KIJECBM/APR-JUN16/VOL-3/ISS-2/A1 ISSN:2348-4969

IMPACT FACTOR(2016) – 6.9071

KAAV INTERNATIONAL JOURNAL OF ECONOMICS,COMMERCE

& BUSINESS MANAGEMENT

RATIO ANALYSIS: A COMPARATIVE STUDY OF SELECTED

STEEL SECTOR INDUSTRIES

Name: Ms. PADMA (Net, Rset)

Designation: Research Scholar
Department: Accounting
University: Jai Narain Vyas University, Jodhpur (Raj.)

Abstract
The Ratio analysis forms an essential part of the financial statements which is a vital part of
business planning. It is used to evaluate various aspects of a company’s operating and financial
performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over
time is studies to check whether they are improving or deteriorating. It is also compared across
different companies in the same sector to see how they stack up and to get an idea of comparative
valuations. In Recent time, Steel industries are showing good performance and produces large amount
of steel. The core aim of this paper is to present the performance, strength as well as weakness of
Selected Steel Sector Industries by using different kinds of ratios which are particularly related to
financial statements. This study is purely based on published secondary data through website and
Published journals.

Keywords: Ratio Analysis, Strength, Weakness, Performance & Financial Statement.

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IMPACT FACTOR(2016) – 6.9071

Introduction
An accounting ratio is a relative magnitude of two selected numerical values taken from an
enterprise’s financial statements. It may be used by managers within a firm, by current and potential
investors of a firm, by a firm’s creditors and bankers. It is the application of ratios in comparing
similar variables. It is the process of systematically manipulating figures from the financial statements
of a company to produce information that are used a part of investment decision making process. If
shares in a company are traded in a financial market, the market price of shares is used in certain
financial ratios.
To evaluate the performance of one firm, its current ratios will be compared with its past
ratios. When financial ratios are compared over a period of time, it is called time series or trend
analysis. It gives an indication of changes and reflects whether the firm‘s financial performance has
improved or deteriorated or remained unchanged over that period of time. Another method is to
compare ratios of one firm with another firm in the same industry at the same point in time. This
comparison is known as the cross sectional analysis. This comparison shows the relative financial
position and performance of the firm. To determine the financial condition and performance of a firm,
its ratios may be compared with average ratios of the industry to which the firm belongs. This method
is known as the industry analysis that helps to ascertain the financial standing and capability of the
firm in the industry to which it belongs.

Essence of ratio analysis:

Financial ratio analysis helps us to understand how profitable a business is, if it has enough
money to pay debts and we can even tell whether its shareholders could be happy or not. Financial
ratios allow for comparisons:
 Between companies
 Between Industries
 Between different time periods for one company
 Between a single company and its industry average

Significance of Ratio Analysis

 To give meaning to absolute figure
 For planning & forecasting
 As a basis of decision making
 To compare results & performance
 For analysis of strengths & weakness

Review of literature
Neeraj and Devesh (2013) studied liquidity position and impact on profitability of Tata Steel and
steel authority of India. The study found that liquidity position can be improved with the help of low
average collection period and average collection can be reduce by proper coordination between sale,
production and finance department, lastly conclude that study found positive impact of liquidity
position on profitability with the help of various techniques
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IMPACT FACTOR(2016) – 6.9071

Hifza Malik(2011) investigated the determinants of profitability in insurance companies of

Pakistan and examine effects f firm specific factor(age ,size, volume of capital, leverage ratio and loss
ratio) on profitability proxied by ROA. It includes 35 listed life and non life insurance companies
under the period of 2005-2009 lastly concluded that there is no relationship between profitability and
age of the company and there is significantly positive association between size of company and
profitability. It also shows that volume of capital is significantly and positively related to profitability.
Loss ratio and leverage ratio shows negative but significant relationship with profitability.
Dhulia Hirenkumar Kantilal (2012) studied on analysis of gross profit to sales ratio of top
ten pharmaceutical companies and shows that there is significance difference between in the gross
profit to sales ratio among different companies under study as well as different years of each company
lastly the researcher concluded that Gross Profit to sales ratio among different companies and among
different years under study is not same.
Ashok Kumar (2013) studied liquidity position of five leading companies which cover period
of 10 years from 2000-2010. It has been found that the liquidity position of small companies are better
as compared to big ones .Lastly, it is concluded that companies should maintain an ideal current and
liquid ratio.
Sarvanan and Abarna (2014) conducted study on liquidity analysis of selected automobile
companies in India using Anova and found that there is significant difference among the absolute
liquid ratios of the selected automobile companies.

