A

Project Report
On

FINANCIAL STATEMENT ANALYSIS

Of

National Aluminium Company Limited (NALCO)

SUBMITTED BY
SMRUTI RANJAN SAMAL
Roll no.
In partial fulfilment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION (MBA)

Under the guidance of

SHRI SANTOSH KUMAR DASH
(GM Finance, NALCO, ANUGUL)
&
DR. S. S. DEBASISH
(HOD, MBA)

2018

1
 CERTIFICATE

This is to certify that SMRUTI RANJAN SAMAL, student of

DEPARTMENT OF BUSINESS ADMINISTRATION, UTKAL
UNIVERSITY, has completed his field work at NALCO, ANUGUL on the
topic of ―FINANCIAL STATEMENT ANALYSIS and has submitted the
field work report in partial fulfillment of 2 years full time course
EXECUTIVE MASTER IN BUSINESS ADMINISTRATION (MBA) of
college for the academic year 2016-2018. He has worked under our guidance
and direction. The said report is based on bonafide information.

SHRI SANTOSH KUMAR DASH

GENERAL MANAGER, FINANCE
NALCO, ANUGUL

2
 DECLARATION
I hereby declare that the project titled ― FINANCIAL STATEMENT
ANALYSIS. It is an original piece of research work carried out by me
under the guidance and supervision of Mr. SANTOSH KUMAR
DAS and Dr. S. S. DEBASISH. The information has been collected
from genuine & authentic sources. The work has been submitted in
partial fulfillment of the requirement of EXECUTIVE MASTER OF
BUSINESS ADMINISTRATION (E-MBA).

SMRUTI RANJAN SAMAL

Place: ANUGUL Signature
Date:

3
 ACKNOWLEDGEMENT
“The satisfaction Euphoria that accompanies the
successful completion of any work would be incomplete
unless we mention the name of the person, who made it
possible, whose constant guidance and encouragement
served as a beckon of light and crowned our efforts with
success.” I consider it a privilege to express through the
pages of this report, a few words of gratitude and respect
to those who guided and inspired in the completion of
this project of FINANCIAL STATEMENT ANALYSIS.

Hence with a sense of profound humility, I first extend my sincere

gratitude to MR. SANTOSH KUMAR DAS, GM(FINANCE),
NALCO,ANUGUL, for providing me an opportunity to carry out my
summer training at this esteemed organization, and whose support and
guidance helped mein converting my theoretical conception into
visualization and also for continuous guidance throughout the project.
Furthermore I would be grateful to express gratitude to Dr. S. S.
DEBASISH (internal guide of DEPT OF BUSINESS
ADMINISTRATION, UTKAL UNIVERSITY) and all the faculty
members.
Last but not the least; I am indebted to my family and friends for
giving me constant support and encouragement.

SMRUTI RANJAN SAMAL

4
 PREFACE
As an integral of the course curriculum, all MBA students are
required to undergo summer training in an industry or organization.
The main objectives are to supplement Student’s theoretical
knowledge with an exposure to the working environment of an
organization.
I have chosen to work with National Aluminium Company
Limited., on the project “FINANCIAL STATEMENT ANALYSIS”
which provided me with an insight of welfare activities of the
company.
It has been my best effort to present this report in the
systematic manner to make dry material come alive.

SMRUTI RANJAN SAMAL

5
 CONTENTS
PAGE NO
CHAPTER-1 7-9
1.1. Introduction
1.2. Objectives
1.3. Significance
CHAPTER-2 RESEARCH METHODLOGY 10-18
2.1. Introduction
2.2. Limitations
2.3. Company Profile- Introduction
2.4. Vision
2.5. Existing Operations & Their Locations
2.6. Computerization
2.7. Action Taken On Pollution Control And Environment
2.8. Research & Development
2.9. Industrial Relations
2.10. Aluminium Industry In India
2.11. National Aluminium Company Limited
CHAPTER-3 19-30
3. Theoretical Aspect Of Study
CHAPTER-4 31-41
4. Analytical Aspect Of Study
5. Findings
6. Suggestion
7. Conclusion
8. Bibliography

6
CHAPTER-1

7
1.1. INTRODUCTION:-
A well designed and implemented working capital management is expected to contribute
positively to the creation of a firm‟s value. The purpose of this project is to examine the
trends in working capital management (WCM) and its impact on the performance of NALCO
during the last few years. This project aims at learning various facets of working capital
management at NALCO by studying the day to day activities at its division which mainly
deals in power projects.
These projects also draws a comparison NALCO active in the infrastructure segment
and tries to find out the reasons playing an active role behind the numerous status of
NALCO in the infrastructure segment. Working capital management involves not only
managing the different components of the current assets, but also managing the current
liabilities, or to be more precise, financing the current assets. A firm is required to maintain a
balance between liquidity and profitability while conducting its day to day operations.
Liquidity is a precondition to ensure that firms are able to meet its short-term
obligations and its continued flow can be guaranteed from a profitable venture. The
importance of cash as an indicator of continuing financial health should not be surprising in
view of its crucial role within the business. This requires that business must be run both
efficiently and profitably. In the process, an asset-liability mismatch may occur which may
increase firm’s profitability in the short run but at a risk of its insolvency. On the other hand,
too much focus on liquidity will be at the expense of profitability.
There are three main areas in working capital management and the project focuses on the
following:
 Receivables management
 Cash management
 Inventory management
By using the financial statements of NALCO, an analysis has been carried out to understand
the trends that have been followed.
1.2. OBJECTIVE:-
To study and analyses working capital management at NALCO. Which includes
 Inventory management
 Receivable management
 Cash management
The aim is to learn how to manage working capital needs of the organization and to learn the
different ways through which theoretical learning is applied practically in the organization.
The project is aimed to learn and gain knowledge of the day to day working of the
organization as to how does the different decision are taken and on what basis. The project
will help in gaining the knowledge of different steps of raising the short term funds and their
effective management so as to ensure adequate availability of funds. The various analyses
will help the management to assess the efficiency of the working capital management of the
company.

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1.3. SIGNIFICANCE :-
Financial Analysis is the process of identifying the financial strengths and weaknesses of the
firm by properly establishing relationships between the items of the balance sheet and the
profit & loss account. Financial analysis can be undertaken by management of the firm, viz.
Owners, creditors, investors and others. Ratio analysis is a powerful tool of financial analysis.
A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the
relationship between two or more things”.
Ratios help to summaries large quantities of financial data and to make qualitative
judgments about the firm’s financial performance. WORKING CAPITAL
MANAGEMENT deals with the management of current assets. The management of current
assets is similar to that of fixed assets in the sense that in both cases firm analyses their effect
on their return and risk profile. The management of fixed assets and current assets, however,
differ in three aspects. First, in managing fixed assets, time is a very important factor;
consequently, discounting and compounding techniques play a significant role in capital
budgeting. Second, the large holding of current assets, especially cash, strengthens the firm's
liquidity position (and reduces risk). Third, levels of fixed as well as current assets depend
upon expected sales, but it is only current assets that can be adjusted with sales fluctuations in
the short run.
Thus with such importance attached, a due diligence should be given to
proper management of the working capital.

