Internship Report
Internship Report
Internship Report
ON
“ANALYSIS OF FINANCIAL WORKING OF
SECL”
I would like to gratefully acknowledge the contribution of all the people who took active part
and provided valuable support to me during the course of this project. To begin with, I would
like to offer my sincere thanks to P.C. Saini Sir, for giving me the opportunity to do my summer
training at SECL. Without his guidance, support and valuable suggestions during the research,
the project would not have been accomplished.
My heartfelt gratitude also goes to the entire Finance Department of the company for their
co-operation and willingness to answer all my queries and provide valuable assistance.
I also sincerely thank Dr. L. Ramani Sir, my faculty mentor at BIMTECH, who provided valuable
suggestions, shared his rich corporate experience, and helped me script the exact requisites.
Lastly, I would like to thank all the associates of the department for sharing their experience
and giving their valuable time to be during the course of my project.
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Letter of Transmittal
Respected Sir,
I would like to mention that overall experience with the organization was very good, and
helped me to know how work is carried out in real practice with the help of your esteemed
organization. I feel honored that I got an opportunity to work with SECL, a company of such
great repute.
Yours truly,
Sejal Tuteja
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Letter of Authorization
My learning experience at SECL, under the guidance of P.C. Saini Sir, Dy. Finance Manager,
SECL and Dr. L. Ramani, Associate Professor, BIMTECH, has been truly enriching.
(Sejal Tuteja)
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Certificate
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Summer Project Certificate
This is to certify that Miss Sejal Tuteja, Roll No. 18DM187 a student of PGDM (Finance, 2018-
20) has worked on a summer project titled “Analysis of Financial Working of SECL” at South-
Eastern Coalfields Limited after Trimester-III in partial fulfilment of the requirement for the
Post Graduate Diploma in Management program. This is her original work to the best of my
knowledge.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ...................................................................................................... 9
CHAPTER 1: INDUSTRY BACKGROUND............................................................................. 10
CHAPTER 2: COMPANY PROFILE ...................................................................................... 12
2.1 ABOUT THE COMPANY ..................................................................................................... 12
2.2 VISION ............................................................................................................................. 12
2.3 MISSION .......................................................................................................................... 12
2.4 PERFORMANCE ................................................................................................................ 12
2.5 MAJOR CONSUMERS ........................................................................................................ 12
2.6 CORPORATE SOCIAL REPONSIBILITY .................................................................................. 13
CHAPTER 3: INTRODUCTION ........................................................................................... 14
3.1 BACKGROUND .................................................................................................................. 14
3.2 OBJECTIVE ........................................................................................................................ 14
3.3 SCOPE OF THE STUDY ....................................................................................................... 14
3.4 RESEARCH METHODOLOGY............................................................................................... 14
3.5 LIMITATIONS .................................................................................................................... 14
CHAPTER 4: STUDY ON THE ACTIVITIES OF THE FINANCE DEPARTMENT ........................... 15
4.1 FINANCE AND ADMINISTRATION ...................................................................................... 16
4.2 TAXATION ........................................................................................................................ 22
4.3 COST AND BUDGET SECTION ............................................................................................. 26
4.4 PAY ROLL PROCESSING AND EMPLOYEMENT BENEFITS...................................................... 28
4.5 CORPORATE ACCOUNTS AND AUDIT ................................................................................. 35
4.6 CORPORATE TREASURY MANAGEMENT ............................................................................ 37
4.7 SALES REALISATION AND ACCOUNTING ............................................................................ 40
CHAPTER 5: FINANCIAL STATEMENT ANALYSIS ................................................................ 42
5.1 RATIO ANALYSIS ............................................................................................................... 42
5.2 TREND ANALYSIS .............................................................................................................. 57
RESULTS AND CONCLUSION ............................................................................................ 58
RECOMMENDATIONS ..................................................................................................... 59
REFERENCES ................................................................................................................... 60
APPENDIX....................................................................................................................... 61
APPENDIX A: BALANCE SHEET................................................................................................. 61
APPENDIX B: INCOME STATEMENT ......................................................................................... 62
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LIST OF FIGURES
Figure 1: Bank Guarantee ........................................................................................................ 17
Figure 2: Financial Concurrence .............................................................................................. 19
Figure 3: Bill Passing ............................................................................................................... 21
Figure 4: Taxation (Direct) ...................................................................................................... 23
Figure 5: Taxation (Indirect) .................................................................................................... 25
Figure 6: Pay Roll Processing .................................................................................................. 29
Figure 7: Employee Loan......................................................................................................... 31
Figure 8: Employee Advances ................................................................................................. 32
Figure 9: Claims and Reimbursements .................................................................................... 34
Figure 10: Period-end Closing ................................................................................................. 35
Figure 11: Audit ....................................................................................................................... 36
Figure 12: Fund Management .................................................................................................. 38
Figure 13: Cheque Management .............................................................................................. 39
Figure 14: Sales Realization and Accounting .......................................................................... 41
LIST OF TABLES
Table 1: Liquidity Ratios ......................................................................................................... 43
Table 2: Profitability Ratios ..................................................................................................... 45
Table 3: Turnover Ratios ......................................................................................................... 48
Table 4: Leverage Ratios ......................................................................................................... 53
TABLE OF GRAPHS
Graph 1: Current Ratio............................................................................................................. 43
Graph 2: Quick Ratio ............................................................................................................... 44
Graph 3: Cash Ratio ................................................................................................................. 44
Graph 4: Gross Profit Margin .................................................................................................. 45
Graph 5: Net Profit Ratio ......................................................................................................... 46
Graph 6: Operating Profit Ratio............................................................................................... 46
Graph 7: Return on Equity ....................................................................................................... 47
Graph 8: Return on Capital Employed..................................................................................... 47
Graph 9: Return on Assets ....................................................................................................... 48
Graph 10: Fixed Assets Turnover ............................................................................................ 49
Graph 11: Total Assets Turnover ............................................................................................. 49
Graph 12: Working Capital Turnover ...................................................................................... 50
Graph 13: Inventory Turnover ................................................................................................. 50
Graph 14: Debtors Turnover .................................................................................................... 51
Graph 15: Creditors Turnover .................................................................................................. 51
Graph 16: Average Collection Period ...................................................................................... 52
Graph 17: Average Payments Period ....................................................................................... 52
Graph 18: Debt-Equity Ratio ................................................................................................... 54
Graph 19: Interest Coverage Ratio .......................................................................................... 54
Graph 20: Proprietary Ratio ..................................................................................................... 55
Graph 21: Fixed Assets to Equity Ratio .................................................................................. 55
Graph 22: Capital Gearing Ratio ............................................................................................. 56
Graph 23: Sales (trend) Graph 24: Income (trend) ............................................................ 57
Graph 25: Expenditures (trend) Graph 26: Profit (trend) ................................................... 57
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EXECUTIVE SUMMARY
The project report titled “Analysis of Financial Working of South-Eastern Coalfields Ltd.” provides a
brief insight into the key activities carried out by the finance department of the company and also
provides a descriptive analysis of the financial statements of the company. It talks about the
contribution of the coal mining industry in various sectors. It also talks about the CSR activities of the
company and its role in the development of state it’s situated in.
