AN EMPERICAL ANALYSIS ON FINANCIAL RATIO

OF SELECTED STEEL PLANTS IN INDIA

A Dissertation Report submitted for the degree of Master in Business
Administration in Financial Management
2019
MBA (FM)

Submitted by:-
Jyoshna Sushmita Barla
Roll No: PG17MFM-002
BATCH NO:2017-19
Under the Guidance of;
Miss. Namita Malla
Department of Professional Courses
Gangadhar Meher University,
Sambalpur – 768004
Odisha

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 DECLARATION
I declare that this dissertation report entitled “Ratio Analysis – An empirical study
of Steel companies” is my own work. It is submitted in partial fulfillment of the
requirements for the Master in Business Administration in Financial Management (MFM)
of Gangadhar Meher University, Sambalpur. It has not been submitted before for any
other degree, diploma or examination in any other Institute/University. I further declare
that I have obtained the necessary consent from my guide of MBA department of
Gangadhar Meher University Sambalpur to do this project.

Jyoshna Susshmita Barla

Roll No.. PG17MFM-002

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 CERTIFICATE OF THE SUPERVISOR
This is to certify that JYOSHNA SUSHMITA BARLA, Roll no- PC17MFM-002
student of GANGADHAR MEHER UNIVERSITY, SAMBALPUR, has completed her
dissertation project titled ”financial ratio analysis” completed at five steel plants in India
i.e Steel Authority of India Limited, TATA Steel, Jindal Steel and Power, Jindal South
West,OCL Iron and Steel Ltd. and has submitted the project report in partial fulfillment of
2 years full time course MASTER IN BUSINESS ADMINISTRATION (FINANCIAL
MANAGEMENT) course of Gangadhar Meher college for 1V semester of academic year
2017-2019. She has worked under our guidance and direction. The said report is based on
bonafide information.

Miss Namita Malla

(Project guide)

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 ACKNOWLEDGEMENTS
I acknowledge my deep sense of gratitude for giving me this opportunity
to undergo my project titled ”financial ratio analysis” of five steel plants in
India. At this moment of successful completion of the project, I would like to
express my sincere thankfulness and indebtedness to all those who extended
their kind help by spending their precious time in explaining the various
intricacies of the subject and suggesting the correct approach to me.
I would like to thank Miss Namita Malla, assistant professor in Department
of MBA (FM), who had been my project guide for their understanding,
gracious and constructive advice which played a major role in completion of
this project. This project has been a great learning outcome for me and
without her help it would not have possible for me to do this project.

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 CONTENTS
Chapter Title Page
No. No.
1. Introduction
1.1 Summary of the Dissertation 8
1.2 Scope of the study 9
1.3 Objectives of the study 9
1.4 Limitations of the Study 10

2. Literature Review 11

3. Theories of Study
3.1 Financial statement Analysis 20
3.2 Ratio analysis 20
3.3 Nature of Ratio Analysis 21
3.4 Objectives of Ratio analysis 22
3.5 Interpretation of the ratios 22
3.6 Guidelines or precautions for use of ratios 22
3.7 Advantages of Ratio Analysis 22
3.8 Limitations 23
3.9 Classification of ratios 24
4. Research Design
4.1 Research Methodology 36
4.2 Research Objective 36
4.3 Research Hypothesis 36
4.4 Sample Design 36
4.5 Data Collection 36
4.6 Statistical tool used 36
5. Data Analysis& Interpretation
5.1 Liquidity Ratio 38
5.2 Leverage Ratio 42

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 5.3 Activity Ratio 46
5.4 Profitability Ratio 51
5.5 Findings 58
6.
6.1 Conclusion 59
Conclusion

References / Bibliography 61

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 CHAPTER-1
INTRODUCTION

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CHAPTER-1: Introduction
1.1 Summary of the Dissertation-:
The financial statements analysis is the process of reviewing and analyzing a
company’s financial statements to make better economic decisions. Financial statements
are written records that convey the business activities and the financial performance of a
company in respect of the following aspects.
 Liquidity position
 Profitability position
 Solvency position
 Shareholder’s ratio
 Overall profitability

The tools, which are used for the study, are:

 Financial ratio analysis

 Through tabulation, the data are put in the form of tables.

Ratio analysis is the comparison of line items in the financial statements of a

business. Ratio analysis is used to evaluate a number of issues with an entity, such as
its liquidity, efficiency of operations, and profitability. This type of analysis is
particularly useful to analysts outside of a business, since their primary sou rce of
information about an organization is its financial statements. Rati o Analysis is less
useful to corporate insiders, who have better access to more detailed operational
information about the organization.
A Complete set of Financial Statements (Decision Tool), the income statement, the
cash flow statement, the statement of owner equity and the financial performance measures
is available to do a comprehensive financial analysis of Steel Companies.

The scope of this report includes its financial performance. To analyze this, ratio
analysis is applied. In this report, various ratios are calculated and interpreted which have
significant impact on the performance of the company. This findings are very useful in
understanding the performance and taking required actions to strengthen financial hold in
the country.

Therefore, the prime objective of this study is to thoroughly investigate and analyze
various financial ratios and their effect on financial performance of Steel Companies.

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 This study is divided into various chapters for ease of access. The first chapter gives a
brief introduction, objectives and limitations of the study whereas the second chapter
provides Literature Review of ratio analysis and the description on concept and theory of
study is in the third chapter.

The fourth part deals with the study of various research methodology used whereas
the fifth part entails the implementation of the research methodology followed by the
observations & findings and analysis & interpretation of data along with various
opportunities & threats for the organization.

The sixth part entails the summary and lists necessary recommendations for the
improvement of the same along with the conclusion and last is bibliography.

1.2 Scope of the Study

The scope of the study is limited to collecting financial data published in the annual
reports of the company every year which I got from moneycontrol.com. The analysis is
done to suggest the possible solutions. The study of working capital is based on various
financial ratios like liquidity ratio, leverage ratio, Activity ratio etc. Further the study is
based on previous 5 years Annual Reports of the 5 steel plants that are Steel Authority of
India ltd, TATA Steel, Jindal Steel and Power, JSW Steel ltd, OCL Iron and Steel ltd.. The
study is carried out upon 5 years data (2013-14; 2014-15; 2015-16 ; 2016-17 & 2017-
2018).
1.3 Objectives of the Study
To study the performance of Steel companies on the basis of the data collected from 1 st
April 2013 to 31st March 2018. The main objectives of recent study aimed as:
 To study the present financial system at Steel companies.
 To know the financial condition of the company.
 To measure the profitability of the company, which is provided by Gross Profit
Ratios, N et Profit Ratio, Expense Ratio etc
 To evaluate the Operational Efficiency of the companies
 To analyze the Liquidity position of the companies through Current ratio and Quick
Ratio.
 To determine the overall financial strength through ratios such as Debt-Equity
Ratio, Leverage ratios etc.
 To make comparison with previous years’ ratio’s to see the progress known as
Trend Analysis.
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  Interpret the financial statement so that the strength and weakness of a firm
Historical performance and current financial condition can be determined. To
analyze, interpret and to suggest the operational efficiency by comparing the
balance sheet & profit & loss a/c.
 Throw light on a long term solvency of a firm.
 To offer appropriate suggestions for the better performance of the organization.

1.4 Limitations of the Study

 Non-monetary aspects are not considered making the results unreliable.
 Different accounting procedures may make results misleading.
 In spite of precautions taken there are certain procedural and technical limitations.
 Accounting concepts and conventions cause serious limitation to financial analysis.
 Lack of sufficient time to exhaust the detail study of the above topic became a
hindering factor in my research The study is based on only secondary data.
 The analysis ignores time value of money.
 The data used in the study have been taken from financial statement of
the companies.
 The period of study was 2013-14 to 2017-18 financial years only.
.

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 CHAPTER-2
LITERATURE REVIEW

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Literature Review-
Literature review refers to the collection of the results of the various researches
relating to the present study. It takes into consideration the research of the previous
researchers which are related to the present research in any way. Here are the reviews
of the previous researches related with the present study:
Gupta and Heffner (1972)-: examined the differences in financial ratio averages
between industries. The Conclusion of both the studies was that differences do exist in
mean profitability, Activity, leverage and liquidity ratios amongst industry groups.

