Summer Training Report

Financial Analysis
At
Indian Railways

Submitted for the

Partial fulfillment of the requirement for the award of Degree

of

Master of Business Administration (MBA)

Submitted By:

Ajay Das Manikpuri

Roll Number:

21067102

2022-23

Department of Management Studies

GURU GHASIDAS VISHWAVIDYALAYA, BILASPUR (C. G.) 495009
(A Central University established by the Central Universities Act, 2009)

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2
 Declaration by the Student

I, Ajay Das Manikpuri a student of MBA 3rd semester in the year 2022-2023 having
Roll No. 21067102, hereby declare that, I have undergone training at Indian Railways,
South East Central Railway, Bilaspur. This report is an original work carried out by
me and the report has not been submitted to any other University for the award of any
degree or diploma.

Date- Ajay Das Manikpuri

Place- Bilaspur MBA 3rd Semester

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 Preface

I am extremely grateful to have had the opportunity to complete my summer

internship at the Indian Railways in the finance department. This experience has been
invaluable in providing me with practical knowledge and skills that I can apply in my
future career.

During my time at Indian Railways, I was able to work alongside experienced

professionals and learn about various finance processes and procedures. I also had the
chance to see the working of various sub-departments in the finance department of the
organization.

Throughout this internship, I was able to gain deeper understanding of the operations
and financial management of a large organization like Indian Railways. I am grateful
to my mentors and colleagues who were always willing to share their knowledge and
expertise with me.

I am proud to present this report as a reflection of my experience at Indian Railways

and the valuable lessons I learned during my time there. I hope that this report will
provide insight into the work I accomplished and the skills I develop during my
internship.

I would like to express my sincere gratitude to the management and staff of Indian
Railways for providing me with this opportunity and for their guidance and support
throughout my internship.

Thank you for considering my report.

Sincerely,

Ajay Das Manikpuri

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 Acknowledgement

I would like to express my sincere gratitude to the Indian Railways for providing me
with the opportunity to undergo summer training at your esteemed organization.

I would like to extend my sincere thanks to the entire team at South East Central
Railways for their support and guidance during my training period. Special thanks to
my Supervisor Mr. Alexius Soreng (Asst. DFM), for their guidance. I am grateful for
the knowledge and skills that I have gained, and I look forward to applying them in
my future endeavors.

Finally, I would like to extend my appreciation to my family, friends and teachers for
their continuous support and encouragement throughout my journey.

Thank you all for your contributions to my development.

Sincerely,

Ajay Das Manikpuri

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 Index

Chapter 01: Profile of Indian Railways…………… 8 – 33

1.1 About Indian Railways

1.2 Background & History

1.3 Organizational Structure & members of railway board

1.4 Services

1.5 Market Overview

1.6 Growth & Opportunities

Chapter 02: Introduction……………… 34 – 36

2.1 Introduction of The Study

2.2 Purpose of Study

2.3 Place of Study

2.4 Scope of Project

2.5 Objective of Report

2.6 Methodology

2.7 Limitations of Report

Chapter 03: Project Overview……………. 37 – 51

3.1 Meaning & Concept of Financial Analysis

3.2 Objective & Importance of Financial Statement Analysis

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3.3 Procedure of Financial Statement Analysis

3.4 Methods or Device Of Financial Analysis

3.5 Limitations of Financial Statement Analysis

3.6 Overview of Ratio Analysis

Chapter 04: Analysis & Interpretation…………………… 52 – 67

4.1 Trend Analysis

4.2 Comparative Balance Sheet of Indian Railways

4.3 Comparative Profit & Loss Statement

4.4 Key Financials

4.5 Key Ratios

4.6 Financial Performance

Chapter 05: Findings & Suggestions …………………… 68 – 68

5.1 Findings

5.2 Suggestions

Chapter 06: Conclusion ……………………………. 69-69

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 CHAPTER 01: PROFILE OF INDIAN RAILWAYS

OVERVIEW OF INDIAN RAILWAYS

1.1 About Indian Railways

The Indian Railways is the national railway system of India, which is owned and
operated by the Government of India through the Ministry of Railways. It is 4th largest
railway network in the world, comprising 115,000 kilo meters of track and
transporting over 23 million passengers daily. The Indian Railways also serves as a
major means of freight transportation, with a large portion of the country’s goods
being transported by rail.