The objective of this report is to analyse the financial performance of the company through
quantitative as well as qualitative approach. For the qualitative approach the effectiveness of the
processes by which the financial functions of the company are carried out is analysed, which is done
by studying the key activities step-wise in order to create a flow or an order in which they are executed
and then analysing it. For the quantitative approach the financial statements of the company are
analysed using different financial ratios of the company for the last fiscal year and also the past five
year trend in the financial performance of the company in order to comprehend the efficacy of the
company through various dimensions and also get a rough guess about the future performance of the
company and find the areas in which the company may have issues or may have scope of
improvement.
Analysis of financial information includes various dimensions such as their financial functions which
were studied using primary research techniques i.e. interviewing the executives looking after those
functions of the finance department and observing the work going on in the company; financial size
in terms of sales, production, income, expenditure and profit and their financial position in terms of
liquidity, profitability and financial stability of the company which was studied using secondary
research techniques i.e. annual report of the company and other internet sources as a reference for
the determinants of the financial position.
SECL is the largest coal producing subsidiary of CIL and coal mining being a monopolistic industry
because of the Nationalization of coal production in India, the performance of SECL also gives an
insight into the efficacy of the coal mining industry. Therefore, the ratios of the company are
compared with the past trend.
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LITERATURE REVIEW
Dušan BARAN1, Andrej PASTÝR1, Daniela BARANOVÁ2; Faculty of Material Science and
Echnology in Tranava; research paper on “FINANCIAL ANALYSIS OF A SELECTED COMPANY”
provides basic knowledge about financial analysis and evaluates the business subject progress
in the area of activity, liquidity, profitability and indebtness (solvency) and reveals strengths
and opportunities that the business subject should rely on. It also determines weaknesses and
threats that could lead to difficult situations and based on the results to provide measures to
improve the system of financial economic analysis of the business subject. The analysis was
focussed on the financial statements of a public limited company which produces equipment
and components for the mining, chemical and energy industries, as well as boat and marine
components.
Harpreet Kaur, Assistant Professor, Mata Gujhri College Fatehgarh Sahib, December 2015;
research paper, “A STUDY ON FINANCIAL AND PROFITABILITY ANALYSIS OF COAL INDIA”
provides insight into her study on the profitability of CIL and its subsidiaries in order to know
the short-term financial position of the company. In her study she uses statistical tools like
average and trend analysis. She uses secondary sources of data for her research. She uses
trends of various ratios to determine the financial health and concludes that the performance
of the company was satisfactory as at that time period and the production of all the
subsidiaries were growing other than WCL
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CHAPTER 1: INDUSTRY BACKGROUND
Coal is composed primarily of carbon along with variable quantities of others materials i.e. Hydrogen,
Sulphur, Oxygen and Nitrogen. Coal is the largest source of energy generation worldwide. Coal is found
in variety of grades which depends upon the composition of carbon and others substances. Uses of
coal depend upon its Combustion efficiency and combustion efficiency depends upon quantity of
carbon content in it. It is a rough indicator that as how old the coal deposits, it contains as higher
carbon content.
India is currently among the top three fastest growing economies of the world. The Mining industry
in India is a major economic activity which contributes significantly to the economy of India. The GDP
contribution of the mining industry varies from 2.2% to 2.5% only but going by the GDP of the total
industrial sector it contributes around 10% to 11%.
The demand for coal is improving in India with the development of thermal power plants at a very fast
pace as compared to what it was a decade ago. The list of top companies in the coal mining industry
in India is given below, here it should be noted that there are not many major private coal company
as in the early 1970s since almost all privately owned coal companies were nationalized under the
Coal Mines Act in India:
Coal India Limited
Neyveli Lignite Corporation
Singareni Collieries Company
CIL is the largest coal-producing company in the world and a Maharatna company.
The company contributes to around 82% of the coal production in India. It produced 607 million
tonnes of coal in 2018-19. The Union Government of India owns CIL and controls the operations of CIL
through Ministry of Coal. CIL was conferred the Maharatna status by the Union Government of India,
in April 2011.
Coal India Limited (CIL) produces coal through seven of its wholly owned subsidiaries. Its 8th wholly
owned subsidiary Central Mine Planning & Design Institute Limited (CMPDIL) provides exploration,
planning and technical support to all the 7 production subsidiaries.
CIL also has a wholly owned subsidiary in Mozambique, Coal India Africana Limitada (CIAL) for
pursuing coal mining opportunities in that country.
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CHAPTER 2: COMPANY PROFILE
2.2 VISION
“To be one of the leading energy suppliers in the country, by adopting the best practices and leading
technology from mine to market.”
2.3 MISSION
“To produce and market the planned quantity of coal and coal products efficiently and economically
in an eco-friendly manner with due regard to safety, conservation and quality.”
2.4 PERFORMANCE
The significant milestones achieved by the Company during the fiscal year 2017-18 are:
Highest ever Coal Production of 144.71 Million Tonnes (MT), registering a growth of 3.36%
over the previous year.
Highest ever Coal dispatch of 151.09 MT, registering a growth of 9.76% over the previous year.
Gross Sales value an all-time high of ` 30,555.21Crore.
Profit Before Tax (PBT) of ` 3,820.97 Crore.
Dividend pay-out @ 737.20% (i.e. ` 7,372.04 per share) amounting to ` 2,202.58 Crore.
These achievements reflect the Company’s proven commitment towards sustained growth and
performance excellence. Consistently driven by well-defined growth strategies, performance of the
Company improves every year surpassing its own previous record.
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2.6 CORPORATE SOCIAL REPONSIBILITY
The mines of the company are located in relatively isolated areas with little contact to the outside
society, however, coal mining has profound impact on the people living in and around the areas where
the mines are established. The obvious impact of the introduction of any production activity in such
areas changes the traditional lifestyle of the original inhabitants and indigenous communities and also
changes the socio-economic profile of the Area. Hence, the primary beneficiaries of CSR are land
oustees, Project Affected Persons and those staying within the radius of 25 KMs of SECL establishment.
Under privileged section of the society living in different parts of states in which the company is
operating should be secondary beneficiaries. A CSR Policy has been approved by Coal India Limited for
all its subsidiaries. Prescribed CSR Expenditure for the financial year 2017-18 comes to 93.30 Crore,
which is 2% of the average profit of the past three years.
Key areas of activities covered in 2017-18 under CIL CSR Policy are as below:
a) Healthcare programs like conducting village health camps, construction of special units in hospitals
etc. Providing safe drinking water and sanitation by installing hand-pumps, bore-wells, construction
of community toilets etc.
b) Promoting education by developing infrastructure like class rooms, boundary wall, toilet blocks,
cultural stage, common room etc. and modernization of library, adoption of school, promoting
employment enhancing vocational skills etc
c) Ensuring environmental sustainability by taking up activities like Block/Road side plantation under
“Hariyar Chhattisgarh” Scheme of Chhattisgarh Govt. and also by deepening of ponds in drought
affected area.
d) Protection of art and culture for cultural development through financial assistance to different
cultural events and construction of Community infrastructure.
e) Projects to promote Skill Development & Skill Development Training programs etc.
f) Promoting nationally recognized sports by building Sports Infrastructure & providing financial
assistance for various training programs.
g) Rural development projects like construction of community building, CC roads, culverts, ghats and
safety wall for ponds, sheds, boundary walls, bathrooms, cultural stage etc.
h) Contribution of ` 10.00 Crore to Clean Ganga Fund set up by Central Government for Conservation
of the river Ganga.
i) SECL has taken up Projects aiming at the Welfare of disabled by providing Motorized Tricycles to
486 differently abled persons of Bilaspur District.
j) Swachh Bharat Abhiyan: SECL has taken up Construction of 5368 nos. toilet for domestic purpose
on saturation basis for achieving Open Defecation Free (ODF) status to 31 Nos of villages of District
Korba, implemented through District Administration, Korba.