9
 CHAPTER-2
2. RESEARCH METHODOLOGY

10
2.1. INTRODUCTION:-
Any organization whether big or small, private or public need different types of information
are to know its popularity. I have gathered secondary data and primary data and collected
information from the combination of these two data.
􀂃 Secondary data: -
Secondary data consist of information that already exists somewhere, having been collected
for another purpose. I have gathered secondary data from website of different operators,
different magazines, newspapers and libraries.
􀂃 Primary data: -
I have taken great care while collecting primary data to answer that it is relevant, accurate,
current and unbiased. I have taken a sample of people. I have visited them personally to get
data.
2.2. LIMITATIONS:-
There are some limitations of the study. But in spite of their limitation I work with the
enthusiasm and I tried to given the best result to the research of this report.

 One of the most influencing and most critical limitations is that I am not trained for
the research study.
 I tried hard to come at conclusion, but there is lack of expertise.
 Another limitation is that there is lack of time. If I give more time then studies will be
more effective.
 The opinion expressed by the respondents may be biased.
 The attitude of the research might be biased.

COMPANY PROFILE
2.3. INTRODUCTION :-
National Aluminium Company Limited (NALCO), was established on 7th January, 1981 in
the Public Sector, with its registered office at Bhubaneswar, to exploit a part of the large
deposits of bauxite discovered along the East Coast. Since inception, NALCO, has not only
addressed the need for self-sufficiency in aluminium, but has also given the country a
technological edge in producing this important metal at global standards. At present, NALCO
is the only Central Public Sector Undertaking (CPSU) mining bauxite for production of
alumina and aluminium. Navratna status has been conferred on NALCO on 28.4.2008.
Presently, Government of India holds 81.06% share of NALCO. It is an integrated and
diversified mining, metal and power group ‘A’ CPSE with annual gross sales of Rs.7247
crore in financial year 2012-13. The Company has bulk shipment facilities at vizag port.
Besides this the company is utilizing the shipment facilities at Kolkata and Paradeep ports.
NALCO is the first Public Sector Company in the country to venture into international
market in a big way with London Metal Exchange (LME) registration since May, 1989.
Export sales account for almost 45% of its turnover with business in more than 15 countries
in recent past. Its alumina also enjoys premium in world market on account of quality and

11
international standard. NALCO is one of the lowest-cost producers of alumina in the world.
The Company is listed at Bombay Stock Exchange (BSE) since 1992. Besides, ISO 9002,
ISO 14001, OHSAS 18000 & SA 8000 certification; the Company has also adopted ISO
50001 standards, for energy management system.
The Company is listed at Bombay Stock Exchange (BSE) since 1992. Besides, ISO
9002, ISO 14001, OHSAS 18000 & SA 8000 certification; the Company has also adopted
ISO 50001 standards, for energy management system. In October, 2012, Government of
Odisha conveyed certain conditions to be fulfilled before recommending Pottangi mining
lease to Government of India. NALCO has agreed to those conditions in November, 2012 and
awaiting the recommendation of Govt. of Odisha .
2.4. VISION
TO Be A Reputed Global Company In The Metals And Energy Sectors .

2.5. EXISTING OPERATIONS & THEIR LOCATIONS:-

2.5.1. BAUXITE MINES:-
The Company has its bauxite mines situated on a plateau in Damanjodi, Koraput, in the State
of Odisha. This bauxite deposit is mined by a fully mechanised system having a capacity of
6.8 MT per year. Panchpatmali plateau stands at an elevation of 1154 m to 1366 m above
mean sea level. Bauxite occurs over the full length of the Panchpatmali plateau, which spans
over 18 km.

2.5.2. ALUMINA REFINERY:-

The alumina refinery is located at Damanjodi, Odisha, approximately 14 km from the bauxite
mine at Panchpatmali. The mined-out bauxite is transported from captive mine to refinery by
a 14.6-km-long single-light multi-curve 1800 tonnes-per-hour (TPH)- capacity cable belt
conveyor. The alumina produced is transported to aluminium smelter at Angul (Odisha) and
to Vizag (Andhra Pradesh) port by rail.
2.5.3. OPERATIONS:-
The present capacity of alumina refinery is 2.1 millions tonnes per annum with four
production lines of 525,000 tonnes each per annum. The capacity is under augmentation to
2.275 millions tonnes per annum by upgrading the 4th line to 700,000 tonnes per annum at an
estimated cost of Rs 409 crore., which is likely to be completed by May,2014. Alumina
produced is used to meet Company's requirements for production of primary aluminium at
smelter. The surplus alumina that remains after internal consumption is sold to third parties in
the export markets. A small portion is also sold to the domestic market.
2.5.4. ALUMINIUM SMELTER:-
The aluminium smelter is located at Angul, Odisha, approximately 699 km from the refinery
and 5 km away from the captive thermal power plant. The aluminium produced at the smelter
is transported to Vizag port (548 km away), Kolkata Port (526 km away) and Paradeep port
(183 km away) by rail for export. Aluminium in the forms of ingots, sow ingots, tee ingots,
billets, wire rods, cast strips, alloy ingots and chequered sheets is also sold in the domestic
market.

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2.5.5. OPERATIONS:-
The aluminium smelter entered into production progressively from 1987. The present
capacity of smelter is 4.60 lakh tonnes per year. Alumina is converted into primary
aluminium through a smelting process using electrolytic reduction. From the pot-line, the
molten aluminium is routed to either the casting units, where the aluminium can be cast into
ingots, sow ingots, tee ingots, billets, wire rods, cast strips and alloy ingots, or to holding
furnaces at flat aluminium products unit where the molten aluminium is rolled into various
cold-rolled products or cast into aluminium strips.
2.5.6. CAPTIVE POWER PLANT:-
The aluminium smelter and coal-based captive power plant at Angul are strategically located.
The Plant is located approximately 5 km away from aluminium smelter. The location of
captive thermal power plant at Angul is also strategic to the availability and supply of coal.
NALCO sources its major coal requirement for captive thermal power plant from the Talcher
coalfields of Mahanadi Coalfield Ltd. (a subsidiary of Coal India Ltd.), located
approximately 15 km from Angul. The 18.5-km captive railway system links the captive
thermal power plant to the Talcher coalfields, enabling transport of the critical and bulk
requirement of coal.

