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“A Ratio Analysis Study on JSW Ispat
ltd. Kalmeshwer, Nagpur.”
A PROJECT REPORT
Submitted To
RASHTRASANT TUKADOJI MAHARAJ NAGPUR UNIVERSITY, NAGPUR
Submitted In Partial Fulfillment of the Requirement for the Award of the Degree of MBA
SUBMITTED BY
SURAJ D. KHADSE
Project Guide
Prof. ARVIND KHADSE
March 2015
GREEN HEAVEN INSTITUTE OF MANAGEMENT AND
RESEARCH, NAGPUR
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CERTIFICTE
This is to certify that is a benefited student SURAJ D. KHADSE of Master of
Business Administration of Green Heaven Institute of Management and
Research, Nagpur. He / she has completed his / her project entitled RATIO
ANALYSIS STUDY ON JSW ISPAT, KALMESHWAR, NAGPUR,
submitted in partial fulfillment of MBA program of the RASHTRASANT
TUKADOJI MAHARAJ NAGPUR UNIVERSITY, Nagpur, under my
guidance and supervision in the academic year 2014-15.
Project Guide Director
Prof.Arvind Khadse Dr.T. Kalyani
Green Heaven Institute of Management Research,
Near Hotel Sun & Sand, Wardha road, Nagpur
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Declaration
I, SURAJ D. KHADSE hereby declare that the project entitled RATIO
ANALYSIS STUDY ON JSW ISPAT, KALMESHWAR, NAGPUR has
been carried out by me under the guidance of Prof. ARVIND KHADSE
This project is submitted to RASHTRASANT TUKADOJI MAHARAJ
NAGPUR UNIVERSITY, Nagpur in partial fulfillment of the academic
requirement for Master of Business Administration during the academic year
2014-15.
This is the outcome of my own research work based on personal study
and has not been submitted previously for award of any degree or diploma to
this university or any other university.
(SURAJ D. KHADSE)
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Acknowledgement
Completing a task is never alone journey. It is often the result of a
valuable contribution from a number of individuals in every possible way,
which ultimately helps in achieving the objective.
Firstly I would like to thank Director Dr. T. Kalyani and Guide Prof.
ARVIND KHADSE, for their kind support and giving me the opportunity to
present this project.
I am thankful to all the members of management of the college, who
provided me to all the information that I needed to complete this project. This
project would not have been accomplished without their valuable support.
I would like to acknowledge the contribution of my parents and all my
friends who have been instrumental in successfulcompletion of the project.
Place:Nagpur Name of Student
Date: SURAJ D. KHADSE
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INDEX
SR.
NO.
NAME OF CHAPTER
PAGE NO
1 COMPANY PROFILE 6 – 18
2 INTRODUCTION TO RATIO ANALYSIS 19 – 27
3
OBJECTIVES, IMPORTANCE,
ADVANTAGES, LIMITATION
28 – 33
4 RESEARCH METHODOLOGY 34 – 36
5 OVERVIEW OF BALANCESHEET 37 – 41
5 DATA ANALYSIS & INTAPRETATION 42 – 64
6
FINDING, SUGGETIONS &
CONCLUSIONS
65 – 69
7 BIBLIOGRAPHY 70 – 71
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INDUSTRY PROFILE
INDIAN STEEL INDUSTRY
India’s modern iron and steel industry dates back to the first decade of the present century.
The Tata Iron and Steel Company Ltd (TISCO) were registered in and production at
Jamshedpur commenced in 1911-12.
In the years after independence in 1947, the prerogative for the development of the steel
industry, however, came to be vested in the Indian State. Indian industry, as discussed earlier
had grown in a highly protected and controlled environment with massive tariffs,
administrative control over prices, distribution and imports.
India is the world's fifth largest producer of steel which produces 50 MT of crude steel and 52
MT of finished steel. It is believed that by 2016, India is going to be the second largest
producer of steel and its production is going to be around 137 MT.
Major Players in Steel Industry:
1. Steel Authority of India (Public Sector Undertaking)
2. TISCO (Tata Group)
3. JSW Steel Industries ( Jindal Group)
4. JSW Steel Coated Product LTD (Erst while JSW Ispat Steel Ltd.)
5. Bhushan Steel Limited.
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COMPANY PROFILE
Company profile:-
CORPORATE PHILOSOPHY:-
MISSION
To be amongst the world most admired new generation steel companies: in our products, in
the manner in which we service our, in our work ethics, and in our culture of societal
integration.
VISION
To be an organization that continuously achieves economic value by optimizing resources
through operational excellence, powered by technology, driven by innovation creating
customer delight.
VALUES:
We respect the skills and integrity of professionals.
We empower those who belong to us.
We work in tandem with our environment.
We listen to our stakeholders, be they customer or communities.
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COMPANY PRODUCT
Processflow chart at JSW STEELCOATED PRODUCT, Kalmeshwarunit
JSW Steel Coated Product Ltd. Kalmeshwar is covered within 147 acres of land. It produces
Cold Rolled, Galvanized, Galvalume, and Colour Coated Coils/Sheets. Finishing lines
produces the customer required / application oriented product like corrugated & Tile
profiling. Tile Profiled sheets and is also moving forward by commissioning a Galvalume
Plant and another Colour Coating Line to further make inroads into the export as well as
domestic market.
The company has four main divisions at JSW Steel Coated Product Ltd. Kalmeshwar:
1. Cold Rolling Mill
2. Galvanizing Line
3. Galvalume
4. Colour Coating Line
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Product Range:
Cold Rolled
Galvanized
Colour coated coils & sheets are galvanized sheets treated
With chemicals to enhance its paint’s adhesion and corrosion
resistance.
Ispat follows a dual coating process with front and back coating
offering a colour range of different shades.
Company’s focus lies on offering non-standard colours also.
Cold Rolled Steel Coils are produced through
various processes including picking, cold rolling,
cleaning, temper rolling, tension levelling and recoiling
Applications: Automotive, Electronic Appliances,
Communication Equipment’s and Consumer.
Galvanized steel coils & sheets are manufactured
using Non-Ox & Thermal Refining & Annealing process
followed by uniform hot dipped zinc coating.
Galvanized steel strips/ coils have superior corrosion
resistance and formability.
Ispat has recently added Galvalume capacity to
manufacture 96,000 TPA.
Applications: Roofing's, Cladding, Siding, Shutters,
Air Conditioner Housings, Switchbox Panels, Doors,
Wall Panel
Partitions, Chimneys, etc.
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Product Range:
1. Cold Rolled Coils
JSW Steel Coated Products Ltd. cold rolled coils are manufactured at the highly
advanced cold rolling mill at Kalmeshwar, and can be used in a wide variety of applications
as follows:
In industrial goods such as automobile components, precision tubes and consumer durables.
In the manufacture of bodies of vehicles as varied as automobiles and railway coaches.
For the production of heavy machinery like earthmoving and material-handling equipment.
Especially suited for panel applications in refrigerator bodies and washing machines.
In bicycle parts, office equipment and furniture.
For basic items such as galvanized sheets, tin plates, drums and barrels. Unique features of
JSW CR coils.
JSW ensures that the material is free from defects, which are harmful to the intended use of
the product. The degree or amount of surface defects in a coil may be expected to be more as
compared to cut sheets because of the impossibility of rejecting the defective portion of the
coil. However, Ispat restricts the amount of such defects to a maximum of 5 percent.
