“RATIO ANALYSIS AND COMPARATIVE BALANCE SHEET OF BHUSHAN STEEL” PROJECT REPORT 2009 Submitted for the partial fulfillment of the requirement for the award Of POST GRADUATE DIPLOMA IN MANAGEMENT SUBMITTED BY AVINASH KUMAR JHA ROLL NO-8073 UNDER THE SUPERVISION OF Prof. GUNJAN AGARWALL Department of Management INSTITUTE OF MANAGEMENT EDUCATION INSTITUTE OF MANAGEMENT EDUCATION G. T Road, Sahibabad, Ghaziabad (U. P) DEPARTMENT OF MANAGEMENT CERTIFICATE This is to certify that the Project Report entitled “RATIO ANALYSIS AND COMPARATIVE BALANCE SHEET OF BHUSHAN STEEL” submitted by Avinash
Kumar Jha for the partial fulfillment of the requirements of PGDM (Batch 2008-10 ), embodies the bonafide work done by him / her under my supervision. ____________________ Signature of the Guide ACKNOWLEDGEMENT It is a matter of great satisfaction and pleasure to present this presentation on “RATIO ANALYSIS AND COMPARATIVE BALANCE SHEET OF BHUSHAN STEEL “. I take this opportunity to owe my thanks to all my faculty members for their encouragement and able guidance at every stage of this report. There are people who simply by their presence inspired me to complete this project.
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I am grateful to Dr. D. P. Goyal, Director, Institute of Management Education for creating a conducive environment in the institute for purposeful education. I am grateful to Dr. Taruna Gautam, Assistant director, Institute of Management Education, for her encouragement. I acknowledge my gratitude and indebtness to my internal project guide Ms. Gunjan Agarwall , faculty of Institute of Management Education and my external project guide Mr. A. Paul (AGM Finance) of BHUSHAN STEEL Ltd. who spared his precious time in guiding me and for making valuable suggestions in compiling this project report.
I express my gratitude towards all those people who have helped me directly or indirectly in completing this report. AVINASH KR. JHA PGDM Roll no. ??? 8073 Executive Summary Every countries economic condition depends upon the performance of its Industry. How the investors are interested in it as it will help in the increment in the flow of foreign exchange. A sound and well performing industry will always attract investors as it will give them a return in a less time period.
But it is not easy for a layman to understand or to properly analyze the performance of the company. To understand the performance of any company we have to do financial statement analysis. Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables. Ratio analysis helps in inter-firm comparison by providing necessary data.
An interfirm comparison indicates relative position. It provides the relevant data for the comparison of the performance of different departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be initiated immediately to bring them in line. In my study I have tried to make out a clear picture of Bhushan steel ltd. performance in the steel industry with the help of Ratio analysis and Comparative Balance sheet. While doing my interpretation through Ratio analysis I have focused on 5 main areas: 1. Liquidity 2. Investment/shareholder 3.
Gearing 4. Profitability 5. Financial With the help of ratio analysis we measures relationship between resources and financial flows. It show ways in which firm’s situation deviates from * Its own past. * Other firms * The industry * All firms… There are some other tools through which the investors try to bring out the clear picture of the company so that the investor can easily understand that on which company they should invest their money and the tools are: * Cash flow statement * Comparative income statement * Fund flow statement Table of content 1) Introduction a. Organization information. 2) Literature review b.
Global steel industry. c. Indian steel industry 3) Research methodology d. Aims and objective of the study e. Methodology 4) Data analysis and interpretation f. Ratio analysis. g. Comparative Balance Sheet 5) Conclusion h. Suggestion i. Limitation j. Bibliography List of table Page No. 1. Production capacity17 2. Consumption capacity18 3. EBIDTA / Turnover28 4. Profit before Tax / Turnover29 5. Return on Average Capital Employed. 29 6. Return on Average Net Worth31 7. Asset Turnover Ratio32 8. Average Inventory to Turnover33 9. Average Debtor to Turnover34 10. Gross Block to Net Block36 11. Debt to Equity37 12. Current Ratio38 3. Interest Coverage Ratio39 14. Earnings per Share41 15. Dividend payout Ratio42 16. Comparative Balance Sheet43 List of Figure Page No. 1. Steel production15 2. Steel capacity16 3. Indian steel capacity19 4. Indian steel production20 5. Indian steel consumption21 6. Return on Average Capital Employed. 30 7. Average Inventory to Turnover33 8. Average Debtor to Turnover35 9. Gross Block to Net Block36 10. Debt to Equity37 11. Current Ratio38 12. Interest Coverage Ratio40 1. Introduction a) Organization information The Bhushan group, owned by the New Delhi-based Singal family was split, following a family dispute.