2.6. COMPUTERISATION:-
NALCO has a strong usage of Information and Communication
Technology (ICT) for its day to day activities. NALCO’s SAP applications cover Materials
& Contracts (MM), Sales & Distribution (SD), Production Planning (PP), Finance &
Controlling (FICO) and Human Resource Management (HR) modules. These modules are
implemented organization-wise including all its Work sites, Offices and facilities. For
Maintenance Management, NALCO uses the Ramco e-apps maintenance module. In the area
of e-governance, biometric based attendance solutions have been implemented for contract
labour and is progressively under implementation for employees. E-tendering for export sales
operates with standard security measures like SSL and Digital signature systems. Materials
procurement has been given a technical boost with launch of online bidding through SRM 7
module of SAP. Steps are underway to implement e-bidding for Works/Service tenders using
CPP portal of Govt. of India. In the area of HR, GET recruitment has been partially made
online, with the application phase in internet mode and written test scores uploaded from
GATE results. The SAP application is hosted in the in-house state of the art Data Centre with
standard facilities. This is being further strengthened with a Disaster Recovery site shortly so
as to effectively implement Business Continuity Plan for the IT based processes.

2.7. ACTION TAKEN ON POLLUTION CONTROL AND

ENVIRONMENT :-
All the units of NALCO are certified to International Standard ISO14001: 2004 -
Environmental Management System. NALCO is proactive and has adopted preventive
strategies like 3 R principle of Reduce, Reuse and Recycle. NALCO has optimised its
resource consumption thereby minimising the waste and optimising the operating efficiency
in all its units. It has eliminated the use of ozone-depleting substances in its operation

13
substituting them with better technology like Vapour Absorption Machines (VAM)-based
chiller plant in CPP, CFC-free Cabin Air conditioning system in PTMs & high-efficiency
fume treatment centre at the smelter plant. All the units of NALCO have adopted zero
discharge with respect to waste water management. The waste water is treated in effluent
treatment plants and then is reused in the process. All units of NALCO are provided with
Sewage Treatment Plants and the treated water is being used for horticulture and gardening
purposes.
NALCO has adopted rain-water harvesting system in all its units. Electrostatic
precipitators with advanced intelligent control equipments in its power plants are being
retrofitted by adding one more pass to achieve higher efficiency in SPM emission level. Same
has been incorporated in one of its units (Unit#6) at CPP Implementations of the same in
other units are in progress. NALCO has adopted highly efficient ESPs of 80 mg/NM3 in its
new units of CPP which shows NALCO's proactive approach for abating pollution. NALCO
has taken up pilot scale-cum demonstration project for carbon sequestration at its captive
power plant which is unique in the country. For management of hazardous wastes, NALCO
has taken utmost care as per the guidelines provided by statute. NALCO is having land fill
for disposal of hazardous wastes like spent pot lining materials, incinerators, etc.

2.8. RESEARCH & DEVELOPMENT:-

Thrust has been laid on patenting of process know-how developed in the Company either
through in-house or collaborative R&D efforts. Till date 26 patents have been sent for filing
which include 1 patent filed in the current year. Board-level technology committee meetings
are held to review the R&D activities of the Company. Innovative modifications are carried
out in different units. One patent has been granted and one R&D process titled Heat treatment
process for destruction of toxic cyanide present and recovery of valuables from spent
potlining material has been commercialized during the year.
Some benefits derived as a result of the above R&D (in-house & collaborative):
 Use of slotted anodes and anodes with higher stub hole depth in potlines have given a
benefit of approx Rs 12 crore per year due to reduction in DC energy consumption by
100-150 KWH/T metal.
 Due to R&D effort good quality coke has been used in carbon plant. Financial benefit
derived this year is approx Rs 3 crore per year compared to last year, due to reduction
in consumption of coal tar pitch and calcined petroleum coke.
 Inclusion analysis and metallographic studies have helped to improve product quality.
 Regular analysis of baked anodes has helped to improve anode quality.

2.9. INDUSTRIAL RELATIONS:-

The general industrial relation climate in the Company remained cordial throughout the year,
which helped the organization achieve excellent physical performance. Some important cost
control and operational decisions were taken in the participative management forum leading
to effective implementation of these decisions. A new and path breaking culture of energy
conservation was introduced through meter based domestic electricity consumption.
Compliance of various statutory provisions and grievance handling remained two important

14
focal points of industrial relation activities of the Company during the year. The Company
has adopted the principle of equal opportunity to the women employees in the matter of
employment and the Company has 352 no. of women employees at different levels and
categories. The Presidential Directives issued from time to time on reservation of SC/ST
persons in employment has been scrupulously followed by the Company. There are exclusive
Cells constituted for the welfare of the SC/ST employees Welfare Associations which meet
and discuss their view points at regular intervals both at Complex level as well as Corporate
level. NALCO has produced 62,92,677 tonnes of bauxite, 19,25,000 tonnes of alumina and
3,16,492 tonnes of aluminium in 2013-14. It has achieved a gross turnover of Rs 5,143 crore
and a profit after tax of Rs 470 crore during 2013-14 (up to December, 2013). The Company
is likely to achieve gross turnover of Rs.7010 crores during the year 2013-14. Under the
Foreign Trade Policy 2009-10, NALCO has been granted with ‘Premier Trading House
Status’ for achievement in export target. Certificate of recognition as Premier Trading House
has been issued on 30.9.2009 which is valid upto 31.3.2014. Premier Trading House status is
the highest status awarded to any Export House by Govt. of India. NALCO has achieved
export earnings of Rs. 3410 crore in the year 2012-13 and Rs. 3,719 crore (prov.)
2.10. ALUMINIUM INDUSTRY IN INDIA:-
In India, the electrical sector is the largest consumer of aluminium. Bulk of the aluminium
usage is in overhead conductors and power cables used in generation, transmission and
distribution of electricity. Aluminium is used in switchboards, coil windings, capacitors—and
many other applications as well. The global aluminium production which was 47.72 million
tonnes in 2012 increased to 50.11 million tonnes in 2013, as per CRU Monitor-Aluminium.
The world aluminium consumption in 2012 and 2013 was 47.26 million tonnes and 50.15
million tonnes respectively. India produced 17.24 lakh tonnes in 2012-13 and 17.30 lakh
tonnes in 2013 -14 which was approximately 3.4% of world production. India is endowed
with rich bauxite reserves of 2300 million tonnes (approx. 6.76% of the world total) and
ranks 5th in the world bauxite reserve base. The primary aluminium industry in India consists
of three producers viz. National Aluminium Company Limited (NALCO), HINDALCO
Industries Limited and The Sesa Sterlite (Vedanta Group) comprising Bharat Aluminium
Company Limited (BALCO), Madras.