Pinches et al. (1973)-: used factor analysis to develop seven classifications of ratios,
and found that the classifications were stable over the 1951-1969 time periods.

Chuetal. (1991)-:analyzed the hospital sectors to observe the differences of financial

ratios groups between hospital sectors and industrial firms sectors. Their study
concluded that financial ratios groups were significantly different from those of
industrial firms’ ratios as well these ratios were relatively stable over the five years
period. A significance relationship for about half of industries studied indicated that
results might vary from industry to industry.

(Khan, Jain, 1993)-: involves a study of the relationships between income statement
and balance sheet accounts, how these relationships change over time (Trend
Analysis), and how a particular firm compares with other firms in industry
(Comparative Ratio Analysis).

Lamberson (1995)-: who studied how small firms respond to changes in economic
activities by changing their working capital positions and level of current assets and
liabilities. Current ratio, current assets to total assets ratio and inventory to total assets
ratio were used as measure of working capital while index of annual average
coincident economic indicator was used as a measure of economic activity. Contrary
to the expectations, the study found that there is very small relationship between
charges in economic conditions and changes in working capital.

Bollen (1999) -conducted a study on Ratio Variables on which he found three

different uses of ratio variables in aggregate data analysis: (1) as measures of
theoretical concepts, (2) as a means to control an extraneous factor, and (3) as a
correction for heteroscedasticity. In the use of ratios as indices of concepts, a problem
can arise if it is regressed on other indices or variables that contain a common

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component. For example, the relationship between two per capita measures may be
confounded with the common population component in each variable. Regarding the
second use of ratios, only under exceptional conditions will ratio variables be a
suitable means of controlling an extraneous factor. Finally, the use of ratios to correct
for heteroscedasticity is also often misused. Only under special conditions will the
common form forgers soon with ratio variables correct for heteroscedasticity.
Alternatives to ratios for each of these cases are discussed and evaluated.
Cooper (2000) -: conducted a study on Financial Intermediation on which he
observed that the quantitative behavior of business-cycle models in which the
intermediation process acts either as a source of fluctuations or as a propagator of real
shocks. In neither case do we find convincing evidence that the intermediation
process is an important element of aggregate fluctuations. For an economy driven by
intermediation shocks, consumption is not smoother than output, investment is
negatively correlated with output, variations in the capital stock are quite large, and
interest rates are procyclical. The model economy thus fails to match unconditional
moments for the U.S. economy. We also structurally estimate parameters of a model
economy in which intermediation and productivity shocks are present, allowing for
the intermediation process to propagate the real shock. The unconditional correlations
are closer to those observed only when the intermediation shock is relatively
unimportant.

Gerrard (2001)-: conducted a study on The Financial Performance on which he

found that Using ratio analysis the financial performance of a sample of independent
single-plant engineering firms in Leeds is examined with regard to structural and
locational differences in establishments. A number of determinants of performance are
derived and tested against the constructed data base. Inner-city engineering firms
perform relatively less well on all indicators of performance compared with outer-city
firms. The study illustrates the importance of using different measures of performance
since this affects the magnitude and significance of the results. Financial support is
necessary to sustain engineering in the inner city in the long run.
Phillips, Michael D. et al (2001)-: conducted an analysis to evaluate the cross-
sectional variations of financial ratios among different size private companies. The
study examines four ratio categories for the retail and service sectors over the period
1998 to 2000. The ratio categories include: (1) liquidity, (2) activity, (3) leverage,

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and (4) profitability. Results provide strong evidence that small retail firms perform
differently than larger retail firms in all categories and time periods. Service firms had
the strongest and most consistent differences in activity and profitability ratios.
Separate comparisons of the retail and service sectors also showed significant
performance differences in every ratio category. Their findings demonstrate that size,
as measured by total sales, is a critical factor in the behavior of the financial
performance of small, privately-held service and retail companies. Specifically, the
largest and smallest firms exhibit significant differences in their respective liquidity,
activity, leverage, and profitability ratios for firms in the retail sector. Service firms
exhibited the strongest differences in their respective activity, debt and profitability
ratios. Furthermore, an examination of the behavior of the metrics between retail and
service firms of similar size showed significant differences. An important implication
of these results is that size and sector need to be considered when using this data as a
benchmarking tool. In a life-cycle context, these findings suggest a behavioral view
of the growth path for small retail operations. Liquidity is highest during the early
phase when the capital structure is first put in place. Since small firms do not have
easy access to long-term financing after the initial financing is in place, growth occurs
from existing liquidity, liquidity generated from ongoing operations, and from
increases in the use of short-term financing. Total debt capacity is relatively stable as
the companies grow; only the relative mix between short and long term debt changes
over the size categories. The findings also suggest that competition is increasing with
the sales gains since profitability is falling. Additionally, as firms grow in sales, the
relative proportions of current assets to total assets remains stable. As such, asset
structures tend to be set in the initial phase of the life-cycle for both retail and service
firms.

Erich P. Helfert (2001) classifies and discusses financial ratios in accordance with
three major viewpoints: management’s viewpoint, owners’ or investors’ viewpoint
and lenders’ viewpoint. A certain ratio becomes useful when it best serves the
objectives of the analysis and relates to the viewpoint defined by the analyst.
Managers are more interested in margin ratios, return on assets, EBIT, EBITDA,
turnover ratios, and free cash flow whereas investors pay close attention to measures
such as return on equity, earnings per share, dividends per share, total shareholder

14
return, price to earnings ratio, and lenders assess a company’s solvency and liquidity
based on the current ratio, quick ratio, debt ratios and coverage ratios.

Kieso, Jerry(2001)-: the common equity section of the balance sheet is divided into
three accounts, common stock, paid-in capital, and retained earnings. Common stock
and paid-in capital accounts arise from the issuance of stock which is main source of
capital to corporations. The difference between the selling price and the nominal
value of stock is called paid-in capital. Retained earnings are built up over time as the
firm reinvests a part of its earnings rather than paying all earnings out as dividends.
The breakdown of the common equity shows whether the company actually earned
the funds reported in its equity accounts or whether the firm’s earnings came mainly
from selling stock.
Dr. Nabil M. Al-Nasser (2002)-: conducted a study on “The Impact of Financial
Analysis in Maximizing the Firm’s Value "A Case Study on the Jordanian Industrial
Companies". Financial statement analysis involves a study of the relationships
between income statement and financial position statement accounts, how these
relationships change over time, and how a particular firm compares with other firms
in the same industry. His study aims to point out the impact of financial analysis in
maximizing the firm's value. Financial analysis outcomes can be used to help both
managers and external parties in making financial and investment decisions to
maximize the wealth and benefits of each stakeholder. For achieving this purpose,
number of 100 questionnaires has been designed, circulated by hand to a selected
sample of employees working in different Jordanian industrial companies. Resolution
data were analyzed using the statistical program SSPS. Finally, the study concluded
that, financial analysis has a significant positive effect on helping managers in taking
effective decisions that can increase the profitability and the value of the firm.
According to data analysis, and hypothesis testing the study had concluded that
financial analysis has a significant positive effect on helping managers in taking
effective decisions that can increase the profitability and the value of the firm and
proper preparation and analysis of financial statements minimizes risk of business
failure, and reveals the strength, weaknesses, and opportunities of a business
enterprise. According to the study conclusions the researcher recommends that
managers depend on financial statements while taking decisions, so there should be a

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continuous controlling process over accounts; as accounts reflects the real activities of
the firm, there should be; management should take into consideration other tools than
financial ratios as it has a significant effect on decision making and financial analysis
will not say why something is going wrong and what to do about a particular
situation; they only pinpoint where the problem is.
Sathyamoorthi (2002)-: focused on good corporate governance and in turn effective
management of business assets. He observed that more emphasis is given to
investment in fixed assets both in management area and research. However, effective
management working capital has been receiving little attention and yielding more
significant results. He analyzed selected Co-operatives in Botswana for a period of
1993-1997 and concluded that an aggressive approach has been followed by these
firms during all the four years of study.

