1

A Study on Financial Statement Analysis of JSPL

A
Project Report
In partial fulfillment of
Integrated Master of Business Administration
By
Abhishek Kumar
CUJ/I/2012/MBA/03, Sem-IV
Centre for Business Administration
Central University of Jharkhand, Ranchi






Under the supervision of
Mrs. Neha Kaur
Asst. Professor
Centre for Business Administration



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DECLARATION
I hereby declare that the work incorporated in this report entitled A STUDY ON
FINANCIAL STATEMENT ANALYSIS OF JSPL is the outcome of original study
undertaken by me carried out under the guidance of Mrs. Neha Kaur, Asst. Professor,
Central University of Jharkhand.
I further declare that the matter in this report has not been submitted by me as a whole or in
part at any other University or Institution for the award of any Degree or Diploma.



Date- ------------------------------
Place- (Abhishek Kumar)
Integrated MBA
CUJ/I/2012/MBA/03.
Centre for Business Administration





3




CERTIFICATE
This is to certify that the contents of this thesis entitled A STUDY ON FINANCIAL
STATEMENT ANALYSIS OF JSPL by Abhishek Kumar (4
th
Sem.) submitted to Center
for Business Administration (CUJ) for the Award of Degree Master of Business
Administration (MBA) is original research work carried out by him under my supervision.

This report has not been submitted either partly or fully to any other University or Institute
for award of any degree or diploma to best of my knowledge.





Date- ------------------------------
Place- (Mrs. Neha Kaur)
Asst. Professor




4





ACKNOWLEDGEMENT
We express our deep and sincere thanks to our guide Mrs. Neha Kaur. Initially she helped
me in selecting this project and then guided me throughout the project. She also helped me
by taking a lot of pain and sacrificing their personal valuable time in completion of this
project report.
I would like to thank my Librarian, who took adequate care & effort in searching books,
magazines, journals, etc. I also would like to thanks our faculty Mr. Vijay Sharma for his
guidance in completion of my project smoothly and well in stipulated timeframe.
Last but not the least, I would like to cite my beloved parents and all my friends for their
and encouragement, support and blessings. These pages could scarcely have been written
without their help.
We express our gratitude to the Head and Faculty members of Center for Business
Administration (CUJ), who directly or indirectly helped me.










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INDEX

S.NO. CONTENTS PAGE NO.

CHAPTER-1

1.1 Introduction to the study 07-11
1.2 Objectives of the study 11
1.3 Limitations of the study 12
1.4 Research methodology 12

CHAPTER-2

2.1 Company profile 14-20

CHAPTER-3

3.1 Theoretical framework 22-28

CHAPTER-4

4.1 Data analysis and interpretation 30-39

CHAPTER-5

5.1 Findings 41
5.2 Suggestions 41-42
5.3 Conclusion 42

BIBLIOGRAPHY 43
ANNEXTURE 44-46




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CHAPTER-1

7



1.1 INTRODUCTION TO THE STUDY :-
Financial Management is that managerial activity which is concerned with the planning and
controlling of the firms financial resources. Though it was a branch of economics till 1890
as a separate or discipline it is of recent origin.
Financial Management is concerned with the duties of the finance manager in a business
firm. He performs such varied tasks as budgeting, financial forecasting, cash management,
credit administration, investment analysis and funds procurement. The recent trend towards
globalization of business activity has created new demands and opportunities in managerial
finance.
Financial statements are prepared and presented for the external users of accounting
information. As these statements are used by investors and financial analysts to examine the
firms performance in order to make investment decisions, they should be prepared very
carefully and contain as much investment decisions; they should be prepared very carefully
and contain as much information as possible. Preparation of the financial statement is the
responsibility of top management. The financial statements are generally prepared from the
accounting records maintained by the firm.
Financial performance is an important aspect which influences the long term stability,
profitability and liquidity of an organization. Usually, financial ratios are said to be the
parameters of the financial performance. The Evaluation of financial performance had been
taken up for the study with JSPL as the project.
Analysis of Financial performances is of greater assistance in locating the weak spots at the
JSPL even though the overall performance may be satisfactory. This further helps in
Financial forecasting and planning.
Communicate the strength and financial standing of the JSPL.
For effective control of business.

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Meaning of Financial Statement
Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statement includes at least two statements which the
accountant prepares at the end of an accounting period.
The two statements are: -
The Balance Sheet
Profit And Loss Account
They provide some extremely useful information to the extent that 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 and 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 statement provides a summarized view of financial
position and operations of a firm.
Meaning of Financial Analysis
The first task of financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. The second step
is to arrange the information in a way to highlight significant relationship. The final step is
9


interpretation and drawing of inference and conclusions. Financial statement is the process
of selection, relation and evaluation.

Features of Financial Analysis
To present a complex data contained in the financial statement in simple and
understandable form.