The two Singal brothers, Sanjay Singal and Neeraj Singal have decided to part ways with Neeraj joining hands with their father and chairman of the group Brij Bhushan Singal. Neeraj and father BB Singal would control Bhushan Steel ; Stripes (BSSL), a BSE-listed company, while elder brother Sanjay would get the unlisted group company Bhushan Power and Steel (BPSL). The split was basically between the father and the elder son, with younger son, Neeraj sided with his father. Sanjay is now the chairman and managing director of BPSL, according to the updated website. The two companies are run independently by separate managements.
There is no cross-holding between BPSL and BSSL and there isn`t any sharing of business or assets. BB Singal, the founder of the group, was initially into the melting business and had units running in Punjab`s Gobindgarh region. Later, he bought small units in Chandigarh, and in early 1970s, set up units to manufacture wire rods in Chandigarh. Industry insiders say once elder son Sanjay joined his father, the businesses grew faster. The company upgraded its operations in Chandigarh and even stepped out of its home turf to expand business and started plants at Sahibabad, an industrial area near Delhi, Kolkata, Nepal and Khopoli in Maharashtra.
Though the family agreed to the split, the bone of contention was on the valuation. Bhushan Power and Steel (BPSL) constituted just about 25% of the group`s turnover till a couple of years ago. But the split was supposed to divide the business equally between the two brothers. Therefore, the elder son is unhappy. Plants of the listed company BSSL, including in Sahibabad and Khopoli, are much bigger than BPSL`s units in Chandigarh, Kolkata and Nepal. The scenario has, however, changed in the recent past. Though its turnover is not in the public domain, BPSL has been growing faster than the mother company.
Sanjay Singal has been the hands-on professional in the family. So it’s natural that BPSL is growing fast. The first phase of BPSL`s project in Orissa is generating cash flow and the entire project was commissioned in the year 2007. On the other hand, BSSL`s project will come up only by 2009. Today BPSLs share in the group`s turnover has increased to almost 40%. Amongst the various reasons behind BSL’s unprecedented growth and rapid integration on the steel value chain, perhaps, the most important would be its unwavering focus on acquiring the latest technology and know-how. The ost important reason behind this focus has been BSL’s commitment to provide its customers with the best quality products. The result, to say the least, has been awe-inspiring growth. The Khopoli plant, commissioned in 2004 has been playing a remarkable role not only in the growth of exports, but in the production of a much wider variety of value added steel like Colour Coated Sheets, High Tensile Steel Strapping’s, Hardened and Tempered Strips and Precision Tubes. In addition to these, the Khopoli plant has recently launched the Galume value added steel (Aluminum ; Zinc Coated Sheet) for the first time in the country.
Operating with the most advanced technology, expressed through a large fleet of latest equipment, machinery and systems, the Khopoli plant has given a tremendous boost of 425000 MT per annum to BSL’s total production capacity Including 240000 MT of galvanized steel, which are further forward integrated into Colour Coated Sheet, Galume and other value added products Giving a tremendous volume-thrust to the production capacity of BSL is its plant at Sahibabad, with a production of 475,000 MT per annum comprising products such as Automotive Grade C R Sheet and Galvanised Sheets.
As a strategic move to optimise the usage of resources and services, as well as to streamline the functioning of all systems and process within the organisation, BSL has recently implemented SAP (the global leader in Enterprise Resource Planning Systems). After all, with sales touching Rs. 3070 crores and installed capacity in the one million tonnes per annum range, BSL is now India’s 3rd largest Secondary Steel Producer after SAIL and TISCO.
BSL has the distinction of being the only producer In India of the widest width CR Sheet, besides being a preferred supplier of automotive grade steel sheets for inner and outer panels to all leading 4-wheeler and 2-wheeler manufacturers in the country. The most brilliant milestone in BSL’s journey of excellence is the setting up of a state-of-the-art Hot Rolling Steel & Power Plant in Orissa. This Integrated Steel and Power Plant will, no doubt, put BSL firmly on the ast track of progress. Bhushan Steel Limited, is an ISO 9002, QS 9000 certified and a company of Rs. 2868 crores ($650 million approx. ). As one of the prime movers of the Technological Revolution in the Indian Cold Rolled Steel Industry, BSL has emerged as the countries largest and the only CR steel plant with an independent line for manufacturing Cold Rolled coils and sheets up to a width of 1700 mm, as well as Galvanized Steel Coils & Sheets up to width of 1350mm.
