A study on
Financial Performance
With Reference to Visakhapatnam Steel Plant Rastriya Ispat Nigam Limited
SUBMITTED BY BONAM.SREENIVASULU
MBA(FINANCE) Under Guidance of Mr. V. Ramesh Kumar,
Asst. Finance Manager (Vizag Steel Plant)
SIR C.R.REDDY COLLEGE OF ENGINEERING
Certificate
This is to certify that project: study on “Financial Performance ” in
Visakhapatnam Steel Plant is beneficed work done and submitted by BONAM.SREENIVASULUin partial fulfillment of the requirements for the
awards of Master of Business Administration (MBA), from SIR C.R.REDDY COLLEGE OF ENGINEERING (ELURU).
DATE PROJECT GUIDE
PLACE Mr V.Ramesh Kumar
Asst manager (F&A)
STUDENT DECLARATION
I BONAM.SREENIVASULU declare that the project report entitled
“Financial Performance” with Regard to Rastriya Ispat Nigam Limited,
Visakhapatnam submitted by me under guidance of Mr.V.Ramesh Kumar,
Asst. Manager. F. A .Department); RINL of my own work and not has been
submitted to any university or institute or published earlier.
Date signature of the student Place
Bonam.Sreenivasulu Regd no:111277102008
PREFACE
This intenship report is a presentation of my effort to study the practice of Financial Management Topics in public sector enterprises, referring to Visakhapatnam Steel Plant. The report presents the fields of practical approaches in the subject of Financial Management in FINANICAL
PERFORMANCE.
This report intends to provide brief knowledge of various concepts, principles, approaches, considerations relevant to this field. Though the basic idea is to supply my study in the project, the report has undergone a realistic survey of actual theory and practices in Visakhapatnam Steel Plant although there is much gulf to be bridged.
This report seeks to cover the topics of Financial Performance, mainly focusing the respects like Comparative balance sheet and Common size balance sheet and many other aspects.
The report has been divided into five chapters and the arrangements of topics in various chapters have been grouped according to the analysis of the subject.
ACKNOWLEDGEMENT
I take this opportunity to express my deepest and heart full gratitude to SIR
C.R.REDDY COLLEGE OF ENGINEERING (ELURU)for providing me an
opportunity to take of this project.
I also wish to thank our internal guide Dr.K.KRISHNAIAH CHOWDARYgaru,Sir C.r.reddycollege of engineering for his valuable guidance, encouragement and co-operation throughout the completion of the project.
This project is a result of the hard work & sincere effort put by many hands. I render my sincere thanks toMr.O.R.M.RAO, AssistantGeneral Manager (HRD)Mr.M.L.S.VARMA, Assistant Manager(HRD) Visakhapatnam Steel Plant for giving me this opportunity to do my project work in Visakhapatnam steel plant.
I express my sincere thanks to Mr.V.RAMESH KUMAR, Assistant Manager(Trg) whose supervision, valuable guidance & help enabled me to complete this project work.
I also wish to express my sincere thanks to all the staff members of VSP who have directly or indirectly lend me a helping hand in completing my project work.
S.NO. CONTENTS PAGE NO.
1 INTRODUCTION
2 INDUSTRY PROFILE
3 COMPANY PROFILE
4 THEORATICAL FRAME WORK
5 ANALYSIS AND INTERPRETATION
6 SUMMARY SUGGESTIONS
FINDINGS & CONCLUSIONS
I NTRODUCTION
Steel comprises one of the most important inputs in all sectors of the economy. Economy of any country depends on the strong base of the iron and steel industry. Steel is a versatile material with multitude of useful properties making it indispensable for furthering and achieving continuing growth of the economy-be it construction, manufacturing, infrastructure or consumable. The level of steel consumption has long been regarded as an index of industrialization and economic maturity attained by country.
The growth of any organization depends on the overall performance such as production, marketing, human resource and financial performance of the organization. The financial performance of any organization reflects the strengths, weakness, opportunities and threats of the organization with respect to profits Earned, investments, sales realization, turnover, return on investment, and net worth of capital efficient management of financial resources and deliberate analysis financial results are prerequisites for success of an enterprise.
In that, financial performance is one of the major and important areas of financial management. Every organization requires study on financial performance about business transactions, which includes managing current
assets like cash, inventory, account receivable, loans& advances and current liabilities like sundry creditors.
INTRODUCTION TO FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing between the items of the balancesheet and profit and loss account. There are various methods or techniques used in the analysis of financial statements such as comparative statements, trend analysis, common size statements,schedule of changes in working capital, funds flow and cash flow analysis, Cost Volume Profit Analysis and Ratio Analysis.
Meaning and Concept of Financial Analysis
The terms ‘financial analysis’ also known as analysis and interpretation of financial statements refers to the process of determining financial strength and weaknesses of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data.
The main aim of any firm is to maximize the wealth of the profits. Which in turn depend on successful sales activity? To generate sales, investment of sufficient funds in current assets is required. The need
Of current assets should be emphasized, as the sales don’t cash immediately but involved a cycle of operations, namely operating cycle.
Rashtriya Ispat Nigam limited is a multi-product steel-manufacturing unit with varying cycle time for each product. The capital required by each department in a largeorganization like RINL depends on the product target for that year.
The study on financial performance position of which using financial statement. It is very much essential to know the RASHTRIYA ISPAT NIGAM
LIMITED financial performance for overcome the problem of the company.
This comparative statement analysis will help us to know the exact financial position of the VSP through the financial performance. This company is selected as it helps us to known even the exact position our country as steel industry is backbone of every country.
Here in this project an attempt is made by financial statements for knowing the financial performance of the company.
OBJECTIVES OF THE STUDY
The study is purely based on the financial performance that is been taken into consideration i.e, Finanacial Statements and Analysis.
• To know the current position of various assets, liabilities and results of operation activities
• To find out Financial Strengths and weaknesses of the firm • To know the Liquidity Position of a firm
• To know the causes of changes in the Cash Position
• To find out important tools of Short-term, Long-term Financial Planning
• To know the ability of the firm to meet its current obligations
• To know the overall operation efficiency and performance of the firm • To find out foremost important Financial Decisions
• To know the detailed information about comparative and common size balance sheets
• To know the current position of various assets, liabilities and results of operation actives
• To find out Financial Strengths and weaknesses of the firm • To know the Liquidity Position of a firm
• To know the causes of changes in the Cash Position
• To find out important tools of Short-term, Long-term Financial Planning
• To know the ability of the firm to meet its current obligations
• To know the overall operation efficiency and performance of the firm • To find out foremost important Financial Decisions
• To know the detailed information about comparative and common size balance sheets
SCOPE OF THE STUDY
Financial analysis depends primarily on financial statements to diagnose financial performance there are three principle reasons.
