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AKNOWLEDGEMENT

I express my deep sense of gratitude to Shri S.K. Das, G.M.

(Finance), Nalco, Bhubaneswar for providing valuable information and

guidance.

I would also like to thank to Mr. Akshya Nayak, Faculty, IMIS

for his valuable guidance and inherent support.

Last but not least my heartiest love and special thank to my

parents, family and close friends who were regularly in touch with me,

which motivated and encouraged me to accomplish successfully in a

fruitful manner.

PRAMOD SHARMA

BONAFIDE CERTIFICATE

Certify that the project report entitled FINANCIAL STATEMENTS

AND ANALYSIS OF NALCO is the bonafide work of PRAMOD SHARMA having

Enrollment No.‐ 111252FMBA0010 who carried out the project work under

our guidance.

SIGNATURE SIGNATURE

Internal Supervisor External Supervisor

Department : Department :

Designation : Designation :

Full Address : Full Address :

CONTENTS

Chapter I 1-3 1. Project Background

Importance of the Project

2. Introduction of the Project 3. Objective, Scope & Methodology of the Project

Chapter II 4-20 Nalco at Glance

History Vision Mission Objective Project Finance Land Acquisition Project Segment Partners Production Units & Technology Features Products Product Excellence and Export Expansion plan of NALCO Location Human Resources HR Philosophy The Community and Environment Process of Aluminium Extraction

NALCO’s role on the Indian Aluminium Industries Accounting Policies adopted by the Company

Chapter III 21- The Project

A. Financial Statement – an Introduction Meaning Definition Objectives Types of Financial Statements Limitations B. Financial Statement Analysis – an Introduction Techniques of Financial Statement Analysis Comparative Financial Statement Common Size Statements Trend Analysis Statement of Change in Working Capital Ratio Analysis C. Summary, Conclusion & Bibliography

CONCLUSION 51 BIBLIOGRAPHY 52

1

Chapter - I

PROJECT BACKGROUND

1.1 INTRODUCTION TO THE PROJECT

The study of “FINANCIAL STATEMENTS” is important in the present

circumstances because of the changing business environment and adoption

of policies of liberalization in India. The main purpose-of financial statement

analysis is the evaluation of the strength and weakness of a business

undertaking by regrouping and analyzing the figures contained in financial

statements by making comparison of various components and by examining

their contents. This financial analysis can be used by different interest groups

like management of the company to plan future financial requirement by

means of forecasting and budgeting procedures. This financial analysis is also

helpful to other groups like Share holders/Debenture holders to judge their

investment in the company and to decide either to sale or to hold their

investment, creditors, bankers etc to know the adequacy of the assets to the

firm to meet their claim incase the company goes into liquidation, the trade

union/employees to know the possibility of getting higher wages and bonus

security analyst take the help of financial analyst to learn and advice their

clients whether it is line to buy to hold or to sale the securities of the company.

Stock exchanges uses this .information for the protection of the investor

interest and ensuring better corporate Governance.

Financial Analysis involves he uses of "Financial statements", like

balance sheet and Income statement. These statements attempt to do several

things. First they portray assets and liabilities of business firm at a moment in

time, usually at the end of a year or quarter. This portrayal is known us

“BALANCE SHEET”. On the other hand, “INCOME STATEMENT” portrays

the revenues, expenses, taxes and profits of the firm for a particular period of

time, again usually a year or quarter. While the balance sheet represents a

snap-shot of the firms financial position at a moment in time and the income

statements depicts its profitability over a period of time.

2

We selected this topic, Financial Statement Analysis of (NALCO)

because of the reason this it is one of the wholly owned Government

company or being a star trading house. It provides ample scope for analysis

and interpretation o its financial statement.

1.2 OBJECTIVE OF STUDY

To evaluate the performance of the company with physical & financial.

To final out whether NALCO is able to utilize its funds efficiently in the

last going years

To evaluate the current and long term financial position of NALCO.

To evaluate the efficiency with which the firm manager and utilizes its

assets.

To know whether the firm is able to meets its current maturing

obligations.

To find out debt.-equity proportion of the organisation.

To study the profitability ratio of the company.

1.3. SCOPE OF THE STUDY

The Aluminum industry is playing an important role in the industrial and

economic growth of the country. Many of the aluminum industry have

achieved growth in production and sales and improvement in operating

efficiently in market development.

They are providing gainful employment to thousands, helping their

neighborhood, infrastructural socially and economically. The success of an

enterprise to a great extent depends up on its financial performance. A careful

and well planned financial management is needed for raising resources and

utilizing them effectively.

This project covers a period of 8 weeks and has been conducted in

NALCO. The main objective of this project is to analyse the financial

performances of the company. The study is confined to the analysis and

interpretation of financial statements of NALCO.

3

1.4 METHODOLOGY

The activities and information regarding this project were carried out in

the corporate office of NALCO located at Bhubaneswar.

Both primary and secondary data were acquired for the successful and

smooth completion of this study. The primary data were collected from the

Finance Department of the corporate office of NALCO were full freedom and

cooperation was extended to me. On the other hand, the secondary data were

collected from the annual report of NALCO.

For analyzing the data comparative financial statement, trend analysis

and ratio analysis which are most useful and common methods are adopted).

4

Chapter – II

NALCO AT GLANCE

2.1 HISTORY

NALCO is the largest integrated bauxite aluminum complex in Asia.

This industry is considered to be a major breakthrough in the aluminum

industry in India. In a major leap forward, NALCO has not only addressed the

need for self-sufficiency in aluminum, but also given the country a

technological edge in producing this strategic metal on the best of world

standards. NALCO was “incorporated in 1981 in the public sector, to. exploit a

part of the large deposits of bauxite discovered in the East coast.

Aluminum industry in India:

India entered into the aluminum industrial sectors in a modest way with

formation of the Indian Aluminum company Ltd. As INDAL in private sector in

the mid 40’s. INDAL was established on the Bauxite reserves occurring on the

Deccan Basalts in the central and western India. Best on this type of bauxite

deposit, another company known as Hindustan Aluminum company was

established by the Birla Bros. Madras Aluminum company, was also

established later Which has a smaller capacity. These companies were

commissioned solely on the basis of Western Ghat Bauxite ore deposit near

Metur.

The Government of India established the public sector undertaking

known as Bharat Aluminum Company Limited (BALCO) at Korba in the state

of Madhya Pradesh. The mine facilities of BALCO are situated at 150

kilometers away from the refinery site with the discovery of large reserve of

bauxite deposits in the mid 70’s in the Eastern Ghats of India, mainly in the

state of Orissa and Andhra Pradesh (AP), the country came into the limelight

and got high lighted in the world map of Bauxite Reserves.

NALCO, India is endowed with the large resources of high quality of

Bauxite ore. As per the estimate India has a total reserve of more than three

5

billion tons (300 crores tons) of bauxite reserves. Of all the deposits of India

around 60% are located in East coast belt of Orissa & Andhra Pradesh. This

bauxite in Orissa and East Coast belt was discovered in 1975 by Mr. C.S.

Fox. & Mr. M.S. Krishna of Geological survey of India. With the discovery of

these huge bauxite ore deposits India has occupied its position in the world

map of bauxite reserves at the 5th rank from the top to down country. The

discovery of this huge deposit has given birth to NALCO.

NALCO confirmation of 2 billion ton of bauxite are deposits in the year

1975 has opened new vistas for East Coast Bauxite belt. During the late

seventies the Govt. of India considered of establishing an integrated alumna a

minimum factory in the state of Orissa.

A feasibility report regarding lire project was submitted by Alumina of

Pechiney of France in January 1979. Aluminium Pechinery of France a world

leader in the field provided the technology and basic engineering for bauxite

mining, aluminia refinery & smelter.

In January 1980, the visit of the president of France to India, saw the

singing of a Memorandum of Understanding (MOU) for initiating technical

discussion on collaboration end financing of the largest integrated aluminium

project of the world. In Nov.1980, Govt. of Orissa sanctioned for the

establishment of the Orissa Aluminum Complex, which was christened and

registered as National Aluminum Company Limited (NALCO) on the 7th of

January 1981.

The Prime Minister of India, Smt. Indira Gandhi laid the foundation

since of NALCO at Damanjodi on 29th March 1981. Thus began a new

chapter in the Indian history of aluminum industry with NALCO, gigantic Indo-

French Flag Project getting on the track.

