CHAPTER-I

RESEARCH DESIGN

1.1. INTRODUCTION:

The importance of financial management practices have excelled in every area

of business. The success of any business is largely depends on its effective
financial management practices which starts with the procurement of funds and
ends with effective utilization of funds. Therefore, continuous financial analysis
of financial position and results is required to take corrective measures to meet
the short-term and long-term requirements adequately.
Financial statements are the sources for financial information, based on which
the financial planning and decision making is done. The Profit and loss A/c
provides data about the operating activities whereas balance sheet provides the
value of acquired assets and liabilities of the concern at a particular point of
time. The absolute figures reported in the financial statements do not serve the
purpose of measuring the financial health of the company. Hence, the financial
analyst has to analyze the financial data in order to ascertain the strength and
weaknesses of the company.
Financial analysis is a process of evaluating the relationship between
component parts of financial statements to obtain a better understanding of the
company’s position and performance. A short-term creditor will be interested in
the current financial position of a company while a long-term creditor will pay
more attention to the solvency of the company. The long-term creditor will also
be interested in the profitability of the company. The equity shareholders are
generally concerned with their return. Analysis of a company is done not only
when it is facing problems, but also when the evaluation of its performance is
concerned or when thecompany is in good health, but improvement is
considered. Despite, the financial analyst had many analytical tools; Ratio
Analysis is most powerful tool to ascertain the financial health of the company.

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Alone a single ratio does not serve the purpose. Therefore, it is necessary to
combine the different ratios into a single measure of the probability of sickness
or failure. Financial soundness of a firm is reflected through various financial
parameters, which are closely associated with each other. A general belief is that
a firm’s financial performance depends on certain key financial factors i.e.-
turnover, profit and the variables which are found in the balance sheet of a firm,
have a direct and indirect relation with each other. By establishing a close
relationship between the variables, a firm can analyze its financial performance
in terms of liquidity, profitability and viability. In order to measure the
performance, ratios, the indicators, are normally used to identify the financial
health of the firm. As far as ratios are concerned, there are more than 40
different types of ratios are available to analyze and predict the financial
soundness of a firm. Since single ratio does not convey much of the sense,
Altman combined a number of accounting ratios to form an index of
profitability, which is regarded as an effective indication of corporate
performance in predicting financial soundness of a firm. By keeping this in
view the study has made an attempt to comparative analysis and predict the
financial health by way of applying Altman’s Z – Score in the selected steel
company TATA steel and JSW. Hence the present study makes an analysis of
key financial ratios using Altman’s Z score technique to predict the company
financial position and the risk of its bankruptcy.

1.2. IMPORTANCE OF THE STUDY:

The importance of this study is vital because it helps to broaden new view
of the financial performance of the company. Furthermore, it can benefit the
company by comparing their products, services and sales with other
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manufactures, with these they are able to improve their quality and attract
investors.

1.3. STATEMENT OF THE PROBLEM:

Steel industry represents an integral part of Indian economy. Since the industry
faces ups and downs over the period of time, the companies in the industry have
reported reduction in profit and in some rare cases even loss. As and when the
industry is caught in a vicious down cycle, the firms have rendered operations
unviable and they face threats to their viability and sustainability so that the
study is taken to establish a relevance to the present day problem.

1.4. OBJECTIVES OF THE STUDY

The objectives of this research are:

 To analyze and compare financial position of TATA steel
 To understand current financial health of TATA STEEL.
 To Predict the Bankruptcy.
 To offer suggestions to improve the financial health conditions.
1.5 .RESEARCH METHODOLOGY

Descriptive research is used in this study because it will ensure the

minimization of bias and maximization of reliability of data collected. The
research had to use fact and information through financial statements of earlier
years and analyze to make critical evaluation of the available materials.

1.6. DATA COLLECTION

The present study is envisaged to be predominantly empirical in nature

and based on secondary data. The relevant data are collected from secondary
sources like audited balance sheets and profit and loss account, annual reports
of TATA STEEL LIMITED, economic survey and annual survey of Industries.

1.6.1 PERIOD OF STUDY

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 The study covers a period from 2009 – 2014.

1.6.2 .METHODS OF DATA ANALYSIS

The data are collected, classified and tabulated for analysis. The analysis
tools used in this study are:

COMPARATIVE STATEMENT:

The comparative financial statements are statements of the financial position

at different periods of time.

COMMOM SIZE STATEMENT:

Common size statements are those in which figures are converted into
Percentages to some common base.

TREND PERCENTAGE:

These are very much helpful in making a comparative study of the

financial statements for several years.

RATIO ANALYSIS:

Ratio analysis is a technique of analysis and interpretation of financial

statements.

ALTMAN’S Z-Score analysis:

The study has been made converting the collected data in to relative measures
such as different ratios to study the financial health of the companies and also
statistical tool such as mean and standard deviation re also applied to analyze
the consistency, stability and overall trends in the different ratios used in
Altman‘s Z –score approach. For the purpose of analysis, the researcher have

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used Altman‘s Z-score to predict, analyze and compare the financial health of
the companies. The specific variable used is explained in.

1.7. LIMITATIONS OF STUDY

The study has certain limitations:

 Due to the limited time available at the disposable of the researches the
study has been confined for a period of 5 years (2009 – 2014).

 The study is completely relied on secondary source of data.

 The study of financial performance can be only a means to know about

the financial condition of the company and cannot show a thorough
picture of the activities of the company.

1.8. CHAPTER SCHEME

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 In order to present the whole information in a systematic way and for
better understanding of the study, this report has been presented in the following
five chapters:

CHAPTER 1 : RESEARCH DESIGN

CHAPTER 2 : REVIEW OF RELATED LITERATURE
CHAPTER 3 : INDUSTRY PROFILE
CHAPTER 4 : THEORITICAL VIEW OF FINANCIAL
PERFORMANCE ANALYSIS
CHAPTER 5 : ANALYSIS AND INTERPRETATION OF DATA
CHAPTER 6 : FINDINGS, SUGGESTIONS AND CONCLUSION.