As longer as the accounts bases remain more or less the some overtime, meaningful mitered is can be drawn by examining trends in raw data and financial ratios.
Since similar basis characterize various firms in the same industries, incur firm comparisons are useful.
Experience seems to suggest the financial analysis works one is accounting basis and more adjustments for the same.
The following points explain the nature of the financial statement analysis in steel industries. The records are maintained on the boards of actual costs data.
Certain neither accounts nor conversions are followed while preprimary financial statement.
RESEARCH METHODOLOGY
Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The data can be collected through two principle sources.
They are as
follows:-
Primary data
Secondary dataPrimary data
It is the information collected directly without any references. In this study it is gathered through interviews concerned officers and staff either individually or collectively, sums of the information has been verified or supplemented with personal observation conducting personal interviews with the concerned officers of finance department of Visakhapatnam steel plant.
Secondary data
The secondary data was collected from already published sources such as, pamphlets of annual reports, returns and internal records. The data collection
includes:- Collection of required data from annual records of RINL.
Reference from textbooks and journals relating to financial performance and management.
LIMITATIONS OF THE STUDY
The period of study that is 8 weeks as not enough to go in the detailed aspects of the study.
The study is carried basing on the information and documents provided by the organization and based on the Interaction with various employees of respective departments.
Respondents may not provide accurate information due to various reasons.
Most of the matters related to budgets were confidential so it is not possible to gather information.
Time is a major constraint.
Budgeting process is very dynamic.
There was no scope of gathering current information as the auditing has not been done at the time of project workINTRODUCTION TO STEEL INDUSTRY IN INDIA
Introduction
India’s Steel Industry is more than a century old. Before the economic reforms of the early 1990s the Indian steel industry was a predominantly regulated one with the public sector dominating the industry.
Tata Steel was the only major private sector company involved the production of steel in India. Sail and Tata Steel have traditionally been the major steel producers of India. In 1992, the liberalization of the India economy led tothe opening up of various industries including the steel
industry. This led to the increase in the number of producers, increased investments in the steel industry and increased production capacity. Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested in the steel industry of India.
India’s steel industry went through a rough phase between 1997 and 2001 when the overall global steel was facing a downturn and recovered after 2002. The major factors that led to the revival of the steel industry in India after 2002 was the rise in global demand for steel and the domestic economic growth in India
India has now emerged as the eighth largest producer of steel in the world with a production capacity of 35million tones. Almost all varieties of steel is now produced in India. India has also emerged as a net exporter of steel which shows that Indian steel is being increasingly accepted in the global market.
The growth of the steel industry in India is also dependant, to a large extent, on the level of consumption of steel in the domestic market. Steel consumption is significant in housing and infrastructure. In recent years the surge in housing industry of India has led to increase in the domestic demand for steel.
More than 3500 different varieties of steel are available in the steel industry of India. These can however be classified into two broad
categories-• Flat Products – Flat products include plates and hot rolled sheets such as coils and sheets. Flat products are derived from slabs. One of the major uses of steel plates is in ship building.
Long Products – Long products include bars, rods, wires, ropes and piers. These are called long products due to their shapes. Long products are made from billets and blooms. Long products are mostly used in housing and construction and also in rail tracks.
PRE-INDEPENDENCE
1874- James Erskin founded the Bengal iron works.
1830 - Josiah, Marshall Health constructed the first manufacturing plant at
plant at port Move in Madras presidency.
1899- Jamshedji Tata initiated the scheme for an integrsted steel plant. 1906- Formation of TISCO
1911- Tata iron& STEEL COMPANY STARTED PRODUCTION. 1916- TISCO was founded.
1940-45- Formation of Mysore iron & steel limited, and Bhadravati in
Karnataka.
POST-INDEPENDENCE
First five year plan: 1951-1956
No new steel plant came up. The Hindustan Steel Ltd., was born on 19th January 1954 with the decision of setting up three plants each
with one million tone input steel per year in at Rourkela, Bhilai and Durgapur, TISCO started its expansion programming.
Second five year plan: 1956-1961
A bold decision was taken up to increase the ingot steel output India to 6 million tones per year & production at Rourkela, Bhilai and Durgapur steel plant started.
Third five year plan: 1961-1966
During the third five year plan the three steel plants under HSL, TISCO & HSCO were expand as show , in January 1964 Bokaro steel plant came into existence.
Recession period: 1966-1969
The entire expansion programme was actively executed during this period.
Fourth five year plan: 1969-1974
Licenses were given for setting up of many Mini-steel plants and rolling mills.
Governments of India accepted setting up two more plants in south. One at Visakhapatnam(Andhra Pradesh)and Hospet (Karntaka).
SAIL was formed during this period on 24th January 1973. The total
installed capacity from 6 integrated plants was 106Mt.
Annual plan: 1979
The erstwhile Soviet Union agreed to help in setting up the Visakhapatnam steel plant.
Sixth five year plan: 1980-1985
Work on Visakhapatnam steel plant was started with big bang and top priority was accorded to start the plant.
Scheme for modernization of Bhilai Steel Plant, Rourkela, Durgapur, TISCO were initiated.
Seventh five year plan: 1985-1991
Expansion work of Bhilai and Bokaro steel plants are completed.
Progress on Visakhapatnam steel plant picked up and rationalized concept has been introduced to commission the plant with 3.0Mt, liquid steel capacity by 1990.
Eighthfive year plan: 1991-1996
Visakhapatnam steel plant started its production modernization of other steel plants is also duly envisaged.
Visakhapatnam steel plant had foreseen a 7% growth during the entire plan period.
Tenth five year plan: 2002-2007
Steel industry registers the growth of 9.9% Visakhapatnam steel plant high regime targets achieved the best of them.
Eleventh five year plan: 2007-2012
The eleventh plan period is going to be crucial for maintaining and also improving the performance of the steel industry. India has the potential to emerge as global player in steel making if its inherent advantages of availability of quality iron ore, cheap labor, technical manpower and growing domestic demand are properly leverage.
World steel scenario
Global crude steel production during the year 2010was high than 2009 by 184 million tones, driven by growth in China and recovery in the developed world.(During 2010 china’s crude steel production was about 626 million tones as against 573 million tones in 2009 registering on impressive growth). Sharp rise in inout cost, once again drove steel companies for paying much attention, to cost of production & improvement in operating efficiency. While in the developing countries, steel makers are trying to capture the quality market, steel makers of the developed countries are trying to consolidate their position.The emerging markets in various sectors are the bright spot for the steel industry to more ahead.
