an analysis of financial statement and working capital

8/6/2019 An Analysis of Financial Statement and Working Capital

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Presented By:Dilip Kumar

(09PG432)

An Analysis of Financial Statement andAn Analysis of Financial Statement and

Working Capital Structure of KIOCL LtdWorking Capital Structure of KIOCL Ltd


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OBJECTIVEOBJECTIVE

To gain insights of the organizational structure and operations ofKIOCL Ltd.

To apply the accounting and analytical skills learned in previous termsand use those skills in a work environment.

To analyze, interpret and evaluate financial statements and workingcapital structure ofthe company.

To understand how analytical tools help management make decisions.

To identify major changes or turning points in trends, amounts andrelationships by focussing on data provided in external reports plussupplementary information provided by the management.

To provide information that can be useful to various stakeholders in

making various lending and investing decisions.


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INDUSTRY PROFILEINDUSTRY PROFILE

Iron-Ore and Steel Industry

Highly volatile

Market Condition in late 2008-09 Bankruptcy ofnumber ofGlobal Steel Producers

Recovery since July, 2009-10

Modest growth expected

More pronounced recovery in 2011

4% rise shown for Iron-ore and Steel Industry


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MAJOR PLAYERSMAJOR PLAYERS

Major players in Iron-ore Industry:

Tata Metaliks

Essar Steel Limited

Kirloskar Ferrous Industries Limited

KIOCL Limited

JSW Steel Hy-Grade Pellets Limited

Sesa Goa Limited


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COMPANY PROFILECOMPANY PROFILE

KIOCL Limited, a wholly owned Government of India

Enterprise, was established in 1976.

Countrys prestigious 100% export oriented unit and Mini

Rathna Company

M

issio

n &Visio

n Statem

ent To Strive to be an efficient organization, committed to customer and

stakeholders satisfaction.


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PRODUCT PROFILEPRODUCT PROFILEUnit BFU Mangalore

Major Products Product: Hot Metal-Pig Iron

Byproduct: Auxilliary & Slag

Product: Iron ore pellets & Pellet

fines

Competitors Tata Metaliks, Kirloskar and

Sesagoa.

Essar Steel, JSW Steel and Hy-grade

pellets Limited.

Market Share The production of Pig Iron and

auxiliaries was 0.118 Million MT

which represents 2.23% of the total

production in the country. The market

share of the product is around 10% of

the total market in India.

The capacity of the pellet plant at

mangalore (3.5 million tonnes)

represents 22.58 and 1.04 percent of

the total production capacity of pellets

in India (15.50 MT) and the world

(336.62 MT) respectively. The market

share of export of pellets of the

company in terms of overall export in

the world market worked out to 1.17%

during 2007.

Projects under Execution Ductile Iron Spun Pipe Project and

Pig Iron Casting Machine.

Railway siding project and

Horizontal pressure filters.


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SWOT ANALYSISSWOT ANALYSIS

y STRENGTH Strong brand image world wide. Expertise in handling hematite ore through wet

grinding system at Pellet Plant.

100% EOU status.

Shore based Pellet Plant with captive berth, with automatic ship loading system.

Expertise in Mining, Beneficiation & Pelletisation.

A Mini Blast Furnace facility, a lone PSU unit which produces foundry grade Pig Iron.

Captive Power Plant.

SkilledManpower.

The company has high cash reserve ofaround Rs.1200 crores.


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SWOT ANALYSIS..SWOT ANALYSIS..

y WEAKNESS

NoCaptive Iron Ore mine.

Lower value addition due to bought out ore and higher cost oflogistics.

Non-availability ofrequired quantity ofIron ore.This restricts

Company from entering into long term sales contracts with assured

quality.

Applied Mining Leases are under litigation.


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y OPPORTUNITY

Utilization ofMechanical Ship Loading System.

Expansion ofmining activities with available core competence.

Value addition namely producing Ductile Iron Spun pipes at BF Unit.

Venturing into new business areas namely - Coke Oven Plant, SettingupofIntegrated Steel Plant.


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y THREAT

Global Economic crisis.

Delay in getting new mining leases.

Infrastructure Dependence on Railways for allotment ofrakes for

movement ofraw material.

Sourcing ofwater from Lakya Dam.

Delay in withdrawing from Kudremukh in view ofSupreme Court order.

Migration oftrained manpower.