The Company currently has capacity to produce ALMOST ONE MILLION MT/Annum of Cold Rolled Steel at Sahibabad and Khopoli Works. The Company is a “single-point source” for a wide variety of products such as CRCA, Galvanized and Colour coated sheets, High tensile steel trapping, hardened and tempered steel strips (HTSS) and Precision tubes.
Giving Definition To A Far-sighted VisionThe vision of evolving into a totally integrated steel producer, committed to achieving the highest standards of quality through cutting-edge technology, is being realized at Bhushan Steel LtdIf you can anchor your organization with a single-mindedness of purpose, for providing-the best service, technology and quality to customers and stakeholders, then you can deliver higher value for money within schedule and budget, and continue to thrive even in the face of rapid change and other challenges besotting the Indian economy and especially the steel industry.
This is, precisely, what BSL has been doing since its inception: Acquiring the latest technology sourced from the global leaders and maintaining global quality standards; continually upgrading the steel plants and efficiently implementing projects within schedule and budget always meeting financial obligations on time and yes, these are the hallmarks of BSL’s Saga of Excellence| | BHUSHAN STEEL?? LTD, SAHIBABAD| ??| | ??| ??| | Integrated Quality, Environment, Occupational Health ; Safety Management System Policy| ??| ??| ??| ??| | Bhushan Steel Ltd. ommits to produce cold rolled and galvanized steel sheets of world class quality in a safe, healthy and clean environment by involving employees with continual improvements in system implementation, technological advancement, operational integration, prevention of pollution ; hazards maintaining| ??| ??| ??| ??| | ??| ??| | Legal compliance and satisfying needs ; expectations of Customers. | ??| ??| ??| ??| | * For Environmental Management System they have ISO 14001:2001 Certification * For Quality System they have ISO/TS 16949:2002 Certification * For Safety Management System they have OHSAS 18001:1999 Certification| ??| | ??| |
Bhushan Steel Limited engages in the manufacture and sale of specialized steel for automobile and white goods appliances in India. The company’s products include cold rolled steel coils and sheets, galvanized plane coils and sheets, color coated coils and tiles, drawn tubes of OEM grade, hardened and tempered strips, high tensile steel stripping, wire rods and alloy billets, and sponge iron. It also exports its products to Europe, USA, Canada, Africa, China, and the Middle East. The company, formerly known as Bhushan Steel & Strips Limited, is based in New Delhi, India. 2. Literature Review A. THE GLOBAL STEEL INDUSTRY
The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results. The subprime crisis has lead to the recession in economy of different Countries, which may lead to have a negative effect on whole steel industry in coming years.
However steel production and consumption will be supported by continuous economic growth. CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY Fig-1 The countries like China, Japan, India and South Korea are in the top of the above in steel production in Asian countries. China accounts for one third of total production i. e. 419m ton, Japan accounts for 9% i. e. 118m ton, India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.
The steel industry has been witnessing robust growth in both domestic as well as international markets. In this article, let us have a look at how has the steel industry performed globally in 2007. Capacity: The global crude steel production capacity has grown by around 7% to 1. 6 bn in 2007 from 1. 5 bn tonnes in 2006. The capacity has shown a growth rate of 7% CAGR since 2003. The additions to capacity over last few years have ranged from 36 m tonnes in 2004 to 108 m tonnes in 2007. Asian region accounts for more than 60% of the total production capacity of world, backed mainly by capacity in China, Japan, India, Russia and South Korea.
These nations are among the top steel producers in the world. Fig-2 Production: The global steel production stood at 1. 3 bn tonnes in 2007, showing an increase of 7. 5% as compared to 2006 levels. The global steel production showed a growth of 8% CAGR between 2003 and 2007. China accounts for around 36% of world crude steel production followed by Japan (9%), US (7%), Russia (5%) and India (4%). In 2007, all the top five steel producing countries have showed an increase in production except US, which showed a decline.
Rank| Country| Production (mn tonnes)| World share (%)| 1| China| 489| 36. 0%| 2| Japan| 120| 9. 0%| 3| US| 98| 7. 0%| 4| Russia| 72| 5. 0%| 5| India| 53| 4. 0%| 6| South Korea| 51| 3. 5%| Source: JSW Steel AR FY08 Table-1 Consumption: The global steel consumption grew by 6. 6% to 1. 2 bn tonnes as compared to 2006 levels. The global finished steel consumption showed a growth of 8% CAGR, in line with the production, between the period 2003 and 2007. The finished steel consumption in China and India grew by 13% and 11% respectively in 2007.