The Indian Railways has a rich history, with the first passenger train running between
Bombay (now Mumbai) and Thane in 1853. Since then, the railway system has
undergone significant expansion and modernisation, and it now serves a vast network
of destinations across the country.

The Indian Railways operates a variety of trains, including superfast, express, and
passenger trains, as well as luxury trains such as the Palace on Wheels and the
Maharaja Express. It also operates a number of special trains for festivals and other
occasions.

In the recent years, the Indian Railways has been implementing various initiatives to
improve services and modernise the network. These include the introduction of high-
speed trains, the development of dedicated freight corridors, and the use of advanced
technologies such as GPS-based tracking and remote monitoring systems.

Overall, the Indian Railways plays a crucial role in the transportation infrastructure of
India and is an important contributor to the country’s economic development.

Founded: - 8th May 1845

Headquarters: - New Delhi, India

Key people: - Ashwini Vaishnaw (Minister for Railways), V.K. Tripathi, IRSEE
(Chairperson and CEO)

Owner: - Ministry of Railways, Government of India

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Number of Employees: - 12,52,347 (31 march 2021)

Area served: - India

Services: - Passenger railways, Freight services, Parcel carrier, Catering and

tourism services, Parking lot operations, Other related services

Vision: -
Indian Railways shall provide safe, efficient, affordable, customerfocussed and
environmentally sustainable integrated transportation solutions. It shall be a modern
vehicle of inclusive growth, connecting regions, communities, ports and centres of
industry, commerce, tourism and pilgrimage across the country.

Mission Statement: -
We shall:

• Protect and safeguard railway passengers, passenger area and railway

property.
• Ensure the safety, security and boost the confidence of the traveling public in
the Indian Railways

OBJECTIVES: -
We shall:

• Carry on an unrelenting fight against criminals in protecting railway

passengers, passenger area and railway property.
• Facilitate passenger-travel and security by removing all anti-social elements
from trains, railway premises and passenger area.
• Remain vigilant to prevent trafficking in women and children and take
appropriate action to rehabilitate destitute children found in Railway areas.
• Co-operate with other departments of the Railways in improving the efficiency
and image of the Indian Railways.
• Act as a bridge between the Government Railway Police/local police and the
Railway administration.
• Adopt proactively all modern technology, best human rights practices,
management techniques and special measures for protection of female and
elderly passengers and children, in the pursuit of these objectives.

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1.2 Background & History

Evolution
The first railway on Indian sub-continent ran over a stretch of 21 miles from Bombay
to Thane. The idea of a railway to connect Bombay with Thane, Kalyan and with the
Thal and Bhore Ghats inclines first occurred to Mr. George Clark, the Chief Engineer
of the Bombay Government, during a visit to Bhandup in 1843.

The formal inauguration ceremony was performed on 16th April 1853, when 14
railway carriages carrying about 400 guests left Bori Bunder at 3.30 pm "amidst the
loud applause of a vast multitude and to the salute of 21 guns." The first passenger
train steamed out of Howrah station destined for Hooghly, a distance of 24 miles, on
15th August, 1854. Thus the first section of the East Indian Railway was opened to
public traffic, inaugurating the beginning of railway transport on the Eastern side of
the sub-continent.

In south the first line was opened on 1st July, 1856 by the Madras Railway Company.
It ran between Vyasarpadi Jeeva Nilayam (Veyasarpandy) and Walajah Road (Arcot),
a distance of 63 miles. In the North a length of 119 miles of line was laid from
Allahabad to Kanpur on 3rd March 1859. The first section from Hathras Road to
Mathura Cantonment was opened to traffic on 19th October, 1875.

