Analysis

1. Leverage:
The leverage of the firms in the industry can be defined under two parameters: Financial leverage- it measures the surplus or deficit that will increase or decrease the ROE. In the case of steel industry, tata steel has an EPS of 68.95, in SAIL it is 8.58, and in JINDAL it is 22.78. here also the number of shares issued by SAIL is far greater than the rest of the industry, keeping that in mind if we calculate the best returns that a investor is getting is in the case of SAIL followed by TATA and then followed by JINDAL. We can also see that the DFL of SAIL is the best in the industry which is closely followed by tata. Operating leverage- the operating leverage affects the firms EBIT, in the case of steel industry it can be seen that the most EBIT is earned by TATA steel followed by SAIL which is closely followed by JINDAL. The DOL in this case is highest of TATA steel which is followed by SAIL as their competitors.

2. Capital structureIn the case of steel industry a major part of financing is done by the equity shares, in TATA steel the capital earned is 959 crores, in SAIL it is 4130 crores and in JINDAL it is comparatively low at 93 corores. It shows that most of the finance done in SAIL is through the equity, TATA depends upon both the equity and borrowings and in case of JINDAL it is done mostly by borrowings. Here we can see that the firms in the industry works upon different parameters to raise the money from the market to finance their activities.

3. Dividend policyIn the steel industry scenario we can see that the dividends paid by the firms are, SAIL provides dividends worth 826 crores with an EBIT of more than 5000 crores which shows that their retention ratio is quite high. And JINDAL provides dividends worth 150 crores out of their EBIT of more than 4000 crores which shows that their retention ratio is higher than that of SAIL. As a whole industry it can be seen that the retention ratio is quite high and only a significant amount of dividends are issued by the firms.

4. Working capitalWorking capital is essential in the day to day working of the firm and it is important for the firms to maintain a significant working capital so that they can maintain their operations and upcoming demands. In the case of steel industry, in case of TATA we can see that the working capital is significantly high in the year 2011 but it has dropped down in 2012 upto a negative level, this shows that the loans have significantly dropped and the current liabilities have risen to a high level. In case of SAIL we can see that the working capital is positive and high, so they are able to meet their day to day working operations smoothly and are in a strong position to meet their upcoming demands. Also in case of JINDAL we can see that the working capital is positive and they are able to meet their day to day operations. But if we analyse the industry as a whole it can be noticed that SAIL holds the strongest position and it truly the market leader in the steel industry.

5. Industry interpretations(as per ratios)a. Debt equity ratio- the standard industry ratio is 0.88, taking this into mind while comparing the soundness of the firms regarding their capital structure, only JINDAL has a higher ratio whereas TATA and SAIL both have around 0.4 percent, which shows that both the firms have more quity in their finance whereas JINDAL depends mostly on debt.

b. Current ratio- the standard industry ratio is 1.31, taking this into mind while comparing the assets and liabilities of the firms, SAIL is the most closest to the standard industry ratio followed by TATA and then by JINDAL. It shows that SAIL is most able to pay its short term obligations then the rest of its competitors. c. Inventory turnover ratio- the standard industry ratio is 4.94, taking this into mind while calculating the number of times an inventory is sold or replaced over a period, the most number of times an inventory is sold or replaced is by TATA steel with a ratio of above 9, this proves their significance in the working of the inventory and the flow in the firm. It is backed by SAIL with a ratio of around 5 and then is JINDAL.

By carrying out an overall analysis it can be seen that SAIL is undoubtedly the market leader being a government firm, which is competed by TATA is a close competition and the steel industry being a fast moving goods industry with a requirement of high amount of long term financing for their production. The capital structure of the top firms in the industry can be improved by financing it with debts of long term as well as short term so that the interest is less and can be met by the firms producing a significant level of inventories. For the overall development of the industry the debt and equity needs to be balanced by the top two firms to reach for new and fast developments and avoiding any competition in the future.