NALCO’s original project cost of rupees 2408 Crore was partly

financed by Rs. 119 Crore in Euro dollar equivalent, extended by a

consortium of International banks. By 1998, the company not only achieved a

6

zero debit status, NALCO completed the first phase expansion of 4,000 crore

in 2011 and in going. Steady with an internally funded 2nd phase expansion

plan involving an investment of over 4,000 Crore. With its consistent track

record in capacity utilization, technology absorption, quality assurance, export

performances and posting of projects NALCO is a bright examples of. India’s

industrial capacity.

NALCO enables India to witness a quantum jump in aluminia and

aluminium production. NALCO for the first time created exportable surplus in

aluminia and helped India to focus on its massive bauxite resources. All the

units of NALCO at Damonjodi and Angul have been certified with ISO 9002

Quality management system and ISO 1400. Environment management

system.

2.2 VISION

To be a company of global repute in Aluminum sector.

2.3 MISSION

To achieve growth in business with global competitive edge providing

satisfaction to the customers, employees, shareholders, and community at

large.

2.4 OBJECTIVES

To provide a steady growth to business by progressive expansion and

diversification.

To maintain highest International standards of Excellence in product

quality. Performance and customer service and emerge as a major

international company.

To maximize foreign exchange earnings

To maintain leadership in export market.

To strive for technological excellence in respect of process, machines

and man.

To maximize capacity utilization.

7

To optimize operational efficiency and productivity.

To develop a strong R & D base & increase business development

activities.

To maximize return an investment.

To provide prompt, courteous and dependable customer services.

To install financial discipline at the level for achieving cost and budgetary

controls, optimize utilization of working capital & effective cash flow

management

To promote a.; result oriented organizational ethos & work culture that

empower & employees and help realization individual & organisatinal

goal.

To foster high standards of health, safety and environmental friendly

products.

To participate in peripheral development of the area.

2.5 PROJECT FINANCE

The completeness and firm reliability of the project finance was another

landmark of NALCO’s success story.

Units Cost (In Crores) Total cost( in %)

Bauxie Mines (Panchpatmali) 88 10.65

Alumina Plant (Damanjocli) 754 31.33

Port facilities, Vizag 31 01.30

Aluminum Plant, Angul 723 30.00

Captive Power Plant, Angul 812 33.72

TOTAL 2408 100

Source of financing:

Equity : Rs. 1289 Crores from Govt. of India including Rs. 156Crores of

French credit.

Loan : Rs. 1119 Crores of Euro Dollar loan from international banks.

8

Land Acquisition

M & R complex, Damanjodi : 7365.15 (Crores)

S & P complex, Angul : 3961.25 (Crores)

Corporate Office, Bhubaneswar : 40 Acres

Port Facilities, Vizag : 13 Acres (on long lease)

Project Segments

NALCO’s various production units, their location and installed

capacities with future expansion plan are :

Production Unit Location Installed Capacity

Future Capacity Expansion

1. Bauxite Mines (Bauxite)

PanchPatmalli (Koraput)

4,80,000 TPY 63,00,000 TPY

2. Alumina Refinery Alumina

Damanjodi (Koraput)

15,75,000 TPY 21,00,000 TPY

3. Smelter Plant (Aluminium)

Angul 3,45,000 TPY 4,60,000 TPY

4. Captive power plant (Power)

Angul 960MW 1200MW

5. Port facility Transport

Vizag 3,75,000 TPY (Alumina export 1,46,000 TPY (Caustic Soda

dye import

2.6 PARTNERS

The setting up of NALCO had been a team effort of following consulting

organizations.

1. Alunminium pechinery, France – know how and Basic Engineering for

mine, Alumina and Aluminium plant.

2. Engineers India Ltd. – Prime Indian consultant for Mine Alumina and

Aluminium and overall project monitoring.

3. DCPL, Calcutta – Captive power plant.

4. HIPL, New Delhi – Port facilities

5. RITES, New Delhi – Rail facilities

6. NIDC and TCPO, New Delhi – Township and all executive agencies.

9

2.7 PRODUCTION UNITS AND TECHNOLOGY FEATURES

Corporate Office

Nalco Bhawan, P/1, Nayapalli, Bhubaneswar-751013, India Phone: 1374-2301988 to 2301999

Fax : 1374-2301221/2301280

Shri C. Venketaramana

CHAIRMAN-CUM-MANAGING DIRECTOR

Bauxite Mines

On Panchpatmali hills of Koraput district in Orissa, a fully mechanized opencast mine of 4.8 million tpa capacity is in operation since November, 1985, serving feedstock to Alumina Refinery at Damanjodi located on the foothills.

Presently, the capacity is being expanded to 6.3 million tpa.

The salient features:

Area of deposit - 16 sq. km. Resource - 310 million tonnes Ore quality - Alumina 45%, Silica 2% Mineralogy - Over 90% gibbsitic Over burden - 3 meters (average) Ore thickness - 14 meters (average) Transport - 14.6 km long single flight multicurve cable belt conveyor of

1800 tph

10

Alumina Refinery

The 15,75,000 tpa Alumina Refinery,having three parallel streams of equal capacity, is located in the picturesque valleyof Damanjodi in Koraput district. In operationsince September, 1986, the Refinery isdesigned to:

Provide Alumina to the Company's Smelter at Angul Export the balance Alumina to overseas markets through

Visakhapatnam Port Presently, the capacity is being expanded to 21,00,000 tpa. The salient features:

Atmospheric pressure digestion process Pre-desilication and inter-stage cooling for higher productivity Energy efficient fluidised bed calciners Co-generation of 3x18.5 MW power by use of back pressure turbine in

steam generation plant Advanced red mud disposal system

Captive Power Plant

Close to the Aluminium Smelter atAngul, a Captive Power Plant of 960 MWcapacity, comprising 8 x 120 MW clusters,has been established for firm supply ofpower to the Smelter.

Presently, the capacity is being expanded to 1200 MW.

The salient features: Micro-processor based burner management system for optimum

thermal efficiency Computer controlled data acquisition system for on-line monitoring Automatic turbine run-up system Specially designed barrel type high pressure turbine Electrostatic precipitators with advanced intelligent controllers Wet disposal of ash

The water for the Plant is drawn from River Brahmani through a 7 kmlong double circuit pipeline. The coal demand is met from a mine of 3.5 million tpa capacity opened up for Nalco at Bharatpur in Talcher by MahanadiCoalfields Limited. The Power Plant is inter-connected with the State Grid.

11

Aluminium Smelter The 3,45,000 tpa capacity

Aluminium Smelter is located at Angul in

Orissa. Based on energy efficient state-of-

the-art technology of smelting and

pollution control, the Smelter Plant is in

operation since early 1987.

Presently, the capacity is being

expanded to 4,60,000 tpa.


Advanced 180 KA cell technology

Micro-processor based pot regulation system

Fume treatment plant with dry-scrubbing system for pollution control

and fluoride salt recovery

Integrated facility for manufacturing carbon anodes, bus bars, anode

stems etc.

4 x 35 tone and 4 x 45 tone furnaces and 2 x 15 tph and 2 x 20 tph

ingot casting machines

4 x 45 tonne furnaces and 2 x 9.5 tph wire rod mills

2 x 45 tonne furnaces and 60/42 per drop billet casting machine

2 x 1.5 tonne induction furnace with a 4 tph alloy ingot casting machine

26,000 tpa strip casting machines

With the acquisition and subsequent merger of International Aluminium

Products Limited (IAPL) with Nalco, the 50,000 tpa export-oriented

Rolled Products Unit is all set to produce foil stock, fin stock, can stock,

circles, coil stock, cable wraps, standard sheets and coils

Port Facilities

On the Northern Arm of the Inner

Harbour of Visakhapatnam Port on the

Bay of Bengal, Nalco has established

mechanized storage and ship handling

facilities for exporting Alumina in bulk and

importing Caustic Soda.

12


Maximum ship size - 35000 DWT

Alumina reception - 48 x 53 tonne

pay-load wagons

Alumina storage - 3 x 25000 ton

RCC Silos

Ship loading rate - 2200 tph

These facilities are being upgraded to handle higher volumes of

exports, following expansion of production capacities.

Rolled Products Unit (100% EOU)

Introduction:

Nalco has set up a 50,000 MT per annum Rolled Products Unit,

integrated with the Smelter Plant at Angul, for production of aluminium cold

rolled sheets and coils from continuous caster route, based on the advanced

technology of FATA Hunter, Italy.