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CHAPTER 3: INTRODUCTION
3.1 BACKGROUND
The project was undertaken as a requirement for partial fulfillment of PGDM in finance specialization,
for a period of 10 weeks, in the company South-Eastern Coalfields Ltd., headquartered in Bilaspur. The
project emphasizes on the studying the different segments of the finance department of the company,
along with the analysis of the financial performance of the company using the various methods of
financial statements analysis.
3.2 OBJECTIVE
The objective of the project is to get the practical exposure of the work environment of a real
company and learning the practical application of theories learnt in classroom.
Studying the functioning of the various segments of the finance department will develop the
understanding regarding how the chores of a company are run and how they are linked with
one another in order to ensure a smooth and fast flow of activities.
The analysis of the financial performance will help in understanding the efficiency of the
activities and the work flows and how effective those have been for the company.
3.5 LIMITATIONS
The limitations for the project were the availability of time with the associates due to their
busy work schedule,
The confidentiality of certain information in the company and
The duration of the project.
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CHAPTER 4: STUDY ON THE ACTIVITIES OF THE FINANCE
DEPARTMENT
This part of the project is concerned with the study of the processes of different activities carried out
in the finance department of the company. The finance department plays a major role in any
organization, as every organization requires capital for a smooth functioning. The finance department
ensures efficient utilization of financial resources in the organization which provides strength and
stability to the organization. SECL being the largest coal producing company in India is a huge
organization and requires proper planning and organization of its financial working, therefore, the
finance department of the company is divided into smaller units or sections as a result of which the
associates are able to give proper attention in their area of expertise and there is a smooth and fast
flow of the activities relating to the financial aspects of the company, like maintaining income &
expenditures and investments of the company.
NOTE: Some of the above sections are grouped for a better understanding of closely related activities
and does not imply that they are sub-sections of any section. All the sections operate separately and
have a flow within themselves.
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4.1 FINANCE AND ADMINISTRATION
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Figure 1: Bank Guarantee
Grouping of required
materials
Floating Tenders
Selection of bidders
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4.1.2 FINANCIAL CONCURRENCE
The financial concurrence section scrutinizes the payment proposals to develop a logical fact finding
so as to facilitate approval or disapproval of payments by the competent authority which is CMD
(Chairman & Managing Director) in this case. The proposals regarding civil department & welfare, CSR,
Railway siding works, mining, contract management and purchase & procurement of the headquarters
and the cases in the area which are beyond the delegation of the area GM (competent authority of
area) is taken care of in the financial concurrence section.
Scrutinization: If the budget provision pre-exists for the proposed expenditure, the payment can be
approved, otherwise, there needs to be a cost benefit analysis to check the profitability of the project,
also, the project should meet the safety & security needs and if it is in accordance with the social
aspects.
Concurrence: - The proposed expenditure is evaluated from different aspects in order to make sure
that the proposed expenditure is within the guidelines and rules & regulations of the company,
conforms to the needs of the project, is in accordance with the specific directives (if any) of the
competent authority, follows the guidelines as provided in the approved manuals. There are different
manuals for civil work, contract management and CSR. The manuals provide information regarding
the preparation of estimates, floating of tenders, award criteria, post award management of contract
and closure of contract
The decision for concurrence of the proposed expenditure should:
Have a purpose that provides value addition to the company
Be prudent i.e. considers proprietary aspect
Ensure internal audit and control mechanism
Guard against any adverse comments of external agency of stake holders
Be integrated to the mission of the project
Ensure the proposed cost is reasonable
Be in accordance with the delegation of power
Consider the impact of indirect taxes
The proposal is analyzed in the financial concurrence section to provide the logical facts regarding the
same to the Director Finance for making the decision which is further to be approved by the CMD.
Procedure: -
Step 1: Proposal by the execution department
The department requiring the payment for the expenditure sends the proposal regarding the same
mentioning the estimates, purpose and value addition of the proposal.
Step 2: Scrutinization
The concurrence section scrutinizes the proposal and forwards the proposal along with
recommendations as per the section and the logical fact findings regarding the proposal.
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Step 3: Director’s approval
After receiving the proposal and recommendations, the director forwards it to the GM (finance) for
further recommendations and on that basis the proposal is accepted or rejected.
Step 4: Tendering
The tender is floated, for the approved proposals, to get the suitable bidder quoting the lowest price
for the requirements. The tender is scrutinized by the tender committee, which provides the
recommendation regarding the tender.
Step 5: Payment
Payment is made in accordance with the price quoted by the selected bidder.
Scrutinization
Director’s Approval
Tendering
Payment
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4.1.3 BILL PASSING
The Bill Passing section receives and scrutinizes the various bills after which the bill is sent to the cash
section for payment. The bill passing is divided in two categories, the first is concerned with the bills
relating to the requirements for the operations of the company like materials purchased, store items
and civil bills, whereas the second part is concerned with the petty expenses like stationery bills, repair
bills, food expenses, etc. The various steps involved are as follows:
Step 3: Submission of the bill (to the receipt section of the finance department)
After receiving of the material, the bill for payment, along with the necessary documents is to be
submitted to the finance department in the Receipt Section.
From the receipt section, the bill order is sent to the concerned bill passing section according to the
type of bill.
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Figure 3: Bill Passing
Materials Received
Submission of Bill
Scrutinization of Bill
Approved Disapproved
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4.2 TAXATION
The taxation section deals with computation of Corporate tax liability, filling of Income Tax Returns,
compliance as per Income Tax 1961 and dealing with Tax Authorities / Tax Auditors.
Computation: As per Income Tax Act 1961, Corporate assessee need to pay Advance Tax on Quarterly
basis tax within Financial Year itself to avoid any interest under Section 234b /234c of Income Tax
1961.
Due dates of Advance Tax is as under:
1. 15th June – 15%
2. 15th September- 45%
3. 15th December – 75%
4. 15th March -100%
The direct taxes involve Advance Tax, Tax deducted at source (TDS) & Tax Collected at Source (TCS).
The procedure regarding payment of income tax is as follows:
Step 1: Projections from cost department
The projections regarding the income statement is sent to the taxation section from the cost
department for further processing in each quarter.
Step 2: Computation of tax liability
Taxation department based on the estimates received from Costing department, prepares
Computation of Business Income and calculates Income tax by deducting allowed expenses and adding
back the disallowed expenses. The tax liability is computed as 30% of the income plus 12% surcharge
plus 4% education cess.
Tax Audit
Every corporate assessee need to file the Tax audit report signed by a Chartered Accountant in Form
3CA and Form 3CD on or before 30th September. Appointed auditor checks books of accounts and may
suggest necessary changes and note observations to take in accounts while filling Income Tax Return.