To classify the items contained in the financial statement inconvenient and rational
groups.
To make comparison between various groups to draw various conclusions.
.
Procedure of Financial Statement Analysis:-

The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that he may be able to find out
whether these plans are properly executed or not.
The extent of analysis should be determined so that the sphere of work may be decided.
If the aim is find out. Earning capacity of the enterprise then analysis of income
statement will be undertaken. On the other hand, if financial position is to be studied
then balance sheet analysis will be necessary.
The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form. A
relationship is established among financial statements with the help of tools &
techniques of analysis such as ratios, trends, common size, fund flow etc.
The information is interpreted in a simple and understandable way. The significance
10


and utility of financial data is explained for help indecision making.
The conclusions drawn from interpretation are presented to the management in the
form of reports.
Analyzing financial statements involves evaluating three characteristics of
a company: its liquidity, its profitability, and its insolvency. A short-term creditor, such as a
bank, is primarily interested in the ability of the borrower to pay obligations when they
come due. The liquidity of the borrower is extremely important in evaluating the safety of a
loan. A long-term creditor, such as a bondholder, however, looks to profitability and
solvency measures that indicate the companys ability to survive over a long period of time.
Long-term creditors consider such measures as the amount of debt in the companys capital
structure and its ability to meet interest payments. Similarly, stockholders are interested in
the profitability and solvency of the company. They want to assess the likelihood of
dividends and the growth potential of the stock.
Comparison can be made on a number of different bases. Following are the three
illustrations:
1. Intra-company basis.
This basis compares an item or financial relationship within a company in the current year
with the same item or relationship in one or more prior years. For example, Sears, Roebuck
and Co. can compare its cash balance at the end of the current year with last years balance
to find the amount of the increase or decrease. Likewise, Sears can compare the percentage
of cash to current assets at the end of the current year with the percentage in one or more
prior years. Intra-company comparisons are useful in detecting changes in financial
relationships and significant trends.
2. Industry averages.
This basis compares an item or financial relationship of a company with industry averages
(or norms) published by financial ratings organizations such as Dun & Bradstreet, Moodys
and Standard & Poors. For example, Searss net income can be compared with the average
11


net income of all companies in the retail chain-store industry. Comparisons with industry
averages provide information as to a companys relative performance within the industry.
3. Intercompany basis.
This basis compares an item or financial relationship of one company with the same item or
relationship in one or more competing companies. The comparisons are made on the basis
of the published financial statements of the individual companies. For example, Searss total
sales for the year can be compared with the total sales of its major competitors such as
Kmart and Wal-Mart. Intercompany comparisons are useful in determining a companys
competitive position.

1.2 Objective of Analysis of financial statements
To know the earning capacity or profitability.
To know the solvency.
To know the financial strengths.
To know the capability of payment of interest & dividends.
To make comparative study with other firms.
To know the trend of business.
To know the efficiency of management.
To provide useful information to management



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1.3 LIMITATIONS OF THE STUDY:-
As the study is based on secondary data, the inherent limitation of the secondary data would
have affected the study.
The figures in financial statements are likely to be a least several months out of date, and so
might not give a proper indication of the companys current financial position.
This study need to be interpreted carefully. They can provide clues to the companys
performance or financial situation. But on their own, they cannot show whether
performance is good or bad. It requires some quantitative information for an informed
analysis to be made.

1.4 RESEARCH METHODOLOGY
The research is secondary in nature. For the purpose of the study, relevant information has
been collected through books, articles, websites and annual reports of the company under
study.










13










CHAPTER 2



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2.1 COMPANY PROFILE: JINDAL STEEL & POWER LIMITED
JSPL commenced operations in 1991. Jindal Steel and Power Limited (JSPL) is one of
Indias leading steel Manufacturers with a significant presence in mining, power generation
and infrastructure.
Shri O. P. Jindal, an industrialist par excellence under whose aegis the O. P. Jindal Group
grew from strength to strength. But for the world at large Shri O. P. Jindal was much more
than that. He was a leader of the masses, someone who would often champion the cause of
the poor and downtrodden. He was not just a celebrated politician, but also a great
humanitarian and an avant-garde visionary. His life both as an industrialist and as a social
worker left an indelible mark on this nation. And for us at the O. P. Jindal group, his life
gives us inspiration to touch new heights.
The Jindal Group is a US$ 15 billion conglomerate, which over the last three decades has
emerged as one of India's most dynamic business organization. The Jindal Group was
founded in 1952 by steel visionary Shri O. P. Jindal, a first-generation entrepreneur who
started an indigenous single-unit steel plant in Hisar, Haryana.
Over the last 3 decades the Group has grown to be a US$ 15 billion, multi-national and
multi-product steel conglomerate with business interests spanning across mining, power,
industrial gases, and port facilities and of course steel making. From mining iron ore and
coal, the group produces sponge iron, Ferro alloys and a wide range of hot-rolled and cold-
rolled steel products ranging from HR coils/sheets/plates, hot-rolled structural sections and
rails to CR coils/sheets, high-grade pipes and value added items such as stainless steel,
galvanized steel & coated pipes.
GROWTH AND DEVELOPMENT
Growth has been a way of life for the Jindal Group and its motto all along has been 'Growth
with a social conscience.' The group places its commitment to sustainable development, of
15


