Chitta Final Project

SUMMER INTERNSHIP
PROGRAMME
2009-2010
NATIONAL ALUMINIUM CO. LTD.

MINES & REFINERY COMPLEX
DAMANJODI, Dist. KORAPUT, ORISSA
FACULTY GUIDE INDUSTRY GUIDE

Prof.V.K.GOYAL R.C. JOSHI
SENIOR MANAGER, FINANCE
PREPARED AND SUBMITEBY
CHITTA RANJAN BEHERA

REGD.NO.—209115
Final Dissertation of Summer Internship Topic: By Chitta Ranjan Behera Dated SIMS
Ghaziabad.
A PROJECT REPORT SUBMITTED IN PARTIAL
FULFILLMENT OF AWARD OF POST GRADUATION
DIPLOMA IN MANAGEMENT.
A study on
Financial Health of
NALCO
By adopting different
financial techniques.
SUBMITTED BY
Ghaziabad.
PGDM 2ND SEMISTER
Enrollment No: 209115
Project Report
On
A study on financial health of NALCO by adopting

different financial techniques.
FOR
Post graduation diploma in management

Shiva institute of management studies
Ghaziabad.
***********
Submitted by
Enroll. No: 209115
Ghaziabad.
Guided by:
Mr. Ramesh Chandra Joshi
SR.Manager (Finance),
NALCO, Smelter Plant
BONAFIDE CERTIFICATE
TO WHOMSOEVER IT MAY CONCERN
This is to certify that CHITTA RANJAN BEHERA S/o KAILASH

CH. BEHERA is a Bonafide student of PGDM, Batch 2009 -11 ,
bearing Enrollment No. 209115.Conducted by Shiva Institute of
Management Studies. The course is approved by All India Council
for
Technical Education (AICTE) Ministry of HRD , Government of
India.
for SHIVA INSTITUTE OF MANAGEMENT STUDIES
Ghaziabad.
Dr. Shefali Gautam
Director
Dated :
CERTIFICATE FROM THE ORGANISATION
This is to certify that Chitta Ranjan Behera Enrollment No:

209115 a student of Post Graduate in Management from Shiva
Institute of Management studies has done his summer training
in our organization at division of Damonjodi, “Nalco”. The
training commenced from 19 May 2010 and was completed
on 3rd July 2010.
The project work entitled “Project Title” embodies the

original work done by Chitta Ranjan Behera during his
summer project training period.
Ghaziabad.
Name Name
Mr. R C Joshi
(Company Guide) (Head, Training Division)
SEAL OF THE ORGANIZATION
(A Government of India Enterprise)

REFINERY DIVISION: DAMANJODI: ORISSA
CERTIFICATE
This is to certify that Mr. CHITTA RANJAN BEHERA, a bonafide

student of SIMS, GHAZIABAD, has been carried out the project work in
“NALCO” on “A study on Financial Health of NALCO by Adopting different
financial techniques” under my guidance. He is very sincere and always keen to
Ghaziabad.
learn. He is having positive attitude which will take him in to new heights in his
career.
I wish him all success in life.
( R.C.Joshi)
Sr. Manager (Finance)
DECLARATION
I hereby declare that the project study entitled
“A study on Financial Health of NALCO by adopting
different financial techniques” is submitted to SIMS. It is an
original work done by me and to the best of my knowledge and
belief, it has not been published earlier elsewhere or presented
Ghaziabad.
to any University / Institution for award of any degree, diploma
or other similar title.
(CHITTA RANJAN BEHERA)
ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the opportunity to
complete this project. I would like to thank my institute authorities and my internal guide
Prof V.K. Goyal first for providing me the opportunity to work with one of the most
prestigious organization. I want to thank the head of Training Department Mr. D C Das for
Ghaziabad.
giving me permission to commence this summer training project in the first instance, to do
the necessary research work and to use departmental data and resources.
I would like to thank Mr. R C Joshi and other executive Mr. B N Behera, Who gave
and confirmed this permission and encourage me to go ahead with my training. I bound to
thank other staff Mr. T K Pani for their stimulating support.
I am deeply indebted to my faculty guide Prof. V K Goyal, whose constant help,
stimulating suggestions and encouragement helped me in giving the final shape to this
project.
I would like to give a special thanks to my parents, their constant support enable me
to complete this project work.
Date:
Nalco, damonjodi Chitta Ranjan Behera
PREFACE
Ghaziabad.
Healthy finance is the responsibility of the Company’s top
Management. The study and analysis of Segment analysis, cash flow
statement, ratio analysis, budgeting and inventory control gives a true
and fair view of the sound financial stability of the company to the
investors, share holders, Bankers and creditors.
The project work is based on the study undertaken by me at
Refinery Division of Nalco. The project work is divided into various
sections and each section deals with different aspects of financial
health analysis like profitability, earning per share, dividend, foreign
exchange earnings and repayment capacity.
Ghaziabad.
NATIONAL ALUMINIUM COMPANY
LIMITED.
CONTENTS PAGE NO.
CHAPTER – 1 INTRODUCTION 11-14
CHAPTER – 2 NALCO PROFILE 15-24
CHAPTER - 3 INVENTORY CONTROL 25-36
CHAPTER – 4 RATIO ANALYSES 37-70
CHAPTER - 5 CASH FLOW STATEMENTS 71-72
CHAPTER - 6 CONCLUSION & SUGGETION 73-74
ENCLOSURES: PROFIT & LOSS ACCOUNT 75
BALANCE SHEET 76
ACCOUNTING POLICIES 77-82
BIBLIOGRAPHY 83
Ghaziabad.
INTRODUCTION
For growth and survival of Company’s business in the intense competitive era of
modern product – market technology, environmental turbulence and in the
dynamic and rapid changing competitive pressures in the global market place a
sound financial health of every organization is highly essential.
We cannot imagine a business without finance. Finance is the life blood of

every business. To have a high degree of potential excellence carrier in the global
market and to carry out each future plan and action among all multinational
corporations, healthy finance is required in all its facets to assess and revaluate its
goals and objectives.
It is the responsibility of top Management to safeguard and protect the

specialized profitable activities from the weak and sick operations. To measure
finance performance of its products, divisions, in the customers market and to
compare with competitors products, top Management uses the following yardsticks
as barometer in its finance discipline. These yardsticks are fund flow and cash flow
analysis for short term problems, ratio analysis for operating problems; inventory
and cash budget to meet customer’s service and flow of production, optimum
dividend policy for share holders and investors, credit policy for Bankers etc.
All these strategic and tactical healthy decision are taken in light of the
change of economic and monetary policy of Government, social & cultural
changes at the regional, National and international level, legal & political changes.
As resources are always scarce and vital, its proper planning and control is
highly essential to achieve the corporate objectives and goals by extending social
benefits to the community, maximizing the wealth of the share holders, keeping
surplus funds for expansion and diversification.
OBJECTIVES OF THE STUDY
The objectives can be divided into two parts.

a) Common objectives.
Ghaziabad.
b) Individual objectives.
COMMON OBJECTIVES:
i) To get true & fair view of financial health of Nalco.
ii) To assess the strength and stability of Nalco.
iii) To assess Nalco’s capacity to pay its short term payments.
iv) To assess the operational efficiency and profitability of Nalco.
v) To assess the future prospect of Nalco based on current and past

performance.
INDIVIDUAL OBJECTIVES:
i) For owners and investors:

a) To assess the long term financial position of Nalco.
b) To assess the performance of various segments of Nalco.
ii) For Bankers and money lenders:

a) To assess paying capacity of Nalco.
b) To assess the short term solvency position of Nalco.
c) To assess the cash flow of Nalco.
d) To assess the borrowing capacity of Nalco.
iii) For Management:
a) To take important decisions with the help of financial statement
analysis.
b) To assess the profitability of Nalco.
c) To know and assess the work culture of Nalco of various segments
Ghaziabad.
(IV) SIGNIFICANCE OF STUDY:
A vehicle cannot run without any engine, similarly a business cannot
run without financial analysis. Financial analysis is done to know the following
factors.
1. To read daily transactions.
2. To know the financial position that is where the company stands.
3. To know the profit and loss of the company.
(a) If making profit, where it’s utilized.
(b) If incurring losses, what is the weakness of the company?
The financial statements are major sources of financial information of an

enterprise. Financial analysis can determine the significance and meaning of the
financial statement data, so that forecast may be made of the future earnings,
ability to pay interest and debt and profitability of sound dividend policy.
METHODOLOGY: For Analysis and study on financial health of Nalco,

Data were collected from Internal and External sources.
(A) INTERNAL: Data were interpreted from both primary and secondary
sources. Separate personal interviews were made with the staff of finance
department. Questionnaires were given to executives of the finance department
Ghaziabad.
of the company with request to supply data regarding the procedure and
technique adopted by them for the management of finance.
Interaction was also held with the General Manager (Finance) in order to
supplement the information received. These data have been analyzed with a
view to arrive at conclusions regarding the practice of different methods by the
management for effective control of financial parameters.
(B) EXTERNAL:
The financial data were collected from various sources like:
i) Annual financial report of the company for the five-year period from
1999-00 to 2003-04.
ii) Internal report.
iii) Manual reports regarding management decisions on different financial
aspects.
iv) Printed material carrying the policies of the organization.
SOURCE OF DATA:
1) Annual Report of NALCO.
2) Annual Audited Accounts.
3) Balance Sheet
4) Profit and Loss Account
5) Monthly in house Magazine “Parichaya”
TOOLS & TECHNIQUES USED:

1) Cash Flow Statement.
2) Ratio analysis.
Ghaziabad.
3) Budgeting.
4) Inventory Control.
5) Segment analysis.
INTRODUCTION TO THE ALUMINIUM INDUSTRY

