Interaction with various employees of respective departments.

 Respondents may not provide accurate information due to various reasons.

 Most of the matters related to budgets were confidential so it is not possible to gather information.

 Time is a major constraint.  Budgeting process is very dynamic.  There was no scope of gathering current information as the auditing has not been done at the time of project work

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INTRODUCTION TO STEEL INDUSTRY IN INDIA

Introduction India’s Steel Industry is more than a century old. Before the economic reforms of the early 1990s the Indian steel industry was a predominantly regulated one with the public sector dominating the industry. Tata Steel was the only major private sector company involved the production of steel in India. Sail and Tata Steel have traditionally been the major steel producers of India. In 1992, the liberalization of the India economy led tothe opening up of various industries including the steel 17

industry. This led to the increase in the number of producers, increased investments in the steel industry and increased production capacity. Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested in the steel industry of India. India’s steel industry went through a rough phase between 1997 and 2001 when the overall global steel was facing a downturn and recovered after 2002. The major factors that led to the revival of the steel industry in India after 2002 was the rise in global demand for steel and the domestic economic growth in India India has now emerged as the eighth largest producer of steel in the world with a production capacity of 35million tones. Almost all varieties of steel is now produced in India. India has also emerged as a net exporter of steel which shows that Indian steel is being increasingly accepted in the global market. The growth of the steel industry in India is also dependant, to a large extent, on the level of consumption of steel in the domestic market. Steel consumption is significant in housing and infrastructure. In recent years the surge in housing industry of India has led to increase in the domestic demand for steel. More than 3500 different varieties of steel are available in the steel industry of India. These can however be classified into two broad categories•

Flat Products – Flat products include plates and hot rolled sheets such as coils and sheets. Flat products are derived from slabs. One of the major uses of steel plates is in ship building.

Long Products – Long products include bars, rods, wires, ropes and piers. These are called long products due to their shapes. Long products are made from billets and blooms. Long products are mostly used in housing and construction and also in rail tracks.

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PRE-INDEPENDENCE 1874- James Erskin founded the Bengal iron works. 1830 - Josiah, Marshall Health constructed the first manufacturing plant at plant at port Move in Madras presidency. 1899- Jamshedji Tata initiated the scheme for an integrsted steel plant. 1906- Formation of TISCO 1911- Tata iron& STEEL COMPANY STARTED PRODUCTION. 1916- TISCO was founded. 1940-45- Formation of Mysore iron & steel limited, and Bhadravati in Karnataka.

POST-INDEPENDENCE First five year plan: 1951-1956 

No new steel plant came up. The Hindustan Steel Ltd., was born on 19th January 1954 with the decision of setting up three plants each with one million tone input steel per year in at Rourkela, Bhilai and Durgapur, TISCO started its expansion programming.

Second five year plan: 1956-1961 

A bold decision was taken up to increase the ingot steel output India to 6 million tones per year & production at Rourkela, Bhilai and Durgapur steel plant started.

Third five year plan: 1961-1966 

During the third five year plan the three steel plants under HSL, TISCO & HSCO were expand as show , in January 1964 Bokaro steel plant came into existence.

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Recession period: 1966-1969 

The entire expansion programme was actively executed during this period.

Fourth five year plan: 1969-1974   

Licenses were given for setting up of many Mini-steel plants and rolling mills. Governments of India accepted setting up two more plants in south. One at Visakhapatnam(Andhra Pradesh)and Hospet (Karntaka). SAIL was formed during this period on 24 th January 1973. The total installed capacity from 6 integrated plants was 106Mt.

Annual plan: 1979 

The erstwhile Soviet Union agreed to help in setting up the Visakhapatnam steel plant.

Sixth five year plan: 1980-1985  

Work on Visakhapatnam steel plant was started with big bang and top priority was accorded to start the plant. Scheme for modernization of Bhilai Steel Plant, Rourkela, Durgapur, TISCO were initiated.

Seventh five year plan: 1985-1991  

Expansion work of Bhilai and Bokaro steel plants are completed. Progress on Visakhapatnam steel plant picked up and rationalized concept has been introduced to commission the plant with 3.0Mt, liquid steel capacity by 1990.

Eighthfive year plan: 1991-1996 

Visakhapatnam steel plant started its production modernization of other steel plants is also duly envisaged.

Ninth five year plan: 1997-2002

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

Visakhapatnam steel plant had foreseen a 7% growth during the entire plan period.

Tenth five year plan: 2002-2007 

Steel industry registers the growth of 9.9% Visakhapatnam steel plant high regime targets achieved the best of them.

Eleventh five year plan: 2007-2012 

The eleventh plan period is going to be crucial for maintaining and also improving the performance of the steel industry. India has the potential to emerge as global player in steel making if its inherent advantages of availability of quality iron ore, cheap labor, technical manpower and growing domestic demand are properly leverage.

World steel scenario Global crude steel production during the year 2010was high than 2009 by 184 million tones, driven by growth in China and recovery in the developed world.(During 2010 china’s crude steel production was about 626 million tones as against 573 million tones in 2009 registering on impressive growth). Sharp rise in inout cost, once again drove steel companies for paying much attention, to cost of production & improvement in operating efficiency. While in the developing countries, steel makers are trying to capture the quality market, steel makers of the developed countries are trying to consolidate their position.The emerging markets in various sectors are the bright spot for the steel industry to more ahead. A significant challenge facing the steel industry today, relates to the situation prevalent in rawmaterial markets.The Global upturn in steel production resulted in significant tightening in the steel making raw materials to historically high

21

levels.2010-2011 was a year of two phases as for as steel market is concerned. One is that of stabilization and the other is that of Recovery. Although the process of recovery continued , the speculative market of raw materials is a real concern for the industry. GLOBAL STEEL INDUSTRY: World crude steel production in 2010 registered highest every yearly production of 1414-Mt a growth of 15% over 2009 is 5% higher than the previous peak of 1346Mt in 2007. Developing countries like china and India contributed by scaling new peaks and developed economics registered quantum jump from the low of 2009, which has however for short of their earlier peaks. COUNTRY

2010 MT

2009 MT

China

626.7

573.6

Japan

109.6

87.5

25.3

80.5

58.2

38.3

USA

% GROWTH 9.3

India

68.3

63.5

7.6

Russia

66.9

60.0

11.5

South korea

58.4

48.6

20.2

Germany

43.8

32.7

33.9

World

1413.5

1230.9

143.8

INDIAN STEEL INDUSTRY: The Indian steel industry sector as the 4th largest steel producing country in the world. This has been achieved due to thrust on infrastructure and housing sectors. Steel accounts for about 7% of GDP and employees about 1.5 Million people directly with continued emphasis on infrastructure building and several Green field projects under execution, the growth story is likely together momentum in the years to come. The Gross Domestic Product of India is estimated to have growth at 8.5% in 2010-11 in real times. Backed by this, the finished steel consumption registered a growth of 22

11% in 2010-11.India’s recovery from the global economic crisis based on its strong domestic demand.

INDIAN STEEL SCENARIO: Steel industry plays a major role in the Economic growth of India with New global acquisitions by Indian steel giants, setting up of new state of the art steel mills,modernization of Existing plants,Improving Energy Efficiency and Background integration into global raw material sources, India is now on the centre of the global steel map consumption of steel in various sectos has been on the rise and special steel usage in specific Industrial sectors like power generation, Petro chemicals etc., is also growing. India has stood as the 4th largest producer in 2010 and reconed a growth of 6.4% as compared to 2009. India is expected to become to second largest producer of steel in the world by 2015-16 on account of growing steel demand, rich resources base of Iron ore, skilled man power and Experience of steel making and the Huge capacity Expasion planned 7 being Executed in the steel sector. Finished steel production was registered at 62.69 Mt during 2010-11 in the country as per JPC& the production is expected to be nearly 110Mt by 2012-13. A Compound Annual Growth Rate (CAGR) of 8.4% during the years(2005-06 to 2009-10) was recorded. The consumption of steel domestically was recorded at 65.61Mt and shown anincrease of 11% during2010-11 as compared to the same period of the previous year. Government Initiatives included  Approval by planning commission a total outlay of US $9.5 Billion for the Development & Promotion of the Iron & Steel sector.  Scheme for the promotion of research & Development in the Iron & steel sector with Budget provision US $ 24.6 million.  Review of National steel policy 2005 and process for drafting a “National steel vision” has been initiated.  Five year strategy has been prepared for promotion of steel sector in the country. Highlights of Present Steel Scenario: •

The world steel shows a low growth demand. 23

•

There is a threat to steel industry from competitive products like plastics, aluminum, etc.

•

Developed countries slowly reduced the production of steel.

•

Developing countries like China are planning to produce steel as much large quantity then of present output of 80 Mt. per annum.

•

India consciously and strategically decides to invest into steel production.

•

Preference is given to superior quality products and high value item production

Major Steel Related Companies in India 

Bharat Refectories Ltd.



Hindustan steel works construction Ltd.



Jindal Steel & Power Ltd.



Kudremukh Iron Ore Company Ltd



Manganese Ore (India) Ltd.



Metal Scrap Trade Corporation Ltd.



Metallurgical Engineering Consultants India Ltd.



National MInerl Development Corporation (NMDC)



Rashtriya Ispat Nigam Ltd.



Sponge Iron India Ltd.



Steel Authority India Ltd.



Tata Iron Steel Company.