Tdc all information contained herein do not purport an offer and are not to be construed as
pre acceptance from Ispat partly or wholly thereof. The tdc are meant for your guidance to
issue your enquiries to obtain specific offer response from Ispat.
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Hot RolledCoils:-
JSW industries limited manufactures international standard hot rolled (HR) coils
at its hot strip mill (HSM), situated at Dolvi in the state of Maharashtra, India. The
production of these coils involves the use of state-of-the-art equipment and manufacturing
processes that ensure products of the highest quality.
JSW has uses a combination of the advanced conarc process and thin slab casting technology,
which facilitates the rolling of coils that are as thin as 1. 2 mm with a width of 1250
mm.These are superior to commercial grade cold rolled (cr) coils, and are quite often a
substitute for cr products in certain applications, due to their thinner gauges and finer surface
quality.
1. Cold Rolled Steel Coils are produced
through various processes including
picking, cold rolling, cleaning, temper
rolling, tension levelling and recoiling
2. Applications: Automotive, Electronic
Appliances, Communication Equipment’s
and Consumer.
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Applications:
JSW HR coils are used in the most critical engineering applications and also in certain
applications in the automotive sector. In addition, some of the value-added hr. coil products
include steel for lpg cylinders, api grade, corrosion resistant steel, critical structural
application steel, boiler quality, auto grades, precision tubes and medium/high carbon grades,
among others.
UNIQUE FEATURES OF ISPAT'S HR COILS
1.Superb surface quality
Enhanced by a 400 bar pressure water jet descaler, currently the highest in the world.
superior width to thickness ratio
ensured by a roll separating force of 40 mega Newton’s, making Ispat's ham the most
powerful in the world
2.Ease in cold rolling
Facilitated through close control of the finished coil temperature, which in turn regulates the
grain size and other physical properties.
This is achieved through computer controlled laminar cooling.
3. Accurate coilgeometry
A crown within 30 microns and flatness of within 20 ius is achieved through work roll
bending with a continuously variable crown.
4. Thickness tolerance
Laser enabled automatic thickness and width control produces a thickness tolerance of 30
microns and a width tolerance of
+8mm/0mm.
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Galvanized Sheets:-
JSW Steel Coated Product Ltd. was the first Indian company to set up a Continuous
Galvanizing Line for thin gauge sheets in 1985. In fact, the company pioneered the
manufacture of thin, medium and thick gauge galvanized steel sheets in the country. With
two Galvanizing Lines at its plant at Kalmeshwar, it manufactures coils and GP/GC sheets
that meet the needs of the most demanding customers.
Colour CoatedSheets:-
JSW manufactures an innovative and exciting product, namely colour coated sheets called
Polysteel, in a variety of shades and designs, such as dark or pastel, printed or plain and
striped or embossed. These Polysteel sheets are painted after galvanizing and apart from
creating a stunning visual impact, bring numerous advantages to end user industries.
Polysteel building sheets, for instance, make it possible to design and construct your choice
of beautiful structures, save on structural steel and maintenance, and obtain overall cost
effectiveness.
Galvanized steel coils & sheets are manufactured using
Non-Ox & Thermal Refining & Annealing process
followed by uniform hot dipped zinc coating.
Galvanized steel strips/ coils have superior corrosion
resistance and formability.
JSW has recently added Galvalume capacity to
manufacture 96,000 TPA.
Applications: Roofing's, Cladding, Siding, Shutters,
Air Conditioner Housings, Switchbox Panels, Doors,
Wall Panel
Partitions, Chimneys, etc.
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Introduced by Ispat Industries Limited (IIL) in 1990, Polysteel is a premium cold rolled steel
sheet coated with zinc in a continuous Hot-Dip Galvanizing Line and subsequently given
multiple layers of organic coatings in a continuous Coil Coating Line with a Reverse Roller
Coating Process. Polysteel conforms to IS: 14246:95 and other equivalent international
standards and thus, the buyer are assured of the best quality product.
Polysteel is durable, cost-effective and easy to install and use. Hence, it proves to be a
versatile product for various applications. It is virtually a ready-to-use product that can be cut,
bent, pressed, drilled, roll formed, lock-seamed and joined, all without damaging the surface
or the substrate.
This product is available in various forms, namely roll formed panels, trapezoidal profiles,
corrugated sheets, plain sheets, coils and narrow slit strips. Moreover, it is available in a
variety of grades, colours and forms to meet specific customer requirements.
Colour coated coils & sheets are galvanized sheets treated
With chemicals to enhance its paint’s adhesion and
corrosion resistance.
Ispat follows a dual coating process with front and
back coating offering a colour range of different shades.
Company’s focus lies on offering non-standard colours
also.
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Galvalume:-
JSW Steel Coated Ltd. in its endeavor to offer superior products to meet its customers’
growing needs has added GALVALUME, a premium metallic-coated steel product, to its
value added products’ basket under technology license from BIEC International Inc., (a
subsidiary of Blue scope steel Australia).
GALVALUME’s revolutionary coating formula was developed by Bethlehem Steel
Corporation, in the year 1972. The coating consists of Aluminum (55% in weight ratio but
80% in surface volume ratio), Zinc (43.5% in weight ratio) and Silicon (1.5% in weight ratio).
The GALVALUME steel coating combines the barrier corrosion protection of aluminums with
the sacrificial protection of zinc, giving the advantages of both metals. The result is a coating
that lasts a long time, a coating that provides cut-edge protection along sheared edges, and
therefore, a coating that offers excellent protection to steel sheet
GALVALUME, in bare as well as pre-painted condition, finds wide application not only where
corrosion resistance is required, but also where high temperature resistance, heat
reflectivity, flexibility, formability and paint ability are required. Color Coated Galvalume,
Essentially a pre-painted GALVALUME, offers the flexibility to create beautiful appearances
in varied colors at the same time packing the superior performance of GALVALUME.
GALVALUME (Bare and Color Coated) will be manufactured at Kalmeshwar Plant
(Maharashtra, India) and the productions were started in 2008.
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JSW STEEL COATED LTD.
Type Public Company
Traded AS BSE:- 500305
NSE:-ISPATIND
Industry Steel Processing
Founded 1984
Products Cold Rolled Coil, Galvanized Sheets,
Colour Coated Sheet, Galvalume
Sheet.
Revenue 105786.9 million(US$1.8 billion)
(2010)
Net Income -3223.4 million (US$−54 million)
Employee 3000(2008)
Website www.jswispat.in
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INTRODUCTION
Ratio analysis is a technique of analyzing the financial statement of industrial concerns.
Now a day this technique is sophisticated and is commonly used in business concerns. Ratio
analysis is not an end but it is only means of better understanding of financial strength and
weakness of a firm.
Ratio analysis is one of the most powerful tools of financial analysis which helps in
analyzing and interpreting the health of the firm. Ratios are proved as the basic instrument in
the control process and act as back bone in schemes of the business forecast.
With the help of ratio we can determine
The ability of the firm to meet its current obligation.
The limit or extent to which the firm has used its borrowed funds.
The efficiency with which the firm is utilizing in generating sales revenue.
The operating efficiency and performance of the company.
Meaning and Definition of Ratio:-
A ratio is simple arithmetical expression of relation of one number to another. It may be
defined as the indicated quotient of two mathematical expressions.
According to Wixon, Kell and Bedford, “A ratio is an expression of the quantitative relationship
between two numbers”.
According to Kohler, “A ratio is relation, of the amount, a, to another, b, expressed as the ratio of
a top; a: b (a is top); or as a simple fraction, integer, decimal fraction or percentage”.