A significant challenge facing the steel industry today, relates to the situation prevalent in rawmaterial markets.The Global upturn in steel production resulted in significant tightening in the steel making raw materials to historically high
levels.2010-2011 was a year of two phases as for as steel market is concerned. One is that of stabilization and the other is that of Recovery. Although the process of recovery continued , the speculative market of raw materials is a real concern for the industry.
GLOBAL STEEL INDUSTRY:
World crude steel production in 2010 registered highest every yearly production of 1414-Mt a growth of 15% over 2009 is 5% higher than the previous peak of 1346Mt in 2007. Developing countries like china and India contributed by scaling new peaks and developed economics registered quantum jump from the low of 2009, which has however for short of their earlier peaks.
COUNTRY 2010 MT 2009 MT % GROWTH China 626.7 573.6 9.3 Japan 109.6 87.5 25.3 USA 80.5 58.2 38.3 India 68.3 63.5 7.6 Russia 66.9 60.0 11.5 South korea 58.4 48.6 20.2 Germany 43.8 32.7 33.9 World 1413.5 1230.9 143.8
INDIAN STEEL INDUSTRY:
The Indian steel industry sector as the 4th largest steel producing country in
the world. This has been achieved due to thrust on infrastructure and housing sectors. Steel accounts for about 7% of GDP and employees about 1.5 Million people directly with continued emphasis on infrastructure building and several Green field projects under execution, the growth story is likely together momentum in the years to come. The Gross Domestic Product of India is estimated to have growth at 8.5% in 2010-11 in real times. Backed by this, the finished steel consumption registered a growth of
11% in 2010-11.India’s recovery from the global economic crisis based on its strong domestic demand.
INDIAN STEEL SCENARIO:
Steel industry plays a major role in the Economic growth of India with New global acquisitions by Indian steel giants, setting up of new state of the art steel mills,modernization of Existing plants,Improving Energy Efficiency and Background integration into global raw material sources, India is now on the centre of the global steel map consumption of steel in various sectos has been on the rise and special steel usage in specific Industrial sectors like power generation, Petro chemicals etc., is also growing.
India has stood as the 4th largest producer in 2010 and reconed a growth of
6.4% as compared to 2009. India is expected to become to second largest producer of steel in the world by 2015-16 on account of growing steel demand, rich resources base of Iron ore, skilled man power and Experience of steel making and the Huge capacity Expasion planned 7 being Executed in the steel sector.
Finished steel production was registered at 62.69 Mt during 2010-11 in the country as per JPC& the production is expected to be nearly 110Mt by 2012-13. A Compound Annual Growth Rate (CAGR) of 8.4% during the years(2005-06 to 2009-10) was recorded.
The consumption of steel domestically was recorded at 65.61Mt and shown anincrease of 11% during2010-11 as compared to the same period of the previous year.
Government Initiatives included
Approval by planning commission a total outlay of US $9.5 Billion for the Development & Promotion of the Iron & Steel sector.
Scheme for the promotion of research & Development in the Iron & steel sector with Budget provision US $ 24.6 million.
Review of National steel policy 2005 and process for drafting a “National steel vision” has been initiated.
Five year strategy has been prepared for promotion of steel sector in the country.
Highlights of Present Steel Scenario:
• There is a threat to steel industry from competitive products like plastics, aluminum, etc.
• Developed countries slowly reduced the production of steel.
• Developing countries like China are planning to produce steel as much large quantity then of present output of 80 Mt. per annum.
• India consciously and strategically decides to invest into steel production.
• Preference is given to superior quality products and high value item production
Major Steel Related Companies in India Bharat Refectories Ltd.
Hindustan steel works construction Ltd.
Jindal Steel & Power Ltd.
Kudremukh Iron Ore Company Ltd
Manganese Ore (India) Ltd.
Metal Scrap Trade Corporation Ltd.
Metallurgical Engineering Consultants India Ltd.
National MInerl Development Corporation (NMDC)
Rashtriya Ispat Nigam Ltd.
Sponge Iron India Ltd.
Steel Authority India Ltd.
Tata Iron Steel Company.
S.No Plant Collaboration Capacity of Finished Steel Products
1 Rourkela Steel Plant West Germany 2 Bhilai Steel Plant Erstwhile USSR 3 Durgapur Steel Plant Britain 4 Bokaro Steel Plant Erstwhile USSR
S.NO Plant Collaboration Capacity of Annual Finished Steel Products Production
1 Rourkela Steel Plant West Germany 7,20,000 Tones 2 Bhilai Steel Plant Erstwhile USSR 7,70,000 Tones 3 Durgapur Steel Plant Britain 8,00,000 Tones
Size of the India’s Steel Industry
The size of India’s steel industry has increased considerably in recent years. According to latest available estimates, India ranks eighth among the top steel producers of the world with a production capacity of 35 million tones.
The steel industry of India has capital investments of more than Rs 100,000 crores. The total employment in the industry is more than two million (including direct and indirect employment).
The global demand for steel is at an all time high nowadays. Much of the tremendous demand for steel around the world may be attributed to the numerous construction projects that are going on around the world.
Much of these projects are taking place in the economically developing countries of the world like India, China and Thailand. China is the place where a lot of construction is being done nowadays and much of the construction is for the purpose of the Olympics to be held in 2008 and the Shanghai
World Exposition of 2010.
India has a lot of iron ores. This implies that India has a ready base for producing sufficient amount of steel and the experts are also of the opinion that the Indian steel industry would continue to grow in the coming years. In the recent times the production of steel has gone up in the country from 17 million tones in 1990 to 36 million tones in 2003.
The Indian steel industry is trying to reach the 66 million tones mark in 2011. The high levels of production would allow the Indian steel industry to establish a stronghold on a number of areas like housing, construction, and ground transportation. The special steel produced by the Indian steel industry is supposed to be used in high end engineering industries like generation of power, fertilizers and petrochemicals.
The fact that India is not a voracious consumer of steel like some of the major economies like China and the United States of America means that India would be able to use the surplus steel it produces for exporting to other countries so that their demands are met. This would help the Indian steel industry to be regarded as one of the most prominent steel industries if not the leading one.
India has set a vision to be an economically developed nation by 2020. The steel industry is expected to play a major role in India’s economic development in the coming years. The steel industry of India has a very high growth potential and is expected to register significant growth in the coming decades. India is expected to emerge as a strong force in the global steel market in coming years.