Aluminum is a unique metal with remarkable features and versatile
applications in every range of life. Aluminum can be formed into different shapes
by any of the usual processes in industry. It is a good reflector of thermal, optical
and electromagnetic radiation. Even minor addition of iron has no significant
magnetic field of aluminum. Aluminum weighs only 0.34 times as much as iron.
Pure unalloyed aluminum alloys may surpass the tensile strength of steel.
Aluminum surface can be reinforced to protect from weather and chemical
corrosion. Aluminum is equivalent in conductance while being 50% lighter.
Aluminum permits rapid heat dissipation. The metal and its sources are non-toxic
and it is, therefore, an important packaging material for food. Many possibilities
are available for treating and texturing aluminum surface.
In the last several years, aluminum has accelerated its applications in a multiple of
sectors by replacing other metals. The demand of aluminum is based on its
enviable combination properties. While rate of growth in other countries is low due
to the fact that they have reached towards the peak, the same in Asia and in
particular India is increasing. Presently the per capita consumption of aluminum in
Ghaziabad.
India is only 0.5 kg compared to 32 kg in Japan, 27 kg in USA and 3.6 kg in
Brazil. But with the population growth of 2.5% and per capita income growth as
8%, in a highly optimistic scenario, the per capita consumption figure of aluminum
will grow by 10% in the coming days. Aluminum industry is in the growth period
of life cycle and till another five decades it is predicted that the demand in
aluminum will remain buoyant.
COMPANY PROFILE
ORIGIN-HISTORY OF NALCO
The discovery of over one billion tones of bauxite deposits in the

east coast of India in the mid-seventies has placed India on the world bauxite
map. As a major step towards exploiting these vast bauxite deposits, the
Government of India established National Aluminum Company Limited
(NALCO) as a public sector enterprise on January 7, 1981. The foundation
stone of the project was laid by the Prime Minister of India, Late Mrs. Indira
Gandhi on March 29, 1981 at Damanjodi in the tribal District of Koraput,
Orissa. It is Asia’s largest integrated aluminum complex, encompassing bauxite
mining, alumina refining, aluminum smelting and casting, power generation,
rail and port facilities.
Today, NALCO has completed 25 glorious years of corporate

excellence. It is one of the most prestigious industrial projects in the field of
alumina and aluminum making. Its impact has already been felt both in the
national and international horizon. NALCO is considered to be a turning point
in the 55 year old history of Indian Aluminum Industry. In a major leap forward
NALCO has not only addressed itself to the country’s need for self sufficiency
Ghaziabad.
in Aluminum metal, but also given the country the technological edge in
productivity. This strategic metal is the best of world metals. The production of
aluminum metal started just a century ago. Though youngest of all metal, there
has been strong demand in the country and international market.
Efficient planning, implementation and monitoring of the project activities as
well as speedy decision making in the organization are responsible for the
success and growth.
The entire paid-up equity capital was held by Central Government.
This was one of the biggest public sector undertakings set up by the
Government in the eighties. Aluminum Pechiney of France, a world leader in
the field, provided the technology and basic engineering for bauxite mines,
alumina refinery and smelter. The complete and firm reliability of project
financing was another hallmark.
The initial total capital cost of Rs.2408 cr. was partly financed by
Rs. 1119 cr. equivalent Euro-dollar loan raised through a consortium of
international banks and the balance RS.1298 cr. coming in from the
Government of India Plan Funds. Ever since the setting up of the company and
commencement of commercial production, the company has been growing by
leaps and bounds including earning a considerable foreign exchange for the
country by export of its products namely Alumina and Aluminum and achieving
a high degree of productivity and efficiency as well as financial performance.
The company has won many laurels including Star Trading House Status,
APEXIL Awards etc. The profit of the company has steadily increased from
Rs.18.92 cr. in 1988-89 to Rs.1564.65 Cr. (PAT) in 2005-06.
Ghaziabad.
NALCO has chartered a course of international confidence in Indian industrial
capability. NALCO is credited for its well-managed integrated operations in as
many diverse areas as bauxite mining, alumina refinery, aluminum smelting,
power generation and managing port facility. NALCO constantly produced
high quality aluminum products at completive prices for both domestic and
overseas customers and established itself in national and international market in
a short span of time. This in turn, helped in earning precious foreign exchange
and profits for the company brought from its 2nd years of commissioning.
Leveraging the technical collaboration with Aluminum Pechiney of
France, ISO 9002 certification of quality management, LME registration of
products, environment care conforming to ISO 14001, low cost operations,
international base, NALCO has continued to add value and is poised to grow
further. By 1998, the company not only achieved a zero debt status but it has
gone steadily with an internally funded major expansion plan involving an
investment of over Rs.3700 cr.
The company has five multi-locations, well-integrated, segments

viz. Bauxite Mines, Aluminum Refinery at Damanjodi, Aluminum Smelter,
Captive Power Plant at Angul and Port Facilities at Vizag. With low cost
operations and international customer base, Nalco enjoys the status of a Five-
Star Export House and a Mini Ratna company.
In order to strengthen its market position, Nalco has started the

second phase expansion after the successful completion of the first phase. The
present Rs.4091 cr. expansion will considerably raise the capacities of its
various segments.
Ghaziabad.
Thus, NALCO heralded a new era of Aluminum making in the
country, not only in the use of modern technology but also in production of
world standard aluminum products.
MISSION OF NALCO
The broad mission of the company is:
“To achieve growth in business with global competitive edge providing

satisfaction to the customers, employees, share holders and community at
large”. This has been clearly spelt out in the Company’s Memorandum &
Articles 0f Association. Thus, employee satisfaction is a part of the Company’s
broad mission and is a thrust area.
OBJECTIVES
➢ To maximize capacity utilization.

➢ To optimize operational efficiency and productivity.
➢ To maintain highest international standards of excellence in product quality,
cost efficiency and customer service.
➢ To provide a steady growth in business by technology up gradation,
expansion and diversification.
Ghaziabad.
➢ To have global presence and earn foreign exchange.
➢ To maintain leadership in domestic market.
➢ To maximize return on investment.
➢ To develop a strong R&D base and increase business development activities.
➢ To maximize internal customer satisfaction.
➢ To foster high standards of health, safety and environment friendly products.
➢ To instill financial discipline at all level for achieving cost and budgetary
controls, optimize utilization of working capital and effective cash flow
management.
To promote a result oriented organizational work culture that empowers
employees and helps realization of individual and organizational goals.
NATURE OF ACTIVITIES
The main activities of Nalco are production of alumina and aluminum. For this
the company has the following units of activities:
(A) CORPORATE OFFICE
The corporate and registered office of Nalco is

situated at Bhubaneswar, the capital city of
Orissa. It is housed in a magnificent building
named Nalco Bhawan built in lines with the
temple architecture of Orissa.
(B) PRODUCTION UNITS
 Bauxite mines
Ghaziabad.
Nalco’s bauxite mining, on Panchpatmali hills of Koraput district in Orissa, is
among the most sophisticated and eco-friendly mining operations to be found
worldwide. Highly mechanized, the open cast bauxite mining of Nalco features
geo-statistics application and computerized mine planning. The transportation
of ore to alumina refinery, located downhill, is done through a 14.6 kilometer
long, single-flight, multi-curve, cable belt conveyor of 1800 tph capacity.
Taking advantage of the topography, this conveyor is an engineering marvel.
Nalco’s bauxite mining facility is capable of producing 48,00,000 tonnes of
bauxite per annum, from a captive deposit of about 310million tones, spread
over 16 square kilometers, with an average overburden thickness of 3 meters.
The capacity of bauxite mining is presently being expanded to 63,00,000 tones
per annum.
 Alumina Refinery
The 15, 75,000 taps energy efficient

alumina refinery, having three parallel
streams of equal capacity, is located in
the picturesque valley of Damanjodi, in
Koraput district of Orissa. One among
the top ten alumina refineries in the
world, this plant utilizes time tested
Bayer Process technology of atmospheric pressure digestion at low temperature.
Manufacturing of 26,000 tpa special grade alumina and hydrate as well as
10,000 tpa detergent grade zeolite are well integrated with the main process
streams. Apart from distributed digital process control, co-generation of power
Ghaziabad.
from process stream, using 3x18.5 mw back pressure turbo generator sets, is yet
another unique feature of the refinery.
 Aluminium Smelter
Based on the state-of-art 180 KA
cell technology of Aluminum
Pechiney, the smelter has a capacity
to produce 3,45,000 tones of
Aluminum per annum. Located at
Angul in Orissa, the smelter
complex consists of two pot-lines
with 240 electrolytic pot cells in each, along with integrated facilities for
production of carbon anodes, casting of ingots, sows, billets, strips and wire
rods. The self-reliance of smelter comes from the assured supply of calcined
alumina from the company’s refinery at Damanjodi and 410 mw of
uninterrupted supply of power from the captive power plant located nearby.
Capacity of smelter is presently being expanded to 4,60,000 tpa.
 Captive Power Plant
The captive thermal power plant at

Angul is another showpiece in
efficient and reliable power
generation. It’s also connected to the
state grid for sale of surplus
electricity. The 960 mw unit,
comprising a cluster of 8x120 mw
turbo generator sets, features micro-processor-controlled burner management,
Ghaziabad.
computerized data acquisition and process control, automated turbine run-up,
brushless excitation of generators and continuous coal handling systems for
optimum, efficiency and quality in power supply. To meet future needs the
capacity is being expanded to 1200 mw.
(C) PORT FACILITIES
Nalco has a dedicated port facility at

the inner harbour of Visakhapatnam
Port on the Bay of Bengal with
integrated handling and storage
facilities for bulk export of alumina
and import of caustic soda lye. Ships
up to 35,000 dwt cargo holding
capacity can be berthed here. The storage facility is up to 75,000 tonnes and this
gateway to overseas market can reliably handle export of about one million
tones of alumina per annum.
(D) MARKETING / REGIONAL OFFICES

The marketing / regional offices of Nalco are located in New-Delhi,
Kolkata, Mumbai, Chennai, Bangalore and Paradip.
(E) RESEARCH & DEVELOPMENT
Nalco’s R&D centre at Damanjodi is recognized by DSIR,
Ministry of Science and Technology, Government of India. The in-house
Research & Development efforts in the direction of process improvement,
energy conservation, promotion of indigenous technologies, commercial
Ghaziabad.
utilization of wastes and development of value added products, have been
beneficial to the company’s operation.
Nalco’s collaboration with premier research laboratories of the country
has resulted in several research initiatives in alumina and aluminum.
Development of indigenous technology for production of detergent grade
zeolite has leadership to the establishment of 10,000 tpa Zeolite-A Plant by the
company. Also based on the collaborative research, Nalco has set up facility for
making 26,000 tpa special grade alumina and hydrates.
Development of synthetic granite, wear-resistant ceramics from fly ash and
synthetic wood, ferrite cement, wear-resistant cast iron and micro alloyed steel
from red mud are some of the other achievements on pilot scales. Recovery of
iron from red mud with Romelt process is under feasibility study.
While continuing its R&D efforts in right earnest, the company has
already obtained patents for certain special types of aluminas and hydrates.
ENVIRONMENTAL PROTECTION
Nalco is a responsible steward for the protection and care of the
environment. Use of eco-friendly process, safe handling of materials,
monitoring of occupational health, efforts at greening-of-the-land, preparedness
for disaster management are all integral to the company’s Commitment to
nature and society. Extensive care is taken in the management of fly ash, caustic
red mud and fluoride – the three major pollutants associated with Nalco’s
operations. The highest level of ecological performance is a standard
requirement for the company and the responsibility of the entire workforce. The
ISO 14001 certification of all production units and winning of Indira
Priyadarshini Vrikshamitra Award, a national honour, bear testimony to Nalco’s
concern for environment.
Ghaziabad.
PRODUCTS
Along with standard aluminum ingots and sows, which are
registered with London Metal Exchange, the Nalco product enjoys world
wide reputation on account of high standard of customer services.
INVENTORY CONTROL
INTRODUCTION:
Ghaziabad.
Financial health of Nalco largely depends on good inventory policy. As inventories are the
significant cost element of cost of production, its physical control & price control is essential.
60% of the cost of production is invested in inventories i.e., raw materials, stores & spares,
semi-finished products, intermediary goods. Its theft, wastage, leakage may jeopardize the
long term profitability. Holding too inventories involve insurance cost, storage costs etc.
Inventories constitute the most significant part of current assets of NALCO. It is,
therefore, absolutely imperative to manage inventories efficiently and effectively in order to
avoid unnecessary investment & to have smooth production & sales.
OBJECTIVES OF INVENTORY CONTROL.
1) To ensure continuous supply of materials, spares & finished goods.

