Project Report on Financial Statement Analysis

A Project Report on
FINANCIAL STATEMENT ANALYSIS AND CVP
ANALYSIS OF COAL INDIA LIMITED
Submitted to
INSTITUTE OF TECHNOLOGY AND MANAGEMENT
HUNTER ROAD,
WARANGAL-506001
MAY-JUNE 2008
BY
ARIJIT BHOWMICK
ROLL NO. WA2007PGDM13F008
GUIDED BY
MR. PROBIR CHAKRABORTY
FINANCE MANAGER (CIL)
For the partial fulfillment of
POST GRADUATE DIPLOMA IN MANAGEMENT

ACKNOWLEDGEMENT
I express my sincere gratitude for management of COAL INDIA LIMITED (CIL) for giving me
the opportunity to do my summer project from their organization. My experience in CIL is a great
one which put me in practical arena apart from theoretical knowledge.
I feel immense pleasure in expressing my deepest sense of gratitude to my guide Mr. Probir
Chakraborti, Finance Manager, Coal India Limited, for his valuable guidance, constant
encouragement and enlighten comments throughout my project work. Without his valuable guidance
and constant divine inspiration, it was hardly possible to present this project report.
I express my sincere thanks to Dr. T. Dayakar Rao, Director, ITM, Warangal, for giving me the
valuable opportunity to do my project.
I am thankful to Prof. N. Purna Prabhakar, ITM, Warangal, for providing support and guidance
in my project work.
It will not be complete if I did not mention the Faculty of ITM, Warangal, who has given me
suggestions and tips during my project work.
I did this entire project in a smooth and confident environment if not for the support I had from my
parents.
ARIJIT BHOWMICK
PGDM 2007-‘09

CONTENTS
TOPIC PAGE NO.
1) ABSTRACT 1
2) EXECUTIVE SUMMARY 4
3) INTRODUCTION 11
4) REVIEW OF LITERATURE 15
5) RESEARCH METHODOLOGY 17
6) ANALYSIS OF SURVEY 19
7)THE STORY OF REVIVAL OF A SICK COMAPANY 73
8) RESULTS AND CONCLUSIONS 76
9) LIMITATIONS OF THE STUDY AND FUTURE SCOPE OF THE WORK 79
10) APPENDICES 81
11) BIBLIOGRAPHY 82

In this project we are looking at the Financial Statement Analysis and behavioral analysis of cost in a
core sector industry. Balance sheet review of the last five years along with the changes in the
Working Capital and component wise analysis of Current Asset and Current Liabilities to identify
the causes of changes, covering a case study of a company to establish” The story of revival of a sick
company”.
In the words of Myers, “Financial Statement Analysis is largely a study of relationship among the
various financial factors in a business as disclosed by a single set of statements and a study of the
trends of these factors as shown in a series of statements.”
The purpose of financial analysis is to diagnose the information content in financial statements so as
to judge the profitability and financial soundness of the firm.
In this project we will perform the financial analysis of Coal India Limited we will go through the
financial statements of the company to diagnose financial soundness.
SCOPE OF THE RESEARCH
The financial statement is the depiction of companies’ growth and establishing its available
resources. . The statements are prepared for a particular period. The financial statements by nature
are summaries of items recorded in the business and these statements are prepared periodically. They
are prepared for the purpose of presenting a periodical review of reports on progress by the
management and deal with the status of investment in the business and the results achieved during
the period under review.
ANALYSIS OF BEHAVIOR OF COST
“Cost” is a catchword which signifies utility value addition raw material, through the series of
operations expressed in terms of money is termed as cost.
“Analysis” is the process to anatomize those elements which are clustered in the operational process
and are quantifiable in terms of money.
“Cost Identification” is the basic thing to review the health of the company. The main objective of
the company is to attain profitability but without analyzing the cost behavior profit analysis is
meaningless. So it is very important for every company to analyze the expenses incurred and cause
of variance.
RATIO ANALYSIS
Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of
two mathematical expressions” and as “the relationship between two or more things”. In financial
analysis, a ratio is used as a benchmark for evaluating the financial position and performance of the
firm. The absolute accounting figures reported in the financial statements do not provide a
meaningful understanding of the performance and a financial position of the firm. An accounting
figure conveys meaning when ‘it is related to some other relevant information’. For example, a Rs. 5
crores net profit may look impressive, but the firm’s performance can be said to be good or bad only
when the net profit figure is related to the firm’s investment. The relationship between two
accounting figures, expressed mathematically, is known as a financial ratio.

Ratios help to summarize large quantities of financial data and to make qualitative judgment about
the financial performance.
WORKING CAPITAL MANAGEMENT
Two types of capital are needed in an enterprise – Fixed Capital and Working Capital. Business
operations demand few assets to be used in the business for a longer period which are known as
fixed assets. And capital invested in acquisition of such assets is known as Fixed Capital. Capital is
also needed for short-term purpose, i.e., for the meeting of the day-to-day operations. Capital
invested for this purpose is known as Current Capital or Working Capital. Thus, Working Capital
refers to concerns investment in short-term assets like cash, short-term securities, debtors and
investors of all types. It can also be regarded as the position of company’s total capital which is
employed in short-term operations. In other words, Working Capital is the investment needed for
carrying out day-to-day operations of the business smoothly.

A SHORT CHRONOLOGICAL HISTORY OF THE COMPANY
Year Event
1774 Warren Hastings initiates commercial coal mining at Raniganj (West
Bengal)
1815-1820 First Shaft Mine opened at Ranigunj
1835 Carr, Tagore & Company takes over the Ranigunj Coal Mines
1843 Bengal Coal Company takes over Ranigunj Coal Mines and others; is
first Joint Stock Coal Company in India.
Up to 1900 Minimal development; River transportation used to transport coal to
Calcutta; railway lines at Calcutta leads to expansion of Coal Production
Early 1900s Capacity at 6 million tones per annum
1955-56 Focus on Coal Industry; capacity up to 38.4 Million tones.
1956 National Coal Development Corporation (NCDC) formed to explore and
expand coal mining in Public Sector
1972 Coking Coal Industry Nationalized, Bharat Coking Coal Limited formed
to manage operations of all Coking Coal mines in Jharia Coalfield.
1973 Non-coking coal nationalized; Coal Mine Authority Limited set up to
manage these mines; NCDC operations bought under the ambit of
CMAL.
1975 Coal India Limited formed as holding Company with 5 subsidiaries viz.
Bharat Coking Coal Limited (BCCL), Central Coalfields Limited (CCL),
Western Coalfields Limited (WCL), Eastern Coalfields Limited (ECL)
and Central Mine Planning and Design Institute Limited (CMPDIL).
1985 Northern Coalfields Limited (NCL) and South Eastern Coalfields
Limited (SECL) carved out of CCL and WCL
1992 Mahanadi Coalfields Limited (MCL) formed out of SECL to manage the
Talcher and IB Valley Coalfields in Orissa.
2000 De-regulation of Coal pricing and distribution of coal.
COMPANY PROFILE

Coal India Limited has been incorporated under the companies Act 1956 on 21.10.1975 and is
wholly owned by the Government of India. The company is chiefly in to the business of coal mining,
coal based products and mining consultancy.
The wholly owned subsidiaries of the company are as follows:
1. Eastern Coalfields Limited.
2. Bharat Coking Coal Limited
3. Central Coalfields Limited
4. Northern Coalfields Limited
5. Western Coalfields Limited
6. Southeastern Coalfields Limited
7. Mahanadi Coalfields Limited.
8. Central Mine Planning and Design Institute Limited
North Eastern Coalfields is directly under control of Coal India Limited.
Registered office of the Company is Coal Bhawan, 10 Netaji Subhas Road, Kolkata – 700 001, West
Bengal, India.
India is the 3rd largest coal producing country in the world and Coal India Limited produces 85% of
total coal production in India. It is the largest company in the world in terms of coal production. It
employs around 436 thousand people and is the largest corporate employer in the country.
The objectives of the company are as follows:
1) To promote the development and utilization of the coal reserves in the country for meeting the
present and likely future requirement of the nation with due regard to need for conservation of non-
renewable resources and safety of mine workers.
2) To raise the productivity of coal mining and related activities through introduction of improved
technology, streamlining of organization, management and improving the skills, motivation of the
work-forces.
3) Efficiency of operations and adopting appropriate cost reduction and cost control methods.
4) To make efficient arrangements for marketing and supply of coal so that coal, coke and other
similar derivatives are available to consumers throughout the country conveniently and at reasonable
prices.
5) To promote research and development activities on a continuing basis in the areas of coal mining,
beneficiation development of new coal based products or by-products, fuel technology or any other
area having a bearing on conservation, development for utilization of the coal reserves of the
country.
CURRENT PICTURE OF THE COMPANY

Coal India Limited has been able to maintain its record of growth and excellence in performance in
another fiscal 2006-07. Coal India Ltd. (CIL) as a whole achieved raw coal production of 323.58
million tones in the year under review against 306.36 million tones in the last year slating
a growth of 5.6 %, the capacity utilization is being as high as 96.4%. The overall man productivity
(output per man shift) in the year had, for the first time, crossed the milestone of 3 tones as against
2.82 tones in the previous year.
Company Statement Showing Coal Production, OBR & Coal off-take
Coal (Mt) OB (Mcum) Coal Off
take
Coal (Mt) OB (Mcum) Coal Off
take
Actual Actual Actual Actual Actual (MT)
05-06 05-06 05-06 06-07 06-07 06-07
ECL 31.11 44.30 28.68 30.47 48.78 29.79
BCCL 23.31 43.96 22.34 24.20 46.25 24.10
CCL 40.51 49.97 38.62 41.32 45.89 38.68
NCL 51.52 133.86 51.68 52.16 139.60 52.62
WCL 43.20 118.55 41.75 43.21 106.33 42.17
SECL 83.02 84.38 81.20 88.50 87.27 86.17
MCL 69.60 51.42 68.22 80.00 55.47 76.43
NEC/CIL 1.10 7.50 1.17 1.05 8.06 1.18
OVERALL 343.38 533.94 333.66 360.91 537.65 351.14
'Note: - OB=Over burden specially stone & muddy, top surface of the soil
Since after nationalization the Dispatch shoots from 81.73Mt during 75-76 to 331.37 Mt being a
yearly record of 2006-07. Improved dispatch is due to deployment of Rail, Road, MGR, Belt &
Rope.
An all-time high turnover (Gross Sales) of over Rs. 35,129 crores was achieved during the year
registering a growth of about 17%. The pre tax profit for the year was Rs. 8522 crores. It was
recommended a dividend payment of Rs. 1500 crore. CIL, the single largest coal producing
company in the world is now venturing into new initiatives in India and abroad.
COAL VISION 2025

Inputs for Coal Vision 2025 have been submitted, which aims at laying down the framework for
guiding the policies relating to the coal sector for next 20 years. India now possesses about 8.6% of
the total recoverable coal reserves of the world and contributes about 7.5% of the world’s coal
production. Considering an overall GDP growth of 8%, India would be requiring about 1267 Mt of
coal (1147 Mt in case of overall GDP growth of 7%) by 2025 to drive its energy economy on coal as
projected by the studies. It has been proposed to develop coal sector as a globally competitive
industry through of state-of-the art high productive mining & beneficiation technologies and
capacity building.
Coal India Ltd., with an impressive track record in meeting the coal requirement of energy need of
the country by registering a growth in production in excess of 5% annually over the years, is aiming
at playing a more purposeful role in establishing itself as the prime supplier of coal for power
generation. In this respect, CIL has not restricted itself within the conventional gamut of coal
mining, but is also exploring the possibilities of expanding its horizon in harnessing the potential of
non-conventional energy sources viz. (i) Coal Bed Methane (CBM), (ii) Underground Coal
Gasification (USG), (iii) Coal Liquefaction and (iv) Over ground Coal Gasification (OCG). CIL is
also contemplating setting up of Power Plants in Joint Venture. For this purpose, CIL is negotiating
with both Neyveli Lignite Corporation Limited (NLC) and National Thermal Power Corporation
(NTPC) for power plant in Orissa.
CIL has also taken up various initiatives for non-conventional energy sources, which are as
follows:
Coal Bed Methane (CBM): The consortium of CIL and ONGC, an un-incorporated joint venture, had
already obtained Petroleum Exploration License (PEL) from the respective Governments against the
two blocks allotted by Govt. Of India, one at Jharia Coalfields in Jharkhand. The Project is in
progress since August 2003 under the guidance of CMPDIL, a subsidiary of CIL. Besides this, Govt.
of India, in collaboration with UNDP/GEF (Global Environment Facility) had taken up a
‘Demonstration Project’ at Moonidh and Sudamdih mines of BCCL. A subsidiary of CIL in Jharia
Coalfields for Coal Bed Methane Recovery and Commercial Utilisation. The project costing about
Rs. 100 crores is under implementation by CMPDIL and BCCL since 15th September 1999.
Underground Coal Gasification (UCG): Underground Coal Gasification (UCG) is the in-
site gasification of coal in the seam. It is achieved by injecting oxidants, gasifying the coal and
bringing the product (gas) to surface through boreholes drilled from the surface. The gas is used for
power generation, industrial heating or as chemical feedstock. UCG was developed as a large-scale
gas production process in the former Soviet Union and trial schemes have been evaluated in many
other countries including United States, China, Australia and UK. Coal India has given high priority
to the issue of Underground Coal Gasification. CIL and ONGC is likely to take up jointly a pilot
project for establishing UCG technology. A draft MOU after its approval by CIL board is presently
under consideration of the ministry of Coal (MOC) for approval. However, initial work of data
exchange needed for identification of trial site has already been taken up.