its people and the communities in which it operates, at the heart of its strategy and aspires to
be a benchmark in this direction for players in the industry the world over. The group's
strength lies in dynamic and aggressive approach of the leaders of the group. These leaders
are none other than the four sons of Shri O. P. Jindal.
The group has already announced its intention to set up Greenfield steel plants and power
plants in the state of West Bengal, Jharkhand, Chhattisgarh, Odisha, Rajasthan, Maharashtra
and Karnataka. The group is continuously on the lookout for acquiring various Iron ore and
Coal mines, critical inputs for steel making. The technology-driven group employs over
50,707 people across the globe. Shri O. P. Jindal over the years built a reputation of
integrity and dynamism and his four sons are today continuing with his rich legacy. Now
headed by Smt. Savitri Devi Jindal, the group is still expanding, integrating, amalgamating
and growing across sectors around the world.
VISION, MISSIONAND VALUES OF THE COMPANY
VISION
To be a globally admired organization that enhances the quality of life of all stakeholders
through sustainable industrial and business development.
MISSION
We aspire to achieve business excellence through:
The spirit of entrepreneurship and innovation.
Optimum utilization of resources.
Sustainable environment friendly procedures and practices.
The highest ethics and standards.
Hiring, developing and retaining the best people.
Maximizing returns to stakeholders.
Positive impact on the communities we touch.
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VALUES
JSPL aspires to achieve business excellence through:
Passion for People
Business Excellence
Integrity, Ownership
The core team of the group comprises the founder's four sons who manage group
companies:
Mr. Prithvi Raj Jindal Mr. Sajjan Jindal
Jindal Saw Ltd.
Jindal SAW USA , LLC
HexaSecurities&FinanceCompany Ltd.
IUP Jindal Metals and Alloys Limited
S V Trading Limited
Jindal ITF Ltd.
JSW Steel Ltd.
JSW Energy Ltd.
JSW Holdings Ltd.
JSW Infrastructure&Logistics Ltd.
Vijay agar Minerals Pvt. Ltd.
Jindal Praxair Oxygen Company
Ltd.
Soft Solutions Ltd.
JSW Building Systems Ltd.


Mr. Rattan Tindal Mr. Naveen Jindal
JSL Stainless Limited
PT Jindal Stainless, Indonesia
JSS Steel Italia Ltd.
Jindal Stainless Steel way Ltd.
Austenitic Creations power Ltd.
Jindal Architecture Limited
Jindal Steel & Power Limited
Jindal Power Limited
Jindal Petroleum Limited
Jindal Steel Bolivia S.A.
Jindal Shaded Iron & Steel LLC.
Jindal Africa Pty. Investments
17


Parivartan City Infrastructure Ltd. Jindal Cement
Jindal Power Trading Company
With an annual turnover of over US$ 3.5 billion, JSPL is a part of the US$ 15 billion
diversified O. P. Jindal Group and is consistently tapping new opportunities by increasing
production capacity, diversifying investments, and leveraging its core capabilities to venture
into new businesses. The company has committed investments exceeding US$ 30 billion in
the future and has several business initiatives running simultaneously across continents.
Mr. Naveen Jindal, the youngest son of the legendary Shri. O. P. Jindal spearheads JSPL
and its group companies. The company produces economical and efficient steel and power
through backward and forward integration.
From widest flat products and a range of long products including contemporary parallel
flange beams, JSPL offers a product to answer every need and niche in the steel market.
JSPL also produces world's longest 121 metre rails. On the offing are plate mill to produce
up to 4.85 metre wide plates at Angul, Odisha, a bar and wire rod mill at Patratu, Jharkhand
and a medium and light structural mill at Raigarh, Chhattisgarh. In future, JSPL aims to
grow even faster and contribute more substantially to India's growth and prosperity.
JSPL has powered many ground-breaking initiatives, the latest being the Coal to Liquid
project. The company is investing close to US $ 8.4 billion on the Ramchandi Promotional
Coal Block in Odisha to produce an estimated 80,000 barrels per day (4.0 MMTPA) crude
using environment friendly Indirect Coal Liquefaction technology from M/s. Lurgi of
Germany. JSPL is running a 358 MW captive power generation plant at Raigarh with waste
heat recovered from rotary kilns and coal middling. Jindal Power Limited, subsidiary of
JSPL is a power generation company with a fully operational 1000 MW Thermal Power
project at Tamnar, Raigarh in the state of Chhattisgarh. Currently, JPL is expanding the
capacity of its existing power plant at Tamnar by setting up a 2400 MW (4 x 600 MW)
Thermal Power Plant in the state of Chhattisgarh at an estimated cost of Rs. 13,410 crore.
18