In simple language ratio is one number expressed in terms of another and can be worked out by
dividing one number into another.
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Mode of Expression:-
This relationship (i.e., ratio) may be expressed in either of the following way:
A. In Proportion
B. In Rate or Times or Coefficient
C. In Percentage
1. In Proportion: In this form the amount of two items are being expressed in a common
denominator. The example of this form of expression is relationship between current asset
and current liability as “2:1”.
2. In Rate or Times or coefficient: In this form, a quotient obtained by dividing one item by
another item is taken as unit of expression. The example of this form is sales divided by
stock. It comes 60; thus 6 times ratio between sales and stock. It is important to note that
when ratio is expressed in this form, it is called as ‘turnover’ and it is written in ‘times’.
3. In Percentage: In this form, a quotient obtained by dividing one item by another is
multiplied by one hundred and it becomes the ‘percentage’ form of expression. For
example, the relationship between gross profit and sales may be expressed as 25%.
Meaning and Definition of Ratio Analysis:-
One of the most important financial tools which have come to be used very frequently for
analyzing the financial strengths and weaknesses of enterprise is ratio analysis. Ratio Analysis is
technique of analysis and interpretation of financial statement. It is process of establishing and
interpreting various ratios for helping in making certain decision.
According to Myer, “Ratio analysis is a study of relationship among the various financial factors
in businesses”.
Ratio analysis represents the figure of financial statement in simple and intangible form. Ratio
analysis, in this way, is the process of establishing meaningful relationship between two figure and
financial statement.
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Nature of Ratio Analysis:-
Though ratio analysis is ‘all the rage’ among the user of accounting information, it is better to
understand the ratio so that they can be employed judiciously under appropriate condition. They
are:
1. The relation between two or more financial data brought out by an accounting ratio is
not an end in itself. They are means to get to know the financial position of an
organization.
2. An individual ratio may not be capable of providing the answer required for the
various problem facing an executive
3. Ration analysis will tend to be more meaningful when certain standard and norms are
laid down so that what the ratio indicate can be compared with the said standards.
This provides a base for decision-making and assist in taking measures to rectify any
drawback or deficiency.
Steps in Ratio Analysis
There are five step involved in the ratio analysis:
1. Selection of relevant data from the financial statement depending upon the objective of
analysis.
2. Calculation of appropriate ratio from the above data.
3. Comparison of calculated ratios with the ratio of the same firm in the past, or the ratios
developed from projected financial statement or ratio of some other firms or the
comparison with ratios of the industry to which the firm belongs.
4. Interpretation of ratios.
5. Projection through ratios.
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ClassificationofRatios:-
Ratios can be classified into different categories depending upon the basis of
classification.
I. TRADITIONAL CLASSIFICATION
Traditional Classification has been on the basis of financial statements, on which ratio
may be classified as follows.
1. Profit & Loss account ratios.
E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio, Operating Profit Ratio,
Expenses Ratio, Stock Turnover Ratio, etc.
2. Balance sheet ratio.
E.g. Current Ratio, Quick Ratio, Absolute Liquid Ratio, Working Capital Turnover
Ratio Debt Equity Ratio, Proprietary Ratio, Capital Gearing Ratio etc.
3. Composite/Mixed ratio.
E.g. Return on Capital Employed, Return on Equity or Shareholder Fund, Earning Per
Share (EPS), Price Earnings Ratio, Capital Turnover Ratio, Debtors Turnover Ratios,
Creditors Turnover Ratio, Fixed Assets Turnover Ratio etc.
FUNCTIONAL CLASSIFICATION OF RATIOS
Functional ratios
1. Liquidity ratios
a) Current Ratio
b) Quick Ratio
2. Leverage Ratios
i. Debt-equity Ratio
ii. Current Asset to Proprietor’s fund Ratio
iii. Total Debt Ratio
iv. Proprietary/Equity Ratio
v. Capital Gearing Ratio
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III. PROBABILITY RATIOS
i. Gross profit Ratio
ii. Operating profit Ratio
iii. Return on investment
iv. Operating Ratio
v. Earnings Per Share
vi. Price Earnings Ratio
IV. ACTIVITY RATIO
i. Inventory Turnover Ratio
ii. Asset Turnover Ratio
a. Fixes Asset Turnover Ratio
b. Current Asset Turnover Ratio
iii. Working Capital Turnover Ratio.
iv. Debtors/Receivable Turnover Ratio
v. Creditors/Payable Turnover Ratio
vi. Capital Turnover Ratio
1. Liquidity Ratio: These are the ratios, which measures the short term solvency or
financial position of a firm. These ratios are calculated to comment upon the short
term paying capacity of a concern or at the firm’s ability to meet its current obligation.
The various liquidity ratios are current ratio, liquid ratio and absolute liquid ratio.
Further to see the efficiency with which the liquid resources have been employed by
the firm, debtor’s turnover and creditor’s turnover ratios are calculated.
2. Solvency/Leverage Ratio: Leverage ratios are the financial statement ratio which
shows the degree to which the business is leveraging itself through its use of borrowed
money. By using a combination of assets, debt, equity and interest payment, leverage
ratio are used to understand a company’s ability to meet it long term obligations.
3. Turnover/Activity Ratio: Activity ratio are calculated to measure the efficiency with
which the recourses of the firm have been employed. These ratio are also called
activity ratio because they indicate the speed with which asset are being turned over
into sales, e.g., debtors turnover ratio.
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4. Profitability Ratio: These ratio measures the result of business operations or overall
performance and effectiveness of the firm, e.g., gross profit ratio, operating ratio,
return on capital employed.
Ratio Analysis enables the business owner/manager to spot trends in a business and to
compare its performance and condition with the average performance of similar businesses in
the same industry. To do this compare your ratios with the average of businesses similar to
yours and compare your own ratios for several successive years, watching especially for any
unfavorable trends that may be starting. Ratio analysis may provide the all-important early
warning indications that allow you to solve your business problems before your business is
destroyed by them.
The Balance Sheet and the Statement of Income are essential, but they are only the starting
point for successful financial management. Apply Ratio Analysis to Financial Statements to
analyze the success, failure, and progress of your business.
Importance of financial statement analysis in an organization
In our money-oriented economy, Finance may be defined as provision of money at the time it
is needed. To everyone responsible for provision of funds, it is problem of securing
importance to so adjust his resources as to provide for a regular outflow of expenditure in
face of an irregular inflow of income.
1. The profit and loss account (Income Statement).
2. The balance sheet
In companies, these are the two statements that have been prescribed and their contents have
been also been laid down by law in most countries including India.
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There has been increasing emphasis on
(a) Giving information to the shareholder in such a manner as to enable them to grasp it
easily.
(b) Giving much more information e.g. funds flow statement, again with a view to facilitating
easy understanding and to place a year results in perspective through comparison with post
year results.
(c) The directors report being quite comprehensive to cover the factors that have been
operating and are likely to operate in the near future as regards to the various functions of
production, marketing, finance, labor, government policies, environment in general.
Financial statements are being made use of increasingly by parties like Bank, Governments,
Institutions, and Financial Analysis etc. The statement should be sufficiently informative so
as to serve as wide a curia as possible.
The financial statement is prepared by accounts based on the activities that take place in
production and non-production wings in a factory. The accounts convert activities in
monetary terms to the help know the position.
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Uses of Financial Statement Analysis.
The main uses of accounting statements for; -
Executives: - To formulate policies.
Bankers: - To establish basis for Granting Loans.