13

2.8 NEW PROJECTS TAKEN UP BY NALCO

The new projects under various stages of implementations are as under :

1. Strip casting facilities:

26,000 TPY casting facility at a cost of Rs. 49,86 crore in the smelter

plant at Angul is working.

2. Special Grade Alumina:

A 20,000 TRY special Alumina plant at Damonjodi at a cost of

Rs45.72 crore based on technical know-how obtained from Alumina

technology associates U.S.A has been commissioned in 2012.

3. Zeolite.

A 10,000 TRY Detergent Grade Zeolite (Zeolite - A) plant at Damonjodi

at a cost of Rs. 24.10 Crore with consultancy services rendered by Engineers

India Ltd, in scheduled for completion during 4th quarter of 2011.

4. Rolled products unit.

NALCO has set up a 50,000 MT per annum. Rolled Products Unit,

integrated with the smelter plant at Angul, for production of aluminium cold

rolled sheets and coils from continuous caster route, based on the advanced

technology of FATA Hunter, Italy.

2.9 PRODUCT MIX

Aluminium metal

Ingots

Sows

Billets

Wire rods

Alloy wire rods

Cast Strips

Alumina and Hydrates

Calcined Alumina

Alumina Hydrate

14

Zeolite A

Special products

Speciality hydrate alumina (Alumina chemicals)

Rolled product

Aluminium rolled products

2.10 PRODUCT EXCELLENCE AND EXPORT

The company exports more than 50% of calcined Alumina and around

30% of metal produced. Export turnover accounts for more than 35% of total

turnover.

The quality assurance associated with NALCO metal received

International acclaim with NALCO’S admission to London Metal Exchange

(LME) 1989.

Nalco is the largest primary metal producer in India and account for

round 33% share in the domestic market.

2.11 EXPANSION PROGRAMME

In order to strengthen its business and increase market share, the

Company has been pursuing expansion programmes on a sustained basis.

Soon after the completion of the 1st phase expansion, the Company has now

launched its 2nd phase expansion, commencing In October 2011, which

involves fresh investment of Rs.4091.51 crore. The project is planned to be

completed in 50 months.

Segment Present Capacity Capacity under Expansion

Bauxite Mines 4.8 million tpa 6.3 million tpa

Alumina Refinery 1.575 million tpa 2.1 million tpa

Aluminium Smelter 345,000 tpa 460,000 tpa

Power Plant 960 MW 1200MW

15

Downstream Projects (Completed)

26,000 tpa Special Grade Alumina Plant

10,000 tpa Detergent Grade Zeolite Plant

Strategic Acquisition

The export-oriented 50,000 tpa cold rolled product project, promoted by

International Aluminium Products Ltd., has been acquired by Nalco and

commissioned as a Rolled Product Unit.

2.12 LOCATION

The different units are located at different places to keep the cost

effectiveness. The main reason for location of different plants are as :

i) Proximity to the raw material sources

ii) Ability of cheap labour and land.

The mines and refinery has been located at Damanjodi in Koraput

District. The raw material is obtained from the Panchpatmali hills located 15

km from the refinery plant is situated at latitude between 18-46'.N to 18-55'N

and longitude 82-57’E to 18- 55’N and longitude 82-57'E to 83-11’. East It is a

belt of Approximately 20 Km long of width 0.08 km covering an area of 165sq

Km. The bauxite is available in the mines on an average of. 13 m layer and a

depth of 3 m below the surface, so it is a open cast mine. Because of the raw

material proximity the mines and refinery complex is located at Damanjodi.

This place is seated at 12Km from NH-43 and 35 Km in northwest of Dist.

Head quarter Koraput and an altitude of 1360 above the mean sea level.

2.13 TECHNOLOGY ADVANTAGE

Automation and computerisation extensively built into the state of art

technology adopted by Nalco are necessary to achieve energy conservation,

quality control, Safety and highly efficient input output ratio of geostatistics to

data acquisition system from micro-processor controlled pot to robal like pot

tending machines and most advanced lab equipment all relate the story of

cost effective an energy efficient product excellence of NALCO. In order to

meet the challenges of operating in a hitch environment inevitably the

16

management system and subsystem are steadily, being computerized. The

objective is to achieve an integrated information management system for the

organisation as a whole based on dependable and dynamic modular data

base.

2.14 HUMAN RESOURCES

In NALCO, the Human resource is the principal assets to operate and

maintain the diverse, complex and highly automated plants, equipment and

facilities.

Man power:

The main asset to NALCO is the well trained and motivated manpower.

In addition its well equipped HRD centers of excellence, almost all its plates

are having specialized training centers.

Composition of manpower (as on 31.10. 2013)

Executives : 1,745

Supervisions : 822

Skilled/highly skilled : 3,327

Semiskilled/unskilled : 1,191

Total : 7,085

As on 31.10.2012, out of 7,085 employees including trainees in the

company's roll, there were 1,158 SCs, 1300 STs., 651 OBCS and 62

physically handicapped persons. The total number of lady employees in the

organizations s ands at 291.

2.15 HRM PHILOSOPHY

To attract competent personnel with growth potential and develop their

skills and capabilities in a congenial work and social environment through

opportunities for training, recognition, career advancement and other

incentives.

17

To develop and nurture favourable attitudes among the employees and to

obtain their best contributions to the organisation by providing stable

employment, safe working conditions, job satisfaction, quick redressal of

grievances and through good pay and welfare amenities commensurate

with the Company's capacity to spend and the Government's guidelines.

To foster fellowship and sense of belongingness among all sections of

employees through closer association of employees with the

management and by encouraging healthy trade union practices.

2.16 MANAGEMENT

The company is a Government of India Enterprise under the

Administrative control of the Ministry of Mines. The company is managed by a

Board of Directors appointed by the President of India. The Board consists of

10 directors including the CMD of the company. Apart from the CMD there are

four functional or full time directors heading PRODUCITON, FINANCE,

PROJECT & TECHNICAL PERSONAL & ADMINISTRATION. There are two

senior Govt. Officials nominated to the BOD by the Govt. of India. Beside,

there are non-official Director in the Board, subject to the provisions of the

Indian companies Act , the memorandum and articles of Association, MOU

signed with the Govt. of India and also subject to policies formulated by the

BOD, from time to time, the CMD has full power to sanction expenditures or to

deal with other matters for effective functioning of the company.

2.17 THE COMMUNITY AND ENVIRONMENT

The commitment to create and sustain a congenial cosmopolitan social

environment within the organisation is discernable as one visits the NALCO

township Damonjodi, Angul and Bhubaneswar.

The multi purpose co-operative society successfully running in all

NALCO township are based on the unique spirit of collaboration among the

NALCO unions.

18

2.18 PROCESS OF ALUMINA EXTRACTION

The raw material for the products to the manufacture is Bauxite Caustic

Soda and power. The Bauxite is obtained form the mines at Panchpalmali.

The various ores with the Aluminum content is shown as below.

As the ore here is Bauxite containing high percentage of oxide metals

Baeyer’s process is used. On an average Bauxite contains.

45% of Aluminum Oxide.

25% of Ferric Oxide.

22% of Silicon Dioxide

13% of Water associated with different oxides.

From the Panchapalmali mines the Bauxite is sent to the refinery at

Damnanjodi through a single flight belt conveyor of 14.6 Km long (Longest in

Asia) where it is crushed it hammer crusher.

Grinding

After being crushed the ore is finally grinded so to affect better

digestion efficiency and also increasing the setting rate of the undigested

residue.

Digestion

The grinded ore is digested in the NaOH where Aluminum Oxide is

dissolved and the residue are left behind. This is done at 150 degree

Centigrade and 6 atmospheric pressure for few hours. The digested slurry is

sent to send separation unit.

Sand separation

Here the digested Alumina and sand (mainly containing ferric oxide

and silica) gets separated. The washed liquor from the washing cyclones is

taken into the process.

19

Dilution

It is done by adding NaOH solution to the slurry. This helps in further

settling of red mud and deceleration.

Desilication

The liquor after dilution is heated to 95 to 100 degree centigrade where

the silicates settles and the Alumina dissolves in the solution thus improving

the quality.

Settling and Washing

Here water is added to the solution where dissolved Al mina

precipitates in the form of Alumina. The desilicated slurry is allowed to settled

in large diameter tanks cooled settlers equipped with rake mechanism. The

settling is allowed by addition of cooked wheat brand solution which is used

as Flocculent. Nowadays sytec is used as Flocculent to get the export quality

of Alumina.