The company is executing business expansion and capacity addition programmes in thermal
and hydro segments of power sector in the states of Chhattisgarh, Jharkhand and Arunachal
Pradesh being developed through Joint Venture with Hydro Power Development
Corporation of Arunachal Pradesh Limited (HPDCAPL) besides establishing a presence in
other forms of power generation such as gas, hydro, wind, nuclear and solar power, with a
focus on hydro and other forms of environment friendly renewable energy sources. Together
with Jindal Power Limited (JPL), the company will muster a combined generation capacity
of 15,000 MW of power over the next ten years, helping the government deliver on its
vision of Affordable Power for All by 2012.
GEOGRAPHIC DIVERSITY
Jindal Steel & Power Limited has acquired the development rights for 20 billion tons of El
Mutun Iron Ore Reserves in Bolivia, South America. Jindal Steel Bolivia S.A. (JSB) will
invest US$ 2.1 billion on building steel, sponge iron, iron ore pellet and a power plant. The
company proposes to set up mining and steel making facilities, and establish the necessary
infrastructure through JSB. This is the largest investment by an Indian company in Latin
America and also the largest foreign investment on a single project in Bolivia. With coal
reserves in Indonesia and South Africa, the search for mines continues from Mozambique to
Madagascar and for diamonds in Democratic Republic of Congo and the states of
Chhattisgarh & Jharkhand in India.
Corporate office at New Delhi, India.
Manufacturing plants located at Raigarh in Chhattisgarh, Angul in Orissa and Patratu in
Jharkhand.
The Machinery division is located in Raipur.
Captive coal mines are located at Dongamahua and Tamnar, Chhattisgarh, iron ore mine
at Tensa, Orissa and iron ore pelletisation plant at Barbil, Orissa
Offices located at seven locations and 11stockyards, ensuring a pan-India footprint
19


Global presence in Brazil, Bolivia, Georgia, China, Mongolia, Mozambique,
Democratic Republic of Congo, Indonesia, Madagascar, South Africa and the Sultanate of
Oman.
TECHNOLGY COLLABORATIONS
SMS Siemag, Germany
Lurgi, Germany
Danieli, Italy
Siemens VAI, Austria
Concast, Switzerland
Outotech, Germany

SWOT ANALYSIS OF JSPL

Strength:
Produces economical and efficient
steel and power through backward and
forward integration.
Sports a product portfolio that caters
to varied needs in the steel market.
Operates the largest coal - based
sponge iron plant in the world.
Have force of innovation, adaptation
of new technologies and the collective
skills of its 15,000 strong, committed
workforce.
Have an enterprising spirit and the
ability to discern future trends.
Have operations in Steel, iron,
electricity generation and distribution.

Weakness:
Shortage of coking coal and is
largely dependent upon its import.
Weak performance on the back of
the higher raw material cost and the
power & fuel cost.
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Opportunities:
Venture into new businesses by
leveraging its core capabilities.
Increase production capacity to meet the
global steel demand.
Diversify investments to distribute risk
in business.
Threats:
Hike in the export duty on iron ore
fines and lumps.
Project implementation and raw
material security.
Issues related to land acquisition,
raw material linkages and
environmental clearances.



















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CHAPTER 3












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3.1 THEORITICAL FRAMEWORK
FINANCIAL RATIO ANALYSIS
Ratio Analysis is one of the powerful tools of the financial analysis. A ratio can be defined
as The indicated quotient of two mathematical expressions and as the relationship
between two or more things. Ratio is thus, the numerical or an arithmetical relationship
between two figures. It is expressed where on figure is divided by another. In finance
analysis ratio is used as a benchmark of a firm.
A ratio is the relationship between two accounting items expressed mathematically. Ratio
analysis helps the analyst to make quantitative judgment with regard to concerns financial
position and performance. This relationship can be expressed as a percentage or as quotient.
Ratio analysis is the systematic use of ratio to interpret the financial statements so that the
strengths and weakness of a firm as well as its historical performance and current financial
position can be determined. Undisputedly the ratio analysis occupies place of prime
importance.
DEFINITION:-
According to Prof. T.Spring field, Prof. T.Mass & Merriam, a ratio is defined as The
indicated quotient of two mathematical impression and as The relationship between two
(or) more things.
SIGNIFICANCE OF RATIO ANALYSIS
Ratio analysis is of great help of commercial bankers, trade creditors and institutional
lenders. They judge the ability of borrowing enterprises by observing various ratios like the
current ratio, acid test ratio, and turnover of receivables, inventory turnover, and coverage of
interest by the level of earnings.
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Ratio analysis also helps long term creditors in knowing the ability of a borrowing
enterprises to pay interest principal in case earnings decline they find valuable the ratios of
total debt to equity and total debt to total assets.
Investors in shares judge the performance of the company by observing the per share into
ratios like earnings per share, book value per share, market price per share, dividends per
share etc. Lastly, ratio analysis is of great use of the management of the firm.
Management of the firm is interested in every aspect of ratio analysis as it is their overall
responsibility to see that the resources of the firm are used most efficiently and effectively
and that the firms financial conditions is sound.
STANDARDS FOR COMPARISON
For making a proper use of ratios, it is essential to have fixed standard for comparison. A
ratio by itself has very little meaning unless it is compared to some appropriate standard.
Selection of proper standards of comparison is a most important element is ratio analysis.
The four most common standard used in ratio analyses are as follows:
1. Absolute 2. Historical
3. Horizontal 4. Budgeted
1. Absolute: -
Absolute standards are those, which become generally recognized as being desirable
regardless of the type of the company, the time, stage of business cycle, or the objectives of
the analyst.
2. Historical: -
Historical standards involve comparing a companys own past performance as a standard for
the present or future. But this standard may not provide sound basis for judgment, as the
historical figure a may not have represented an acceptable standard.
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3. Horizontal: -
In case of horizontal standards one company is compared with another or with average of
other companies of the same nature. It is also called as intra-firm comparison.
4. Budgeted: -
The budgeted standard is arrived at after preparing the budget for a period. Ratios developed
from actual performance are compared to the planned ratios in the budget to examine the
degree of accomplishment to the anticipated targets of the firms.
ADVANTAGES OF RATIO ANALYSIS
Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages of ratio analysis:
1. Simplifies financial statements: It simplifies the comprehension of financial statements.
Ratios tell the whole story of changes in the financial condition of the business.
2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios
highlight the factors associated with successful and unsuccessful firm. They also reveal
strong firms and weak firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in
its basic functions of forecasting. Planning, co-ordination, control and communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison
of the performance of different divisions of the firm. The ratios are helpful in deciding about
their efficiency or otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the case of investors
and lending decisions in the case of bankers etc.