Filling of Return:
Based on the Annual Accounts and Tax Audit report again a fresh Computation of income is prepared
and Balance Tax Amount is paid before Filling of ITR-7, if any payable
Assessment
Assistant Commissioner of Income Tax (ACIT) or Deputy Commissioner of Income tax (DCIT) or
Jurisdictional Assessing office may choose to scrutinize the return of the Assessee if it is fit case. The
ACIT/DCIT may also request rectification in the returns.
Appeals & Revision
If Assessee is not satisfied with the assessment or rectification done by Assessing officer, an appeal
can be filed before higher authority, i.e., CIT (Appeals) (Commissioner of Income Tax). If the decision
of the CIT is not satisfactory, further appeal can be made to ITAT (Income Tax Appeal at Tribunal),
further to High Court and the last one to the Supreme Court.
In case of issues related to facts, the appeal can’t be forwarded to court after ITAT, if it is not resolved
at ITAT, it is dismissed. In case of issues related to law the appeal can be taken to the Supreme Court,
if not resolved at lower levels.
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Figure 4: Taxation (Direct)
Computation of Tax
Liability
Tax Audit
Assessment of Return by
ACIT/DCIT
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The indirect taxes/levies charged are as follows:
Royalty: it is charged on the coal value at 14% and paid to the respective state government
District Mineral Foundation: it is charged on the royalty at the rate of 30% and paid to the
respective state government
National Mineral Exploration Trust (NMET): it is charged on royalty at the rate of 2% and paid
to the respective state government
Goods & Services Tax (GST): it is charged on the total bill amount at the rate of 5% and paid
to the Central as well as the state government
GST State Compensation Cess: it is charged on the dispatch quantity at the rate of Rs.400/Te
and paid to the Central Government
Terminal Tax: it is charged on the coal value and paid to the respective state at the respective
rate, i.e., 2% at MP and .20% at CG
Forest Transit Fees: it is charged on the dispatch quantity and paid to the respective state at
the respective rate, i.e., Rs.15/Te at MP and Rs.7/Te at CG
Local Taxes: CG Paryavaran and Vikas Upkar in charged on the dispatch quantity at the rate of
Rs.15/Te in case of CG and MP Sadak Vikas Tax on the coal value at the rate of 15% in case of
MP.
Processing:
First of all, the bill is prepared for every transaction considering all the taxes and levies, which is then
further sent for auditing. If the taxes/levies are as per the regulations and is also arithmetically
justified, the auditor issues an audit memo and the bill is further sent for scrutinization to the Tax
Authorities. If the tax authorities accept the bill, the transaction is made, if the bill is rejected by the
tax authorities, an order is issued to the tax department for making the necessary changes. After the
tax department receives the order, it may accept or reject it, if the order is accepted the payment for
the difference amount is made and if the order is rejected appeal is made to CE(A) regarding the not
acceptance of the order. If the appeal is rejected in the CE(A) is moved further to the CESTAT (The
Customs Excise and Service Tax Appellate Tribunal) and in case of rejection by the CESTAT it is
forwarded to the High Court and likewise to the Supreme Court and the decision made by the Supreme
Court is the final one and if it doesn’t accept the appeal, the payment for the difference amount is to
be made.
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Figure 5: Taxation (Indirect)
Auditing of taxes/levies in
the bill
Submission to Tax
Authority for scrutinization
Accepted Rejected
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4.3 COST AND BUDGET SECTION
The cost & budget section is one of the major sections of the company as for conducting any activity
money is required to meet the cost, the budget for which is to be passed by this section and also for
any company the ascertainment of profit or loss is required to make the necessary changes in the
functioning of the company. The major activities of the cost & budget section are preparation of cost
sheet and budget, reporting of variances between actual & budgeted cost, projection of financial
performance and scrutiny of additional budgetary requirements.
The capital budget is a statement depicting the forecast of the capital expenditures and investments
for the concerned period, it facilitates the maintenance of funds for the expenditures and also
adjustment of expenditure in case of unavailability of fund.
Accounting for the capital expenditure in the budget- the capital expenditures may be for the existing
mining and non-mining projects or for the new projects. For the new projects, CMPDI (another
subsidiary of CIL), prepares project reports which show the feasibility and financial analysis of the
project based on the input data received from the mine planners and the company, in order to
facilitate proper investment decision, the project reports include analysis through capital budgeting
tools like IRR, NPV and payback period, it also includes sensitivity analysis of the project. If the project
is approved, the expected capital expenditure, as mentioned in the project report, is considered in the
preparation of Revenue Budget.
For existing projects, cost & budget section verifies the physical progress with the budgeted flow of
activities and also verifies the actual expenditure with the budgeted expenditure which helps in
determining the deviation in expenditure if there is any left-over amount or if any more budget is
required, this information helps in preparation of a revised budget for the upcoming period.
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According of BC
BC (Budget Certification), is given for capital expenditure proposals and certifies the availability of
amount for the expenditure which have approved FC. FC (Financial Concurrence), is also given for
capital expenditure proposals to certify that the expenditure is relevant to the needs of the company
and total amount that is to be provided regarding the same. The cost & budget section provides
Budget Certification both under capital and revenue heads after scrutinizing the proposals related to
the additional budget and capital requirement related to procurement, civil nature jobs, etc.
The cost sheet at the headquarters is prepared monthly which projects the financial performance of
each mine.
First, the cost sheet is prepared at the respective mines separately for the underground and open cast
mines, the data for which is collected from the cash book, bills, dispatch data, production report, stock
report, etc.
Second, the cost sheet of the mines is collected at their respective areas for compilation and the costs
incurred at areas is incorporated separately as they are not reflected in the cost sheet of the mines.
After the compilation of costs incurred in the mines and the area, mine-wise summary is prepared at
the area separately for opencast and underground mines and overall cost summary of the area is also
prepared.
Third, the cost sheet is prepared at the headquarters by compiling the cost sheets of all the areas and
adding to it the costs incurred in the headquarters, for which a GM co-ordination meeting is held. The
compiled cost sheet reflects the financial performance of the underground mines, opencast mines,
the areas and the company as a whole.
Measuring of variances
At the end of each period, the actual revenue and expenditure is compared with the budgeted revenue
and expenditure and with the previous year’s revenue and expenditure to report for the variances
between them, which facilitates proper management decision in order to have a watch and control
over the cost of production of mines.
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Projection of financial performance
Every quarter, the company sends the report showing the cost sheet, revenues and expenditures to
CIL for quarterly evaluation of the financial performance of the company and also Financial projections
are prepared for MoU with CIL and annual plan. The MoU with CIL is an agreement mentioning the
desired financial performance of the respective subsidiary (SECL in this case), it includes targets and
evaluation criteria or upcoming year. At the end of year, the targets mentioned in the agreement are
audited by assessing the achievements.
The financial projections form the basis for Annual plans and Annual Action Plans.
The Annual plans and Annual Action Plans are in accordance with the guidelines of the MoC (Ministry
of Coal), which is a superior authority to the CIL and regulates all the coal mining companies.
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sick leave (half-paid). Earned leaves are not deducted from the credited leaves. Leaves other than the
credited ones are deducted from the salary.
Pay slip is generated after accounting for the above.
Attendance
Verification
Manpower reconciliation
Employees working in SECL can avail for loans from the company for the official purposes, the payment
for which is processed in the loans section. three types of loans are offered by the company, namely,
house building loan, car loan and furniture and household advance scheme, out of which only house
building loan can be availed by both executives and non- executives, whereas car and household
furnishing loan can only be availed by the executives.