Preparation

The cooled super saturated aluminate liquor is pumped to a tank where

previously precipitated Alumina trihydrate called seed is added to make a

slurry. This slurry is then pumped into a series of 16 Mechanically agitated

tans to precipitate out the Alumina taken up form the Bauxite during digestion.

Classification and Product Filtration

This precipitated slurry is then classified in two various size classifiers

in series of Turbiflux type, where the slurry is fed to this typical designed

equipment. This slurry is raked with an agitator at very low speed, where

Alumina and other things are separated.

Calcination

In this plant the hydrate is heated up to a predetermined

temperature to remove the surface and inherent moisture to give the required

quality of Alumina, This Alumina is electrolytically reduced to Aluminum using

cryolite as a electrolyte and getting cheap electricity from its own captive

power plant at Angul.

20

2.19 NALCO'S ROLE IN THE INDIAN ALUMINIUM INDUSTRY

NALCO plays a vital role in the Indian Aluminum industry. The

Aluminium producing capacity of the country has witnessed a quantum jump

after the entry of NALCO. The latest and cost effectively technology employed

in NALCO revolutionized the making of Aluminum in the country. The Indian

Aluminium Industry got its recognition from the international players only after

NALCO ventured into the international market. Further, the quality of its

products is in par with the international standard and the company stand by its

words, 'YOUR BEST BUY IN ALUMINUM'. Through its quality products it gets

abut 800 direct reputed customers.

As a major player in the domestic market, with second largest domestic

market share NALCO also enjoys the advantages of exporting Alluminium in

the global market.

2.20 ACCOUNTING POLICIES ADOPTED BY THE COMPANY

For analysis of the financial statements it is necessary to know

accounting policies adopted by the company.

The company prepares on accrual basis under historical cost convention

in accordance with mandatory accounting standards.

Investment are stated cost

Depreciation is provided under straight line method

Raw materials, stores, spare parts are valued at weighted average cost.

Finished goods are valued at lower cost or net realizable value.

Foreign currency transition settled during the accounting year are

recorded in rupees by applying actual exchange rates prevailing on the

respective dates of the transition.

21

Chapter – III

THE PROJECT

A. FINANCIAL STATEMENT

INTRODUCTION

The basis for financial planning, analysis and decision-making is the

financial information. Financial information is needed, to predict, compare

and evaluate the firm’s earning ability. It is also, required to aid in economic

decision-making, investment and financing decision making. The financial

information of an enterprise is contained in the financial statements or

accounting reports.

Accounting is a measurement communication system, designed to

facilitate understanding and control of economic activity of a business

enterprise. Financial statements are the end-product of accounting

which provide a s systematic collection of economic data in a logical and

consistent way to this given data. Financial statements are prepared on the

basis of recorded facts i.e. expressed in monetary terms.

MEANING

For a layman any statement expressed in money values are regard a

Financial Statements. But in a broader sense financial statements are

the outcome of summarizing process of accounting. Its purpose is to

convey understanding of some financial aspect of a business firm. It may

show a position moment in time, as in the case of a balance sheet, or may

reveals a series of activities over a given period of time, as in the case of an

income statement.

So, financial statement generally refers to the two statements

(a) balance sheet or statement of financial position and (b) profit and loss

account or income statement.

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DEFINITION

In the words of John N. Mayer, “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 certain period”.

The AICPA states the nature of financial statements as, “financial

statements are prepared for the purpose of presenting a periodical review of

report on progress by the management and deal with the status of investment

in the business and the results are achieved during the period of review. They

reject? combination of recorded facts, accounting principles and personal

judgments”

OBJECTIVES

The primary objectives of financial statement is to assist in decision-

ranking. The other objective of financial statement are as follows:

i. To provide realiable financial information about economic resources

and obligation of a business enterprise.

ii. To provide other needed information about changes in such economic

resources and obligation.

iii. To provide reliable information about changes is net resources arising out

of business activates.

iv. To provide financial information that assists, in estimating the earning

potentials of business.

v. To disclose, to the extend possible, other information related to the

financial statements that is relevant to the needs of the users of these

statements.

TYPES OF FINANCIAL STATEMENT

There are various financial statement are as follows:

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BALANCE SHEET

The balance sheet is one -of the important financial statements

depicting the financial strength of the concern. The balance sheet shows all

the assets owned by the concern and all the liabilities and claims its owes to

owners and outsiders. It is prepared on a particular date. So, it provides a

snap shot of the financial position of the firm at the close of the firms

accounting period.

The assets and liabilities are shown in the balance sheet either on

the order of liquidity or on permanency basis. When balance sheet is

prepared on liquidity basis then more liquid assets’ like cash in hand,

cash at bank, investment etc are shown first and the least liquid asset will be

shown at last. On liabilities side, the liabilities to be paid in the short period are

shown first next long term liabilities and capital on the last.

When balance sheet is prepared on permanency basis, on asset

side fixed assets are shown first and liquid asset are shown at last. On

liabilities side, the capital is shown first, long-term liabilities next, short term

and current liabilities in the last.

INCOME STATEMENT (OR PROFIT & LOSS ACCOUNT)

In our country, balance sheet is considered as a very significant

statement by bankers and others lenders because it indicates the firm's

financial solvency and liquidity, as measured by its resources and obligations.

The earning capacity and potential of a firm are rejected by its profit and

loss account. It is a “Score-board” of the firm's performances during a period of

time, generally a year. It is a statement of revenues earned and the expenses

incurred. It is prepared on the accrual principal which treats all expenses and

revenues relating to the period, whether paid or not.

If there is excess of revenues over expenditures it will show a profit

and if the expenditure are more than the income than there will be a loss.

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Notes Forming Part of Accounts:

a. Balance Sheet:

Cost of leasehold tunnel includes payment to the Government of Orissa

for acquisition of land on lease basis,

Contingent Liabilities i.e. outstanding letters of credit, claims against

the company not acknowledged as debts,

Dues to various small scale industrial units amounting to Rs.1.63 cores

have been grouped under current liabilities

b. Profit and loss account:

As per the schedule XIV of Companies Act, 1956, allocate the

unamortized value over the remaining life after retention of 5% residual

value except for assets already written off fully.

Government of Orissa has improved Rural Infrastructure and Socio-

Economic Development tax from 18th Feburary-2012 on mineral bearing

land @ 20% of its annual value.

The cost under “power and fuel” consists of consumption of coal and fuel

oil but does not include other expenses of generation.

Deferred tax assets and liabilities assets,

Provisions for proposed dividend and dividend tax will be paid after being

approved by shareholders in the Annual General Meeting.

Due to change in the accounting policies during the year have the effects

on the items in financial statement.

Unaudited Financial Reconciliation

Quarterly unaudited financial results are published in some leading

English newspapers and local Oriya daily news papers .It reflects the quarterly

result of the company. There is slight variances in the quarterly unaudited and

annual audited Financial Results in the year 2011-12.

LIMITATIONS

The financial statement suffers from the following limitation.

a. Interim and not final report:

These statements do not give a final picture of the concern. The act

position can be only known if the business is sold or liquidated.

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b. Lack of precision and definiteness:

Financial statement may not be realistic because they are prepared by

following certain basic concepts and conventions.

c. Lack of objective judgment.

Financial Statements are influenced by the personal judgment of the

accountant. He may select any method for depreciation, valuation of stock etc.

d. Record only monetary facts:

Financial statements disclose only monetary facts i.e which can be

measured in monetary terms. Non -monetary factors are ignored.

e. Historical in nature:

These statements are drawn after the actual happening of the events.

They attempt to present a view of the past performance and have nothing to

do with the accounting for the future.

B. FINANCIAL STATEMENT ANALYSIS

MEANING:

Financial analysis is the process of identifying the financial strength and

weakness of the firm by properly establishing relationships between the items

of the balance sheet and project and loss account. Financial analysis car be

undertaken by management of the firm or by parties outside the firm i.e

owners, creditors, investor and others. Financials analysis is also known as

analysis and interpretation of financial statement. The main aim of financial

analysis is to diagnose the information contained in financial statement so as

to judge the profitability and financial soundness of the firm.

The term "Financial statement analysis” includes both “analysis” and

“interpretation”. The term “analysis” is used to mean the simplification of

financial data by methodical classification of data given in the financial

statements and “interpretation” means explaining the meaning and

significance of data to simplify. The analysis and interpretation is essential to

bring out the mystery behind the figures in financial statements. However both

analysis and interpretation are interlinked and complementary to each other.

Analysis is useless without interpretation and interpretation without analysis is

impossible.