2) To avoid both over-stocking & under –stocking of inventory.
3) To maintain investments in inventories at the optimum level as required by
operational & sales activities.
4) To minimize losses through deterioration, pilferage, wastage & damages.
5) To ensure perpetual inventory control so that material lying in stock ledgers should be
actually lying in stores.
6) To ensure right quality goods at reasonable prices.
7) To keep material cost under control so that they contribute in reducing costs of
production & overall costs.
NEED TO HOLD INVENTORIES.
1) TRANSACTION MOTIVE : To facilitate smooth production & sales
operation.
2) PRECAUTIONARY MOTIVE: To guard against the risk of unpredictable
changes in demand & supply forces & other factors.
3) SPECULATIVE MOTIVE: To increase or reduce inventory levels to take
advantage of price fluctuations.
INVENTORY TECHNIQUES:
Ghaziabad.
NALCO has adopted various techniques for control of inventories. These techniques are:
1) ABC Analysis
2) ECONOMIC ORDER QUANTITY.
3) VED Analysis.
4) Review of slow and non-moving items.
5) Review of obsolete stocks.
1) ABC ANALYSIS:-
The highest value items are classified as ‘A’ category items & kept under tightest possible
control. Items of relatively lesser value are classified as ‘B’ category items & are kept under
reasonable control. Items of relatively least value are grouped under ‘C’ category and kept
under simple control. Experience has shown that almost 10% of the items contribute to
70% of value of consumption which are grouped under ‘A’ category, about 20% of the items
contribute about 20% of value of consumption & are grouped under ‘B’ category &
category ‘C’ covers about 70% of items of materials which contribute only 10% of value of
consumption. The ABC analysis is also known as control by importance & exception (CIE).
2) ECONOMIC ORDER QUANTITY (EOQ) : The quantity to be purchased
should neither be small nor big because costs of buying & carrying materials are very
high. Economic order quantity is the size of the lot to be purchased which is
economically viable. It is the point at which, inventory carrying costs are equal to
order costs.
3) VED Analysis: Vital, Essential & Desirable analysis is used primarily for control
of spare parts. Spare parts of Nalco have been divided into three categories:
i) Vital: The spares, the stock out of which even for a short time will stop
production and where the cost of stock out is very high are known as Vital
spares.
ii) Essential.: The spares, the absence of which cannot be tolerated for more
than a view hours and the cost of lost production is high and which are
essential for the production to continue as known as essential spares.
Ghaziabad.
iii) Desirable.: The desirable spares are those spares which are needed but their
absence for even a week will not lead to stoppage of production. Some spares
though negligible in monetary value, may be vital for the production to
continue and require constant attention.
4) Review of slow and Non-moving items: Slow moving items are those items
which are not issued regularly or issued at irregular intervals. Consumption of such
items is almost Nil. For example, spares pares may be needed when the machine goes
out of order.
5) Review of obsolete stocks: Obsolete stocks are those items which have become
outdated due to no further use for production purposes.
1) STATEMENT OF INVENTORY OF FINISHED GOODS
INVENOTRY OF FINISHED GOODS
PRODUCT 06-07 07-08 08-09
Bauxite 523828 659133 466916

Zeolite 227 23 253
Alumina Hydrate 296 154 461
Calcined Alumina 76840 68765 52848
Spl grd alum. & hyd. 512 103 51
Aluminium Metal 4536 3999 9089
Rolled Products 880 1097 512
Ghaziabad.
Graphical Presentation:-
ANALYSIS:-
1) Bauxite inventory is showing a downward trend even though Bauxite has been
classified as finished goods, the same is not being sold and used for captive consumption
Bauxite may be considered as major raw material for Alumina and accordingly downtrend of
inventory is cause of concern for the company. The company should step up excavation of
Bauxite and keep sufficient inventory at any point of time to avoid stock out position and
thereby loss of production.
2) Zeolite inventory is showing steep increase in trend which clearly shows the demand
for the product is not there and accordingly management should try to explore new market or
make a cost benefit analysis as whether to continue the production or not. The zeolite plant
has already impaired since 2006-07.
The inventory of other finished products as more or less in the comfortable zone.
2) STATEMENT OF INVENTORY OF RAW

MATERIAL
(COMPANY AS A WHOLE)
INVENTORY OF RAW MATERIAL
Raw Material Min. Level(MT) Inventory
(end of the year)
Ghaziabad.
Caustic Soda 4000 9422
Coal 50000 31320
Fuel Oil 4000 KL 3694
Lime 1000 2356
Wt brand 125 479
Cytec 75 16
CGM 30 61
3) STATEMENT OF INVENTORY OF RAW MATERIAL

(REFINARY DIVISION)
INVENTORY OF RAW MATERIAL
(REFINARY DIVISION)
Raw Min. Inventory Yearly Norm Inventory Sort/excess
Material Level(MT) (end of consumption (months) holding
the year) (MT)
Caustic 4000 9422 114787 2 0.98 {1.02}
Soda
Coal 50000 31320 963171 1 0.39 {0.61}
Fuel Oil 4000 KL 3694 131523 1 0.33 {0.67}
Lime 1000 2356 53157 1 0.53 {0.47}
Wt. 125 479 1727 1 3.32 2.32

brand
Cytec 75 16 250 1 0.76 {0.24}
CGM 30 61 107 1 6.84 5.84
ANALYSIS:-
Ghaziabad.
1) Very high inventory of caustic soda, which is more than double of minimum level, is
being maintained by the company. The extra inventory holding has blocked substantial
working capital of the company and also resulting into high carrying cost. Management
should regulate the supply in such a manner so as to maintain inventory at around minimum
level to avoid blocking up of capital and thereby extra carrying cost.
2) Sourcing of coal is the main constraint company is facing in the near past .Even though
the company has long term arrangement of linkage coal with coal companies, the supply is
facing a setback. Because of less availability of linkage coal, management is resorting to
other means of procurement like imported coal, washed coal, e-auction coal at higher price.
Coal being the major source of power for the company, low inventory level in comparison to
minimum level is showing a danger signal. Company should take up at highest level to get
sufficient linkage coal.
4) STATEMENT OF INVENTORY OF STORES AND SPARES

STATEMENT OF INV. OF STORES & SPARES
Year Inventory(End of Yearly Inventory
the year) Consumption Holding(month)
2006-2007 247.94 222.25 13
2007-2008 268.66 230.60 14
2008-2009 329.08 257.44 15
ANALYSIS:-
Inventory holding of stores & spares is showing steep increasing trend whereas the
consumption remains more or less constant, considering the inflation. The inventory holding
has gone up from 13 months in 2006-07 to 15% in 2008-09, which clearly shows that the
procurement of inventory is on but consumption is not taking place. Lower consumption of
Ghaziabad.
stores & spares with the aging of the plant is giving an indication that preventive maintenance
is not being carried out which may call for a disaster situation for the company in future.
The higher inventory is the cause of concern for the company, as large amount of
working capital is blocked up causing additional financial implication by way of extra
carrying cost. The company shout relook the management of stores & spares inventory.

(REFINARY)
(AFTER WRITE OFF)
Ghaziabad.
INVENTORY OF STORES AND SPARES (REFINARY)
(AFTER WRITE OFF)
Year Year end Yearly Inventory Nor Sort/E Extra

inv. Consumptio Holding m xcess carryin
n g cost
(15%)
Imported 33.37 7.98 50 17 {33} 3.29
06-07 Indigenous 25.92 26.61 12 14 2
Consumable 7.09 15.69 5 6 1
66.38 50.28 16
Imported 13.97 13.70 12 17 5
07-08 Indigenous 35.68 30.55 14 14 0
Consumable 7.06 14.11 6 6 0
56.71 58.36 12
Imported 16.87 13.10 15 17 2
08-09 Indigenous 40.26 27.23 18 14 {4} 1.36
Consumable 6.50 16.13 5 6 1
63.63 56.46 14
GRAPHICAL PRESENTATION:-
ANALYSIS:-
Inventory of stores & spares of refinery division is showing more or less the
same trend as the company as a whole. On analysis, it is seen the refinery division is more or
less maintain inventory of imported items & consumables as per norm except in the year 2006-
07. However, company is holding high inventories of indigenous material which has resulted
in to an additional carrying cost of Rs. 1.36 cr. in 2008-09.

(REFINARY)
(BEFORE WRITE OFF)
Ghaziabad.
INVENTORY OF STORES AND SPARES (REFINARY)
(BEFORE WRITE OFF)
Year Year end Yearly Inventory Norm Sort/Excess Extra
inv. Consumpti Holding carrying
on cost (15%)
06-07 91.34 50.28 22 17 {5} 3.14
07-08 104.57 58.36 22 17 {5} 3.64
08-09 117.26 56.46 25 17 {8} 5.64
ANALYSIS:-
The company has a policy of writing off 95% value of the inventory of the items which have
not moved for more than 5 years, since 1998-99. Refinery division has so far written off
37.65 corers of non-moving inventory.
Considering the write off, which is merely a book entry, the actual inventory of
refinery division as 31st march, 2009 stood as Rs. 63.63+37.65 = 101.28 corers. Accordingly,
considering the actual investment on inventory, the inventory holding stood at 25 months.
Even if we consider 15% carrying cost & 17 months consumption as a norm, the additional
financial implication due to higher inventory is Rs. 5.64 cr.
The inventory data clearly shows there is no effective inventory control system
exists in the company.
7) STATEMENT OF INVENTORY HOLDING OF LAST 5 YRS.