15
16
2.11. NATIONAL ALUMINIUM COMPANY LIMITED
2.11.1. BAUXIDE:-
BAUXIDE (in "000 MT)

2016-17 6825

2015-16 6340

2014-15 5739
PRODUCTION

2013-14 6293

2012-13 5419

0 1000 2000 3000 4000 5000 6000 7000 8000

2.11.2. ALUMINA HYDRATE:-

ALUMINA HYDRATE

2016-17 2100

2015-16 1953

2014-15 1851
PRODUCTION

2013-14 1925

2012-13 1802

1600 1700 1800 1900 2000 2100 2200

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2.11.3. ALUMINIUM:-
ALUMINIUM
2016-17 387

2015-16 372

2014-15 327
PRODUCTION

2013-14 316

2012-13 403

0 100 200 300 400 500

2.11.4. POWER GENERATION:-

POWER GENERATION (in "000 MU)

2016-17 6066

2015-16 5841

2014-15 5131
PRODUCTION

2013-14 4989

2012-13 6076

0 1000 2000 3000 4000 5000 6000 7000

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 CHAPTER-3
3. T H E O R E T I C A L A S P E C T S O F S T U D Y : -

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3.1. FINANCIAL STATEMENT ANALYSIS:-
Financial statement is prepared primarily for decision-making. They play a dominant role in
setting the framework of managerial decision. Financial analysis is the process of identifying
the financial strength and weaknesses of the firm by properly establishing relationship
between the item of the balance sheet and the profit and loss account.
3.1.1. MEANING:-
The term ‘financial analysis’, also known as analysis and interpretation of financial
statement’ refers to the process of determining strength and weaknesses of the firm by
establishing strategic relationship between the item of balance sheet and profit and loss
account.

The purpose of financial analysis is to diagnose the information contained in financial

statements as to judge the profitability and financial soundness of the firm.

The term financial statement analysis includes both analysis and Interpretation. While the
term ‘analysis ’is used to mean the simplification of financial data by methodical
classification of the data given in the financial statement.’ Interpretation ’means explaining
the meaning of significance of the data so simplified.

3.1.2. TYPES OF FINANCIAL ANALYSIS:-

FINANCIAL
NALYSIS

THE MATERIAL THE MODUS

USED OPERANDI

EXTERNAL INTERNAL HORIZONTAL VERTICAL

ANALYSIS ANALYSIS ANALYSIS ANALYSIS

ON THE BASIS OF MATERIAL USED:

(a) Internal Analysis:
This is performed by the corporate finance and accounting department and is more detailed
the external analysis. These departments have available more details and current

20
information that is available to outsiders. They are able to prepare perform or future
statements and are able to produce a more accurate and analysis of the firm’s strength and
weakness.
(b) External Analysis:
The outsiders of the firm such as creditors, stock-holders or investment analysis perform
this. They make use of existing financial statement and involve a limited access to
confidential information on a firm.
ON THE BASIS OF MODUS OPERATION OF ANALYSIS:
(a) Horizontal Analysis:

This method of classified is based on the modus operandi of analysis. Horizontal analysis
refers to the comparison of the trend of each item in the financial statement over a number
of years or companies. The figure of this type of analysis are presented horizontally over a
number of columns. Such a column represents a year of a company. This type of analysis is
also called ‘dynamic analysis’ as it is based on the data from year to year, rather than on the
data of any year.

(b) Vertical Analysis:

It is frequently used for referring to ratios developed for one data or one accounting period.
Vertical analysis is also called static analysis. This is not very conductive to a proper analysis
of the firm’s financial position and provided by a study data in respective. This can only be
affected. Therefore, vertical analysis is not very useful.

3.1.3. NEED OF FINANCIAL STATEMENT ANALYSIS:-

1. Common objective
 To get true and fair view of financial help of the reporting entity.
 To get accurate picture of strength and stability of reporting entity.
 To ensure the firm’s capacity to pay its short term payment.
 To have an idea of operational efficiency and profitability of reporting entity.
 To have an idea of relative performance of reporting entity keeping in view industry
as a whole of which reporting entity is a part.
 To have a look upon future prospects of reporting entity.
2. Individual objectives
For owner and investors
 To know financial condition of the organization in a better way.
 To have a look upon performance of various segment of reporting entity.
 To find out the rank of reporting entity in the industry to which it belongs.
For bankers and money lenders

21
  To have look upon paying capacity of reporting entity and cash flow.
 To have look upon solvency position and component of capital structure.
 To have a look upon and borrowing capacity of the firm.
For management
 To make help of financial statement analysis in taking important decision.
 To assess profitability position.
3.1.4. PROCEDURE FOR FINANCIAL STATEMENT ANALYSIS:-
Broadly speaking there is three steps involved in the analysis of financial statement. These
are selection, classification and interpretation.
The following procedure is adopted for the analysis and interpretation of financial
statements:
1. The analysis should acquaint him with the principles and postulates of accounting. He
should know the loan and policies of the management so that he may be able to find out
whether these plans are properly executed or not.
2. The extent of analysis should be determined so that the sphere of work may be decided i.e.,
the analysis of income statement to find out the earning capacity of the enterprise or analysis
of balance sheet to know the financial position.
3. The financial data given in the statement should be re organized and re arranged.
4. A relationship is established among financial statement with the help of tools and
technique of analysis such as ratio, trend, common size, fund flow etc.
5. The information is interpreted in a simple and understandable way.
6. The conclusions are presented to the management in the form of report.

3.1.5. LIMITATION OF FINANCIAL ANALYSIS:

 It is only a study of interim report.

 Financial analysis is based upon only monetary information and non-monetary factor are
ignored.
 It does not considered changes in price level.
 As the financial statements are prepared on the basis of a going concern, it does not give
exact position. Thus accounting concept and convocation causes a serious limitation to
financial analysis.
 Change in account period by a firm may often make financial misleading.
 Analysis is only a means and not an end in itself.
3.1.6. METHODS OR DEVICES OF FINANCIAL ANALYSIS:

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  COMPARATIVE STATEMENT
 RATIO ANALYSIS
3.1.6.1. Comparative Statement:-

The comparative financial statement is statement of the financial position of different period
of time. The elements of financial position are shown in a comparative form so as to give an
idea of financial position of two or more period. The comparative statement may show
 Absolute figure.
 Change in absolute figure i.e., increase or decrease in absolute figures.
 Absolute data in terms of percentage.
 Increase or decrease in terms of percentage.
The two comparative statements are:
a. Comparative Balance Sheet
The comparative balance sheet analysis is the study of the trend of the same item, group of
item and computed item in two or more balance sheet of the same business enterprise on
different dates.
Guidelines for Interpretation of Balance Sheet
 Current financial position and liquidity position.
 Long-term financial position.
 Profitability of the concern.
b. Comparative Income Statement
The income statement gives the result of the operation of the business. The comparative
income statement gives an idea of the progress of a business over a period of time. The
changes in absolute data in money values and percentage can be determined to analyses the
profitability of the business. Like comparative balance sheet, income statement also has four
columns. First two columns give figure of various items for two years. Third and four
columns are used to show the increase or decrease in figure in absolute amount and
percentage respectively.
Guideline for Interpretation of Income Statement
 The increase or decrease in sales should be compared with the increase or decrease in cost of
goods sold. An increase in sales will not always mean in increase in profit. The profitability
will improve if increase in sales is more then the increase in cost of goods sold. The amount
of gross profit should be studied in the first step.