These were the small beginnings which is due course developed into a network of
railway lines all over the country. By 1880 the Indian Railway system had a route
mileage of about 9000 miles. INDIAN RAILWAYS, the premier transport

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organization of the country is the largest rail network in Asia and the world's second
largest under one management.

Indian Railways is a multi-gauge, multi-traction system covering the following:

Other Interesting facts of Indian Railways

Indian Railways runs around 11,000 trains everyday, of which 7,000 are passenger
trains

Territorial Readjustment of Zones and In-House Reforms

In order to bring about greater efficiency in administration, speedy implementation of

on-going projects, better customer care, reduction of workload on General Managers
etc., Indian Railways have decided to create seven new zones by territorial re-
adjustment of existing zones. The new zones, having limited financial burden on
Railways, will have thin and lean, efficient and modern administrative set up. Two of
the new zones have already started functioning.

National Rail Vikas Yojana

With a view to complete strategically important projects within a stipulated period of

time, a non-budgetary investment initiative for the development of Railways has been
launched.. Under the scheme all the capacity bottlenecks in the critical sections of the

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railway network will be removed at an investment of Rs.15,000 crore over the next
five years. These projects would include:

1.Strengthening of the golden Quadrilateral to run more long-distance mail/express

and freight trains at a higher speed of 100 kmph.

2.Strengthening of rail connectivity to ports and development of multi-modal

corridors to hinterland.

3.Construction of four mega bridges - two over River Ganga, one over River
Brahmaputra, and one over River Kosi.

4.Accelerated completion of those projects nearing completion and other important

projects.

New Steps towards Safety and Security :

Safety of 13 million passengers that Indian Railways serve every day is of paramount
importance to the system. Over the years, apart from the regular safety norms
followed, the network has taken a number of steps through innovative use of
technology and stepped up training to its manpower to enhance safety standards.
Constitution of Rs.17,000 crore non-lapsable Special Railway Safety Fund (SRSF) to
replace the arrears of aging assets of Railways over the next six years has been a
historical move in this direction. A number of distressed bridges, old tracks, signalling
system and other safety enhancement devices will be replaced during this period. As
far as budget allocation for safety is concerned, Rs.1,400 crore was allocated in the
revised estimate for the year 2001-02 and Rs.2,210 crore for the year 2002-2003.
Extensive field trials of the Anti-Collision Device (ACD), indigenously developed by
Konkan Railway, is going on and once deployed across the Zonal Railways, this
innovative technology will help railways reduce accidents due to collision between
trains.

Security of railway passengers is at present a shared responsibility of the Railway

Protection Force (RPF) and the Government Reserve Police (GRP). Efforts are on to
amend the Railway Act to give more powers to the RPF in ensuring security of
passengers on trains and within Railway premises. Deployment of women police
Force has been made for security and assistance of women passengers.

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Improving Financial Health :

The financial position of Indian Railways has been slowly but steadily improving.
Some of the highlights of the financial performance during 2001-02 include:
improved operating ratio from 98.8 per cent to 96.6 per cent, savings in ordinary
working expenses of Rs.1,487 crore, Depreciation Reserve Fund (DRF) balance goes
up from Rs. 78.04 crore during March last year to Rs.632.99 crore during same time
this year. Railways have established a new milestone in incremental freight loading
during July this year by carrying 5.70 million tonnes of goods. Freight loading for the
last financial year crossed the target and attained 492.31 million tonnes.

New Trends in Passenger Amenities :

To take care of the unreserved segment of the passengers, a new pilot project on
computer based unreserved ticketing has been launched this year. Of the 13 million
passengers served by the network everyday, nearly 12 million are unreserved
passengers. To cater to this huge segment, computer based ticketing systems has been

launched for all stations in Delhi area and in due course throughout the country. With
this, unreserved tickets can be issued even from locations other than the boarding
station and will reduce crowds at booking offices and stations.