(REFINARY)
Rs. In Cr
INVENTORY HOLDING OF LAST 5 YRS.(REFINARY)
Years After written off Before written off % of write off
2004-2005 69.19 92.07 24.85
Ghaziabad.
2005-2006 67.60 92.16 26.64
2006-2007 66.38 91.34 27.32
2007-2008 68.08 104.57 34.89
2008-2009 63.63 117.26 45.7
Graphical presentation:
8) Age wise analysis of stores and spares inventory (ref. Div.)

YEAR END INVENTORIES(AGE WISE ANALYSIS)
Age No of items Inventories(cr.)
<1 5605 38.47
2>1 2180 10.51
3>2 1683 5.67
4>3 1373 5.32
5>4 805 1.93
>5 17836 1.73
ANALYSIS:-
Out of total 29482 active items, 17836 items, which is nearly 60% of total items has
already been declared as non-moving as per company’s policy and accordingly the value has
been reduced by 95%. About 805 items are more than 4 years old and less than 5 years old
amounting to Rs. 1.93 corers, which is going to be non move next year, which may call for
write off of 95% value. The age wise analysis also clearly shows that only 19% of total items
are consumed regularly, i.e., within one year.
SUGGESTI0N FOR BETTER INVENTORY MANAGEMENT:-
Inventory management of the company, in particular for stores &

spares, seems not to be very satisfactory. The procurement of stores & spares is
Ghaziabad.
on but consumption is not taking place and thereby the inventory is showing an
increasing trend resulting into high inventory carrying cost.
The suggestion for better inventory management is as follows:

1) The proprietary purchase should be reduced to minimum by developing new
vendors.
2) The equipments may be standardized.
3) A sense of proprietary concept may be inculcated across all level.
RATIO ANALYSIS
Meaning:
Nalco likes to use ratios in its financial analysis because of its close relationship
between two variables. A single ratio in itself shows nothing & does not indicate favorable or
unfavorable condition. It should be compared with some standard to make it meaningful.
OBJECTIVES OF RATIO ANALYSIS:-
1- To know whether the financial performance of Nalco is better

or worse than previous period.
2- To make comparison of similar industries lying in different parts of the country.
3- To provide information to the shareholders, investors, debenture holders, financial

institutions regarding return on equity, EPS price.
NATURE OF RATIO ANALYSIS:-

Ratio analysis is a technique of analysis and interpretation of financial statements. It
is the process of establishing and interpreting various ratios for helping in making certain
decisions. It involves four steps.
Ghaziabad.
i) Selection of relevant data from the financial statement depending upon the objective
of the analysis.
ii) Comparison of the calculated ratios with the ratios of the same firm in the past or the
ratios developed from projected financial statements or the ratios of some other firm
or the comparison with ratios of the industry to which the firm belongs.
iii) Interpretation of the ratios.
INTERPRETATION OF THE RATIOS:-

Interpretation of the ratios needs skill, intelligence and foresightedness
because of the change in price level, changes in accounting policies, window dressing etc.
The interpretation of the ratios can be made in the following ways.
(i) Single absolute ratios:- If single ratios is used one cannot draw any meaningful
conclusion.
(ii) Group ratios:- Group Ratios are more understandable and meaningful. For example,
the ratio of current assets to current liabilities may be supported by the ratio of liquid
liabilities to draw more accurate and specific conclusion.
(iii) Historical comparison:- These ratios are compared over a period of time, it gives
indication of the direction of changes and reflects whether the performance and
financial position of the Company has improved, deteriorated or remained constant
over a period of time.
(iv) Projected ratios:- It can be calculated for future for interpreting and taking corrective
action for improvement in future plans of investment decisions.
PRECAUTIONS FOR USE OF RATIOS :-
Following guidelines or may be kept in mind while interpreting various ratios:-
1) Accuracy of financial statements :- The ratio are calculated from the data available
in financial statements. The reliability of ratios is linked to the accuracy of
information in these statements. Before calculating ratios one should see whether
proper concepts and conventions have been used for preparing financial statements or
not.
2) Objectives of analysis :- The type of ratios to be calculated will depend upon the
purpose for which these are required. If the purpose is to study current financial
position then ratios relating to current assets and current liabilities will be studied.
The purpose of user is also important for the analysis of ratios. The purpose or object
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for which ratios are required to be studied should always be kept in mind for studying
various ratios.
3) Selection of ratios:- Another precaution in ratio analysis is the proper selection of

appropriate ratios. The ratio should match the purpose for which these are required.
Only those ratios should be selected which can throw proper light on the matter to be
discussed.
4) Use of Standard:- The ratios will give an indication of financial position only when
discussed with reference to certain standards. Unless otherwise these ratios are
compared with certain standards one will not be able to reach at conclusion. These
standards may be rule of thumbs as in case of current ratios and acid-test ratio.
5) Caliber of the Analyst:- The ratios are only the tools analysis and their interpretation
will depend upon caliber and competence of the analyst. He should be familiar with
various financial statements and the significance of changes, etc. A wrong
interpretation may create wave for the concern, since wrong conclusions may lead to
wrong decisions.
6) Ratios provide only a base:- The ratios are only guidelines for the analyst, he should
not base his decisions entirely on them. The interpreter should use the ratios as guide
and may try to solicit any other relevant information which helps in reaching a correct
decision, before reaching final conclusions.
USES AND SIGNIFICANCE OF RATIO ANALYSIS TO MANAGEMENT:-
1) Helps in decision making: Financial statements are prepared primarily for decision
making. But the information provided in financial statements is not an end in itself
and no meaningful conclusion can be drawn from these statements alone. Ratio
analysis helps in making decision from the information provided in these financial
statements.
2) Helps in financial forecasting and planning: Ratio analysis is of much help in

financial forecasting and planning. Planning is looking ahead and the ratio calculated
for a number of years work as a guide for the future. Meaningful conclusions can be
drawn for future from these ratios.
3) Helps in communication: The financial strength and weakness of a firm are

communicated in more easy and understandable manner by the use of ratios. The
information contained in the financial statements is conveyed in a meaningful manner
to the one for whom it is meant.
4) Helps in co-ordination: Ratio even help in co-ordination which is of utmost

importance in effective business management. Better communication of efficiency
and weakness of an enterprise results in better co-ordination in the enterprise.
Ghaziabad.
5) Helps in control: Ratio analysis even helps in making effective control of the
business. Standard ratios can be based upon Performa financial statements and
variance or deviation if any can be found out by comparing the actual with the
standard so as to take a corrective action at the right time.
6) Inter-firm comparison:- Ratios of one Company can be compared with the ratios of
some other selected Companies in the same industry at the same point of time. This
kind of comparison helps in evaluating relative financial position and performance of
the Company.
7) Other uses: There are so many other uses of the ratio analysis. It is an essential part
of budgetary control and standard costing. Ratios are immense importance in the
analysis and interpretation of financial statements as they bring the strength or
weakness of a firm.
LIMITATIONS OF RATIO ANALYSIS:-
1) Limited use of a single ratio: A single ratio usually does not convey much of a
sense. To make a better interpretation a number of ratios have to be calculated which
is likely to confuse the analyst than help him in making any meaningful conclusion.
2) Lack of adequate standard: There are no well acceptance standards or rules of

thumb for all ratios which can be accepted as norms. It renders interpretation of the ratio
difficult.
3) Inherent limitations of accounting: Like financial statements, ratios also suffer from
the inherent weaknesses of accounting records such as their historical nature. Ratios
of the past are not necessarily true indicators of the future.
4) Change of accounting procedures: Changes in accounting procedure by a firm

makes ratio analysis misleading, i.e. a change in the valuation of methods of
inventories from FIFO to LIFO increase the cost of sales and reduce considerably the
value of closing stocks which makes stock turnover ratio to be lucrative and an
unfavorable gross profit ratio.
5) Window dressing: Financial statements can easily be window dressed to present a

better picture of its financial and profitability position to outsiders. Hence, one has to
be very careful in making a decision for ratio calculation for such financial
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statements. But it may be very difficult for an outsider to know about the window
dressing made by a firm.
6) Personal bias: Ratios are means of financial analysis and not an end in itself. Ratios
have to be interpreted in different ways.
7) Un-comparable: Not only industries differ in their nature but also the firms of the
similar business widely differ in their size and accounting procedure etc. It makes
comparison of ratios difficult and misleading. Moreover comparisons are made
difficult due to difference in definition of various financial terms used in the ratio
analysis.
8) Absolute figure distortive: Ratios devoid of absolute figures may prove distortive as
ratio analysis is primarily a quantitative analysis and not a qualitative analysis.
9) Price level changes: While making ratio analysis, no consideration is made to the
changes in price levels and this makes the interpretation of ratios invalid.
10) Ratios no substitutes: Ratios analysis is merely a tool of financial statements. Hence
ratios become useless if separated from the statements from which they are computed.
CLASSIFICATION OF RATIOS :-
In view of the financial health on the requirement of various uses of