Coal Liquefaction: Oil India Limited (OIL) has approached CIL to become a partner in its venture of
producing oil from coal in its Duliajan plant in Assam and requested for supply of about 3.5 Mt of
coal per annum from NEC. CMPDIL has prepared a report on possibilities of producing 3.5 MTPA
coal in NEC. CIL and OIL held a meeting on July 11, 2005 to discuss future possibilities when OIL
had indicated that the tentative cost of production of oil obtained from this process was about US $
35 per barrel which appears to be quite attractive particularly keeping in view the burgeoning oil
price in international market which has reached a level of US $61 per barrel. It was decided to form
a ‘joint task force’ of CIL and OIL which would study the CMPDIL report as also the possibility of
formation of two joint ventures- one for coal production and the other for setting up a Coal
Liquefaction plant and its upstream activities.
Over ground Coal Gasification (OCG): Director (Planning & Business Development), GAIL
(India) Limited met Director (Technical), Coal India Limited on 20th July, 2005 in connection with
their interest to form a joint venture with CIL for joint evolution of work in various coal sector
related potential opportunities including OCG. Accordingly, a draft memorandum of co-operation
has been made.
The nature of actions needed to penetrate into the coal business opportunities in a foreign land is
somewhat different from those in homeland. CIL has therefore, already decided to float a new
subsidiary viz Coal India Ltd. Which is expected to come into being very shortly. Considering the
fact that the demand for coal in India is always greater than supply from indigenous sources, more
particularly for coking coal and low ash non- coking coal primarily because of their limited
availability, CIL is poised to venture into coal business potentialities abroad either through
acquisition of equity in any existing coal company or through coal mining on green field area in
order to ensure energy security of our country. On a quest for meeting the said objectives, CIL has,
based on the extensive interactions with consultants of international repute, High
Commissions/Embassies and Coal MNCs, short listed countries like Australia, Indonesia, South
Africa, Mozambique and Zimbabwe as first preferred destinations and countries like Russia,
Kazakhstan, Mongolia, China, Canada and Venezuela as second line of priority. CIL has so far
participated in the bidding process of two opportunities – one for green field venture in Mozambique
and the other for acquisition of a part of equity in a company in Australia. But both the attempts
ultimately could not materialize for some reasons or the other. CIL is, however geared up for taking
an aggressive drive for fulfilling its objective in this direction.
Apart from taking various measures for better consumer satisfaction, coal companies have also
introduced the system of sale of coal through E-Auction in order to put in place more transparency in
marketing of coal more particularly to non-core consumers. This is, basically, based on the sole idea
of going by market economy and eliminating the scope of black-marketing in coal distribution.
During the year 2004-05, CIL and one of its subsidiaries viz BCCL, as a trial-run could sell more
than 2 lakh tones of coal through E-Auction and the coal companies have planned to achieve a sale
of 10 million tones of coal through this mode during the year 2005-06. Besides this, CIL had, in
order to mitigate the problem being faced by them in getting coal through official channel,
introduced the system of releasing coal to small and dry consumers (whose requirement of coal is
small) through the channel of Union Ministry of Consumer

affairs, Food & Public Distributions and state undertakings nominated by various states for the
purpose.
In this connection it is heartening to note that consequent upon net worth of CCL being positive,
AAIFR, the appellate Authority under the Sick Industrial Companies (Special provisions) Act, 1985
(SICA), in its hearing held on 31st January, 2005 had granted the prayer of CCL to withdraw its case
from them. Accordingly, the CCL is no longer under the purview of SICA. The other two subsidiary
companies viz. ECL and BCCL are still sick as per the provisions of SICA. Rehabilitation Scheme
(March 2004) of ECL as approved by the Board for Industrial and Financial Reconstruction (BIFR)
on 2nd November 2004 and recommended by the office of the Controller General of Accounts for
revival of the company is under implementation. As directed by the BIFR, BCCL had already
submitted its Revival Plan on 12th April 2004 and valuation Report of its assets carried out by a
Govt. approved valuer on 31st 2004 to it.
But above all topmost priority is being given to safety in mines though in recent times we have
witnessed some of the most horrendous and pathetic accidents where the precious lives of the miners
have been lost.
Lastly apart from safety measures in mines, welfare for employees, environment protection remains
the main priority while envisaging new capacity additions.

INTRODUCTION
AN OVERVIEW OF COAL INDIA

INDIA is the 3rd largest coal producing country in the world. In terms of hard coal production
COAL INDIA limited, is the single largest producing company in the world, employing 4.36 lakhs
manpower with its h.q. In KOLKATA is a holding company under ministry of coal, GOVT OF
INDIA. It was formed as public sector undertaking in 1975 pursuant to nationalization of the coking
coalmines in 1971 and non-coking coalmines in 1973 for reorganizing the nationalized coalmines
and ensuring integrated development of coal the prime source of energy.
Coal India presently contributes 85%of the total coal production in India. It operates through eight
subsidiaries. Seven producing companies and one Planning and Design institute. Subsidiaries are as
under: -
Eastern coalfields limited. (ECL) Sanctoria.W.B
Bharat coking coal limited. (BCCL) Dhanbad, Jharkhand.
Central coalfields limited. (CCL) Ranchi. Jharkhand.
Northern coalfields limited. (NCL) Singrauli.MP.
Western coalfields limited. (WCL) Nagpur, Maharashtra.
Southeastern coalfield limited (SECL) Bilaspur, Chattisgarh.
MAHANADI Coalfields Limited. (MCL) Sambalpur, Orissa.
Central mine planning & design institute limited (CMPDIL) Ranchi, Jharkhand. (For mine planning,
design & engineering consultancy services and exploration activity
The mines of North Eastern coalfields (Assam & Meghalaya) operate directly under COAL INDIA.
COAL INDIA currently operates 467 mines and 17 washeries (11 coking and 6 non-coking) spread
over eight states to produce and beneficiate coal for meeting the demand of the consumers all over
the country. The ranges of products are: Raw coal, (coking and non-coking), washed coal, middling,
Soft coke, Hard coke, Coal tar, Coal gas, coal chemicals etc.
78% of CIL total production contributes towards electricity generation. COAL INDIA, for over
three decades, has been fuelling economic growth of INDIA keeping its wide array of consumers
like Thermal power plants, steel plants, cement plants, fertilizer units and innumerable industrial
units satisfied with supply of coal.
COAL INDIA has played a significant role in securing India’s energy future .The integrated energy
policy of the country clearly indicates that coal is the main and cheapest source for Indian energy
sector. CIL currently accounts for 85% of the total coal produced in the country and Power sector is
the largest consumer utilizing 80% of CIL production.
Coal based power generation constitutes 75% of power generation in the country and CIL supplies
coal to as many as 71 power station.
FINANCIAL HIGHLIGHTS

trend of overall pbt for last ten
year
1803.98
1451.79
693.87
2865.50
4889.164801.52
8676.72
1754.56
8212.69
-1414.47
-2000.0
0
0.00 2000.0
0
4000.0
0
6000.0
0
8000.0
0
10000.
00
1
2
3
4
5
6
7
8
9
10
PBT Rs Crore
IMPROVED DEBTORS POSITION SHOWS IMPROVED LIQUDITY

Project Report on Financial Statement Analysis

REVIEW OF LITERATURE
The financial statement is the depiction of companies’ growth and establishing its available
resources. The financial growth is highlighted from profit and loss and the position of resource and
liabilities id depicted from Balance sheet.

ANALYSIS OF BEHAVIOR OF COST
In behavioral cost analysis “Cost” is a catchword which signifies utility value addition raw material,
through the series of operations expressed in terms of money is termed as cost. “Analysis” is the
process to anatomize those elements which are clustered in the operational process and are
quantifiable in terms of money.” Cost Identification” is the basic thing to review the health of the
company. The main objective of the company is to attain profitability but without analyzing the cost
behavior profit analysis is meaningless. So it is very important for every company to analyze the
expenses incurred and cause of variance.
Ratio Analysis:
Ratio Analysis is a powerful tool of financial analysis. In financial analysis, a ratio is used as a
benchmark for evaluating the financial position and performance of the firm. It can be used to
compare the risk and return relationships of firms of different sizes.
Working Capital Management:
Working Capital management is the managing of the imbalance between current asset and current
liabilities and the right determination of resources to manage the business cycle. The interaction
between current assets and current liabilities is, therefore the main theme of the theory of working
management.

RESEARCH METHODOLOGY
HYPOTHESIS
The financial statements are mirrors which reflect the financial position and operating strength of a
concern, practical application of financial statement is reviewed through ratio analysis and working

capital management. Behavioral analysis of cost is also reviewed through the company’s data
compilation and its multifarious behavior is projected through pictorial representation.
OUTLINE METHODOLOGY OF THE RESEARCH
Stage 1: Recorded Facts.
The figures of various accounts such as cash in hand, cash at bank, sundry debtors, fixed assets, etc.,
are taken as per the figure recorded in the accounting books. Since, all these recorded facts are based
on original cost or historical costs and not on replacement costs, financial statements do not show
current financial position of the concern.
Stage 2: Accounting Conventions.
Fundamental accounting principles are followed to prepare the financial statements. Provisions are
made for expected losses but expected profits are ignored on account of the ‘convention of
conservatism.’
Various accounting conventions are used to make financial statements simple, comparable and
realistic.
Stage 3: Accounting Postulates
While preparing accounting records, certain assumptions are also made like the enterprise is treated
as an ongoing concern, etc. These assumptions are fundamental while preparing financial statements.
Stage 4: Calculations
At this stage after gathering the required information the calculations are made by using the methods
or tools of the financial statement analysis.
Stage 5: Write up
This stage involves the writing up of the contents of the dissertation and should cover the chapter
proposed in the following section.
DISSERTATION CONTENTS
1. Ratio Analysis.
2. Working Capital Management.
3. Behavioral analysis of cost.
4. The story of turnaround of a sick company.
SOURCE OF DATA
1) Audited financial statement and an annual report of the company.
2) Management information statement.-prepared by cost and budget section of Coal India.
3) Statistical information is obtained from Annual Action Plan.-prepared by the corporate
planning and project monitoring department.