Institutions Auditors: - To extend Credit facility to business.
Investors: - To assess the prospects of the business and to know
whether they can get a good return on their investment.
Accountants: - To study the statement for comparative purposes.
Government Agencies: - To study from an angle of tax collection duty levee etc.
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OBJECTIVES
The main objectives of resentstudy aimed as:
To evaluate the performance of the company by using ratios as yardstick to measure
the efficiency of the company.
To understand the Liquidity, profitability and efficiency positions of the company
during the Study period.
To evaluate and analyze various facts of the financial Performance of the company.
To make comparisons between the ratios during different periods.
Objectives:-
To evaluate financial position and growth of the company.
To study the profitability of the company.
To study the balance sheet of the company.
To study the current position.
Calculation of various ratios and determining financial condition of the company through
balance sheet
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IMPORTANCE
Ratio analysis is an important technique of financial analysis. It is a means for judging the
financial health of a business enterprise. It determines and interprets the liquidity, solvency,
profitability, etc. of a business enterprise.
o It becomes simple to understand various figures in the financial statements through
the use of different ratios. Financial ratios simplify, summaries, and systemize the
accounting figures presented in financial statements.
o With the help of ratio analysis, comparison of profitability and financial soundness
can be made between one industry and another. Similarly comparison of current year
figures can also be made with those of previous years with the help of ratio analysis
and if some weak points are located, remedial measures are taken to correct them.
o If accounting ratios are calculated for a number of years, they will reveal the trend of
costs, sales, profits and other important facts. Such trends are useful for planning.
o Financial ratios, based on a desired level of activities, can be set as standards for
judging actual performance of a business. For example, if owners of a business aim at
earning profit @ 25% on the capital which is the prevailing rate of return in the
industry then this rate of 25% becomes the standard. The rate of profit of each year is
compared with this standard and the actual performance of the business can be judged
easily.
o Ratio analysis discloses the position of business with different viewpoint. It discloses
the position of business with liquidity viewpoint, solvency view point, profitability
viewpoint, etc. with the help of such a study, we can draw conclusion regarding the
financial health of business enterprise.
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ADVANTAGES
Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages of ratio analysis:
Simplifies financial statements: It simplifies the comprehension of financial
statements. Ratios tell the whole story of changes in the financial condition of the
business.
Facilitates inter-firm comparison: It provides data for inter-firm comparison.
Ratios highlight the factors associated with successful and unsuccessful firm.
They also reveal strong firms and weak firms, overvalued and undervalued firms.
Helps in planning: It helps in planning and forecasting. Ratios can assist
management, in its basic functions of forecasting. Planning, co-ordination, control
and communications.
Makes inter-firm comparison possible: Ratios analysis also makes possible
comparison of the performance of different divisions of the firm. The ratios are
helpful in deciding about their efficiency or otherwise in the past and likely
performance in the future.
Help in investment decisions: It helps in investment decisions in the case of
investors and lending decisions in the case of bankers etc.
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LIMITATION
The ratios analysis is one of the most powerful tools of financial management. Though ratios
are simple to calculate and easy to understand, they suffer from serious limitations.
Limitations of financial statements: Ratios are based only on the information
which has been recorded in the financial statements. Financial statements
themselves are subject to several limitations. Thus ratios derived, there from,
are also subject to those limitations. For example, non-financial changes
though important for the business are not relevant by the financial statements.
Financial statements are affected to a very great extent by accounting
conventions and concepts. Personal judgment plays a great part in determining
the figures for financial statements.
Comparative study required: Ratios are useful in judging the efficiency of
the business only when they are compared with past results of the business.
However, such a comparison only provide glimpse of the past performance
and forecasts for future may not prove correct since several other factors like
market conditions, management policies, etc. may affect the future operations.
Problems of price level changes: A change in price level can affect the
validity of ratios calculated for different time periods. In such a case the ratio
analysis may not clearly indicate the trend in solvency and profitability of the
company. The financial statements, therefore, be adjusted keeping in view the
price level changes if a meaningful comparison is to be made through
accounting ratios.
Lack of adequate standard: No fixed standard can be laid down for ideal
ratios. There are no well accepted standards or rule of thumb for all ratios
which can be accepted as norm. It renders interpretation of the ratios difficult.
Limited use of single ratios: A single ratio, usually, does not convey much of
a sense. To make a better interpretation, a number of ratios have to be
calculated which is likely to confuse the analyst than help him in making any
good decision.
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Personal bias: Ratios are only means of financial analysis and not an end in
itself. Ratios have to interpret and different people may interpret the same
ratio in different way.
Incomparable: Not only industries differ in their nature, but also the firms of
the similar business widely differ in their size and accounting procedures etc.
It makes comparison of ratios difficult and misleading.
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RESEARCH METHODOLOGY
INTRODUCTION:-
Research methodology is a way to systematically solve the research problem. It May be
understood as a science of studying now research is done systematically. In that various steps,
those are generally adopted by a researcher in studying his problem along with the logic
behind them.
“The procedures by which researcher goes about their work of describing, explaining
and predicting phenomenon are called methodology”
TYPE OF RESEARCH:-
This project “A Study of Ratio Analysis in JSW Ispat, kameshwer, Nagpur Ltd” is
considered as an analytical research.
Analytical Research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the facts,
figures, data or material.
SOURCE OF RESEARCH DATA:-
There are mainly two through which the data required for the research is collected.
PRIMARY DATA:
The primary data is that data which is collected fresh or first hand, and for first time which is
original in nature.
SECONDARY DATA:
The secondary data are those which have already collected and stored. Secondary data easily
get those secondary data from records, annual reports of the company etc. It will save the
time, money and efforts to collect the data.
The major source of data for this project was collected through annual reports, profit and loss
account of year period from 2011-2015 & some more information collected from internet and
text sources.
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SAMPLING DESIGN
Sampling Unit : Financial Statements.
Sampling Size : Last five years financial statements.
Tool Used for calculations: MS-Excel.
LIMITATION OF THE STUDY:-
1) The study is limited to few ratios because of non availability of detailed financial
data.
2) The study is used on secondary data such as annual report of the company
3) The reliability and accuracy of calculation depends more on information found in
profit and loss a/c and balance sheet.
4) The study is confined only to a period of 5 years.
38. 38
BALANCE SHEET:-
The Balance sheet shows the financial status of a business. The registered companies are to
follow part 1 of schedule VI of company‘s act 1956 for recording Assets and Liabilities in
the Balance Sheet.
Format of Balance Sheet as prescribed by companies Act.
Liabilities Assets
Share Capital Fixed Assets
Reserve &Surplus Investments
Secured loans Current Assets, Loan
Unsecured Loans Advances
Current Liabilities & provision Misc. Expenditures & Losses
Liabilities: -
Liabilities defined very broadly represent what the business entity owes to other.
Share capital: -
There are two type of share capital: -
Equity Capital
Preference Capital
Equity Capital represents the contribution of the owners of the firm.
Preference capital represents the contribution of preference shareholders and the
dividend rate payable on it is fixed.
39. 39
Reserve & Surplus: -
Reserve & Surplus are profits, which have been retained by the firm reserves, are two types,
revenue Reserve and Capital Reserve.
Revenue Reserve represents accumulated retained earnings from the profits of
normalbusiness operations. Capital reserve arises out of gains, which are not related to
normalbusiness operations.
Surplus is the balance in the profit and loss account, which has not been appropriated to any
particular reserve account. Reserve and surplus along with equity capital represent Owners
equity.