The two major aspects that are expected to play a significant role in the growth of the steel industry in India are –
• Abundant availability of iron ore in the country
• The country has well established facilities for steel production
Steel production in India has grown from 17 million tones in 1990 to 36 million tones in 2003. It is expected that by 2011, the steel production in India will grow to 66 million tones.
The major sectors where consumption of steel is expected to grow in the coming years are
-• Construction • Housing
• Ground transportation
• Hi-tech engineering industries such as power generation, petrochemicals, fertilizers
Steel Sectors Trends
India emerged as the fifth largest crude steel producing country in the World in the year 2006 as against eighth position three years back. India is expected to become the second largest producer of steel in the World by the year 2015.
India also maintained its lead position as the world’s largest producer of direct reduced iron or sponge iron.
The country is likely to reach a steel production capacity of nearly 124 million tones by the year 2100-2012.
194memoranda of understanding (MoUs) have been signed in various states with a total planned capacity of around 243 million tonnes, and a total proposed investment of over Rs. 5.15 lakh cr. Major
investments plans are in state of Orissa, Jharkhand, Karnataka, Chhattisgarh and west Bengal.
OUTLOOK FOR THE COMPANY IN 2011-2012
Not with standing the steep increase in the raw material prices in 2010-2011, the outlookor 2011-2012 suggests a quantum jump once again , fuelled significantly by the unprecedented rains and flooding of North-Eastern parts of Australia and forecast of healthy growth in apparent
consumption of steel world wide. International price trends for hard coking coal and landed cast of iron ore fines for VSP along with projected growth for 2011-2012 is as shown below;
Raw material price outlook 2011-2012
Projections for ICC ($/t-FOB) 350
330 300
250 212 200 150 121 100 2009-10 FY-2011 FY2012 (1qtr)
Projections for IOF (Basic price)
3500 3199 3000 2870 2500 2000 1936 1500 2009-10 FY 2011 FY 2012(1qtr)
Steel prices during 2011-2012 would be predominantly guided by the cost push due to likely increase in major raw materials, more so with additional capacities in the country emerging as a certainty now likely capacity
additions in the next two years are as a shown below;
Existing capacity Capacity likely by 2012-13 Public sectors SAIL 12.84 21.40 RINL 3.00 6.30 Private sectors TATA 6.80 13.00 ESSAR 4.60 14.50 JSW 6.60 11.00 ISPAT industries 3.60 4.20 JSPL 2.40 10.45 BHUSHAN steel, BUSHAN POWE& STEEL
2.00 5.80
OTHER+SECONDARY 31.00 34.20
72.84 34.20
Expansion in capacity:
The National Steel Policy 2005 had projected consumption to grow at 7% based on a GDP growth rate of 7-7.5% and production of 110 million tones by 2019-2020.These estimates will be largely exceeded and it is envisaged that in the next five years, demand will grow at a considerably higher annual average rate of over 10% as compared to around 7% growth achieved between 19-92 and 2005-06. It has been assessed that, on a ‘most likely scenario’ basic the steel production capacity in the country by the tear 2011-2012 will be nearly 124 million tones.
PROBLEMS OF STEEL PLANT INDUSTRY
LACK OF RAWMATERIALS
Non-availability of good quality raw material is another problem faced by iron and steel industry. The modem giant blast furnace needs high-grade
iron ore and good metallurgical coal.
Further the industry is unable to get good quality coke and manganese is which the principal raw materials next to iron ore are unfortunately most of our resources of manganese ore are of poor quality besides the non availability of good quality raw material, regular supplies of raw materials are very much handicapped due to the absence of good transport facilities. Another problem faced by the steel industry related to the difficulty in getting zinc supplies for the continuous galvanizing line.
LACK OF TECHNICAL PROBLEMS
Bhilai had to execute orders for shipment of rails to Iran. South Korea and Malaysia.
Because of technical limitations, Rourkela plant is unable to substitute aluminum of zinc for the production of galvanized sheet apart from source internal technical problems; our technology in the field of steel production is not a developed one when compared to other advanced countries.
GOVERNMENT CONTROL AND PRICING POLICY
Since 1941, India steel and iron industry was almost completely state regulated. Both prices and distribution of steel were under control of government. The Govt. decided to remove statutory control over the price and distribution of all, but a few categories with effect from 1 st march 26, 1964 the Govt. supervise the steel and iron inducted according to the recommendation of Raja committee. But Raj committee in fixing the steel price didn't regulate the price of raw materials.
Conclusion on Indian Steel Industry
The Indian steel industry is among the upcoming industries of the world. It has a number of iron ores, which means that it has plenty of resources from which to draw its raw material.
The rate of production of steel in India has been going up at a steady rate in the last few years. In the recent times Orissa and Jharkhand have been identified as the potential steel destinations of India – the ones that would provide the Indian steel industry with its necessary raw material. There are also a number of steel companies in India like Tata and ArcelorMittal that are either coming up or have established themselves as prominent forces in the world steel scenario.
In the recent times a lot of foreign direct investment is being made in the Indian steel industry. In fact the rate of investment is being made in the last few years and, to a certain extent, this increase has been contributed to by the growth potential of the steel industry of India that is thought of as being impressive in the international steel circle.
PROFILE OF VISAKHAPATNAM STEEL PLANT
To meet the growing domestic needs of steel, Government of India decided to set up an Integrated Steel Plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979 for co-operation in setting up 3.4 MT Integrated Steel Plant at Visakhapatnam. The foundation stone for the plant was laid by the then Prime Minister on 20th Jan, 1971.
The project was estimated to cost Rs.3897.38 Crores based on prices as on 4th Quarter of 1981. However, on completion of construction and commissioning of the whole plant in 1992, the cost escalated to around 8500 Crores. Unlike other Integrated Steel Plants in India, Visakhapatnam Steel Plant is one of the most modem steel plants in the country. The plant was dedicated to the nation on 1st August, 1992 by the then Prime Minister,
Shri P. V. Narasimha Rao.
New technology, large-scale computerization and automation etc., are incorporated in the Plant. To operate the plant at international levels and attain such labour productivity, the organizational manpower has been rationalized.
BACKGROUND
Visakhapatnam steel plant
decided to set up an integrated steel plant at Visakhapatnam. An agreement was signed with erstwhile USSR in 1979 for co-operation in setting up 3.4 Mt integrated steel plant at Visakhapatnam. The foundation stone for the plant was laid by the then prime minister on 20th Jan '71.