25



OBJECTIVES OF RATIO ANALYSIS
Ratio Analysis is the principal tool for analysis of financial statements. Other conducts it not
only by management but also like suppliers, banks tending, and institutions, prospective
investors etc.
The following are usually the objectives for which ratio analysis is conducted.
I. To evaluate financial position and performance of a firm.
II. To indicate the trend or progress or down fall of a firm.
III. To assess the credit worthiness of a firm,
IV. To assess the efficiency with which working capital is being used in a firm.
LIMITATIONS OF RATIO ANALYSIS
The ratios analysis is one of the most powerful tools of financial management. Though
ratios are simple to calculate and easy to understand, they suffer from serious limitations.
1. Limitations of financial statements: Ratios are based only on the information which has
been recorded in the financial statements. Financial statements themselves are subject to
several limitations. Thus ratios derived, there from, are also subject to those limitations. For
example, non-financial changes though important for the business are not relevant by the
financial statements. Financial statements are affected to a very great extent by accounting
conventions and concepts. Personal judgment plays a great part in determining the figures
for financial statements.
2. Comparative study required: Ratios are useful in judging the efficiency of the business
only when they are compared with past results of the business. However, such a comparison
only provide glimpse of the past performance and forecasts for future may not prove correct
26


since several other factors like market conditions, management policies, etc. may affect the
future operations.
3. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful comparison is
to be made through accounting ratios.
4. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There
are no well accepted standards or rule of thumb for all ratios which can be accepted as
norm. It renders interpretation of the ratios difficult.
5. Limited use of single ratios: A single ratio, usually, does not convey much of a sense.
To make a better interpretation, a number of ratios have to be calculated which is likely to
confuse the analyst than help him in making any good decision.
6. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpret and different people may interpret the same ratio in different way.
7. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison of
ratios difficult and misleading.
CLASSIFICATION OF RATIO
Ratio may be classified into the four categories as follows:
a) Liquidity Ratios: These are the ratios which measure the short-term solvency or
financial position of a firm. These ratios are calculated to comment upon the short-term
paying capacity of a concern or the firms ability to meet its current obligations. The various
liquidity ratios are current
a. Current Ratio
b. Quick Ratio or Acid Test Ratio
27



b) Long-term Solvency and Leverage Ratios: These are meant for testing long-term
financial soundness of any unit. Primarily, these establish and study relationship between
owned funds and loaned funds.
a. Debt Equity Ratio
b. Proprietary Ratio
c. Fixed Assets to Proprietors Fund Ratio
d. Capital Gearing Ratio
e Interest Coverage Ratio

c) Activity Ratios: Activity ratios are calculated to measure the efficiency with which the
resources of a firm have been employed. These ratios are also called turnover ratios because
they indicate the speed with which assets are being turned over into sales, e.g., debtors
turnover ratio. The various activity or turnover ratios have been named as;
a. Stock Turnover Ratio
b. Debtors or Receivables Turnover Ratio
c. Average Collection Period
d. Creditors or Payables Turnover Ratio
e. Average Payment Period
f. Fixed Assets Turnover Ratio
g. Working Capital Turnover Ratio

d) Profitability Ratios: These ratios are measure the working results of the unit during the
accounting period. Profits are compared with sales level and investment level. The various
profitability ratio have been given in the chart exhibiting the classification of ratios
according to test. Generally, two types of profitability ratios are calculated:



28


(A) Profitability Ratio based on Sales:
a. Gross Profit Ratio
b. Net Profit Ratio
c. Operating Ratio
d. Expenses Ratio
(B) Profitability Ratio Based on Investment:
I. Return on Capital Employed
II. Return on Shareholders Funds:
a. Return on Total Shareholders Funds
b. Return on Equity Shareholders Funds
c. Earning Per Share
d. Dividend Per Share

