Indian Railway Catering and Tourism Corporation

with the assistance of Centre for Railway Information Systems has launched On-line
ticketing facility which can be accessed through website irctc.co.in. Computerized
reservation facilities were added at 245 new locations. At present these facilities are
available at 758 locations in the country covering about 96 per cent of the total
workload of passenger reservation. Computerized Reservation related enquiries about
accommodation availability, passenger status, train schedule, train between pair of
stations etc. have been made web enabled.

A pilot project for issuing monthly and quarterly season tickets through Automated
Teller Machines (ATMs) has been launched in Mumbai this year and has been found
very successful. Another pilot project for purchasing tickets including monthly and
quarterly season tickets through Smart Card has also been launched.

"National Train Enquiry System" has been started in order to provide upgraded
passenger information and enquiries. This system provides the train running position
on a current basis through various output devices such as terminals in the station

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enquiries and Interactive Voice Response System (IVRS) at important railway
stations. So far the project has been implemented at 98 stations.

Freight Operations Information System (FOIS) Computerisation of freight operations

by Railways has been achieved by implementing Rake Management System (RMS).
Such FOIS terminals are available at 235 locations

Railways have established their own intra-net 'Railnet' It provides networking

between Railway Board, Zonal Headquarters, Divisional headquarters, Production
Units, Training Centers etc.

Sterling Performance by PSUs The public sector undertakings of the Railways,

especially IRCON and RITES, scored commendable achievements during the last
three years. IRCON International has achieved a record turnover of Rs.900 crore
during 2001-02 and the foreign exchange earnings of this prestigious organization has
increased six fold over the years. At the international level, IRCON is at present
executing different projects in Malaysia, Bangladesh and Indonesia. The PSU has
registered a strong presence in the international scenario by its sterling track record.

RITES, another prestigious PSU under the Ministry has scaled new heights in
performance, profit and dividend to the shareholders during the last three years. Its
turn over increased from Rs.172 crore in 1999 to Rs.283 crore in 2002. RITES for its
sterling performance secured the prestigious ISO-9001 Certification this year. The
company has also entered into export/leasing of locomotives in different countries in
Asia and Africa. RITES is operating all over the world including Columbia, UK, Iran,
Malaysia, Myanmar, Bangladesh, Sri Lanka, Tanzania, Uganda, Ethiopia,
Turkmenistan and Uzbekistan.

Indian Railways Finance Corporation Limited secured excellent rating for fourth year
in succession by the Department of Public enterprises on the basis of the performance
targets. Besides, Standards and Poor's, the international credit rating agency, also
reaffirmed the sovereign ratings to IRFC. The Corporation has been making profits
and paying dividends.

Indian Railway Catering & Tourism Corporation ( IRCTC ) Internet based ticket
booking has been launched by IRCTC in Delhi, Chennai, Bangalore, Mumbai and
Calcutta this year. Hygienic and air-conditioned food plazas having consumer-
friendly ambience opened at Pune and Chennai and license for similar plazas awarded
for 17 more locations. In all, 50 such plazas will be opened by the end of this financial
year across the zonal Railways. Railneer - packaged drinking water is to be made
available from December this year.

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More than half a lakh tourists have availed the value added tour package programme
launched by the Corporation this year.

Innovative Technologies by Konkan Railway :

Konkan Railway Corporation (KRC), the technological marvel of Indian Railways,

has invented quite a few new technologies. Anti Collision Device (ACD), state-of-art
indigenous technology of KRC is currently under-going intensive field trials and is
capable of avoiding collision between trains. Sky bus metro is another innovative,
economic and eco-friendly mass rapid transportation solution devised by Konkan
Railway. Self Stablising Track (SST) devised by KRC, which is undergoing trials at
present, will help Railways run the fastest train in the near future and will make tracks
much more safe and sustainable.

Private Sector Participation :

The participation of both private and public sectors in developing rail infrastructure
has gone up. A joint venture company was formed with Pipava Port authorities to

provide broad gauge connectivity to Pipava Port. MoUs have been signed between
Ministry of Railways and the State governments of Andhra Pradesh, Karnataka,
Maharashtra, West Bengal, Tamil Nadu and Jharkhand in developing rail
infrastructure in these States.