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TECHNIQUE (TOOLS OR METHODS) OF FINANCIAL STATEMENT

ANALYSIS

There are various technique which are used for the analysis of financial

statement. The more commonly used technique of financial analysis are as

follows.

A. Comparative financial statement.

B. Common - size statements.

C. Trend Analysis.

D. Funds flow statement.

E. Statement of changes in working capital.

F. Ratio analysis.

COMPARATIVE FINANCIAL STATEMENTS:

The comparative financial statements are statements of the financial

position at different period of time. The elements of financial position are

shown n a comparative form so as to give an idea of financial position at two or

more periods. The financial data will be comparative only when same

accounting principles are used in preparing these statements. The two

comparative statements are:

a) Balance sheet.

b) Income statement.

Comparative Balance Sheet:

This statements prepared on two or more different dates can be used;

or comparing assets and liabilities and to find out any increases or decreases

in these items. This facilitates the comparison of figures of two or more period

and provide necessary information which may be useful in forming an opinion

regarding the financial condition as well as progressive out look of the concern.

Guideline for interpretation of comparative Balance sheet.

The interpreter is expected to study the following aspects:

Current financial position and liquidity position.

Long-term financial position

Profitability of the concern.

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Table – 1

Comparative balance Sheet of NALCO

For the year ended 31st March, 2013

(Rupees in Crores)

Particulars 31.10.13 (Amount)

31.10.12 (Amount)

Increase / decrease (Amount)

Increase / decrease

(Percentage) ASSETS

Fixed Assets

Net Block 3944.51 4139.00 -194.49 -4.70%

Capital work in progress 232.16 213.61 25.55 11%

Total 4176.67 4345.61 -168.94 -3.89%

Current Assets

Inventories 591.58 529.13 62.52 11.8%

Sundry Debtors 29.42 92.81 -63.39 -68.3%

Cash & Bank Balance 2193.71 755.21 1438.5 190.47%

Other current Assets 118.62 82.01 36.61 44.64%

Loans and Advances 364.55 351.95 12.6 3.6%

Total 3297.88 1811.11 1486.84 82.1%

Total Assets 7474.55 6156.65 1317.90 21.40%

LIABILITIES

Share holders fund:

Share capital 644.31 644.31 -

Reserves & Surplus 5248.36 4123.50 1194.86 29.47%

Total 5892.67 4697.81 1194.86 25.43%

Current Liabilities

Liabilities 607.33 616.25 -8.92 -1.44%

Provisions 332.82 190.14 132.68 69.8%

Total 940.15 813.39 123.76 15.34%

Referred Tax Liability 641.73 652.45 -10.72 -0.15%

7474.55 6156.65 1317.90 21.40%Source : Annual Reports of NALCO.

INTERPRETATION

It is evident from the Table - 1 that, the company current liability have

increased by Rs. 1237.6 crores (15.34%) as compared to earlier years, as due

to keep more provision for current liabilities. There is 25.43 % increase in

share holders wealth as compare to previous years due to low dividend pay

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out ratio (50%). Cash & bank balance in hand Rs. 2193.71 increased by

190.47% as compared to previous year will be utilized for expansion plan.

Sundry debtors decreased by 68.3% indicate a efficient management of

receivables. Inventories have increased by 11.8% due to increased turn over

by 20%. Fixed assets have decreased by (-4.70%) due to high depreciation

charge in different block of assets.

Comparative Income Statement:

The income statement gives the results of the operations of a business.

The comparative income statement gives an idea of the progress of a business

over a period of time. The changes is absolute data in money values and

percentage can be determined to analyse the profitability of the business.

Table – 2

Comparative Income Statement of NALCO

For the year ended 31st March, 2013


31.10.12 (Amount)

Increase / decrease (Amount)

Increase / decrease (%age)

Net Sale 4851.90 4111.11 747.79 18.22%

Add: other income

Operating 101.8 174.13 -45.33 -26%

Non – Operating 128.9 76.52 52.38 68.45%

Total Income 5082.6 4354.76 727.84 16.7%

Less: Operating expenses 2312.4 1963.23 342.17 17.42%

Operating profit (EBIT) 2777.2 2391.53 385.67 16.1%

Less: Interest 60.61 -60.61 -100%

Less: Depreciation 461.08 439.21 21.87 4.97

Profit before Dep. & Tax 2777.2 2330.91 446.28 19.1%

Less Depreciation 377.24 461.08 83.84 18.2%

Profit Before Tax 2399.96 1869.84 530.12 28.35%

Less: Tax Provision 837.76 635.00 202.76 32%

Net profit(PAT) 1562.20 1234.84 327.36 26.5%

Source : Annual report of NALCO

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INTERPRETATION

It is evident from the Table-2 that, the net profit for the year after

provision for taxes increased from Rs.1562.20 crore to Rs.1,234.84 crore

recording an increase of 26.5% over previous year due to increased

production and sales performance on all fronts. The sales increased by Rs.

747.79 crore over previous, recording 18.22 % increased. The operating profit

increased by 16.1% and net profit (PAT) increased by 26.5% over previous

year due to less operating expenses than previous year. The operating

expenses is reduced by 17.42% where as the operating profit, profit before tax

(PBT) and profit after tax (PAT) are increased over previous. It is a indication

of efficient management of company’s affair. It may be concluded that there is

a sufficient progress in the company and the overview profitability of the

company is good.

COMMON MEASUREMENT (SIZE) STATEMENT

This statement indicates the relationship of various items with some

common item (expressed as percentage of the common item). The figure are

shown as percentage of total assets, total liabilities and total sales.

In the Income statement' the sales figure is taken as base and all other

figures are expressed as percentage of sales. Similarly, in the Balance sheet

the total assets and liabilities is taken as base and all other figures are

expressed as percentage to this total. The statements are also known as

component percentage or 100% statement, because every Individual is stated

as percentage of the total 100.

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Table 3

Common Size Balance Sheet of NALCO For the year ended 31IlMarch, 2013

(Rupees in Crore)

31.10.13 31.10.12

Particulars Amount % Amount %

ASSETS: Fixed Assets Net Block

3944.51 52.77 4139.00 67.22

Capital work in progress 232.16 3.11 213.61 3.36

Total 4176.67 55.88 4345.61 70.58

Current Assets 3297.88 44.12 11.11 29.42 Inventories 591.58 7.91 529.13 8.59

Sundry Debtors 29.42 0.01 92.81 1.51

Cash & Bank Balance 2193.71 29.34 755.21 12.27

Other current Assets 118.62 1.59 82.01 1.33

Loans and Advances 364.55 4.86 351.95 5.72

Total 7474.55 100 6156.65 100

LIABILITIES:

Share holders fund:

Share capital 644.31 8.62 644.31 10.47

Reserves & Surplus 5248.36 70.21 4123.50 65.84

Total 5892.67 78.83 4697.81 76.31

Current Liabilities

Liabilities 607.33 8.12 616.25 10.00

Provisions 332.82 4.46 190.14 3.09

Total 940.15 12.58 813.39 13.09

Deferred Tax Liability 641.73 8.59 652.45 10.60

Total 7474.55 100.00 6156.65 100.00


INTERPRETATION

It is evident from Table – 3, the pattern of financing shows that the share

capital contribution is constant in all the years. Out of the total

investment in 2012 – 13, 78.83% of the funds are proprietors fund and

remaining are outsiders fund. In 2011 – 12 the proprietors funds are

76.31 % and outsiders funds are 23.69%. While analyzing the working

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capital, it is revealed that company have used more working capital than

necessary, there is a huge cash balance (Rs.2193.71 crore) due to low

dividend payout ratio. Effort should be made to disburse or transfer to

general reserve. In the year 2012-2013 the current assets are 29.42%

and 44.12% respectively. The current liabilities are 13.09% and 12.58%

respectively. The company must use reserves and surpluses for future

expansion programme.