STEEL PLANTS WITH FOREIGN COLLOBORATION

24

S.No

Plant

Collaboration Capacity of Finished Steel Products

1

Rourkela Steel Plant

2

Bhilai Steel Plant

3

Durgapur Steel Plant

4

Bokaro Steel Plant

S.NO

Plant

West Germany Erstwhile USSR Britain Erstwhile USSR

Collaboration Capacity of Finished Steel Products

1

Rourkela Steel Plant

2

Bhilai Steel Plant

3

Durgapur Steel Plant

Annual Production

West Germany

7,20,000 Tones

Erstwhile USSR

7,70,000 Tones

Britain

8,00,000 Tones

Size of the India’s Steel Industry The size of India’s steel industry has increased considerably in recent years. According to latest available estimates, India ranks eighth among the top steel producers of the world with a production capacity of 35 million tones. The steel industry of India has capital investments of more than Rs 100,000 crores. The total employment in the industry is more than two million (including direct and indirect employment). Global Demand for Steel and Indian Steel Industry

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The global demand for steel is at an all time high nowadays. Much of the tremendous demand for steel around the world may be attributed to the numerous construction projects that are going on around the world. Much of these projects are taking place in the economically developing countries of the world like India, China and Thailand. China is the place where a lot of construction is being done nowadays and much of the construction is for the purpose of the Olympics to be held in 2008 and the Shanghai World Exposition of 2010. India has a lot of iron ores. This implies that India has a ready base for producing sufficient amount of steel and the experts are also of the opinion that the Indian steel industry would continue to grow in the coming years. In the recent times the production of steel has gone up in the country from 17 million tones in 1990 to 36 million tones in 2003. The Indian steel industry is trying to reach the 66 million tones mark in 2011. The high levels of production would allow the Indian steel industry to establish a stronghold on a number of areas like housing, construction, and ground transportation. The special steel produced by the Indian steel industry is supposed to be used in high end engineering industries like generation of power, fertilizers and petrochemicals. The fact that India is not a voracious consumer of steel like some of the major economies like China and the United States of America means that India would be able to use the surplus steel it produces for exporting to other countries so that their demands are met. This would help the Indian steel industry to be regarded as one of the most prominent steel industries if not the leading one. Growth Potential of India’s Steel Industry

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India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in India’s economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years. The two major aspects that are expected to play a significant role in the growth of the steel industry in India are – •

Abundant availability of iron ore in the country

•

The country has well established facilities for steel production

Steel production in India has grown from 17 million tones in 1990 to 36 million tones in 2003. It is expected that by 2011, the steel production in India will grow to 66 million tones. The major sectors where consumption of steel is expected to grow in the coming years are •

Construction

•

Housing

•

Ground transportation

•

Hi-tech

engineering

industries

such

as

power

generation,

petrochemicals, fertilizers Steel Sectors Trends 

India emerged as the fifth largest crude steel producing country in the World in the year 2006 as against eighth position three years back. India is expected to become the second largest producer of steel in the World by the year 2015.

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

India also maintained its lead position as the world’s largest producer of direct reduced iron or sponge iron.



The country is likely to reach a steel production capacity of nearly 124 million tones by the year 2100-2012.



194memoranda of understanding (MoUs) have been signed in various states with a total planned capacity of around 243 million tonnes, and a total proposed investment of over Rs. 5.15 lakh cr. Major investments plans are in state of Orissa, Jharkhand, Karnataka, Chhattisgarh and west Bengal.

OUTLOOK FOR THE COMPANY IN 2011-2012 Not with standing the steep increase in the raw material prices in 20102011, the outlookor 2011-2012 suggests a quantum jump once again , fuelled significantly by the unprecedented rains and flooding of NorthEastern parts of Australia and forecast of healthy growth in apparent consumption of steel world wide. International price trends for hard coking coal and landed cast of iron ore fines for VSP along with projected growth for 2011-2012 is as shown below;

Raw material price outlook 2011-2012

350

Projections for ICC ($/t-FOB) 330

300 28

250

212

200

121 100

150

2009-10

FY-2011

FY2012 (1qtr)

Projections for IOF (Basic price)

3500 3199 3000

2870

2500 2000

1936

1500 2009-10

FY 2011

FY 2012(1qtr)

Steel prices during 2011-2012 would be predominantly guided by the cost push due to likely increase in major raw materials, more so with additional capacities in the country emerging as a certainty now likely capacity additions in the next two years are as a shown below;

LIKELY CAPACITY ADDITIONS IN THE COUNTRY MT 29

Public sectors SAIL RINL Private sectors TATA ESSAR JSW ISPAT industries JSPL BHUSHAN steel, BUSHAN POWE& STEEL OTHER+SECONDARY

Existing capacity

Capacity likely by 2012-13

12.84 3.00

21.40 6.30

6.80 4.60 6.60 3.60 2.40 2.00 31.00 72.84

13.00 14.50 11.00 4.20 10.45 5.80 34.20 34.20

Expansion in capacity: The National Steel Policy 2005 had projected consumption to grow at 7% based on a GDP growth rate of 7-7.5% and production of 110 million tones by 2019-2020.These estimates will be largely exceeded and it is envisaged that in the next five years, demand will grow at a considerably higher annual average rate of over 10% as compared to around 7% growth achieved between 19-92 and 2005-06. It has been assessed that, on a ‘most likely scenario’ basic the steel production capacity in the country by the tear 2011-2012 will be nearly 124 million tones.

PROBLEMS OF STEEL PLANT INDUSTRY LACK OF RAWMATERIALS Non-availability of good quality raw material is another problem faced by iron and steel industry. The modem giant blast furnace needs high-grade

30

iron ore and good metallurgical coal. Further the industry is unable to get good quality coke and manganese is which the principal raw materials next to iron ore are unfortunately most of our resources of manganese ore are of poor quality besides the non availability of good quality raw material, regular supplies of raw materials are very much handicapped due to the absence of good transport facilities. Another problem faced by the steel industry related to the difficulty in getting zinc supplies for the continuous galvanizing line.

LACK OF TECHNICAL PROBLEMS Bhilai had to execute orders for shipment of rails to Iran. South Korea and Malaysia. Because of technical limitations, Rourkela plant is unable to substitute aluminum of zinc for the production of galvanized sheet apart from source internal technical problems; our technology in the field of steel production is not a developed one when compared to other advanced countries. GOVERNMENT CONTROL AND PRICING POLICY Since 1941, India steel and iron industry was almost completely state regulated. Both prices and distribution of steel were under control of government. The Govt. decided to remove statutory control over the price and distribution of all, but a few categories with effect from 1 st march 26, 1964 the Govt. supervise the steel and iron inducted according to the recommendation of Raja committee. But Raj committee in fixing the steel price didn't regulate the price of raw materials.

31

Conclusion on Indian Steel Industry The Indian steel industry is among the upcoming industries of the world. It has a number of iron ores, which means that it has plenty of resources from which to draw its raw material. The rate of production of steel in India has been going up at a steady rate in the last few years. In the recent times Orissa and Jharkhand have been identified as the potential steel destinations of India – the ones that would provide the Indian steel industry with its necessary raw material. There are also a number of steel companies in India like Tata and ArcelorMittal that are either coming up or have established themselves as prominent forces in the world steel scenario. In the recent times a lot of foreign direct investment is being made in the Indian steel industry. In fact the rate of investment is being made in the last few years and, to a certain extent, this increase has been contributed to by the growth potential of the steel industry of India that is thought of as being impressive in the international steel circle.

32

33

PROFILE OF VISAKHAPATNAM STEEL PLANT To meet the growing domestic needs of steel, Government of India decided to set up an Integrated Steel Plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979 for co-operation in setting up 3.4 MT Integrated Steel Plant at Visakhapatnam. The foundation stone for the plant was laid by the then Prime Minister on 20th Jan, 1971. The project was estimated to cost Rs.3897.38 Crores based on prices as on 4th Quarter of 1981. However, on completion of construction and commissioning of the whole plant in 1992, the cost escalated to around 8500 Crores. Unlike other Integrated Steel Plants in India, Visakhapatnam Steel Plant is one of the most modem steel plants in the country. The plant was dedicated to the nation on 1 st August, 1992 by the then Prime Minister, Shri P. V. Narasimha Rao.

New technology, large-scale computerization and automation etc., are incorporated in the Plant. To operate the plant at international levels and attain such labour productivity, the organizational manpower has been rationalized.

BACKGROUND Visakhapatnam steel plant To meet the growing domestic needs of steel, government of India

34

decided to set up an integrated steel plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979 for co-operation in setting up 3.4 Mt integrated steel plant at Visakhapatnam. The foundation stone for the plant was laid by the then prime minister on 20th Jan '71. The project was estimated to cost Rs. 3897.28 Crs based on prices as on 4th quarter of 1981. However, on completion of construction and commissioning of the whole plant in 1992, the cost escalated to around 8500 Cr. Unlike other integrated steel plants in India, Visakhapatnam Steel Plant is one of the most modem steel plants in the country. The plant was dedicated to the nation on 1st August 1992 by the Prime Minister, Sri, P.V.Narasimha Rao. New technology, large scale computerization and automation etc., are incorporated in the plant. To operate the plant at international levels and attain such labor productivity, the organizational man power has been rationalized. The plant has a capacity of producing 3.0 Mt of liquid steel and 2.656 Mt of saleable steel.VSP is on the growth path and almost doubling its capacity to 6.3 MT liquid steel and new units are set to come on strem progressive from 2011-2012.

VISION To be a continuously growing world-class company. We shall: 

Harness our growth potential and sustain profitable growth.



Deliver high quality and cost competitive products and be the first choice of customers.



To create an inspiring work environment to unleash the creative energy of people.



Achieve excellence in enterprise management.

35



Be a respected corporate citizen, ensure clean and environment and develop vibrant communities around.

green

MISSION To attain 16 million tones liquid steel capacity through technological up gradation, operational efficiency and expansion; augmentation of assured supply of raw materials to produce steel at international standards of cost of quality; and to meet the aspirations of the stakeholders. OBJECTIVES OF VSP 

Expand plant capacity to 6.3 Mt by 2011-12 with the mission to expand further in subsequent phases as per the corporate plan.



Towards growth-expand the plant capacity to 7Mt by 2011-12 and 10Mt By 2019-20.



Be amongst top five lowest cost steel producers in the world.



Achieve higher levels of customer satisfaction than competitors.



Towards employees-make RINL the employer of choice. Upgrade the skills

and

development

efficiency and

of

employees

maintain

high

through

levels

of

training

and

motivation

and

satisfaction. 

Be recognized as an excellent business organization by 2011-12.



Instill right attitude amongst employees and facilitate them to excel in their professional, personal and social life.



Be proactive in conserving environment, maintaining high levels of safety and addressing social concerns.



Towards technology up-gradation and productivity-continuously upgrade

tec1mology

international

and

efficiency

practice

levels.

benchmarking

Adopt

latest

information and communication technology. 36

to

achieve

developments

in

Towards knowledge management-become a knowledge based and a



knowledge sharing company. Towards safety, environment and society-continue efforts towards



safety of employees, conversation of environment and be a good corporate citizen.

CORE VALUES 

Commitment



Customer Satisfaction



Continuous Improvement



Concern for Environment



Creativity and innovation

VSP Technology:State-of-the-Art



7meter tall coke oven batteries with coke dry quenching.



Biggest Blast Furnaces in the country.



Bell-less top charging system in Blast Furnace.



100% slag granulation at the BF cast house

37



Suppressed combustion - LD gas recovery system.



100% continuous casting of liquid steel.



Tempore" and "Stelmor" cooling process in LMMM & WRM.



Extensive waste heat recovery systems.



Comprehensive pollution control measures.