ANALYSIS OF THE SURVEY
FINANCIAL STATEMENT ANALYSIS
Meaning:

A Financial Statement is an organized collection of data which contains summarized information of
the firm’s financial affairs, organized systematically. Its purpose is to convey an understanding of
the financial aspect of the business concern.
The term ‘Financial Statement’ generally refers to two basic statements: (i) The income statement or
the profit and loss account, and (ii) Position statement or balance sheet. These two statements are
combine called financial report of a concern. They are the means to present the firms financial
position to the users.
Financial statements are prepared primarily for decision making. They play an important role in
setting the framework of managerial decisions. The information provided in financial statements is
of great use in making decisions through analysis and interpretation of financial statements. Here a
distinction can be made between the two terms ‘Analysis’ and ‘Interpretation’. The term ‘Analysis’
means methodical classification of the data given in the financial statements so that they are put in a
simpler form. On the other hand, ‘Interpretation’ means explaining the meaning and significance of
the data so simplified. However, both ‘Analysis’ and ‘Interpretation’ are complementary to each
other. Interpretation requires analysis while analysis is useless without interpretation.
The term ‘Financial Analysis’ which is also known as ‘Analysis and Interpretation of Financial
Statements’ refers to the process of determining financial strengths and weaknesses of the firm by
stabilizing relationship between the terms of balance sheet, profit and loss accounts and other
operative data.
Tools or Methods of Financial Statement Analysis:
A number of tools are used to study the relationship between different statements. Following are the
methods generally used for financial analysis.
1. Comparative Financial Statements.
2. Common Size Statements.
3. Trend Analysis.
4. Analysis of the Flow of Fund.
5. Ratio Analysis.
6. Cost – Volume – Profit Analysis.
Comparative Financial Statements:
The comparative financial statements are the statement of the financial position at different period of
time. The elements of financial position are shown in a comparative form to give an idea of the
financial position of two or more periods. Generally two financial statements (Balance sheet and
income statements) are prepared in comparative form for the purpose of financial analysis.
Common Size Statements:
Common size statements are those in which the figures are converted into percentage on some
common basis. The figures are shown as a percentage of total assets, total sales and total liabilities.

The advantage of this conversion is that the analyst is able to assess the figures in relation to total
value.
Trend Analysis:
The financial statement may be analyzed by computing trends of several years. The method of
calculating trend percentage involves the calculation of percentage relationship that each item bears
to the same item in the base year. Any year may be taken as the base year. It is usually the earliest
year. Each item of base year is taken as 100 and on that basis the percentages for each of the items of
each of the years are calculated.
Analysis of the Flow of Fund:
Every business concern prepares the basic fundamental statements, i.e. Profit and Loss Account and
Balance Sheet which shows the net effect of various transactions on the operational and financial
position of the concern. The Profit and Loss Account reflects the results of the business operation for
a period of time. It contains a summary of expenses incurred and the revenues realized on the
accounting period. The Balance Sheet gives the summary of the assets and liabilities of the
undertaking at a particular point of time. Both the financial statements provides the basic essential
information about the financial activities of a business, but their utility is limited for the purpose of
analysis and interpretation. There are many transaction that takes place in an undertaking which do
not operate through profit and loss account. Hence the need for preparing another statement is
realized to show the changes in the assets and liabilities from the end of one period of time to the end
of another period of time. The statement is called ‘Fund Flow Statement’.
Ratio Analysis:
Ratio analysis is a technique of analysis and interpretation of financial statement. It is the process of
establishing various ratios which help in making certain decisions. However, ratio analysis is not an
end in itself. It is only a means of better understanding of financial strength and weaknesses of the
firm. Calculations of these ratios do not serve any purpose, unless several appropriate ratios are
analyzed and interpreted. There are a number of ratios which can be calculated from the information
given in the financial statements but the analyst have to select the appropriate data and calculate the
appropriate ratios keeping in mind the objectives of analysis.
Cost – Volume – Profit Analysis:
Cost – volume – profit (CVP) analysis is an attempt to measure an effect of changes in volume, cost,
price and product mix on profits. It is important to note that these three variables are interrelated and
each one of them is affected by number of internal and external factors.
The main items adopted in our Project from financial statement and statistical data are as
follows:
Ratio Analysis

Working Capital Analysis
Cash Flow Statement
Behavioral Analysis of Cost
Turnaround of a Sick Company
Ratio Analysis:
Ratio analysis is the most widely used method. It is process of establishing and interpreting
quantitative relationship between figures and groups of figures. With the help of ratios, the financial
statements can be analyzed more clearly and decisions can be made more logically.
“Ratio analysis of financial statements is a study of relationship among various financial factors in a
business, as disclosed by a single set of statements and study of the trend of these factors as shown in
series of statements.”
-Myers
Thus, the ratio analysis is a tool to present the figures of financial statements in simple concise and
intelligible form. It is the process of stabilizing meaningful relationship between two figures or set of
figures of financial statements.
Liquidity Ratios
As per Consolidated Audited Accounts

Year Ending 31st March 06-07 05-06 04-05 03-04 02-03 01-02
(A) LIQUIDITY RATIOS
Current Assets 28828 24412 17536 12004 11667 11657
Current Liabilities 22821 21741 18341 14479 12464 12603
(a) Current Ratio 1.26 1.12 0.96 0.83 0.94 0.92
(Current Asset/Current Liability)
Quick Asset 17516 15232 10059 5451 5836 5636
(b) Quick Ratio 0.77 0.7 0.55 0.38 0.47 0.45
(Quick Asset / Current Liability)
Net Working Capital 6007 2670 -805 -2475 -797 -945
Net Asset 28828 24412 17536 12004 11667 11657
(c) Net Working Capital Ratio 0.21 0.11 -0.05 -0.21 -0.07 -0.08
(Net Working Capital / Net
Asset)
Current Ratio
The current ratio is a measure of the firm’s short term solvency. It indicates the availability of
current assets in rupees for every one rupee of current liability. A ratio of greater than one means
that the firm has more current assets than current claims against them.
Quick Ratio
Quick ratio, also called acid-test ratio, establishes a relationship between quick, or liquid, assets
and current liabilities. It is used to measure the company’s ability to meet its current obligation.
A high quick ratio is an indication that the firm has the ability to meet its current liabilities in
time and on the other hand, a low quick ratio represents that the firm’s liquidity position is not good.
Net Working Capital Ratio
Quantum of Capital is identifiable from Net Working Capital and the above ratio shall indicate the
strength of liquid asset on total Current assets.

Further Elaboration is shown in the Graphical Presentation
(A) LIQUIDITY RATIOS
(a) Current Ratio 1.26 1.12 0.96 0.83 0.94 0.92
(b) Quick Ratio 0.77 0.70 0.55 0.38 0.47 0.45
(c) Net Working Capital Ratio 0.21 0.11 -0.05 -0.21 -0.07 -0.08
0.92
0.94
0.83
0.96
1.12
1.26
0.45
0.47
0.38
0.55
0.70
0.77
0.21
0.11
-0.21
-0.07 -0.08
-0.05
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1 2 3 4 5 6
-0.25
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
Figure 3.1.1; Liquidity Ratios
Liquidity of the company is very precisely exhibiting in this graphics.
From the analysis of Liquidity ratio it is viewed that positive growth has been registered from 05-06
onwards.
Movements of Current Assets to Current Liabilities
Year ending 31st March 06-07 05-06 04-05 03-04 02-03 01-02
CURRENT RATIO
Current Assets 28828 24412 17536 12004 11667 11657

Ratio of CA : CL 1.26 1.12 0.96 0.83 0.94 0.92
Table 3.1.1(1); Current Ratio
11657
11667
12004
17536
24412
28828
12603
12464
14479
18341
21741
22821
0.920.94
0.83
0.96
1.12
1.26
0
5000
10000
15000
20000
25000
30000
35000
1 2 3 4 5 6
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Figure 3.1.2; Current Ratio
The liquidity position of the company is improving significantly and the terminal year has registered
its growth positively and has established that Current Assets has exceeded over Current Liabilities.
Movement to Quick Assets to Current Liabilities
QUICK RATIO
Quick Asset 17516 15232 10059 5451 5836 5636
Ratio of Q.A/CL 0.77 0.70 0.55 0.38 0.47 0.45

Table 3.1.1(2); Quick Ratio
17516
15232
10059
5451 5836 5636
21741
18341
14479
22821
12603
12464
0.55
0.77
0.70
0.38
0.45
0.47
0
5000
10000
15000
20000
25000
06-07 05-06 04-05 03-04 02-03 01-02
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Figure 3.1.3; Quick Ratio
Quick convertibility of current assets is a very sensitive symptom to discharge the company's
liability. It ensures a very favorable and comfortable weather to extend more business deal by the
creditors and outer agency. Company can also establish its credential in the market to fetch more
funds.
More liquidity is establishes from '04-05 onward. And simultaneous growth in CL is registered from
the same period also.
Movement of Net Working Capital to Net Asset
NET WORKING CAPITAL
RATIO
Net Working Capital 6007 2670 -805 -2475 -797 -945
Net Asset 28828 24412 17536 12004 11667 11657
Share of Working Capital on Net
Assets 20.84% 10.94% -4.59%
-
20.62% -6.83% -8.11%

Table 3.1.1(3); Net Working Capital Ratio
2670
-
-
-2475
-
6007
11657
11667
12004
17536
24412
28828
20.84%
-8.11%
-6.83%
-20.62%
-4.59%
10.94%
-5000
0
5000
10000
15000
20000
25000
30000
35000
06-07 05-06 04-05 03-04 02-03 01-02
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Figure 3.1.4; Net Working Capital Ratio
As we can see from the above bar diagram that the net working capital is improving and getting its
grip from the year 2005-06.
As net working capital measures the firm’s potential reservoir of funds, so we can estimate its
importance. Year 2001-02 to 2004-05 was not impressive but it gained its pace from the year 2005-
06 and increased further in 2006-07.
Leverage Ratios
(B) LEVERAGE RATIOS
Total Debt 2386 2800 3396 3647 4814 6255
Capital Employed 16224 12741 9281 8526 10619 10491
(a) Debt Ratio 0.15 0.22 0.37 0.43 0.45 0.60

(Total Debt / Capital Employed)
Total Debt 2386 2800 3396 3647 4814 6255
Net Worth 17889 14115 10138 8543 7360 6183
(b) Debt-Equity Ratio 0.13 0.2 0.33 0.43 0.65 1.01
(Total Debt / Net Worth)
Capital Employed 16224 12741 9281 8526 10619 10491
Net Worth 17889 14115 10138 8543 7360 6183
(c) Capital Employed to Net
Worth Ratio 0.91 0.90 0.92 1.00 1.44 1.70
(Capital Employed / Net Worth)
Table 3.1.2; Leverage Ratios
Debt Ratio
Several debt ratios may be used to analyze the long-term solvency of the firm. The firm is interested
in knowing the proportion of the interested-bearing debt in the capital structure, therefore, Debt
Ratio is computed.
Debt-Equity Ratio
This ratio is calculated to judge the long term financial position of the business. The ratio establishes
relationship between debts and shareholder’s funds.
Capital Employed to Net worth Ratio
This is another way of expressing the basic relationship between debts and equity.
Year Ending 31st
March 06-07 05-06 04-05 03-04 02-03 01-02
(B) LEVERAGE RATIOS
(a) Debt Ratio 0.15 0.22 0.37 0.43 0.45 0.6
(b) Debt Equity Ratio 0.13 0.20 0.33 0.43 0.65 1.01
(c) Capital Employed to Net
Worth Ratio 0.91 0.9 0.92 1.00 1.44 1.70

Figure 3.1.5; Leverage Ratio
From the graph above it can be seen that there is immense reduction of the percentage of debt during
the years. Thus, we can say that the company has low financial risk and the company can use its debt
to its shareholder’s advantage.
Movement of Total Debt to Capital Employed
Year ending on 31st March 06-07 05-06 04-05 03-04 02-03 01-02
DEBT RATIO
Total Debt 2386 2800 3396 3647 4814 6255
Capital Employed (NW+Debt) 16224 12741 9281 8526 10619 10491
% of Debt /Capital Employed 14.71% 21.98% 36.59% 42.78% 45.33% 59.62%
Table 3.1.2(1); Debt Ratio

2386
2800
3396 3647
4814
16224
12741
8526
10491
6255
10619
9281
14.71%
21.98%
59.62%
36.59%
42.78%
45.33%
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
06-07 05-06 04-05 03-04 02-03 01-02
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Figure 3.1.6; Debt Ratio
Dipped in the debt position is indicated a significant improvement in the company's financial health.
If we look year 2001-02 we can see that the debt ratio is 0.596 which means that the lenders have
financed 59.6% of the company’s net assets. Whereas, in the year 2006-07 the debt ratio is 0.147
which means that the lenders have financed only 14.7% of the company’s net assets. This says that
the company has less debt which is good for the financial health of the company
Movement of Total Debt to Net Worth
Year ending on 31st March 06-07 05-06 04-05 03-04 02-03 01-02
DEBT-EQUITY RATIO
Total Debt 2386 2800 3396 3647 4814 6255
Net Worth 17889 14115 10138 8543 7360 6183
% of Debt / Net Worth 13.34% 19.84% 33.50% 42.69% 65.41% 101.16%
Table 3.1.2(2); Debt-Equity Ratio