The BRIC countries were the major demand drivers for steel consumption, accounting for nearly 80% of incremental steel consumption in 2007. Rank| Country| Consumption (mn tonnes)| World share (%)| 1| China| 408| 36. 0%| 2| US| 108| 9. 0%| 3| Japan| 80| 6. 7%| 4| South Korea| 55| 4. 6%| 5| India| 51| 4. 2%| 6| Russia| 40| 3. 3%| Source: JSW Steel AR FY08 Table-2 Outlook: As per IISI estimates, the finished steel consumption in world is expected to reach a level of 1. 75 bn tonnes by 2016, growth of 4% CAGR over the consumption level of 2007. The steel consumption in 2008 and 2009 is estimated to grow above 6%
B. Indian Steel Industry India, which has emerged among the top five steel producing and consuming countries over the last few years, backed by strong growth in its economy. Capacity: Steel capacity increased by 6% to 60 m tonnes in FY08. It registered a robust growth of 8% CAGR between the period FY04 and FY08. The capacity expansion in the country was primarily through brown field expansions as it requires lower investments than a greenfield expansion. Fig-3 Production: Steel production has registered a growth of 6% to reach a level of 54 m tonnes in FY8.
The production has grown nearly in line with the capacity expansion and registered a growth of 7% CAGR with an average capacity utilization of 92% between the period FY04 and FY08. India is currently the fifth largest producer of steel in the world, contributing almost 4% of the total steel production in world. The top three steel producing companies (SAIL, Tata Steel and JSW Steel) contributed around 45% of the total steel production in FY08. Fig-4 Consumption: Steel consumption has increased by 10% to 51. 5 m tonnes in FY08. Consumption growth has been exceeding production growth since past few years.
It grew at a CAGR of 12% between FY04 and FY08. Construction & infrastructure, manufacturing and automobile sectors accounted for 59%, 13% and 11% for the total consumption of steel respectively in FY08. Although steel consumption is rapidly growing in the country, the per capita steel consumption still stands at 48 kgs. Moreover, in the rural areas in the country, it stands at a mere 2 kg. It should be noted that the world’s average per capita steel consumption was 189 kg and while that of China was 309 kg in 2007. Fig-5 Trade equations: India became net importer of steel in FY08 with estimated net imports of 1. m tonnes. In the past few years, its exports have remained at more or less the same levels while on the other hand, imports have increased on the back of robust demand and capacity constraints in the domestic markets. The imports showed a growth of around 48% while exports declined by around 6% in FY08. Outlook: As per IISI estimates, the demand for steel in India are expected to grow at a rate of 9% and 12% in 2008 and 2009. The medium term outlook for steel consumption remains extremely bullish and is estimated at an average of above 10% in the next few years. 3. Research Methodology a.
Aims and Objective of the Study * Gain an in-depth knowledge about various corporate valuation techniques. * Standardize financial information for comparisons * Evaluate current operations * Study the efficiency of operations * To know the future prospect of business. * To determine if there has been an improvement or deterioration or no change over time. * To get an overview on steel producing company. * To know how ratio analysis helps an analyst to make an informed business or investment decision. * Study the risk of operations b. Methodology The whole project is carried out under the supervision of Mr.
A. paul(AGM finance). In bhushan steel ltd. Sahibabad plant. He has provided us the Annual report of Bhushan steel Ltd. of the two financial year. My project is based on secondary data. And I have collected this data from different websites. All the quantitative work of secondary data collected by me had been carried on MS Excel. Because of the user-friendly and reliability it was good to use. 4. Data analysis and Interpretation A. Ratio Anlysis Liquidity RatiosThese ratios are used to measure the short term solvency position of the firm. (A)1. Current Ratio. 2. Liquid Ratio. 3. uper quick Ratio(B)1. Debtors turnover Ratio. 2. Creditors turnover Ratio. 3. Inventory turnover Ratio. Following parties are interested in the above ratio : * Creditors * Lenders * Bankers * Management| Long term solvency ratiosThese ratios measure long term solvency of the firm (A)1. Debt-equity Ratio2. Capital gearing Ratio. 3. Interest Coverage Ratio. 4. Proprietary Ratio5. Debt service coverage Ratio. Following parties are interested in the above ratio: * Long term lenders including debenture holders * Share holders existing and prospective * Potential takeover bidders. Management| Efficiency or turnover ratiosThese ratios indicate the degree of efficiency in utilization of various assets deployed in the firm. Various efficiency ratios are:1. Stock turnover Ratio. 2. Debtors turnover Ratio. 3. Creditors turnover Ratio. 4. Total assets turnover Ratio. 