MAJOR SOURCES OF RAW MATERIAL

Iron Ore Lumps & Fines

Bailadilla, M P

B F Lime Stone

Jaggayyapeta, A P

SMS Lime Stone

UAE

B F Dolomite

Madharam, A P

SMS Dolomite

Madharam, A P

Manganese Ore

Chipurupalli, A P

Boiler Coal

Talcher, Orissa

Coking Coal

Australia

Medium Coking Coal(MCC)

Gidi/Swang/Rajarappa/Kargali

MAJOR UNITS AT VSP

38

DEPARTMENTS Coke Ovens

ANNUAL UNITS (3.0 MT STAGE) Cap. ('OOOT) 2,261 4 Batteries each of 67 ovens & 7 Mts Height

Sinter Plant

5,256

Blast Furance Steel Melt Shop

3,400 3,000

LMMM WRM MMSM

710 850 850

2 Sinter machines of 312 Sq.Mtr. grate area each 2 Furnaces of 3200 cu m volume each 3 LD Converters each of 133 Cum. Volume and six 4 strand bloom casters 4 Strand Finishing Mill 2 x 10 Strand Finishing Mill 6 Strand Finishing Mill

MAIN PRODUCTS OF VSP Steel Products

By Products

Angles

Nut Coke

Billets

Coke dust

Channels

Coal Tar

Beams

Anthracene Oil

Squares

HP Naphthalene

Flats Rounds

Benzene Toluene

Re Bars

Zylene

Wire rods

Wash oil

39

POLICIES & RULES OF RINL/VSP VSP

takes

all

necessary

actions

for

the

fulfillment

of

regulatory

requirements. In this regard VSP follows the following policies. 1. Quality Policy •

Supply quality goods and services to customers’ delight.

•

Use resources efficiently and reduce waste & prevent pollution.

•

Continually improve quality, environment, occupational health and safety performance with respect to products, activities, processes, premises and services.

•

Document,

Implement,

Maintain

and

periodically

review

the

management systems including the policy, Objectives and targets. •

Comply with all relevant legal, regulatory and other requirements applicable to products, activities and processes in respect of quality, environment, occupation health and safety and also ensure the same by contractors.

•

Encourage development and involvement of employees.

•

Maintain high level of quality, Environment, occupational health and safety consciousness amongst employees and contract workers by imparting Educational & Training.

2. Energy Policy

40

We, at Visakhapatnam Steel Plant, are committed to optimally utilize various forms of energy in a cost-effective manner to effect conservation of energy resources. 

By adopting appropriate energy conservation technologies VSP. Controls the consumption of various forms of energy.



Monitor closely and control consumption of various forms of energy through an effective Energy Management System.



Maximize the use of cheaper and easily available forms of energy.

3. Environment Policy Maintain high level of environmental consciousness amongst employees and prevention of pollution by minimizing the emissions and discharge. 

VSP will endeavor to adopt a customer-focused approach at all times with transparency.



VSP will strive to meet more than the customer needs and expectations pertaining to products, quality and value for money and satisfaction.



VSP greatly values its relationship with customers and would make efforts at strengthening these relations for mutual benefit.

4.HR Policy VSP believe that their employees are the most important resources, so it provides good working environment that makes the employees committed and motivated for maximizing productivity.

41



Provide work environment that makes the employees committed and motivated for maximizing productivity.



Establish systems for maintaining transparency, fairness and equality in dealing with employees.



Empower employees for enhancing commitment, responsibility and accountability.



Encourage

growth

and

opportunities

for

developing

skill

and

knowledge. 

Ensure

functioning

of

efficient

communication

channels

with

employees Customer Policy •

VSP will strive to meet more than the Customer needs and expectations pertaining to Products, Quality, Value for Money and Satisfaction

•

VSP greatly values its relationship with Customers and would make efforts at strengthening these relations for mutual benefit

IT Policy •

Follow best practices in Process Automation & Business Processes through IT by in-house efforts / outsourcing and collaborative efforts with other organizations / expert groups / institutions of higher learning, etc., thus ensuring the quality of product and services at least cost.

42

•

Ensure high level of date and information security across the organization

HRD Group – Key Initiatives RINL believes that the employees are its assets and strives to realize their potential in full for mutual advantage. The human resource development of the employee as a whole. •

In-house Training Programs

•

Nominations to External Training Programs

•

Organization Research, Employees’ Satisfaction Surveys & Voice of Employees’ Index

•

Membership with professional bodies

•

Performance Appraisal for Executives

•

Human Resource information system Organization Development & Knowledge management

•

In-Plant training for management students.

ORGANISATIONAL STRUCTURE OF VISAKHAPATNAM STEEL PLANT VISAKHAPATNAM STEEL PLANT has a well designed organizational structure. It has centralized management structure. There is Chairman cum Managing Director (CMD) as head, the main decisions are taken by him, in accordance with steel industry (SAIL). These are 9 levels in organization from E-O to E-9.

LEVELS

E-9

NAME

General Manager

43

E-8

Joint General Manager

E-7

Dy. Additional Chief Manager

E-6

Additional Chief Manager

E-5

Dy. Chief Manager

E-4

Manager

E-3

Deputy Manager

E-2

Assistant Manager

E-l

Junior Manager

E-0

Assistant Executive

VISAKHAPATNAM

STEEL

PLANT

has

tall/vertical

organization

structure, where the power & authority flows from top to bottom. It has four main departments, they are - Finance Dept., Marketing Dept., Human Resource dept, and Production Department.

FUNCTUIONS OF FINANCE AND ACCOUNTS DEPARTMENTS OF VSP:  Making arrangement for long-term fund requirement.  Accounting of all minority transactions and preparation of financial statement of the company and getting the same audited as required by 44

the company.  Maintaining records with regard to the cost of production produced by the company.  Release of payments to suppliers/providers of good and services.  Release of salaries to the employees.  According concurrence to proposals for investments & expenditure as per the policies, procedure and the Delegation of powers.  Conduct Internal Audits, stock Verifications and statutory compliance.  Making working capital arrangements.  Submission of periodical reports to banks as per their sanctioned terms.  Organizing for payment of central Excise , Sales Tax, Income tax and other statutory payments.  Co-ordination with statutory Auditors and Government Audit.  Generation of various MIS reports pertaining to F&A department for Management Information and Control.

NAVARATNA COMPANYS 1. Bharat Electronics Limited 2. Bharat Heavy Electrical Limited 3. Bharat Petroleum Corporation Limited 4. GAIL (India) Limited 5. Hindustan Aeronautics Limited 6. Hindustan Petroleum Corporation limited 7. Mahanagar Telephone Nigam Limited 8. National Aluminum Company Limited 9. NMDC Limited 10.Neyveli Lignite Corporation Limited

45

11. Oil India Limited 12. Power Finance Corporation Limited 13. Power Grid Corporation of India Limited 14. Rashtriya Ispat Nigam Limited 15. Rural Electrification Corporation Limited 16. Shipping Corporation of India Limited.

MAN POWER AT A GLANCE AS ON 31-03-2011

Works

Projects

Mines

Others

Total

Executives 3262

344

109

1492

5207

Non

51

257

956

12622

11358

Executives Total Employees

-----------------17,829 ----------------

MARKETING NETWORK OF VISAKHAPATNAM STEEL PLANT

VSP has a wide network of regional Officers and Branch Officers spread thecountry for marketing of its products. There are 5 Regional Officers and 23 branch Officers. Stock Yards are attached to each of the Branches. These are catering to the needs and expectations of the customers in various segments.

46

Region East North

Location of regional Office Kolkata Delhi

West

Mumbai

South

Chennai

Andhra Visakhapatnam

Bhubaneswar, Kolkata, Patna Agra, Chandigarh, Dehradun, Jaipur, Kanpur, Ludhiana Ahmedabad, Indore, Mumbai, Nagpur, Pune Bangalore, Chennai, Kochi, Coimbatore Hyderabad, Visakhapatnam

POLLUTION CONTROL AND ENVIRONMENTAL PROTECTION Elaborate measures have been adapted to combat air and water pollution in Visakhapatnam steel plant. In order to be eco friendly Visakhapatnam steel plant has planted more than 3.4 million trees in area of 35 square kilometers and incorporated various technologies at a cost of Rs.460 crores and control measures.

ACHIEVEMENTS AND AWARDS OF VSP The efforts of VSP have been recognized in various forms. Some of the major awards received by VSP are in the area of energy conservation, environment protection, safety, Quality, Quality circles, Rajbhasha, MOD, sports related awards and a number of awards at the individual level. Some of the important awards received by VSP are indicated below: Award

Steel Minister’s Trophy for the year 2006-07

Purpose RINL bagged the First Steel Minister’s Trophy for the year 2006-07 for being the best integrated steel plant in the country (Runner Up) in November 2009.

47

Year

2010-Feb

Award of 'Certificate of Merit' of Global Human Resource Development of Organization'(IFTDO)

Human resources Development

2010-April

Ranked 4th Large India's top 50 best companies Organization; Ranked 6th in to work for by great place to manufacturing and production work institute and Economic companies; Ranked among the Times top two PSU's

2010

NIPM certificate of Merit

2010March

Best HR Practices

UdyogRatan Award by the Delhi Telugu Academy, Hyderabad.

‘Public Relationsional Awards-2009’

10th National Management Quiz

2010March RINL bagged third prize in the ‘Event Management’ category of the ‘Public Relations National Awards-2009’ at the 31st All India Public Relations conference held in Chandigarh. VSP won this Quiz successively for 3 in a row (2007, 2008 & 2009) achieving HAT-TRICK which is a NATIONAL RECORD.

Ø RINL team won the TATACrucible Corporate Quiz on 4th October.

Energy Award-CII

2009-Dec

2009

2009

VSP was adjudged ‘Energy Efficient Unit’ award by Confederation of Indian Industry Godrej Green Business Centre at the 10th National award for excellence in energy Management in November 2009

48

2009

International Convention on Quality Control Circles (ICQCC) 2009 Convention Organized By: : Productivity Improvement Circles Association, Cebu, Philippines VSP QC teams won Gold & Bronze medals at International QC convention

Two QC teams i.e. “Sraddha” from CMM Dept. and “Akash’ from ES&F dept consisting fourteen members and coordinator presented QC case studies during the competition. During October'2009

2009

VSP has achieved a rare distinction of becoming the First Indian Steel Company to be assessed and certified for CMMI Level 3(version 1.2) for its Information Technology Department. for excellent performance of Hindi for the year 2007-08 by Hindi SalahkarSamithi of Ministry of Steel India's best companies to work for -Study 2009 by Great Place To Work Institute & Economic Times ( total no of participated companies were 373)

2009

Presented by Indian Institution of Industrial Engineering for Financial and Operational Strength for 2006-07 Award for Exemplary usage of for its e-governance by ICT by PSU's Government of India during 11th National Conference on e-Governance

2008

Certification for CMMI Level 3(version 1.2) for its Information Technology

‘Rajbhasha Trophy’ for excellent performance

Recognition as one among “India’s best companies to work for” – 2009 , Top 50 best companies to work for in India, Top 2 PSUs to work in India,4th rank in large organizations category (More than 10,000 employees), Top 6 in manufacturing and production Performance Excellence Award 2007

49

2009

2009

2008

QCFI-NMDC Award for Best Quality Circle Implementation - PSU Category Ispat Suraksha Puraskar Award by JCSSI

Best Organization AwardQCFI National Award for House journal by Public Relation Society of India

QC Implementation

2008

In group A (Scheme2) for the year 2007 for the zones coal and coke, BF, Slag granulation plant ,SP,RMHP & Rolling mills, in which no fatal accidents occurred during the years 2006 & 2007 for promoting QCs in the organization during QCFISilver Jubilee celebrations Best house journal devoted to " Welfare of Employees"

2008

2008

2008

SWOT Analysis Strengths:  Availability of funds  Ability to raise funds  Avilability of land & layout for expansion up to 20Mt & proximity to port.  Image as quality producer & value for money supplier.  Superior basic technology at inception time.  Cutting edge technology in Expansion to 6.3Mt committed work force. Weakness:  Lack of level playing field vis-à-vis others due to lack of captive iron ore & coking coal mines.  Single location Single location company only long products, exposed to cyclic markets  Due for major capital repairs & modernization  Steel rise in cost of production & fall in margin  High cost of servicing huge equity  Subdued international & sluggish domestic markets

50

Opportunities:

    

Increased potential demand awaiting to be tapped Improved investment in infrastructure Projected growth in steel consumption Improved availability of ports & logistics Diversifying to new products mix life axles etc.