2386 2800
3396 3647
17889
14115
10138
8543
7360
6183
4814
6255
65.41%
42.69%
33.50%
19.84%
13.34%
101.16%
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2006-07 2005-06 2004-05 2003-04 2002-03 2001-02
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Figure 3.1.7; Debt-Equity Ratio
Debt burden of the company is drastically reducing, is a good indication for the stakeholder that the
company is able to withstand its financial need from its own generation and the siphoning of fund
from outer sources is gradually in decreasing order.
Movement of Capital Employed To Net Worth
CAPITAL EMPLOYED to NW
RATIO
Capital Employed (NW+DEBT) 16224 12741 9281 8526 10619 10491
Net Worth 17889 14115 10138 8543 7360 6183
Growth rate of Stake holder (%) 110% 111% 109% 100% 69% 59%
Table 3.1.2(3); Capital Employed to Net worth Ratio

9281
14115
10138 10491
16224
12741
8526
10619
17889
8543
6183
7360
59%
100%
109%111%110%
69%
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
06-07 05-06 04-05 03-04 02-03 01-02
0%
20%
40%
60%
80%
100%
120%
Figure 3.1.8; Capital Employed to Net worth Ratio
Improving trend of the net worth of the company is showing the improved position of the
stakeholder to fetch the assured return.
Profitability Ratios
Year Ending 31st March ‘06-‘07 ‘05-‘06 ‘04-‘05 ‘03-‘04 ‘02-‘03 ‘01-‘02
(C) PROFITABILITY RATIOS
Gross Profit 8687 8879 5084 4827 3436 2487
Sales 35129 33997 30659 26234 24228 22687
(a) Gross Profit Margin 0.25 0.26 0.17 0.18 0.14 0.11
(Gross Profit / Sales)
PAT 5709 5892 2518 2881 1722 826
Sales 35129 33997 30659 26234 24228 22687

(b) Net Profit Margin 0.16 0.17 0.08 0.11 0.07 0.04
PAT / Sales
Assuming tax to be 33%
EBIT 8602 8788 4894 4679 3133 2040
Sales 35129 33997 30659 26234 24228 22687
(c) Net Margin
based on NOPAT 0.16 0.17 0.11 0.12 0.09 0.06
(EBIT (1 - T) / Sales)
Assuming tax to be 33%
EBIT 8602 8788 4894 4679 3133 2040
Net Asset (CA) 28828 24412 17536 12004 11667 11657
(d) Return on Investment 0.20 0.24 0.19 0.26 0.18 0.12
(EBIT (1 - T) / Net Asset)
PAT 5709 5892 2518 2881 1722 826
Net Worth 17889 14115 10138 8543 7360 6183
(e) Return on Equity 0.32 0.42 0.25 0.34 0.23 0.13
(PAT / Net Worth)
Table 3.1.3; Profitability Ratios
Gross Profit Margin
The gross profit margin indicates the efficiency with which a firm produces its product. Since the
gross profit is the difference between net sales and cost of goods sold, the higher gross profit margin
indicates better result.
Net Profit Margin
Net profit margin is used to measure the overall profitability of a concern. It is an index of
efficiency and profitability. This ratio also indicates the firm’s capacity to withstand adverse
economic conditions. Higher the profit, the better is the profitability.
Net Margin based on NOPAT
The profit after tax (PAT) figure excludes interest on borrowing. Interest is tax deductible, and
therefore, a firm that pays more interest pays less tax. Tax saved on account of payment of interest is
called interest tax shield. Thus, the conventional measure of net profit margin – PAT to sales ratio –
is affected by the firm’s financing policy.

Return on Investment
It is technically the amount received by the firm on investing a certain sum. The term investment
may refer to total assets or net assets. The funds employed in net assets are known as capital
employed. Net assets equal net fixed assets plus current assets minus current liabilities excluding
bank loans.
Return on Equity
A return on shareholder’s equity is calculated to see the profitability of owner’s investment. The
shareholder’s equity or net worth will include paid-up share capital, share premium and reserves and
surplus less accumulated losses.
Year Ending 31st March ‘06-‘07 ‘05-‘06 ‘04-‘05 ‘03-‘04 ‘02-‘03 ‘01-‘02
(C) PROFITABILITY RATIOS
(a) Gross Profit Margin 0.25 0.26 0.17 0.18 0.14 0.11
(b) Net Profit Margin 0.16 0.17 0.08 0.11 0.07 0.04
(c} Net Margin
based on NOPAT 0.25 0.26 0.16 0.18 0.13 0.09
(d) Return on Investment 0.30 0.61 0.28 0.39 0.27 0.18
(e) Return on Equity 0.32 0.42 0.25 0.34 0.23 0.13

0.17 0.18
0.14
0.25
0.26
0.11
0.16 0.17
0.08
0.11
0.07 0.04
0.61
0.18
0.28
0.39
0.27
0.30
0.42
0.25
0.34
0.23
0.13
0.32
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
06-07 05-06 04-05 03-04 02-03 01-02
Profitability Ratios has been shown in a graphical manner .
If we compare the Gross Profit Margin, Net profit Margin, Net Margin based on NOPAT, Return on
Investment and Return on Equity of the year 2001-02 with 2006-07 we will see that the company is
making profit and its operating efficiency is sound.
Movement of Gross Profit to Sales
GROSS PROFIT MARGIN
Gross Profit 8687 8879 5084 4827 3436 2487
Sales 35129 33997 30659 26234 24228 22687
Return on Turnover 24.73% 26.12% 16.58% 18.40% 14.18% 10.96%
Table 3.1.3(1); Gross Profit Margin

35129
30659
26234
24228
22687
8687 8879
5084 4827
3436 2487
33997
10.96%
14.18%
18.40%
16.58%
26.12%
24.73%
0
5000
10000
15000
20000
25000
30000
35000
40000
06-07 05-06 04-05 03-04 02-03 01-02
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Figure 3.1.10; Gross Profit Margin
Graphical presentation is highlighting that the trend of return as well as the trend of Gross Turnover
is in improving order but the rate signifies that there is marginal decline during 04-05 and 06-07.
Movement of PAT to Sales
NET PROFIT MARGIN
Profit After Tax 5709 5892 2518 2881 1722 826
Gross Sales 35129 33997 30659 26234 24228 22687
Rate of Return on Turnover 16.25% 17.33% 8.21% 10.98% 7.11% 3.64%
Table 3.1.3(2); Net Profit Margin

Movement of PAT to Sales
5709 5892
2518 2881
1722 826
22687
24228
26234
30659
33997
35129
3.64%
7.11%
10.98%
8.21%
17.33%
16.25%
0
5000
10000
15000
20000
25000
30000
35000
40000
1 2 3 4 5 6
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Figure 3.1.11; Net Profit Margin
Improvement in the Gross Turnover is followed by improved return has established the positive
growth of the company. Double digit growth has been witnessed during the year ’03-04 followed by
’05-06 and ’06-07.
Movement of PAT to Sales (Net)
NET MARGIN based on
NOPAT
PAT 5709 5892 2518 2881 1722 826
Sales(Net) 29602 28702 25863 21900 20397 19304
Return on Turnover 19.28% 20.53% 9.73% 13.15% 8.44% 4.28%
Table 3.1.3(3); Net Margin based on NOPAT

5709 5892
2518 2881
1722 826
19304
20397
21900
25863
28702
29602
19.28%
4.28%
8.44%
13.15%
9.73%
20.53%
0
5000
10000
15000
20000
25000
30000
35000
06-07 05-06 04-05 03-04 02-03 01-02
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Figure 3.1.12; Net Margin based on NOPAT
Growing growth in the turnover is viewed from the graph and the return is also following the same
pattern, the growth is significantly high during 05-06 compared to all other years and there is
marginal decline during the year of 06-07.
Movement of EBIT to Net Asset
RETURN ON INVESTMENT
EBIT 8602 8788 4894 4679 3133 2040
Net Asset 28828 14412 17536 12004 11667 11657
Share of Return on Investment 30% 61% 28% 39% 27% 18%
Table 3.1.3(4); Return on Investment

8602 8788
4679
3133 2040
28828
14412
12004 11657
4894
11667
17536
30%
61%
39%
18%
27%
28%
0
5000
10000
15000
20000
25000
30000
35000
06-07 05-06 04-05 03-04 02-03 01-02
0%
10%
20%
30%
40%
50%
60%
70%
Figure 3.1.13; Return on Investment
Return on Investment is significantly very high during the year 05-06. Viewed from the graphical
representation it is appended that during the year of 05-06 and 06-07 the return is almost equal but
during 06-07 the asset accumulation is doubled result return has dipped down significantly.
Movement of PAT to Net Worth
RETURN ON EQUITY
PAT 5709 5892 2518 2881 1722 826
Net Worth 17889 14115 10138 8543 7360 6183
Return on Stake holder's Fund 31.91% 41.74% 24.84% 33.72% 23.40% 13.36%
Table 3.1.3(5); Return on Equity

0
2000
4000
6000
8000
10000
12000
14000
16000
18000
PAT Net Worth Return on Stake holder's
Fund
06-07
05-06
04-05
03-04
02-03
01-02
Figure 3.1.14; Return on Equity
Stakeholder can feel comfortable since the trend of return on investment is improving during ’03-04
and ’05-06 and marginal decline due to ill generation of profitability due to loss of comparative
advantages.
WORKING CAPITAL MANAGEMENT
Normally, the Working Capital of a contract is invested in stock of raw material, stock of semi-
finished goods, finished goods, receivables, marketable securities and cash. Capital invested in all
this forms continuously are being converted into cash and this cash again goes out in the form of
other current assets. Thus, it circulates all the time continuously. But it must be remembered that
cash or its equivalent of values of all assets cannot be taken as measure of Working Capital. On the
other side of the Balance Sheet there is group of liabilities mainly bank overdraft, creditors, bills
payables, outstanding expenses or other short term obligations. Such liabilities must be deducted
from current assets so that net working capital must be determined. If it is not done, the concern may
consider itself quite secure; while the reality may be that the concern has very little Working Capital
or has no Working Capital. Therefore, it seems reasonable to define Working Capital as the excess
of current assets over current liabilities.

According to this concept, if the current assets of a company are higher than its current liabilities the
position of the company from the Working Capital point of view is considered to be sound and
satisfactory. If current assets and current liabilities are equal, it may be concluded that the company
has restored to short-term funds for financing the Working Capital and the long-term sources of
funds have been used to finance the acquisition of fixed assets. Obviously, this situation cannot be
indicator of financial soundness of the company. If current assets are less than current liabilities, this
will indicate financial crisis.
It may be concluded from the preceding discussion that from the business point of view current asset
may be construed as Working Capital because total current assets are used in business operations.
But from the technical and accounting point of view, difference between current assets and current
liabilities may be taken as Working Capital, because the amount of this difference highlights upon
the financial soundness or otherwise.
Working Capital Position and analysis of information related to current assets and current
liabilities of Coal India Limited
Rs. In crores
Year Ending 31st March ‘06-‘07 ‘05-‘06 ‘04-‘05 ‘03-‘04 ‘02-‘03
RELATED TO ASSETS & LIABILITIES
(1) (i)No. of Equity Shares (CIL)
of Rs.1000 each 63163644 63163644 63163644 63163644 72205444
(ii)Shareholder's Fund
(a) Equity 6316 6316 6316 6316 7221
(b) Reserves 6798 5894 5279 4821 4700