5. Fixed assets turnover Ratio. 6. Capital turnover Ratio. Following parties are interested in the above ratio : * Shareholders * Bankers and other lenders * Management| Profitability ratiosThese ratios measure profit earning capacity of the firm. Various profitability ratios are:1. Gross profit Ratio. 2. Operating ratio. . Net profit Ratio. 4. Operating profit Ratio5. Expenses Ratio6. Return on Capital employed 7. Return on Share holders’ equity. 8. EPSFollowing parties are interested in the above ratio : * Shareholders * Investors * Prospective shareholders * Lenders * Competitors * Management| Classification according to different economic aspects of firm’s operation In this project on the basis of the following Ratios I have tried my level best analysis the current financial position of Bhushan steel with its competitors: 1) EBIDTA / Turnover 2) PBT / Turnover 3) Return on Average Capital Employed. ) Return on Average Net Worth 5) Asset Turnover Ratio 6) Average Inventory to Turnover 7) Average Debtor to Turnover 8) Gross Block to Net Block 9) Debt to Equity 10) Current Ratio 11) Interest Coverage Ratio 12) Net Worth per share 13) Earnings per share 14) Dividend payout Ratio 15) P / E Ratio. * EBIDTA / Turnover Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2005| 16. 50%| 7. 03%| 17. 21%| 6. 59%| 3. 06%| 2006| 14. 72%| 6. 9%| 6. 04%| 11. 4%| 2. 31%| 2007| 16. 83%| 5. 2%| 5. 4%| 11. 18%| 2. 75%| 2008| 19. 54%| 5. 56%| 5. 3%| 12. 27%| 3. 3%| Table 3
Earnings before Interest, Tax, Depreciation and Amortization EBITDA tells an investor how much money a company would have made if it didn’t have to pay interest on its debt, taxes, or take depreciation and amortization charges. For the last 4 financial years the company is trying to maintain an average of 16. 90% percentage however it will not be the best to interpret its efficiency as the result affected are due to the change in certain circumstances. So the average maintained by the competitors is the best option. And the average maintain by them is 9. 19% which is too low of what Bhushan steel ltd. s now maintaining. The above ratio is calculated before interest, depreciation, and tax however it is not true as all the company has to pay off all these liability. The ratio indicates the extent of sales revenue available for interest, tax, and dividend payments. As a company like to maintain a high EBIDTA / Turnover ratio. It is good sign of performance to bhushan steel ltd. as it has the highest ratio from its competitor. * Profit before Tax / Turnover Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2005| 5. 82| 1. 54| 8. 53| -1. 96| 0. 95| 2006| 5. 86| 0. 49| -4. 3| 7. 45| 0. 072| 2007| 9. 39| -2. 62| -3. 55| 5. 64| 0. 16| 2008| 12. 27| -2. 9| -2. 21| 7| 0. 28| Table 4 Profit before tax shows a picture of estimated profit that the company will get after paying a considerable amount of tax. Tax is a burden which has to be paid by the company. From the above table it can be ascertained that the profit before tax/turnover earned by the Bhushan steel ltd. is much better than its competitor. Other than the bhushan steel the other two companies are earning in negative and the remaining two are earning a very low amount. * Return on Average Capital Employed.
Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 14. 5136822| 9. 705657717| 0. 27254865| 20. 66017732| 17. 6097195| Table 5 Fig 6 ROCE: EBIT / Average Capital Employed As currently defined, the return on capital employed (ROCE) is a measure of efficiency of management in the application or use of the organization’s funds or resources in a given financial period. It is measured by comparing the profits made by??the firm with the capital used in making the profit and set as a percentage or fraction. It indicates how much return the company is earning on the resources deployed in the firm.
It is a barometer of overall performance of the firm. To judge the adequacy of return on investment, it should be compared with the industry average. And here the average is 12. 55%. The percentage maintained by Bhushan steel is 14. 51% which is above of the industry average. As the ratio maintained by the firm is above of the average maintained by the industry so the investor can easily take the management into confidence. And the prospective investor will not feel shy in investing his/her money in the business. Return on capital employed ratio is actually the multiple of net profit margin and capital turnover ratio.
Therefore it can be said that bhushan steel can still improve it ROCE by increasing it net profit margin which can be achieved by increasing its selling price or by reducing is cost or by both. * Return on Average Net Worth Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 29. 84203| -187. 975| 12. 3552| 20. 69382| 1. 294982| Table 6 There’s no quick definition of what it means to be wealthy, but the more assets you have, the more complicated your choices about money become. A higher net worth gives you access to more investments, like private equity and hedge funds.