30
Figure 7: Employee Loan
Approved Disapproved
Entry in Accounts
4.4.3 ADVANCES
There are two kinds of advances establishment advance and commercial advance. The establishment
advances include the advances that are provided as a support or employment perks to the employees
which are medical advance, travelling medical advance and travelling advance. The commercial
advances include the advance payment made for the procurements of the company, the procurement
advance is only made with PSU’s with whom there is an MOU, in SECL, it is only with the Steel Authority
of India Ltd. (SAIL).
- Travelling advance is given for the tours of employees that are made for the official purposes
and is provided on the basis of the entitlement of the employee which is based on their
position in the company. As the travelling advance is paid for the official purposes of the
company it isn’t recovered from the salary.
31
- Medical Advance is given for the treatment of employees and Travelling Medical Advance is
given to the employees for treatments in outstation. First the employee makes a request in
the HR department regarding the same and the payment is given to the employee along with
the recovery schedule, after the treatment/returning after treatment of the employee, the
supporting bills are to be submitted in the department within a stipulated time, the failure of
which may lead to charging of penalty on the employee. The amount is later recovered from
the salary.
Submission of relevant
bills
32
4.4.4 RETIREMENT BENEFITS
The retirement benefits include the pension, Medicare, leave encashment, provident and gratuity
provided by the company.
- Pension Trust: the objective is to decide the pension trust amount and monitor it. A
centralized trust is formed to monitor. Since, 01.01.2007 as per Executives Defined
Contribution Pension Scheme (EDCPS), a separate pension fund or trust is created in which
every year the company contributes an amount equivalent to 9.84% of the Basic Pay and DA
to the trust which is to be invested within 10 days and the claim of the investment is forwarded
to the employee getting separated. (for the board level and below board level executives.
- Medicare: For providing medical cover to the executives a Contributory Post Retirement
Medicare Executive Scheme and Contributory Post Retirement Medicare Scheme for Non-
Executives was started since 01.01.2007. The HR department registers the employee in this
scheme. A percentage of Basic pay and DA are contributed for the scheme in the separate
fund for superannuation Medical Benefits. the liability for the payment made is made on the
actuarial basis and E-payment is made centrally (centrally is for SECL and CIL and other
subsidiaries of CIL).
As per CPRMS, the executives are either entitled for a payment of Rs.7500 half yearly or
complete payment of medical expenses for the year, which is a choice of the employee, the
limit for such payments is 25lakhs. And as per CPRMS-NE, the non-executives are entitled to
a payment of 5lakh for medical purposes after depositing Rs.40,000 in the trust by the
employee and Rs.18,000 by the employer.
- Gratuity Funding: The gratuity payable is calculated on the basis of salary structure and profile
of the employee. On the due date, actuarial valuation is done using the employee data and
the amount is paid from the Gratuity Trust. After the valuation the payment is made by the
cash section and accounting entry is passed. An executive is entitled to gratuity of up to 20
lakhs and a non-executive also is now entitles to an amount of up to 20 lakhs which was 10
lakhs until 29th March, 2018.
- Leave Encashment: The valuation of leave encashment is done by the HR department for each
retiring employee on the basis of their respective salary structure and leave profile. An
executive can have leave encashment of up to 300 days which will account for earned as well
as half pay leave. A non-executive can have leave encashment of up to 150 days which only
accounts for the earned leaves. After the separation of employee, the valuation is done and
the payment is made and accounting entry is passed thereon.
- Coal Mines Provident Fund (CMPF) and Pension: the contribution for the fund is deducted
from the monthly salary of the employees for the CMPF Office (CMPFO), which is an
independent entity controlled by Ministry of Coal. The major deductions from the monthly
salary includes employer’s contribution, employee’s contribution and Voluntary contribution.
The due provident fund and family pension is provided to employee on the date of retirement.
33
4.4.5 CLAIMS AND REIMBURSEMENTS
The various reimbursement claims paid to employees are Medical Reimbursement, LTC(Home
Town)/LLTC(Bharat Brahman) Final Payment for Non executives, TA Final Claim, Transfer TA Final
Claim for on roll employees, TA/Settling allowance on retirement, CIL Scholarship Claims and
Reimbursement of Higher Education, PF recovery in respect of retired employees, Excess
Recovery/Refund (Advance/Interest Recovered etc.) from the employees and Other Misc.
reimbursements.
Processing of all the above claims of employees are initiated by the Employee. Employee submits the
Claims in Hard copy along with the required supporting documents which will be forwarded by the
officer in charge of the section duly approved by the controlling officer or the controlling officer for
the claims. Finance Department, after receipt of the bill/claim along with the competent approval and
other documents will audit and process/pass the claim as per CIL rules and send to Cash Section for
payment, after adjustment of advance, if any.
34
4.5 CORPORATE ACCOUNTS AND AUDIT
Consolidation of accounts
35
4.5.2 INTERNAL AUDIT
The purpose of internal audit is ensuring that the operations of the company are within the relevant
laws and the guidelines of the company. The audit team of the company consists of people from
different disciplines so as to look after all the aspects of the company’s operations. The scope of the
internal audit team includes all the operations of the company like production, sales, accounts and all
the various operations undertaken for the official purposes of the company, it does so by inspection
of the various documents and supporting documents for every chore and transaction undertaken in
the company.
Firstly, the audit team hires an audit firm every three years, for the auditing of the areas and the
headquarter. The audit firm must consist of at least four members out of which at least one should
have completed the qualification i.e. CA.
The auditing is done every month in each area by the members of the audit firm hired. If the monthly
functioning is satisfactory, the report is prepared for that month otherwise the changes are made
accordingly and in case of any dispute, the issue is forwarded to the audit team of the headquarters.
The internal audit team of the company scrutinizes the quarterly report prepared by the audit firm.
After the scrutinization, a report is prepared specifying about the flaws and suggesting corrective
measures regarding the same. If the flaws are not rectified as per the specifications of the audit team,
the issue is taken forward to the audit committee which is governed by the board and further to the
CVO (Chief Vigilance Officer), who has the power to punish the responsible person according to the
suitability of the situation, which is not within the power of the audit team. Audit team only has the
power of providing suggestions regarding the flaws within its scope. Quarterly reports are maintained
by the audit team and the yearly reports are prepared using them which is to be forwarded to the
CMD (Chairman and Managing Director) of the Company.
Figure 11: Audit
36
4.6 CORPORATE TREASURY MANAGEMENT
37
Figure 12: Fund Management
Evaluation of investment
options
Investment matured
38
item of the vendor/ liability and make the payment through selected bank. The cash section would
then make payments for all posted cash payment vouchers. If any Cheque is cancelled / destroyed
during printing, the cheque would be made void and a fresh Cheque would be printed for the same
bank payment document. For all cheques which are void, they would be manually re-printed and
would be allotted the next applicable sequential cheque number. Cheque Register containing Cheque
details along with cheques printed would be forwarded to authorized signatories for signatures. The
authorized signatories would sign on the cheque as well as on the cheque register. The concerned
person would necessarily confirm the actual bank balance to ensure that all requested balance
transfers, receipts, etc. have been effected physically as per bank book before releasing the signed
cheques for dispatch. If any payment is returned by bank due to wrong account no or wrong IFSC code,
a debit advice is raised and the voucher is returned to bill passing department for re-processing of
voucher.