Telecommunication - New Trends :

To give improved telecommunication systems on Railways, Optical Fibre based

communication systems has been adopted and laying OFC has increased to 7,700
route kilometer this year. Rail Tel Corporation has been created to make a nationwide
broadband multimedia network by laying optical fibre cable along the railway tracks.
This system will provide better operational and passenger amenities and additional
revenue to Railways.

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New Technologies :

India became the first developing country and the 5th country in the world to roll out
the first indigenously built "state-of-the-art" high horse power three phase electric
locomotive when the first such loco was flagged off from Chittranjan Locomotive
Works (CLW). CLW has been achieving progressive indigenisation and the cost of
locomotives has come down to the level of Rs.13.65 crore.

Diesel Locomotives Works, Varanasi has produced state-of-the-art 4000 HP AC/AC

diesel locomotive in April this year. These locos are capable of hauling 4,800 tonne
freight trains at a speed of 100 KMPH and can run continuously up to 90 days in one
stretch without any major maintenance.

Honours and Awards

Indian Railways achieved a number of recognitions and awards in sports, tourism

sector and for excellence in operational matters. In the Common Wealth Games in
Manchester, the Indian teams record performance has been mainly due to Railway
team's excellence in sports. Except one member the entire women's Hockey team
which bagged the gold medal belonged to Railways. Mohd Ali Qamar of Indian
Railways has bagged gold medal for boxing and other participants from Railways
helped India win medals in many a team events. A number of sportspersons from
Railways were conferred with the coveted Arjuna Awards and other major sports
awards.

Darjeeling Himalayan Railways attained the World Heritage Status from UNESCO.

Fairy Queen, the oldest functioning steam engine in the world, which finds a place in
the Guinness Book of World Records, got Heritage Award at the International Tourist
Bureau, Berlin in March, 2000. On operational front, Delhi Main station entered the
Guinness Book for having the world's largest route relay interlocking system.

Social obligations and care for weaker sections

Senior citizens, students, disabled persons etc. enjoy concessional benefits from
Railways. New initiatives in this area during the last three years include reduction of
age limits for special concession to senior women citizen from 65 to 60 years, blind
and mentally challenged persons can now travel in AC classes on confessional rates.

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Free second class Monthly Season Tickets (MSTs) for school going children upto
tenth standard for travel between home and school was also introduced.

Tie-Up with Foreign Railways

Indian Railways is in constant touch with Railways across the world to bring in state-
of-art facilities in its system. Towards this, a Memorandum of Understanding was
singed during the Eighth Session of the Indo-Austria Joint Economic Commission
held in Vienna. This seeks to promote and deepen long-term infrastructure-specific
cooperation between Indian and Austrian Railways to their mutual benefit. A three-
day International Conference of Union of Railways was organised by Indian Railways
in New Delhi in which hundreds of delegates from various industries and Railways
around the world participated.

1.3 Organizational Structure & Members of Railway Board

Members of Railway Board: -

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Organisational Structure: -

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1.4 Services
Since Indian Railways is a service industry, the various services offered are: -

i. Passenger Services

ii. Freight Services

iii. Mobile Ticketing Services

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iv. Parcel Courier Services

v. Catering and tourism Services

vi. Parking Lot Services

vii. Other services like cloakroom, restroom, etc.

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1.5 Market Overview
1.5.1 Indian railways has two major segments Source:
▪ India has the fourth-largest railway system in the world, following the US, Russia
and China.
▪ Indian Railway (IR) is:
• a departmental undertaking of the Government of India, which owns and
Operates most of India’s rail transport.
• overseen by the Ministry of Railways.
▪ As of FY21, IR had a total route network of 68,103 kms.
• It daily operated 13,452 passenger and 9141 goods trains.
• It has 1,26,611 kms of total tracks over a 68,103-km route and 7,337 stations.
• It had 24 million passengers and 203.88 million tonnes of freight.
• Introduced 200 new Vande Bharat trains

1.5.2 Strong revenue growth for Indian Railways

▪ Indian Railways’ revenue reached US$ 10.42 billion in FY 2023 (until August 10 ,
2022)

▪ Revenue growth has been strong over the years. Indian Railways’ revenue reached
US$ 24.67 billion in FY22. The gross revenue stood at US$ 18.10 billion in FY21.