Threats:  Stiff competition- entry of many new products- JSPL, Adhumik, Bhushan, Maithan, Shyam steel, ISPAT etc.  Price cut by competitors  Increasing raw materials prices & shift of value chain towards raw materials  Oligopolistic coal supply side  Single iron ore suppliers located in disturbance  Predominant secondly sector in long products  Expansion of capacities by the competitors & entry of international players  Higher quality of life in VSP vis-à-vis surrounding areas FINANCING AND ACCOUNTING WING In RINL main function of the finance and Accounts Department is to look after the treasury management and to render service in financial aspects for effectively conducting the business of the company. The finance Department has many sub sections. It has about 275 employees consisting of about 260 executives and 15 non executives. The entire department is headed by the general manager. Finance and Accounting Department of RINL is divided into several sections for administrative control and

51

assignment of responsibilities and fixing of accountability etc. To name a few are: The following are the sections of finance and Account department in RINL. 1.

Raw material Accounts

2.

Stores Accounting

3.

Sales Accounts

4.

Pay and PF Accounts

5.

Works accounts section

6.

Operational Bills Accounts

7.

General Accounts Section

8.

Cash Section

9.

Loans and Advances

10.

Corporate Accounts

11.

Internal Audit Section

12.

Budget Section

13.

Costing Section

14.

Project Accounts

15.

Concurrence Sections

CAPITAL COST

Approved Cost

Rs.8692 Crores (Base June 05)

Debt component

Rs.4346 Crores

FE component

Rs.1477 Crores

Pay back period

5 years 2 months

IRR

23%

Project cost (net of caveat) Rs.7998 Crores

52

SOURCES OF FUNDS VSP raise its working capital from of 10 Bankers. The following are the 10 banks. Where funds for finance are raised. 1.

State Bank of India

2.

Canara Bank

3.

UCO Bank

4.

Bank of Baroda

5.

Andhra Bank

6.

State Bank of Hyderabad

7.

Allahabad Bank.

8.

HSBC

9.

Industrial Development Bank of India (IDBI)

10. Indian Overseas Bank (IOB)

THE COMPANY PAYS:

1. Excise duty - 2 Crores/day 2. Sales Tax

- 12 Crores/month

3. Custom duty

- 12 Crores/month

4. Employee salary

- 35 Crores/month

5. Iron ore

- 15 Crores/month

6. Railway freight

- 50 Crores/month

7. Ocean Freight

- 15 Crores/month

8. Coal blast

- 70 Crores/month

53

BOARD OF DIRECTORS CHAIRMAN/MANAGING DIRECTOR

Sri A.P.CHOUDHARY

DIRECTOR (PERSONNEL)

Sri Y. R.REDDY

DIRECTOR(FINANCE)

Sri P.MADHUSUDAN

DIRECTOR (COMMERCIAL)

Sri T.K.CHAND

DIRECTOR (OPERATIONS)

Sri UMESH CHANDRA

DIRECTORS (PROJECTS)

Sri N.S.RAO

COMPANY SECRETARY

Sri P.MOHAN RAO

54

Expansion plan:Product

Hot Metal

Capacity (MT) Present 4.00

Capacity (MT) Future 6.50

Charge Sinter

5.26

8.50

Liquid Steel

3.70

6.30

Saleable Steel Wire Rod

3.34 1.05

5.72 1.65

Bars& Structural

1.95

3.40

-

0.30

16mm

40mm

Seamless Pipes

Special Bars (Plains)

55

Additional Facilities Envisaged New BF with 3800 CuM Capacity New Sinter Plant of 400 Sq.M. area SMS-2 with Two 150 CuM Converters, Two 6 Std Billet Casters & One 6 std Round Caster New WRM of 600000T/ Annum New SBM of 750000T/ Annum New SM of 700000T/ Annum Seamless Tube Plant of 300000T/ Annum -

PERFORMANCE OF RINL AT A GLANCE

PRODUCTION PERFORMANCE Achieving new targets year after year in production has become a part of the work culture.

Labour productivity Year

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Hot metal

4046 3913 3546 3900 3830

Liquid steel

3606 3322 3145 3399 3424

Saleable

(tones/man

steel

year) 413 389 359 382 358

3290 3074 2701 3167 3077

56

COMMERCIAL PERFORMANCE: The commercial performance of VSP for the past four years is as follows (In crores) year 2006-07 2007-08 2008-09 2009-10 2010-11

Sales turn over 8911 10433 10411 10635 11517

Domestic Sales 8487 9878 10333 10284 11095

57

Exports 424 555 78 351 422

FINANCIAL PERFORMANCE: VSP had to bear the burnt of huge project cost right from the day of its inception. This has affected the company’s balance sheet due to very high interest burden. The company, in spite of making operating profit every year had to report net loss during all financial years. This on the other hand had resulted in making VSP to take great care in planning the financial resources. The financial performance of VSP for the past five years is as follows:

YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

GROSS

CASH

NET

MARGIN

PROFIT

PROFIT

2633 3515 2356 1603 1412

2584 3483 2267 1525 1247

1363 1943 1336 797 658

58

59

60

FINANCIAL STATEMENTS INTRODUCTION: Accounting

process

involved

recording,

summarizing various business transactions.

classifying

and

The aim of maintaining

various records is to determine profitability of the enterprise from operation of the business and also to find out is financial position. Financial statements are in term reports, presented annually and reflect a division of the life of an enterprise in to more or less arbitrary accounting period more frequently a year. organized

collection

of

data

according

The financial statement is an to

logical

and

consistent

accounting procedures its purpose is to convey of a business firm.

DEFINITIONS:

According to John N.Myer “The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities, and capital as on a certain date and the income statement showing the results of operations during a certain period”.

The term financial statement generally refers to following basic statements:

61

1.

The income Statement.

2.

The Balance Sheet.

3.

A Statement of Retained earring.

4.

A Statement of Changes in financial position.

FINANCIAL STATEMENT

STATEMENT

STATEMENT OF

INCOME

BALANCE

OF

CHANGES

STATEMENT

SHEET

RETAINED

FINANCIAL

EARNINGS

POSITION

Income Statement The income statement (also termed as profit and loss account) is generally considered to be the most useful of all financial statements.

It explains what has happened to a balance sheet dates.

The nature of the ‘income’ which is the focus of the income statement

62

IN

can be well understood if a business is taken as an organization that uses ‘inputs’ to ‘produce’ output.

Balance Sheet It is a statement of financial position of a business at a specified moment of time.

It represents all assets owned by the business at a

particular moment of time and the claims of the owners and outsiders against those assets at that time.

The important distinction between as

income statement is for a period while balance sheet is on a particular date.

Statement of Retained Earnings

The term retained earnings means the accumulated excess earnings over losses and dividends. The balance shown by the income statement is transferred to the balance sheet through this statement after making necessary appropriations. It is fundamentally a display of things that have caused the beginning of the period retained earnings balance to be changed in to the one shows in the end-or-the-period balance sheet.

Statement of changes in financial position

The balance sheet shows the financial condition of the business at a particular moment of time while the income statement discloses the results of operations of business over a period of time for a

63

better understanding of the affairs of the business, it is essential to identify the movement of working capital or cash in the statement of changes in financial position.

Nature of Financial Statements

The financial statements are prepared on the basis of recorded facts. The recorded facts are those which can be expressed in monetary terms. generally one year.

The statements are prepared for a particular period, The transactions are recorded in a chronological

order as and when the events happen.

The financial statements by

nature are summaries of the items recorded in the business and there statements are prepared periodically generally for the accounting period.

The following points explain the nature of financial statements

1. Recorded Facts

The term ‘Recorded facts; refers to the data taken out from the accounting records.

The records are maintained on the basis of

actual cost data. The figures of various accounts such as cash in hand, cash at bank, bills receivables, Sundry debtors, fixed assets are taken as per the figure recorded in the accounting books. As the recorded facts

64

are not based on replacement costs the financial statements do not show current financial condition of the concern.

2. Accounting Conversions Certain accounting converters are followed while preparing financial statements.

The conversion of valuating inventory at cost or market

price, whichever is lower, is followed. depreciation

principle

for

The valuing of assets at cost less

balance

sheet

purposes

statements

comparable, simple and realistic.

3. Postulates The accountants make certain assumption while making accounting records. One of these assumptions is that the enterprise is treated as a going concern. The other alternative to this postulate is that the concern is to be liquidated the concern.

So the assets are shows on a going

concern basis. An other important assumption is to presume that the value of money will remain in the same in different periods.

4. Personal Judgments

Even though certain standard accounting conversions are followed in preparing financial statement but still personal judgment of the accountant plays on important part.

65

Characteristics of financial statement

The financial statements are prepared with a view to depict financial position of a concern.

The financial statements should be

prepared in such a way that they are able to give a clear and orderly picture of the concern. The ideal financial statement has the following characteristics.

1. Depict true financial position The information contained in the financial statements should be such that a true and correct idea is taken about the financial position of the concern.

2. Attractive The financial statements should be prepared in such a way that important information is underlined so that it attracts the eye of the reader.

3. Comparability The results of financial analysis should be comparable.

The financial

statements should be presented in such a way that they can be compared to the previous year’s statements. Previous year’s figures in the balance sheet.

4. Brief If possible, the financial statements must be prepared in

66

brief. The reader will be able to form as idea about the figures.