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QUANTITATIVE ANALYSISQUANTITATIVE ANALYSIS

Various Quantitative Analysis techniques and tools used;

y Trend Analysis

y

Key Ratios Analysisy Comparative Analysis with Industry

y Inter-firmComparative Analysis

y Cash flow Analysis

y Pro-forma statement Analysis

y Working Capital- Operating Cycley Working Capital- Cash Management

y Working Capital- Receivables and Payables Management

y Working Capital- Inventory Management


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Trend AnalysisTrend Analysis-- Balance SheetBalance Sheet

0%

50%

100%

150%

200%

250%

300%

350%

400%

Mar' 09 Mar' 09 Mar' 08 Mar' 08

INDUSTRY KIOCL Ltd. INDUSTRY KIOCL Ltd.

136%

100%

206%

100%

342%

103%

397%

102%54%

185%

105%

200%201%

75%

241%

75%91%

29%

151%

34%

334%

95%

350%

93%

ShareCapitalReserves and Surplus

Net Fixed Assets

Total Current Assets

Total Current Liabilities

Net Working Capital


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Trend AnalysisTrend Analysis-- Income StatementIncome Statement

-100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

Mar' 09 Mar' 09 Mar' 08 Mar' 08

INDUSTRY KIOCL Ltd. INDUSTRY KIOCL Ltd.

117%

494%

149%

602%

352%

112%

417%

118%125%

544%

13

7%

548%

134%

381%

148%

381%

-15%

160%

244%

785%

Net SalesOther Income

Consumption ofRM

Total Expenditure

Profit afterTax


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FINDINGSFINDINGS

y There is significant fluctuation in the net sales figure ofthe companyfrom 2008 to 2009. Whereas, for the company the sales trend wasbetter than KIOCL.

y Compared to the Industry standard, the expenditure ofthe companywas very high in 2008 and 2009.

y The company has increased its production capacity and introduced pigiron production. So as to run new and old plants, the consumption hasincreased, which caused increased in expenditure.

y Profit after tax improved in 2008 after low performance in 2007, butdue to worldwide recession in 2009, the sales and hence the profit wasstruck hard.


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0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

iquid atio InventoryTurnover

atio

Debt- quityatio

Operatingprofit

margin

eturn onInvestment

8.64

2.33

0.00 0.020.01

7.30

5.27

0.000.11

0.070.61

7.28

16.5

1.290.42

7.17

2.47

0

2.071.21

KIOCLLtd.Mar' 09

KIOCLLtd.Mar' 08

INDUST Y AV AG Mar' 09

INDUST Y AV AG Mar' 08

COMPARISON WITH INDUSTRY AVERAGECOMPARISON WITH INDUSTRY AVERAGE


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FINDINGSFINDINGS

y The increase in current ratioofthe company in 2008-09 shows that the firmis having very high margin ofsafety for creditors and it can ably meet itsobligations.

y Inventory turnover have been affected twice in last three years.

y The company is 100% debt free.There is nooutstanding long-term debt inlast three years (2007-09).This shows strength in owners equity to run thebusiness.

y The company is highly liquid in nature and there is no sign ofgettinginsolvent in near future.

y The operating profit margin has declined for both industry and thecompany. During 2008 & 2009, the demand for iron and steel products

were severely hit due to recession.


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ANALYSIS OF CASH FLOW STATEMENTANALYSIS OF CASH FLOW STATEMENT

y Cashflow from Operating activities

In 2006: Rs 2,783,702 Lakh, in 2007: Rs. (1,431,933) Lakh, in 2008: Rs(655, 921) Lakh, in 2009: Rs (1,854,378) Lakh.

In 2007, there was switchover from captive mines at Kudremukh to 100%

hematite ore sourced fromNMDC and others.

In 2008, the company realized highest ever sales price ofUS $245per MTofpellets and Rs. 33000 per tonne ofpig iron.

In 2009, the worldwide recession set in.The customers in China, Japan andSouth Korea requested cut in their demand for Pellets and Pig iron.Also, prices reached to rock bottom US $54per MTofPellets.


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y Cash Inflows

In 2006, the operating activities generated 71.89%ofneeded cash.

Later it made no contribution to the inflow ofcash.

In the following years, the company was dependent on the interest

received from Long term investment (acquisition and disposal oflong

term assets).

In the period (2006-08), the company saw merger ofKISCO withKIOCL.


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y Cash Outflows

The major contributor to cash outflow has been operating expenses

i.e., 60.80% in 2007, 48.67% in 2008, and 86.22% in 2009.

In 2008, the operating expenses were covered to some extent.

Here, the company used 42.41%ofits reserves and surplus part of

shareholders fund to cover the increasing operating expenses.