But the bigger your portfolio gets, the more you have to think about protecting what you have, from hedging strategies to insurance to complicated trusts. In the above table of Bhushan steel and its competitors return on net worth ratio the average is -24. 7578% it is because of the huge negative net worth return of the Steelco gujrat i. e -187. 975% but if we remove Steelco gujrat then the average will be having an average of 16. 04% . In this context also bhushan steel is leaving behind his competitors because of increasing PAT earned year after year and an increasing trend of reserve which resulting in positive.
Now in the case of Lloyds steel the same is not happening the positive ratio is because of the negative PAT and negative Net Worth. Lloyds steel is going on loss for the past 3years and as a result its reserves are decreasing. But the other two companies i. e. Penar steel and Ruchy strips both of them are showing a positive result and in future the might be a good competitor of Bhusan steel. As the ROCE of both company is also better than Bhusan steel. * Asset Turnover Ratio Year| Bhushan steel| 2007| 72. 23| 2008| 48. 53| Table 7 An indicator of how profitable a company is relative to its total assets.
ROA gives an idea??as to how efficient??management is??at using its assets to generate earnings. Calculated by dividing a company’s annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as “return on investment”. ROA??tells you what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure,??it is best to compare it against??a company’s??previous ROA Number or the numbers of a similar company.
The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. The ROA figure gives investors an idea??of how effectively the company is converting the money??it has??to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment. As it is was limitation to get the data of investment income of other company I have to do the analysis of bhushan steel ltd. with its previous year.
In the financial year 2007-2008 the ratio in which fixed asset loans and advances has increased is more than the increment in net sale and the income from export has also declined known as other income due to the percentage of return on Asset has declined from 72% to 48%. * Average Inventory to Turnover Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 20. 18%| 11. 08%| 9. 90%| 9. 38%| 15. 53%| Table 8 Fig 7 Inventory turnover ratio throws a light at the degree of efficiency in inventory management. A high inventory turnover ratio is the indicator of sound inventory management.
A low inventory turnover ratio implies excessive inventory levels than warranted by volume of operation. It may also result from slow moving and obsolete stock. A high level of idle or obsolete inventory means blockage or loss of capital. This will cause high interest and other carrying cost. The ultimate impact is impairment profitability. So higher inventory turnover ratio is always preferable. In the above ratio Bhushan steel is standing ahead of the competitors having a strong ratio of 20%. However, a very high inventory turnover ratio should be examined very cautiously.
A high inventory turnover may be maintained due to maintaining an inadequate level of inventory which may cause from stock out and disruption of production and sales. But in this respect also Bhusan steel is standing good as its inventory has got increased by Rs. 373. 29 cr. * Average Debtor to Turnover Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 12. 37%| 9. 00%| 5. 00%| 12. 48%| 16. 59%| Table 9 Fig 8 When a firm sells goods on credit, book debt is created. The book debt should be realized shortly because as long it is not realise, firm’s fund remains locked outside the business. The firm is unable to utilize the same in meeting its short term obligations like payment to suppliers, employees etc. so firm’s liquidity i. e. the degree of ability to meet short term obligation is related, among other factors, to quality of debtors. A higher debtor’s turnover ratio means shorter average collection period. It indicates efficiency in collection of debt. Debtors are not allowed to linger their payment. On the other hand, if the debtor’s turnover ratio is low, it will mean longer average collection period. Longer collection period indicates inefficiency in collection of debt.
Apart from impairing the liquidity of firm, it may result in bad debt which will erode profit. In the above scenario the average debtor turnover of the competitors of bhushan steel is 11. 09%. Where bhushan steel is maintaing ratio of 12. 37% higher than the standard ratio. But it’s two other competitor Penar steel and Ruchy strips are once again having a better ratio of 12. 48% and 16. 59%. Other thing which may be result of maintaing the ratio just above the standard is the credit policy of bhushan steel. As the policies vary from company to company depending upon their deals with their respective customer. Gross Block to Net Block Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2005| 1. 58| 2. 25| 1. 72| 1. 78| 2. 70| 2006| 1. 76| 2. 59| 1. 83| 1. 89| 2. 75| 2007| 1. 56| 2. 94| 2. 00| 1. 92| 3. 06| 2008| 1. 66| 3. 31| 2. 21| 1. 91| 2. 26| Table 10 Fig 9 It is an ratio to check the ratio between the fixed asset before depreciation and after depreciation. The standard ratio is 2. 27. * Debt to Equity Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 134. 64| 1. 80| 6. 66| 1. 89| 1. 61| Table 11 Fig 10
Debt equity ratio indicates the respective claim of outsiders and owners i. e. , equity shareholders in the assets of the firm. So it reflects the financial soundness of the firm. A high D / E ratio indicates dependence of firm on outside fund is high. In this case the firm is exposed to greater financial risk. This because if the firm does not perform well for some reason or other, it will face problem in payment of interest and repayment of principal in time. The debt holders will then interfere in management of the firm. On the other hand, a firm with low D / E ratio will provide a high margin of sfety to outside supplier of capital.