ratios, it can be classified into four categories:
A) Liquidity Ratios.
B) Leverage Ratios.
C) Activity Ratios.
D) Profitability Ratios.
Ghaziabad.
NALCO’S FIVE YEARS FINANCIAL PERFORMANCE AT A GLANCE:
Ghaziabad.
Sl. No. Particulars 04-05 05-06 06-07 07-08 08-09
A. Income Statement
1. Export 2200 2306 2586 2134 2071
2. Domestic Sales 2220 3018 3929 3340 3446
3. Gross Sales 4420 5324 6515 5474 551
4. Less: Excise duty 316 435 575 485 8
5. Net Sale 4104 4889 5940 4989 423
6. Other income: 5095
7. Operating 174 101 103 146
8. Non operating 77 132 311 441 96
9. Operating expenses 1965 2311 2412 2822 400
10. Operating profit 2313 2679 3631 2313 3431
11. Earnings before Interest, 2390 2811 3942 2754 1760
Depreciation, Taxes 2160
12. Interest & financing charges 61 2
13. Earning before dep. & taxes 2329 2811 3942 2752 4
14. Depreciation &Amortization 459 381 322 285 2156
15. Profit Before Taxes 1870 2430 3620 2467 229
16. Prov. For tax 635 868 1239 835 1927
17. Net profit 1235 1562 2381 1632 655
B. Balance Sheet 1272
18. Equity Capital 644 644 644 644
19. Reserves & Surplus 4054 5249 7051 8230 644
20. Net worth 4698 5893 7695 8874 9125
21. Loans outstanding 0.00 0.00 9769
22. Net fixed Assets 4139 3944 3711 3531
23. Net Current Assets 1005 2357 3755 3500 4032
24. Capital Employed 5144 6301 7466 7031 2596
Ratios 6628
C. 25. Operating profit margin 56.36 54.81 61.12 46.36
26. Net Profit margin 30.09 31.96 40.09 32.71 34.53
27. Return on cap. Employed 24.01 24.79 31.89 23.21 25
28. Return of net worth 26.29 26.51 30.95 18.39 19
29. Debt Equity 13
D. Others
30. Book value per share of 72.91 91.46 119.43 137.73
Rs.10 each 151.60
31. Earnings per share (in Rs.) 19.17 24.25 36.96 25.33
32. Dividend declared (%) 40 50 75 60 19.75
50
Ghaziabad.
A) LIQUIDITY RATIOS:
Liquidity ratio is one of the important tools of finance department of every
organization. Liquidity ratios measure the ability of the Company to meet its current
obligations i.e. ability to pay its obligations as and when they become due. In fact analysis of
liquidity needs the preparation of cash budgets , cash and funds flow statements .The failure
of a company to meet its obligations due to lack of sufficient liquidity will result in a poor
credit worthiness, loss of creditors worthiness, or even in legal tangles resulting in the closure
of the company. A very high degree of liquidity is also bad. Ideal assets earn nothing, so it is
necessary to strike a proper balance between high liquidity and lack of liquidity. The
liquidity ratios are classified into:-
1) Current Ratio.
2) Quick Ratio or Acid –Test Ratio
1) CURRENT RATIO:
The current ratio is calculated by dividing the total current assets by total current liabilities.
Current Assets
Current ratio =
Current Liabilities
Current ratio may be defined as the relationship between current assets and current
liabilities .This ratio also known as working capital ratio is a measure of general liquidity &
most widely used to make the analysis of a short-term financial position or liquidity position
of the firm.
Current assets include cash and those assets, which can be converted into cash within
a year such as marketable securities, debtors and inventories, bills receivable and prepaid
expenses. All obligations maturing within a year are included in current liabilities. Current
liabilities include creditors, Bills payable accrued expenses, short-term bank loans. Income –
tax liabilities and long-term debt maturing in the current year.
Ghaziabad.
CURRENT ASSETS CURRENT LIABILITIES
1) Cash in hand 1) Outstanding Expenses
2) Cash at Bank 2) Bills payable
3) Marketable Securities 3) Sundry creditors
4) Short term investments 4) Short term advances
5) Bills receivable 5) Income tax payable
6) Sundry Debtors 6) Dividends payable
7) Inventories 7) Bank overdraft
8) Work in process 8) Accrued expenses and
other obligations maturing in current year
9) Prepaid expenses and others which
Can be converted into Cash within a year
As a conventional rule a current ratio of 2:1 or more is considered to be satisfactory it

represents the margin of safety for creditors. An extremely high ratio of current asset to
current liability is an indication of slack management, poor credit management and excessive
inventories for the current requirement.
Ghaziabad.
The current ratios of NALCO from the year 2006-07to 2008-09 are as
follows:
2006-07 2007-08 2008-09
C. Asset 4974.08 5041.33 4528.81

C. liability 1218.61 1540.88 1933.24
C. Ratio 4.081 3.271 2.342
ANALYS
IS:- The current ratio in the year 2006-07 was 4.08 which got reduced to 3.27 in
2007-08 and 2.34 in 2008-09. The reduction in current ratio was mainly because of
ongoing expansion activities , the funding of which is made internally. Since the
current ratio is more than 2:1, company is liquid enough and can meet its short term liability
on maturity.
2) Acid Test or Quick Ratios: -

This ratio is calculated by dividing Total liquid assets by Total current liabilities.
Quick Assets
Quick Ratio = -------------------------
Current Liabilities
Acid test or quick ratio is a more rigorous test of liquidity than the current ratio. The
term ‘’Liquidity” refers to the ability of a firm to pay its short-term obligations as and
when they become due. Quick ratio may be defined as the relationship between quick
liquid assets and current or liquid liabilities. An asset is liquid if it can be converted
into cash immediately or reasonably soon without a loss of value. Cash in hand and
cash at bank are the most liquid assets. The other assets, which can be included in the
Ghaziabad.
liquid assets, are bills receivable, sundry debtors, marketable securities and short-term
or temporary investments.
Quick Assets are those assets which are converted into cash immediately for example
cash, debtors, bills receivables, and marketable securities.
Generally a quick ratio of 1:1 is considered satisfactory. Usually a high acid

test ratio is an indication that the company is liquid and has the ability to meet its
current liabilities in time and on the other hand, a low quick ratio represents that the
company’s liquidity position is not good. A company with a high value of quick ratio
can suffer from the shortage of funds if it has slow paying, doubtful and long duration
outstanding book debts (receivable) and it can really prospering with a low value of
quick ratio if it is realizing cash efficiently from inventories and paying its current
obligations in time.
Quick ratio of Nalco from the year 2006- 07 to 2008-09 are as

follows:-
Rs. corers
2006-07 2007-08 2008-09
Quick Asst 4974.08-634.96 5041.33-686.65 4528.81-841.90
C. liability 1218.61 1540.88 1933.24
Q. Ratio 3.56 2.82 1.9
Ghaziabad.
ANALYSIS:- The quick ratio in the year 2006-07 was 3.46 which was
reduced to 2.83 in 2007-08 and further reduced to 1.91 in 2008-09. The reducing trend of
ratio is mainly because of ongoing expansion activities. Since the company’s quick ratio is
more than 1:1, it clearly indicates that the company is liquid enough and can meet its short
term liability on maturity.
Ghaziabad.
B) LEVERAGE RATIO:
Leverage ratio judges the long-term financial position of the company. This ratio
indicates an ideal mix of debt and equity in financing the company’s assets or it shows the
proportion of Debt and Equity in financing of the firm. The funds which are provided by the
long-term creditors and the owners are to meet the short term as well as long-term
borrowings .and the repayment of fixed Interest costs.
The leverage ratios are classified into:-
(1) Debt-equity ratio

(2) Interest coverage ratio.
1) Debt-Equity Ratio:
Debt-equity is calculated by dividing Total debt by Total equity.
Total Debt
Debt -Equity Ratio = -------------------------
Total Equity
The debt equity ratio describes the lenders contributions for each rupee of the owner’s
contribution. A ratio of 1:1 may be usually considered satisfactory although the norm of such
ratio is 2:1. The higher the ratio the greater will be the risk to the creditors and too dependent
on long term debts by the firm. A lower ratio reviles a high margin of safety to the creditors
and a relatively high stake of the owners in the capital structures of the firm.
The Debt-Equity Ratio of Nalco from 2006-07 to 2008-09 is as follows:
Rs in corers 2006-07 2007-08 2008-09
Debt 1484.76 1925.74 2224.75

Equity 7695.22 8874.45 9769.81
D.E Ratio 0.19 0.21 0.22
ANALYSIS:-
NALCO is a very cash rich company and the only public sector company
having zero debt. The capital base of the company is 644.31 Cr against reserve and surplus of
Ghaziabad.
9125.50 cr. The idle debt equity ratio is 2:1. The company’s debt equity ratio is very low
which indicates, for long time the company has not gone for expansion activities and retained
the surplus profit as reserves & surplus. Also, the present expansion activities are done
through internal fund.
The company’s balance sheet is so strong that they can bargain loan at a much
cheaper rate. Therefore, it is advisable for the company to borrow for expansion activities at
lower cost of capital & invest the surplus fund at higher rate of interest. The borrowing will
also give income tax benefit to the company.
2) Interest coverage Ratio: - It is calculated by dividing EBIT by Interest.

EBIT
Interest coverage ratio = ---------------
Interest
Interest coverage ratio measure the debt servicing capacity of the firm in so far as fixed
interest on long-term loan is concerned. The interest- Coverage Ratio is calculated by diving
EBIT by Interest.
It shows the number of times the interest charges on long term loan are
covered by the fund that are ordinarily available for payment. The ratio is used to test the
firm’s debt servicing capacity. A higher interest coverage ratio is desirable but too may not
be good for the firm because it will affect the EPS of the firm. In contrast, a low ratio is a
danger signal that the firm is using excessive debt and does not have the ability to offer
assured payment of interest to the creditors From the point of view of the creditors, the larger
the coverage the larger the ability of the firm to handle fixed charge liabilities and more
assumed the payment of interest to the creditors. However too high a ratio may imply unused
debt capacity. However a low ratio is a danger signal to the firm.
The Interest- Coverage Ratio of NALCO from the year 2006-07 to 2008- 09
is as follows: -
2006-07 2007-08 2008-09

EBIT 3620.40 2466.59 1927.16
Interest 1.12 1.51 3.96
I.C Ratio 3232.5 1633.50 480.65
Ghaziabad.
ANALYSIS:- The interest coverage ratio has come down from 3232 in 2006-07 to 480 in
2008-09. Even though the interest coverage ratio has been calculated, it is meaningless to
read the ratio as the company has hardly any borrowings.
(C) ACTIVITY RATIOS :-
Activity Ratios measures the efficiency of effectiveness with which a firm manage
and utilizes its assets. Activity ratios thus involve a relationship between sales & assets.
These ratios are also called turnover ratios because they indicate the speed with which assets
are converted or turned over into sales.
The activity ratio is classified into:-
(1) Inventory turnover ratio

(2) Debtors turnover ratio
(3) Fixed assets turnover ratio
(4) Total assets turnover ratio
1) (A) Inventory Turnover Ratios:
The Inventory turnover ratio is calculated by diving cost of goods sold by average
inventory.
Cost of goods sold Sales –Gross Profit
Inventory Ratio = Average Inventory =
---------------
Average
Inventory
Every firm has to maintain certain level of inventory of finished goods so as to be able to
meet the requirement of the business. But the level of inventory should neither be too high
nor too low. Inventory Turnover ratio indicates the number of times the stock has been turned
over during the period and evaluates the efficiency with which a firm is able to manage its
inventory. This ratio measures how fast the inventory is moving through the company and
generating sales in a year. Generally a high Inventory turnover is an indicative of good
inventory management, where as a low Inventory turnover is a danger signal from company
point of view because it cannot meet customers demand in time of urgency. A high level of
sluggish inventory amounts to unnecessary tie up funds reduced profits and increased cost,
rental of space, possible deterioration of Inventories and so on.
Ghaziabad.
2006-07 2007=08 2008=09
Net sales 5940.19 4988.80 5094.52