(c) Accumulated Loss/Profit 4774 1904 -1457 -2594 -4560
(d) Misc. Expend. (D/Liab.)
NET WORTH 17889 14115 10138 8543 7360
(2) Loan 1836 2104 2440 2661 2995
(3) Capital Employed 16224 12741 9281 8526 10619
(4) (i) Net Fixed Assets 10217 10143 10158 11100 11435
(ii) Current Assets 28828 24412 17536 12004 11667
(5) Current Liabilities
(Excld. Intt. Accrued & Due) 22821 21741 18341 14479 12464
Net Current Assets (W/C) or
CA [4(ii)] - CL [(5)] 6007 2670 -805 -2475 -797
(6) (a) Sundry Debtors (Net) (Excld.
CMPDIL)
1459 1691 1955 2376 4165
(b) Cash & Bank 15929 13427 7987 2967 1591
(7) Closing stock of
(a) Stores & Spares (Net) 901 922 916 932 951
(b) Coal, Coke, etc (Net) 2137 1890 1406 1175 1139
(8) Average Stock of stores & spares 911 919 924 941 977
We find from the above table that Working Capital for the period 02-03,03-04 & 04-05 is negative
since the Current liabilities are more than Current Assets. But the positive W/C is arrived during 05-
06 & 06-07. On further investigation and discussion with the finance personnel of the company
regarding the composition of current liabilities the following information, given on next page, could
be obtained and this has been used for making the following remarks about working capital
management of the company.
Stray Case: Review the Cause of Negative Working Capital.
Composition of Current Liabilities for the Period 2004 – 05
Item of Current Liability Amount (Rupees in
crores)
As a Percentage of Total
Amount
Creditor for Capital 370.44 2.25
Creditor for Revenue 419.50 2.55

Provision for Statutory Liabilities 824.37 5.01
Advance for Customers 1454.50 8.83
Deposits 349.33 2.12
Liabilities for Revenue
Expenditure
8706.24 52.88
Employers’ Pension Fund 339.00 2.06
Other Liabilities & Provision 935.10 5.68
Tax (Including all Taxes) 2361.61 14.35
Proposed Dividend 134.55 0.82
Interest Accrued Govt. 72.66 0.44
Interest Accrued Other than Govt. 495.61 3.01
Total Amount 16462.91 100
The composition of Current Liabilities for the previous years are more or less in the same proportion
as has been given in the above table. From the composition of the Current Liabilities (CL) we find
that the glaring components of Current Liabilities are Liabilities for Revenue Expenditure and Tax
(inclusive of all taxes), which chiefly cause CL to be high and consequently working capital to be
negative.
We may therefore have to explore ways to bring it down at least to the level of Current Assets (CA).
As we know that theoretically the norm for managing W/C is CA: CL = 2:1, to maintain the proper
liquidity position of the company.
However this study brought out an interesting fact that in practice we might be comfortable at 1:1
ratio also as long as it permits the organization to maintain a liquidity position to satisfy normal
claims arising in any working/financial year.
In the present case, the item of Tax liability is non negotiable and will continue to constitute a
certain substantial part of CL. Regarding the Liabilities for Revenue Expenditure we infer that the
organization is not discharging its liabilities in time. With respect to Sundry Debtors, if debtors’
position increases, the fund position of the organization will be bad and the liquidity position will be
adversely affected. From this balance sheet it can therefore be recommended that CL needs to come
down and help W/C to go up to help the organization attain a healthy liquidity position.
However one also needs to investigate is there any pertinent reason on the part of Finance managers

of the organization, for not adhering to theoretical norm of maintaining W/C position.
Some of which have been stated below
1. There should not be unnecessary stock Pile up to increase CA as it attracts more funds to be
arrested under inventory.
2. On the other hand an increase in Current Assets may not be a healthy sign all the time. It may
indicate an unusual increase in Cash balances due to non-discharge of liabilities.
3. In case of present organization existence of high current liabilities from year to year implies that
the organization may have chosen not to discharge its liabilities in time and by way of which it is
able to generate fund out of internal resources to manage day to day expenditure without having to
arrange loans from outer sources. It is also a way of fund management, which may be adopted by
some organizations as a short run policy.
Now we would first like to analyze efficiency of working capital through various ratios:
1. Working Capital Turnover ratio = Total Net Sales/ Average Net Working Capital (Average
Net W/C)
The ratio indicated the rate of working capital utilization in the firm.
Table 3.2.3;
Working
Capital
Turnover
Ratio
From the above tables we find that the ratio had been constantly negative and it has further
decreased recently. It is therefore will not be proper to conclude anything from this ratio.
We would therefore like to consider another ratio called Current Asset Turnover Ratio.
Year Ending 31st March 06-07 05-06 04-05 03-04 02-03
TOTAL NET SALES 29602 28702 25863 21900 20397
AVERAGE NET WORKING
CAPITAL
6007 2670 -805 -2475 -797
Working Capital Turnover Ratio 4.93 10.75 -32.13 -8.85 -25.59

2. Current Asset Turnover Ratio = Total Net Sales / Average Current Asset
TOTAL NET SALES 29602 28702 25863 21900 20397
AVERAGE CURRENT ASSET 28828 24412 17536 12004 11667
Current Asset Turnover Ratio 1.03 1.18 1.47 1.82 1.75
Table 3.2.4; Current Asset Turnover Ratio
In this ratio, the gross concept of working capital is used. Once again, it indicates the rate at which
the working capital has been used. Generally, a higher ratio is considered an indicator of better
efficiency and a lower one is opposite. If we analyze the above ratio over a period of 5 years we find
this ratio increased in 2003-04 but again started dropping. Therefore it cannot be very definitely
interpreted as that the organization is using working capital intensively or efficiently.
We will next consider analysis of Efficiency of Working Capital Elements:
1. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Where, Cost of Goods sold = Total Net Sales – Profit
If we analyze the above ratio over the 5 years we may conclude that there is a rising trend in general,
though there has been fall in the ratio in some of the years in between. Therefore we may conclude
that management may be trying to convert the inventory into cash more rapidly in course of time.
COST OF GOODS SOLD 21000 19914 20969 17221 17264
AVERAGE INVENTORY 3121 2902 2418 2194 2182
Inventory Turnover Ratio 6.73 6.86 8.67 7.85 7.91
Table 3.2.5; Inventory Turnover Ratio
We also present the average holding period or the period for which the inventory is being held.
2. Average holding period = 365 / Inventory turnover
Since it is not a Manufacturing Company we cannot analyze the efficiency of working capital
element from the point of view of Raw Materials.
Average Holding Period 54.23 53.21 42.09 46.5 46.14
Table 3.2.6; Average Holding Period
We next consider Receivables turnover Ratio:

In other sectors where competition is very high, we very often see these days that management
sometimes offers liberal credit terms to its customers, thereby increasing sales and total profits.
Thus, the number of times the management is able to turn the receivables into sales indicates the
efficiency with which the receivables are being managed.
1. Receivables turnover ratio = Total Sales/Average Receivables
In the numerator if Credit Sales can be used it will be a more appropriate measure but it since we
could obtain values for total Net Sales only, we will use this and the denominator is same as Sundry
Debtors.
TOTAL SALES 35129 33997 30659 26234 24228
AVERAGE RECEIVABLES 1459 1691 1955 2376 4165
Receivables Turnover Ratio 24.08 20.1 15.68 11.04 5.82
Table 3.2.7; Receivables Turnover Ratio
If we look at the trend of the liquidity ratio for the ten years we see it has increased substantially
from 5.82 to 24.08, which would indicate that the organization has decreased its reliance on credit
sales and that is a positive aspect with regard to solvency of the firms in general.
To get some additional insight into the managerial aspect of receivables we may also consider
Average collection period,
2. Average collection period = 365 / Receivable turnover ratio
Average Collection Period 15.16 18.16 23.28 33.06 62.71
Table 3.2.8; Average Collection Period
From the average collection period data for the last 5 years we find that the number of days for
which receivables remain uncollected has considerably decreased from 62.71 days in 2002-03 to
15.16 days in 2006-07. It therefore indicates that the system and procedure of collection has been
streamlined and improved over this period.
Next we will consider the set of ratios required to analyze Liquidity of Working Capital Elements:
The liquidity of working capital is an important aspect, which needs to be analyzed by the
management for maintaining proper liquid resources to meet both operational requirements as well
as financing commitment of repayment of borrowed funds.
We will mainly consider two ratios like Current Ratio and Acid test ratio or Quick ratio
Current ratio

This ratio is known as current or working capital ratio. It gives the relationship between current
assets and current liabilities of the concern and it is calculated as,
Current ratio = Current assets / Current liabilities
This ratio indicates the extent to which short-term creditors are safe in terms of liquidity of the
current assets. Thus the higher the value of the ratio, it shows the firm has more ability to pay its
bills. Conversely the lower the ratio, the firm may find it more difficult to pay its bills.
And
Quick ratio = Quick assets / Current Liabilities
(a) Current Ratio 1.26 1.12 0.96 0.83 0.94
(Current Asset / Current
Liability)
(b) Quick Ratio 0.76 0.7 0.54 0.37 0.46
(Quick Asset / Current
Liability)
Table 3.2.9; Current Ratio & Quick Ratio
First let’s analyze the trend of the Current Ratio over the period of five years it is more or less
hovering around 1. We know a current ratio of 2:1 is considered generally satisfactory. It indicates
the in the worst situation even if the value of Current Assets go down by half, management would
still be able to repay the debts and meet its obligations. Thus, it represents the cushion that creditors
have to protect themselves against any adverse liquid position. However one should not follow this
norm blindly as we find in this case Coal India Limited with a current ratio less than 1 is doing quite
well because of its strong financial position. It feels that it does not require maintaining a high
margin of safety between the current resources and short-term obligation.
Similarly for Quick ratio the prescribed figure is 1:1 but here even we find the values of the ratio
over the period of five years is consistently less than that. Here also a higher ratio does not
necessarily mean that it is not good nor a lower ratio means that it is bad.
Since the current ratio has been maintained around a particular value for the period under
consideration and the value for quick ratio has marginally increased over the same period, it may be
inferred that working capital liquidity position of the company is certainly under no threat and rather
the creditors in their regular dealing with the company find it permissible and allow the financial
managers of the company to maintain this position.
We will state other positive features, which emerged out of studying the balance sheet, in terms of
the following ratios:

PROFITABILITY RATIOS
As % of NET SALES
Net Profit 29.06 30.62 18.92 21.37 15.36
TURNOVER RATIOS
Capital Turnover Ratio 1.82 2.25 2.79 2.57 1.92
(Net Sales / Capital Employed)
Table 3.2.10; Profitability Ratio & Turnover Ratio
This steady growth in profit over the years had been possible since all the coal-producing units of
coal India, including NEC have reaped in profits. Two potentially Sick Units Viz. ECL & BCCL
have turned around for the first time savoring profits and are hopefully on the path of recovery with
their respective revival plans. BCCL for the first time since after inception had recorded profit of Rs.
205.08 Cr. Revival strategy focused on -Enhancing production of high value coking coal and washed
coal, -Internalizing premium on coal marketed to non-core sector through e-marketing.
We also present below other important financial ratios those would substantiate the above claims
regarding the financial health of the company.
STRUCTURAL RATIOS
(1) Debt : Equity 0.29 0.33 0.39 0.42 0.41
(2) Debt : Net Worth 0.10 0.15 0.24 0.31 0.41
(3) Net Worth : Equity 2.83 2.23 1.61 1.35 1.02
(4) Net Fixed Assets : Net
Worth 0.57 0.72 1.00 1.30 1.55
SHAREHOLDER'S INTEREST
Book Value of Shares (Rs.) 2832 2235 1605 1353 1019
(Net Worth / No. of Equity)
Table 3.2.11; Table showing financial health of the Company
At the end we need to mention in this connection that it is a profit making PSU who regularly pays
royalty, cess and tax to Government of India and continues to generate healthy revenue earning for
the Union Government.