29






CHAPTER 4


30



4.1 Data Analysis and Interpretation
The technique used to analyze financial statements of JSPL is Ratio analysis.
I). Liquidity Ratio
Current Ratio -This is the most widely used ratio. It is the ratio of current assets to current
liabilities. It shows a firms ability to cover its current liabilities with its current assets. This is
also known as Working Capital Ratio. It is expressed as follows:
Current Ratio =



Year Ratio
2010-2011 0.77
2011-2012 0.70
2012-2013 0.84



Interpretation: - With the Current Ratio of 2:1 (or) more is considered as satisfactory
position of the firm which implies that for one rupee of current liabilities, two rupee of
current assets are require to meet short term obligations. The current ratio represents the
margin of safety for creditors. The current ratio has increased in the year 2013 is 0.84
which in even very low. In all the three years the current ratio of JSPL is very low which
0.77
0.7
0.84
0.6
0.65
0.7
0.75
0.8
0.85
0.9
2010-2011 2011-2012 2012-2013
current ratio
Ratio
31


indicates that the short term liquidity of the firm in not satisfactory and the firm will not be
able to meet the short term obligation quickly.

Quick Ratio:-It shows a firms ability to meet current Liabilities with its most liquid
(quick) Assets. Liquid Assets are those assets, which are readily converted into cash. This
is also known as Liquid Ratio and Acid Test Ratio. It is calculated as under;
Quick ratio =

Year Ratio
2010-2011 0.54
2011-2012 0.46
2012-2013 0.58



Interpretation: - The quick ratio is much more exacting measure than the current ratio to
pay-off the debt of the company. A quick ratio of 1:1 is considered to be satisfactory. From
the above table we find that quick ratio of JSPL decreased in the year 2012 which implies
that the inventories might not be converted into cash and leads to reduction in quick ratio.
But in the year 2013 it increases due to increase in the cash and equivalent. It is also
indicating that major portion of the current asset is inventory.

0.54
0.46
0.58
0
0.2
0.4
0.6
0.8
2010-2011 2011-2012 2012-2013
quick ratio
Ratio
32


II ). LEVERAGE RATIO
Debtequity ratio:-This ratio is calculated to measure the relative proportions of
outsiders funds and shareholders funds invested in the company. This ratio is determined
to ascertain the soundness of long-term financial policies of the company and is also known
as external equity ratio. It is calculated as
Debt-Equity ratio =

Year Ratio
2010-2011 0.96
2011-2012 0.89
2012-2013 1.10




Interpretation: - Debt Equity Ratio indicates the extent of funds provide by the long term
lenders in comparison to the funds provided by the owners, i.e., shareholders.. With the
Debt-Equity ratio of 2:1 (or) less is considered as satisfactory position of the firm. If this
ratio is higher than 2:1, it means that long terms borrowing are more than twice in
comparison to funds provided by owners and it will indicate a risky financial position. The
above data shows that company leverage position or debt-equity ratio is increased in the
0.96
0.89
1.1
0
0.2
0.4
0.6
0.8
1
1.2
2010-2011 2011-2012 2012-2013
debt equity ratio
Ratio
33


year 2013 but it is favourable to the company because debtequity ratio is less than 2, which
is showing low financial risk to the company

Proprietary ratio :-A variant of debt to equity ratio is the proprietary ratio, which shows
the relationship between shareholders funds and total assets. This ratio indicates the
proportion of total assets funded by owners or shareholders. It is calculated as
Proprietary ratio =



Year Ratio
2010-2011 0.33
2011-2012 0.32
2012-2013 0.31



Interpretation: - From above data the ratio is showing an equal trend over the past three
years. The Proprietary ratio of the company is0.31 in the year 2013.Which implies that the
for every one rupee of total assets , contribution of 31 paisa has come from owners fund &
remaining balance i.e. 69 paisa is contributed by the outside creditors. This shows that
0.33
0.32
0.31
0.3
0.31
0.32
0.33
0.34
2010-2011 2011-2012 2012-2013
Proprietary Ratio
Ratio
34


approximately 1/3
rd
portion of total asset is financed through shareholders fund and
remaining is from debt.

Inventory Turnover Ratio - This ratio measures the stock in relation to turnover in
order to determine how often the stock turns over in the business. Inventory Turnover
Ratio measures the velocity of conversion of stock into sales. It indicates the efficiency of
the firm in selling its product. It is calculated by dividing the cost of goods sold by the
average inventory. It is calculated as under:
Inventory Turnover Ratio =



Year Ratio
2010-2011 1.54
2011-2012 1.72
2012-2013 1.48


Interpretation: - Usually, a high inventory turnover/ stock velocity indicates efficient
management of inventory because more frequently the stocks are sold, the lesser amount of
money is required to finance the inventory. In the year 2012 it is maximum it is due to
inventory holding period is minimum w.r.t other two periods. The inventory turnover ratio
1.54
1.72
1.48
1.3
1.4
1.5
1.6
1.7
1.8
2010-2011 2011-2012 2012-2013
inventory turnover ratio
Ratio
35


of the company is still minimum which indicates a blockage of capital in stock i.e. the cash
conversion period is high.