Approval of competent
authority
Payment
39
4.7 SALES REALISATION AND ACCOUNTING
Sales accounting sections is a wing of the sales and marketing department, in which finance personnel
are posted as Associate finance to assist in finance and tax related activities of the department. It
involves accounting of sales transactions wiz receipt of sale consideration on sale invoices, preparation
and submission of sale bill, reconciliation of balances, issue of credit/debit note, and other financial
activities concerned with sales of coal.
Step 1: Sales
The core sales activities are undertaken by the personnel in the sales department. There are mainly
two types of sales, i.e., through e-auctions or Fuel Supply Agreement (FSA). The dispatch of the sold
quantity may be through rail or rode mode, for looking after the rail mode sale, there is a dedicated
sales office in Kolkata. The E-Auctions are conducted on electronic platform through third party and
the details regarding the quality, quantity, size and other specifications of coal are provided to them
by the sales department, whereas, in FSA agreement with consumers are made for supply of coal for
a certain number of years. The quality of coal is determined by the Gross Calorific Value (GCV) and
graded in the range G1-G17 (G1 signifying the highest quality). The auction service providers make the
allotment to the bidders, and inform the sales department regarding the same.
40
Step 4: Maintenance of accounts
After the preparation of bills, it is accounted in debtors’ ledger in the books of respective coalfields
area along with sales realization credit received from headquarters.
There is a tri-party agreement amongst the core consumers, SECL and third-party analyzing agency for
sampling and analysis of coal. Third party analysis agency does sample and analysis of the sold coal, in
case the analyzed grade varies with the sold grade, the difference in price is adjusted through issue of
debit/credit notes to the customers, after which it is accounted in the debtors’ ledger.
Step 5: Reconciliation
At the end of each period, the balances are jointly reconciled for correction of differences in the books
of accounts of company and debtors i.e. the balance of debtors in the books of the company is tallied
with the balance of the company in the debtor’s books.
Deposition of consideration
and issue of DO
Preparation of Bill
Maintenance of Accounts
Reconciliation
41
CHAPTER 5: FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is an evaluative method of determining the past, current, and projected
performance of a company for decision-making purposes and to understand the overall health of an
organization. Financial statements record financial data, which must be evaluated through financial
statement analysis to become more useful to investors, shareholders, managers, and other interested
parties.
Several techniques are commonly used as part of financial statement analysis including horizontal
analysis, which compares two or more years of financial data in both dollar and percentage form;
vertical analysis, in which each category of accounts on the balance sheet is shown as a percentage
of the total account; ratio analysis, which calculates statistical relationships between data and trend
analysis, which past trends are analysed in order to predict the future performance.
42
5.1.1 LIQUIDITY RATIOS
The term liquidity is defined as the ability of a company to meet its financial obligations as they come
due. The computation of liquidity ratio is used to measure a company’s ability to pay its short-term
debts. It represents the short-term financial stability.
A firm should have neither lack nor excess liquidity, as the lack of liquidity leads to poor credit
worthiness and excess liquidity leads to idle assets which do not contribute in the firm’s earnings.
Hence, there should be a proper balanced liquidity.
There are three kinds of liquidity ratios; namely; current ratio, quick ratio and cash ratio.
Current Ratio
The current ratio indicates a company’s ability to pay its current liabilities using its current assets i.e.
how much of current assets are available to cover each unit of current liabilities. A current ratio of 1
or more means that current assets are more than current liabilities and the company should not face
any liquidity problem. A current ratio below 1 means that current liabilities are more than current
assets, which may indicate liquidity problems. It is calculated by dividing current assets by current
liabilities. A ratio of 2:1 is considered ideal.
The current ratio for the company for the financial year 2017-18 was 1.35 which shows that, currently,
the company has enough current assets to pay off the current liabilities, although, it is less than the
ideal ratio, it doesn’t show inability of the company to pay off the liabilities. However, the ratio has a
declining trend and if the trend continues, it may lead to financial instability.
CURRENT RATIO
4
3.5
3
2.5
2
1.5
1
0.5
0
2013-14 2014-15 2015-16 2016-17 2017-18
43
Quick Ratio/ Acid Test Ratio
The quick ratio indicates the immediate liquidity of a company using the assets which can be converted
into cash immediately without any loss of value. Cash, debtors, marketable securities and bills
receivables are a few examples of such assets. Greater the ratio indicates better the financial position
of the company and vice versa. This ratio is more conservative than the current ratio therefore, it
shows a clearer picture of a company’s liquidity. It is calculated by dividing quick assets (currents
assets excluding prepaid expenses and inventories) by current liabilities. A ratio of 1:1 is ideal.
The quick ratio for the company for the financial year 2017-18 was 0.55 which shows that, currently,
the company doesn’t have enough quick assets to pay off the current liabilities, although, it is less
than the ideal ratio, it doesn’t show the complete inability of the company to pay off the liabilities, as
it may take time to pay them off but it can be paid within the year, considering the current ratio.
However, the ratio has a declining trend, therefore, in the future, it may lead to financial instability.
QUICK RATIO
3
2.5
1.5
0.5
0
2013-14 2014-15 2015-16 2016-17 2017-18
Cash Ratio
It indicates the absolute liquidity of the company, as it uses the absolute liquid assets i.e. cash and
cash equivalents. It is also known as super quick ratio and is more conservative than both current
ratio and quick ratio. It is calculated by dividing the cash and cash equivalents by the current liabilities.
A ratio of 0.5:1 is considered ideal.
The cash ratio for the company for the financial year 2017-18 was 0.032 which shows that, currently,
the company has a very low cash ratio and there may be a risk in paying the current liabilities. Also,
the ratio has a declining trend and it may lead to financial instability of the company.
CASH RATIO
2.5
1.5
0.5
0
2013-14 2014-15 2015-16 2016-17 2017-18
44
5.1.2 PROFITABILITY RATIOS
The term profitability is defined as the company’s ability to generate profit with the given resources.
The profitability ratio measures the overall efficiency and performance of the company. It indicates
whether the utilization of assets and funds are done efficiently and optimally or not, so as to generate
adequate profits or returns. It consist of a group of metrics that assess a company's ability to generate
revenue relative to its revenue, operating costs, balance sheet assets, and shareholders' equity. The
higher the ratio, the better the profitability of the company. There are several kinds of profitability
ratios some of which used for analysis in the project are gross profit ratio, operating profit ratio, net
profit ratio, return on equity, return on capital employed and return on assets.
10.00%
5.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
45
Net Profit Ratio
It shows overall efficiency of the business, as it considers, all the expenses and taxes. It indicates a
firm’s efficiency in manufacturing, administering and selling. It measures firm’s ability to turn each
rupee sales into net profit. It is calculated by taking net profit as a percentage of the sales. Higher ratio
indicates higher efficiency of firm and higher efficiency of business and better utilization of total
resources and vice versa.
The current net profit ratio or margin of the company is 12.27% which shows that company is not on
losses and is earning a decent profit on sales. The net profit ratio of the company had a declining trend
until 2016-17, however, it increased in the year 2017-18, which may be a sign for further growth in
future profits.
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
46
Return on Equity/Return on Net Worth
It measures overall profitability of the company from preference and common stockholders’ point of
view and also indicates the efficiency of the management in using the resources of the business. It is
computed by dividing the net income after interest and tax by average stockholders’ equity.