Objective of this study

 To analysis of the financial performance of industries
 To compare the financial performance of companies.

Research Methodology
In this present study aims to measure, evaluate & compare the financial performance of
selected steel industries such as APL APOLLO STEEL, JINDAL STEEL & POWER, KALYANI
STEEL, SUNFLAG IRON STEEL & POWER CO, & TATA STEEL. Published secondary data are
used for this study which has been collected through website & other published information. This
study covers five financial years i.e. start from 2011 to 2015. Statistical tools are applied to analysis
the financial performance with help of the ratios. While interpreting the results, Graphical
presentations are to be plotted. Following Ratios are used for this study

 Current Ratio
 Return on capital employed
 Total Debt/Equity ratio
 Inventory Turnover Ratio
 Dividend Payout Ratio
 Earnings Per Share
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IMPACT FACTOR(2016) – 6.9071

Analysis & Interpretation

Figure: 1 Showing Current Ratios of Selected Steel industries

Current Ratio is one of the most fundamental liquidity Ratio which indicates the company’s
ability to meet the short term debts. It measures whether or not a firm has enough resources to pay its
debts over the next 12 months. From the above graph & table, the result of the current ratio shows that
liquidity position of Kalyani Steel is higher than other companies in all selected years. On the other
hand, SunFlag Iron & Steel company ratio is higher than compare to all other companies in 2015.

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IMPACT FACTOR(2016) – 6.9071

Figure: 2 Showing Return on Capital Employed of Selected Steel Industries

Return on Capital Employed measures a company’s profitability and the efficiency with which
its capital is employed. A higher ROCE indicates more efficient use of capital otherwise vice-versa.
From above the graph & table, we are able to tell that Jindal Steel & Power return on investment is
continuous decreasing. In case of Tata Steel Company’s return is better than others because it is
increasing slowly. On the other hands, all three industries return on capital employed is fluctuating.

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IMPACT FACTOR(2016) – 6.9071

Figure: 3 Showing Inventory Turnover Ratios of Selected Steel Industries

Inventory Turnover is a ratio showing how many times a company’s inventory is sold and
replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high
ratio implies either strong sales or ineffective buying. From the above Graph & Table it is clear that
inventory turnover ratio of APL Apollo Steel is high in comparison to other companies which show
that company’s efficiency in turning its inventory into sales. A low turnover rate indicates poor
liquidity. Here Jindal Steel & Power performance is not so good in comparison to others.

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IMPACT FACTOR(2016) – 6.9071

Figure: 4 Showing Total Debt/Equity Ratios of Selected Steel Industries

The Debt Equity Ratio indicates how much debt a company is using to finance its assets
relative to the amount of value represented in shareholders’ equity. A high ratio generally means that a
company has been aggressive in financing its growth with debt otherwise vice-versa. From the above
Graph & Table it is clear that Debt Equity ratio of Kalyani Steel goes downward from 2011 to 2015
while the Jindal Steel & Power debt equity ratio is continuously increasing in five years which is
higher than other three companies. On the other hands, Tata Steel debt equity ratio is very low from
others. D/E ratio indicating the relative proportion of shareholder’s equity and debt used to finance a
company’s assets.

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KIJECBM/APR-JUN16/VOL-3/ISS-2/A1 ISSN:2348-4969
IMPACT FACTOR(2016) – 6.9071

Figure: 5 Showing Dividend Payout Ratios of Selected Steel Industries

The dividend payout ratio measures the percentage of a company’s share of profit that is given
to equity shareholders in the form of dividends. Higher payout ratio indicates the strength of firm and
the act of reducing dividends is usually interpreted as a sign of weakness. From the above table &
Graph it is clear that APL Apollo Steel’s dividend payout ratio is higher than other industries. On the
other hand, SunFlag Iron & Steel co dividend payout ratio is zero in first four years and in 2015 its
ratios increased.

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IMPACT FACTOR(2016) – 6.9071

Figure: 6 showing Earnings per Share of Selected Steel Industries

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding
share of common stock. It serves as an indicator of a company’s profitability. From the above table
and Graph it is clear that EPS of Tata Steel is better in all these years. On the other hands, Sunflag Iron
& Steel co. performance is not good as compare to other industries.

Conclusion
After analyzing the above ratio it is clear that the position of APL Apollo Steel and Tata Steel
is better than other industries. In above six ratio which presents through graphs and tables it is shown
that in six ratios APL Apollo Steel & Tata Steel companies are performing better.

REFERENCES

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