Table 4

Common size profit & loss account for the Year ended 31st March 2013

(Rupees in Crore)

31.10.2013 31.10.2012 Particularss Amount % Amount %

Net Sales 4851.90 95.46 4111.11 94.24

Other Income 230.70 4.54 250.65 5.76

Total Income 5082.60

100 4354.76

100

Operating Expenses 2312.60

45.36 1963.23

45.08

Operating Profit(PBIDT) 2777.2 54.64

2391.53 54.91Interest 60.61 1.40

Profit Before Dep. & Tax(PBDT)

2777.20 54.64 2330.91 53.52

Depreciation 377.24 7.42 461.08 10.59Profit before Tax(PBT) 2399.96 47.2

21869.84 42.9

3Tax Provision 837.76 16.90 635.00 14.58

Net Profit (PAT) 1562.60 30.74 1234.84 28.35


Interpretation

From the above analysis the operating expenses 45.36% and 45.08% of

total income in years 2013.-2012. There is likely to same percentage of

operating income to the total income, it is a evidence of sound

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management of expenses. There is no interest payment due to

adequate working capital in 2012-2013 PBDT are 54.64% and 53.52% in

2012-2013 respectively but the PBT are 47.22% and 42.93. There are

difference about 5% due to depreciation charges varies in between

years. The net profit (PAT) to the total income are 30.74% and 28.35%

respectively in both years. It indicates the efficient management of

company’s affairs.

TREND ANALYSIS

The Financial statements may be analyzed by computing trends of

series of information. Trend analysis helps us to know whether the financial

position of a firm is improving or deteriorating over the years. For this purpose

a number of years is taken up and one year, generally the first year, is taken

as a base year and the, amount of that item relating to base year is taken

equal to 100 and index number are calculated for other years based on the

amounts of that item in those years. It is a dynamic method of analysis

showing the changes over a period of time. This method of analysis indicates

the direction in which a concert is gong and on this basis forecast of future is

made.

Table 4

Trend Percentage of NALCO(Base year 2011-2012)

(Rupees in Crores)

Year SALES PROFIT BEFORE TAX

Amount Trend (Percentage)

Amount Trend (Percentage)

2011

2012

2013

3124.07

4111.11

4851.90

100

131.37%

155.27%

1122.76

1870.27

2429.64

100

177.65

230.78


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INTERPRETATION

The interpretation of trend analysis involves a cautious study. The mere

increase or decrease in trend percentage may give misleading results. The

base period should be carefully selected. It is evident from the above Table-5

that, the trend of sales is been steadily increasing. The percentage in 2013 is

Rs.155.27% as compare to 2011. The profit in 2013 is 230.78% as compare to

2011, indicate major achievement within three years.

STATEMENT OF CHANGES IN WORKING CAPITAL

This statement is prepared to know the net change in working capital of

the business between two specified dates. It is prepared from current assets

and current liabilities of the said dates to show the net increase or decrease in

working capital.

Table 5

Statement Of Changes In Working Capital of NALCO (Rupees in Crores)


3.1.10.12 (Amount)

Effect on working capital

Increase (Amount)

Decrease (Amount)

Current Assets:

Inventories 591.58 529.13 62.52 -

Sundry Debtors 29.42 92.81 - 63.39

Cash & Bank Balance 2193.71 755.21 1438.50 -

Other current Assets 118.62 82.01 36.61 -

Loans & Advances 364.55 351.95 12.6 -

Total Current Liabilities 3297.88 1811.11 - -

Liabilities 607.33 616.25 8.92 -

Provisions 332.82 190.14 - 142.68

Total 940.15 813.39 - -

Working capital (C.A-C.L) 2357.73 1011.65 - -

Net increase in working capital - 1353.08 - 1353.08

2357.73 2357.73 1559.15 1559.15

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INTERPRETATION

It is evident from the above Table-6, that the working capital for the year

2013 more than double as compared to previous year. The ratio of current

asset to current liabilities should be 2:1 but here the ratio is around 3:5, due to

huge cash in hand. Therefore effort should be made to invest in short term

marketable securities.

RATIO ANALYSIS

Ratio analysis is a powerful tool for financial analysis. It is defined as

the systematic use of ratio to interpret the financial statements. So that the

strengths and weakness of a firm as well as its historical performances and

current financial condition can be determined. It develops a relationship

between individual items or group of items usually shown in the periodical

financial statement published by the concern. The relationship of one item to

another expressed in a simple mathematical form is known as the ratio. The

relationship between two accounting figures is known as accounting ratio. The

business performance can be measured by the use of ratios.

A ratio must be interpreted against some standard. This ratio may be

compared with the pervious year or base year ratios of the same firm. A

comparison may also be made with the selective firms in the same industry i.e.

inter firm compression. It is also possible to the compare with the ratio of the

same industry within the country and in international market as well. Ratio

analysis is useful to shareholders, creditors, and executives of the company.

So, ratio analysis is a technique of analysis and interpretation of financial

statement. Ratio any be expressed in three from:

a. a quotient 1:1 or 2:1 etc.

b. as a rate i.e. inventory turnover as number of items in a year

c. as a percentage.

Let us analysis the study by taking these ratios :

1. Profitability Ratio

2. Activity Ratio.

3. Solvency ratio.

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4. Liquidity Ratio

PROFITABILITY RATIO

The main objective of business undertaking is to earn profits. Profit

earning is considered essential for the survival of the business. A business

needs profit not only for its existence but also for expansion and diversification.

In the words of Lord Keynes, “Profit is the engine that drives the business

enterprises". The profitability ratios are calculated to measure the operating

efficiency of the company. Generally, profitability ratios are calculated either in

relation to sales or in relation to investment.

In relation to sales profitability ratio:

a. Net profit ratio :

Net profit ratio establishes a relationship between net profits (after

taxes) and sales. It indicates the efficiency of the management in

manufacturing .selling, administrative and other activities of the firm. This ratio

is the overall measure of firm's profitability.

Thus, Net profit Ratio = Net profit after tax / Net Sales x 100.

Net profits are obtained after deducting income-tax & non -operating

expenses and income like loss on sale of fixed assets, profits on sale of fixed

assets, interest on investment outside the business etc. For the purpose of our

study we have taken Net profit Ratio for three years.

Table 7

Net profit Ratio of NALCO (Rupees in Crores)

Year Basic component Amount %age

2010-11 Net profit/ Net sale 737.37/3124.07 X 100 23.60



Source : Annual Report of NALCO.

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INTERPRETATION

The ratio indicates the firm's capacity to face adverse economic

conditions such as price competition, demand etc. if the net profit is not

sufficient then the firm shall not be able to achieve satisfactory return on its

investment.

It is evident from the Table-7 that the net profit of NALCO is in

increasing trend. The profit margin in the year 2010-11 was 23.60% and it is

improved to 32.20% in the year 2012-13. The net profit and sales has been

constantly increasing. It shows that the company has a good profitability

position.

Operating profit ratio:

This ratio is calculated by dividing operating profit by sales.

Thus operating profit ratio = Net sales - operating cost/ Sales x 100.

For the purpose of our study we have taken Operating profit Ratio for

three years.

Table 8

Operating Profit Ratio of NALCO

Year Basic Component Amount %age

2010-11 Operating profit / Sales X 100 1756.9 /3124.07 X 100 56.2

2011-12 Operating profit / Sales X 100 2391.53/4111.11 X100 58.27

2012-13 Operating profit / Sales X 100 2777.2/4851.9 X 100 57.2


INTERPRETATION

It is evident from the above Table-8 that the operating profit ratio is

almost 57% of sales. It means the company has maintained a good profit

margin. It also shows the operating efficiency of the company. The operating

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profit ratio has increased slightly over the three years. The profitability position

of NALCO is satisfactory.

Return on capital employed

Return on capital employed establishes the relationship between,

profits and the capital employed.

This measures the overall efficiency of a business & indicates how well

the management has used to the investments made by owners and creditors -

to the business.

Thus, Return of capital employed=Adjusted Net profit/Net capital

Employed x 100

Where, adjusted net profits refers to:

Profits should be taken before tax.

Interest on long-term borrowing should be added back to the net profit.

Net profit should be adjusted for any abnormal non-recurring, non-

operating gains or losses. Such as profit/loss, on sale of fixed assets.

And, Net capital employed refers to the total of the assets used in the

business - current liabilities.

For the purpose of our study we have taken Return on capital

employed for three years.

Table 9

Return on Capital Employed of NALCO

(Rupees in Crores)


2002-11 Adj. Net Profit/N.C.E. X 100 737.37/4029.21 X 100 18.30




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INTERPRETATION

It is evident from the above Table-9 that the return on capital employed

of NALCO is in increasing trend. As the primary objective of business to earn

profits, higher the return on capital employed, the more efficient the firm is in

using its funds. In the year 2010-11, it was 18.3% but it has increased to

24.79%in the year 2012-13.The company has maintained good return on

capital employed. Thereby increasing the confidence of shareholders in the

company.

Return on Investment or Net Worth:

Return on shareholder's investment is the relationship between net

profit (after interest & tax) and the proprietors’ funds.

Thus,

Return on shareholder's investment

= Net profit (after interest & tax) / Share holder's funds X 100

Where, Shareholder's investment =Equity share capital + preference

share capital + Reserve & Surplus - (accumulated losses) and Net profit = Net

profits after payment of interest and taxes.

For the pin pose of our study we have taken Return on Investment for

three years.

Table 10

Return on Capital Investment of NALCO

(Rupees in Crores)


2010-11 Net profit / Net Worth 737.37/3756.67 X 100 19.63




INTERPRETATION

This ratio reveals how well the resources of a firm are being used,

higher the ratio, better is the result.

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The above table shows that the return in 2010-11 was 19.63% but in

2012-13 it is 26.51, is increased trend. Therefore there is a better

performance of owner’s networth.

Earning Per Share

Earning per share is calculated by dividing the net profit after taxes and

preference dividend by the total number of equality shares.

Thus, E.P.S. =Net profit after tax - preference dividend/ No. of equity

shares.

For the purpose of our study we have taken Earning per share for three

years.

Table 11

Return on Capital Investment of NALCO

(Rupees in Crores)

Year Basic Component Amount Ratio

2010-11 N.P. – PD/NO. of Eq. Shares 737.37/644309628 11.44




INTERPRETATION

The EPs indicate whether or not earning power of the company has

increased. It is evident from the above Table-11. that E.S.P of NALCO was

Rs.11.44 in the year 2010-11 but it has increased to Rs.24.25 in the year

2012-13. It is mainly due to increase in profits. Tie ratio is the proper indicator

for investors whether to invest in this company or not.

Dividend payout ratio

Dividend payout ratio is calculated, to find the extent to which earning

per share have been used for paying dividend and know what portion of

earnings has been retained in the business.

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Thus, Dividend Payout ratio = Dividend per Equity share/ Earning per

Share.

For the purpose of our study we have taken Dividend Payout Ratio for

three years.

Table 12

Dividend Payout Ratio of NALCO

(Rupees in Crores)


2010-11 Dividend per Eq. Share/EPS 4.58/11.44 X 100 40




INTERPRETATION

It is evident from the table-12 that, NALCO's paid up Share capital is

Rs. 6,44.31 Crores where as its reserve and surplus is Rs. 5248.36 Crore.

Which is around 8 times of paid up capital, this is because of low dividend

payout ratio.

ACTIVITY RATIO

Funds are invested in various assets in a business to make sales earn

profits. Activity ratios are employed to evaluate the efficiency with which the

firm manages and utilizes its assets. These ratios are also called turnover

ratio, because they indicate the speed with which assets are being converted

or turnover into sale.

Several activity ratio can be calculated to judge the effectiveness of

asset utilization.

a. Inventory Turnover Ratio

It denotes the speed at which the inventory will be converted into sales,

thereby contributing for the profits of the concern. It is calculated by dividing

the cost of goods sold by the average inventory or sale by average inventory.

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Thus, Inventory Turn over Ratio = Cost of goods sold/Average.

Inventory conversation period is the average time taken for clearing

stocks.

Inventory conversion period=: 365 / Inventory turn over ratio.

For the purpose of our study we have taken Inventory Turnover Ratio

of three years.

Table 13

Inventory Turnover Ratio of NALCO

(Rupees in Crores)


ICP on

days

2010-11 Sales / Average Inventory 3124.07/485.21 6.43 57




INTERPRETATION

A high inventory turnover indicates efficient management of inventory

because more frequently the stocks are sold, the lesser amount of money is

required to finance the inventory and vice-versa. There are 'no' rules of thumb

or standard inventory turnover ratio.

It is evident from the Table-13 that, inventory turnover ratio was 6.43 in

the year 2010-11, and in the year 2012-2013 it reaches to 8.67. It reflects the

efficiency of the firm in respect of managing its inventory. The inventory ratio

can also increase due to very low level of inventory which result in shortage of

goods in relation to demand. The finished goods (inventory) in relation to sale

is around 7 to 9%. So, it implies there high ITR is not due to low level of stock

but due to efficient management.

The inventory conversion period in 2010-11 was 57 days but in 2012 –

13 it is 42 days is a decreasing trend. It indicates the efficient management.

42

b. Debtor Turnover Ratio:

This indicates the velocity of debt collection of a firm. In other words,

this indication the number of times average debtor are turned over during a

year.

Thus, Debtors turnover = Sales / Debtors.

The average collection period represents the average number of days

for which a firm has to wait before it receivables are converted into cash.

The Average Collection Period =

Number of Working days/Debtors turnover ratio.

For the purpose of our study we have taken Debtor Turnover Ratio for

three years.

Table 14

Debtor Turnover Ratio of NALCO

(Rupees in Crores)

Year Basic component Amount Ratio A.C.P

2010-11 Sales/Debtors 3124.07/102 30.6 12

2011-12 Sales/Debtors 4111.96/97.52 42.1 9

2012-13 Sales/Debtors 4851.9/61.15 79.3 5


INTERPRETATION

Generally the higher the value of Debtors turnover, the more efficient is

the management of debtors/sales and vice-versa. But very high ratio implies a

firm’s inability due to lack of resources to sell on credit, thereby losing sales

and profit.

It is evident from the above Table-14 that, the debtor turnover ratio in

the year 2010-11 was 30.6 and in the year 2012 – 13 it reached in 79.3 times

in a year. It indicates a efficient management of receivables. According to the

43

above the average conversion period reduced from 12 days in 2010-11 to 5

days in 2012-2013. It indicates NALCO follows cash sales rather than credit

sales.

Working Capital turnover Ratio:

Working capital of a concern is directly related to sales. This ratio

indicates the number of times the working capital is turnover in the course of a

year.

Thus, Working capital turnover ratio= Sales/Net working capital.

Where, Net working capital=Current Assets-Current Liabilities. For the

purpose of our study we have taken working capital Turnover Ratio for three

years.

Table 15

Working Capital Turnover Ratio of NALCO

(Rupees in Crores)

Year Basic component Amount Ratio

2010-11 Sales / N.W.C. 3124.07/126.23 24.75

2011-12 Sales / N.W.C. 4111.96/1011.65 4.08

2012-13 Sales / N.W.C. 4851.9/2357.73 2.12


INTERPRETATION

The higher is the ratio, the lower is the investment in working capital

and the greater are the profits. But, a very high turnover of working capital is a

sign of over-trading and may put the concern in financial difficulties.

From the above analysis it is evident that the, Working capital turnover

ratio of NALCO is satisfactory during the year 2010-11. But during the year

2011-12 & 2012-13, there was a heavy investment in working capital causes

idle of working capital, reduce profits. The working capital management not an

efficient one in pervious 2 years.

44

SOLVENCY RATIO

The term "solvency" refers to the ability of a concern to meet its long-

term obligations. The long term indebtedness of a firm includes debenture

holders, financial institutions providing medium and long-term loans and other

creditors selling goods on installment basis. So long-term solvency ratio

indicates a firm's ability to meet the fixed interest and costs and repayment

schedules associated with the long-term borrowings:

To measure the solvency of the selected company NALCO we have

used the Debt-equity ratios:

Debt equity ratio :

This ratio indicates the relationship between the external equities or the

outsiders fund & the internal equities or the shareholder’s funds.

Thus, Debt Equity ratio = Outsiders funds/ Share holders funds.

Outsider’s fund includes all debts to outsiders excluding current

liabilities in the form of debentures, bonds, mortgages. And shareholder’s fund

consists of equity share capital preferences share capital & reserves &

surplus excluding accumulated losses or deferred expenses.

For the purpose of our study we have taken Debt-equity ratio for three

years.

Table 16

Debt – Equity Ratio of NALCO

(Rupees in Crores)


2010-11 Creditor’s equity/ownership equity 654.39/3756.67 0.17

2011-12 Creditor’s equity/ownership equity 0/4697.81 0

2012-13 Creditor’s equity/ownership equity 0/5892.67 0


45

INTERPRETATION

It is calculated to measure the extent to which debt financing has been

used in a business. The ratio indicates the proportionate claims of owners and

the outsiders against the firm's assets.

A ratio of 1:1 may be considered to be a satisfactory ratio although

there cannot be any rule of thumb. The debt equity ratio of NALCO in 2010-11

was just 0.17 and in 2012-13 is 0 (means there is no debt capital) NALCO

should used debt capital in low cost to increase the profit margin and also

share holders wealth.