▪ Indian Railways has undertaken various measures to boost revenues including:

• Passenger Earnings - introduction of new trains, operation of special trains

during peak seasons, running premium special trains with dynamic pricing

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 • Freight Earnings - reduction in distance of mini rakes, withdrawal of port
congestion charge, rationalisation of Merry-go-Round policy

• Parcel Earnings - leasing parcel space to private parties, liberalisation of

parcel policy

• Other Earnings - adoption of bulk advertising rights, vinyl wrapping of

trains, right of way charges

▪ Indian Railways is also looking at other areas of revenue generation such as the
following: a) Change in composition of coaches so that it can push the more profitable
AC coach travel; b) Additional revenue streams by monetising traffic on its digital
booking IRCTC; and c) Disinvesting IRCTC

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1.5.3 Segment wise growth for Indian Railways

▪ The total passenger revenue stood at US$ 2.70 billion in FY 2023 (until August 10 ,
2022)
▪ The total passenger revenue stood at US$ 4.98 billion in FY22 as compared to FY21
which was at US$ 1.97 billion.
▪ In case of freight earnings it experienced a year on year growth of 20.84%. It stood
at US$ 18.55 billion in FY22 as compared to FY21 which was at US$ 15.35 billion.
▪ In the first quarter of FY22, North Central Railways recorded the highest growth in
freight earnings at Rs. 437.57 crore (US$ 58.75 million), which is 24.2% more than
last year’s earnings of Rs. 325.33 crore (US$ 43.68 million). Freight loading also
increased to 4.32 million tonnes, which is 33.3% higher than last year’s loading of
3.24 million tonnes.
▪ With 637.2 kms of metro rail in 13 cities and over two dozen metro projects lined
up, India’s metro rail network is expanding at a fast pace.

1.5.4 Freight accounts for more than two-third of railway’s revenues

▪ Freight business for Indian Railway is supported by 9 commodities, few of them

being coal, iron, steel, iron ore, food grains, fertilizers, petroleum products.
▪ Freight remains the key revenue earning segment for the Indian Railways,
accounting for 75.2% of the total revenue in FY22, followed by the passenger
segment.

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▪ Profit from the freight segment is used to cross-subsidise the passenger segment.
▪ In FY21, Indian Railways recorded the highest loading in freight transportation.
With this, the freight revenue of Indian Railways also increased to ~Rs. 1,17,386
crore (US$ 15.84 billion) in the same period, as against Rs. 1,13,897 crore (US$ 15.36
billion) in FY20.
▪ Dedicated Freight Corridor Corp. of India Ltd. (DFCCIL) is already building two
freight corridors - Eastern Freight Corridor from Ludhiana to Dankuni (1,856 km),
and Western Freight Corridor from Dadri to Jawaharlal Nehru Port (1,504 km), at a
total cost of Rs. 81,000 crore (US$ 11.59 billion).
▪ Indian Railways plans to achieve 2,024 MT (metric tonne) loading in 2024 from the
current 1,200-1,300 MT.
▪ Laterite, one of the key raw materials used for
construction, was recently loaded and ferried
between Tamil Nadu and Andhra Pradesh. The
Railways ministry termed this to be the ‘new
stream of freight traffic’. The first consignment
generated revenue worth Rs.19.21 lakh (US$
25.79 thousand) for the Indian Railways.
– Originating from the mines in
Kutch—laterite is brought into Chennai via six
ships carrying as much as 70,000 tonnes of
materials every year. From the Chennai Port,
laterite is transported through these freight
trains to cement manufacturing plants in
Andhra Pradesh. According to the Southern
Railways zone, the resulting freight traffic is
estimated to fetch annual revenue worth Rs. 24
crore (US$ 3.2 million) for Indian Railways.