23
 The operating expenses such as office and administrative expenses, selling and distribution
expenses should be deducted from gross profit to find out operating profit. An increase in
operating profit will result from the increase in sales position and control of operating
expenses. A decrease in operating profit may be due to an increase in operating expenses and
decrease in sales.
 The increase or decrease in net profit will give an idea about the overall profitability of the
concern. Non-operating expenses such as interest paid, loss from sale of assets, writing off of
deferred expenses, payment of tax, etc. decrease the figure of operating profit. When all non-
operating expenses are deducted from operational profit, we get a figure of net profit. An
increase in net profit will give us an idea about the progress of the concern.
 An opinion should be formed about the profitability of the concern and it should be given at
the end. It should be mentioned whether the overall profitability is good or not
3.1.6.2. Ratio Analysis:
The term “Ratio” refers to the numerical and quantitative relationship between two items or
variables. This relationship can be exposed as
 Percentages
 Fractions
 Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret the financial
statements. So that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition can be determined. Ratio reflects a quantitative
relationship helps to form a quantitative judgment.
Steps In Ratio Analysis:-
 The first task of the financial analysis is to select the information relevant to the decision
under consideration from the statements and calculates appropriate ratios.
 To compare the calculated ratios with the ratios of the same firm relating to the past or with
the industry ratios. It facilitates in assessing success or failure of the firm.
 Third step is to interpretation, drawing of inferences and report writing conclusions are drawn
after comparison in the shape of report or recommended courses of action.
Basis Or Standards Of Comparison:-
Ratios are relative figures reflecting the relation between variables. They enable analyst to
draw conclusions regarding financial operations. They use of ratios as a tool of financial
analysis involves the comparison with related facts. This is the basis of ratio analysis

24
 The basis of ratio analysis is of four types
 Past ratios, calculated from past financial statements of the firm.
 Competitor’s ratio, of the some most progressive and successful competitor firm at
the same point of time.
 Industry ratio, the industry ratios to which the firm belongs to.
 Projected ratios, ratios of the future developed from the projected or preform financial
statements.
Nature Of Ratio Analysis:-
Ratio analysis is a technique of analysis and interpretation of financial statements. It is the
process of establishing and interpreting various ratios for helping in making certain decisions.
It is only a means of understanding of financial strengths and weaknesses of a firm. There are
a number of ratios which can be calculated from the information given in the financial
statements, but the analyst has to select the appropriate data and calculate only a few
appropriate ratios.
The following are the four steps involved in the ratio analysis:
 Selection of relevant data from the financial statements dependingupon the objective of the
analysis.
 Calculation of appropriate ratios from the above data.
 Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios
developed from projected financial statements or the ratios of some other firms or the
comparison with ratios of the industry to which the firm belongs.
 Interpretation of the ratios.
Interpretation Of The Ratios:
The interpretation of ratios is an important factor. The inherent limitations of ratio analysis
should be kept in mind while interpreting them.
The impact of factors such as price level changes, change in accounting policies, window
dressing etc., should also be kept in mind when attempting to interpret ratios.
The interpretation of ratios can be made in the following ways.
 Single absolute ratio
 Group of ratios
 Historical comparison
 Projected ratios
 Inter-firm comparison

25
Guidelines Or Precautions For Use Of Ratios:-
The calculation of ratios may not be a difficult task but their use is not easy. Following
guidelines or factors may be kept in mind while interpreting various ratios are :
 Accuracy of financial statements
 Objective or purpose of analysis
 Selection of ratios
 Use of standards
 Caliber of the analyst
 Ratios provide only a base
 Act as a good communication
 Evaluation of efficiency
 Effective tool
 Limited use
 Personal bias are ignored
 Limited use of single ratio
Importance Of Ratio Analysis:-
 Aid to measure general efficiency
 Aid to measure financial solvency
 Aid in forecasting and planning
 Facilitate decision making
 Aid in corrective action
 Aid in intra-firm comparison
Limitations Of Ratio Analysis:-
 Differences in definitions
 Limitations of accounting records
 Lack of proper standards
 No allowances for price level changes
 Changes in accounting procedures
 Limited use
 Personal bias

26
IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE
A. Liquidity ratio
B. Leverage ratio
C. Activity ratio
D. Profitability ratio
A. LIQUIDITY RATIOS:
Liquidity refers to the ability of a concern to meet its current obligations as & when there
becomes due. The short term obligations of a firm can be met only when there are sufficient
liquid assets. The short term obligations are met by realizing amounts from current, floating
(or) circulating assets The current assets should either be calculated liquid (or) near liquidity.
They 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
short-term current liabilities. If current assets can pay off current liabilities, then liquidity
position will be satisfactory.
To measure the liquidity of a firm, the following ratios can be calculated
 Current ratio
 Quick (or) Acid-test (or) Liquid ratio
a. Current Ratio:-
Current ratio may be defined as a relationship between current assets and current liabilities.
The ratio is also known as working capital ratio is a measure of general liquidity and is most
widely used to make the analysis of a short term financial position (or) liquidity of a firm.
𝐶𝑈𝑅𝑅𝐸𝑁𝑇 𝐴𝑆𝑆𝐸𝑇𝑆
CURRENT 𝑅𝐴𝑇𝐼𝑂 =
𝐶𝑈𝑅𝑅𝐸𝑁𝑇 𝐿𝐼𝐴𝐵𝐼𝐿𝐼𝑇𝐼𝐸𝑆

b. Liquid Ratio:-
Quick ratio may be defined as a relationship between quick or liquid assets and current
liabilities. An asset is said to be liquid if it is converted into cash within a short period
without loss of value.
LIQUID ASSETS = CURRENT ASSETS – INVENTORIES – SUNDRY DEBTORS
𝐿𝐼𝑄𝑈𝐼𝐷 𝐴𝑆𝑆𝐸𝑇𝑆
𝐿𝐼𝑄𝑈𝐼𝐷 𝑅𝐴𝑇𝐼𝑂 =
𝐶𝑈𝑅𝑅𝐸𝑁𝑇 𝐿𝐼𝐴𝐵𝐼𝐿𝐼𝑇𝐼𝐸𝑆