Schmidgall (2003)-: conducted a study on Financial Analysis Using the Statement of

Cash Flows on which he observed that Managers use many financial ratios to judge
the health of their businesses. With the recent requirement of a statement of cash flow
(SCF) by the Financial Accounting Standards Board, managers now have a new set of
ratios that will give a realistic picture of the business. The ratios include cash flow-
interest coverage, cash flow-dividend coverage, and cash flow from operations to cash
flow in investments. These ratios are particularly useful because they show changes in
a hotel or restaurant's cash position over time, rather than at a given moment, as is the
case with many other ratios.

Murinde (2003) -: conducted study on Corporate Financial Structures on which he

observed that the financial structure of a sample of Indian non-financial companies
using a new and unique dataset consisting of a panel containing the published
accounts of almost 900 companies that published a full set of accounts every year
during 1989-99. In a new departure in the literature, the dataset includes quoted and
unquoted companies. We compare the sources-uses approach to analyzing company
financial structures with the asset-liability approach. We use both approaches to
characterize and to compare the financial structures of Indian companies over time;
between quoted and unquoted companies; and between companies which belong to a
business group and those that do not. Finally, we compare our results to those
obtained previously for India and for the industrial countries.

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Abuzar (2004)-: empirically investigated the relationship between profitability and
liquidity for sample firms in Saudi Arabia. Correlation and regression were used and
the researcher took cash gap and current ratio as a measure of liquidity and it was
observed that size had a significant effect on profitability.

McMahon (2005) -conducted a study on Financial Information on which he found

that financial statements mean little to the uninitiated. This paper, explains, in
layman's terms, how to understand financial information. It covers measures of
profitability. The second article will cover measures of company liquidity and the use
of financial ratios. This paper continues to explain how to interpret and understand
financial information. It deals with measures of liquidity, solvency and fund flows and
describes how to establish standards against which a company's financial ratios can be
compared.
Filbeck and Krueger (2005)-: highlighted the importance of efficient working
capital management by analyzing the working capital management policies of 32 non-
financial industries in USA. According to their findings significant differences exist
between industries in working capital practices over time.

Charles Horngren et al. (2006)-: state that the most important part in ratio analysis
is the interpretation and evaluation of financial ratios computed that require making
three types of comparisons to determine whether they indicate good, average or bad
performance. These comparisons include time-series analysis which implies that the
set of financial ratios calculated for a certain year are compared with the entity’s
historical financial ratios, benchmark analysis when computed financial ratios are
compared with general rules of thumb and cross-sectional comparisons that imply an
analysis of a company’s financial ratios in relation to those of peers or industry
averages.

Harness, Chatterjee and Finke, (2008)-:.A problem with using ratios as tools is that
the extant literature testing their value is limited. For example, there is little evidence
that a capital accumulation ratio of 0.7 is better than one of 0.3, or that the protection
provided by holding 6 months of assets in liquid investments is worth the tradeoff in
expected return.

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Boundless,( 2014) -: Financial ratios allow for comparisons and, therefore, are
intertwined with the process of benchmarking, comparing one's business to that of
others or of the same company at a different point in time. In many cases,
benchmarking involves comparisons of one company to the best companies in a
comparable peer group or the average in that peer group or industry. In the process of
benchmarking, investor identifies the best firms in their industry, or in another
industry where similar processes exist, and compares the results and processes of
those studied to one's own results and processes on a specific indicator or series of
indicators.

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 CHAPTER-3
CONCEPT & THEORY
OF STUDY

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3.1 Financial statements Analysis:
The financial statements provide some extremely useful information to the
extent that the balance sheet mirrors the financial position on a particular date in terms
of the structure of assets, liabilities and owners’ equity, and so on and the profit an
loss account shows the results of operations during a certain period of time in terms of
the revenues obtained and the cost incurred during the year. Thus, the financial
statements provide a summarized view of the financial position and operations of a
firm. Therefore, much an be learnt about a firm from a careful examination of its
financial statements as invaluable documents performance reports. The analysis of
financial statements is thus, an important aid to financial analysis.
3.2 Ratio Analysis:
Ratio analysis is the most used tool of analysis. A ratio is quotient of two
numbers and is expression of relationship between the figures or two amounts. It
indicates a quantitative relationship, which is used for qualified judgment and division
making. The relationship between two accounting figures is known as ratio. These
ratios may be compared with the previous year or base year ratios of the same firm.
A comparison may also be made with the selective firms in the same industry
i.e. inter-firm comparison. Ratio analysis is useful to share holders, creditors and
executives of the company.
British institute of management has classified the ratios into two categories-
Primary Ratio and Secondary Ratios.
Relationship between profits and capital employed are primary ratios.
Secondary ratios give the information about the financial position and capital
structure of the company. Liquidity ratios and leverage ratios are the secondary ratios.
Ratio analysis is a powerful tool of financial analysis it is one of the statistical
yardsticks that provide relationships between two accounting figures. Ratio analysis
of financial statements refers to the process determining and presenting the
relationship of items and group of items in the statement. Ratios may be expressed in
3 forms:
a. As a quotient 1:1 or 2:1 etc.
b. As a rate i.e. inventory turnover as number of times in a year.
c. As a percentage.

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 With the help of ratio analysis, conclusions can be drawn regarding the
liquidity position of a firm. The liquidity position of a firm will be satisfactory if it is
able to meet its current obligations when they become due. A firm can be said to have
the ability to meet the short term liabilities if it has sufficient liquid funds to pay the
interest on its short term liabilities if it has sufficient liquid funds to pay the interest
on its short-making debt usually within a year as well the principal. The ability is
reflected in the liquid ratios of a firm. The liquid ratios are particularly useful in credit
analysis by banks and other suppliers of short term loans.
Ratio analysis not only throws light on the financial position of a firm but
also serves as a stepping-stone to remedial measures. This is made possible from
inter-firm comparison with industry averages. An inter-firm comparison would
demonstrate the relative position of its competitors. If the results are at variance either
with the industry overage or with those of the competitors, the firm can seek to
identify the probable reasons and, in that light, take remedial measures.
3.3. Nature of Ratio Analysis:
Ratio analysis is a technique of analysis and interpreting of financial statements.
It is the process of establishing and interpreting various ratios for helping in making
certain decisions. However, ratio analysis is not an end in itself. It is only a means of
better understanding of financial strengths and weakness of any institution. The
following are the steps involved in ratio analysis:
1. Selection of relevant data from the statements depending upon the objective of the
analysis.
2. Calculation of appropriate ratios from the above data.
3. Comparison of the calculated ratios with the past ratios of the same institute, or
with the ratios developed from projected financial statements, or the ratios of some
other institution.
4. Interpretation of ratios.
3.4 Objectives of Ratio Analysis
The main objective of ratio analysis is to show the firms relative strengths and
weakness. The objectives of ratio analysis are as follows:
• It determines the financial condition and financial performance of the firm.
• It involves comparison for a useful interpretation of the financial statements.
• It helps in finding solutions to unfavorable financial statements.

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• It helps to take suitable corrective measures when the financial conditions and
performance are unfavorable to the firm, in comparison to other firms in the same
industry.
• With the help of this analysis, an analyst can determine the
 The ability of the firm to meet its obligations.
 The efficiency with which the firm is utilizing its various assets in generating
sales.
 The overall operating efficiency and performance of the firm

3.5 Interpretation of the ratios–

The interpretation of ratios is an important factor. The inherent limitations of ratio
analysis should be kept in mind while interpreting them. The impact of factors such as
price level changes, change in accounting policies, window dressing etc., should also
be kept in mind when attempting to interpret ratios. The interpretation of ratios can be
made in the following ways.