The project was estimated to cost Rs. 3897.28 Crs based on prices as on 4th quarter of 1981. However, on completion of construction and commissioning of the whole plant in 1992, the cost escalated to around 8500 Cr. Unlike other integrated steel plants in India, Visakhapatnam Steel Plant is one of the most modem steel plants in the country. The plant was dedicated to the nation on 1st August 1992 by the Prime Minister,
Sri, P.V.Narasimha Rao.
New technology, large scale computerization and automation etc., are incorporated in the plant. To operate the plant at international levels and attain such labor productivity, the organizational man power has been rationalized. The plant has a capacity of producing 3.0 Mt of liquid steel and 2.656 Mt of saleable steel.VSP is on the growth path and almost doubling its capacity to 6.3 MT liquid steel and new units are set to come on strem progressive from 2011-2012.
VISION
To be a continuously growing world-class company. We shall:
Harness our growth potential and sustain profitable growth.
Deliver high quality and cost competitive products and be the first choice of customers.
To create an inspiring work environment to unleash the creative energy of people.
Be a respected corporate citizen, ensure clean and green environment and develop vibrant communities around.
MISSION
To attain 16 million tones liquid steel capacity through technological up gradation, operational efficiency and expansion; augmentation of assured supply of raw materials to produce steel at international standards of cost of quality; and to meet the aspirations of the stakeholders.
OBJECTIVES OF VSP
Expand plant capacity to 6.3 Mt by 2011-12 with the mission to expand further in subsequent phases as per the corporate plan.
Towards growth-expand the plant capacity to 7Mt by 2011-12 and 10Mt By 2019-20.
Be amongst top five lowest cost steel producers in the world.
Achieve higher levels of customer satisfaction than competitors.
Towards employees-make RINL the employer of choice. Upgrade the skills and efficiency of employees through training and development and maintain high levels of motivation and satisfaction.
Be recognized as an excellent business organization by 2011-12.
Instill right attitude amongst employees and facilitate them to excel in their professional, personal and social life.
Be proactive in conserving environment, maintaining high levels of safety and addressing social concerns.
Towards technology up-gradation and productivity-continuously upgrade tec1mology and practice benchmarking to achieve international efficiency levels. Adopt latest developments in information and communication technology.
Towards knowledge management-become a knowledge based and a knowledge sharing company.
Towards safety, environment and society-continue efforts towards safety of employees, conversation of environment and be a good corporate citizen.
CORE VALUES
Commitment
Customer Satisfaction
Continuous Improvement
Concern for Environment
Creativity and innovation
VSP Technology:State-of-the-Art
7meter tall coke oven batteries with coke dry quenching.
Biggest Blast Furnaces in the country.
Bell-less top charging system in Blast Furnace.
Suppressed combustion - LD gas recovery system.
100% continuous casting of liquid steel.
Tempore" and "Stelmor" cooling process in LMMM & WRM.
Extensive waste heat recovery systems.
Comprehensive pollution control measures.
MAJOR SOURCES OF RAW MATERIAL
Iron Ore Lumps & Fines Bailadilla, M P B F Lime Stone Jaggayyapeta, A P SMS Lime Stone UAE
B F Dolomite Madharam, A P SMS Dolomite Madharam, A P Manganese Ore Chipurupalli, A P Boiler Coal Talcher, Orissa Coking Coal Australia
Medium Coking Coal(MCC) Gidi/Swang/Rajarappa/Kargali
DEPARTMENTS ANNUAL UNITS (3.0 MT STAGE) Cap. ('OOOT)
Coke Ovens 2,261 4 Batteries each of 67 ovens & 7 Mts Height
Sinter Plant 5,256 2 Sinter machines of 312 Sq.Mtr. grate area each
Blast Furance 3,400 2 Furnaces of 3200 cu m volume each Steel Melt Shop 3,000 3 LD Converters each of 133 Cum.
Volume and six 4 strand bloom casters LMMM 710 4 Strand Finishing Mill
WRM 850 2 x 10 Strand Finishing Mill MMSM 850 6 Strand Finishing Mill
MAIN PRODUCTS OF VSP
Steel Products By Products
Angles Nut Coke
Billets Coke dust
Channels Coal Tar
Beams Anthracene Oil
Squares HP Naphthalene
Flats Benzene
Rounds Toluene
Re Bars Zylene
POLICIES & RULES OF RINL/VSP
VSP takes all necessary actions for the fulfillment of regulatory requirements. In this regard VSP follows the following policies.
1. Quality Policy
• Supply quality goods and services to customers’ delight.
• Use resources efficiently and reduce waste & prevent pollution.
• Continually improve quality, environment, occupational health and safety performance with respect to products, activities, processes, premises and services.
• Document, Implement, Maintain and periodically review the management systems including the policy, Objectives and targets. • Comply with all relevant legal, regulatory and other requirements
applicable to products, activities and processes in respect of quality, environment, occupation health and safety and also ensure the same by contractors.
• Encourage development and involvement of employees.
• Maintain high level of quality, Environment, occupational health and safety consciousness amongst employees and contract workers by imparting Educational & Training.
We, at Visakhapatnam Steel Plant, are committed to optimally utilize various forms of energy in a cost-effective manner to effect conservation of energy resources.
By adopting appropriate energy conservation technologies VSP. Controls the consumption of various forms of energy.
Monitor closely and control consumption of various forms of energy through an effective Energy Management System.
Maximize the use of cheaper and easily available forms of energy.
3. Environment Policy
Maintain high level of environmental consciousness amongst employees and prevention of pollution by minimizing the emissions and discharge.
VSP will endeavor to adopt a customer-focused approach at all times with transparency.
VSP will strive to meet more than the customer needs and expectations pertaining to products, quality and value for money and satisfaction.
VSP greatly values its relationship with customers and would make efforts at strengthening these relations for mutual benefit.
4.HR Policy
VSP believe that their employees are the most important resources, so it provides good working environment that makes the employees committed and motivated for maximizing productivity.
Provide work environment that makes the employees committed and motivated for maximizing productivity.
Establish systems for maintaining transparency, fairness and equality in dealing with employees.
Empower employees for enhancing commitment, responsibility and accountability.
Encourage growth and opportunities for developing skill and knowledge.
Ensure functioning of efficient communication channels with employees
Customer Policy
• VSP will strive to meet more than the Customer needs and expectations pertaining to Products, Quality, Value for Money and Satisfaction
• VSP greatly values its relationship with Customers and would make efforts at strengthening these relations for mutual benefit
IT Policy
• Follow best practices in Process Automation & Business Processes through IT by in-house efforts / outsourcing and collaborative efforts with other organizations / expert groups / institutions of higher learning, etc., thus ensuring the quality of product and services at least cost.