Higher ratio means higher return on shareholders’ investment and vice versa. Investors always search
for the highest return on their investment and a company that has higher ROE ratio than others in the
industry attracts more investors. (expressed in percentage)
The return on shareholders’ investment or return on equity (ROE) ratio of SECL is 73.19%. It means for
every Rs.100 invested by shareholders’, the company earns Rs.73.19 after interest and tax. It is a huge
number and shows that the company has very good returns. Also, the ROE has increasing trend, so it
can be said that the company will continue to perform good in terms of returns to the shareholders.
RETURN ON EQUITY
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
47
Return on Assets
Return on assets measure the efficiency with which the assets of the company have been invested. It
is computed by dividing the return (profit after tax + interest) by the total assets. The ratio is
represented in percentage. It focuses on the return earned by the company and the total assets of the
company. Total assets are a combination of both debt and equity therefore, the interest levied on the
debt is included after to the profit after tax.
The current ROA of SECL for the year 2017-18 is 9.20%, which is not as good as the previous
performances of the company, however, it is better than the previous year’s performance, therefore,
by focusing on the weak areas, the ratio can be improved.
RETURN ON ASSETS
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
The turnover ratios measure the efficiency with which the assets are employed, which represents the
efficiency with which the firm manages and utilizes its assets. In other words, it shows the efficiency
with which the firm generates its revenue by converting production into sales. Higher the ratio, faster
the conversion and vice versa. Fast conversion increases the revenue and profits and slow conversion
decreases it. Therefore, higher turnover ratio is preferred for companies. The ratios which fall into this
category are fixed assets turnover, total assets turnover, working capital turnover, inventory turnover
ratio, debtor’s turnover, creditors turnover, average collection period and average payment period.
48
Fixed Assets Turnover/Fixed Assets Ratio
Fixed assets turnover ratio is a commonly used activity ratio that measures the efficiency with which
a company uses its fixed assets to generate its sales revenue. It is computed by dividing net sales by
average fixed assets. Generally, a high fixed assets turnover ratio indicates better utilization of fixed
assets and a low ratio means inefficient or under-utilization of fixed assets.
The fixed assets turnover ratio of the company is 1.79, which shows a good performance, however,
the ratio has been declining over the years, which is not a good sign for the growth of the company.
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2013-14 2014-15 2015-16 2016-17 2017-18
49
Generally, a high working capital turnover ratio is better. A low ratio indicates inefficient utilization of
working capital during the period. However, a very high ratio may also be a sign of insufficient quantity
of working capital in the business.
The working capital turnover ratio of the company is 4.98, which shows the efficiency of the working
capital. Also, the ratio after being stable for previous years had a sudden hike last year, which may
indicate something abnormal.
5.00
4.00
3.00
2.00
1.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18
INVENTORY TURNOVER
1.60
1.55
1.50
1.45
1.40
1.35
1.30
1.25
1.20
1.15
2013-14 2014-15 2015-16 2016-17 2017-18
50
Debtors Turnover
It measures how many times the receivables are collected during a particular period and is a helpful
tool to evaluate the liquidity of receivables. It is computed by dividing the net credit sales during a
period by average receivables.
Generally, a high ratio indicates that the receivables are more liquid and are being collected promptly.
A low ratio is a sign of less liquid receivables and may reduce the liquidity of the business in the
perspective of the analyst even if the current and quick ratios are satisfactory.
The debtors turnover ratio of the company for the year 2017-18 was 6.88, which is a decent ratio
indicating reasonably liquid debtors, however, it has been decreasing over the years, which may be a
problematic area for the company.
DEBTORS TURNOVER
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18
Creditors Turnover
It measures the number of times, on average, the accounts payable are paid during a period and
indicates the creditworthiness of the company. It is computed by dividing the net credit purchases by
average accounts payable. It is expressed in times.
A high ratio means prompt payment to suppliers for the goods purchased on credit and a low ratio
may be a sign of delayed payment. Accounts payable turnover ratio also depends on the credit terms
allowed by suppliers. Companies who enjoy longer credit periods allowed by creditors usually have
low ratio as compared to others. A high ratio is desirable but company should always avail the credit
facility allowed by the suppliers.
The creditors turnover ratio of the company for the year 2017-18 was 1.54, which is quite less than
the debtors turnover ratio, shows that the payments made are more time taking than the payments
received, or suppliers allow more credit time to the company than allowed by the company to its
customers.
CREDITORS TURNOVER
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18
51
Average Collection Period
It is an indication of the quality of receivables and is expressed in days. It is computed by dividing the
number of working days for a given period by receivables turnover ratio. A short collection period
means prompt collection and better management of receivables. A longer collection period may
negatively affect the short-term debt paying ability of the business in the eyes of analysts. Whether a
collection period is good or bad, depends on the credit terms allowed by the company.
The average collection period is 45.35, i.e., on average the company has to wait for 45.35 days before
the receivables are collected, which is reasonably less time and the payments are received quickly,
therefore company would not face shortage of funds, as the receivables are quickly convertible to
cash.The past ratios have an increasing trend, which is not a good sign as, it shows that, earlier the
debtors were more liquid than now and if the trend continues, the company may face problems
regarding the working capital management.
200.00
150.00
100.00
50.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18
52
5.1.4 LEVERAGE/SOLVENCY RATIOS
It measures a company’s ability to sustain operations indefinitely by comparing debt levels with
equity, assets and earnings which shows a firm’s ability to pay its bills in the long term. Solvency ratio
focus more on the long-term sustainability of the company and show a company’s ability to make
payments and pay off its long term obligations to creditors, bondholders and banks. Higher solvency
ratios indicate more credit worthiness and financial soundness of the company in the long run,
whereas a lower solvency ratio reflects a higher probability of the company being on default with its
debt obligations. Leverage/Solvency ratios are of various types, a few of which are debt-equity ratio,
interest coverage ratio, proprietary ratio, fixed assets to equity ratio and capital gearing ratio.
Debt-Equity Ratio
It indicates the soundness of long-term financial policies of a company. It shows the relation between
the portion of assets financed by creditors and the portion of assets financed by stockholders. It is
calculated by dividing total debt by stockholder’s equity.
A ratio of 1 means that assets are equally financed by creditors and stockholders, a ratio of less than
1 means finance by stockholders is more than the creditors and ratio of more than 1 means finance
by creditors is more than stockholders.
A low ratio is preferred by creditors as it indicates greater protection to their money. A high ratio is
preferred by the stockholders as it is a cheaper source of finance and gives them more ownership.
Debt equity ratio vary from industry to industry. A ratio of 1 : 1 is normally considered satisfactory for
most of the companies.
The debt to equity ratio of the company is 0. It means that there is no borrowings in the company,
which may seem inappropriate, however, it is because the company uses the reserved funds for its
operations and has enough fund to manage its expenditures, because of which the borrowing are not
required. Therefore, this ratio is satisfactory according to the scenario of the company. The debt-
equity ratio where only long term debt is considered has stable trend near to 0.00 and seems to be
stable for the upcoming years. However, the total debt-equity ratio seems to be risen to 0.08 and has
been rising over the previous years, therefore, we can say that the short term obligations are settled
using the borrowed fund.
53
Graph 18: Debt-Equity Ratio
54
interest expenses and also the risk of bankruptcy. Having a very high proprietary ratio does not always
mean that the company has an ideal capital structure. A company with a very high proprietary ratio
may not be taking full advantage of debt financing for its operations that is also not a good sign for
the stockholders.
The proprietary ratio is 13%. It means stockholders’ has contributed 13% of the total tangible assets.
The ratio has an decreasing trend and the position of the company is declining as per the ratio.
55
Capital Gearing Ratio
Capital gearing ratio is a useful tool to analyse the capital structure and financial strength of a
company and measures the relationship between the funds provided by common stockholders and
the funds provided by those who receive a periodic interest or dividend at a fixed rate.
It is computed by dividing the common stockholders’ equity by fixed interest or dividend bearing
funds. The common stockholders’ equity is equal to total stockholders’ equity less preferred stock and
the fixed interest or dividend bearing funds usually include long term loans, bonds, debentures and
preferred stock etc.
A company is said to be low geared if the larger portion of the capital is composed of common
stockholders’ equity, whereas, a company is said to be highly geared if the larger portion of the capital
is composed of fixed interest/dividend bearing funds.
It is of great importance for actual and potential investors. Borrowing is a cheap source of funds for
many companies but a highly geared company is considered a risky investment by the potential
investors because such a company has to pay more interest on loans and dividend on preferred stock
and, therefore, may have to face problems in maintaining a good level of dividend for common
stockholders during the period of low profits.
The current capital gearing ratio of the company is 4.3 which can be stated to be low geared and also
it has a declining trend. We can say that the cost of financing is reducing as the company is using own
fund and also it is more attractive for the investors.
56
5.2 TREND ANALYSIS
Trend analysis evaluates an organization’s financial information over a period of time. Periods may be
measured in months, quarters, or years, depending on the circumstances. The goal is to calculate and
analyse the amount change and percent change from one period to the next.
The following is the trend analysis of the major components of the income statement of the company
i.e. sales, income, expenditure and profit of the company in order to understand the performance of
the company in monetary terms.
The following are the graphs showing the trend of sales, income, expenditures and profit of the
company in the past five years, which will help in understanding the performance of the company in
terms of past performance and will also help in forecasting the future performance of the company.
15,000.00 17,000.00
14,500.00 16,500.00
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18
12,000.00 4,000.00
10,000.00
3,000.00
8,000.00
6,000.00 2,000.00
4,000.00
1,000.00
2,000.00
0.00 0.00
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18
As can be seen in the graphs the sales, income and expenditure have an increasing trend, however,
the profit of the company is tremendously declining, which shows that even after the improving
performance of the company in terms of sales, the company is unable to improve the profits which
is because of the higher percentage increase in expenditures as compared to the percentage
increase in sales and income. Therefore, the expenditures of the company need to be cut short in
order to improve its financial position.
57
RESULTS AND CONCLUSION
The OMS (output per man shift) and sales of the company has been increasing, which shows
that company is growing and has a good performance.
On studying the financial working of the company, it was observed that the organization and
distribution of the company is well structured and maintained. The communication between
all the departments is very easy and convenient, which is very important as, all the
departments need to work together for the betterment of the organization as a whole. It is a
result of the above mentioned qualities of the organization that has led to its remarkable
achievements.
CIL being the holding company of SECL, has a lot of involvement in the governance and
regulations of the company, most of the work is carried out as per the guidelines provided
by CIL and also the work distribution, the authority of different employees and the complete
system of the work in SECL is provided in the CIL guidelines, which is same for the other
subsidiaries as well.
On studying the financial statements of the company, we see that many ratios have a
declining trend and also the ratios deviate from the ideal ratios as per stated by different
analysts.
The liquidity ratios of the company are declining over the past years and have went below
the ideal ratio, in other words the liquidity of the company is decreasing and it will also
create a problem for credit purchases as suppliers will be more conscious.
The profitability ratios of the company have different trends, the net profit and gross profit
margin has a decreasing trend, however, the operating profit ratio has an increasing trend,
which shows that the operating expenses of the company are rising at a higher pace than
the operational expenses.
The other profitability ratios i.e. return on equity, return on capital employed and return on
total assets ratio also have different trends. Return on equity has an increasing trend, return
on capital employed has a stable trend and return on total assets have a decreasing trend. It
shows that the proportion of equity is less in the capital of the company or a major
proportion of the profits is given to the shareholders as dividends.
The turnover ratios also have different trends, however, there is no sharp increase or
decrease in the ratios, therefore the company can said to be quite efficient, also the
inventory turnover ratio is quite high, which shows the proper management of inventory
and high sales. The collection and payment period are both high and therefore, it gets
balanced and is less likely to cause any problem in the availability of funds in the company.
According to the trend of the solvency or leverage ratios, we can say that the firm has no
borrowings and the equity portion of the company is also declining, however, the fixed
assets to equity ratio is increasing which shows that company is investing or has capital but
is using the retained earnings i.e. own funds for the same.
On performing the trend analysis of major components of the income statement, we
observe that, though the revenue from sales have improved but the expenses have
increased at a higher rate than the revenue, which has harmed the profitability of the
company, as can be seen in the ratios.
58
RECOMMENDATIONS
As mentioned in the conclusions section, the major policies of the company and the
guidelines of different tasks is governed by the holding company i.e. CIL, though it ensures
uniformity in all its subsidiaries and provides highly professional support to the company,
there can be a little more provision of flexibility to the subsidiary companies, as the different
localities have different requirements and the company based on that locality may have
more suitable solutions to certain issues.
For improving the liquidity of the company, it can add more short term loans or bank over
drafts which will help the company in paying its current liabilities.
One more factor that is causing a decrease in the liquidity and solvency ratios is that, the
company’s dividend pay-out ratio has been increasing i.e. the major proportions of profits of
the company are paid off as dividend’s which reduces the ability of the company to pay off
its current and non-current liabilities therefore the liquidity and solvency of the company is
affected, which can be improved by reducing the dividend paid and using that fund in
investing which will help the company in long term growth.
As mentioned above, in spite of the increase in income and sales in the company, it has
decreasing profits which is because of the high expenditures of the company. The
profitability of the company can be improved by cutting unnecessary activities in the
productions process which will reduce the expenditures, another way can be by reviewing
the pricing structure the profits can be increased. Also, more attention can be paid to the
non-operating expenses as they are increasing at a higher pace than the operating expenses.
59
REFERENCES
https://www.coalindia.in/Portals/13/PDF/SECL_ANNUAL_REPORT_17_18.pdf
http://secl-cil.in/writereaddata/2017.pdf
http://mospi.nic.in/sites/default/files/publication_reports/Energy_Statistics_2018.pdf
http://shodh.inflibnet.ac.in:8080/jspui/bitstream/123456789/3872/2/02_synopsis.pdf
https://en.wikipedia.org/wiki/Coal_mining_in_India
https://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=601
https://www.google.com/url?client=internal-uds-cse&cx=partner-pub-
9975833564918811:5841039237&q=https://www.accountingformanagement.org/classificat
ion-of-financial-
ratios/&sa=U&ved=2ahUKEwjzyKrG1oHjAhVZPnAKHSDgDxkQFjABegQIEBAB&usg=AOvVaw0
Hga4iRYDcU_85ukhLSj1k
60
APPENDIX
APPENDIX A: BALANCE SHEET
61
APPENDIX B: INCOME STATEMENT
62