27
B. LEVERAGE RATIOS :-
The leverage or solvency ratio refers to the ability of a concern to meet its long term
obligations. Accordingly, long term solvency ratios indicate firm’s ability to meet the fixed
interest and costs and repayment schedules associated with its long term borrowings.
The following ratio serves the purpose of determining the solvency of the concern.
 Debt-equity ratio
 Proprietary ratio
a. Debt-Equity Ratio:-
It is also known as external-internal equity ratio. It measures the relative claims of outsiders
and the owners (i.e., shareholders) against the firm’s assets. This ratio indicates the
relationship between the external equities or the outsiders funds and the internal equities or
the shareholder’s funds.
Shareholder’s funds = reserve and surplus
𝐷𝐸𝐵𝑇
𝐷𝐸𝐵𝑇 𝐸𝑄𝑈𝐼𝑇𝑌 𝑅𝐴𝑇𝐼𝑂 =
𝐸𝑄𝑈𝐼𝑇𝑌

b. Proprietory Ratio:-
A variant to the debt-equity ratio is the proprietary ratio which is also known as equity ratio
or net worth to total assets ratio. This ratio establishes relationship between shareholder’s
funds to total assets of the firm.
Shareholder’s funds = reserve and surplus
SHAREHOLDER′S FUND
PROPRIETORY RATIO =
𝑇𝑂𝑇𝐴𝐿 𝐴𝑆𝑆𝐸𝑇𝑆

C. ACTIVITY RATIOS:-
Funds are invested in various assets in business to make sales and earn profits. The efficiency
with which assets are managed directly affect the volume of sales. Activity ratios measure the
efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios
are also called Turnover ratios because they indicate the speed with which assets are
converted or turned over into sales. The major turnover ratios are
 Debtor turnover ratio
 Inventory turnover ratio
 Working capital turnover ratio

28
 a. Debtor Turnover Ratio:-
Debtor’s velocity indicates the velocity of debt collection of firm. In simple words, it
indicates the number of times average debtors (Receivables) are turned over during the year.
Debtor turnover ratio can be calculated by dividing the total sales by the balance of debtors
given.
𝑁𝐸𝑇 𝑆𝐴𝐿𝐸𝑆
𝐷𝐸𝐵𝑇𝑂𝑅𝑆 𝑇𝑈𝑅𝑁𝑂𝑉𝐸𝑅 RATIO =
𝐴𝑉𝐸𝑅𝐴𝐺𝐸 𝐷𝐸𝐵𝑇𝑂𝑅𝑆
b. Inventory Turnover Ratio:-
This is also known as Stock Velocity. It indicates whether inventory has been efficiently used
or not. The purpose is to see whether only required minimum funds have been locked up in
inventory. The ratio indicates number of times the stock has been turned over during the
period and evaluates the efficiency with which a firm is able to manage its inventory.
𝐶𝑂𝑆𝑇 𝑂𝐹 𝐺𝑂𝑂𝐷𝑆 𝑆𝑂𝐿𝐷 (𝐶𝑂𝐺𝑆)
𝐼𝑁𝑉𝐸𝑁𝑇𝑂𝑅𝑌 𝑇𝑈𝑅𝑁𝑂𝑉𝐸𝑅 𝑅𝐴𝑇𝐼𝑂 =
𝐴𝑉𝐸𝑅𝐴𝐺𝐸 𝐼𝑁𝑉𝐸𝑁𝑇𝑂𝑅𝑌
c. Working Capital Turnover Ratio:-
Working capital of a concern is directly related to sales.
Working capital = Current assets - Current liabilities
It indicates the velocity of the utilization of net working capital. This indicates the no.
of times the working capital is turned over in the course of a year. A higher ratio indicates
efficient utilization of working capital and a lower ratio indicates inefficient utilization.
𝑁𝐸𝑇 𝑆𝐴𝐿𝐸𝑆 𝑂𝑅 𝑅𝐸𝑉𝐸𝑁𝑈𝐸
𝑊𝑂𝑅𝐾𝐼𝑁𝐺 𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝑇𝑈𝑅𝑁𝑂𝑉𝐸𝑅 𝑅𝐴𝑇𝐼𝑂 =
𝐴𝑉𝐸𝑅𝐴𝐺𝐸 𝑊𝑂𝑅𝐾𝐼𝑁𝐺 𝐶𝐴𝑃𝐼𝑇𝐴𝐿
𝑂𝑃𝐸𝑁𝐼𝑁𝐺 𝑊𝑂𝑅𝐾𝐼𝑁𝐺 𝐶𝐴𝑃𝐼𝑇𝐴𝐿 + 𝐶𝐿𝑂𝑆𝐼𝑁𝐺 𝑊𝑂𝑅𝐾𝐼𝑁𝐺 𝐶𝐴𝑃𝐼𝑇𝐴𝐿
𝐴𝑉𝐸𝑅𝐴𝐺𝐸 𝑊𝑂𝑅𝐾𝐼𝑁𝐺 𝐶𝐴𝑃𝐼𝑇𝐴𝐿 =
2
D. PROFITABILITY RATIOS:-
The primary objectives of business undertaking are to earn profits. Because profit is the
engine, that drives the business enterprise.
 Gross profit ratio
 Net profit ratio
 Return on capital employed
 Return on assets
 Capital turnover ratio
a. Gross Profit Ratio:-
Gross profit ratio measures the relationship of gross profit to net sales and is usually
represented as a percentage. Thus, it is calculated by dividing the gross profit by sales.

29
 𝐺𝑅𝑂𝑆𝑆 𝑃𝑅𝑂𝐹𝐼𝑇
𝐺𝑅𝑂𝑆𝑆 𝑃𝑅𝑂𝐹𝐼𝑇 𝑅𝐴𝑇𝐼𝑂 = × 100
𝑁𝐸𝑇 𝑆𝐴𝐿𝐸𝑆
b. Net Profit Ratio:
Net profit establishes a relationship between net profit(after tax) and sales and indicates the
efficiency of the management in manufacturing, selling administrative and other activities of
the firm.
𝑁𝐸𝑇 𝑃𝑅𝑂𝐹𝐼𝑇
𝑁𝐸𝑇 𝑃𝑅𝑂𝐹𝐼𝑇 𝑅𝐴𝑇𝐼𝑂 = × 100
𝑁𝐸𝑇 𝑆𝐴𝐿𝐸𝑆
c. Return On Capital Employed:
It establishes the relationship of profit with capital employed. This ratio is indicator of
earning capacity of capital employed in the business. This is also a helpful tool in capital
budgeting decisions.
𝑅𝐸𝑇𝑈𝑅𝑁 𝑂𝑁 𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝐸𝑀𝑃𝐿𝑂𝑌𝐸𝐷
𝐸𝐴𝑅𝑁𝐼𝑁𝐺𝑆 𝐵𝐸𝐹𝑂𝑅𝐸 𝐼𝑁𝑇𝐸𝑅𝐸𝑆𝑇 𝐴𝑁𝐷 𝑇𝐴𝑋 (𝐸𝐵𝐼𝑇)
=
𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝐸𝑀𝑃𝐿𝑂𝑌𝐸𝐷
d. Return On Total Assets:
Profitability can be measured in terms of relationship between net profit and assets. This
ratio is also known as profit-to-assets ratio. It measures the profitability of investments. The
overall profitability can be known.
𝐸𝐵𝐼𝑇
𝑅𝐸𝑇𝑈𝑅𝑁 𝑂𝑁 𝑇𝑂𝑇𝐴𝐿 𝐴𝑆𝑆𝐸𝑇𝑆 𝑅𝐴𝑇𝐼𝑂 =
𝑇𝑂𝑇𝐴𝐿 𝑁𝐸𝑇 𝐴𝑆𝑆𝐸𝑇𝑆
e. Capital Turnover Ratio:
It is the relationship between sales and the capital employed. This ratio is calculated to
measure the efficiency or effectiveness with which a firm utilities its resources or the capital
employed. As capital is invested in a business to make sales and earn profits, this ratio is
good indicator of overall profitability of a concern.
𝑁𝐸𝑇 𝑆𝐴𝐿𝐸𝑆
𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝑇𝑈𝑅𝑁𝑂𝑉𝐸𝑅 𝑅𝐴𝑇𝐼𝑂 =
𝐶𝐴𝑃𝐼𝑇𝐴𝐿 𝐸𝑀𝑃𝐿𝑂𝑌𝐸𝐷