• Ensure high level of date and information security across the organization
HRD Group – Key Initiatives
RINL believes that the employees are its assets and strives to realize their potential in full for mutual advantage. The human resource development of the employee as a whole.
• In-house Training Programs
• Nominations to External Training Programs
• Organization Research, Employees’ Satisfaction Surveys & Voice of Employees’ Index
• Membership with professional bodies • Performance Appraisal for Executives • Human Resource information system
Organization Development & Knowledge management • In-Plant training for management students.
ORGANISATIONAL STRUCTURE OF VISAKHAPATNAM STEEL PLANT
VISAKHAPATNAM STEEL PLANT has a well designed organizational structure. It has centralized management structure. There is Chairman cum Managing Director (CMD) as head, the main decisions are taken by him, in accordance with steel industry (SAIL). These are 9 levels in organization from E-O to E-9.
LEVELS NAME
E-8 Joint General Manager
E-7 Dy. Additional Chief Manager E-6 Additional Chief Manager
E-5 Dy. Chief Manager
E-4 Manager
E-3 Deputy Manager
E-2 Assistant Manager
E-l Junior Manager
E-0 Assistant Executive
VISAKHAPATNAM STEEL PLANT has tall/vertical organization structure, where the power & authority flows from top to bottom. It has four main departments, they are - Finance Dept., Marketing Dept., Human Resource dept, and Production Department.
FUNCTUIONS OF FINANCE AND ACCOUNTS DEPARTMENTS OF VSP:
Making arrangement for long-term fund requirement.
Accounting of all minority transactions and preparation of financial statement of the company and getting the same audited as required by
the company.
Maintaining records with regard to the cost of production produced by the company.
Release of payments to suppliers/providers of good and services. Release of salaries to the employees.
According concurrence to proposals for investments & expenditure as per the policies, procedure and the Delegation of powers.
Conduct Internal Audits, stock Verifications and statutory compliance. Making working capital arrangements.
Submission of periodical reports to banks as per their sanctioned terms.
Organizing for payment of central Excise , Sales Tax, Income tax and other statutory payments.
Co-ordination with statutory Auditors and Government Audit.
Generation of various MIS reports pertaining to F&A department for Management Information and Control.
NAVARATNA COMPANYS
1. Bharat Electronics Limited 2. Bharat Heavy Electrical Limited
3. Bharat Petroleum Corporation Limited 4. GAIL (India) Limited
5. Hindustan Aeronautics Limited
6. Hindustan Petroleum Corporation limited 7. Mahanagar Telephone Nigam Limited 8. National Aluminum Company Limited 9. NMDC Limited
11. Oil India Limited
12. Power Finance Corporation Limited 13. Power Grid Corporation of India Limited 14. Rashtriya Ispat Nigam Limited
15. Rural Electrification Corporation Limited 16. Shipping Corporation of India Limited.
MAN POWER AT A GLANCE AS ON 31-03-2011
Works Projects Mines Others Total Executives 3262 344 109 1492 5207 Non 11358 51 257 956 12622 Executives ---Total Employees 17,829
---MARKETING NETWORK OF VISAKHAPATNAM STEEL PLANT
VSP has a wide network of regional Officers and Branch Officers spread thecountry for marketing of its products. There are 5 Regional Officers and 23 branch Officers. Stock Yards are attached to each of the Branches. These are catering to the needs and expectations of the customers in various segments.
Region Location of regional Office
East Kolkata Bhubaneswar, Kolkata, Patna
North Delhi Agra, Chandigarh, Dehradun, Jaipur, Kanpur, Ludhiana
West Mumbai Ahmedabad, Indore, Mumbai, Nagpur, Pune
South Chennai Bangalore, Chennai, Kochi, Coimbatore
Andhra Visakhapatnam Hyderabad, Visakhapatnam
POLLUTION CONTROL AND ENVIRONMENTAL PROTECTION
Elaborate measures have been adapted to combat air and water pollution in Visakhapatnam steel plant. In order to be eco friendly Visakhapatnam steel plant has planted more than 3.4 million trees in area of 35 square kilometers and incorporated various technologies at a cost of Rs.460 crores and control measures.
ACHIEVEMENTS AND AWARDS OF VSP
The efforts of VSP have been recognized in various forms. Some of the major awards received by VSP are in the area of energy conservation, environment protection, safety, Quality, Quality circles, Rajbhasha, MOD, sports related awards and a number of awards at the individual level.
Some of the important awards received by VSP are indicated below:
Award Purpose Year
Steel Minister’s Trophy for the year 2006-07
RINL bagged the First Steel Minister’s Trophy for the year 2006-07 for being the best integrated steel plant in the country (Runner Up) in November 2009.
Award of 'Certificate of Merit' of Global Human Resource Development of
Organization'(IFTDO)
Human resources
Development 2010-April
India's top 50 best companies to work for by great place to work institute and Economic Times
Ranked 4th Large
Organization; Ranked 6th in manufacturing and production companies; Ranked among the top two PSU's
2010
NIPM certificate of Merit Best HR Practices
2010-March
UdyogRatan Award by the Delhi Telugu Academy, Hyderabad.
2010-March
‘Public Relationsional Awards-2009’
RINL bagged third prize in the ‘Event Management’ category of the ‘Public Relations
National Awards-2009’ at the 31st All India Public Relations conference held in
Chandigarh.
2009-Dec
10th National Management Quiz
VSP won this Quiz
successively for 3 in a row (2007, 2008 & 2009) achieving HAT-TRICK which is a
NATIONAL RECORD.
2009
Ø RINL team won the TATA-Crucible Corporate Quiz on
4th October. 2009
Energy Award-CII
VSP was adjudged ‘Energy Efficient Unit’ award by Confederation of Indian Industry Godrej Green
Business Centre at the 10th National award for excellence in energy Management in November 2009
International Convention on Quality Control Circles (ICQCC) 2009 Convention Organized By: : Productivity Improvement Circles
Association, Cebu, Philippines
VSP QC teams won Gold & Bronze medals at
International QC convention
Two QC teams i.e. “Sraddha” from CMM Dept. and “Akash’ from ES&F dept consisting fourteen members and coordinator presented QC case studies during the competition. During October'2009
2009
Certification for CMMI Level 3(version 1.2) for its
Information Technology
VSP has achieved a rare distinction of becoming the First Indian Steel
Company to be assessed and certified for CMMI Level 3(version 1.2) for its Information Technology Department.