STRUCTURAL ANALYSIS OF CURRENT ASSETS AND CURRENT LIABILITIES
Concept of Current Assets and Current Liability its component and the volume variance in terms of
amount shall put a major swing in the working capital management. Determination of affordable
liability burden and the future avenues to discharge the debt burden is identified by liquidity
analysis. Future discharge of debt burden is based on the Time Frame Analysis and available fund
from Liquidity Analysis.
Component wise analysis of Current Assets:-
1. Inventory wise Analysis both in (Quantity and Amount) locked up is a major thrush on liquidity
analysis.
2. Debtors Position and age wise analysis of debtors is also a major thrush in fund availability.
3. Cash & Bank Balance and its increasing trend of accumulation is major threat to low fund
generation.
A sample analysis is give below:
Components 06-07 05-06 04-05 03-04 02-03
Inventory of Coal, Cokes, etc 2137 1890 1406 1175 1139
Inventory of Stores & Spares etc 901 922 916 932 951
Other Inventories 83 90 96 85 92
Sundry Debtors 1586 1804 2072 2484 4246
Cash & Bank Balances 15929 13427 7987 2967 1591
Total Current Assets 28828 24412 17536 12004 11667
Table 3.2.12; Sample Analysis

Components (%) / CA 06-07 05-06 04-05 03-04 02-03
Inventory/C.A 7.41% 7.74% 8.02% 9.79% 9.76%
Invn. Strore &Spares / CA
(%)
3.13% 3.78% 5.22% 7.76% 8.15%
OtherInv / CA (%) 0.29% 0.37% 0.55% 0.71% 0.79%
Sundry debtors / CA (%) 33.92% 33.11% 40.67% 57.02% 67.67%
Cash & Bank / CA (%) 55.26% 55.00% 45.55% 24.72% 13.64%
Total Current Asset 100 100 100 100 100
Table 3.2.13; Component (%) / C.A.
Accumulation of Cash & Bank Balance as a component of Current Assets commencing from 2005-
06 shall put an adverse effect on return on Investment and has shadowed on Working Capital
Management.
COMPONENT 06-07 05-06 04-05 03-04 02-03
Current Assets 28828 24412 17536 12004 11667
Current Liabilities 22821 21741 18341 14479 12464
Working Capital 6007 2670 -805 -2475 -797
CA : CL 1.26 1.13 0.96 0.83 0.94
Table 3.2.13; C.A.: C.L.
Trend of working capital shows improvement in load bearing capacity and its positive growth
is registered from 05-06. Chronological improvement in ratios has firmed up its liquidity strength.

Figure 3.2.1; Component of C.A. 02-03
Coal stock
12%
Stores & Spares
10%
Oth Inventory
1%
S/Debtors
26%
Cash & Bank
51%
Component of CA 03-04

From the Pie Chart it is identified that accumulation of Cash & Bank Balance is the major player in
CA .So the overall change in the Working Capital has registered its prime role.
Improved pattern of Current Asset to Current Liability is depicted from the Ratio which indicates on
the accumulation of more current assets. From the above component-wise analysis it is identified
that the sole reason of such accumulation is due to cash pile up.
Unutilized cash resources- More managerial skill to be exerted for better investment plan.
Concluding Remarks on Working Capital Management:

Highlights of Working Capital:
Working Capital is an important issue that needs to be managed properly by the financial managers
of the company. The progress and growth of the company depends to a large extent on full and
prompt use of working capital. So the company needs to keep working capital according to its
requirement and the requirement can always vary from company to company.
From the study of the annual report of Coal India Limited, we come across certain peculiar features,
which do not adhere to the theoretical norms of managing working capital.
First from the efficiency analysis of the working capital we are able to say that the general trend of
the ratios suggest that efficiency in working capital management cannot be ascertained and the trend
in the current asset turnover ratio has to change or become higher to mark better efficiency in
working capital management.
But the peculiar features are, firstly the working capital is constantly negative and the current ratio is
far below 2:1 and both the features are their because current liability is allowed to remain at a higher
level than current asset. The liquidity aspect of the working capital management is therefore shown
in poor light. This on the part of the organization is being deliberately done, as has been discussed
before, by not discharging its liabilities in time and by way of which it is able to generate fund out of
internal resources to manage day to day expenditure without having to arrange for loans from outer
sources.
This is obviously a strategy of the firm to generate fund for its regular expenditure but this policy
or strategy is acceptable in the short run only. Fund managers, however, do not allow liabilities
to grow as it attracts a spiral effect of interest on loan amount. A positive W/C is, therefore,
recommended and likely to be maintained to help the organization grow in healthy liquidity
position.
Hence this study recommends that in the long run the company has to conform to the maintenance of
a positive working capital to allow growth in healthy liquidity position although the current W/C
position poses no threat to fund managers of the organization in running day-to-day business.
The profitability position of the organization on the whole for last 5 years, as has been depicted
before, is following a healthy and rising trend because of improved productivity, increased turnover
and containing cost within single digit inflation.

EQUITY ANALYSIS
From the whole Ratio-Analysis we are trying to reflect the analysis of Balance Sheet and Profit
and Loss account from varying angle. I finally conclude to concentrate on Equity & Debt
Capital to identify what will be the best combination and a brief review is enclosed.
Composition of Capital and its component-wise analysis shall throw a very clear picture about the
concept of over capitalization and Under Capitalization in the business which is termed as
“Gearing”.
A tremendous review and analysis about debt equity concept and various controversies persist what
quantum will sub serve the best use.
Stage1 Stage2 Stage3 Stage4
Equity 100 100 100 100
Long term Debt 60 50 40 40
Short Term Debt 20 30 60 40
Cost of Debt
Servicing
Long Term (8%) 4.80 4.00 3.20 3.20
Short Term (7%) 1.40 2.10 4.20 2.80
Total Cost of Debt 6.20 6.10 7.40 6.00
EPS 12.00 15.00 9.50 11.00
Net EPS 5.80 8.90 2.10 5.00
A company is run by capital which is composed of Equity & Debt Capital. Debt capital is classified
based on committed return with the stipulated period of repayment. Review of the cost of debt
financing along with EPS which serves as benchmark to determine the best combination when Net
EPS exceeds the cost of debt servicing.
Ist Yr 2nd Yr 3rd Yr 4th Yr

Net EPS 5.80 8.90 2.10 5.00
Significant changes shall take place if any change shall take place in Long Term & Short Term
Debt.
Position due to change in Combination of Long term & Short Term Debt:
As shown in Stage-I, Stage -II & Stage-III.
Stage- I
Year 1 2 3 4
Equity 100 100 100 100
Long Term (8%) 60 50 40 40
Short Term (7%) 20 30 60 40
Net Earning on
Equity
5.80 8.90 2.10 5.00
Long Term (8%) 4.80 4.00 3.20 3.20
Short Term (7%) 1.40 2.10 4.20 2.80
6.20
5.80
6.00
7.40
6.10
5.00
2.10
8.90
1
2
3
4
Net EPS
Total Cost of Debt
5.80
4.80
1.40
8.90
4.00
2.10
2.10
3.20
4.20
5.00
3.20
2.80
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
1 2 3 4

Stage- II
Year 1 2 3 4
Equity 100 100 100 100
Long Term (8%) 50 40 60 45
Short Term (7%) 30 40 20 35
Net Earning on
Equity
5.90 9.00 3.30 4.95
Long Term Debt 4.00 3.20 4.80 3.60
Short Term Debt 2.10 2.80 1.40 2.45

5.90
4.00
2.10
9.00
3.20
2.80
3.30
4.80
1.40
4.95
3.60
2.45
0.00
2.00
4.00
6.00
8.00
10.00
1 2 3 4
Stage- III
Year 1 2 3 4
Equity 100 100 100 100
Long Term (8%) 30 40 20 35
Short Term (7%) 50 40 60 45
Net Earning on
Equity
6.10 9.00 3.70 5.05
Long Term Debt 2.40 3.20 1.60 2.80
Short Term Debt 3.50 2.80 4.20 3.15

6.10
2.40
3.50
9.00
3.20
2.80
3.70
1.60
4.20
5.05
2.80
3.15
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
1 2 3 4
Relation between Long Term & Short Term Debt and Behavior with Cost of Debt:
LT Debt 30 40 20 35
ST Debt 50 40 60 45
30
40
20
35
50
40
60
45
6.20 6.10
7.40
6.00
0
10
20
30
40
50
60
70
1 2 3 4
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00

Cash Flow:
Cash is one of the most significant current assets of a business. A firm needs cash to make payments
to suppliers, to pay salaries, wages and other day to day expenses of the business. Infact, cash is the
lifeblood of for a business enterprise. Hence, it is essential to maintain sufficient balance of cash.
Many times, it is found that a business concern earning sufficient profit yet facing difficulties in
payment of taxes, dividend and other day-to-day expenses. Therefore, management of cash is of vital
importance to the organization.
We know that the two basic fundamental statements i.e. the balance sheet and profit and loss account
provide the essential basic information about the financial activities of a business. But their utility is
limited for analysis and planning purpose. This is why; fund flow statement is prepared which

presents comprehensive pictures of the various components of working capital along with the causes
of change in working capital. But the fund flow statement fails to convey the quantum of inflow and
outflow of cash. Therefore, another statement like fund flow statement is prepared which is known
as ‘Cash Flow Statement’.
Cash flow statement is the summarized form of inflow of cash from different sources and the uses to
which the cash has been applied. Cash Flow Statement is useful for the management in assessing the
capability of business to meet its short term commitments towards creditors for goods and expenses.
Cash Flow Statement indicates different sources ad use of cash and cash equivalents. Similar
purpose is also served by fund flow statement. However, in recent years more importance is given to
cash flow statements rather than fund flow statements. Many of the accounting standards have been
asking companies to prepare cash flow statements. Many users would like to know as to how the
firm generated the cash resources and as to how it applied such resources during a given period. The
answer to such questions can be obtained only from cash statement and not from income statement
or balance sheet.
Meaning
Cash Flow Statement is a statement is s statement which describes the inflow (sources) and outflow
(uses) of cash and cash equivalents during a specified period of time. The statement exhibits the flow
of incoming and outgoing cash. In brief, it is a summary of cash books of an organization presented
in a systematic manner. This statement is one of the tools for assessing the liquidity and solvency
position of the enterprise.
Cash Flow Statement of an enterprise provides information to the users of financial statements. It is
also useful as a base to assess the ability of the enterprise to generate cash and cash equivalents and
the needs of enterprise to utilize those cash flows. The statement deals with the provision of
information about the historical changes in cash and cash equivalents of an enterprise by means of a
cash flow statement which classifies cash flow during the period from operating, investing and
financing activities.
The Cash Flow Statement (Indirect method) for the year ending March 31, 2007.
(Rs. ’00,000)
Current
Year
Previous
YearA. CASH FLOW from OPERATING ACTIVITIES
Net Profit Before Tax 286484.14 197925.84
Adjustment for:
Depreciation 850.16 980.79

Provisions / Write Off of Fixed Assets 338.15 446.12
Interest-pertaining to Financial Activities 114.65 1661.02
Profit / Loss on sale of asset -0.01 -0.08
Operating Profit before Working Capital changes (A) 287787.09 201013.69
Adjustment for:
Sundry Debtors 79.82 -65.27
Inventories 762.23 1603.6
Loans & Advances -20019.7 -35141.05
Current Liabilities & Provisions -1299.78 41505.52
VRS Loan Adjustment 2616 -11740
Purchase / Sale of Fixed Deposits -130233.79 60348.01
Cash Generated from Operations (B) -148095.22 56510.81
Income Tax paid -3462.98 -16213.07
Net Cash Flow from Operating Activities (C] 136228.89 241311.43
[ (A) + (B) - Tax paid]
B. CASH FLOW from INVESTING ACTIVITIES
Purchase of Fixed Assets -127.03 284.66
Sales / Adjustment of Fixed Assets -5.94 -3.26
* Purchase of Fixed Deposits earmarked for Shifting
and Rehabilitation Fund -20213.17 -19228.76
Net Cash used in Investing Activities (D) -20346.14 -19510.16

C. CASH FLOW from FINANCING ACTIVITIES
Repayment of Govt. / other loans -19282.49
Redemption of Bond -1400 -1130
Interest Paid -9804.56 -4933.49
* Receipt of Shifting and Rehabilitation Fund from
Subsidiaries
20213.17 19228.76
Dividend paid / (including Tax on Dividend) -188754.9 -141540.32
Net Cash used in Financing Activities (E) -179746.29 147630.54
Net increase / (decrease) in Cash and Cash
Equivalents (C+D+E) -63863.54 74170.73
Cash & Cash Equivalents (Opening Balance) 99334.29 25163.56
Cash & Cash Equivalents (Closing Balance) 35470.75 99334.29