Secured Loans: -
These denote borrowings of the firm against which specific securities have been provided.
The important components of secured loans are debentures, loans from financial institutions
and loans from commercial banks.
Unsecured Loans: -
These are borrowing of the firm against which no specific security has been provided.The
major components of unsecured loans are fixed deposits, loans and advances from Promoters,
Inter-Corporate borrowings and unsecured loans from Banks.
Current Liabilities and Provision: -
Current Liabilities and Provision as per the classification under the companies Act, Consists
of the Following amounts due to the suppliers of goods and services brought on credit,
advance payments received, accrued expenses. Unclaimed dividends, Provisions for taxed,
Dividends, Gratuity, Pension etc.
Assets: -
Assets have been acquired at a specific monetary cost by the firm for the conduct of its
operation.
Fixed Assets: -
These assets have two characteristics. They are acquired for use over relatively long period
for carrying on the operations of the firm and they are ordinarily not meant for resale.
Examples for fixed assets are land, building, plant, Machinery, patent & Copyrights.
40. 40
Investments: -
These are financial securities owned by the firm. Some investments represent long-term
commitments of funds. Usually those are the equity shares of other firms held for income and
control purpose. Other investments are short term in nature and are rightly classified under
current assets for managerial purpose.
Current Assets, Loans and Advances: -
This category consists of cash and other resources, which get converted into cash during the
operating cycle of the firm current assets, are held for a short period of time as against fixed
assets, which are held for relatively longer periods. The major components of current Assets
are: cash, debtors, inventories, loans and advances and pre-paid expenses.
Miscellaneous expenditure and losses: -
The consist of two items miscellaneous expenditure and losses miscellaneous expenditure
represent outlays such as preliminary expenses and pre-operative expenses, which outlays
such as preliminary expenses which have not written off loss is shown on the right hand side
(Assets side) of the balance sheet.
41. 41
BALANCE SHEET
Mar
'11
Mar '12 Mar '13 Mar '14 Mar '15
12
mths
12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 2.35 2.35 2.35 2.20 2.20
Equity Share Capital 2.35 2.35 2.35 2.20 2.20
Share Application Money 0.00 0.00 0.99 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 58.60 55.16 47.84 44.12 34.39
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net worth 60.95 57.51 51.18 46.32 36.59
Secured Loans 20.30 21.97 25.75 23.79 8.80
Unsecured Loans 28.65 26.60 27.21 22.23 21.93
Total Debt 48.95 48.57 52.96 46.02 30.73
Total Liabilities 109.90 106.08 104.14 92.34 67.32
Mar
'11
Mar '12 Mar '13 Mar '14 Mar '15
12
mths
12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 76.94 71.81 69.68 61.40 55.91
Less:Accum.Depreciation 44.82 39.96 35.41 29.68 25.36
Net Block 32.12 31.85 34.27 31.72 30.55
Capital Work in Progress 25.10 19.44 13.04 10.36 4.60
Investments 3.84 0.28 0.28 0.28 1.65
Inventories 52.17 50.28 61.42 45.80 27.39
Sundry Debtors 40.10 29.93 23.63 15.56 16.02
Cash and Bank Balance 22.51 22.05 1.02 2.88 3.30
Total CurrentAssets 114.78 102.26 86.07 64.24 46.71
Loans and Advances 15.61 10.26 11.46 10.83 5.56
Fixed Deposits 0.00 0.00 17.54 20.49 12.80
Total CA, Loans & Advances 130.39 112.52 115.07 95.56 65.07
Deferred Credit 0.00 0.00 0.00 0.00 0.00
CurrentLiabilities 77.57 54.63 55.62 43.61 31.42
Provisions 3.98 3.37 2.89 1.98 3.13
Total CL & Provisions 81.55 58.00 58.51 45.59 34.55
Net Current Assets 48.84 54.52 56.56 49.97 30.52
Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00
Total Assets 109.90 106.09 104.15 92.33 67.32
ContingentLiabilities 4.45 3.93 4.84 2.67 1.62
Book Value (Rs) 259.38 244.73 213.58 210.54 166.31
Balance Sheet of JSW Ispat, Nagpur ------------------- in Rs. Cr. -------------------
43. 43
INTRODUCTION
Ratio analysis is a technique of analyzing the financial statement of industrial concerns.
Now a day this technique is sophisticated and is commonly used in business concerns. Ratio
analysis is not an end but it is only means of better understanding of financial strength and
weakness of a firm.
Ratio analysis is one of the most powerful tools of financial analysis which helps in
analyzing and interpreting the health of the firm. Ratio’s are proved as the basic instrument in the
control process and act as back bone in schemes of the business forecast.
With the help of ratio we can determine
The ability of the firm to meet its current obligation.
The limit or extent to which the firm has used its borrowed funds.
The efficiency with which the firm is utilizing in generating sales revenue.
The operating efficiency and performance of the company.
Classification of Ratios
Ratios can be classified into different categories depending upon the basis of
classification.
I.TRADITIONAL CLASSIFICATION
Traditional Classification has been on the basis of financial statements, on which ratio
may be classified as follows.
1. Profit & Loss account ratios.
E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc
2. Balance sheet ratio.
E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc
3. Composite/Mixed ratio.
E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets
Turnover Ratio etc.
44. 44
II. FUNCTIONAL CLASSIFICATION OF RATIOS
Functional ratios
1. Liquidity ratios
c) Current Ratio
d) Quick Ratio
2. Leverage Ratios
a) Debt-equity Ratio
b) Current Asset to Proprietor’s fund Ratio
III. PROBABILITY RATIOS
a. Gross profit Ratio
b. Operating profit Ratio
c. Return on investment
IV. ACTIVITY RATIO
i. Inventory Turnover Ratio
ii. Asset Turnover Ratio:
a. Fixed Asset Turnover Ratio
b. Current Asset Turnover Ratio
iii. Working Capital Turnover Ratio.
45. 45
ANALYSIS & INTREPRETATION
I. Liquidity Ratio
Liquidity ratio measures the ability of the firm to meet its current obligation
(liabilities). In fact analysis of liquidity needs the preparation of cash budget and cash and
fund flow statement but liquidity ratio, by establishing a relationship between cash and other
current asset to current obligation, to provide a quick measure of liquidity. A firm should
ensure that it doesn’t suffer lack of liquidity and also that it does not have excess liquidity.
The common liquidity ratios are:-
1. Current Ratio
Current ratio may be defined as the relationship between current asset and current
liabilities. This is a measure of general liquidity & is most widely used to make analysis of
short-turn financial position or liquidity of firm. It is calculated by dividing the total current
assets by total current liabilities.
Current Ratio = Current Assets
Current Liabilities
TABLE-1.1 Current Ratio
Year CA (In. Rs Cr) CL (In. Rs Cr) CR(In. Rs
Cr)
2011 65.07 34.55 1.88
2012 95.56 45.59 2.09
2013 115.07 58.51 1.96
2014 112.52 58 1.94
2015 130.39 81.55 1.59
46. 46
INTERPRETATION
The above table shows that JSW Ispat, Nagpur, current ratio has increased from 1.88 to 2.09
in the year 2011 and 2012 and in the year 2013 it was decreased to 1.96 and then the year
2014 it keep decreasing to 1.94 butit decreased direct to 1.59 in 2015 . All Rs. In Cr.
The current ratio is below the standard ratio i.e., 2:1. Hence it can be said that there is lack of
enough current assets in JSW Ispat, Kalamesher, Nagpur Industries Ltd. to meet its current
liabilities.