30
CHAPTER-4
4. A N A L Y T I C A L A S P E C T O F S T U D Y :

31
4.1. BALANCE SHEET OF ROURKELA STEEL PLANT (Rs/crore)
Particulars As at As at As at
31.03.2017 31.03.2016 01.04.2015
Assets
(1) Non-current assets
(a) Property, plant and equipment 7,018.63 6,457.07 6,588.65
(b) Capital work-in-progress 514.65 656.3 546.12
(c) Intangible assets 125.8 138.61 136.21
(d) Intangible assets under 51.35 31.4 3.18
development
(e) Financial assets
(i) Investments 39.55 944.36 1.04
(ii) Trade receivables - - -
(iii) Loans 80.6 107.33 107.35
(iv) Other fi nancial assets 10.77 8.04 5.99
(f) Other non-current assets 1,004.51 1,023.43 885.49
Total non-current assets 8,845.86 9,366.54 8,274.03
(2) Current assets
(a) Inventories 1,155.93 1,055.01 1,103.36
(b) Financial assets
(i) Investments 1,221.13 66 1,021.06
(ii) Trade receivables 184.25 235.21 120.82
(iii) Cash and cash equivalents 24.83 654.42 3.68
(iv) Bank balances other than (iii) 2,262.40 4,448.73 4,797.30
above
(v) Loans 36.7 30.2 38.61
(vi) Other fi nancial assets 156.49 156.74 156.51
(c) Current tax assets (Net) 34.12 102.92 127.77
(d) Other current assets 579.94 594.42 608.46
Total current assets 5,655.79 7,343.65 7,977.57
Total assets 14,501.65 16,710.19 16,251.60
Equity and liabilities
(1) Equity
(a) Equity share capital 966.46 1,288.62 1,288.62
(b) Other equity 9,239.33 11,906.13 11,634.99
Total equity 10,205.79 13,194.75 12,923.61
Liabilities
(2) Non-current liabilities
(a) Financial liabilities
(i) Trade payables 19.61 16.3 19.82

32
(ii) Other fi nancial liabilities 2.36 1.58 3.07
(b) Provisions 328.11 301.12 325.48
(c) Deferred tax liabilities (Net) 1,245.58 1,164.11 1,115.29
(d) Other non-current liabilities 48.27 50.38 42.42
Total non-current liabilities 1,643.93 1,533.49 1,506.08
(3) Current liabilities
(a) Financial liabilities
(i) Borrowings 51.09 - -
(ii) Trade payables 844.46 639.56 566.57
(iii) Other fi nancial liabilities 469.1 402.35 475.27
(b) Provisions 117.07 87.15 87.31
(c) Other current liabilities 1,170.21 852.89 692.76
Total current liabilities 2,651.93 1,981.95 1,821.91
Total liabilities 4,295.86 3,515.44 3,327.99
Total equity and liabilities 14,501.65 16,710.19 16,251.60

33
4.2. PROFIT & LOSS ACCOUNT OF RSP: Rs/Crore

Year ended Year ended

31.03.2017 31.03.2016
I Revenue from operations 8,050.02 7,269.23
II Other Income 408.27 605.13
III Total Income (I + II) 8,458.29 7,874.36
IV EXPENSES
(a) Cost of raw materials consumed 1,181.79 1,104.41
(b) Cost of power and fuel consumed 2,212.53 1,864.61
(c) Changes in inventories of finished goods and 96.59 8.99
work-in-progress
(d) Employee benefi ts expenses 1,537.44 1,398.33
(e) Finance costs 2.69 3.27
(f) Depreciation and amortisation expenses 480.36 426.12
(g) Excise duty 506.98 452.27
(h) Other expenses 1,628.22 1,499.14
Total expenses (IV) 7,453.42 6,739.16
V Profi t/(loss) before exceptional items and tax (III 1,004.87 1,135.20
- IV)
VI Exceptional Items 40.15 53.45
VII Profi t/(loss) before tax (V - VI) 964.72 1,188.65
VIII Tax Expense
(1) Current tax 219.52 366.93
(2) Deferred tax 76.67 34.61
IX Profi t/(loss) for the period (VII - VIII) 668.53 787.11
X Other comprehensive income
(i) Items that will not be reclassifi ed to profi t or loss
- Remeasurement gains / (losses) on defi ned benefit 13.81 41.06
plans
(ii) Income tax relating to items that will not be 4.8 14.21
reclassifi ed to profi t or loss
Other comprehensive income for the period(net of 9.08 26.85
tax) (X)
XI Total comprehensive income for the period 677.61 813.96
(IX+X) (comprising profi t/(loss) and other
comprehensive income for the period)
XII Earnings per equity share:
(1) Basic (in Rs.) 2.98 3.05
(2) Diluted (in Rs.) 2.98 3.05