Average 634.96 686.65+6 841.90+6
inventory 34.96 86.65
Inventory Ratio 9.35 7.54 6.66
The inventory Turnover Ratio of NALCO from the year 2006-07 to 2008-
09 is as follows:
ANALYSIS:- The inventory turnover ratio for 2006-07 was 9.35 which has reduced to
7.26 in 2007-08 and further reduced to 6.05 in 2008-09. The Inventory turnover ratio of the
company is too low which indicates high inventory holding of the company.
(b) Days of Inventory Holdings (DIH)

It is calculated by diving Days in a year by Inventory Turnover Ratio
Days in a year
DIH =
Inventory Turnover Ratio
Ghaziabad.
The Days of Inventory Holdings of NALCO from the year 2006-07 to
2008-09 are as follows:
2006-07 2007-08 2008-09
Days 365 365 365

Inventory Ratio 9.35 7.55 6.66
DIH 39 days 48 days 54 days
ANALYSIS:- The inventory holding days has gone up from 39 days in 2006-07 to 54 days
in 2008-09 which indicates high holding of inventory and consequential higher carrying cost.
2) (A) Debtors Turnover Ratio:

Debtor’s turnover ratio indicates the velocity of debt collection of firm. The liquidity
position of the firm depends on the quality of debtors to a great extent. Debtors turnover ratio
is one of the ratios which financial analysts apply to judge the quality or liquidity of debtors.
The debtor’s turnover ratio is calculated by dividing total sales by Total

Debtors.
Total sales
Debtor’s Turn over = ----------------
Debtors
This ratio indicates the number of times debtors are converted into sales during a year. The
higher the value of debtor’s turnover, the more efficient is the management of credit and a
Ghaziabad.
symbol of quick collection of cash from debtor’s. A low ratio reflects the payment by debtors
is being delayed.
Debtor turnover ratio from the 2006-07 to 2008-09
2006-07 2007-08 2008-09

sales 6514.51 5474.45 5517.52
Average debtor 34.13 60.65+34.13 60.65+26.50
2 2
DTR 191 116 126
ANALYSIS-
According to above chart we find out that company has failure in collection of cash from
debtor, which will be affected to company’s working capital. Company collcted more cash
(Rs.174 cr) from debtors in 2006-07. But it reduced to (Rs.105 cr) in 2007-08 and again it
increased to (Rs.117 cr) in 2008-09. This information intimates to us that company has
collected more cash in 2006-07 and after decreasing collection of cash in 2007-08, it again
little bit increased in collection of cash during 2008-09.
Average Collection Period (ACP)

It is calculated by diving Days in a year by Debtors turnover ratio.
Days in a year
ACP =
Debtors turnover Ratio
Average collection period from 2006-07 to 2008-09-
2006-07 2007-08 2008-09

Day in a year 360 360 360
DTR 191 116 126
Average collection 2 3 3
period
Ghaziabad.
ANALYSIS-
According to above chart we found that company collect cash from debtors in 2 days in
2006-07 and in 2007-08 &2008-09 company collected cash in 3 days. This intimates that in
2006-07 company has collected quick cash from debtor. The delay in collection of cash due
to bad debt. The company is in monopoly market and all the export sales are against letter of
credit which gets collected within 3 days. Similarly all domestic sales are either against sight
L.C or against 30 days usance L.C. The sales policy clearly shows the credit sales by the
company, is only to the extent of 30 days usance period in case of domestic sales, which is
negligible in comparison to total turnover.
3) Fixed Assets Turnover Ratio:
It is calculated by diving Days in a year by Debtors turnover ratio
Net sales
Fixed Asset Turnover Ratio =
Net fixed Assets
This ratio measures sales per rupee of investment in fixed assets. The
ability of a company is judged from the volume of sales generation from a given
amount of investment in fixed assets. This ratio measures the efficiency of sale
with which fixed assets are employed. A high ratio indicates a high degree of
efficiency of management in asset utilization and a low ratio reflects inefficient
use of assets .The concept of fixed assets is always net of depreciation.
The fixed assets turnover ratios of NALCO from the year

2006-07 to 2008-09 are as follows:
Rs in corers
2006-07 2007-08 2008-09
Net sales 5940.19 4988.80 5094.52
Ghaziabad.
Net fixed 3710.88 3530.95 4031.54
assets
Fixed Asset 1.60 1.41 1.26

ratio
ANALYSIS:- The fixed assets turnover ratio is consistently decreasing from 1.6 in 2006-
07 to 1.41 in 2008-09. The company’s assets are continuously increasing by taking up
expansion activities and corresponding sales is also keeping pace with increase in
assets.
Fixed asset turnover ratio in 2006-07 was 1.60 which has reduced to 1.41 in 2007-08 and
further reduced to 1.26 in 2008-09. The reduction in ratio is mainly due to lower realization
and increase in asset of the company due to expansion activities.
v) Total Assets Turnover Ratio:

The total assets turnover ratio is calculated by dividing Net sales by total
assets.
Net Sales
Total assets turnover ratio =
Total Assets
Ghaziabad.
The total assets turnover ratio is a significant ratio since it shows the firm’s ability of
generating sales from all the financial resources committed to the company. As this ratio
increases there is more revenue generated per rupee of total investment in assets.
The total assets turnover ratios of NALCO from the year 2006-07
to 2008-09 are as follows:
Rs in corers
2006-07 2007-08 2008-09
Net sales 5940.19 4988.80 5094.52

Assets 9526.57 10907.73 11428.47
Asset 0.62 0.45 0.44
turnover
ratio
ANALYSIS:-
The total asset turnover ratio in 2006-07 was 0.62 which has reduced to 0.45 in 2007-08 and
further reduced to 0.44 in 2008-09. The reduction in ratio is mainly due to lower realization
and increase in asset of the company due to expansion activities.
(D) PROFITABILITY RATIOS:
The primary objective of a business undertaking is to earn profit. In the words of

Lord Keynes:’ Profit is the engine that drives the business enterprise’.A business needs
profits not only for its existence but also for expansion and diversification. Therefore the
financial manager should continuously evaluate the efficiency of the company in terms of
profits. The profitability ratios are calculated to measure the operating efficiencies of the
Ghaziabad.
company. Besides management, the company, creditors and owners are also interested in
the profitability of the firm.
Profitability ratios are classified into:

1) Gross Profit Ratio.
2) Net Profit Margin.
3) Operating Profit Margin (OPM).
4) Return on Capital Employed (ROCE).
5) Return on Net worth (RONW).
1) Gross Profit ratio:-
This ratio is calculated by dividing gross profit by net sales. :

Gross Profit
Net Sales
The ratio establishes relationship of gross profit with sales to measure the operating
efficiency of the company. This ratio reflects company’s pricing policy. It reflects the
efficiency with which management produces each unit of product. A high gross profit
margin ratio is a sign of good management and it implies the company’s ability to
produce at a relatively lower cost. A low ratio reflects higher cost of goods sold due to
the company’s inability to purchase raw material at favorable terms, inefficient
utilization or over investment in plant and machinery.
2) Net Profit turnover ratios

This ratio is calculated by dividing Profit after Tax by net sales
PAT
Net Profit Ratio = ---------------------
Sales
Ghaziabad.
This ratio measures the company’s ability to turn each rupee of sale into net profit. If the net
margin is inadequate the company will fail to achieve satisfactory returns on shareholders
fund. A high net margin ratio ensures adequate return to shareholders and it remains in an
advantageous position to survive in the face of falling sells prices, rising costs of productions
or declining demand.
The Net Profit turnover ratios of NALCO from the year 2006-07
to 2008-09 are as follows:
2006-07 2007-08 2008-09
PAT 2381.38 1631.52 1272.27

Net sales 5940.19 4988.80 5094.52
Net profit 40% 33% 25%

ratio
ANALYSIS:- NALCO is one of the lowest cost producer of alumina and aluminum in Asia.
The net profit margin in 2006-07 was 40% which has reduced to 33% in 2007-08 and 25% in
2008-09. The net profit ratio has come down due to lower realization. Even though, the net
profit ratio showing a decreasing trend. It is showing a phenomenal net profit ratio of 25%.
3) Operating Profit Ratio
This ratio is calculated by dividing Operating Profit by net sales
Operating profit
Operating Profit Ratio = -----------------------
Net Sales
Operating profit = Net sales – Indirect Expenses
This ratio measures the relationship between Operating profits and Sales. Operating profit
expresses the amount of operating profit for each rupee of sale. A high Operating Profit Ratio
is a good simple of sound management and a low ratio indicates a deficiency of management.
Ghaziabad.
The Operating Profit turnover ratios of NALCO from the year 2006-07 to
Rs in corers
2006-07 2007-08 2008-09
Operating profit 3597.78 2250.71 1663.22

Net sales 5940.19 4988.80 5094.52
Operating profit 60% 45% 33%
ratio
ANALYSIS:-NALCO is one of the lowest cost producer of alumina and aluminum in

Asia. The operating profit margin in 2006-07 was 60% which has reduced to 45% in 2007-08
and 33% in 2008-09. The operating profit ratio has come down due to lower realization. Even
though, the operating profit ratio is showing a decreasing trend, it is showing a phenomenal
operating profit ratio of 33%. The operating ratio in recent past has come down because of
higher cost due to implementation of pay revision and increase in input cost of power & fuel.
4) Return on Capital Employed (ROCE)
This ratio is calculated by dividing Net Profit by Capital Employed.
Net Profit
Return on Capital Employed ratios = ----------------
Capital Employed
It establishes a relationship between Net Profit and Capital employed. This ratio
shows how well the resources of a company are being used efficiently by the management. It
measures the overall performance of the Company. The higher the ratio the more efficiently
the funds are used and better is the management and a low ratio indicates the in efficiency of
management.
Ghaziabad.
The Return on Capital Employed ratios of NALCO from the year 2006-07
to 2008-09 is as follows:
2006-07 2007-08 2008-09
Net profit 2381.38 1631.52 1272.27

Capital employed 8307.96 9366.85 9495.23
Return on capital 28.66% 17.41% 13.40%

employed ratio
ANALYSIS:- Aluminum industry is basically cyclical in nature. The prices were peaked
during 2006-07 and showing downward trend since 2007-08. The return on capital employed
in 2006-07 was 32% which has reduced to 23% in 2007-08 & 19% in 2008-09. Even 19%
Return on capital employed is very good in context of aluminum industry which clearly
indicates the company is doing exceedingly well.
Return on Net Worth (RONW)
This ratio is calculated by dividing Net Profit (after Tax) by Net