III). Profitability Ratio
Gross profit margin: - The gross profit should be adequate to cover fixed expenses
dividends and building up of reserves. Higher the ratio, the better it is. A low ratio indicates
unfavourable trend in the form of reduction in selling prices. This ratio tells gross margin on
trading and is calculated as
Gross Profit Margin =

x 100
Year %
2010-2011 73.11
2011-2012 65.47
2012-2013 66.01




73.11
65.47
66.01
60
62
64
66
68
70
72
74
2010-2011 2011-2012 2012-2013
%
%
36



Interpretation: - It expresses the relationship of gross profit on sales. No ideal standard is
fixed for this ratio but the higher the gross profit ratio, it is more satisfactory. The gross
profit ratio should be adequate enough not only to cover the operating expenses but also to
provide for depreciation, interest on loans, dividends and creation of reserves. The gross
profit margin of the JSPL has decreased from 2011-2013 which shows that the company is
not able to control their direct production cost i.e. raw material consumption, expenditure on
utilities etc. which indicates the inefficiency of management over direct expenses by the
company.

Operating Ratio : - This ratio indicates the proportion that the cost of sales bears to sales.
Cost of sales includes direct cost of goods sold as well as other operating expenses (i.e.,
Administration, Selling and Distribution Expenses) which have matching relationship with
sales. It is calculated as follows
:
Operating Ratio =



Year %
2010-2011 72.74
2011-2012 80.06
2012-2013 86.16


37




Interpretation: - The operating ratio shows the relationship between costs of activities &
net sales. The operating ratio of the company is increasing year by year and showing
upward trend i.e. 72.74% in 2011, 80.06% in 2012, 86.16% in 2013. It indicates that
company is failed to control the indirect expenses which shows the inefficiency of
management over indirect expenses. It may be due to increase in COGS or due to increase
in salary or wages.

NET PROFIT MARGIN:-This ratio indicates the relationship between net profit and sales.
This ratio measures the rate of net profit earned on sales. It helps in determining the overall
efficiency of the business operations. An increase in the ratio over the previous year shows
improvement in the overall efficiency & profitability of the business It may be calculated as
follows:-
Net Profit Margin =



Year %
2010-2011 21.5
2011-2012 15.8
2012-2013 10.5

72.74
80.06
86.16
65
70
75
80
85
90
2010-2011 2011-2012 2012-2013
operating ratio
%
38





Interpretation: - The net profit margin is generally considered as the complementary of
operating expenses. As the operating expenses increases, net profit margin tends to
decrease. Net Profit Margin of JSPL decreases over a steady period i.e. in the year 2011 the
Net Profit Margin of the JSPL is 21.5 and in the year 2013 it reduces to 10.5 which is
showing that company is efficiently handle the direct cost but could manage its indirect
expenditure and results in decreasing trend of net profit margin.


Return On Capital Employed
Return on capital employed =


X 100
Year %
2010-2011 17
2011-2012 17
2012-2013 13

21.5
15.8
10.5
0
5
10
15
20
25
2010-2011 2011-2012 2012-2013
net profit margin
%
39




Interpretation: - ROCE compares the earning of the company based on capital
invested in the company. In the year 2011 and 2012 the return on capital employed for the
company remain constant i.e. 17, but in the year 2013 the it decreases to 13. It may be due
to decreases in EBIT or increase in direct or indirect expenses
Earning Per Share :-
Earning per share =



Year Rs
2010-2011 22.09
2011-2012 22.58
2012-2013 17.04


17 17
13
0
5
10
15
20
2010-2011 2011-2012 2012-2013
return capital employed
%
22.09
22.58
17.04
0
5
10
15
20
25
2010-2011 2011-2012 2012-2013
Earning per share (Rs)
40



Interpretation: - In the year 2011 the Earning Per Share of the company is 22.09, in the
year it increased by 0.49 i.e. 22.58 and in the year the earning per share of JSPL decreases
to 17.04. The reduction in EPS may be due to fresh issue of shares in the year 2012-13 in
the other hand the company might not be able to increase the rate of return.










41





CHAPTER 5

42



5.1 Findings
1. The current ratio has shown fluctuating trend as 0.77, 0.70 and 0.84 from 2011-2013
respectively.
2. The quick ratio is also in fluctuating trend as 0.54, 0.46 and 0.58 during the year
2011-2013.
3. The debt-equity ratio decreased from 0.96 to 0.89 and increased from 0.89 to 1.10 in
the year 2011-2013.
4. The proprietary ratio has shown a decreasing trend during the year 2011-2013.
5. The gross profit ratio is showing decreasing trend during the year 2011-2013 due to
inefficient management over direct expenses.
6. The operating ratio is increasing over the steady period i.e. 2011-2013.
7. The net profit ratio is decreasing during the year2011-2013 from 21.5to 10.5 due to
inefficient management.
8. The inventory turnover of JSPL has increased in the year 2012 and decreased in the
year 2013.
9. Return on capital employed decreased during the year 2012 to 2013.
10. EPS of JSPL decreased in the year 2013 may be due to issue of fresh shares.