Importance of financial statements

Financial statements contain a lot of useful and valuable information

regarding

profitability

prospective of business concern.

financial

position

and

future

The utility of financial statement to

different parties may be summarized as follows:

1. Management The financial statements are useful for assessing the efficiency ofdifferent cost centers. The management is able to decide the course of action to be adopted in future.

2. Creditors The trade creditors are to be paid in a short period. The CRS will be interested in current solvency of the concerns.

The calculations of

current ratio and liquid ratio will enable the creditors to assess the current financial position of the concerns in relation to their debts.

3. Investors The investors include both short-term and long term investors. They are interested in the security of the principal amounts of loan and regular payments by the concern.

The investors will not only analyse

the parent financial position but will also study the future prospectus

67

and expansion plans of the concern.

4. Government The financial statements are used assess tax liability of business enterprises. The Government studies economic situation of the country from these statements. These statements enable the government to find out whether business is following various rules and regulations or not.

5. Trade Association These associations provide service and protection to the members. They may analyse the financial statements for the purpose of providing facilities to these members.

They may develop standard ratios and

design uniform system of accounts.

6. Stock Exchange The stock exchange deal in purchase and sale of securities of different companies.

The financial statements enable the stock broker to judge

the financial position of different concerns.

The fixation of prices for

securities etc. is also based on the statements.

LIMITATIONS OF FINANCIAL STATEMENTS

Financial statements are relevant and useful for the concern, still they do not present a final picture of the concern, otherwise misleading conclusions may be drawn. The fisnancial statements suffer from following limitation:

68

1. Ignoring of non-monetary aspects These statements are prepared with the help of accounting information which mainly consider monetary aspects only. The value of business depends both on qualitative and quantitative factors.

2. Historical cost The statements are prepared on the basis of historical cost. The value of fixed assets are at there original cost less depreciation. The balance sheet value are not shown the value of assets may be sold more over they do not reflect the market value which is as important factor in determining the solvency of an enterprise.

3. Personal Judgment In preparing financial statements certain items are left to the personal Judgment of the accountant. If any accountant is not following accounting principles correctly his judgment will give wrong picture.

4. Conversion of Conservation Due to conversion of conservation the income statement may not disclose true income

of the business.

This is due to ignorance of

probable incomes and accounting probable losses.

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial

69

strength and weakness of the firm by properly establishing between the items of the balance sheet and profit and loss account. There are various methods or techniques used in analysis financial statements such as comparative statements, trend analysis, common size statements, schedule of changes in working capital,

funds flow and cash flow

analysis – Cost Volume Profit Analysis and Ratio Analysis.

Meaning and concept of financial analysis The terms ‘financial analysis’ also known as analysis and interpretation of financial statements refers to the process of determining financial strength and weaknesses of the firm by establishing strategic relationship between the items

of the balance sheet, profit and loss

account and other operative data.

Types of financial analysis

Financial analysis can be classified in to different categories

70

depending up on:

A. On the basis of material used. B. On the basis of modules operand

Types of Financial Analysis

71

On the basis

On the basis

of material

of modules

Used

Operandi

Internal

External

Horizontal

Vertical

Analysis

Analysis

Analysis

Analysis

[A]In the basis of material used According to the basis, financial analysis can be of two types.

External Analysis This analysis is done by those who are outsiders for the business. These persons mainly depend up on the published financial statements. Their analysis serves only a limited purpose.

Internal Analysis

72

This analysis is done by persons who have access to the books of account and at other information related to the business. Such as analysis can be done by executives and employees of the organization. The analysis is done depending up on the objective to be achieved through this analysis.

[B] On the basis of modules operandi

According to this financial analysis can also be of two types:

Horizontal Analysis

In case of this type of analysis, financial statements for a number of years are reviewed and analysed the current years figures are compared with the standard or base year.

The analysis

statement

usually contains figures for two or more year and the change are shown regarding each item from the base year usually in the form of percentage. Since this type of analysis based on the data from year to year rather than on date, it is also termed as “Dynamic Analysis”

Vertical Analysis

In case of this type of analysis a study is made of the quantitative relationship of various items in the financial statement on a particular date. Since this analysis depends on the data for one period,

73

this is not very conductive to a proper analysis of the company’s financial position. It is also called ‘static analyses

as it is frequently used for

referring to ratio developed on one date or for one accounting period.

Techniques of financial analysis A financial can adopt one or more of the following techniques/ tools of financial analysis:

Financial Analysis Techniques

Comparative Financial Statements

Trend Percentages

Common Size Financial Statements

Ratio Analysis

Ratio C.V.P. Analysis

Funds flow Analysis

Cash Flow Analysis

COMPARATIVE FINANCIAL STATEMENTS

The statements which have been designed in a way so as to 74

provide time perspective to the consideration of various elements of financial position embodied in such statements figures for two or more period side by side to facilitate comparison.

Both the income statement and balance sheet can be prepared Ni the form of comparative financial statements.

The comparative financial statements contain the following items.

i.

Absolute figures (amount in Rs. /-) as given in the final accounts.

ii.

Absolute figures expressed in terms of percentages.

iii.

Increase of decrease in absolute figures in terms of money value.

iv.

Increase or decrease in terms of percentages.

v.

Comparison expressed in ratios.

vi.

Percentages of totals.

Comparative Income Statements

The income statement (profit & loss A/c) gives the results of the operations during a definite period. It reveals the profit carried or loss incurred by the cancers. The comparative study if income statement for more than 1 year may enable us to know the program of the concern. First two columns gibe figures of various items for two years. The third and fourth column used to show increase or decrease in figures in absolute adopted in preparing comparative balance sheet. 75



In first step, find out the changes in absolute figures i.e., increase or decrease should be calculated.



In second step percentage of change should be calculated with the help of following formula.

Change in amount Percentage of change =

x 100 Base year amount

Guidelines for interpretation  The increase

or decrease in sales should be compared with

increase or decrease in cost of goods sold. If increase in sales is more than the cost of goods sold. It means that the profitability of the concerns is increased.

 The amounts of gross profit should be studied.  Operating profits should be studied.

The express should be

deducted from gross profit to find out operating profit and then operating incomes should be added.

 The next step is some of the non operating expenses are to be deducted from the operating profits and non operating incomes should be added to get net profit

 The opinion should be formed the profitability of the business concern and it should be given at the end.

Comparative balance sheet 76

The balance sheet prepared on a particular date reveals the financial position of the concern on the date to study the trends of business over a period of time comparative balance sheet reveals the cause for changes in the financial position on amount of various transactions. The comparative studies throw light on financial policies adopted by management.

The comparative balance sheet consists of two columns for the original data. A third column used to show increase or decrease in various items. A south column containing the parentage of increase or decrease may be added

Guide lines for interpretation of balance sheet

 The short term financial position can be studied by comparing the working capital of both years.

 To study the liquidity position changes in liquid assets must be ascertain if there is any increase in liquid assets.

We must

understand that is an improvement in the liquidity position of the concern and vice versa.

 A high increase in sundry debtors and bills receivable mean in increase in risk in collecting the amount of dues.

 A high increase in closing stock may mean that decrease in the

77

demand.

 Long term financial position of the business concern car be analysed by studying the changes in fixed assets, long term liabilities and capital.

 Fixed assets must be compared with long term loans and capital. If the increase in fixed assets is more than the increase in long term financiers from the working capital which is not good.

1. COMMON SIZE STATEMENTS

The common size statements, balance sheet and income statement are shown in analytical percentages.

The figures are shown

as percentages of total assets, total liabilities and sales.

The total assets

are taken as 100 and different assets are expressed as percentage of the total.

Similarly various liabilities are taken as a part of total liabilities.

These statements are also known as component parentage or 100% statements because every individual item is stated as a percentage of the total 100 the short statements because every individual item is stated as a percentage of the total 100 the short-comings in comparative statements and trend percentages where changes in item could not be compared with the total have been covered up.

The common size statements may be prepared in the following way.

 The totals of assets or liabilities are taken as 100.

78

 The individual assets are expressed as a percentage of total assets i.e., 100 and different liabilities are calculated in relation to that liability.

Common Size Income Statement The items in income statement can be shown as percentages of sales to show the relation of each item to sales.

A significant

relationship can be established between items of income statement and volume of sales.

The increase in sales will certainly increases selling

expression and volume of sales.

The increase in sales will certainly

increases selling expresses and not administrative or financial expenses. In case the volume of sale increases to a considerable extent, administrative and financial expenses may go up. In case the sales are declining, the selling expenses should be reduced at once.

So, a

relationship is established between sales and other in income statement and this relationship is helpful in evaluating operational activities of the enterprises.

Common Size Balance Sheet Statement in which balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities is called common size balance sheet.

The common size balance sheet is a horizontal analysis.

The

comparison of figures in different periods is not useful becomes total

79

figure may be affected by a number of factors. establish standard norms for varios assets.

It is not possible to

The trends of year to year

may not be studied and even they may not give proper results.

2. TREND ANALYSIS Trend analysis is an important and useful technique of financial analysis. It involves computation of index numbers of the moments of the various financial items in the financial statements for a number of periods.

It enables to know the changes in the financial

position and the operational efficiency between the period chosen.

Through trend analysis the analysis can give his opinion as to whether favorable or unfavorable tendencies are reflected by the accounting date.

The comparative and common size balance sheets suffer from a major limitation i.e., absence of basic standard to indicate whether the proportion of an item is normal or analysis values are calculated for each item in isolation but conclusions are to be drawn by studying the related items also.

Trend analysis can be analysis in the following ways:

i.

By calculating trend ratio (or) percentage.

ii.

By plotting on graph paper (or) charge.

80

Trend Ratio (or) Percentage

It involves the ascertainment of arithmetical relationship which each item of several year to the same item of base year. Any year maybe as the base year, it is usually the earliest year.

Procedure for Calculating Trend Ratio

The following procedure maybe adopted for calculating trend ratio.

i.

Select any year as base year the selected year should be normal year for the base year the trend value is taken as 100.

ii.

Trend percentage of each item should be calculated with the help of following formula.

Current year value Trend Percentage =

X 100 Base year value

3. COST-VOLUME-PROFIT ANALYSIS Cost – Volume – Profit analysis is an important tool of profit planning.

It studies the relationship between cost,

production, sales and profit.

volume of

It is not strictly a technique used for

analysis of financial statements. However, it is an important tool for the management for decision making. Since the data is provided both cost

81

and financial records.

It tells the volume of account of variation in

output, selling price and cost, and finally, the quantity to be produced and sold to reach the target profit level.

4. RATIO ANALYSIS Financial analysis depends to very large extents of the use of ratios through there are other equality important tools of such analysis.

Thus,

a direct examination of the magnitude of two released items is some what enlightening but the comparison is greatly facilitated by expressing the relationship as a ratio.

Ratio analysis of business enterprises enters on efforts to derive quantitative measures or guides concerning the expected capacity of the firm to meet its future financial obligation or expectations present and past data are used for the purpose and what ever extrapolations appear necessary.

They are made to provide no indication of feature

performance. Alexander walt, who criticized the bankers for its lapsided development owing to their decisions regarding the grant of credit on current ratios a lone, made the presentation of an elaborate system of ratio analysis in1919.

Ratio Ratio is an expression of the quantitative relationship that exists between the two numbers. The ratio is defined as “the indicated quotient

of

two

mathematical

expressions”

the

ratio

should

be

determined between related accounting variables to be meaningful and 82

effective.

5. MEANING OF CASH FLOW NATURE Cash plays very important role in the entire economic life of a business. A firm needs cash to make payments to its suppliers, to insure day-go-day expenses and to pay salaries, wages, interest and dividends etc.

In fact, what blood is to a human body, cash is to a

business enterprise

It is very essential for a business to maintain an

adequate balance at cash.

But many a times, a concern operates

profitability and yet it becomes very difficult to pay taxes and dividends this movement of cash is of vital importance to the management. “A statement of changes in the Financial Position of firm on cash basis is called a cash flow statement”.

A cash flow statement summarises the causes of changes in cash position of a business enterprise between dates of two balance sheets. This statement is very much similar to the statement of changes in Financial Position Prepared on working capital basis, i.e., a funds flow statement, except that a cash flow statement focuses attention on cash instead of working capital. It is called a cash flow statement because it describes the Inflow (Sources) and out flow (use) of cash.

83

Financial performance with respect to operational performance (2010-2011): Financial over view: The Global Steel industry slowly started to recover from the melt down& the second half of 2010-2011 has been encouraging for the steel industry as the demand has started to increase. RINL registered an increase in the turnover of 8.30% over the previous year. How ever, due to increase in input costs, the profit is adversely affected Financial performance: PARTICULARS

FY 2010-2011 (Crs)

FY 2009-2010 (Crs)

Sales turnover PBDIT Profit before tax Profit after tax

11517 1412 982 658

10635 1602 1248 797

84

% inc(+)/dec(-) Over previous year 8 -12 -21 -17

INTERPRETATION: Profit before tax of 982 crores was lower by 266 crores over previous year(1248 crores). The profit margins strained during the current year due to steep increase of raw material prices especially basic raw materials such as coal &iron ore.

85

Table NO 5.1 Balance Sheets ofVSP Ltd. From 2006-07 to 2010-11 Source of Funds (Rs in Crores)

PARTICULARS

31-03-2011

31-03-2010

86

31-03-2009

31-03-2008

31-03-2007

Share Holders Fund Share Capital Reserve & surplus (A) Loan Funds Secured Loans Unsecured Loans (B) Current liabilities Liabilities Provisions (C) Deferred Tax Liability (D) Total (A+B+C)

7827.32 5401.90 13229.22

7827.32 5057.68 12885.00

274.89 861.87 1136.76

407.28 825.27 1232.55

3271.43 1336.06 4607.49

79.97 19053.44

7827.32 4592.59 12419.91

7827.32 3653.72 11481.04

7827.32 1710.88 9538.20

907.72 100.04 1007.76

332.78 107.95 440.73

604.45 312.51 916.96

2871.95 1435.89 4307.84

2560.79 1620.53 4181.32

1610.15 1581.47 2104.30

1011.53 1092.77 2104.30

97.82 18523.21

124.49 17733.48

163.12 15276.51

291.29 12850.75

87

Table NO 5.2Application of Funds (Rs in Crores)

PARTICLURS

31-032011

31-032010

31-032009

31-032008

31-032007

9794.60 8264.71

9473.90 8008355

8971.80 7749.74

8900.83 7516.19

8875.62 7085.16

1529.89 0.03

1465.35 0.05

1222.06 0.05

1384.64 0.04

1790.46 0.00

9536.71

7506.90

4652.00

2087.19

597.19

11066.63 361.60

8972.30 0.25

5874.11 0.05

3471.87 0.05

2387.65 0.05

3254.71 330.61 1998.89

2451.52 181.18 5415.54

3215.28 191.27 6624.17

1761.15 93.41 7699.11

1203.24 216.80 7194.68

75.96 1965.04

137.40 1365.02

258.91 1569.69

292.43 1958.49

314.48 1518.90

7625.21 0.00

9550.66 0.00

11859.32 0.00

11804.59 0.00

10448.10 14.96

0.00

0.00

0.00

0.00

0.00

19053.44

18523.21

17733.48

15276.51

12850.75

Fixed Assets Gross Block Less: Depreciation Net Block Hold for Disposal Capital work-inprogress (A) Investment(B) Current Assets & Advances Inventories Sundry debtors Cash & Bank Balance Others Assets Loans & Advances (C) Miscellaneous Expenditure(D) Profit & Loss Account(E) Total (A+B+C)

88

Table NO 5.3 COMPARITIVE BALANCE SHEET OF VSP LTDFOR THE YEARS 2009-10 and 2010-11 2009-10 2010-11 Increase/Decrea Increase/Decrea PARTICULARS Rs. Crs. Rs. Crs. se se Rs. Crs. Percentage ASSETS: Cash & Bank Balance 5415.54 1998.89 -3416.65 -63.08 Sundry Debtors 181.18 330.61 149.43 82.47 Inventories (Stock) 2451.52 3254.71 803.19 32.76 Loans & Advances 1365.02 1965.04 600.02 43.95 Other Current Assets 137.4 75.96 -61.44 44.71 Miscellaneous Expenditure Profit & Loss Account Investments 0.25 361.60 +361.35 144540 Fixed Assets 8972.30 11066.63 2094.33 23.34 Total Assets LIABILITIES Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Reserves & Surplus Share Capital Total Liabilities

18523.21 19053.44

530.23

2.86

2871.95 3271.43 1435.89 1336.06 407.28 274.89 825.27 861.87 97.82 79.97 5057.68 5401.90 7827.32 7827.32 18523 19053.44

399.48 -99.83 -112.39 16.64 -17.85 344.22 -0.05 530.23

13.90 -6.95 -29.02 1.96 -18.24 6.80 -0.0006 2.86

89

Interpretation 

The fixed assets for the period of 2009-10 is 8972.30 i.e. 48.43% & 2010-11 is 11066.63 i.e. 58.43% it has been increased23.34%.



The total assets for the period of 2009-10 is 18523.21 i.e. 100% & 2010-11 is19053.44 i.e. is 100%.



The current liabilities for the period 2009-10 is 2871.95 i.e. 15.50 %& 2010-11 is 3271.43 i.e. 17.31%, this has been increased by 13.90%.

90

Table NO 5.4 COMPARITIVE BALANCE SHEET OF VSP LTD. FOR THE YEARS2008-09 and 2009-10 PARTICULAR 2008-09 2009-10 Rs. Crs. Rs. Crs. S ASSETS: Cash & Bank Balance Sundry Debtors Inventories (Stock) Loans & Advances Other Current Assets Miscellaneou s Expenditure Profit & Loss Account Investments

Increase/Decrea se Rs. Crs.

Increase/Decrea se Percentage

6624.17

5415.54

-1208.63

-18.24

191.27

181.18

-10.09

-5.27

3215.28

2451.52

-763.76

-23.75

1569.69

1365.02

-204.67

-13.03

258.91

137.4

-121.51

-46.93

0.05

0.25

+0.2

+4.00

91

Fixed Assets Total Assets LIABILITIES Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Reserves & Surplus Share Capital Total Liabilities

5874.11 17733.4 8

8972.30 18523.2 1

+3098.19 +789.73

+52.74 +4.45

2560.79

2871.95

+311.16

+12.15

1620.53 907.72

1435.89 407.28

-184.64 -500.44

-11.39 -55.13

100.04

825.27

+725.23

+724.94

124.49

97.82

-26.67

-21.42

4592.59

5057.68

+465.09

+10.12

7827.32 17733.4 8

7827.32 18523

+789.73

4.45

Interpretation 92



The fixed assets for the period of 2008-09 is 5874.11 i.e. 33.12% & 2009-10 is 8972.30 i.e. 48.43% it has been increased 15.31%.



The total assets for the period of 2008-09 is 17733.48 i.e. 100% & 2009-10 is 18523.21 i.e. is 100%.



The current liabilities for the period 2008-09 is 2560.79 i.e. 14.44% & 2009-10 is 2871.95 i.e. 15.50%, this has been increased by 1.06%.

Table NO 5.5 COMPARITIVE BALANCE SHEET OF VSP LTD. FOR THE YEARS 2007-08 and 2008-09 PARTICULARS A SSETS: Cash & Bank Balance Sundry

2007-08 Rs. Crs.

2008-09 Rs. Crs.

Increase/Decrease Increase/Decrease Rs. Crs. Percentage

7699.11

6624.17

-1074.94

-13.96

93.41

191.27

+97.86

+104.76

93

Debtors Inventories (Stock) Loans & Advances Other Current Assets Miscellaneous Expenditure Profit & Loss Account Investments Fixed Assets Total Assets LIABILITIES Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Reserves & Surplus Share Capital Total Liabilities

1761.15

3215.28

+1454.13

+82.56

1958.49

1569.69

-388.8

-19.85

292.43

258.91

-33.52

-11.46

0.05 0.05 3471.87 5874.11 15276.51 17733.48

+2402.24 +2456.97

+69.19 +16.08

1610.15

2560.79

+950.64

+59.04

1518.47 332.78 107.95

1620.53 907.72 100.04

+102.06 +574.94 -7.91

+6.72 +172.76 -7.32

163.12

124.49

-38.63

-23.68

3653.72

4592.59

+938.87

+25.69

7827.32 7827.32 15276.51 17733.48

+2456.97

+16.08

94

Interpretation 

The cash and bank balance was decreased from 7699.11(crores) to 6624.17 ((crores) i.e -1074.94 (crores) (-13.96%). It indicates that liquidity position of the VSP decreased



The Fixed assets were increased from 3471.67(crores) to 5874.11 (crores) i.e +2402.24 (crores) (69.19%). It indicates that the VSP’s interest on long term benefits through invest on fixed assets



Current liabilities were increased from 1610.15 (crores) to 2560.79 (crores) i.e +950.64 (crores) (+59.04%). It indicates that the working capital position becoming critical.

95

Table NO 5.6 COMPARITIVE BALANCE SHEET OF VSP LTD. FOR THE YEARS 2006-07 and 2007-08 PARTICULAR 2006-07 2007-08 Rs. Crs. Rs. Crs. S ASSETS: Cash & Bank Balance Sundry Debtors Inventories (Stock) Loans & Advances Other Current Assets Miscellaneou s Expenditure Profit & Loss Account Investments Fixed Assets Total Assets LIABILITIES Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Reserves &

Increase/Decrea se Rs. Crs.

Increase/Decrea se Percentage

7194.6 8 216.80

7699.11

+504.43

+7.01

93.41

-123.39

-56.91

1203.24

1761.15

+557.91

+46.36

1518.90

1958.49

+439.59

+28.94

314.48

292.43

-22.05

-7.01

-14.95

-100

14.95 ____

_____

______

_______

0.05 2387.65 12850.7 5

0.05 3471.87 15276.5 1

_____ +1084.22 +2425.76

______ +45.40 +18.87

1011.53

1610.15

+598.62

+59.17

1092.77 604.45

1518.47 332.78

+445.7 -271.67

+38.95 -44.94

312.51

107.95

-204.56

-65.45

291.29

163.12

-128.17

-44.00

1710.88

3653.72

+1942.84

+113.55

96

Surplus Share Capital Total Liabilities

7827.32 12850.7 5

7827.32 15276.5 1

_______ +2425.76

_____ +18.87

Interpretation 

The cash and bank balance was increased from 7194.68(crores) to 7699.11 (crores) i.e +504.43(crores) (+7.01%). It indicates that the VSP’s liquidity position was better than previous year.



The Investments are constant last two years and also the investments are very low. It indicates the firm’s disinterest on invest on other sectors.

97



The secured and unsecured loans were decreased from 2006-07 to 2007-08 i.e 476.23 (crores). It shows the VSP’s financial position becoming healthy.

Table NO 5.2.1Common Size Balance Sheet of 2010-11 2010-11 2010-11 PARTICULARS Rs. Crs. PERCENTAG E ASSETS: Cash & Bank Balance 10.49 1998.89 Sundry Debtors 330.61 1.73 Inventories (Stock) 17.08 3254.71 Loans & Advances 10.31 1965.04 Other Current Assets 75.96 0.39 Miscellaneous Expenditure Profit & Loss Account Investments 361.60 1.89 Fixed Assets

11066.63

58.08

Total Assets

19053.44

100

LIABILITIES

98

and 2009-10 2009-10 2009-10 Rs. Crs. PERCENTAGE

5415.54 181.18 2451.52 1365.20 137.40

0.25 88972.30 18523.2 1

29.23 0.97 13.23 7.336 0.0007

0.0001 48.43 100

Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Reserves & Surplus Share Capital Total Liabilities

3271.43 1336.06 274.89 861.87 79.97 5401.90 7827.32 19053.44

99

17.16 7.01 1.44 4.52 0.41 28.35 41.08 100

2871.95 1435.89 407.28 8225.27 97.82 5057.68 7827.32 18523.48

15.50 7.75 2.19 4.45 0.52 27.30 42.25 100

Interpretation 

The

fixed

assets

for

the

period

of

2009-’10

8972.30

i.e.

48.43% & 2010-’11 is 11066.63 i.e., 59.20 % it has been increased 10.77%. 

The Total assets for the period of 2009-’10 18523.21 i.e., 100% & 2010-’11 is 19053.44 i.e., is 100%.



The current liabilities for the period 2009-’10 2871.95 i.e., 15.50% &

2010-’11 is 3279.43 i.e.,17.16%

this has been increased by

1.66%.

Table NO 5.2.2COMMON SIZE BALANCE SHEET OF 2009-10 AND 2008-09 PARTCLURS

2009-10 RS. Crs.

2009-10 PERCENTAGE

2008-09 Rs. Crs.

2008-09 PERCENTAGE

ASSETS Current & Bank Balance Sundry Debtors

5415.54 181.18

29.23 0.97

37.35 0.01

Inventories

2451.52

13.23

6624.17 191 .27 3215.28

Loans & Advances

1365.02

7.36

1569.69

8.85

100

18.13

Other Current Assets Miscellaneous Expenditure Profit & Loss Account Investments Fixed Assets Total Assets LIABILITIES Current Liabilities Provisions Secured Loans Unsecured Loans Deferred Tax Liability Reserve & Surplus Share capital Total Liabilities

137.4

0.741

2587.91

0.25 8972.30 18523.21

0.0001 48.43 100

0.05 0.0002 5874.11 33.12 17733.48 100

2871.95 1435.89 407.28 825.27 97.82 5057.68 7827.32 18523.21

15.50 7.75 2.19 4.45 0.52 27.30 42.25 100

2560.79 1620.53 907.72 100.04 124.49 4592.59 7827.32 17733.48

Interpretation

101

1.46

14.44 9.13 5.11 0.56 0.70 25.89 44.13 100



The fixed assets for the period of 2008-’09 5874.11 i.e., 33.%12 & 2009-’10 is 8972.30 i.e., 48.43 %it has been increased 12%



The Total assets for the period of 2008-’09 17733.48 i.e., 100 & 2009-’10 is18523.21 i.e., is 100%



The current liabilities for the period 2008-’09 2560.79 i.e., 14.44%& 2009-’10 is 2871.95 i.e.,15.50 this has been increased by 1.2%

Table NO 5.2.3Common Size Balance Sheet of 2008-09 and 2007-08

PARTICULARS ASSETS: Cash & Bank Balance Sundry Debtors Inventories (Stock)

2008-09 Rs. Crs.

2008-09 PERCENTAGE

2007-08 Rs. Crs.

2007-08 PERCENTAGE

6624.17

37.35

7699.11

50.39

191.27 3215.28

0.01 18.13

93.41 1761.15

0.61 11.52

102

Loans & Advances Other Current Assets Miscellaneous Expenditure Profit & Loss Account Investments Fixed Assets

1569.69

8.85

1958.49

258.91

1.46

292.43

0.05 0.0002 5874.11 33.12

Total Assets 17733.48 100 LIABILITIES Current 2560.79 14.44 Liabilities Provisions 1620.53 9.13 Secured Loans 907.72 5.11 Unsecured Loans 100.04 0.56 Deferred Tax 124.49 0.70 Liability Reserves & 4592.59 25.89 Surplus Share Capital 7827.32 44.13 Total Liabilities 17733.48 100

103

0.05 3471.8 7 15276.51

12.82 1.91

0.0003 22.72 100

1610.15

10.54

1518.47 332.78 107.95 163.12

9.93 2.17 0.70 1.06

3653.72 23.91 7827.32 15276.51

51.23 100

Graphical Representation

Interpretation 

The fixed assets for the period of 2007-’08 3471.87 i.e., 22.27% & 2008-’09 is5874. i.e., 33.12%it has been increased &%



The Total assets for the period of 2007-’08 15276.51 i.e., 100 & 2008-’09 is17733.48i.e., is 100% there is an increase of 2456.97



The current liabilities for the period 2007-’08 i.e 1610.15 i.e., 10.54%& 2008-’9 is 2560.79i.e.,14 this has been increased by 4%

104

Table NO 5.2.4Common Size Balance Sheet of 2006-07 and 2007-08 PARTICULARS

2006-07 Rs. Crs.

2006-07 PERCENTAGE

2007-08 Rs. Crs.

2007-08 PERCENTAGE

55.98

7699.11

50.39

1.68 9.36

93.41 1761.15

0.61 11.52

11.81

1958.49

12.82

2.44

292.43

1.91

0.0003 0.05 18.57 3471.87 100 15276.51

0.0003 22.72 100

A SSETS: Cash & Bank 7194.68 Balance Sundry Debtors 216.80 Inventories 1203.24 (Stock) Loans & 1518.90 Advances Other Current 314.48 Assets Miscellaneous 14.95 Expenditure Profit & Loss Account Investments 0.05 Fixed Assets 2387.65 Total Assets 12850.75 LIABILITIES Current 1011.53 Liabilities Provisions 1092.77 Secured Loans 604.45 Unsecured Loans 312.51 Deferred Tax 291.29 Liability Reserves & 1710.88 Surplus Share Capital 7827.32

0.11

105

7.87

1610.15

10.54

8.50 4.70 2.43 2.26

1518.47 332.78 107.95 163.12

9.93 2.17 0.70 1.06

13.31

3653.72

23.91

60.90

7827.32

51.23

Total Liabilities

12850.75

100 15276.51

100

Interpretation 

The fixed assets for the period of 2006-07 2387.65 i.e., 18.57 & 2007-’08 is3471.87. i.e.,22.27%it has been increased &%4.3%



The Total assets for the period of 2006-’07 12850.75i.e., 100 & 2007-’08 15276.51 i.e.,. is 100% there is an increase of 4258.23



The current liabilities for the period 2006-071011.53i.e., 11.54%& 2007-’08 1610.15i..e.,14 this has been increased by 3.%

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RATIO ANALYSIS Table NO5.3.1CURRENT RATIO: Current Ratio = Current Assets / Current Liabilities Year wise Current Assets & Current Liabilities

(Rs.In Crs.)

YEAR

CURRENT ASSETS

CURRENT LIABILITIES

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

10448.59 11804.59 11859.32 9550.66 7625.21

2104.30 3191.62 4181.32 4307.84 4607.49

4.96 3.69 2.83 2.21 1.65

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INTERPRETATION: The current ratio indicates that for every one rupee of current liability there is more than two rupees of current assets, the current ratio of VSP is in excellent position, but the current ratio decreasing from 2006-07 to 2010-11 i.e., 4.96 to 1.65 so the VSP has to take right decision.

Table NO 5.3.2 QUICK RATIO: Quick Ratio = Quick Assets / Current Liabilities

Year wise Current Assets & Current Liabilities

(Rs.In Crs.)

YEAR

CURRENT ASSETS

CURRENT LIABILITIES

RATIO

2006-07 2007-08

7725.96 8084.95

2104.30 3191.62

3.67 2.53

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2008-09 2009-10 2010-11

7074.35 5732.12 2405.46

4181.32 4307.84 4607.49

1.69 1.33 0.52

INTERPRETATION: The quick ratio indicates that every one rupee of current liability there is more than one rupee of quick assts. The quick ratio of VSP is in good position but the quick ratio of VSP continuously decreasing from 200607 to 2010-11 i.e., 3.67 to 0.52 so the VSP has to take right decision.

Table NO 5.3.3 DEBT EQUITY RATIO:

Debt Equity Ratio = Out siders Fund / Shareholders Fund

Year wise Outsiders Fund & Shareholders Fund YEAR

OUT SIDERS FUND

(Rs.In Crs.)

SHARE HOLDERS FUND

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RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

3021.26 3632.35 5189.08 5540.39 5744.25

9538.20 11481.04 12419.91 12885.00 13229.22

0.31 0.31 0.41 0.42 0.43

INTERPRETATION: The debt equity ratio indicates that every one rupee of shareholders fund there is less than one rupee of outsiders fund. The debt equity ratio is in good position why because the debt always less than equity, but the debt is continuously increasing from 2006-07 to 2010-11 i.e., 0.31 to 0.43 this is not good to the VSP so that VSP’s management has take right decision for decreasing

Table NO 5.3.4 WORKING CAPITAL TURNOVER RATIO Working Capital Turnover Ratio = Sales / Net Current Assets Year wise Sales & Net Current Assets 110

(Rs.In Crs.)