Worth.
Return on Net Worth (RONW) = Net Profit

Net Worth
This ratio shows the relationship between Net profit and funds provided by the owner.
It measures how well firm has used the resources of the owner and also it reviles whether the
firm has a reasonable profit to its equity shareholders or not. The Shareholders equity or net
worth includes paid up share capital, share premium, reserves and surplus less accumulated
losses. It can also be found out by subtracting total liabilities from total asset. The higher the
Ghaziabad.
ratio the greater will be the return to the owner and vice versa. This ratio is of great interest to
the prospective share holders and to the management because it reveals the relative
performance and the strength of the company in attracting future investment for its
expansion.
The Return on Net Worth ratios of NALCO from the year 2006-07 to
2006-07 2007-08 2008-09
Net 2381.38 1272.27

profit 1631.52
7695.22 8874.45 9769.81
Net
worth
RONW 31% 18% 13%
ANALYSIS:- Aluminum industry is basically cyclical in nature. The prices were peaked
during 2006-07 and showing downward trend since 2007-08. The return on capital employed
in 2006-07 was 31% which has reduced to 18% in 2007-08 & 13% in 2008-09. Even 13%
Return on capital employed is very good in context of aluminum industry which clearly
indicates the company is doing exceedingly well.
WORKING CAPITAL TURNOVER RATIO:-
NET SALES
Working Capital Turnover Ratio = ---------------------
NET WORKING CAPITAL
Ghaziabad.
Net working capital = Current Asset – Current Liability
The working capital turnover ratios of NALCO from the year 2006-07 to
2006-07 2007-08 2008-09
Net sales 5940.19 4988.88 5094.52

Net working 3755.47 3500.45 2595.57
capital
Working capital 1.58 1.42 1.96

turnover ratio
ANALYSIS:- The company has sanctioned working capital loan of Rs. 100 cr but the
company is not utilizing the limit due to excessive cash surplus. It would always be better for
the company to opt for working capital loan instead of using own fund for better financial
management. The working capital turnover ratio in 2008-09 has gone up from 1.42 in 2007-
08 to 1.96 in 2008-09 due to very high cash and bank balance as on 31st march, 2009.
EARNING PER SHARE:-
Net profit after tax - preference dividend

Earnings per share = -----------------------------------------------
No of Equity Shares
Ghaziabad.
Issued, subscribed & paid up capital
No. of equity shares = -----------------------------------------------
Face value of shares
Ghaziabad.
The Earning per share of NALCO from the year 2006-07 to 2008-09 are as
follows:
2006-07 2007-08 2008-09
Net profit after tax 2381.38 1272.27

1631.52
Eqity share 644.31 644.31 644.31
EARNING PER 36.96% 25.32% 19.75%

SHARE
ANALYSIS:- The Earning per share in 2006-07 was Rs.36.96 which has come down to
Rs. 19.75 in 2008-09. The reason of fall in Earning per share is mainly due to fall in profit
because of downward in alumina & aluminum prices.
Meaning of Cash Flow Statement

Cash Flow Statement is a statement which describes the inflows
(sources) and outflows (uses) of cash and cash equivalents in an enterprise
Ghaziabad.
during a specified period of time. Such a statement enumerates net effects of the
various business transaction on cash and its equivalents and takes into account
receipts and disbursements of cash. A cash flow statement summarizes the
cause of changes in cash position of a business enterprise between dates of two
balance sheets. According to AS-3 (Revised), an enterprise should prepare a
cash flow statement and should present it for each period for which financial
statements are prepared. The terms cash, cash equivalents and cash flows are
used in this statement in the following meanings:-
Cash:- comprises cash on hand and demand deposits with banks.
Cash equivalents:- are short term, highly liquid investment that are
readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value. Cash equivalents are held for the purpose
of meeting short-term cash commitments rather than for investment or other
purposes. For an investment to qualify as cash equivalent, it must be readily
convertible to a known amount of cash and be subject to an insignificant risk of
change in value. Therefore an investment normally qualifies as a cash
equivalent only when it has a short-maturity, of say, three months or less from
the date of acquisition. Investments in shares are excluded from cash
equivalents unless they are, in substance, cash equivalents: for example,
preference shares of a company acquired shortly before their specified
redemption date (provided there is only an significant risk of failure of the
company to repay the amount at maturity).
Cash Flows:- are inflows of cash and cash equivalents. Flow of cash is said to
have taken place when any transaction makes changes in the amount of cash
and cash equivalents available before happening of the transaction. If the effect
of transaction results in the increase of cash and its equivalents, it is called an
inflow (source) and if it results in the decrease of total cash, it is known as
outflow (use) of cash.
Cash Flow Statement of, "NALCO" for the year ending 31st march
2007,2008,2009
Ghaziabad.
Year ended Year ended Year ended
31st 31st 31st
march,2007 march,2008 march,2009
(A) Cash flow from Operating Activities
Net Profit before tax and Extraordinary Income 3620.40 2466.58 1927.16
Adjustment for:
Depreciation 321.15 285.44 272.96
Interest & financing charges 1.12 1.54 3.96
Provision(net) 8.18 8.44 55.10
Claims/recoverable written off 1.38 0.58 0.14
Stores & spares 3.90 18.90 6.72
Exchange variation gain -1.18 -6.31
Loss/profit on sale of asset(net) -0.98 0.11 -0.04
Operating profit before working capital changes 3955.15 2780.41 2259.69

Adjustment for:
Inventories -49.09 -67.94 -163.47
Trade & other receivables -116.24 -177.68 65.09
Trade payables 206.98 275.61 459.13
Cash generated from operation 3996.80 2810.40 2620.44

Direct taxes paid -1273.18 -908.49 -682.22
Cash flow before extra ordinary items 2723.62 1901.91 1938.22

Extra ordinary items
Net cast from operating activities 2723.62 1901.91 1938.22
(B)Cash flow from investing activities:

Purchases of fixed assets -642.92 -1544.13 -2211.08
Dividend income from mutual fund 0.98 13.10
Net cash used in investing activities -641.94 -1544.13 -2197.98
(C)Cash flow from financing activities:

Interest & financing charges -1.12 -1.54 -3.96
Exchange variation gain 1.35 -6.79
Dividend including dividend tax paid -587.74 -527.66 -376.91
(D)Net changes in cash & cash 1492.82 -170.07 -647.42

equivalent(A+B+C)
(E)cash & cash equivalents-opening balance 2193.71 3686.53 3516.46
Ghaziabad.
(F)Cash & cash equivalents-closing balance 3686.53 3516.46 2869.04
CONCLUSION
PRODUCTION
The company has exceeded the target set for production of Alumina &
Aluminium for the year 2008-09. The Aluminium smelter have achieved the
highest ever cast metal production since section with capacity utilization of
106%. The bauxite production has improved compared to previous year though
still below the rated capacity.
MARKETING
The company has achieved the highest ever sale of metal, rolled products &
special grade Alumina/hydrate during the year. The company is already listed in
London Metal Exchange. The domestic sales of metal are affected from the
smelter plant at Angul and 9 stockyards at Kolkata, Baddy, Jeypore,
Fariddabad, Biswandi, Silwasa, Banagalore, Chennai & Bishakhapatnam.
FINANCE
The company has achieved a turnover of Rs. 5517 cr. As against the turnover of
Rs. 5474 cr. During the previous year profit after tax stands at Rs. 1272 cr. as
against 1632 cr. in the previous year. The decline in the sales realization and net
profit during the year, compared to previous year is mainly due to lower sales
realization from export of metal which has partly compensated by substantial
depreciation of Rupee against US dollars. The company has achieved an export
earnings of 2071 cr. as against 2135 cr. achieved during the previous year. The
Ghaziabad.
Earning per share has come down from Rs. 25.32 last year to 19.75 in current
year.
DIVIDEND AND APPROPRIATIONS
As per company’s philosophy that growth in shareholders values lies in capacity

expansion and backward & forward integration. Keeping this in view and in
accordance with company’s policy of balancing dividend payout with the
requirement to deploy internal accruals for its growth plan, the company has
recommended a dividend of 50% during the year as against 60% during the
previous year.
GROWTH PLANS
The company is going on with second phase expansion program at an estimated
cost of Rs. 5003 cr. from internal accruals only. The annual capacities of the
various project segments after second phase expansion are given below.
Project segment Unit present capacity Capacity after second

phase expansion
Bauxite, Mines MT 4800000 6300000
Alumina, Refinery MT 1575000 2100000
Aluminum, Smelter MT 345000 460000
Captive power plant MT 960 1200
FOREIGN EXCHANGE EARNING AND OUTPUT
Foreign exchange earnings of the company for the year are Rs. 2097cr. in
previous year. Foreign exchange output of the company for this year is 618 cr.
as against 702 cr. in the previous year.
Ghaziabad.
Ghaziabad.
PROFIT AND LOSS ACCOUNT OF NALCO FOR THE YEAR ENDED 31ST MARCH
2007,2008,2009
PARTICULARS 2006-07 2007-08 2008-09
INCOME:
Gross sales 6514.51 5474.45 5517.52
Less: excise duty 547.32 485.65 423.00
Net sales 5940.19 4988.65 5094.52
Finished goods internally consumed/capitalized 12.35 31.65 26.44
Other income 401.65 554.77 495.84
TOTAL 6354.19 5575.22 5616.80
EXPENDITURE
Decretion/accretion to stock of finished/intermediary -15.13 -21.85 -85.35
products/work in progress
Raw materials 557.59 574.36 696.76
Power & fuel 851.02 994.69 1311.55
Repair & maintenance 230.34 231.54 250.52
Other manufacturing expenses 152.66 163.82 174.98
Employees remuneration & benefits 392.88 552.97 771.06
Administrative expenses 85.37 106.74 103.33
Other expenses 72.55 113.97 123.10
Selling & distribution expenses 76.98 84.74 84.33
Interest & financing charges 1.12 1.51 3.96
Provisions 5.25 -0.35 -3.23
Depreciations 317.13 281.10 272.44
TOTAL 2727.76 3083.24 3703.45
PROFIT FOR THE YEAR 3626.43 2491.98 1913.35

Add/less : prior period adjustment(net) -6.03 -25.39 13.81
PROFIT BEFORE TAX 3620.40 2466.59 1927.16

Less : provision for taxation
Current 1248.97 849.80 634.92
fringe benefits 7.03 10.64 10.87
Deferred -17.30 -5.31 13.91
Earlier years 0.32 -20.06 4.81
PROFIT AFTER TAX 2381.38 1631.52 1272.27