LIQUIDITY RATIO

Liquidity refers to the ability of a concern to meet its Current obligations

as and when these become due. The short term obligations are met by

realizing amounts from current assets. The current assets should be

convertible into cash for paying obligations of short term nature. The

sufficiency or insufficiency of current assets should be assessed by comparing

them with current liabilities. If current assets can pay off current liabilities, then

liquidity position will be sound and vice-versa. The bankers, suppliers of goods

and other short term creditor interested in the liquidity of the concern. They will

extend credit only when they find that current assets of the firm is adequate

through to pay of their liabilities.

To measure the liquidity of a firm following ratios can be calculated:

a. Current Ratio:

Current ratio may be defined as the relationship between current assets

and current liabilities

Thus, Current Ratio = Current Assets/ Current liabilities

For the purpose of our study we have taken Current ratio for three

years.

46

Table 17

Current Ratio of NALCO

(Rupees in Crores)


2010-11 Current Asset/Current Liability 990.51/864.28 1.15



Source : Annual Reports of NALCO

INTERPEATION

As a conventional rule, a current ratio of 2 to 1 or more is considered

satisfactory. The current ratio represents a margin of safety. The higher the

current ratio, the greater the margin of safety for creditors but may causes the

idle of fund in working capital.

It is evident from the Table-17 that, the current ratio in the 2010-11 was

1.15 times but in the year 2012-13 it has improved to 3.5 times. A high current

ratio indicates more liquidity. But a very high ratio mean unnecessary blockage

of funds in current assets. The current ratio 3.5 is very high. Effort should be

made for alternative investment for short period time.

b. Quick or Acid Ratio :

Quick ratio establishes a relationship between quick assets and current

liabilities.

The quick ratio is calculated by dividing the totals current assets less

inventories by the total current liabilities less bank overdraft.

Thus, Quick Ratio = Current Assets - Inventory/ Current Liabilities.

Here prepaid expenses and inventories are excluded from liquid assets.

47

On the other hand, bank overdraft are excluded from current liabilities.

Table 18

Quick Ratio of NALCO

(Rupees in Crores)


2010-11 Liquid Asset/Liquid Liability 28.864

48.48051.990 0.59


06.52904.1811 1.59


58.59188.3297 2.88

Source : Annual Reports of NALCO

INTERPRETATION

Generally, a high acid test ratio is an indication that the firm is liquid and

has the ability to meet its current or liquid liabilities. On the other hand, a low

quick ratio represents that the firms liquidity. Position is not a good. As a rule of

Thumb or a convention quick ratio of 1:1 is considered satisfactory.

The quick ratio of NALCO in the year 2010-11 was 0.59 but it has

improved in the year 2012-13 to 2.88 times. This ratio also indicates the quality

of current asset held by the company. This ratio 2012-13 (2.88) shows holding

more cash and equivalent assests. The quick ration is more than adequate,

therefore efforts should be made to invest in short term earn some additional

money.

48

Reconciliation of Quarterly (Un-Audited) and Annual (Audited) Financial

Results for the Year 2012-13

Quarterly Unaudited Financial results are published in some leading

English newspapers and local Oriya daily newspapers.

The quarterly un-audited financial results shows that sales, Income,

expenditure and net profit all are in increasing trend. There is little difference

between unaudited and audited net profit (PAT) like Rs.245 crores and Net

sales likely equal (Rs.4888.67 and Rs.4888.70 crore in Year 2012-13 of

unaudited and audited Profit & Loss Account respectively). The earning per

share (EPS) is in increase trend for quarter wise. The EPS of unaudited results

Rs. 24.28 more than audited results Rs. 24.25.

There is no so much difference between quarterly (unaudited) and

annual (audited) financial results.

49

Reconciliation of published Quarterly (Unaudited) Financial Results and Annual (Audited) Financial Results for the Year 2012 - 13

Sl. No.

Particulars 1st Quarter (Unaudited)

2nd Quarter(Unaudited)

3rd Quarter (Unaudited)

4th Quarter (Unaudited)

Total four Quarters

Full Year (Audited)

Variance

1 2 3 4 5 6 7 9 8

1. Gross Sales Turnover 1071.70 1149.98 1442.59 1659.93 5324.20 5324.16 (0.11) Less : Excise Duty 92.97 102.99 117.68 121.89 435.53 435.46 (0.07)

Net Sales 978.73 1116.99 1324.91 1538.11 4888.67 4888.70 0.10 2. Other Income 40.64 47.35 54.45 85.14 227.58 233.69 6.11 3. Total Expenditure 489.18 588.12 660.41 567.54 2312.25 2311.15 5.90

4. Interest and Financing h

- - - - - - -

5. Depredation & Provisions 98.26 99.21 91.86 89.38 378.71 381.60 2.89 6. Profit Before Tax (PBT) 431.93 407.01 627.09 966.26 2432.29 2429.64 (2.65) 7. Provision for Tax 151.37 123.97 234.13 358.24 867.64 867.44 (0.20)

8. Net Profit (PAT) 280.56 283.11 393.10 608.02 1564.65 1562.20 (2.45) 9. Paid-up Equity Share Capital 644.31 644.31 644.31 644.31 644.31 644.31 -

10. Earnings per share (Rs) 4.35 4.39 6.09 9.44 24.28 24.25 -

(Not annualised) 11. Aggregate of Non-promoter

shareholding:

Number of Shares - - - - 8,28,09.993 - 8,28,09,993

Percentage of shareholding - - - - 12.85 12.85 -

50

C. SUMMARY & CONCLUSION

The present study was undertaken with an intention of finding out the

financial management and profitability position of NALCO, through the analysis

of its financial statements. The study is based on both primary data from

NALCO corporate office and secondary data obtained from the annual reports

of 2011-12 and 2012-13 published by the company and internet (NALCO

website).

MAIN FINDINGS

The findings of the present study has mainly dealt with following ratios.

1. Analysis of profitability position.

Nalco has maintained a good profitability ratio in 2012-13 is 32.20.

The operating profit ratio of the company is 57.2%.

The return on capital employed (ROCE) of the company in 2012-13 is

24.79%

The return on net worth is 26.51%.

The earning per share of NALCO is good one i.e Rs. 24.25/-

The dividend pay out ratio is 50%

2. Analysis of Activity Ratio :

The inventory turn over ratio of NALCO in 2012 – 13 is 8.67 and inventory

conversion period is 42 days.

The working capital conversion ratio is 2.12

There is no credit sale of NALCO because the debtors turnover period

(ACP) is 5 days

3. Analysis of Solvency ratio:

Debt – Equity ratio of NALCO for the year 2012-13 is 0. There is no

debt fund in capital structure of the company. NALCO is an un levered farm

4. Analysis of Liquidity ratio

The current ratio of NALCO has improved to 3.5 in 2012-13 compared to

1.15 in the year 2010-11.

51

The quick ratio of NALCO is 2.88 in the year 2012-13 the ratio is more

than adequate.

CONCLUSION

The analysis and interpretation of financial statement of NALCO reveals

that both the short-term and long-term solvency of the company are

satisfactory. But the company has excess working capital. If the company had

made effort to invest surplus working capital, it would have earned addition

profit and add to profit and loss account for the year 2012-2013. Overall

NALCO has a better profitability ration and also has a strong financial position

in all respect.

In my conclusion NALCO is one of the leading and reputed companies

in India. That enter in the environment of Navaratna companies.

SUGGESTION

National Aluminum company is a pride of Orissa. It balance the

economy of the states. NALCO earns 43% revenue from Export business in

2012-2013. In the globalization scenario, the top executives must be sent to

the foreign countries to know the new technology. The sale should also be

there in overseas country. So, that more revenues can be collected which will

increase the profitability and goodwill of the company.

52

BIBLIOGRAPHY

1. Lev. Baruch Financial Statement Analysis. A New

Approach, Prentice Hall, Inc, Eagle Wevel,

Clffts, New Jarset.

2. Sharma & Gupta Management Accounting, Kalyani

Publishers, Ludhinia.

3. Pandey, I.M. Financial management, Vikas Publishng

House Pvt. Ltd., New Delhi.

4. Van Horne J.C. Financial Management and Policy Prentice

& Hall of India, Pvt. Ltd., New Delhi

5. Walker W.E. Essential of Financial management,

Prentice Hall of India Pvt. Ltd., New Delhi

6. Annual Reports of NALCO 2010-11 & 2011-12.

7. NALCO Parichaya

8. Internet Websites www.google.com

www.nalcoindia.com

financial statements & analysis of nalco

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