2. ACID TEST RATIO / QUICK RATIO / LIQUIDITYRATIO:-
This ratio establishes a relationship between quick/liquid assets and current liabilities. It
measures the firms’ capacity to pay off current obligations immediately. An asset is liquid if it can be
converted in to cash immediately without a loss of value; Inventories are considered to be less liquid.
Because inventories normally require some time for realizing into cash. This ratio is also known as
acid-test ratio. The standard quick ratio is 1:1. Is considered satisfactory.
Quick Ratio = Quick Assets (current assets - Inventory)
Current Liabilities
1.88 2.09 1.96 1.94 1.59
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart showingCurrent Ratio
Year
CA
CL
CR
47. 47
TABLE-1.2 Quick Ratio
Year CA
(In. Rs Cr)
Inventories
(In. Rs Cr)
Quick Assets
(In. Rs Cr)
CL
(In. Rs Cr)
Quick
Ratio
(In. Rs Cr)
2011 65.07 27.39 37.68 34.55 1.09
2012 95.56 45.8 49.76 45.59 1.09
2013 115.07 61.42 53.65 58.51 0.91
2014 112.52 50.28 62.24 58 1.07
2015 130.39 52.17 78.22 81.55 0.95
INTERPRETATION:
The above table shows that the quick assets of JSW Ispat, Nagpur has constant 1.09 in the
year 2011 and 2012 and had drastically fluctuation to 0.91 and 1.07 in the year 2013 and
2014 and had slightly decline to 0.95 in the year 2015. All Rs. In Cr
This ratio measures firm’s ability to serve short term liabilities. The ideal quick ratio is “1”. A
low quick ratio represents that firm’s liquidity poison is not good.
2015
130.39 52.17 78.22 81.55 0.95
0
500
1000
1500
2000
2500
Chart Showing Quick Ratio
Series1
Series2
Series3
Series4
Series5
Series6
48. 48
II. Leverage Ratios
Leverage ratios are also known as capital structure ratio. These ratios indicate mix of
funds provided by owners & lenders. As a general rule these should be appropriate mix debt
& owners equity in financing the firm’s assets.
Leverage ratios are calculated to judge the long long-term financial position of the
company. Some of the popular leverage ratios are:
a. Debt-Equity Ratio
Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-
Equity also known as External-Internal equity ratio. It is calculated to measure the relative
claims of outsiders against firm assets.
Debt-Equity Ratio = Total Debt
Net Worth
TABLE-2.1 Debt Equity Ratio
Year Total Debt (In.
Rs Cr)
Net Worth (In.
Rs Cr)
Ratio
2011 30.73 36.59 0.84
2012 46.02 46.32 0.99
2013 52.96 51.18 1.03
2014 48.57 57.51 0.84
2015 48.95 60.95 0.80
49. 49
INTERPRETATION
The table shows that the total debt ratio of JSW Ispat, Nagpur had increase in the year
2011 and 2012 from 0.84 to 0.99 andfurther increased to 1.03 in the year 2013 and had
fluctuation to 0.84 in the 2013 and 0.80 in the year 2014. The company had increase inthe
total debt by 37.22 and 39.97 in net worth in the year 2015. All Rs. In Cr.
Debt equity ratio measures ultimate solvency of the company. It provides a margin of safety
to creditors, thus when the ratio is smaller the creditors are more secured. An appropriate debt
equity ratio is 0.33. A ratio higher than this is an indication of risky financial policies.
b. Current Assets to Proprietor’s funds ratio
This ratio is calculated by dividing total current assets by shareholders funds. It
indicates the extent to which proprietor funds are invested in current assets. There is no rule
of thumb for this ratio & depending upon the nature of the business there may be different
ratios for different firms.
CA to PF ratio = Current Assets
Proprietors Fund
0.84 0.99 1.03 0.84 0.8
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing Dept Equity Ratio
Year
Total Debt
Net Worth
Ratio
50. 50
TABLE-2.2 Current Assets to Proprietors Fund
Year Current Asset
(In. Rs Cr)
Net Worth (In.
Rs Cr)
Ratio
2011 65.07 36.59 1.78
2012 95.56 46.32 2.06
2013 115.07 51.18 2.24
2014 112.52 57.51 1.96
2015 130.39 60.95 2.14
INTERPRETATION
The table of JSW Ispat, Nagpur current assets to proprietary ratio shows that the ratio has been
increased by 1.78 to 1.2.06 in the year 2011 and 2012 and 2.24 in the year 2013 and then decline to
1.96 in the year 2014 and then again increased to 2.14 in the year 2015. All Rs. In Cr.
This ratio indicates the extent to which proprietors fund are invested in current asset.
1.78 2.06 2.24 1.96 2.14
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing CA to PF Ratio ( In. Rs
Cr)
Year
Current Asset
Net Worth
Ratio
51. 51
III.Profitability Ratios
The primary objective of a business undertaking is to earn profits. Profit is the
difference between revenue & expenses over a period of time. Profit is output of a company
& company will have no further if it fails to make sufficient profit. Profits are thus a useful
measure of overall efficiency of a firm.
These ratios are calculated to measure the operating efficiency of the company.
Beside management, creditors, owners are also interested in the profitability of the company.
Generally profitability ratios are calculated either in relation to sales or in relation to
investment. The various profitable ratios are:
I In Relation to Sales
a) Gross Profit Ratio
Gross Profit Ratio measures the relationship between gross profits & sales; it is
usually represented in percentage. Thus Gross profit margin highlights the production
efficiency at a concern
G.P.Ratio = Gross Profit X 100
Sales
G.P.Ratio indicate the extent to which selling price of goods per unit may decline
without resulting in losses on operations of firm. It reflect efficiency with which firm
produces the product.
TABLE-3.1 Gross Profit Ratio
Year Gross Profit
(In. Rs Cr)
Sales(In. Rs Cr) Ratio
2011 22.5404 229.07 9.84
2012 17.8193 210.88 8.45
2013 6.2869 203.46 3.09
2014 14.4477 131.4 4.61
2015 8.5854 285.23 3.01
52. 52
INRTEPRETATION
The above table shows the gross profit ratio of JSW Ispat, Nagpur the table indicates that the
ratio in the year 2011 was 9.84 and in the year 2012 it falls to 8.45 further it had drastically
change in gross profit to 3.09 in the year 2013 and 4.61 in the year 2014, but it again
decreased to 3.01 in the year 2015. All Rs. In Cr.
The gross profit indicates the degree to which the selling price of goods per unit may decline
without resulting in losses on operation of the firm. It reflects the efficiency with which firm
produces its products
b) Operating Profit Ratio
A ratio used to measure a company's pricing strategy and operating efficiency.
Operating ratio is a measurement of what proportion of a company's revenue is left over after
paying for variable costs of production such as wages, raw materials, etc. A healthy operating
margin is required for a company to be able to pay for its fixed costs, such as interest on debt.
It is also known as "operating profit margin."
Calculated as:
Operating Profit Ratio = Operating Profit X 100
Sales
9.84 8.45 3.09 4.61 3.01
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showin GPR
Year
Gross Profit
Sales
Ratio
53. 53
TABLE-3.2 Operating Profit Ratio
Year Operating
Profit (In. Rs
Cr)
Net Sales(In. Rs
Cr)
Ratio
2011 26.85 229.07 11.72
2012 22.98 210.88 10.89
2013 12.03 203.46 5.91
2014 21.02 131.4 6.7
2015 14.53 285.23 5.09
INRTEPRETATION
The above table shows the Operating profit ratio of JSW Ispat, Nagpur the table indicates that
the ratio in the year 2011 was 11.72 and in the year 2012 it falls to 10.89 further it had
drastically change in operating profit to 5.91 in the year 2013 and increased to 6.70 in the
year 2014, but it again decreased to 5.09 in the year 2015. All Rs. In Cr.