Balance brought forward from previous year 10.49 36.12 15.39
Transfer from capital reserve 0.04 0.04 0.04
Transfer from general reserve 23.04
Provision for differential actuarial liability -23.04
Amount available for appropriation 2391.91 1667.68 1287.70
APPROPRIATIONS
Interim dividend 322.15 289.94 225.51
Proposed final dividend 161.08 96.65 96.65
Ghaziabad.
SIGNIFICANT ACCOUNTING POLICIES
1.1 Basis of Accounting:
The financial statements are prepared under historical cost convention on

accrual basis of accounting, in accordance with the generally accepted
accounting principles, accounting standards issued by the Institute of Chartered
Accountants of India, and the relevant provisions of the Companies Act, 1956.
1.2 Use of Estimates:
In preparing the financial statements in conformity with accounting principles

generally accepted in India, the company makes estimates and assumptions that
affect the reported amount of assets and liabilities and the disclosure of
contingent liabilities as the date of financial statements and the amount of
expenses during the reported period. Actual result in some cases could differ
from those estimates. Any revision of such estimates is recognized in the period
in which the same is determined.
1.3 Fixed Assets :
Ghaziabad.
1.3.1 All fixed assets are stated at historical cost less depreciation. Cost
includes all direct expenditure of acquisition, attributable borrowing cost and
net of Cenvat credit, wherever applicable.
1.3.2 Expenditure on development of land including leasehold land are

capitalized as part of cost of land. Expenditure of capital nature incurred on
assets on land not owned by the company is capitalized under appropriate asset
head.
1.3.3 Fixed assets acquired out of financial grant from Government are shown
at cost by crediting the grant-in-aid received to Capital Reserve. Equivalent
amount of depreciation provided on such assets each year is transferred from
Capital Reserve to Profit & Loss Account.
1.3.4 Insurance spares valuing more that Rs. 1 Lakh per unit are capitalized
with the related fixed assets.
1.3.5 Application Software package like ERP and application development

tools like RDBMS acquired from outside agencies for internal use are treated as
intangible assets and amortized over a period of three years or the period of
license whichever is earlier.
1.3.6 Fixed assets retired from active use and held for disposal are stated at
lower of net book value and estimated net realizable value.
1.4 Investments:
Long-term investments are carried at cost, after providing for diminution in

value, if it is of a permanent nature. Current investments are carried at lower of
cost and market value.
Ghaziabad.
1.5 Inventories:
1.5.1 Raw materials, stores and spares are valued at monthly weighted average cost
net of cenvat credit wherever applicable. Shortage of coal up to 1% is treated as
abnormal loss.
1.5.2 Work in process is valued at lower of cost and net realizable value. Cost is
ascertained on the basis of annual average cost of material, appropriate share of
labour and related overheads.
1.5.3 Finished goods are valued at lower of cost and net realizable value Cost is
determined on the basis of material cost plus appropriate share of labour, related
overheads and duties.
1.5.4 Intermediary products viz. Anodes are valued at cost, anode butts and anode
rejects are valued at lower of realizable value or 45% of direct material cost.
1.5.5 Scrap of various nature is valued at estimated net realizable value.
1.5.6 Inventory stores and spares, other than insurance spares identified as not
moved for more that 5 years is valued at 5% of the cost.
1.6 Provisions
A provision is recognized when there is present obligation as a result of a past

event, it is probable that an out flow of resources will be required to settle the
obligation and in respect of which reliable estimate can be made. The reviewed
at each year end date and adjusted to reflect the best current estimate.
1.7 Foreign Currency Transaction
Ghaziabad.
1.7.1 Monetary assets and liabilities related to foreign currency transactions
remaining unsettled are translated at year-end rates.
1.7.2 The difference in translation of monetary assets and liabilities and

realized gains and losses in foreign exchange transactions are recognized in the
profit and loss account. In respect of transactions covered by forward exchange
contracts, the difference between the contract rate and spot rate on the date of
transaction is recognized in the profit and loss account over the period of the
contract.
1.8 Depreciation and Amortization
1.8.1 Depreciation on fixed assets is provided on straight-line method at the

rates and manner prescribed under Schedule XIV of the Companies Act 1956
except in case of certain assets where depreciation at higher rates is provided
based on their estimated remaining useful life, evaluated on the basis of
technical estimate made annually:-
Earth work portion of :

a) Red mud pond at Alumina Refinery
b) Ash pond at Alumina Refinery
c) Ash ponds at Captive Power Plant
1.1.1 Certain Assets at Port Facilities are depreciated at rates calculated on the
basis of balance lease period of land belonging to the Port Authority on which
these assets are installed
1.1.2 Assets costing Rs.5000/- of less individually are depreciated fully in the
year in which they are put on use.
Ghaziabad.
1.1.3 Assets on land not owned by the Company are depreciated over a period
of five years.
1.1.4 Cost of leasehold land including development expenses thereon is

amortized over the period of lease. However, where lease agreement is yet to be
signed, such expenses are amortized over a period of 20 years commencing
from the year of commercial operation.
1.1.5 Classification of plant and machinery into continuous and non-

continuous is made on the basis of technical opinion and depreciation provided
accordingly.
1.2 Prior Period Income/Expenditure & Pre-Paid Expenses:
Income / Expenditure relating to prior period and pre-paid expenses not

exceeding Rs. 1 lakh in each case is treated as income / expenditure of current
year.
1.3 Recognition of Revenue:
1.3.1 Sales include excise duty and are net of rebates and price concessions.
Sales in the domestic market are recognized at the time of dispatch of materials
to the buyers. Export sales are recognized on issue of bill of lading.
1.3.2 Claims and interest receivables are accounted for in the Profit and Loss
Account based on certainty of their realization.
1.3.3 Export incentives in the form of duty credit on exports made during the
year, under Duty Entitlement Pass Book (DEPB) scheme are accounted for on
accrual basis after providing for expected shortfall in realization based on last
sale.
Ghaziabad.
1.4 Repairs and Replacements.
Port relining expenses are charged to Profit & Loss Account as and when
incurred
1.5 Employee Benefits :
1.5.1 Contribution to Provident Fund, a defined contribution scheme, is

charged to Profit & Loss Account on the basis of actual liability.
1.5.2 Liabilities towards Gratuity, leave encashment, port retirement medical

facilities, retirement benefits, leave travel benefits, family rehabilitation
scheme, long service reward and provided for on the basis of actuarial
valuation.
1.6 Research & Development Expenditure :
Research expenditure is charged to Profit & Loss Account in the year in which
incurred. Development expenditure except of capital nature is charged to Profit
& Loss Account in the year incurred after setting off of incidental income, if
any.
1.7 Borrowing Cost :
Borrowing costs attributable to the acquisition or construction of a qualifying

asset are capitalized as part of the cost of that asset. Other borrowing costs are
recognized as expenses in the period in which these are incurred.
1.8 Deferred Taxation:
Deferred Tax expense or benefit is recognized on timing difference being the

difference between taxable incomes and accounting income that originate in one
period and are capable of reversal in one or more subsequent periods. Deferred
Ghaziabad.
tax assets and liabilities are measured using the tax rates and tax laws that have
been enacted or substantively enacted by the Balance Sheet date.
BIBLIOGRAPHY
AUTHOR NAME OF THE BOOK PUBLISHER&PLACE

OF PUBLICATION
1. Chandra. Prasanna Financial Management Tata Mc GrawHill,

New Delhi
2. L.M.Pandey Financial Management Vikash

New Delhi
Ghaziabad.
3 S.C Kuchhal Corporation Finance Chaitanya
New Delhi
4. M.Y.Khan Indian Financial System Tata Mc GrawHill,

New Delhi
5. ICWA Advanced Financial Das Printers,

Management Kolkata.
6. THROUGH THE INTERNET LIKE (WWW.GOOGLE.COM)
(WWW.NALCO.CO.IN)
7. ANNUAL MAGAZINE OF NALCO “ PARICHAYA ”
Ghaziabad.
Ghaziabad.

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SUMMER INTERNSHIP

NATIONAL ALUMINIUM CO. LTD.

FACULTY GUIDE INDUSTRY GUIDE

PREPARED AND SUBMITEBY

CHITTA RANJAN BEHERA

A study on financial health of NALCO by adopting

Post graduation diploma in management

TO WHOMSOEVER IT MAY CONCERN

This is to certify that CHITTA RANJAN BEHERA S/o KAILASH

for SHIVA INSTITUTE OF MANAGEMENT STUDIES

CERTIFICATE FROM THE ORGANISATION

This is to certify that Chitta Ranjan Behera Enrollment No:

The project work entitled “Project Title” embodies the

SEAL OF THE ORGANIZATION

(A Government of India Enterprise)

This is to certify that Mr. CHITTA RANJAN BEHERA, a bonafide

I wish him all success in life.

I hereby declare that the project study entitled

“A study on Financial Health of NALCO by adopting

different financial techniques” is submitted to SIMS. It is an

original work done by me and to the best of my knowledge and

belief, it has not been published earlier elsewhere or presented

or other similar title.

(CHITTA RANJAN BEHERA)

thank other staff Mr. T K Pani for their stimulating support.

I am deeply indebted to my faculty guide Prof. V K Goyal, whose constant help,

to complete this project work.

Nalco, damonjodi Chitta Ranjan Behera

Management. The study and analysis of Segment analysis, cash flow

statement, ratio analysis, budgeting and inventory control gives a true

investors, share holders, Bankers and creditors.

The project work is based on the study undertaken by me at

Refinery Division of Nalco. The project work is divided into various

sections and each section deals with different aspects of financial

health analysis like profitability, earning per share, dividend, foreign

exchange earnings and repayment capacity.

CONTENTS PAGE NO.

CHAPTER – 1 INTRODUCTION 11-14

CHAPTER – 2 NALCO PROFILE 15-24

CHAPTER - 3 INVENTORY CONTROL 25-36

CHAPTER – 4 RATIO ANALYSES 37-70

CHAPTER - 5 CASH FLOW STATEMENTS 71-72

CHAPTER - 6 CONCLUSION & SUGGETION 73-74

ENCLOSURES: PROFIT & LOSS ACCOUNT 75

ACCOUNTING POLICIES 77-82

We cannot imagine a business without finance. Finance is the life blood of

It is the responsibility of top Management to safeguard and protect the

OBJECTIVES OF THE STUDY

The objectives can be divided into two parts.

i) To get true & fair view of financial health of Nalco.

ii) To assess the strength and stability of Nalco.

iii) To assess Nalco’s capacity to pay its short term payments.

iv) To assess the operational efficiency and profitability of Nalco.

v) To assess the future prospect of Nalco based on current and past

i) For owners and investors:

ii) For Bankers and money lenders:

The financial statements are major sources of financial information of an

METHODOLOGY: For Analysis and study on financial health of Nalco,

1) Annual Report of NALCO.

2) Annual Audited Accounts.

4) Profit and Loss Account

5) Monthly in house Magazine “Parichaya”

TOOLS & TECHNIQUES USED: