financial analysis of jspl

8/12/2019 financial analysis of jspl

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A Study on Financial Statement Analysis of JSPL

A

Project Report

In partial fulfillment of

Integrated Master of Business Administration

By

Abhishek Kumar

CUJ/I/2012/MBA/03, Sem-IV

Centre for Business Administration

Central University of Jharkhand, Ranchi

Under the supervision of

Mrs. Neha Kaur

Asst. Professor



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DECLARATION

I hereby declare that the work incorporated in this report entitled A STUDY ON

FINANCIAL STATEMENT ANALYSIS OF JSPL is the outcome of original study

undertaken by me carried out under the guidance of Mrs. Neha Kaur, Asst. Professor,

Central University of Jharkhand.

I further declare that the matter in this report has not been submitted by me as a whole or in

part at any other University or Institution for the award of any Degree or Diploma.

Date- ------------------------------

Place- (Abhishek Kumar)

Integrated MBA

CUJ/I/2012/MBA/03.



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CERTIFICATE

This is to certify that the contents of this thesis entitled A STUDY ON FINANCIAL

STATEMENT ANALYSIS OF JSPL by Abhishek Kumar (4thSem.) submitted to Center

for Business Administration (CUJ) for the Award of Degree Master of Business

Administration (MBA) is original research work carried out by him under my supervision.

This report has not been submitted either partly or fully to any other University or Institute

for award of any degree or diploma to best of my knowledge.

Date- ------------------------------

Place- (Mrs. Neha Kaur)

Asst. Professor


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ACKNOWLEDGEMENT

We express our deep and sincere thanks to our guide Mrs. Neha Kaur. Initially she helped

me in selecting this project and then guided me throughout the project. She also helped me

by taking a lot of pain and sacrificing their personal valuable time in completion of this

project report.

I would like to thank my Librarian, who took adequate care & effort in searching books,

magazines, journals, etc. I also would like to thanks our faculty Mr. Vijay Sharma for his

guidance in completion of my project smoothly and well in stipulated timeframe.

Last but not the least, I would like to cite my beloved parents and all my friends for their

and encouragement, support and blessings. These pages could scarcely have been written

without their help.

We express our gratitude to the Head and Faculty members of Center for Business

Administration (CUJ), who directly or indirectly helped me.


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INDEX

S.NO. CONTENTS PAGE NO.

CHAPTER-1

1.1 Introduction to the study 07-11

1.2 Objectives of the study 11

1.3 Limitations of the study 12

1.4 Research methodology 12

CHAPTER-2

2.1 Company profile 14-20

CHAPTER-3

3.1 Theoretical framework 22-28

CHAPTER-4

4.1 Data analysis and interpretation 30-39

CHAPTER-5

5.1 Findings 41

5.2 Suggestions 41-42

5.3 Conclusion 42

BIBLIOGRAPHY 43

ANNEXTURE 44-46


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CHAPTER-1


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1.1 INTRODUCTION TO THE STUDY :-

Financial Management is that managerial activity which is concerned with the planning and

controlling of the firms financial resources. Though it was a branch of economics till 1890

as a separate or discipline it is of recent origin.

Financial Management is concerned with the duties of the finance manager in a business

firm. He performs such varied tasks as budgeting, financial forecasting, cash management,

credit administration, investment analysis and funds procurement. The recent trend towards

globalization of business activity has created new demands and opportunities in managerial

finance.

Financial statements are prepared and presented for the external users of accounting

information. As these statements are used by investors and financial analysts to examine the

firms performance in order to make investment decisions, they should be prepared very

carefully and contain as much investment decisions; they should be prepared very carefully

and contain as much information as possible. Preparation of the financial statement is the

responsibility of top management. The financial statements are generally prepared from the

accounting records maintained by the firm.

Financial performance is an important aspect which influences the long term stability,

profitability and liquidity of an organization. Usually, financial ratios are said to be the

parameters of the financial performance. The Evaluation of financial performance had been

taken up for the study with JSPL as the project.

Analysis of Financial performances is of greater assistance in locating the weak spots at the

JSPL even though the overall performance may be satisfactory. This further helps in

Financial forecasting and planning. Communicate the strength and financial standing of the JSPL. For effective control of business.


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Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an

enterprise. They report profitability and the financial position of the business at the end of

accounting period. The team financial statement includes at least two statements which the

accountant prepares at the end of an accounting period.

The two statements are: -

The Balance Sheet Profit And Loss AccountThey provide some extremely useful information to the extent that balance Sheet mirrors the

financial position on a particular date in terms of the structure of assets, liabilities and

owners equity, and so on and the Profit and Loss account shows the results of operations

during a certain period of time in terms of the revenues obtained and the cost incurred

during the year. Thus the financial statement provides a summarized view of financial

position and operations of a firm.

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision under

consideration to the total information contained in the financial statement. The second step

is to arrange the information in a way to highlight significant relationship. The final step is


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interpretation and drawing of inference and conclusions. Financial statement is the process

of selection, relation and evaluation.

Features of Financial Analysis

To present a complex data contained in the financial statement in simple andunderstandable form.

To classify the items contained in the financial statement inconvenient and rationalgroups.

To make comparison between various groups to draw various conclusions..

Procedure of Financial Statement Analysis:-

The analyst should acquaint himself with principles and postulated of accounting. Heshould know the plans and policies of the managements that he may be able to find out

whether these plans are properly executed or not.

The extent of analysis should be determined so that the sphere of work may be decided.If the aim is find out. Earning capacity of the enterprise then analysis of income

statement will be undertaken. On the other hand, if financial position is to be studied

then balance sheet analysis will be necessary.

The financial data be given in statement should be recognized and rearranged. It willinvolve the grouping similar data under same heads. Breaking down of individual

components of statement according to nature. The data is reduced to a standard form. A

relationship is established among financial statements with the help of tools &

techniques of analysis such as ratios, trends, common size, fund flow etc.

The information is interpreted in a simple and understandable way. The significance


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and utility of financial data is explained for help indecision making.

The conclusions drawn from interpretation are presented to the management in theform of reports.

Analyzing financial statements involves evaluating three characteristics of

a company: its liquidity, its profitability, and its insolvency. A short-term creditor, such as a

bank, is primarily interested in the ability of the borrower to pay obligations when they

come due. The liquidity of the borrower is extremely important in evaluating the safety of a

loan. A long-term creditor, such as a bondholder, however, looks to profitability and

solvency measures that indicate the companys ability to survive over a long period of time.

Long-term creditors consider such measures as the amount of debt in the companys capital

structure and its ability to meet interest payments. Similarly, stockholders are interested in

the profitability and solvency of the company. They want to assess the likelihood of

dividends and the growth potential of the stock.

Comparison can be made on a number of different bases. Following are the three

illustrations:

1. Intra-company basis.This basis compares an item or financial relationship within a company in the current year

with the same item or relationship in one or more prior years. For example, Sears, Roebuck

and Co. can compare its cash balance at the end of the current year with last years balance

to find the amount of the increase or decrease. Likewise, Sears can compare the percentage

of cash to current assets at the end of the current year with the percentage in one or more

prior years. Intra-company comparisons are useful in detecting changes in financial

relationships and significant trends.

2. Industry averages.

This basis compares an item or financial relationship of a company with industry averages

(or norms) published by financial ratings organizations such as Dun & Bradstreet, Moodys

and Standard & Poors. For example, Searss net income can be compared with the average


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net income of all companies in the retail chain-store industry. Comparisons with industry

averages provide information as to a companys relative performance within the industry.

3. Intercompany basis.

This basis compares an item or financial relationship of one company with the same item or

relationship in one or more competing companies. The comparisons are made on the basis

of the published financial statements of the individual companies. For example, Searss total

sales for the year can be compared with the total sales of its major competitors such as

Kmart and Wal-Mart. Intercompany comparisons are useful in determining a companys

competitive position.

1.2 Objective of Analysis of financial statements

To know the earning capacity or profitability. To know the solvency. To know the financial strengths. To know the capability of payment of interest & dividends. To make comparative study with other firms. To know the trend of business. To know the efficiency of management. To provide useful information to management


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1.3 LIMITATIONS OF THE STUDY:-As the study is based on secondary data, the inherent limitation of the secondary data would

have affected the study.

The figures in financial statements are likely to be a least several months out of date, and so

might not give a proper indication of the companys current financial position.

This study need to be interpreted carefully. They can provide clues to the companys

performance or financial situation. But on their own, they cannot show whether

performance is good or bad. It requires some quantitative information for an informed

analysis to be made.

1.4 RESEARCH METHODOLOGY

The research is secondary in nature. For the purpose of the study, relevant information has

been collected through books, articles, websites and annual reports of the company under

study.


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CHAPTER 2


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2.1 COMPANY PROFILE: JINDAL STEEL & POWER LIMITED

JSPL commenced operations in 1991. Jindal Steel and Power Limited (JSPL) is one of

Indias leading steel Manufacturers with a significant presence in mining, power generation

and infrastructure.

Shri O. P. Jindal, an industrialist par excellence under whose aegis the O. P. Jindal Group

grew from strength to strength. But for the world at large Shri O. P. Jindal was much more

than that. He was a leader of the masses, someone who would often champion the cause of

the poor and downtrodden. He was not just a celebrated politician, but also a great

humanitarian and an avant-garde visionary. His life both as an industrialist and as a social

worker left an indelible mark on this nation. And for us at the O. P. Jindal group, his life

gives us inspiration to touch new heights.

The Jindal Group is a US$ 15 billion conglomerate, which over the last three decades has

emerged as one of India's most dynamic business organization. The Jindal Group was

founded in 1952 by steel visionary Shri O. P. Jindal, a first-generation entrepreneur who

started an indigenous single-unit steel plant in Hisar, Haryana.

Over the last 3 decades the Group has grown to be a US$ 15 billion, multi-national and

multi-product steel conglomerate with business interests spanning across mining, power,

industrial gases, and port facilities and of course steel making. From mining iron ore and

coal, the group produces sponge iron, Ferro alloys and a wide range of hot-rolled and cold-

rolled steel products ranging from HR coils/sheets/plates, hot-rolled structural sections and

rails to CR coils/sheets, high-grade pipes and value added items such as stainless steel,

galvanized steel & coated pipes.

GROWTH AND DEVELOPMENT

Growth has been a way of life for the Jindal Group and its motto all along has been 'Growth

with a social conscience.' The group places its commitment to sustainable development, of


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its people and the communities in which it operates, at the heart of its strategy and aspires to

be a benchmark in this direction for players in the industry the world over. The group's

strength lies in dynamic and aggressive approach of the leaders of the group. These leaders

are none other than the four sons of Shri O. P. Jindal.

The group has already announced its intention to set up Greenfield steel plants and power

plants in the state of West Bengal, Jharkhand, Chhattisgarh, Odisha, Rajasthan, Maharashtra

and Karnataka. The group is continuously on the lookout for acquiring various Iron ore and

Coal mines, critical inputs for steel making. The technology-driven group employs over

50,707 people across the globe. Shri O. P. Jindal over the years built a reputation of

integrity and dynamism and his four sons are today continuing with his rich legacy. Now

headed by Smt. Savitri Devi Jindal, the group is still expanding, integrating, amalgamating

and growing across sectors around the world.

VISION, MISSIONAND VALUES OF THE COMPANY

VISION

To be a globally admired organization that enhances the quality of life of all stakeholders

through sustainable industrial and business development.

MISSION

We aspire to achieve business excellence through:

The spirit of entrepreneurship and innovation. Optimum utilization of resources. Sustainable environment friendly procedures and practices. The highest ethics and standards. Hiring, developing and retaining the best people. Maximizing returns to stakeholders. Positive impact on the communities we touch.


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VALUES

JSPL aspires to achieve business excellence through:

Passion for People Business Excellence Integrity, Ownership

The core team of the group comprises the founder's four sons who manage group

companies:

Mr. Prithvi Raj Jindal r. Sajjan Jindal Jindal Saw Ltd. Jindal SAW USA , LLC HexaSecurities&FinanceCompany Ltd. IUP Jindal Metals and Alloys Limited S V Trading Limited Jindal ITF Ltd.

JSW Steel Ltd.

JSW Energy Ltd.

JSW Holdings Ltd.

JSW Infrastructure&Logistics Ltd.

Vijay agar Minerals Pvt. Ltd.

Jindal Praxair Oxygen Company

td.

Soft Solutions Ltd.

JSW Building Systems Ltd.

Mr. Rattan Tindal Mr. Naveen Jindal

JSL Stainless Limited PT Jindal Stainless, Indonesia JSS Steel Italia Ltd. Jindal Stainless Steel way Ltd. Austenitic Creations power Ltd. Jindal Architecture Limited

Jindal Steel & Power Limited Jindal Power Limited Jindal Petroleum Limited Jindal Steel Bolivia S.A. Jindal Shaded Iron & Steel LLC. Jindal Africa Pty. Investments


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Parivartan City Infrastructure Ltd. Jindal Cement Jindal Power Trading Company

With an annual turnover of over US$ 3.5 billion, JSPL is a part of the US$ 15 billion

diversified O. P. Jindal Group and is consistently tapping new opportunities by increasing

production capacity, diversifying investments, and leveraging its core capabilities to venture

into new businesses. The company has committed investments exceeding US$ 30 billion in

the future and has several business initiatives running simultaneously across continents.

Mr. Naveen Jindal, the youngest son of the legendary Shri. O. P. Jindal spearheads JSPL

and its group companies. The company produces economical and efficient steel and power

through backward and forward integration.

From widest flat products and a range of long products including contemporary parallel

flange beams, JSPL offers a product to answer every need and niche in the steel market.

JSPL also produces world's longest 121 metre rails. On the offing are plate mill to produce

up to 4.85 metre wide plates at Angul, Odisha, a bar and wire rod mill at Patratu, Jharkhand

and a medium and light structural mill at Raigarh, Chhattisgarh. In future, JSPL aims to

grow even faster and contribute more substantially to India's growth and prosperity.

JSPL has powered many ground-breaking initiatives, the latest being the Coal to Liquid

project. The company is investing close to US $ 8.4 billion on the Ramchandi Promotional

Coal Block in Odisha to produce an estimated 80,000 barrels per day (4.0 MMTPA) crude

using environment friendly Indirect Coal Liquefaction technology from M/s. Lurgi of

Germany. JSPL is running a 358 MW captive power generation plant at Raigarh with waste

heat recovered from rotary kilns and coal middling. Jindal Power Limited, subsidiary ofJSPL is a power generation company with a fully operational 1000 MW Thermal Power

project at Tamnar, Raigarh in the state of Chhattisgarh. Currently, JPL is expanding the

capacity of its existing power plant at Tamnar by setting up a 2400 MW (4 x 600 MW)

Thermal Power Plant in the state of Chhattisgarh at an estimated cost of Rs. 13,410 crore.


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The company is executing business expansion and capacity addition programmes in thermal

and hydro segments of power sector in the states of Chhattisgarh, Jharkhand and Arunachal

Pradesh being developed through Joint Venture with Hydro Power Development

Corporation of Arunachal Pradesh Limited (HPDCAPL) besides establishing a presence in

other forms of power generation such as gas, hydro, wind, nuclear and solar power, with a

focus on hydro and other forms of environment friendly renewable energy sources. Together

with Jindal Power Limited (JPL), the company will muster a combined generation capacity

of 15,000 MW of power over the next ten years, helping the government deliver on its

vision of Affordable Power for All by 2012.

GEOGRAPHIC DIVERSITY

Jindal Steel & Power Limited has acquired the development rights for 20 billion tons of El

Mutun Iron Ore Reserves in Bolivia, South America. Jindal Steel Bolivia S.A. (JSB) will

invest US$ 2.1 billion on building steel, sponge iron, iron ore pellet and a power plant. The

company proposes to set up mining and steel making facilities, and establish the necessary

infrastructure through JSB. This is the largest investment by an Indian company in Latin

America and also the largest foreign investment on a single project in Bolivia. With coal

reserves in Indonesia and South Africa, the search for mines continues from Mozambique to

Madagascar and for diamonds in Democratic Republic of Congo and the states of

Chhattisgarh & Jharkhand in India.

Corporate office at New Delhi, India. Manufacturing plants located at Raigarh in Chhattisgarh, Angul in Orissa and Patratu inJharkhand.

The Machinery division is located in Raipur. Captive coal mines are located at Dongamahua and Tamnar, Chhattisgarh, iron ore mineat Tensa, Orissa and iron ore pelletisation plant at Barbil, Orissa

Offices located at seven locations and 11stockyards, ensuring a pan-India footprint


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Global presence in Brazil, Bolivia, Georgia, China, Mongolia, Mozambique,Democratic Republic of Congo, Indonesia, Madagascar, South Africa and the Sultanate of

Oman.

TECHNOLGY COLLABORATIONS

SMS Siemag, Germany Lurgi, Germany Danieli, Italy Siemens VAI, Austria Concast, Switzerland Outotech, GermanySWOT ANALYSIS OF JSPL

Strength:

Produces economical and efficientsteel and power through backward and

forward integration.

Sports a product portfolio that catersto varied needs in the steel market. Operates the largest coal - basedsponge iron plant in the world.

Have force of innovation, adaptationof new technologies and the collective

skills of its 15,000 strong, committed

workforce.

Have an enterprising spirit and theability to discern future trends. Have operations in Steel, iron,electricity generation and distribution.

Weakness:

Shortage of coking coal and islargely dependent upon its import.

Weak performance on the back ofthe higher raw material cost and thepower & fuel cost.


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Opportunities:

Venture into new businesses byleveraging its core capabilities.

Increase production capacity to meet the

global steel demand.

Diversify investments to distribute riskin business.

Threats:

Hike in the export duty on iron orefines and lumps.

Project implementation and raw

material security.

Issues related to land acquisition,raw material linkages and

environmental clearances.


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CHAPTER 3


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3.1 THEORITICAL FRAMEWORK

FINANCIAL RATIO ANALYSIS

Ratio Analysis is one of the powerful tools of the financial analysis. A ratio can be definedas The indicated quotient of two mathematical expressions and as the relationship

between two or more things. Ratio is thus, the numerical or an arithmetical relationship

between two figures. It is expressed where on figure is divided by another. In finance

analysis ratio is used as a benchmark of a firm.

A ratio is the relationship between two accounting items expressed mathematically. Ratio

analysis helps the analyst to make quantitative judgment with regard to concerns financial

position and performance. This relationship can be expressed as a percentage or as quotient.

Ratio analysis is the systematic use of ratio to interpret the financial statements so that the

strengths and weakness of a firm as well as its historical performance and current financial

position can be determined. Undisputedly the ratio analysis occupies place of prime

importance.

DEFINITION:-

According to Prof. T.Spring field, Prof. T.Mass & Merriam, a ratio is defined as The

indicated quotient of two mathematical impression and as The relationship between two

(or) more things.

SIGNIFICANCE OF RATIO ANALYSIS

Ratio analysis is of great help of commercial bankers, trade creditors and institutional

lenders. They judge the ability of borrowing enterprises by observing various ratios like the

current ratio, acid test ratio, and turnover of receivables, inventory turnover, and coverage of

interest by the level of earnings.


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Ratio analysis also helps long term creditors in knowing the ability of a borrowing

enterprises to pay interest principal in case earnings decline they find valuable the ratios of

total debt to equity and total debt to total assets.

Investors in shares judge the performance of the company by observing the per share intoratios like earnings per share, book value per share, market price per share, dividends per

share etc. Lastly, ratio analysis is of great use of the management of the firm.

Management of the firm is interested in every aspect of ratio analysis as it is their overall

responsibility to see that the resources of the firm are used most efficiently and effectively

and that the firms financial conditions is sound.

STANDARDS FOR COMPARISON

For making a proper use of ratios, it is essential to have fixed standard for comparison. A

ratio by itself has very little meaning unless it is compared to some appropriate standard.

Selection of proper standards of comparison is a most important element is ratio analysis.

The four most common standard used in ratio analyses are as follows:

1. Absolute 2. Historical

3. Horizontal 4. Budgeted

1. Absolute: -

Absolute standards are those, which become generally recognized as being desirable

regardless of the type of the company, the time, stage of business cycle, or the objectives of

the analyst.

2. Historical: -

Historical standards involve comparing a companys own past performance as a standard for

the present or future. But this standard may not provide sound basis for judgment, as the

historical figure a may not have represented an acceptable standard.


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3. Horizontal: -

In case of horizontal standards one company is compared with another or with average of

other companies of the same nature. It is also called as intra-firm comparison.

4. Budgeted: -

The budgeted standard is arrived at after preparing the budget for a period. Ratios developed

from actual performance are compared to the planned ratios in the budget to examine the

degree of accomplishment to the anticipated targets of the firms.

ADVANTAGES OF RATIO ANALYSIS

Ratio analysis is an important and age-old technique of financial analysis. The following are

some of the advantages of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition of the business.

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with successful and unsuccessful firm. They also reveal

strong firms and weak firms, overvalued and undervalued firms.

3. Helps in planning:It helps in planning and forecasting. Ratios can assist management, in

its basic functions of forecasting. Planning, co-ordination, control and communications.

4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison

of the performance of different divisions of the firm. The ratios are helpful in deciding about

their efficiency or otherwise in the past and likely performance in the future.

5. Help in investment decisions: It helps in investment decisions in the case of investors

and lending decisions in the case of bankers etc.


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OBJECTIVES OF RATIO ANALYSIS

Ratio Analysis is the principal tool for analysis of financial statements. Other conducts it not

only by management but also like suppliers, banks tending, and institutions, prospective

investors etc.

The following are usually the objectives for which ratio analysis is conducted.

I. To evaluate financial position and performance of a firm.

II. To indicate the trend or progress or down fall of a firm.

III. To assess the credit worthiness of a firm,

IV. To assess the efficiency with which working capital is being used in a firm.

LIMITATIONS OF RATIO ANALYSIS

The ratios analysis is one of the most powerful tools of financial management. Though

ratios are simple to calculate and easy to understand, they suffer from serious limitations.

1. Limitations of financial statements: Ratios are based only on the information which has

been recorded in the financial statements. Financial statements themselves are subject to

several limitations. Thus ratios derived, there from, are also subject to those limitations. For

example, non-financial changes though important for the business are not relevant by the

financial statements. Financial statements are affected to a very great extent by accounting

conventions and concepts. Personal judgment plays a great part in determining the figures

for financial statements.

2. Comparative study required:Ratios are useful in judging the efficiency of the business

only when they are compared with past results of the business. However, such a comparison

only provide glimpse of the past performance and forecasts for future may not prove correct


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since several other factors like market conditions, management policies, etc. may affect the

future operations.

3. Problems of price level changes:A change in price level can affect the validity of ratios

calculated for different time periods. In such a case the ratio analysis may not clearlyindicate the trend in solvency and profitability of the company. The financial statements,

therefore, be adjusted keeping in view the price level changes if a meaningful comparison is

to be made through accounting ratios.

4. Lack of adequate standard:No fixed standard can be laid down for ideal ratios. There

are no well accepted standards or rule of thumb for all ratios which can be accepted as

norm. It renders interpretation of the ratios difficult.

5. Limited use of single ratios:A single ratio, usually, does not convey much of a sense.

To make a better interpretation, a number of ratios have to be calculated which is likely to

confuse the analyst than help him in making any good decision.

6. Personal bias:Ratios are only means of financial analysis and not an end in itself. Ratios

have to interpret and different people may interpret the same ratio in different way.

7. Incomparable: Not only industries differ in their nature, but also the firms of the similar

business widely differ in their size and accounting procedures etc. It makes comparison of

ratios difficult and misleading.

CLASSIFICATION OF RATIO

Ratio may be classified into the four categories as follows:

a) Liquidity Ratios: These are the ratios which measure the short-term solvency or

financial position of a firm. These ratios are calculated to comment upon the short-term

paying capacity of a concern or the firms ability to meet its current obligations. The various

liquidity ratios are current

a. Current Ratio

b. Quick Ratio or Acid Test Ratio


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b) Long-term Solvency and Leverage Ratios: These are meant for testing long-term

financial soundness of any unit. Primarily, these establish and study relationship between

owned funds and loaned funds.

a. Debt Equity Ratio

b. Proprietary Ratio

c. Fixed Assets to Proprietors Fund Ratio

d. Capital Gearing Ratio

e Interest Coverage Ratio

c) Activity Ratios: Activity ratios are calculated to measure the efficiency with which the

resources of a firm have been employed. These ratios are also called turnover ratios because

they indicate the speed with which assets are being turned over into sales, e.g., debtors

turnover ratio. The various activity or turnover ratios have been named as;

a. Stock Turnover Ratio

b. Debtors or Receivables Turnover Ratio

c. Average Collection Period

d. Creditors or Payables Turnover Ratioe. Average Payment Period

f. Fixed Assets Turnover Ratio

g. Working Capital Turnover Ratio

d) Profitability Ratios: These ratios are measure the working results of the unit during the

accounting period. Profits are compared with sales level and investment level. The various

profitability ratio have been given in the chart exhibiting the classification of ratios

according to test. Generally, two types of profitability ratios are calculated:


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(A) Profitability Ratio based on Sales:

a. Gross Profit Ratio

b. Net Profit Ratio

c. Operating Ratio

d. Expenses Ratio

(B) Profitability Ratio Based on Investment:

I. Return on Capital Employed

II. Return on ShareholdersFunds:

a. Return on Total Shareholders Funds

b. Return on Equity Shareholders Funds

c. Earning Per Share

d. Dividend Per Share


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CHAPTER 4


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4.1 Data Analysis and Interpretation

The technique used to analyze financial statements of JSPL is Ratio analysis.

I). Liquidity Ratio

Current Ratio -This is the most widely used ratio. It is the ratio of current assets to current

liabilities. It shows a firms ability to cover its current liabilities with its current assets. This is

also known as Working Capital Ratio. It is expressed as follows:

Current Ratio =

Year Ratio

2010-2011 0.77

2011-2012 0.70

2012-2013 0.84

Interpretation: - With the Current Ratio of 2:1 (or) more is considered as satisfactory

position of the firm which implies that for one rupee of current liabilities, two rupee of

current assets are require to meet short term obligations. The current ratio represents the

margin of safety for creditors. The current ratio has increased in the year 2013 is 0.84

which in even very low. In all the three years the current ratio of JSPL is very low which

0.77

0.7

0.84

0.6

0.65

0.7

0.75

0.8

0.85

0.9

2010-2011 2011-2012 2012-2013

current ratio

Ratio


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indicates that the short term liquidity of the firm in not satisfactory and the firm will not be

able to meet the short term obligation quickly.

Quick Ratio:-It shows a firms ability to meet current Liabilities with its most liquid(quick) Assets. Liquid Assets are those assets, which are readily converted into cash. This

is also known as Liquid Ratio and Acid Test Ratio. It is calculated as under;

Quick ratio=

Year Ratio

2010-2011 0.54

2011-2012 0.46

2012-2013 0.58

Interpretation: - Thequick ratio is much more exacting measure than the current ratio to

pay-off the debt of the company. A quick ratio of 1:1 is considered to be satisfactory. From

the above table we find that quick ratio of JSPL decreased in the year 2012 which implies

that the inventories might not be converted into cash and leads to reduction in quick ratio.

But in the year 2013 it increases due to increase in the cash and equivalent. It is also

indicating that major portion of the current asset is inventory.

0.54

0.46

0.58

0

0.2

0.4

0.6

0.8

2010-2011 2011-2012 2012-2013

quick ratio

Ratio


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II ). LEVERAGE RATIO

Debtequity ratio:-This ratio is calculated to measure the relative proportions of

outsiders funds and shareholders funds invested in the company. This ratio is determined

to ascertain the soundness of long-term financial policies of the company and is also known

as external equity ratio. It is calculated as

Debt-Equity ratio =

Year Ratio

2010-2011 0.96

2011-2012 0.89

2012-2013 1.10

Interpretation: - Debt Equity Ratio indicates the extent of funds provide by the long term

lenders in comparison to the funds provided by the owners, i.e., shareholders.. With the

Debt-Equity ratio of 2:1 (or) less is considered as satisfactory position of the firm. If this

ratio is higher than 2:1, it means that long terms borrowing are more than twice in

comparison to funds provided by owners and it will indicate a risky financial position. The

above data shows that company leverage position or debt-equity ratio is increased in the

0.960.89

1.1

0

0.2

0.4

0.6

0.8

1

1.2

2010-2011 2011-2012 2012-2013

debt equity ratio

Ratio


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year 2013 but it is favourable to the company because debtequity ratio is less than 2, which

is showing low financial risk to the company

Proprietary ratio :-A variant of debt to equity ratio is the proprietary ratio, which shows

the relationship between shareholders funds and total assets. This ratio indicates the

proportion of total assets funded by owners or shareholders. It is calculated as

Proprietary ratio =

Year Ratio

2010-2011 0.33

2011-2012 0.32

2012-2013 0.31

Interpretation: - From above data the ratio is showing an equal trend over the past threeyears. The Proprietary ratio of the company is0.31 in the year 2013.Which implies that the

for every one rupee of total assets , contribution of 31 paisa has come from owners fund &

remaining balance i.e. 69 paisa is contributed by the outside creditors. This shows that

0.33

0.32

0.31

0.3

0.31

0.32

0.33

0.34

2010-2011 2011-2012 2012-2013

Proprietary Ratio

Ratio


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approximately 1/3rd

portion of total asset is financed through shareholders fund and

remaining is from debt.

Inventory Turnover Ratio - This ratio measures the stock in relation to turnover in

order to determine how often the stock turns over in the business. Inventory Turnover

Ratio measures the velocity of conversion of stock into sales. It indicates the efficiency of

the firm in selling its product. It is calculated by dividing the cost of goods sold by the

average inventory. It is calculated as under:

Inventory Turnover Ratio=

Year Ratio

2010-2011 1.54

2011-2012 1.72

2012-2013 1.48

Interpretation: - Usually, a high inventory turnover/ stock velocity indicates efficientmanagement of inventory because more frequently the stocks are sold, the lesser amount of

money is required to finance the inventory. In the year 2012 it is maximum it is due to

inventory holding period is minimum w.r.t other two periods. The inventory turnover ratio

1.54

1.72

1.48

1.3

1.4

1.5

1.6

1.7

1.8

2010-2011 2011-2012 2012-2013

inventory turnover ratio

Ratio


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of the company is still minimum which indicates a blockage of capital in stock i.e. the cash

conversion period is high.

III). ProfitabilityRatio

Gross profit margin: - The gross profit should be adequate to cover fixed expenses

dividends and building up of reserves. Higher the ratio, the better it is. A low ratio indicates

unfavourable trend in the form of reduction in selling prices. This ratio tells gross margin on

trading and is calculated as

Gross Profit Margin=

x 100

Year %

2010-2011 73.11

2011-2012 65.47

2012-2013 66.01

73.11

65.4766.01

60

62

64

66

68

70

72

74

2010-2011 2011-2012 2012-2013

%

%


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Interpretation: - It expresses the relationship of gross profit on sales. No ideal standard is

fixed for this ratio but the higher the gross profit ratio, it is more satisfactory. The gross

profit ratio should be adequate enough not only to cover the operating expenses but also to

provide for depreciation, interest on loans, dividends and creation of reserves. The gross

profit margin of the JSPL has decreased from 2011-2013 which shows that the company is

not able to control their direct production cost i.e. raw material consumption, expenditure on

utilities etc. which indicates the inefficiency of management over direct expenses by the

company.

Operating Ratio : - This ratio indicates the proportion that the cost of sales bears to sales.

Cost of sales includes direct cost of goods sold as well as other operating expenses (i.e.,

Administration, Selling and Distribution Expenses) which have matching relationship with

sales. It is calculated as follows

:

Operating Ratio =

Year %

2010-2011 72.74

2011-2012 80.06

2012-2013 86.16


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Interpretation: - The operating ratio shows the relationship between costs of activities &

net sales. The operating ratio of the company is increasing year by year and showing

upward trend i.e. 72.74% in 2011, 80.06% in 2012, 86.16% in 2013. It indicates that

company is failed to control the indirect expenses which shows the inefficiency of

management over indirect expenses. It may be due to increase in COGS or due to increase

in salary or wages.

NET PROFIT MARGIN:-This ratio indicates the relationship between net profit and sales.

This ratio measures the rate of net profit earned on sales. It helps in determining the overall

efficiency of the business operations. An increase in the ratio over the previous year shows

improvement in the overall efficiency & profitability of the business It may be calculated as

follows:-

Net Profit Margin =

Year %

2010-2011 21.5

2011-2012 15.8

2012-2013 10.5

72.74

80.06

86.16

65

70

75

80

85

90

2010-2011 2011-2012 2012-2013

operating ratio

%


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Interpretation: - The net profit margin is generally considered as the complementary ofoperating expenses. As the operating expenses increases, net profit margin tends to

decrease. Net Profit Margin of JSPL decreases over a steady period i.e. in the year 2011 the

Net Profit Margin of the JSPL is 21.5 and in the year 2013 it reduces to 10.5 which is

showing that company is efficiently handle the direct cost but could manage its indirect

expenditure and results in decreasing trend of net profit margin.

Return On Capital Employed

Return on capital employed =

X 100

Year %

2010-2011 17

2011-2012 17

2012-2013 13

21.5

15.8

10.5

0

5

10

15

20

25

2010-2011 2011-2012 2012-2013

net profit margin

%


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Interpretation: - ROCE compares the earning of the company based on capital

invested in the company. In the year 2011 and 2012 the return on capital employed for the

company remain constant i.e. 17, but in the year 2013 the it decreases to 13. It may be due

to decreases in EBIT or increase in direct or indirect expenses

Earning Per Share :-

Earning per share =

Year Rs

2010-2011 22.09

2011-2012 22.58

2012-2013 17.04

17 17

13

0

5

10

15

20

2010-2011 2011-2012 2012-2013

return capital employed

%

22.09 22.58

17.04

0

5

10

15

20

25

2010-2011 2011-2012 2012-2013

Earning per share (Rs)


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Interpretation: - In the year 2011 the Earning Per Share of the company is 22.09, in the

year it increased by 0.49 i.e. 22.58 and in the year the earning per share of JSPL decreases

to 17.04. The reduction in EPS may be due to fresh issue of shares in the year 2012-13 inthe other hand the company might not be able to increase the rate of return.


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CHAPTER 5


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5.1 Findings1. The current ratio has shown fluctuating trend as 0.77, 0.70 and 0.84 from 2011-2013

respectively.2. The quick ratio is also in fluctuating trend as 0.54, 0.46 and 0.58 during the year

2011-2013.

3. The debt-equity ratio decreased from 0.96 to 0.89 and increased from 0.89 to 1.10 inthe year 2011-2013.

4. The proprietary ratio has shown a decreasing trend during the year 2011-2013.5. The gross profit ratio is showing decreasing trend during the year 2011-2013 due to

inefficient management over direct expenses.

6. The operating ratio is increasing over the steady period i.e. 2011-2013.7. The net profit ratio is decreasing during the year2011-2013 from 21.5to 10.5 due to

inefficient management.

8. The inventory turnover of JSPL has increased in the year 2012 and decreased in theyear 2013.

9. Return on capital employed decreased during the year 2012 to 2013.10.EPS of JSPL decreased in the year 2013 may be due to issue of fresh shares.

5.2 SUGGESTIONS AND RECOMMENDATION:-

1. The short term liquidity position of the company is not satisfactory so the company can

invest in the current asset.

2. The company requires effective management decisions to control their directexpenditures as well indirect expenses

3. The company should try to increase the inventory turnover ratio so that inventoryholding period will be less.


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4. Efforts should be taken to increase the overall efficiency in return out of capitalemployed by making used of the available resource effectively.

5. The company can increase its sources of funds to make effective research anddevelopment system for more profits in the years to come.

5.4 CONCLUSION:-

On the basis of the study of financial statements, it has been found out that the company is

not in a sound financial position. All the ratios that have been calculated describe the

position of the company. From all these ratios the trend over the last three years and the

changes from year to year has been highlighted.

The ratio analysis can help in understanding the liquidity and short-term solvency of the

firm, particularly for the trade creditors and banks. Long-term solvency position as

measured by different debt ratios can help a debt investor or financial institutions to

evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its

assets to generate profits can be assessed on the basis of different turnover ratios. The

profitability of the firm can be analyzed with the help of profitability ratios.

Thus on the basis of the analysis conducted certain findings have been made which have

been specified in the report. Hence it can be concluded that JSPL is not in a sound financial

position and is not using most of its resources efficiently and effectively or unable to control

its direct and indirect material cost. Through the analysis it has been found that the

company is not investing on short term asset and it is also found out that major portion of

the current asset for company is current asset.


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BIBLIOGRAPHY

WEBSITES

www.jindalsteelpower.com www.google.com www.investopedia.comBOOKS

Financial Statement Analysis(BY:-Asish K Bhattacharyya)

Financial Management(BY:-Shashi K. Gupta, R.K. Gupta, Neeti Gupta)
http://www.jindalsteelpower.com/http://www.jindalsteelpower.com/http://www.google.com/http://www.google.com/http://www.investopedia.com/http://www.investopedia.com/http://www.investopedia.com/http://www.google.com/http://www.jindalsteelpower.com/


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ANNEXTURE

BALANCE BHEET OF JSPL

PARTICULARS as at 31st

march,2013

(in crore)

as at 31st

march,2012

(in crore)

as at 31st

march,2011

(in crore)

I. EQUIT AND LIABILITIES

(1) Shareholders Funds

share capital 93.48 93.48 93.43reserve and surplus 12,254.59 10,751.93 8,595.91

2) non-current liabilities

a)long-term borrowings 11,860.92 8,493.92 7,359.71

Deferred tax liabilities(net) 1,214.96 1,067.81 878.33

Other long term liabilities 560.58 141.24 140.63

Long term provisions 20.94 18.72 8.49

3) Current Liabilities

Short term borrowings 7640.02 5,878.54 4,081.99

Trade payables 628.2 998.31 709.00

Other current liabilities 2,584.39 3,661.53 2,632.13

Short term provisions 2,951.85 2,452.63 1,887.85

Total 39,809.93 33,558.11 26,387.47

II. Assets

1)Non current assets

Fixed assets 25,640.02 22,042.97 17,081.48

Noncurrent investment 1,330.72 1,412.17 1,210.01

Long term loans and advances 1,225.46 997.1 855.21


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Other current assets 0.55 4.63 6.03

2)Current assets

Current inventories 3,598.52 3,051.31 2,204.12

Trade receivables 1,426.13 905.06 737.12

Cash and cash equivalents 36.71 30.94 43.71

Short term loans and advances 5,943.54 4,806.29 3,929.92

Other current assets 608.11 307.64 319.87

Total 39,809.93 33,558.11 26,387.47

STATEMENT OF PROFI T & LOSS

Particular For the year

ended 31st

march 2013

For the year

ended 31st

march 2012

For the year

ended 31st

march 2011

Revenue

Revenue from operation(gross)

16,885.84 14,741.81 10,460.97

Less: excise duty 1,931.14 1,407.86 886.80

Revenue from operation (net) 14,954.70 13,333.95 9,574.17

Other income 159.28 184.48 143.16

Total revenue 15,113.98 13,518.48 9,717.33

Expenses:Cost of materials consumed 4,943.30 4,529.84 2,730.35

Purchase of stock-in-trade 286.58 452.75 176.80

Change in inventories of FG,

WIP and stock-in-trade

-148.20 -379.24 -333.45


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Employee benefits expenses 447.89 385.44 277.78

Finance cost 820.77 536.77 285.00

Depreciation 1,048.46 867.19 687.77

Other expenses 5,486.68 4,282.67 3,140.14

Total expenses 12,885.48 10,675.42 6,964.39

Profit before tax 2,228.50 2,843.01 2,752.94

Tax expense

Current tax 488.80 542.88 525.49

Deferred tax-liabilities 147.15 189.48 163.33

Profit for the year 1,592.55 2,110.65 2,064.12

financial analysis of jspl

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