They become sure about return of their capital in time. The hardship to be faced by the management in payment of interest in difficult situation is also relatively lesser. In the above Bhushan steel is having a very high debt-equity ratio. They are more depending on debt capital compare to share capital. Which is only advisable in case the market condition is in favourable, a firm with high D / E ratio can enhance the return of equity share holder. * Current Ratio Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 1. 43| 0. 64| 0. 46| 3. 12| 1. 5| Table 12 Fig 11 Current ratio measures short term solvency or liquidity position of the firm. It indicates how much current assets in rupees are being held by the company for each rupee of current liabilities. As a convention, current ratio 2:1 is taken as standard which means that each rupee of current liabilities should be backed by current assets valued two rupees. The logic behind this is that even if actual value of current assets is reduced to half, the firm will not face problem in meeting its current liability. Though the bhushan steel is having current ratio of 1. 3 stills its stand good because it is above of the average between the competitors current ratio. Another reason is that it is not containing much old and doubtful debts and obsolete inventory due which also its current ratio is quite lower than the prescribed ratio standard. However in this context Penar steel is standing very high in current ratio. But the reason behind is lack of collection efficiency from its debtors. * Interest Coverage Ratio Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 6. 00| 0. 44| 0. 06| 2. 87| 1. 19| Table 11
Fig 12 The interest coverage ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and taxes; the lower the ratio, the higher the company’s debt burden. It gives us a sense of how far a company’s earnings can fall before it will start defaulting on its bond payments. For stockholders, the interest coverage ratio is important because it gives a clear picture of the short-term financial health of a business. As a general rule of thumb, investors should not own a stock that has an interest coverage ratio under 1. 5.
An interest coverage ratio below 1. 0 indicates the business is having difficulties generating the cash necessary to pay its interest obligations. The history and consistency of earnings is tremendously important. The more consistent a company’s earnings, the lower the interest coverage ratio can be. Interest coverage ratio is of bhushan steel is very high than its competitors. Its interest is 6 times covered by its earning available for its payment. That means even if the earning substantially falls, the chance of facing embarrassing position for failure to meet interest obligation is remote.
However, a too high interest coverage ratio may be the result of using a very small dose of debt capital in capital structure. Which become false in case of bhushan steel as its comprise a high debt so a ratio is just because of it increase productivity of sales. * Earnings per Share Year| Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 2008| 99. 77| -2. 5| -2. 53| 2. 44| 0. 18| Table 12 The ratio indicates profitability per equity share basis and is widely used by the prospective equity shareholders as guide to investment decision in the firm.
Earnings per share are generally considered to be the single most??important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio. An important aspect of EPS that’s often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so??with??less equity (investment) – that company would be more efficient at using its??capital to generate income and, all other things being equal would be a “better” company.
Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures. However there is no case of equal EPS. But bhushan steel ahead in EPS because of its good increment to its sale in proportion to its competitors. * Dividend payout Ratio Bhushan steel| Steelco gujrat| Lloyds steel| Penar steel| Ruchy strips| 6. 681774037| 0| 0| 0| 0| 3. 390155143| 0| 0| 0| 0| 2. 506312982| 0| 0| 0| 0| Table 13 The entire earning of the firm is not distributed as dividend.