2009
‘Rajbhasha Trophy’ for
excellent performance for excellent performance of Hindi for the year 2007-08 by Hindi SalahkarSamithi of Ministry of Steel
2009
Recognition as one among “India’s best companies to work for” – 2009 , Top 50 best companies to work for in India, Top 2 PSUs to work in India,4th rank in large
organizations category (More than 10,000 employees), Top 6 in manufacturing and production
India's best companies to work for -Study 2009 by Great Place To Work Institute & Economic Times ( total no of participated companies were 373)
2009
Performance Excellence
Award 2007 Presented by Indian Institutionof Industrial Engineering for Financial and Operational Strength for 2006-07
2008
Award for Exemplary usage of
ICT by PSU's for its e-governance by Government of India during 11th National Conference on e-Governance
QCFI-NMDC Award for Best Quality Circle
Implementation - PSU Category
QC Implementation 2008
Ispat Suraksha Puraskar
Award by JCSSI In group A (Scheme2) for the year 2007 for the zones coal and coke, BF, Slag granulation plant ,SP,RMHP & Rolling mills, in which no fatal
accidents occurred during the years 2006 & 2007
2008
Best Organization
Award-QCFI for promoting QCs in the organization during QCFI-Silver Jubilee celebrations
2008
National Award for House journal by Public Relation Society of India
Best house journal devoted to
" Welfare of Employees" 2008
SWOT Analysis Strengths:
Availability of funds Ability to raise funds
Avilability of land & layout for expansion up to 20Mt & proximity to port.
Image as quality producer & value for money supplier. Superior basic technology at inception time.
Cutting edge technology in Expansion to 6.3Mt committed work force.
Weakness:
Lack of level playing field vis-à-vis others due to lack of captive iron ore & coking coal mines.
Single location Single location company only long products, exposed to cyclic markets
Due for major capital repairs & modernization Steel rise in cost of production & fall in margin High cost of servicing huge equity
Opportunities:
Increased potential demand awaiting to be tapped Improved investment in infrastructure
Projected growth in steel consumption Improved availability of ports & logistics Diversifying to new products mix life axles etc.
Threats:
Stiff competition- entry of many new products- JSPL, Adhumik, Bhushan, Maithan, Shyam steel, ISPAT etc.
Price cut by competitors
Increasing raw materials prices & shift of value chain towards raw materials
Oligopolistic coal supply side
Single iron ore suppliers located in disturbance Predominant secondly sector in long products
Expansion of capacities by the competitors & entry of international players
Higher quality of life in VSP vis-à-vis surrounding areas
FINANCING AND ACCOUNTING WING
In RINL main function of the finance and Accounts Department is to look after the treasury management and to render service in financial aspects for effectively conducting the business of the company. The finance Department has many sub sections. It has about 275 employees consisting of about 260 executives and 15 non executives. The entire department is headed by the general manager. Finance and Accounting Department of RINL is divided into several sections for administrative control and
assignment of responsibilities and fixing of accountability etc. To name a few are:
The following are the sections of finance and Account department in RINL.
1. Raw material Accounts 2. Stores Accounting 3. Sales Accounts
4. Pay and PF Accounts 5. Works accounts section 6. Operational Bills Accounts 7. General Accounts Section 8. Cash Section
9. Loans and Advances 10. Corporate Accounts 11. Internal Audit Section 12. Budget Section
13. Costing Section 14. Project Accounts 15. Concurrence Sections
CAPITAL COST
Approved Cost Rs.8692 Crores (Base June 05) Debt component Rs.4346 Crores
FE component Rs.1477 Crores Pay back period 5 years 2 months
IRR 23%
SOURCES OF FUNDS
VSP raise its working capital from of 10 Bankers. The following are the 10 banks. Where funds for finance are raised.
1. State Bank of India 2. Canara Bank
3. UCO Bank 4. Bank of Baroda 5. Andhra Bank
6. State Bank of Hyderabad 7. Allahabad Bank.
8. HSBC
9. Industrial Development Bank of India (IDBI) 10. Indian Overseas Bank (IOB)
THE COMPANY PAYS:
1. Excise duty - 2 Crores/day
2. Sales Tax - 12 Crores/month 3. Custom duty - 12 Crores/month 4. Employee salary - 35 Crores/month 5. Iron ore - 15 Crores/month 6. Railway freight - 50 Crores/month 7. Ocean Freight - 15 Crores/month 8. Coal blast - 70 Crores/month
BOARD OF DIRECTORS CHAIRMAN/MANAGING DIRECTOR DIRECTOR (PERSONNEL) DIRECTOR(FINANCE) DIRECTOR (COMMERCIAL) DIRECTOR (OPERATIONS) DIRECTORS (PROJECTS) COMPANY SECRETARY Sri A.P.CHOUDHARY Sri Y. R.REDDY Sri P.MADHUSUDAN Sri T.K.CHAND
Sri UMESH CHANDRA Sri N.S.RAO
Expansion
plan:-Product Capacity (MT)
Present
Capacity (MT)
Future Additional Facilities Envisaged Hot Metal 4.00 6.50 New BF with
3800 CuM Capacity Charge Sinter 5.26 8.50 New Sinter
Plant of 400 Sq.M. area Liquid Steel 3.70 6.30 SMS-2 with
Two 150 CuM Converters, Two 6 Std Billet Casters & One 6 std Round Caster
Saleable Steel 3.34 5.72
-Wire Rod 1.05 1.65 New WRM of 600000T/ Annum Bars& Structural 1.95 3.40 New SBM of 750000T/ Annum New SM of 700000T/ Annum
Seamless Pipes - 0.30 Seamless Tube Plant of
300000T/ Annum Special Bars
-PERFORMANCE OF RINL AT A GLANCE
PRODUCTION PERFORMANCEAchieving new targets year after year in production has become a part of the work culture.
Year Hot metal Liquid steel Saleable steel Labour productivity (tones/man year) 2006-2007 4046 3606 3290 413 2007-2008 3913 3322 3074 389 2008-2009 3546 3145 2701 359 2009-2010 3900 3399 3167 382 2010-2011 3830 3424 3077 358
COMMERCIAL PERFORMANCE:
The commercial performance of VSP for the past four years is as follows
(In crores)
year Sales turn over Domestic Sales Exports
2006-07 8911 8487 424
2007-08 10433 9878 555
2008-09 10411 10333 78
2009-10 10635 10284 351
FINANCIAL PERFORMANCE:
VSP had to bear the burnt of huge project cost right from the day of its inception. This has affected the company’s balance sheet due to very high interest burden. The company, in spite of making operating profit every year had to report net loss during all financial years. This on the other hand had resulted in making VSP to take great care in planning the financial resources.