11.72 10.89 5.91 6.7 5.09
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing Operating Profit Ratio
Year
Operating Profit
Net Sales
Ratio
54. 54
Operating profit ratio gives analysts an idea of how much a company makes (before interest
and taxes) on each Rupee of sales. When looking at operating profit margin to determine the
quality of a company, it is best to look at the change in operating profit margin over time and
to compare the company's yearly or quarterly figures to those of its competitors. If a
company's margin is increasing, it is earning more per Rupee of sales. The higher the
margin,the better
b) Net Profit Ratio
The Net Profit Ratio determines the between Net profit and sales of business firm. This
relationship is also known as net margin. This ratio shows the earning left for shareholder
(both equity and preference) as percentage of Net sales.
Net Margin Ratio measures the overall efficiency of production, Administration selling,
financing, pricing and Time Management.
Thus,
Net profit Ratio: Net Profit X 100
Net Sales
TABLE-3.3 Net Profit Ratio
Year Net Profit (In.
Rs Cr)
Net Sales(In. Rs
Cr)
Ratio
2011 15.11 226.16 6.68
2012 10.24 226.81 4.51
2013 0.46 215.9 0.22
2014 7.15 304.61 2.35
2015 4.26 288.08 1.47
55. 55
INTERPRETATION
The above table shows that JSW Ispat, Nagpur Net Profit ratio has decreased from 6.68 to
4.51 in the year 2011 and 2012 and in the year 2013 it was drastically decreased to 0.22 and
then the year 2014 it increases to 2.35 but it again decreased to 1.47 in 2015. All Rs. In Cr.
A high Net profit ratio indicates adequate return to the owners as well as enables a firm to
withstand adverse economic conditions when selling price is decanting, cost of production is
rising and demand for product is falling.
A low Net Profit ratio has opposite implications. A firm with low net profit ratio can earn a
high rate of return on investment it has a higher inventory turnover.
Jointly considering gross and net profit ratio provides a valuable understanding of the cost
and profit structure of the firm and enables the analyst to identify the source of business
efficiency of inefficiency.
6.68 4.51 0.22 2.35 1.47
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing Net Profit Ratio
Year
Net Profit
Net Sales
Ratio
56. 56
2. Profitability in relation to Investment
a. Return on shareholders’ Investment:
Return on shareholders’ investments, popularly known as ROI. It is the relationship
between net profit after tax & shareholders’ funds. Thus this ratio is considered as affective
indicator of the company’s profitability because it reflects the success of management in the
efficient utilization of the owner’s investment.
ROI = Net Profit after Tax X 100
Shareholders fund
TABLE-3.4 Return on shareholders’ Investment
Year Net Profit (In.
Rs Cr)
Investment (In.
Rs Cr)
Ratio
2011 15.11 65.07 23.22
2012 10.24 95.56 10.72
2013 0.46 115.07 0.4
2014 7.15 112.52 6.35
2015 4.26 130.39 3.27
23.22 10.72 0.4 6.35 3.27
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing RSI
Year
Net Profit
Investment
Ratio
57. 57
INTERPRETATION
The above table shows that JWS Ispat, Nagpur Return on Investment ratio has decreased
from 23.22 to 10.72 in the year 2011 and 2012 and in the year 2013 it was drastically
decreased to 0.40 and then the year 2014 it increases to 6.35 but it again decreased to 3.27 in
2015. All Rs. In Cr
This ratio is used to measure the overall efficiency of a concern, the higher the ratio the better
the results will be as this ratio reveals how well the resources of a concern are being used.
IV. Activity Ratios:
Funds are invested in various assets in business to make sales & earn profit. The
efficiency with which assets are managed directly affects the volume of sales. The better the
management of assets, the larger is the amount of sales & the profit. Activity ratio measures
the efficiency or effectiveness with which a firm manages its resources or assets. These ratios
are also called turnover ratio because they indicate the speed with which assets are converted
or turned over into sales.
The various activity ratios are:
a. Inventory Turnover Ratio:
Inventory turnover ratio indicates the number of times stock has been turned over
during the period & evaluates efficiency with which a firm is able manage inventory.
The ratio is calculated by dividing the net sales divided by average inventory at cost.
ITR = Net Sales
Average Inventory at Cost
Average inventory should be taken for calculating stock turnover ratio. Adding the stock in
the beginning & at the end of period & dividing it by 2 to calculate average inventory
58. 58
TABLE-4.1 Inventory Turnover Ratio
Year NetSales (In.
Rs Cr)
Inventory (In. Rs
Cr)
Ratio
2011 256.02 27.39 9.34
2012 224.58 45.8 4.9
2013 221.12 61.42 3.6
2014 337.88 50.28 6.72
2015 285.23 52.17 5.47
INTERPRETATION
The above table shows that JSW Ispat, Nagpur Inventory Turnover Ratio has decreased from
9.34 to 4.90 in the year 2011 and 2012 and in the year 2013 it was again decreased to 3.60
and then the year 2014 it increases to 6.72 but it again decreased to 5.47 in 2015. All Rs. In
Cr.
Inventory turnover ratio signifies the liquidity of the inventory. A high ratio implies good
inventory management, a low ratio results in blocking of funds in inventory. The reference
value of this ratio 9 and the maximum conversion period is 388.
9.34 4.9 3.6 6.72 5.47
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing ITR
Year
NetSales
Inventory
Ratio
59. 59
b. Assets Turnover Ratio:
Assets are used to generate sales. Therefore a firm should manage its assets
efficiency to maximum sales. Assets turnover ratio shows relationship between sales &
assets. The various assets turnover ratio are:
i. Fixed Assets Turnover Ratio:
This ratio establishes the relationship between the costs of goods sold and fixed assets. It can
be calculated by,
Fixed Assets Turnover Ratio = Sales
Fixed Assets
TABLE-4.2 Fixed Asset Turnover Ratio
Year Sales (In. Rs
Cr)
Fixed Asset (In.
Rs Cr)
Ratio
2011 229.07 55.91 4.1
2012 210.88 61.4 3.43
2013 203.46 69.68 2.92
2014 313.4 71.81 4.36
2015 285.23 76.94 3.71
60. 60
INTERPRETATION
The above table shows that JSW Ispat, Nagpur Fixed Asset Turnover Ratio has decreased
from 4.10 to 3.43 in the year 2011 and 2012 and in the year 2013 it was again decreased to
2.92 and then the year 2014 it drastically increases to 4.36 but it again decreased to 3.71 in
2015. All Rs. In Cr
One of the cautions to be keep in mind that when fixed assets are old and substantially
depreciated the ratio tenders to be high because the denominator of the ratio will be low
ii. Current Assets Turnover Ratio:
This ratio is indicates how many net sales are made for every rupee of investment in current
assets.