A certain portion is retained for growth. The ratio indicates the extent of retention of profit in the firm. However in the above scenario except bhushan steel no other firms has paid dividend to its shareholder as steelco gujrat and Lloyds steel are going in losses and Penar steel and Ruchy strips has not paid dividend keeping in mind the future need of the organization. B. Comparative Balance Sheet as on March 31,2007 and 2008 PARTICULARS| 2008| 2007| CHANGE| PERCENTAGE CHANGE| Assets| | | | | Current Assets, Loans & Advances| | | | | Stock| 112963. 31| 75634. 14| 37329. 17| 49. 5| S/debtors| 61737. 59| 53889. 61| 7847. 98| 14. 56| Cash and bank bal. | 2762. 59| 10013. 68| -7251. 09| -72. 41| Loans and advances| 64374. 47| 36737. 48| -27637| -75. 23| Total Current asset(A)| 241837. 96| 176274. 9| 10289. 07| 5. 84| | | | | | Investment| 5846. 02| 2085. 39| 3760. 63| 180. 33| Fixed Assets| | | | | Net block| 175901. 75| 172345. 6| 3556. 11| 2. 06| Capital Work in progress| 456797. 19| 189211. 3| 267585. 9| 141. 42| Total Fixed Asset(B)| 632698. 94| 361556. 9| 271142. 1| 74. 99| | | | | | Total Asset(A+B)| 880382. 92| 539917. 2| 281431. 1| 52. 12| | | | | |
Liability & Capital| | | | | Current Liabilty| 124432. 08| 80115. 57| 44316. 51| 55. 32| Provision| 1931. 31| 1779. 34| 151. 97| 8. 54| Total Current liability(C)| 126363. 39| 81894. 91| 44468. 48| 54. 30| | | | | | Debentures| 26000| 31000| -5000| -16. 13| Cash Credit| 47512. 29| 40562. 34| 6949. 95| 17. 13| Term loan| 259799. 2| 169721. 4| 90077. 8| 53. 07| Unsecured loan| 238502. 46| 82913. 96| 155588. 5| 187. 65| Total Long Debt(D)| 571813. 95| 324197. 7| 247616. 3| 76. 38| | | | | | Deferred Tax Liability| 19673. 89| 12374. 12| 7299. 77| 58. 99| Equity Capital| 4247. 17| 4247. 17| 0| 0. 0| Reserve & surplus| 158284. 52| 117203. 3| 41081. 23| 35. 05| Total(E)| 182205. 58| 133824. 6| 48381| 36. 15| | | | | | Total liability(C+D+E)| 880382. 92| 539917. 2| 340465. 7| 63. 06| Table 14 Comments 1. Financing policy of the firm: It is noted that in the comparative balance sheet that while a net fund of Rs. 247616. 3 lac was obtained from long-term sources during 2007-08, net block i. e net fixed assets of the company was increased by Rs. 3556. 11 lac and its work in capital progress increased by Rs. 267585. 9 lac was largely finance by the fund procured from long-term sources. 2.
Long-term solvency position: The shareholder’s equity has not increased but long-term debt has increased by Rs. 247616. 3 lac. So the long-term solvency position of the company deteriorated. 3. Growth of the firm: the reserve and surplus increased by 35. 05%. This indicates that the company prospered over the period of study. 5. CONCLUSION A. Suggestion After doing all the data interpretation I have came to the conclusion that bhushan steel ltd. is emerging as one of best steel producing company in India. It has done some acquisition in Australia to boost up its organization and to meet its customer demand all over the world.
It has started a new project in Khopoli in two phases out of which one has been already completed. But it should take care of its competitor’s growth like Ruchy strips and Pennar steel which very close in respect of performance in the secondary market. Both the company are maintaining a good return on capital employed which is good sign of growth. They are also trying to maintain a good return on assets. It has done a good move by implementing SAP in its organization. From my point of view I would like to suggest that now it is good time to enter into the primary steel market.
And it should acquire some foreign based company in order get a good advantage of global market. Instead of setting up a new plant it is better to acquire an already set up plant. In order to cut time in setting up a good customer and to get a good market share. B. Limitation * All the data are secondary data. * As the data are secondary data so the reliability of the result depends upon the reliability of the data published. * Lack of accessibility. * Insufficient data on the site. * Unprecedented changes in Govt. policies are not considered in the project. * Natural calamite not included in this project. Management generally not willing to reveal their internal strategy to combat with the competitor. So, the future effect of those strategy is not known C. Bibliography a. Bhushan steel annual report. b. www. investopidia. com c. www. scribd. com d. Newspaper e. Magazine f. Sensex. com Checklist 1| Is the report properly Hard bound/Spiral bound| Yes/No| 2| Is the cover Page in Proper format as given in the Annexure A? | Yes/No| 3| Is the Title page (Inner cover page ) in proper format? | Yes/No| 4| a. Is the Certificate from the Supervisor in proper format? b. Has it been signed by the Supervisor? Yes/NoYes/No| 5| Is the Abstract included in the report properly written within one page? Have the keywords been specified properly? | Yes/NoYes/No| 6| Is the title of your project report appropriate? The title should be adequately descriptive, precise and must reflect scope of the actual work done. | Yes/No| 7| Have you included the list of abbreviations/ Acronyms? Uncommon abbreviations / Acronyms should not be used in the title. | Yes/No| 8| Does the Report contain a summary of the literature survey? | Yes/No| 9| Does the table of contents included page numbers? i. Are the pages numbered properly? | Yes/No|