34
4.3. CASH FLOW STATEMENT FOR THE YEAR ENDED
MARCH 31, 2017:- Amount in Rs. Crores
Year ended Year ended
31.03.2017 31.03.2016
A. Cash fl ows from operating activities
Profi t for the period 668.53 787.11
Adjustments for:
Income tax expense recognised in profi t or loss 296.19 401.54
Finance costs recognised in profi t or loss 2.69 3.27
Interest income recognised in profi t or loss 292.64 466.89
Dividend income recognised in profi t or loss 8.78 5.19
Net (gain) / loss on sale of non-current investments - 0.7
Net (gain) / loss on disposal of property, plant and equiptment 0.1 1.11
Net (gain) / loss arising on fi nancial assets mandatorily measured 77.81 74.49
at fair value through profi t or loss
Impairment loss recognised on other assets 56.93 63.01
Inventories of stores, spares written off 27.96 9.61
Depreciation and amortisation of non-current assets 480.36 426.12
Net foreign exchange (gain)/loss 7.9 5.98
1,161.23 1138.52
Movements in working capital:
(Increase) / decrease in inventories 129.56 37.87
(Increase) / decrease in trade receivables 50.96 114.39
(Increase) / decrease in loans and other fi nancial asset 17.75 6.15
(Increase) / decrease in other assets 49.52 62.3
Increase / (decrease) in trade payables 200.31 75.45
Increase / (decrease) in other fi nancial liabilities 21.25 23.29
Increase / (decrease) in other liabilities 315.21 168.09
Increase / (decrease) in provisions 66.74 14.49
Cash (used in) / generated from operations 1,654.37 1,240.59
Income taxes paid 218.43 359.78
Net cash (used in) / generated by operating activities 1,435.94 880.81
B. Cash fl ows from investing activities
Payments to acquire fi nancial assets 184 66
Proceeds from sale of fi nancial assets 49.96 152.97
Payments to acquire equity in joint ventures and associates 38.47 0.04
Proceeds from redemption of term deposits with banks 2,183.02 348.67
Dividends received from other investments 8.78 5.19
Interest received from banks and others 292.64 466.89
Payments for property, plant and equipment (including capital 757.98 555.3
advances)
Proceeds from disposal of property, plant and equipment 16.53 4.85
Payments for other intangible assets 20.14 43.27

35
Net cash (used in) / generated by investing activities 1,550.34 313.96
C. Cash fl ows from fi nancing activities
Payments for buy-back of equity shares 2,834.97 -
Payments for share buy-back costs 5.72 -
Proceeds from short term borrowings 51.09 -
Finance cost paid 0.39 1.21
Dividends paid on equity shares 686.19 451.02
Tax on dividends paid on equity shares 139.69 91.8
Net cash (used in) / generated by fi nancing activities 3,615.87 544.03
Net increase or (decrease) in cash or cash equivalents 629.59 650.74
Cash and cash equivalents at the beginning of the year 654.42 3.68
Cash and cash equivalents at the end of the year 24.83 654.42

LIQUIDITY RATIO:
CURRENT RATIO
(Rs. in crores)

YEAR CURRENT ASSET CURRENT RATIO

LIABILITIES
2016-17 5,655.79 2,651.93 2.13
2015-16 7,343.65 1,981.95 3.70
2014-15 7,977.57 1,821.91 4.38

RATIO
5
4.38
4
3.7
3
2 2.13 RATIO

1
0
2016-17 2015-16 2014-15

INTERPRETATION:

The calculated ratio shows that in the current year the company do not have sufficient
current assets with him to meet its current obligation in time as & when it became due and the
liquidity position of the firm is not good.

36
 LIQUID RATIO

(Rs. in crores)

YEAR LIQUID ASSET CURRENT LIABILITIES RATIO

2014-15 6874.21 1,821.91 3.77
2015-16 6288.64 1,981.95 3.17
2016-17 4499.86 2,651.93 1.69

RATIO
3.77
4
3.5 3.17
3
2.5
1.69
2
RATIO
1.5
1
0.5
0
2014-15 2015-16 2016-17

INTERPRETATION:

The liquid Ratio of the company shows an overall decreasing trend from the year 2014-2017.

LEVERAGE RATIO:
DEBT – EQUITY RATIO
(Rs. in crores)
YEAR OUTSIDERS FUNDS RESERVE & SURPLUS RATIO
2014-15 1506.08 12923.61 0.12
2015-16 1533.49 13194.75 0.12
2016-17 1643.93 10205.79 0.16

37
 RATIO
0.18 0.16
0.16
0.14 0.12 0.12
0.12
0.1
0.08 RATIO
0.06
0.04
0.02
0
2014-15 2015-16 2016-17

INTERPRETATION:

The debt-equity Ratio of the company shows an overall increasing trend from the year 2014-
17 which is considered as unfavourable from the long term creditors’ point of view because a
low proportion of owners’ funds provide a small margin of safety for them.

PROPRIETORY RATIO

(Rs. in crores)
YEAR RESERVE & SURPLUS TOTAL ASSETS RATIO
2014-15 12923.61 16251.60 0.79
2015-16 13194.75 16710.19 0.79
2016-17 10205.79 14510.65 0.70

RATIO
0.79 0.79
0.8
0.78
0.76
0.74
0.72 0.7
RATIO
0.7
0.68
0.66
0.64
2014-15 2015-16 2016-17

INTERPRETATION:

The proprietary ratio shows that after 2013-14, there is no increase or improvement in the
long term solvency of the company.

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 FINDINGS

 From my study I found that the short-term position of the company is not satisfactory.
 From the calculation of the various ratios I can ascertain that the companies do not
have sufficient current assets with it to meets its obligation as & when it becomes due
 There is no improvement in the long term solvency of the company.
 The inventory turnover position of the company is not satisfactory. The ratio of the
inventory turnover of the company is decreasing rapidly which shows that company is
not making proper utilization of the resources.
 The working capital turnover ratio of the company has increased in the current year
which indicates that the company is making proper utilization of working capital.
 The company is earning profit by increase its sales but due to inflation, the net profit
has decreased.

SUGGESTION

Considering all the facts it is suggested that there must be some changes
Those are:
 The company should lay emphasis on maximizing revenue earnings by concentrating
more on the production of value added items from its wide range of finished products
and increase dispatches and reduce finished stocks, thereby improving profitability.
 To sustain in the competitive market, it has to make better positioning of its products.
 More value added products will increase the demand pattern of the industry.
 More incentives schemes may be adopted by the organization to motivate its employees
 The TQM policy is a good initiation for improving product quality, but workers must
be trained to adopt it properly and they should understand this concept properly so that
they can realize its benefits.
 To become the leader it should enhance its geographical reach.

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 CONCLUSION

The problem in financial statement Analysis is not a myopic one since there are a number of
methods of analysis. So one needs to have a broader and macroscopic perspective in dealing
with the problem of financial statement. I have put up the best in me to reveal the facts and
figures that carry equal importance for accurate analysis. This project contains several
features which are visibly apparent with some subtle findings and explorations. I have
successfully analyzed the financial statements of NALCO ANGUL. I hope the project will be
of immense help to one working on the financial statement analysis of NALCO ANGUL, to
identify the problem areas, where attention has to be given for improvement.

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 BIBLIOGRAPHY

FINANCIAL REPORTS AND JOURNALS

 “Annual Financial Report, NALCO ANGUL” (2014-17)

BOOKS

 I.M. Pandey "Financial Management.” Vikash Publication House Pvt.

 R. K. Sharma and Shashi K. Gupta “Financial Management” Kalyani

publishers

WEBSITES
 www.rourkelasteelplant.com

 www.google.com

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