Single absolute ratio

Group of ratios
Historical comparison
Projected ratios
Inter-firm comparison

3.6 Guidelines or precautions for use of ratios–

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various ratios

Accuracy of financial statements

Objective or purpose of analysis
Selection of ratios
Use of standards
Caliber of the analysis

3.7 Advantages of Ratio Analysis:

There are several advantages of ratio analysis. Some of them are:
a. Helps in financial performance analysis:

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 Ratio analysis is very powerful tool for financial performance analysis.
Ratio analysis answers various questions relating to companies profitability, assets
utilization, liquidity, financing strategies, capabilities etc.
b. Helps in credit analysis:
Ratio analysis reveals the credit worthiness of a firm. Creditors are always
interested to know whether the liquidity position of the firm is sound or not. Only
those companies, whose liquidity position is sound, will be able to repay the loans and
survive in the long run.
c. Helps in security analysis:
Ratio analysis also helps in security analysis. The major focus in security
analysis is on the long-term profitability, which depends on a number of factors. In
this the efficiency with which the firm utilizes its assets and the financial risk to
which the firm is exposed are also studied.
d. Helps in planning:
Ratio Analysis helps in planning and forecasting over a period of time. A
firm or industry has certain norms that may indicate future success or failure.
e. Simplifies Financial Statement:
Ratios analysis simplifies the comprehension of financial statements. Ratio
tells the whole story of changes in the financial condition of the business.
f. Facilities Inter Firm Comparison and Trend Analysis:
It provides data for inter firm comparison and trend analysis ratio and
highlights the factors associated with successful and unsuccessful firms. They also
reveal strong firms over value and under value firm.
3.8 Limitation of Ratio Analysis:
The ratio analysis is a widely used technique to evaluate the financial
position of business. But there are some certain problems in using ratios. The analyst
must be aware of these problems. The following are some of the limitations of ratio
analysis.
a. Difficulty in comparison: - One serious limitation of ratio analysis arises out of
the difficulty associated with their comparison to draw inferences.
This may be due to the following:
• Differences in the basics of inventory valuation.
• Different depreciation methods.

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• Estimated working life of assets particularly of plant and equipment.
• Amortization of intangible of assets like good will patents and so on.
• Amortization of deferred revenue expenditure such as preliminary expenditure and
discount on issue of shares.
• Treatment of extraordinary items of income and expenditure and so on.
b. Impact of Inflation: - The second major limitation of ratio analysis is associated
with price level changes. This impact is a weakness of traditional statements that are
based on historical costs.
c. Conceptual Diversity: - Another factor that affects the usefulness of ratios is that
there is difference of opinion regarding the various concepts used to compute the
ratios.
d. The ratios are generally calculated from past financial statement and thus are no
indicators of future.
3.9 Classification of Ratios
A. Liquidity Ratios:
It is also known as liquidity ratios. it includes the following
1. Measures ability of a company to meet its current obligations.
2. Indicates short term financial stability of a company.
3 . Indicates present cash solvency and ability to remain solvent
in times of adversities.
4. To measure the liquidity of a firm the following ratios can be calculated
 Current ratio
 Quick (or) Acid-test (or) Liquid ratio
 Cash ratio
a. Current Ratio:
Current ratio is useful to find out solvency of the company. High current ratio
indicates that company will be able to pay its debt maturity within a year.
Low current ratio indicates that company will not be able to meet its short term debts.
Minimum standard current ratio is 2:1
Current Assets
Current Ratio = _____________
Current Liabilities

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b. Quick Ratio:
Quick ratio is also known as acid test ratio. It indicates immediate ability of a
company to pay off its current obligations. And also shows the solvency and
financial soundness of the business. Greater the ratio stronger the financial position
of the company.
The standard quick ratio should be 1:1
Quick Assets
Quick Ratio = _________________
Quick Liabilities
c. Absolute liquid Ratio:
This ratio is also known as cash position ratio or super quick ratio. It is a
variation of quick ratio. This ratio establishes the relationship absolute liquid asserts
and current liabilities. Absolute liquid assets are cash in hand, bank balance and
readily marketable securities. Both the debtors and bills receivable are excluded from
liquid assets as there is always an uncertainty with respect to their realization. In other
words, liquid assets minus debtors and bills receivable are absolute liquid assets. In
this form of formula:
Absolute liquid ratio = Cash in hand & at bank + Marketable securities
Current liability
B. Financial Leverage Ratio:
The long-term lenders/creditors would be judge the soundness of a firm on
the basis of the long-term financial strength measured in terms of its ability to pay the
interest regularly as well as repay the installment of the principal on due dates or in
one lump sum at the time of maturity. The long term solvency of a firm a be examined
by using leverage or capital structure ratios. The leverage or capital structure ratios
may be defined as financial ratios which throw light on the long-term solvency of a
firm as reflected in its ability to assure the long-term lenders with regard to (i)
periodic payment of interest during the period of the loan and (ii) repayment of
principal on maturity or in predetermined installments at due dates..
a. Debt Equity Ratio:
It is the ratio of the amount invested by the owners of business The relationship
between borrowed funds and owner’s capital is a popular measure of the long-term
financial solvency of a firm. The relationship is shown by the debt-equity ratios. This

25
ratio reflects the relative claims of creditors and shareholders against the assets of the
firm. The relationship between outsiders’ claims and owner’s capital can be shown in
different ways and, accordingly, there are many variants of the debt-equity ratio.
Total debt
Debt to Equity Ratio = _________________
Total equity
Higher the ratio less secured is the creditors, lower the ratio creditors enjoy
higher degree of safety.
b. Long Term Debt to Total Capitalization:
It explains the relationship between long term debts borrowed from outsiders
with owner’s contribution. Lower the ratio better is the solvency of the business and
safer is the creditor so far as his repayment.
Long Term Debt
Long Term Debt to Total Capitalization = _______________________
Total Capital Employed
c. Interest Coverage Ratio:
This indicates earning capacity of the business to pay its interest burden.
Higher the ratio business can easily pay the interest. It is also known as ‘time interest-
earned ratio’. This ratio measures the debt servicing capacity of a firm insofar as fixed
interest on long-term loan is concerned. It is determined by dividing the operating
profits or earnings before interest and taxes (EBIT) by the fixed interest charges on
loans. Thus
Earnings before Interest and Tax
Interest Coverage Ratio = _______________________________
Interest
d. Cash Flows Debt ratio:
The cash flow-to-debt ratio is the ratio of a company’s cash flow from
operations to its total debt. This ratio is a type of coverage ratio and can be used to
determine how long it would take a company to repay its debt if it devoted all of its
cash flow to debt repayment.
Cash flow from operations
Cash flow to debt ratio = _____________________________
Total debt

26
C. Turnover or Activity Ratio-
Activity ratios are concerned with measuring the efficiency in asset
management. These ratios are also called efficiency ratios or asset utilization ratios.
The efficiency with which the assets are used would be reflected in the speed and
rapidity with which assets are converted into sakes. The greater is the rte of turnover
or conversion, the more efficient is the utilization of asses, other things being equal.
For this reason, such ratios are designed as turnover ratios. Turnover is the primary
mode for measuring the extent of efficient employment of assets by relating the assets
to sales. An activity ratio may, therefore, be defined as a test of the relationship
between sales and the various assets of a firm.
It measures how efficiently the assets are employed. These ratios are expressed in
number of times the assets is used during the period.
a. Inventory Turnover Ratio:
It indicates number of times the replacement of inventory during the given period
usually a year. Higher the ratio more efficient is the management of inventory. But
higher inventory turnover ratio is not always good if it is lower level of inventory
because it invites problem of frequency stock outs and loss of sales and customer or
goodwill.
Cost of Goods Sold
Inventory Turnover Ratio= __________________________
Average Stock in Hand
b. Receivable Turnover Ratio:
Ratio of net credit sales to average trade debtors is called debtors turnover ratio
.This ratio is expressed in times. Accounts receivables is the term which includes
trade debtors and bills receivables. It is a component of current assets and as such has
direct influence on working capital position of the business. The ratio indicates
average credit period enjoyed by debtors.
Debtors + Bills Receivable
Receivable Turnover Ratio =________________________________ X 100
Total Credit Sales

c. Fixed Asset Turnover Ratio:

27
 As the organization employs capital on fixed assets for the purpose of
equipping itself with the required manufacturing facilities to produce goods and
services which are saleable to the customers to earn revenue, it is necessary to
measure the degree of success achieved in this bearing. This ratio expresses the
relationship between cost of goods sold or sales and fixed assets. It indicates
efficiency in the utilization of fixed assets like plant and machinery by management.
Net Sales
Fixed Assets Turnover Ratio = ___________________
Fixed Assets
It would be better if the ratio is worked out on the basis of the original cost of
fixed assets. We will take fixed assets at cost less depreciation while working this
ratio
d. Total Asset Turnover Ratio:
It indicates how efficiently the assets are employed overall. It
indicates relationships between the amount invested in the assets and the result
accrues in terms of sales.
Net Sales
Total Asset Turnover Ratio = ________________
Total Assets

The numerator includes net sales i.e. sales less sales returns and discount.
Average total assets are equal to total assets in beginning of the period plus total
assets at the ending of the period divided by 2.
e. Working Capital Turnover Ratio:
This ratio establishes relationship between cost of sales and net working
capital. As working capital has direct and close relationship with cost of goods sold,
therefore, the ratio provides useful idea of how efficiently or actively working capital
is being used.
Working capital turnover ratio = _____net sales______

Average net working capital

Net sales = opening stock + purchase + direct expenses – closing stock

Net working capital = current assets – current liability

28
f. Creditors or payable Turnover Ratio:
Creditor’s turnover ratio is the ratio between net credit purchase and the amount
of sundry creditors. It implies the credit period enjoyed by the firm in paying its
creditors. It is computed by use the following formula:
Net credit purchases
Creditors turnover ratio = ----------------------------------------------------
Average Creditors
The terms creditors for this ratio is the amount plus bills payable at the end of
the accounting period. Sometimes the ratio is computed by taking the average of
opening and closing creditors. The creditor’s turnover ratio may also be expressed in
days. Then it is known as creditor’s payment period or creditor’s velocity. It indicates
the how the credit period enjoyed by the creditors.
g. Capital Employed turnover ratio:
The Capital Employed Turnover Ratio shows how efficiently the sales are
generated from the capital employed by the firm. This ratio helps the investors or the
creditors to determine the ability of a firm to generate revenues from the capital
employed and act as a key decision factor for lending more money to the asking firm.
The formula to compute this ratio is
Net Sales
Capital employed turnover ratio = ___________________
Capital Employed
Where capital employed = Net worth + Long term borrowings
Net Worth = Share Capital + All Reserves
Higher the ratio better is the utilization of capital employed and shows the ability
of the firm to generate maximum profits with the minimum amount of capital
employed
D. Profitability ratios

The main object of a business concern is to earn profit. A company should

earn profits to survive and to grow over a long period. The operating efficiency of a
business concern is ultimately adjudged by the profits earned by it. Profitability
should distinguished from profits. Profits refer to the absolute quantum of profit,
whereas profitability refers to the ability to earn profits. In other words, an ability to
earn the maximum from the maximum use of available resources by the business

29
concern is known as profitability. Profitability reflects the final result of a business
operation. Profitability ratios are employed by the management in order to assess how
efficiently they carry on business operations. Profitability is the main base for
liquidity as well as solvency. Creditors, banks and financial institutions are interest
obligations and regular and improved profits enhance the long term solvency position
of the business

1. In relation to sales
a. Gross Profit Ratio: The gross profit margin is also known as gross margin. It
is calculated by dividing gross profit by sales. Thus,
Gross profit
Gross Profit Margin = ________________ *100
Sales
Gross profit is the result of the relationship between prices, sales volume and
cost. A change in the gross margin can be brought about by changes in any of these
factors. The gross margin represents the limit beyond which fall in sales price are
outside the tolerance limit. Further, the gross profit ratio/margin can also be used in
determining the extent of loss caused by theft, spoilage, damage, and so on in the case
of those firms which follow the policy of fixed gross profit margin in pricing their
products.
A high ratio of gross profit to sales is a sign of good management as it implies
that the cost of production of the firm is relatively low. It may also be indicative of a
higher sales price without a corresponding increase in the cost of goods sold. It is also
likely that cost of sales might have declined without a corresponding decline in sales
price. Nevertheless, a very high and rising gross margin may also be the result of
unsatisfactory basis of valuation of stock, that is, overvaluation of closing stock
and/or undervaluation of opening stock.
A relatively low gross margin is definitely a danger signal, warranting a careful
and detailed analysis of the factors responsible for it. The important contributory
factors may be (i) a high cost of production reflecting acquisition of raw materials and
other inputs on unfavorable terms, inefficient utilization of current as well as fixed
assets, and so on; and (ii) a low selling price resulting from severe competition,
inferior quality of the product, lack o f demand, and so on. A thorough investigation
of the factors having a bearing on the low gross margin is called for. A firm should

30
have a reasonable gross margin to ensure adequate coverage for operating expenses of
the firm and sufficient return to the owners of the business, which is reflected in the
net profit margin.
b. Operating profit ratio;-
The operating ratio is determined by comparing the cost of the goods sold and
other operating expenses with net sales.
Following formula is used to calculate operating ratio:
[(Cost of goods sold + Operating expenses / Net sates)] × 100
Here cost of goods sold = Operating stock + Net purchases + Manufacturing expenses
- Closing stock.
OR
= Net sales - Gross profit
Operating expenses = Office and administrative expenses + Selling and distribution
expenses
c. Net profit ratio: It is also known as net margin. This measures the relationship
between net profits and sales of a firm.

Net Profit Margin = earning after int. & tax___ * 100

Net Sales

A high net profit margin would ensure adequate return to the owners as well as
enable a firm to withstand adverse economic conditions when selling price is
declining, cost of production is rising and demand for the product is falling.
A low net profit margin has the opposite implications. However, a firm with low
profit margin can earn a high rate of return on investment if it has a higher turnover.
This aspect is covered in detail in the subsequent discussion. The profit margin
should, therefore, be evaluated in relation to the turnover ratio. In other words, the
overall rate of return is the product of the net profit margin and the investment
turnover ratio. Similarly, the gross profit margin and the net profit margin should be
jointly evaluated.

d. Expense ratio: Expense ratio (expense to sales ratio) is computed to show the
relationship between an individual expense or group of expenses and sales. It is
computed by dividing a particular expense or group of expenses by net sales.
Expense ratio is expressed in percentage.

31
 Formula:
Operating Expense
Expense Ratio = __________________
Net Sales
The numerator may be an individual expense or a group of expenses such as
administrative expenses, sales expenses or cost of goods sold. Expense ratio shows
what percentage of sales is an individual expense or a group of expenses. A lower
ratio means more profitability and a higher ratio means less profitability.
2. In relation to investments
a. Return on investments:
The basic objective of making investments in any business is to obtain
satisfactory return on capital invested. The nature of this return will be influenced by
factors such as, the type of the industry, the risk involved, the risk of inflation, the
comparative rate of return on gilt-edged securities and fluctuations in external
economic conditions. For this purpose, the shareholders can measure the success of a
company in terms of profit related to capital employed. The return on capital
employed can be used to show the efficiency of the business as a whole. The overall
performance and the most important, therefore, can be judged by working out a ratio
between profit earned and capital employed. The resultant ratio, usually expressed as
a percentage, is called rate of return or return on capital employed to express the idea,
the purpose is to ascertain how much income the use of Rs.100 of capital generates.
The return on “capital employed” may be based on gross capital employed or net
capital employed. The formula for this ratio may be written as follows.
Operating profit
Return on Investment = _____________________
Capital Employed
b. Return on Capital:
Return on capital employed or ROCE is a profitability ratio that measures how
efficiently a company can generate profits from its capital employed by comparing net
operating profit to capital employed. In other words, return on capital employed
shows investors how many dollars in profits each dollar of capital employed
generates. ROCE is a long-term profitability ratio because it shows how effectively
assets are performing while taking into consideration long-term financing. This is why

32
ROCE is a more useful ratio than return on equity to evaluate the longevity of a
company.
Formula:
Net Operating Profit
Return on Capital Employed = ____________________
Total Assets – Current Liabilities
c. Return on Equity Capital:
This is also known as return on net worth or return on proprietors’ fund. The
preference shareholders get the dividend on their holdings at a fixed rate and before
dividend to equity shareholders, the real risk remains with the equity shareholders.
Moreover, they are the owners of total profits earned by the firms after paying
dividend on preference shares. Therefore this ratio attempts to measure the firm’s
profitability in terms of return to equity shareholders. This ratio is calculated by
dividing the profit after taxes and preference dividend by the equity capital. Thus
Return on Equity = Net Profit after Taxes and Preference Dividend
Equity Capital
d. Return on total resources: This ratio is also known as the profit-to-assets ratio.
This ratio establishes the relationship between net profits and assets. As these two
terms have conceptual differences, the ratio may be calculated taking the meaning of
the terms according to the purpose and intent of analysis. Usually, the following
formula is used to determine the return on total asset ratio.
Net profit after interest and tax

Return on Total Assets = ___________________________ * 100

Total assets

e. Earnings per share:

Earnings per share or EPS is an important financial measure, which indicates the
profitability of a company. It is calculated by dividing the company’s net income with
its total number of outstanding shares. It is a tool that market participants use
frequently to gauge the profitability of a company before buying its shares.
Description: EPS is the portion of a company’s profit that is allocated to every
individual share of the stock. It is a term that is of much importance to investors and
people who trade in the stock market. The higher the earnings per share of a company,

33
the better is its profitability. While calculating the EPS, it is advisable to use the
weighted ratio, as the number of shares outstanding can change over time.
Earnings per share can be calculated in two ways:
1. Earnings per share: Net Income after Tax/Total Number of Outstanding Shares
2. Weighted earnings per share: (Net Income after Tax - Total Dividends)/Total
Number of Outstanding Shares

34
 CHAPTER-4
RESEARCH DESIGN

35
4. 1 Research Methodology:
In simple terms, methodology can be defined as, giving a clear cut idea on
what methods or process the researcher is going to use in his or her research to
achieve research objectives. In order to plan for the whole research process at a right
point of time and to advance the research work in the right direction, carefully chosen
research methodology is very critical. In other words; what is Research methodology
can be answered as it maps out the whole research work and gives credibility to whole
effort of the researcher.
Research methodology is a systematic way, which consists of series of action
steps, necessary to effectively carry out research and the desired sequencing to these
steps.

4.2 Research Objective:

The research will be conducted for five steel company on their ratio values. The
study will be undertaken for the period 1st April 2013 –march31st 2018.The aim of the
study to find out financial statement of the five Steel Company.

4.3 Research Hypothesis:

Ho1-: There is no significant difference in liquidity ratio of the selected ratios.

Ho2-: There is no significant difference between in leverage ratio of the selected

companies.

Ho3-: There is no significant difference between in activity ratio of the selected

company.

Ho4-: There is no significant difference between in profitability ratio of the selected

company.

4.4 Sample Design-:

Three leading Steel companies have taken in to consideration whose annual data
has taken into 5 years.

4.5 Data collection-:

Data have been collected from the secondary sources.

4.6 Tools for analysis-:

Anova is used for testing the hypothesis.

36
 CHAPTER-5
ANALYSIS AND FINDINGS

37
CHAPTER-5: Data Analysis and Findings
Financial ratios are divided into four categories: liquidity, leverage, activity and
profitable ratio for the purpose of the research.
Here we are only dealing with those ratios which can be applicable in this firm or
relevant for our study.
5.1. Liquidity ratios:
a. Current ratio-
Table 1:
CURRENT RATIO
TATA
YEAR SAIL STEEL JINDAL J SW OCL

2014 0.79 0.57 0.71 0.82 2.4

2015 0.68 0.62 0.74 1.02 0.59

2016 0.61 0.52 0.36 0.67 0.36

2017 0.6 0.55 0.32 0.79 0.26

2018 0.7 0.64 0.34 0.98 0.25

Source: Secondary data

Figure 1:

2.5

2 SAIL
TATA STEEL
1.5
JINDAL

1 J SW
OCL
0.5

0
2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY

38
 Groups Count Sum Average Variance
Column 1 5 3.38 0.676 0.00593
Column 2 5 2.9 0.58 0.00245
Column 3 5 2.47 0.494 0.04478
Column 4 5 4.28 0.856 0.02063
Column 5 5 3.86 0.772 0.84697

ANOVA
Source of
Variation SS Df MS F P-value F crit
Between Groups 0.60645 4 0.151613 7.741915 0.001362 3.055568
Within Groups 0.29375 15 0.019583

Total 0.9002 19

Anova result:
From the above table, it can be concluded that the tabulated value is 3.055 (F
crit) and the calculated value is 7.74. Here the calculated value is greater than the
tabulated value. So, the null hypothesis may be rejected. It means that there is no
significant difference in current ratio of the selected companies during the period of
study.
b. Quick ratio or Liquid ratio:
Table 2:
LIQUID RATIO
YEAR SAIL TATA STEEL JINDAL JSW OCL
2014 0.62 0.32 1.05 0.71 2.73
2015 0.55 0.27 1.22 0.67 0.55
2016 0.42 0.32 0.59 0.41 0.27
2017 0.38 0.28 0.54 0.56 0.17
2018 0.40 0.34 0.45 0.68 0.13

39
Figure: 2
3

2.5
SAIL
2
TATA STEEL
1.5
JINDAL
1 JSW
0.5 OCL
0
2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 2.37 0.474 0.01108
Column 2 5 1.53 0.306 0.00088
Column 3 5 3.85 0.77 0.11715
Column 4 5 3.03 0.606 0.01523
Column 5 5 3.85 0.77 1.2274

ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 0.795264 4 0.198816 0.724685 0.585361 2.866081
Within Groups 5.48696 20 0.274348

Total 6.282224 24

Anova result:
From the above table, it can be concluded that the tabulated value is 2.86 (F crit)
and the calculated value is 0.72. Here the calculated value is lesser than the tabulated
value. So, the null hypothesis may be accepted. It means that there is significant
difference in quick ratio of the selected companies during the period of study.

40
c. Cash ratio:
Table: 3
ABSOLUTE LIQUID RATIO OR CASH RATIO
YEAR SAIL TATA STEEL JINDAL JSW OCL
2014 0.36 0.28 0.84 0.59 2.64
2015 0.40 0.24 1.04 0.58 0.51
2016 0.27 0.28 0.52 0.28 0.25
2017 0.21 0.21 0.48 0.39 0.11
2018 0.27 0.28 0.40 0.49 0.12
Sources: Secondary data

Figure: 3

2.5
SAIL
2
TATA STEEL
1.5
JINDAL
1 JSW
0.5 OCL

0
2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 1.51 0.302 0.00587
Column 2 5 1.29 0.258 0.00102
Column 3 5 3.28 0.656 0.07408
Column 4 5 2.33 0.466 0.01733
Column 5 5 3.63 0.726 1.17083

41
ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 0.863216 4 0.215804 0.850204 0.510198 2.866081
Within Groups 5.07652 20 0.253826

Total 5.939736 24

Anova result:

From the above table, it can be analyzed that the tabulated value is 2.86 (F
crit) and the calculated value is 0.85. Here the calculated value is lesser than the
tabulated value. So, the null hypothesis may be accepted. It means that there is
significant difference in liquidity ratio or cash ratio of the selected companies during
the period of study.

5.2. Leverage ratio:

a. Debt to equity ratio:
Table: 4
DEBT TO EQUITY RATIO

YEAR SAIL TATA STEEL JINDAL JSW OCL

2014 0.57 0.43 1.74 1.09 2.63

2015 0.65 0.39 2.09 1.06 2.01

2016 0.84 0.44 1.04 1.58 3.01

2017 1.08 0.61 1.11 1.38 2.02

2018 1.18 0.45 0.94 1.14 2.03

Sources: Secondary data

42
Figure: 4
3.5
3
2.5 SAIL
2 TATA STEEL

1.5 JINDAL

1 JSW

0.5 OCL

0
2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 4.32 0.864 0.06983
Column 2 5 2.32 0.464 0.00718
Column 3 5 6.92 1.384 0.25393
Column 4 5 6.25 1.25 0.0499
Column 5 5 11.7 2.34 0.2101

ANOVA
Source of
Variation SS df MS F P-value F crit
Between 6.62E-
Groups 9.861536 4 2.465384 20.85985 07 2.866081
Within Groups 2.36376 20 0.118188

Total 12.2253 24

Anova result: From the above table, it can be concluded that the tabulated value is
2.86 (F crit) and the calculated value is 20.85. Here the calculated value is greater
than the tabulated value. So, the null hypothesis may be rejected. It means that there is
no significant difference in debt equity ratio of the selected companies during the
period of study.