Although, the situation is improving in 2010 with increase in

demand ofIron and Steel in global market, it will take couple of

years for the company to check its cash outflow and improve

operating activities.


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WORKING CAPITALWORKING CAPITAL-- OPERATING CYCLEOPERATING CYCLE

Year: 2009 Year: 2008

GROSSOPERATING CYCLE days days

1. Inventory Conversion Period

(i) Raw Material 158 50

(ii) Work-in-Process 20 19

(iii) Finished Goods 62 16

240 85

2. Debtors Conversion Period 3 36

3. Gross Operating Cycle (1+2) 243 121

4. Payment Deferral Period 59 72

NETOPERATING CYCLE (3-4) 184 49


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WORKING CAPITALWORKING CAPITAL-- SCHEDULE OF CHANGESSCHEDULE OF CHANGES

Particulars Amount Changes in Working

Capital(in lacs)

2009 2008 Increase Decrease

(Debit) (Credit)

Current Assets

Inventories 64,703.96 34,655.50 30,048.46 -

Sundry Debtors 813.23 14,102.61 - 13,289.38

Cash and Bank balances 119,986.61 127,841.88 - 7,855.27

Loans and Advances 11,13

9.56 21,752

.01 10,612

.45

Current Liabilities 22,772.86 27,167.70 4,394.84

Working capital (CA-CL) 173,870.50 171,184.30

Increase in Working Capital 2,686.20

34,443.30 34,443.30


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WORKING CAPITALWORKING CAPITAL-- CASH MANAGEMENTCASH MANAGEMENT

y

Size ofcash

y Size ofsales

y Control ofcash

Year Cash (In Lakhs) Trend

2007 129889.8

3100%

2008 127841.88 98%

2009 119986.61 92%

Year Sales (in Lakhs) Trend

2006 117,978.31 100%

200723,460.63

20%

2008

141,310.52

120%

2009

115,956.93

98%

Year Cash to CARatio

2007 0.49

2008 0.64

2009 0.61

Year Cash Turnover

ratio

2007 0.17

2008 1.09

2009 0.9

3

Year Cash to CL ratio

2007 1.63

2008 4.71

2009 5.27


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WORKING CAPITALWORKING CAPITAL-- INVENTORY MANAGEMENTINVENTORY MANAGEMENT

y Composition ofInventory

y InventoryTurnover

Year Raw

Material(%)

Finished

Goods(%)

Stores Spares &

consumables,

additives(%)

Total(%)

2007 53% 8% 39% 100%

2008 43% 19% 38% 100%

2009 55% 27% 18% 100%

Average 52% 22% 26% 100%

Year Ratio In days

2007 1.30 276

2008 5.27 68

2009 2.33 154

Average 166days


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WORKING CAPITALWORKING CAPITAL-- RECEIVABLES & PAYABLESRECEIVABLES & PAYABLES

MANAGEMENTMANAGEMENT

y Receivables management

y Payables management

Year Debtors

Turnover

Ratio

Average

collection

period (in

days)

2007 162.67 2

2008 20.04 18

2009 15.55 23

Year Creditors Turnover

Rati

o

Average Payment

Peri

od(in

days)

2007 3.46 103.94

2008 11.62 30.98

2009 6.73 53.50

Average 7.27 49.52


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RECOMMENDATIONS & CONCLUSIONRECOMMENDATIONS & CONCLUSION

yThe most worrying factor for the company is the cash flow fromoperatingactivities. It needs to consider following points and improve its operatingactivities;

Instead ofgenerating cash fromoperations, the company is generating cash fromother sources like receivables, sale ofscraps.

Manage its inventory in such a way that there is minimum raw material holdingperiod and high inventory turnover.

There should be balance in composition ofthe inventories.

Sudden fluctuation in receivables and payables ofcredit should be checked.

The company should consider taking power supply fromother trusted economicsource instead ofits captive one, at least for another 2 years.This will cut lot ofundesirable operating costs.


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RECOMMENDATIONS & CONCLUSIONRECOMMENDATIONS & CONCLUSION

y Seeing intopast and comparing present ROI, it can be said that thecompany has the potential to bounce back.

y But due to certain circumstances like closure ofcaptive mines,shifting ofcaptive plant and restructuring process ofoperations, its

whole structure has transformed.

y This period is the new beginning. It has cash reserve, is in control ofcredits.

y The need is to work optimistically towards improving sales and earnmore prospective customers.


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an analysis of financial statement and working capital

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