The financial performance of VSP for the past five years is as follows: YEAR GROSS MARGIN CASH PROFIT NET PROFIT 2006-2007 2633 2584 1363 2007-2008 3515 3483 1943 2008-2009 2356 2267 1336 2009-2010 1603 1525 797 2010-2011 1412 1247 658
FINANCIAL STATEMENTS
INTRODUCTION
:Accounting process involved recording, classifying and summarizing various business transactions. The aim of maintaining various records is to determine profitability of the enterprise from operation of the business and also to find out is financial position. Financial statements are in term reports, presented annually and reflect a division of the life of an enterprise in to more or less arbitrary accounting period more frequently a year. The financial statement is an organized collection of data according to logical and consistent accounting procedures its purpose is to convey of a business firm.
DEFINITIONS:
According to John N.Myer “The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities, and capital as on a certain date and the income statement showing the results of operations during a certain period”.
The term financial statement generally refers to following basic statements:
1. The income Statement. 2. The Balance Sheet.
3. A Statement of Retained earring.
4. A Statement of Changes in financial position.
Income Statement
The income statement (also termed as profit and loss account) is generally considered to be the most useful of all financial statements. It explains what has happened to a balance sheet dates. The nature of the ‘income’ which is the focus of the income statement
FINANCIAL STATEMENT INCOME STATEMENT BALANCE SHEET STATEMENT OF RETAINED EARNINGS STATEMENT OF CHANGES IN FINANCIAL POSITION
can be well understood if a business is taken as an organization that uses ‘inputs’ to ‘produce’ output.
Balance Sheet
It is a statement of financial position of a business at a specified moment of time. It represents all assets owned by the business at a particular moment of time and the claims of the owners and outsiders against those assets at that time. The important distinction between as income statement is for a period while balance sheet is on a particular date.
Statement of Retained Earnings
The term retained earnings means the accumulated excess earnings over losses and dividends. The balance shown by the income statement is transferred to the balance sheet through this statement after making necessary appropriations. It is fundamentally a display of things that have caused the beginning of the period retained earnings balance to be changed in to the one shows in the end-or-the-period balance sheet.
Statement of changes in financial position
The balance sheet shows the financial condition of the business at a particular moment of time while the income statement discloses the results of operations of business over a period of time for a
better understanding of the affairs of the business, it is essential to identify the movement of working capital or cash in the statement of changes in financial position.
Nature of Financial Statements
The financial statements are prepared on the basis of recorded facts. The recorded facts are those which can be expressed in monetary terms. The statements are prepared for a particular period, generally one year. The transactions are recorded in a chronological order as and when the events happen. The financial statements by nature are summaries of the items recorded in the business and there statements are prepared periodically generally for the accounting period.
The following points explain the nature of financial statements
1. Recorded Facts
The term ‘Recorded facts; refers to the data taken out from the accounting records. The records are maintained on the basis of actual cost data. The figures of various accounts such as cash in hand, cash at bank, bills receivables, Sundry debtors, fixed assets are taken as per the figure recorded in the accounting books. As the recorded facts
are not based on replacement costs the financial statements do not show current financial condition of the concern.
2. Accounting Conversions
Certain accounting converters are followed while preparing financial statements. The conversion of valuating inventory at cost or market price, whichever is lower, is followed. The valuing of assets at cost less depreciation principle for balance sheet purposes statements comparable, simple and realistic.
3. Postulates
The accountants make certain assumption while making accounting records. One of these assumptions is that the enterprise is treated as a going concern. The other alternative to this postulate is that the concern is to be liquidated the concern. So the assets are shows on a going concern basis. An other important assumption is to presume that the value of money will remain in the same in different periods.
4. Personal Judgments
Even though certain standard accounting conversions are followed in preparing financial statement but still personal judgment of the accountant plays on important part.
Characteristics of financial statement
The financial statements are prepared with a view to depict financial position of a concern. The financial statements should be prepared in such a way that they are able to give a clear and orderly picture of the concern. The ideal financial statement has the following characteristics.
1. Depict true financial position
The information contained in the financial statements should be such that a true and correct idea is taken about the financial position of the concern.
2. Attractive
The financial statements should be prepared in such a way that important information is underlined so that it attracts the eye of the reader.
3. Comparability
The results of financial analysis should be comparable. The financial statements should be presented in such a way that they can be compared to the previous year’s statements. Previous year’s figures in the balance sheet.
4. Brief
brief. The reader will be able to form as idea about the figures.
Importance of financial statements
Financial statements contain a lot of useful and valuable information regarding profitability financial position and future prospective of business concern. The utility of financial statement to different parties may be summarized as follows:
1. Management
The financial statements are useful for assessing the efficiency ofdifferent cost centers. The management is able to decide the course of action to be adopted in future.
2. Creditors
The trade creditors are to be paid in a short period. The CRS will be interested in current solvency of the concerns. The calculations of current ratio and liquid ratio will enable the creditors to assess the current financial position of the concerns in relation to their debts.
3. Investors
The investors include both short-term and long term investors. They are interested in the security of the principal amounts of loan and regular payments by the concern. The investors will not only analyse the parent financial position but will also study the future prospectus
and expansion plans of the concern.
4. Government
The financial statements are used assess tax liability of business enterprises. The Government studies economic situation of the country from these statements. These statements enable the government to find out whether business is following various rules and regulations or not.
5. Trade Association
These associations provide service and protection to the members. They may analyse the financial statements for the purpose of providing facilities to these members. They may develop standard ratios and design uniform system of accounts.
6. Stock Exchange
The stock exchange deal in purchase and sale of securities of different companies. The financial statements enable the stock broker to judge the financial position of different concerns. The fixation of prices for securities etc. is also based on the statements.
LIMITATIONS OF FINANCIAL STATEMENTS
Financial statements are relevant and useful for the concern, still they do not present a final picture of the concern, otherwise misleading conclusions may be drawn. The fisnancial statements suffer from following limitation:
1. Ignoring of non-monetary aspects
These statements are prepared with the help of accounting information which mainly consider monetary aspects only. The value of business depends both on qualitative and quantitative factors.
2. Historical cost
The statements are prepared on the basis of historical cost. The value of fixed assets are at there original cost less depreciation. The balance sheet value are not shown the value of assets may be sold more over they do not reflect the market value which is as important factor in determining the solvency of an enterprise.
3. Personal Judgment
In preparing financial statements certain items are left to the personal Judgment of the accountant. If any accountant is not following accounting principles correctly his judgment will give wrong picture.
4. Conversion of Conservation
Due to conversion of conservation the income statement may not disclose true income of the business. This is due to ignorance of probable incomes and accounting probable losses.
FINANCIAL ANALYSIS