Current Assets Turnover Ratio = Sales
Current Assets
4.1 3.43 2.92 4.36 3.71
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing FATR
Year
Sales
Fixed Asset
Ratio
61. 61
TABLE-4.3 Current Asset Turnover Ratio
Year Sales (In. Rs
Cr)
Current Asset
(In. Rs Cr)
Ratio
2011 229.07 65.07 3.52
2012 210.88 95.56 2.21
2013 203.46 115.07 1.77
2014 313.4 112.52 2.79
2015 285.23 130.39 2.19
INTERPRETATION
The above table shows that JSW Ispat, Nagpur Current Asset Turnover Ratio has decreased
from 3.52 to 2.21 in the year 2011 and 2012 and in the year 2013 it was again decreased to
1.77 and then the year 2014 it increases to 2.79 but it again decreased to 2.19 in 2015.
3.52 2.21 1.77 2.79 2.19
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing CATR
Year
Sales
Current Asset
Ratio
62. 62
d. Working Capital turnover Ratio:
A firm may also related net current assets to sales. Working capital turnover ratio
indicates the velocity of the utilization of net working capital.
Working Capital Turnover Ratio = Sales
Net Current Assets
TABLE: 4.4 Working Capital Turnover Ratios
Year Sales (In. Rs
Cr)
Net Current
Asset (In. Rs Cr)
Ratio
2011 229.07 30.52 7.56
2012 210.88 49.97 4.22
2013 203.46 56.56 3.6
2014 313.4 54.52 5.75
2015 285.23 48.84 5.84
7.56 4.22 3.6 5.75 5.84
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing WCTR
Year
Sales
Net Current Asset
Ratio
63. 63
INTERPRETATION
The above table shows that JSW Ipat, Nagpur Current Asset Turnover Ratio has drastically
decreased from 7.56 to 4.22 in the year 2011 and 2012 and in the year 2013 it was again
decreased to 3.60 and then the year 2014 it increases direct to 5.75 and it again increased to
5.84 in 2015. All Rs. In Cr
This ratio indicates the number of times the working capital is turned over in the course of the
year. This ratio measures the efficiency with which the working capital is used by the firm. A
higher ratio indicates efficient utilization of working capital and a low ratio indicates
otherwise. But a very high working capital turnover is not a good situation for any firm.
d. Debtors turnover Ratio:
Debtor’s turnover ratio indicates the speed of debt collection of the firm. This ratio computes
the number of times debtors (receivables) has been turned over during the particular period.
Debtors Turnover Ratio = Net Sales
Average Debtors
Note: in BSIL, we have taken the total net sales instead of the credit sales, because the credit
sales information has not available for the calculation of DTR.
TABLE: 4.5 Debtors Turnover Ratio
Year Sales (In. Rs
Cr)
Average Debtors
(In. Rs Cr)
Ratio
2011 229.07 16.02 14.3
2012 210.88 15.56 13.55
2013 203.46 23.63 8.61
2014 313.4 29.93 10.47
2015 285.23 40.1 7.11
64. 64
INTERPRETATION
The above table shows that JSW Ispat, Nagpur Current Asset Turnover Ratio has
decreased from 14.30 to 13.55 in the year 2011 and 2012 and in the year 2013 it was again
decreased to 8.61 and then the year 2014 it increased to 10.41 but it again decreased to 7.11
in 2015. This shows the company is not collecting debt rapidly. All Rs. In Cr.
The assets turnover ratio measures the efficiency of a firm in managing and utilizing the
assets. Higher turnover ratio, more efficient is the management utilization of the assets while
low turnover are indicative of under utilization of available resources and presence of idle
capacity. In operational terms, it implies that firm can expand its activity level without
requiring additional capital investments.
14.3 13.55 8.61 10.47 7.11
0
500
1000
1500
2000
2500
1 2 3 4 5
Chart Showing CATR
Year
Sales
Average Debtors
Ratio
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FINDINGS
I . LIQUIDITY RATIO:
1. From the current ratio it is found that the ratio is not satisfactory because the %
increase in current assets is less than the % increase in current liabilities during the
year 2014-2015.The highest ratio recorded is 2.09 in 2012 and the lowest ratio
recorded is 1.59 in the year 2015. And less than the standard ratio i.e. 2:1.
2. From the quick ratio it is found that the ratio is satisfactory because the ratios
recorded during the year were nearby the standard ratio i.e. 1. In the year 2013 the
ratio recorded is 0.91 and the ratio recorded highest was 1.09 in the year 2011 and it
remains constant in the year 2012.
II . LEVERAGE RATIO:
1. From the debt equity ratio it is found that the ratio recorded during the year 2011,
2014, & 2015 is satisfactory as the ratios are near to the standard ratio but during the
year 2012 & 2013 it is not satisfactory as the ratios are very high compared to the
standard ratio.
2. From the current assets to proprietors fund ratio is satisfactory as the proprietor funds
invested in the current assets is more in the year 2015 is more compared to previous
years. The highest ratio recorded is 2.24 in the year 2013 and the lowest ratio
recorded is 1.78 in the year 2011.
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III. PROFITABILITY RATIOS:
1. From the gross profit ratio it is found that the ratio is not satisfactory during the last
three years from 2012 to 2015. The highest ratio recorded in the year 2011 is 9.84 and
the lowest ratio recorded is 3.01 in the year 2015.
2. From the operating profit ratio it is found that the ratio is not satisfactory because it
continuously decreasing during the considered financial years. The highest ratio
recorded is 11.72 in the year 2011 and the lowest is 5.09 in the year 2015.
3. From the return on investment it is found that the ratio calculated for the considered
financial years is bad. The ratio is not satisfactory as the return on investment is
ineffective and bad, comparing the previous years.The highest ratio recorded is 23.22
in the year 2011 and the lowest is 0.40 in the year 2013.
IV. ACTVITY RATIOS:
1. From the inventory turnover ratio it is found that the ratio is not satisfactory as the
inventory holding period is very high, compared during the financial years.
2. From the fixed assets turnover ratio it s found that the ratio is satisfactory as the ratios
are less volatile yearly during the comparative years.
3. Debtor’s turnover ratio is very high in the year 2011. In the year 2012 it has decreased
by 2.75 as compared to 2011 and in the last year 2015 it has again decreased by 3.36
as compared to 2014.
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Suggestion
1. The company may improve its current ratio by decreasing the current liabilities
because in the year 2014-15 current assets are decreased and it may also improve its
quick ratio.
2. The company may decrease its total debt as there is increase in total debt the year
2012-13. The company may increase its investment in current assets.
3. Long terms solvency of the company has to be improved by limiting amount invested
by outsiders to the amount invested by the owner of the company. This can be
achieved by purchasing the shares gradually.
4. The proper management of the inventory can improve liquidity position and
efficiency of the company.
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CONCLUSION
Study of ratio analysis of JSW Ispat, Nagpur Reveals the performance of the company
in terms of financial aspects. It is found that there is decrease in sales gross profit during 2011
to 2015. The cash balance is also decreased for the above Saied years this is due to
company’s revised policy in debt collection. It is also observed that the current ratio is not so
satisfactory which creates chunks in the current assets in the form of sundry debtors and
inventory.
71. 71
BIBLIOGRAPHY
The references for the study include the various sources from where data is collected. The
various sources which comes under references includes-
Balance sheets of JSW Ispat, Nagpur. (2011, 2012, 2013, 2014, 2015)
Internet:
www.bajajngp.com
www.moneycontrol.com
www.slideshare.net
Books:
1) Khan M.Y.; Financial Management; Tata McGraw Hill Education
Pvt. Ltd., New Delhi.
2) In P.K.; Financial Management; Tata McGraw Hill Education Pvt.
Ltd., New Delhi.