YEAR

SALES

NET CURRENT ASSETS

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

9150.57 10433.07 10410.63 10634.63 11516.99

8343.80 8612.97 7678.00 5242.82 3017.72

1.09 1.21 1.35 2.02 3.81

INTERPRETATION: This ratio shows a relationship between net sales and working capital. The aim of this ratio it is indicates its velocity of its utilization of working capital. Thus ratio is increasing from 1.09 in the year 2006-07 to 3.81 in the year 2010-11 which is a good position.

Table NO 5.3.5INVENTORY TURNOVER RATIO Inventory Turn Over Ratio = Sales / Inventory 111

Year wise Sales & Inventory (Rs.In Crs.) YEAR

SALES

INVENTORY

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

9150.57 10433.07 10410.63 10634.63 11516.99

1203.24 1761.15 3215.28 2451.52 3254.71

7.60 5.92 3.23 4.33 3.53

INTERPRETATION: The Ratio indicates has for its sales revenue’s used to inventory. This ratio continuously decreased from 2006-07 (7.60%) to 2008-09 (3.23%) but it increased for the year 2009-10 (4.33%). It is not continuously the next year ratio is 2010-11 (3.53%).

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Table NO 5.3.6DEBTORS TURNOVER RATIO: Debtors Turn Over Ratio = Sales / Debtors Year wise Sales & Debtors (Rs.In Crs.) YEAR

SALES

DEBTORS

RATIO

2006-07 2007-08 2008-09

9150.57 10433.07 10410.63

216.80 93.41 191.27

42.20 111.69 54.42

2009-10 2010-11

10634.63 11516.99

181.18 330.61

58.69 34.83

INTERPRETATION: The ratio indicates has its sales revenue’s used to debtors. This ratio increased from 2006-07 (42.20%) to 2007-08 (111.69%).It is a excellent good position. But, it is not continuously that years means 2008-09 (54.42%), 2009-10 (58.69) and 2010-11 (34.83).

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Table NO 5.3.7 DEBTORS COLLECTION PERIOD RATIO: Debtors Collection Period Ratio = 365dyas / Debtors Turn Over Ratio

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

Year Wise Days& Debtors (Rs in crores) DEBTORS TURNOVER DAYS RATIO 365 365 365 365 365

42.20 111.69 54.42 58.69 34.83

RATIO 8.64 3.26 6.70 6.21 10.47

INTERPRETATION: The ratio indicates used by the Debtors collection period ratio. This ratio decreased from 2006-07 (8.64%) to 2007-08 (3.26%). But, the ratio increased from 2008-09 (6.70%) to 2010-11 (10.47).

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Table NO 5.3.8 RETURN ON CAPITAL: Return On Capital = Net Profit After Interest Before Tax / Fixed Assets Year wise NPAIBT & Share Capital( Rs. In Crs.) YEAR

NPAIBT

SHARE CAPITAL

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

2222.34 2995.36 2026.59 1247.65 981.66

7827.32 7827.32 7827.32 7827.32 7827.32

28.3 38.2 25.8 15.9 12.5

INTERPRETATION:

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This ratio indicates its ability of generating profit per rupee of capital employed. The return on capital increased from 2006-07 (28.3%) to 2007-08 (38.2) later on it decreased to 2010-11(12.5). It means the VSP earned 28.3pice for every one rupee of share capital in 2006-07 it increased 38.2pice to 20007-08 but later on it decreased to 12.5 picefor every one rupee of share capital in 2010-11. So the return on share capital decreased from 28.3% to 12.5%.

Table NO 5.3.9 PROPRIETARY RATIO Proprietary Ratio = Shareholders Fund* 100/ Total Assets

Year wise shareholders Fund Total Assets

(Rs. In Crs.)

YEAR

SHAREHOLDERS FUND

TOTAL ASSETS

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

9638.20 * 100 11481.40 * 100 12419.91 * 100 12885 * 100 13229 * 100

12850.75 15276.51 17733.48 18523.21 19053.44

75.00 75.15 70.03 69.56 69.43

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INTERPRETATION: This ratio how its proprietors have financed its assets. Above ratio indicates long-term solvency position of the company. It is almost decreases from 75.00% in the year 2006-07 to 69.43% in the year 201011. The shareholders fund occupied less than 60% on total assets. It indicates that the proprietary ratio of VSP is not at good position.

Table NO 5.4.0FIXED ASSETS RATIO: Fixed Assets Ratio = Fixed Assets*100 / Shareholders Fund Year wise Fixed Assets & Shareholders Fund (Rs. In Crs.)

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11

FIXED ASSETS 1790.46* 1384.64* 1222.06* 1465.35* 1529.89*

100 100 100 100 100

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SHAREHOLDERS FUND

RATIO

9538.20 11481.04 12419.91 12885.00 13229.22

18.77 12.06 9.83 11.37 11.56

INTERPRETATION: The ratio indicates that the VSP’s fixed assets occupied 18.77% on its shareholders fund in 2006-07 but this ratio decreased continuously upto 11.56%. Due to fixed assets decreased at the same time the shareholders fund increased continuously.

Table NO 5.4.1CURRENT ASSETS TO FIXED ASSETS RATIO:

Current Assets To Fixed Assets Ratio = Current Assets / Fixed Assets

Year wise Current Assets & Fixed ASSETS (Rs. In Crs.) YEAR

CURRENT ASSETS

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FIXED ASSETS

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

10448.59 11804.59 11859.32 9550.66 7625.21

1790.46 1384.64 1222.06 1465.35 1529.89

5.83 8.52 9.70 6.51 4.98

INTERPRETATION: The ratio indicates that every one rupee of fixed assets there is more than three rupees of current assets. The ratio continuously increased from 2006-07 to 2008-09 but it decreased from 2009-10 to 2010-11.

Table NO 5.4.2RETURN ON CAPITAL EMPLOYED RATIO:

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Return On Capital Employed Ratio = Net Profit *100 / Capital Employed

Year wise Net Profit & Capital Employed (Rs. In Crs.)

YEAR

NET PROFIT

CAPITAL EMPLOYED

2006-07 2007-08 2008-09 2009-10 2010-11

1363.43 1942.74 1335.57 796.67 658.49

10134.75 9997.61 8900.06 6708.12 4548.00

RATIO 13.45 19.43 15.00 11.87 14.47

INTERPRETATION: This ratio indicates firm’s ability of generating profit per rupee of capital employed. This ratio is decreasing gradually from 19.43 in it year 200708 to 11.87 in it year 2009-10. The reason may be its net profit and capital employed are decreasing. So steps should be taken this ratio.

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Table NO 5.4.3RETURN ON TOTAL ASSETS RATIO: Return On Total Assets Ratio = Net Profit*100 / Total Assets Year wise Net Profit& Total Assets (Rs. In Crs.) YEAR

NET PROFIT

TOTAL ASSETS

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

1363.43*100 1942.74*100 1335.57*100 796.67*100 658.49*100

12850.75 15276.51 17733.48 18523.21 19053.44

10.60 12.71 7.53 4.30 3.45

INTERPRETATION: This ratio indicates its firms ability of generating profit per rupee of total assets. This ratio is coming down for 12.71 in 2007-08 is during it year 2010-11 which is an. So steps should be taken for increasing net profit.

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FINDINGS 

Current ratio of VSP decreased continuously from 2006-07 to 2010-11i.e., from 4.96 to 1.65 i.e., the current liabilities of VSP had increased.



The VSP’s Net Profit decreased from 1363 crores to 658 crores during that year 2010-11 even though there is a small increase in sales.



The VSP’s sales turnover crossed 11,000 in that year 2010-11.



The VSP’s reserve and surplus are in very good position. In 201011 the reserve and surplus of VSP was 5401.90 crores.



The VSP’s share capital was constant with 7827.32 crores.



Working capital position of the company is in satisfactory position.



The total assets of the VSP increased more than 90% from 2006-07 (12850.75) to 2010-11 (19053.44).

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SUGGESTIONS

1) High profit realization by selling the products in higher margins will eventually result in higher cash accrual and hence higher credit rating. 2) Since the firm performance is largely dependent on availability of raw materials, In order to avoid the uncertainties in acquiring the raw materials New and innovative steps will be taken to effectively utilize the surplus funds. 3) The present level of the cash is Rs 7106 crores, this can be used in expansion II in order to maintain the current ratio i.e., between current assets and current liabilities at the optimum level. 4) The other main area where RINL has tremendous scope for improvement is in manufacturing value added products. This will

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result in better sales realization and higher profits. 5) Standardization of general stores material and spares and reduce the number of items.

SUMMARY

This study concentrated on the financial state of

affairs of the company

RINL. It involved study of Balance sheet profit and loss account and ratio analysis and also their comparison over the last five years, it has presented a broader picture of the financial position of the company. The study analyzed the company’s success in being able to effectively manage its day to day requirements pertaining to cash and funds flow and effectively channelizing the short term and long term funds of the company to meet the requirements.

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The performance of the Company in terms of both Production and Sales Revenue has been satisfactory, the Company surrounded various adverse situations during the past 25 years and has now been conferred the status of Mini Ratna by now been conferred the status of Mini Ratna by Government of India . The Company’s plan to expand its capacity to 6.3 mtpa of liquid steel has been approved by Government of India and the project is under progress.

Conclusion The Visakhapatnam Steel Plant has been dedicated to nation in 1992 and it is one of the major steel plants in the Asia and having much more capital investment. We know that the Visakhapatnam Steel Plant as a large organization might have long gestation period and while establishing the Visakhapatnam Steel Plant so much of 126

lands were taken from the local people and provided the jobs to them in VSP thought they may not skillful. But the top management of VSP conducts so many training and development programs to improve their performance, not only this but also frequent technological changes due to the above factors in the initial stage. The VSP incurred some losses but with the remedial measures taken by the top management the past scenario was changed and the organization was stepped towards the profits and recorded 449.66 crores as a profit for the year 2002. However the top management must take care to improve the profitability and must try to reduce / remove the accumulated losses, which is important for the wealth of the organization.

BIBLOGRAPY 127

Financial Management

I.M. Pandey

Financial Management

prasanna Chandra

Cost Management Accounting

I.M. Pandey

Annual Reports Of Rashtriya Ispat Nigam Limited

General Articals And Magazines Of Rashtriya Ispat Nigam Limited

Website: www.vizagsteel.com

www.indiainfoline.com,

Newspapers: Deccan Chronicle, The Hindu.

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