5.2 SUGGESTIONS AND RECOMMENDATION:-
1. The short term liquidity position of the company is not satisfactory so the company can
invest in the current asset.
2. The company requires effective management decisions to control their direct
expenditures as well indirect expenses
3. The company should try to increase the inventory turnover ratio so that inventory
holding period will be less.
43


4. Efforts should be taken to increase the overall efficiency in return out of capital
employed by making used of the available resource effectively.
5. The company can increase its sources of funds to make effective research and
development system for more profits in the years to come.

5.4 CONCLUSION:-
On the basis of the study of financial statements, it has been found out that the company is
not in a sound financial position. All the ratios that have been calculated describe the
position of the company. From all these ratios the trend over the last three years and the
changes from year to year has been highlighted.
The ratio analysis can help in understanding the liquidity and short-term solvency of the
firm, particularly for the trade creditors and banks. Long-term solvency position as
measured by different debt ratios can help a debt investor or financial institutions to
evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its
assets to generate profits can be assessed on the basis of different turnover ratios. The
profitability of the firm can be analyzed with the help of profitability ratios.
Thus on the basis of the analysis conducted certain findings have been made which have
been specified in the report. Hence it can be concluded that JSPL is not in a sound financial
position and is not using most of its resources efficiently and effectively or unable to control
its direct and indirect material cost. Through the analysis it has been found that the
company is not investing on short term asset and it is also found out that major portion of
the current asset for company is current asset.



44



BIBLIOGRAPHY
WEBSITES
www.jindalsteelpower.com
www.google.com
www.investopedia.com
BOOKS
Financial Statement Analysis
(BY:-Asish K Bhattacharyya)
Financial Management
(BY:-Shashi K. Gupta, R.K. Gupta, Neeti Gupta)














45



ANNEXTURE

BALANCE BHEET OF J SPL
PARTICULARS as at 31st
march,2013
(in crore)
as at 31st
march,2012
(in crore)
as at 31st
march,2011
(in crore)
I. EQUIT AND LIABILITIES
(1) Shareholders Funds
share capital 93.48 93.48 93.43
reserve and surplus 12,254.59 10,751.93 8,595.91
2) non-current liabilities
a)long-term borrowings 11,860.92 8,493.92 7,359.71
Deferred tax liabilities(net) 1,214.96 1,067.81 878.33
Other long term liabilities 560.58 141.24 140.63
Long term provisions 20.94 18.72 8.49
3) Current Liabilities
Short term borrowings 7640.02 5,878.54 4,081.99
Trade payables 628.2 998.31 709.00
Other current liabilities 2,584.39 3,661.53 2,632.13
Short term provisions 2,951.85 2,452.63 1,887.85
Total 39,809.93 33,558.11 26,387.47
II. Assets
1)Non current assets
Fixed assets 25,640.02 22,042.97 17,081.48
Noncurrent investment 1,330.72 1,412.17 1,210.01
Long term loans and advances 1,225.46 997.1 855.21
46


Other current assets 0.55 4.63 6.03
2)Current assets
Current inventories 3,598.52 3,051.31 2,204.12
Trade receivables 1,426.13 905.06 737.12
Cash and cash equivalents 36.71 30.94 43.71
Short term loans and advances 5,943.54 4,806.29 3,929.92
Other current assets 608.11 307.64 319.87
Total 39,809.93 33,558.11 26,387.47


STATEMENT OF PROFI T & LOSS
Particular For the year
ended 31
st

march 2013
For the year
ended 31
st

march 2012
For the year
ended 31
st

march 2011
Revenue
Revenue from operation
(gross)
16,885.84 14,741.81 10,460.97
Less: excise duty 1,931.14 1,407.86 886.80

Revenue from operation (net) 14,954.70 13,333.95 9,574.17
Other income 159.28 184.48 143.16
Total revenue 15,113.98 13,518.48 9,717.33
Expenses:
Cost of materials consumed 4,943.30 4,529.84 2,730.35
Purchase of stock-in-trade 286.58 452.75 176.80
Change in inventories of FG,
WIP and stock-in-trade
-148.20 -379.24 -333.45
47


Employee benefits expenses 447.89 385.44 277.78
Finance cost 820.77 536.77 285.00
Depreciation 1,048.46 867.19 687.77
Other expenses 5,486.68 4,282.67 3,140.14
Total expenses 12,885.48 10,675.42 6,964.39
Profit before tax 2,228.50 2,843.01 2,752.94
Tax expense
Current tax 488.80 542.88 525.49
Deferred tax-liabilities 147.15 189.48 163.33
Profit for the year 1,592.55 2,110.65 2,064.12