Table 3.3.1 ; Cash Flow Statement
NOTES ON CASH FLOW:
1. All negative figures represent outflow.
2. Previous years figures have been re-grouped / re-casted wherever necessary.
3. Cash and cash equivalents comprise of following:
Current
Year
Prev.Year.
(a) Cash, Cheque, Draft, Stamps, etc. in
hand
6.96 2.56
(b) Remittance in transit 1.5 5
(c] Bank Balance in Current Account 7041.77 5202.68
(d) Bank Balance in Cash Credit Account 2120.52 1324.05
(e) Bank Balance in Fixed Deposit Account 26300 92800
(Less than 3 months)
TOTAL 35470.75 99334.29
Table 3.3.2 ; Table showing Cash & Cash Equivalent
CVP ANALYSIS
“Cost” is the expression of value addition expressed in terms of Money. It is the sum total of
varying component is being used in the process of utility value addition to make the product
convenient and attractive to consumer Element-wise and component –wise movement of cost from
year to year shall through upon a good light and the pictorial presentation shall also open up a new
area of thinking.
Cost volume and profitability is a very unique concept in the cost accounting parlance.
Cost is directly associated with Volume of production and sometimes production growth exceeds
over cost increase and that situation is welcomed and it establishes that cost is not influenced by
other extraneous factor. Now, from the following statement we will try to improve upon a
diagrammatic presentation.
Year wise component wise cost, sale, profit & loss and production
OVERALL CIL 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 CAGR
Salary & Wages 133.49 139.98 150.29 164.07 172.46 187.95 201.61 224.73 253.31 8.34%

Stores 53.12 61.48 64.07 65.77 73.51 79.61 82.58 86.82 92.03 7.11%
Power 25.42 30.11 33.25 35.55 46.40 48.09 49.77 52.33 52.58 9.51%
Interest 33.01 31.32 24.30 30.69 26.12 27.02 25.03 21.79 18.75 -6.83%
Depreciation 34.52 40.40 41.70 43.30 42.91 43.79 46.35 52.82 51.88 5.22%
Admn.Exp. 17.65 19.93 20.56 23.95 26.54 29.70 33.90 36.41 35.08 8.97%
Others 37.10 41.13 46.28 49.33 54.12 64.65 63.20 65.18 72.56 8.75%
Total Cost 334.31 364.35 380.45 412.66 442.06 480.81 502.44 540.08 576.19 7.04%
Sale Value of
Raw Coal
356.38 400.12 418.80 426.52 512.06 562.57 570.48 581.46 624.01 7.25%
OVERALL CIL 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 CAGR
Cost Rs/Te 334.31 364.35 380.45 412.66 442.06 480.81 502.44 540.08 576.19 7.04%
Sale Rs/Te 356.38 400.12 418.80 426.52 512.06 562.57 570.48 581.46 624.01 7.25%
P/L(Coal)Rs Te 22.07 35.77 38.35 13.86 70.00 81.76 68.04 41.38 47.82 10.15%
Production (MT) 211.22 216.10 223.07 237.27 250.62 260.56 256.48 260.58 268.14 3.03%
Graphical Presentation of CVP Analysis
OVERALL
CIL
03-04
Salary &
Wages
253.31
Stores 92.03
Power 52.58
Interest 18.75
Depreciation 51.88
Admn.Exp. 35.08
Others 72.56
Total Cost 576.19
Sale Rs/Te 624.01
Component-wise Analysis of 03-04
Admn.Exp.
6%
Depreciation
9%
Interest
3%
Pow er
9%
Stores
16%
Others
13%
Salary & Wages
44%

Major component shall occupy lion’s share in Total cost.
OVERALL
CIL
92-93
Salary &
Wages
133.49
Stores 53.12
Power 25.42
Interest 33.01
Depreciation 34.52
Admn.Exp. 17.65
Others 37.10
Total Cost 334.31
Sale Rs/Te 356.38
Component of Cost 92-93
Salary & Wages
40%
Others
11%
Admn.Exp.
5%
Depreciation
10%
Interest
10%
Pow er
8% Stores
16%

From the two Pie Chart it is identified how the share of Salary & wages and other component
in Total cost during 92-93 & 03-04 is being changed.
Controllable cost & Non-Controllable cost:-
Certain components in total cost which can be controlled by imposing austerity measure and the
economy in cost can be obtained.
Overall ‘08-‘09 ‘07’-08 ‘06-‘07 ‘05-‘06 ‘04-‘05 ‘03-‘04
Total OT.Rs/Te 14.00 19.97 21.66 20.93 18.24 18.37
Total Stores.Rs/Te 121.78 110.05 106.45 104.24 97.13 95.10
Power Rs./Te 45.54 45.85 47.43 48.12 50.51 51.97
Dem/UL/OL Rs/Te 1.95 2.04 5.85 4.94 3.1 2.17
Overall.Controllable Cost.Rs Te.
1.00
10.00
100.00
1000.00
08-09 07-08 06-07 05-06 04-05 03-04
Total OT
Total Stores
Power
Dem/UL/OL
Overall Controllable cost for Coal +OBR .(Cost/Rs.CUM)
Overall CIL ‘08-‘09 ‘07-‘08 ‘06-‘07 ‘05-‘06 ‘04-‘05 ‘03-‘04
Total OT Rs/Cum 5.86 10.95 10.38 9.63 7.90 7.81
Total Stores Rs/Cum 50.95 60.31 51.03 47.95 42.08 40.41
Power Rs/Cum 19.05 25.13 22.73 22.14 21.88 22.08
Dem/UL/OL 0 1.12 2.8 2.27 1.34 0.92

Overall Controllable Cost.Rs Cum.
0.1
1
10
100
08-09 07-08 06-07 05-06 04-05 03-04
Total OT
Total Stores
Power
Dem/UL/OL
Application of cost control technique shall bring economy in cost.
Optimizing the benefits of fixed cost shall be obtained by enhancing the capacity utilization.
Assessment of production growth vis-à-vis Productivity by both machine utilization & deployment
of manpower shall be depicted by pictorial presentation.
Comparative chart showing Cost visa-vise Production
OVERALL
CIL
‘92-‘93 ‘93-‘94 ‘94-‘95 ‘95-‘96 ‘96-‘97 ‘97-‘98 ‘98-‘99 ‘99-‘00 ‘00-‘01 CAGR
Cost Rs/Te 334.31 364.35 380.45 412.66 442.06 480.81 502.44 540.08 576.19 7.04%
Sale Rs/Te 356.38 400.12 418.80 426.52 512.06 562.57 570.48 581.46 624.01 7.25%
Production
(MT)
211.22 216.10 223.07 237.27 250.62 260.56 256.48 260.58 268.14 3.03%

Steep rise in cost and the growth in sale price is also in positive direction and the gap between cost
and sale price significantly varies from 96-97 to 99-00.
The chart also indicates that movement of production is very steady. From the chart the increasing
trend of cost is very steep compared to production rise as depicted from the CAGR.
CAGR of production is 3% whereas, cost growth is 7% and the Sale’s growth is marginally high.
Production trend vis-à-vis cost trend.
Cost Sale Production
92-93 334.31 356.38 211.22
93-94 364.35 400.12 216.10
94-95 380.45 418.8 223.07
95-96 412.66 426.52 237.27
96-97 442.06 512.06 250.62
97-98 480.81 562.57 260.56
98-99 502.44 570.48 256.48
99-00 540.08 581.46 260.58
00-01 576.19 624.01 268.14
Sale is leading in almost all the cases. Production is steady with a slight decline in ’98-99.
Statement of Cost,Sale & production.
0
100
200
300
400
500
600
700
92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01
Cost Rs/Te
Sale Rs/Te
Production (MT)
Production,Cost & Sale
0
100
200
300
400
500
600
700
92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01
0.00
50.00
100.00
150.00
200.00
250.00
300.00
Cost
Sale
Production

Reasons showing the cause of increase /decrease in cost:
Increase or decrease in cost is due to the change in the behavior of cost i.e. fixed and semi-variable
cost. Along with the change in capacity the benefit of fixed cost is obtained and the total economy is
achieved. Less capacity utilization shall lead to adversity. Besides these internal factor, there are so
many extraneous factor (national economic policy, government policy and export/import policy)
shall also influence over cost.
Cost Reduction and Cost control Technique as Tool:
Since extraneous factor is beyond control and cannot be apprehended before hand, so the technique
of cost reduction and cost control on internal arena of operation to arrest cost within or lower than
the WPI increase and to plug all other areas which is apprehended beforehand.
“Profit “is the resultant of Cost and Sale. Detailed analysis of cost has already been narrated in the
preface .Now; we shall look into the Sale. Sale can also be defined as (Sale =Cost of production
+Selling & Distribution O.H+ Margin of Profit).
Since, cost of production is the combination of controllable as well as uncontrollable cost so the
economy can be arrived by imposing control measure and by Capacity improvement benefit of fixed
cost also be obtained.
Next step is to seek economy in Selling & Distribution Overhead by choosing some alternative
course of action. So both these two element viz. Cost of production & Selling & Distribution

Overhead shall rule over the determination of Sale Price. So, the Sale Price can exceed over the Cost
Price without applying any margin.
In this method of pricing it can be told that margin shall play as buffer to make the sale price
compatible along with ruling price of customer.
So it can be deduced that in CVP Analysis the linear relation can not persist all the time due to the
presence of various extraneous factor.
Practical application of Cost Reduction Measures Through Budgetary Control
-Normal OT has been restricted.
-No Sunday OT in loss making Underground Mines.
-Specific consumption in Power units to be reduced by 2% over the prev. year.
-Inventory holding to be reduced by 10% over Previous Year.
-Quality deduction due to grade slippage to be reduced by 5% over Previous Year.
Operational Measures:-
-Powder factor is being reviewed by IED department to regulate/control explosive consumption.
-Norms of POL consumption /expenditure is being reviewed by IED department for minimization of
POL Expenditure.
-Change of Survey-off norms of HEMM to reduce life, which will result in better availability and
utilization, which in turn help to contain the fixed portion of the cost.
-Introduction of hydraulic roof bolting on trial basis, for enhancement of coal production from
Underground mines.
-Review of deployment of manpower on Sunday/holiday for various jobs in mines for optimum
utilization.
-Maximum utilization of man and machine to improve OMS over last year.
-ISO 9001/14001 certified mines will set benchmarks in proper utilization of workshop facilities,
improvement in collection of burnt oil, reduction in repair cost of OTR tyres to increase their life,
proper gradient of haul road, arranging the facility of minor repairs of HEMM in the fields itself.
The concept of launching “Budgetary Control System“ and Launching of Variance Analysis is
system which can furthering the pace of development of control Devices. “Standard” means the
determination of bench mark based on the concept of “Normative Cost”. Principal of Standard
Costing is not compatible in our Coal Industry due to varying Geo-Mining Condition results difficult
to Fix Standards or Norms.
Variance Analysis as Tool for determining Variations:-

VARIANCE ANALYSIS
One sample of variance analysis we have added in our report to show how budget vis-à-vis actual
profitability varies. Detailed analysis is depicted in this study and the reason for profitability
between budgets and actual.
ACT 05-06 QE 06-07 % INCREASED OR DECREASED
PRDN (LT) 3433.85 3610.90 5.16%
NSC (LT) 3423.23 3601.07 5.20%
PROFIT/LOSS 867430 821269 -5.32%
(RS LAKH)
SALE/TE 799.41 783.24 -46161
SALE VALUE 2736564 2820505 -0.02
RS LAKH
VOLUME VARIANCE
VAAVAVARIANCE
142170
PRICE VARIANCE -58229
SALE VARIANCE 83941
CASH COST VARIANCE EXPENDITURE VARIANCE
VARIANCE IN SAL, WAG, ADMN -25493 (A)
VARIANCE IN STORES COST -39955 (A)
VARIANCE IN POWER COST -6015 (A)
OTHER COST -40352 (A)
TOTAL CASH COST -111815 (A)
NON CASH COST VARIANCE -42370 (A)
TOTAL COST -154185 (A)
PROFIT AND LOSS COAL -70247 (A)
OTHERS 24086 (F)
TOTAL -46161 (A)
WORKING NOTE
ACT 05-06 QE 06-07 DIFFERENCE
SAL, WAG AND ADMN 903205 928698 -25493
STORES COST 356827 396782 -39955

POWER COST 164737 170752 -6015
OTHER COST 286475 326827 -40352
CASH COST 1711244 1823059 -111815
NON CASH COST 315443 357813 -42370
TOTAL COST 2026687 2180872 -154185
VOLUME VARIANCE
(ACTUAL QTY - BUDGETED QTY)*BUDGETED SPT
PRICE VARIANCE
(ACTUAL PRICE -BUDGETED PRICE) *ACTUAL QTY
SALE VARIANCE
(VOLUME VARIANCE+PRICE VARIANCE)
Remarks
Volume variance: improve in production during 06-07 compare to last year 05-06
Price variance: drop in sale price shall cause adversity
Sales variance: volume and price finally landed favorable result
Variance analysis is used by the management as a tool to identify variation of actual cost
compared to budget. It further probe in details to identify the various points which shall ultimately
lead to favorable/adversity to the element of cost. It is a management tool and the financial
adversity is depicted in a distinct manner and can sought remedial steps.
THE STORY OF REVIVAL OF A SICK COMPANY (BCCL)
BHARAT COKING COAL LIMITED
Bharat coking coal limited (BCCL), the DHANBAD based coal India subsidiary, rich in coking coal
reserve in the forerunner of the Indian nationalized coal sector. It was formed in 1971 through
nationalization of coking coal mines and subsequently with nationalization of non coking coal mines
BCCL become a unit of Coal India Limited (CIL) on 1-11-1975

It operates 76 mines -74 arc in JHARIA COALFIELD
2 in RANIGUNJ COALFIELD
It has 41 underground mines 13 opencast mines 22 mixed mines
Besides, bccl operates 6 coking coal washieres, 2 non-coking coal washeries and various other units
PERFORMANCE PARAMETRES-:
Production – 23.3 mts during 05-06
Registering the growth of coal production of 1 mt over last year
Profit reported during five year 05-06 – Rs 205.08 cr
Gross sales reported during five year 05-06- Rs 3467.04 cr
Net sales reported during five year 05-06- Rs 3112.28 cr Washeries loss till (03-04)
It was managed to turn around in o4-05 with a profit of 58.38 cr and earned a profit of Rs 293.40 cr
in 2005-06
BCCL contributed an amount of Rs 458.05 cr to government exchange in the term from Royalty,
Cess, Sales tax, Stowing excise duty (SED) and Entry tax during 2005.
PAST SCENARIO AND MEASURES INITIATED FOR TURN AROUND -:
Owing to various reasons BCCL has been consistently incurring losses over the years. Its turn-
around in 2005-06 is the result of perseverance, dedication and resolve to its employee. The
company reported loss of Rs 569.85 cr and cash loss of Rs 209 cr in 03-04.
The turn around in less than 2 years from a near bankruptcy
Situation has been made possible through dedicated and sustained pursuit of a revival strategy
focused on -:
Enhancing production of high value coking and washed coal
Internalizing premium on coal marketed to non core sector through e –marketing
Arresting / reversing the trend of persistent decline in coal production since 1999-2000
Several decisive steps were taken towards the end of 03-04 and the order of priorities was re
adjusted to turn around. In order to procure production holding items on a fast track and subsequent
payment.
Worn out machines were surveyed off. Procurement of heavy earth moving machinery (HEMM) was
adjusted as a new major thrust area to supplement the drive to improve production from
departmental mines by revamping the existing capacity.
Efforts were made to obtain coal from isolated patches by deployment of hired HEMM. A number
of contracts were awarded in 05-06 for deployment of HEMM.
In 03-04 on a production of 22.68 mts the company incurred a loss of Rs. 569.85 cr. This loss was
equivalent to contribution of around 8 mts. In other words the break even level was 30.68mts

achieving increase in production of such magnitude was ruled out under the given circumstances it
therefore became imperative to focus on -:
-Increase in production of high value prime washed coking coal & unshakable the constraints in
value realization, wherever possible. Accordingly efforts were made to reserve the steep decline in
washed coal production witnessed during the earlier year.
As a consequence of all the above measures, acting in tandem, BCCL earned profit slowly from
operations, for the first time in its history of 05-06.
During 06-07 BCCL has also registered it performance in line with 05-06 & the estimated profit is
Rs.21crore
FUTURE PLAN
Revamping departmental capacity
Deploying hired HEMM for coal production from isolated patches.
Long wall Mechanization is Moonidihi project
Developments of MANDRA Block in BARORA Area
Up gradation & modernization of washeries
It is estimated that net worth will be positive by 2010-11 & production will tend to 30mts by 2011-
12.
A Similar Project like BCCL is ECL:
Eastern coalfield limited (ECL)
Eastern coalfield limited (ECL) a subsidiary of coal India limited was incorporated on Nov 1975;
ECL’s estimated command area stretches over 1620 sq km of which 1530 sq km in Raniganj
coalfield and remaining 90 sq km in Santal Parganas and Rajmahal coalfield. ECL mining operations
are located in west Bengal and Jharkand and it operates a total of 113 mines of which 88 are
underground and 19 opencast and rest 6 combined (OC and UG) spread over Ranigunj, Mugha-
Salanpur and Hura coalfields.
PERFORMANCE PARAMETER
During 2005-06 ECL recorded a coal production of 31.11 Million Tones at a growth of 14.18%.
Coal dispatches to consumers were to the turn of 28.20 million tones registering a growth of 5.74
% .For the first time since its inception ECL achieved a profit of Rs. 371.96 crores during the year.
This was way beyond the projected profit of Rs 55.11 cr. Reported to BIFR. ECL period rs 884.91
Crore towards state central exchequer in the form of Royalty During 2005-06.
During 06-07 the profitability is also ensured by at the end of March 07 to the tune of Rs 101 crore
PAST PERFORMANCE AND FACTORS THAT HELPED IN TURN AROUND
Upon nationalization of coal sector in mid seventies centuries ECL acquired mines where the mining
methods adapted by erstwhile private owners were unscientific. It also inherited large unskilled
manpower the cumulative effect of these factors resulted in continuous losses since ECL come into
being and the company had to b referred to BIFR in Nov 1999. ECL was declared as sick and state

bank of India was appointed as its operating agency to prepare a revival plans for rehabilitation.
Some of the silent features of the revival plan are -:
Incremental production of 18.91 mts during 03-04 onwards till 2012-13
Increase in underground production to 13.81 mts by ’10-’11 through introduction of continuous
mines, long wall technology at jhnajra, mechanisation of mannual districts
Increase in opencast production to 33.70 mts during 2012 –13 through Rajmahal expansion. Opening
in green field projects, expansion of Sonepur Bazari Project and Chitra opencast
Outsourcing of 17 opencast patches to produce 23.25 mts from 2003-04 to 2010-2011
Introduction of high wall mining to produce 3.2 mts
Conversion of current account balance into equity share capital by coal India limited and waiver of
unsecured loan by CIL
Investment of Rs 2591.40 crore from 03-04 to 12-13 through internal accural.
All these measure shall render net worth to become positive by Rs. 82.74 crore. During 2009-10
ECL is then expected to come out of BIFR.
FUTURE SCENARIO-:
During 06-07 ECL is praised to achieve coal production of 30.48 mts. With profit of Rs 101 cr .by
implementing projects as envisaged in the revival plan. ECL has projected to attain production of 46
mts by the end of XI five year plan period i.e. (2011-12) and 46.91 mts during 2012 – 13. ECL is
confident of easing itself out of its sick unit status by implementing revival plans and sustains
growth in the coming year…
From the above information it is identified that the company (Including Eight Subsidiaries) has
attained the stage of profitability and it is a remarkable achievement in the arena of Financial
Management.

RESULTS AND CONCLUSION
AIM: To analyze the Financial Statement of Coal India Limited for the past five years.
COMMENT on OBJECTIVES:
1. To measure the efficiency of the Organization – If we go through the ratio analysis part we will
see that during the analysis of liquidity ratio there is positive growth from 2005-06 onwards. The
liquidity position of the company is improving significantly and the terminal year has registered its
growth positively and has established that current assets has exceeded over current liabilities.
There is also immense reduction of the percentage of debt during the years, which is the
company has low financial risk which is beneficiary to the shareholders. If we go through the
profitability ratios we will see that the company is making profit and its operating efficiency is
sound.
2. To judge the profit earning capacity of the Organization – The profitability position of the
organization on the whole for last five years as has been depicted before is following a healthy and

rising trend because of improved productivity, increased turnover and containing cost between single
digit inflation.
3. To know about the financial strength of the Organization – The debt burden of the company is
drastically reducing, which is a good indication for the shareholders that the company is able to
withstand it financial needs from its own generation and the siphoning of funds from outer sources is
gradually in decreasing order.
From the information in the dissertation, it can be said that the company is financially sound
and it is identified that the company including its eight subsidiaries has attained the stage of
profitability and it is a remarkable achievement in the arena of Financial Management.
4. Information about activities in the Organization - In addition to above, the following jobs were
also undertaken:
Revision of project reports/cost estimates.
Feasibility reports for coking/non-coking coal washeries.
Study on improvement/modernization of existing BCCL washeries.
Operational plans for large OC mines.
Environmental Management Plan (EMP) including EMP for Post-facto environmental clearance for
incremental production.
Special reports for dealing with fire, subsidence and rehabilitation etc.
Detailed design and drawings, NIT, tender scrutiny etc.
Mine capacity assessment of underground & opencast mines of CIL.
Various technical studies relating to opencast & underground mines.
Performance analysis of HEMM operating in OC mines, Powered Support Longwall faces,
Continuous Miners and intermediate technology using SDLs and LHDs in CIL mines.
Preparation of Global bid documents for introduction of Longwall and Continuous Miner
Technology in underground mines of CIL.
COMMENT on HYPOTHESIS:-
The hypothesis was ‘The financial statements are mirrors which reflect the financial position and
operating strength of the concern’, which is absolutely true because after analyzing and going
through the data of the dissertation we can say that the financial position and operating strength of
the company is sound.
As we have marked before, we will see that during the analysis of liquidity ratio there is
positive growth from 2005-06 onwards. The liquidity position of the company is improving

significantly and the terminal year has registered its growth positively and has established that
current assets has exceeded over current liabilities.
There is also immense reduction of the percentage of debt during the years, which is the
company has low financial risk which is beneficiary to the shareholders. If we go through the
profitability ratios we will see that the company is making profit and its operating efficiency is
sound.
Personal recommendation
From the overall analysis of financial statements and component wise cost, the company is being
looked from all the dimension and finally it can be concluded that economic health is sufficiently
strong with huge cash reserve can enable the company for diversification and many other venture is
being processed apart from the main business of coal mining. Cost aspect is also registering that the
price increase is contained within the level of inflation in spite of many other extraneous factors.
In my opinion it is a cash rich PSU and should go for diversification meeting all social commitment.
In global context for its survival and growth many other conditional ties to be complied. Under
corporate governance more transparency should be maintained and many other commitment to be
achieved.

LIMITATIONS OF THE STUDY
AND FUTURE SCOPE OF THE
WORK
After reviewing all sets of financial data as well as statistical information of the company, an effort
is taken to highlight the company’s financial position along with sufficient comment to diagnose the
financial health from time to time. It is a drive with time constraint so overall review of the company
from several direction cannot be viewed which can help the management to take concrete managerial
decision. Further to note that the structure of company is massive in nature with manpower of 4,
26,000 with 465 mines scattered throughout whole of India varying geo-mining condition with a
different cost structure, it is not similar to any other industry to study the whole company in a single
thrust.
From my observation, it is identified that the company had tremendous potential for its growth and
expansion. Now the facing problem of land acquisition, so further expansion is restricted, so the
company should think for alternative set of business and the new venture which the company has

already adopted viz. setting up of Coal Videsh, approved by the Coal India board for its formation as
its separate subsidiary to pursue foreign ventures.
APPENDICES
CIL – Coal India Limited
ONGC- Oil and Natural Gas Corporation
CA- Current Asset
CL- Current Liabilities
Formulas used in Ratio Analysis
1. Current Ratio= CA/CL

2. Quick Ratio=Quick Asset/Current Liability
3. Net Working Capital Ratio=Net Working Capital/Net Asset
4. Debt Ratio=Total Debt/Capital employed
5. Debt Equity Ration=Total Debt/Net Worth
6. Capital Employed to Net Worth Ratio=Capital Employed/Net Worth
7. Gross Profit Margin=Gross Profit/Sales
8. Net Profit Margin=Profit After Tax(PAT)/Sales
9. Net Margin based on NOPAT=EBIT-Tax/Sales
10. Return on Investment=EBIT-Tax/Net Asset
11. Return on Equity=PAT/Net Worth
EBIT=Earning before interest and tax
NOPAT=Net operating profit after tax

BIBLIOGRAPHY
Reference book:
1) Financial Management by I.M. Pandey
2) Financial Management by Dr.S.P. Gupta
3) Management Accounting by Prof. Nirmal Jain
4) Annual Reports and accounts of 2006-07 of Coal India Limited.
5) Non-print media
a) www.coalindia.nic.in
b) www.coalindialimited.com
c) www.cil.com
1

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