43
b. Interest coverage ratio:
Table 5
INTEREST COVERAGE RATIO
YEAR SAIL TATA STEEL JINDAL JSW OCL
2014 3.19 4.56 2.48 2.33 1.10
2015 2.68 3.25 1.08 2.25 0.41
2016 -2.05 6.28 0.12 1.19 -0.44
2017 -0.83 4.35 0.37 2.41 -1.18
2018 0.72 6.41 0.86 3.04 -1.06
Sources: secondary data

Figure 5:
7
6
5
4 SAIL
3 TATA STEEL
2 JINDAL
1 JSW
0 OCL
-1 2014 2015 2016 2017 2018

-2
-3

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 3.71 0.742 5.00387
Column 2 5 24.85 4.97 1.82515
Column 3 5 4.91 0.982 0.84652
Column 4 5 11.22 2.244 0.44488
Column 5 5 -1.17 -0.234 0.95348

44
ANOVA
Source of
Variation SS df MS F P-value F crit
6.48E-
Between Groups 80.77078 4 20.1927 11.1268 05 2.866081
Within Groups 36.2956 20 1.81478

Total 117.0664 24
Anova result:
From the above table, it can be concluded that the tabulated value is 2.86 (F crit)
and the calculated value is 11.12. Here the calculated value is greater than the
tabulated value. So, the null hypothesis may be rejected. It means that there is no
significant difference in debt equity ratio of the selected companies during the period
of study.
c. Cash flow/ debt ratio :
Table 6:
CASH FLOW/DEBT RATIO
YEAR SAIL TATA STEEL JINDAL JSW OCL
2014 0.24 0.47 0.12 0.21 0.38
2015 0.09 0.18 0.05 0.24 0.65
2016 0.11 0.24 0.18 0.17 0.07
2017 0.05 0.36 0.16 0.25 0.16
2018 0.14 0.42 0.22 0.38 0.02
Source: Secondary data

Figure 6:

0.7
0.6
0.5 SAIL

0.4 TATA STEEL

0.3 JINDAL
0.2 JSW
0.1 OCL
0
2014 2015 2016 2017 2018

45
Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 0.63 0.126 0.00513
Column 2 5 1.67 0.334 0.01478
Column 3 5 0.73 0.146 0.00418
Column 4 5 1.25 0.25 0.00625
Column 5 5 1.28 0.256 0.06753

ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 0.147376 4 0.036844 1.882293 0.152988 2.866081
Within Groups 0.39148 20 0.019574

Total 0.538856 24

Anova result: From the above table, it can be analyzed that the tabulated value is
2.86 (F crit) and the calculated value is 1.88. Here the calculated value is lesser than
the tabulated value. So, the null hypothesis may be accepted. It means that there is
significant difference in cash flow/debt ratio of the selected companies during the
period of study.
5.3. Activity ratio:
a. Inventory turnover ratio:
Table 7:
INVENTORY TURNOVER RATIO
YEAR SAIL TATA STEEL JINDAL JSW OCL
2014 3.45 7.71 4.15 7.96 7.50
2015 2.88 5.79 3.94 5.87 12.48
2016 2.99 6.03 6.02 6.06 5.68

46
2017 3.17 5.20 8.21 6.14 9.52
2018 3.47 5.49 5.65 6.57 12.56
Source; secondary data

Figure 7:

14 SAIL
12
10 TATA STEEL
8 JINDAL
6
JSW
4
2 OCL
0
2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 15.96 3.192 0.07062
Column 2 5 30.22 6.044 0.96488
Column 3 5 27.97 5.594 2.96223
Column 4 5 32.6 6.52 0.71365
Column 5 5 47.74 9.548 9.20632

ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 103.7453 4 25.93632 9.317748 0.000203 2.866081
Within Groups 55.6708 20 2.78354

Total 159.4161 24

47
Anova result: From the above table, it can be concluded that the tabulated value is
2.86 (F crit) and the calculated value is 9.31. Here the calculated value is greater than
the tabulated value. So, the null hypothesis may be rejected. It means that there is no
significant difference in inventory turnover ratio of the selected companies during the
period of study.
b. Fixed assets turnover ratio:
Table 8:
FIXED ASSETS TURNOVER RATIO

YEAR SAIL TATA STEEL JINDAL JSW OCL

2014 0.89 1.07 0.41 0.91 0.55

2015 0.72 1 0.35 0.86 0.65

2016 0.51 0.88 0.27 0.74 0.23

2017 0.54 0.60 0.30 0.93 0.16

2018 0.61 0.72 0.33 1.12 0.24

Sources: Secondary data

Figure 8:
1.2

1
SAIL
0.8
TATA STEEL
0.6

JINDAL
0.4

0.2 JSW

0 OCL
2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 3.27 0.654 0.02393

48
Column 2 5 4.27 0.854 0.03778
Column 3 5 1.66 0.332 0.00282
Column 4 5 4.56 0.912 0.01897
Column 5 5 1.83 0.366 0.04783

ANOVA
Source of
Variation SS df MS F P-value F crit
Between 1.53E-
Groups 1.442856 4 0.360714 13.73312 05 2.866081
Within Groups 0.52532 20 0.026266

Total 1.968176 24

Anova result:
From the above table, it can be concluded that the tabulated value is 2.86 (F crit)
and the calculated value is 13.73. Here the calculated value is greater than the
tabulated value. So, the null hypothesis may be rejected. It means that there is no
significant difference in inventory turnover ratio of the selected companies during the
period of study.
c. Working capital turnover ratio:
Table 9:
WORKING CAPITAL TURNOVER RATIO
YEAR SAIL TATA JINDAL JSW OCL
STEEL
2014 8.06 -4.10 3.26 62.38 0.97
2015 8.39 -4.8 2.49 49.59 -2.96
2016 321.28 -5.01 -3.96 -7.14 -0.52
2017 -950.65 -3.83 -3.03 -51.66 -0.18
2018 -75.42 -4.71 -0.29 36.25 -0.24
Sources: Secondary data

Figure 9;

49
 400

200

0 SAIL
2014 2015 2016 2017 2018
-200 TATA STEEL
-400
JINDAL
-600
JSW
-800
OCL
-1000

-1200

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 -688.34 -137.668 229504.4
Column 2 5 -22.45 -4.49 0.25065
Column 3 5 -1.53 -0.306 10.32653
Column 4 5 89.42 17.884 2196.261
Column 5 5 -2.93 -0.586 2.08648

ANOVA
Source of
Variation SS df MS F P-value F crit
Between Groups 80798.04 4 20199.51 0.435873 0.781132 2.866081
Within Groups 926853.1 20 46342.65

Total 1007651 24

Anova result:
From the above table, it can be analyzed that the tabulated value is 2.86 (F
crit) and the calculated value is 0.43. Here the calculated value is lesser than the
tabulated value. So, the null hypothesis may be accepted. It means that there is

50
significant difference in working capital turnover ratio of the selected companies
during the period of study.
5.4. Profitability ratio:
a. Gross profit ratio:

Table 10:

GROSS PROFIT RATIO

YEAR SAIL TATA JINDAL JSW OCL
STEEL
2014 4.71 26.10 17.44 13.27 4.32
2015 6.30 19.17 14.33 13.20 3.98
2016 -13.57 13.81 2.30 9.59 -21.49
2017 -5.94 17.36 6.19 16.29 -57.37
2018 2.69 20.21 12.09 16.44 -41.39
Source: Secondary data

Figure 10:

40
30
20
10 SAIL
0 TATA STEEL
-10 2014 2015 2016 2017 2018
JINDAL
-20
-30 JSW
-40 OCL
-50
-60
-70

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 -5.81 -1.162 70.44687
Column 2 5 96.65 19.33 20.24605

51
Column 3 5 52.35 10.47 37.79305
Column 4 5 68.79 13.758 7.88147
Column 5 5 -111.95 -22.39 748.5529

ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 5475.834 4 1368.958 7.734925 0.000616 2.866081
Within Groups 3539.681 20 176.9841

Total 9015.515 24

Anova result:
From the above table, it can be concluded that the tabulated value is 2.86 (F
crit) and the calculated value is 7.73. Here the calculated value is greater than the
tabulated value. So, the null hypothesis may be rejected. It means that there is no
significant difference in gross profit ratio of the selected companies during the period
of study.
b. Operating profit ratio
Table 11
OPERATING PROFIT RATIO
YEAR SAIL TATA JINDAL JSW OCL
STEEL
2014 8.39 30.72 25.84 19.38 7.37
2015 10.18 23.95 27.67 19.24 7.10
2016 -7.42 18.87 19.22 17.35 0
2017 0.08 24.74 31.71 22.07 -22.71
2018 8.02 26.46 41.05 21.14 -19.50
Source : Secondary data

52
Figure 11

50
40
30 SAIL

20
TATA STEEL
10
0 JINDAL
2014 2015 2016 2017 2018
-10
JSW
-20
-30 OCL

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 19.25 3.85 54.8238
Column 2 5 124.74 24.948 18.39587
Column 3 5 145.49 29.098 64.97537
Column 4 5 99.18 19.836 3.35863
Column 5 5 -27.74 -5.548 211.7049

ANOVA
Source of
Variation SS df MS F P-value F crit
6.94E-
Between Groups 4330.3 4 1082.575 15.3227 06 2.866081
Within Groups 1413.034 20 70.65171

Total 5743.334 24

Anova result: From the above table, it can be concluded that the tabulated value is
2.86 (F crit) and the calculated value is 7.73. Here the calculated value is greater than
the tabulated value. So, the null hypothesis may be rejected. It means that there is no

53
significant difference in operating profit ratio of the selected companies during the
period of study.
c. Net profit ratio:

Table 12:
NET PROFIT RATIO
YEAR SAIL TATA JINDAL JSW OCL
STEEL
2014 5.60 15.37 8.88 2.94 0.39
2015 4.57 15.41 -2.32 4.70 -5.54
2016 -10.29 12.82 -11.17 -9.61 -1.45
2017 -6.37 7.17 -7.12 6.84 -65.49
2018 -0.83 6.99 -2.11 7.11 -61.48
Source: Secondary data

Figure 12:

20
10
0 SAIL
-10 2014 2015 2016 2017 2018
TATA STEEL
-20
JINDAL
-30
-40 JSW
-50 OCL
-60
-70

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 -7.32 -1.464 47.16958
Column 2 5 57.76 11.552 17.77072
Column 3 5 -13.84 -2.768 56.46077
Column 4 5 11.98 2.396 47.92983
Column 5 5 -133.57 -26.714 1133.372

54
ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 4024.23 4 1006.058 3.861424 0.017524 2.866081
Within Groups 5210.811 20 260.5406

Total 9235.041 24

Anova result:
From the above table, it can be concluded that the tabulated value is 2.86 (F crit)
and the calculated value is 3.86. Here the calculated value is greater than the tabulated
value. So, the null hypothesis may be rejected. It means that there is no significant
difference in net profit ratio of the selected companies the period of study.
d. Return on equity capital:
Table 13
RETURN ON EQUITY CAPITAL

YEAR SAIL TATA JINDAL JSW OCL

STEEL

2014 1.39 26.04 7.51 24.51 4.02

2015 1.37 26.04 84.78 29.53 7.01

2016 -0.58 26.04 84.78 6.07 -0.42

2017 0 26.04 84.77 39.16 -4.40

2018 1.28 22.07 80.14 45.42 0.10

Source : Secondary data

55
Figure 13:

90
80
70
SAIL
60
50 TATA STEEL
40 JINDAL
30 JSW
20
OCL
10
0
-10 2014 2015 2016 2017 2018

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 3.46 0.692 0.84737
Column 2 5 126.23 25.246 3.15218
Column 3 5 341.98 68.396 1162.501
Column 4 5 144.69 28.938 229.7622
Column 5 5 6.31 1.262 19.22092

ANOVA
Source of
Variation SS df MS F P-value F crit
1.74E-
Between Groups 15265.55 4 3816.387 13.48085 05 2.866081
Within Groups 5661.936 20 283.0968

Total 20927.48 24

Anova result: From the above table, it can be concluded that the tabulated value is
2.86 (F crit) and the calculated value is 13.48. Here the calculated value is greater
than the tabulated value. So, the null hypothesis may be rejected. It means that there is

56
no significant difference in return on equity capital of the selected companies during
the period of study.
e. Earnings per share:

Table 14:

EARNINGS PER SHARE

YEAR SAIL TATA JINDAL JSW OCL
STEEL
2014 6.33 66.02 14.12 54.05 0.10
2015 5.07 66.30 -3.40 88.47 -4.19
2016 -9.74 50.46 -15.50 -14.60 -14.01
2017 -6.86 35.47 -10.78 14.89 -13.39
2018 -1.17 34.63 -3.74 19.22 -19.00
Source: Secondary dats

Figure 14:

100

80

60 SAIL
TATA STEEL
40
JINDAL
20
JSW
0 OCL
2014 2015 2016 2017 2018
-20

-40

Anova: Single Factor

SUMMARY
Groups Count Sum Average Variance
Column 1 5 -6.37 -1.274 50.23863
Column 2 5 252.88 50.576 242.0602
Column 3 5 -19.3 -3.86 126.7206

57
Column 4 5 162.03 32.406 1575.47
Column 5 5 -50.49 -10.098 61.07257

ANOVA
Source of
Variation SS df MS F P-value F crit
Between
Groups 14042.8 4 3510.7 8.539515 0.000345 2.866081
Within Groups 8222.248 20 411.1124

Total 22265.05 24

Anova result: From the above table, it can be concluded that the tabulated value is
2.86 (F crit) and the calculated value is 8.53. Here the calculated value is greater than
the tabulated value. So, the null hypothesis may be rejected. It means that there is no
significant difference in earnings per share of the selected companies during the
period of study.

5.5 Findings:
It is clear that the ratios like current ratio, debt to equity ratio, interest
coverage ratio, inventory turnover ratio, fixed asset turnover ratio, gross profit,
operating profit ratio, return on equity, earnings per share doesn’t have any significant
difference between them based on the sales turnover of the company whereas the
ratios like quick ratio, cash ratio, cash flow debt ratio and working capital turnover
ratio have a significant difference based on the size of the company.

58
CHAPTER- 6
CONCLUSION

59
6.1 CONCLUSION

The “financial statement analysis” plays a vital role in helping the financial
manager and top management of company to plan and control their financial
structural operations. An efficient analysis would therefore highlight the pitfalls in
management in terms of financial matters such as income, expenditure, export and
domestic sales, profitability, fund availability, liquidity, etc. this give an idea about
controllable and uncontrollable variables. These can be re-examined and integrated to
evolve idea, which can give efficient financial decision. A sound financial decision
gives the way for higher profitability and performance. It is nothing but a fine-tuning
of control systems in financial structure.

60
 Reference / bibliography
Websites:
 www.google.com
 www.sail.com.in
 www.jindasteelpower.com
 www.bseindia.com
 www.moneycontrol.com
 www.yahoofinance.com
 www.myaccountingcourse.com
Annual Reports :
 2013 – 2014
 2014 – 2015
 2015 – 2016
 2016-2017
 2017-2018

Referred Books:
 Financial Management - I. M. Pandey
 Financial Analysis Tools & Techniques – Erich A. Helfert
 Interpreting & Analyzing Financial Statements – Karen P. Shoepack
 Research Methodology – C. R. Kothari

61