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1.5.5 Passenger volumes expected to recover post pandemic

▪ Train travel remains the preferred mean for long-distance travel for majority of
Indians.

▪ Increase in the demand for passenger trains is supported by urbanisation, improving

income standards, etc.

▪ In FY 2023 (until August 10, 2022) passenger traffic stood at 2.15 billion.

▪ During FY20, passenger traffic in the country reached 8,086 million and is estimated
to reach 12 million by 2031.

▪ In the wake of COVID-19, Indian Railways halted passenger train operations and
converted those coaches into COVID care centres and were used to supply oxygen
cylinders.

▪ As of April 2021, Indian Railways made ~4,000 COVID-19 care coaches

with ~64,000 beds ready for use by states.

▪ As of May 23, 2021, Indian Railways delivered >15,284 MT of Liquid

Medical Oxygen (LMO) in >936 tankers to 14 states.

▪ The passenger volumes are likely to gradually increase post pandemic. In April
2021, Indian Railways announced plans to add new trains for the convenience of
passengers. It will also introduce four Shatabdi Express trains and a Duronto Express
special train.

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1.5.6 Strong growth in freight traffic

▪ In FY 2021-22, railway freight traffic stood at 1,400 MT.

▪ Railway freight traffic growth stood at 125.5 MT in June 2022, an increase of

11.28% YoY led by incremental loading of coal, cement, and clinker.

▪ The Government is investing heavily in building rail infrastructure in the country.

▪ With increasing participation expected from private players, both domestic and
foreign, due to favourable policy measures, freight traffic is expected to grow rapidly
over medium to long term.

▪ Freight traffic carried by Indian Railways stood at 1,232.64 million tonnes in FY21
and is estimated to stand at 2,024 MT by 2024.

▪ In FY22 (until August 2021), freight loading stood at 561.80 million tonnes
compared with 430.75 million tonnes in FY21.

▪ In October 2021, freight earnings stood at Rs. 12,312.76 crore (US$ 1.63 billion)
and freight loading reached 117.35 million tonnes.

▪ In the first quarter of FY22, North Central Railway registered the highest growth in
freight earnings at Rs. 437.57 crore (US$ 58.75 million), which is 24.2% higher than
last year’s earnings of Rs. 325.33 crore (US$ 43.68 million). Freight loading also

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increased to 4.32 million tonnes, which is 33.3% higher than last year’s loading of
3.24 million tonnes.

▪ In November 2020, India Railways announced that 40% of dedicated freight

corridor (DFC) will be opened for traffic by end-FY21, while the entire 2,800 km
route will be completed by June 2022.

▪ In January 2021, Prime Minister Mr. Narendra Modi flagged off the world’s first
double-stack, long-haul container train from New Ateli in Haryana to New
Kishanganj in Rajasthan.

1.5.7 Rising export of railways sector

▪ India’s export of railways grew at and reached US$ 633.27 million by FY21 as
compared to US$ 414.53 million in FY18.

▪ In 2019, Train 18, Indian Railways’ fastest engine-less self-propelled train, gained
several queries for export.

▪ On July 28, 2020, Railways handed over 10 Broad Gauge (BG) locomotives to
Bangladesh, under grant assistance from the Government of India.

▪ In January 2021, Hyundai Motor India Ltd. (HMIL) has announced that it has
exported 125 cars to Nepal via the Indian Railways. The export is claimed to be eco-
friendly and the first-ever by the company. With this step, the company is aiming to
reduce carbon footprint by 20,260 tonnes.

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1.5.8 Key players supporting Indian Railways
• Key organisations supporting Indian Railways
1. Concor: -
o Navratna PSU under India’s Ministry of Railways
o Carrier, terminal operator and warehouse operator

2. DFCC (Dedicated Freight Corridor Corp.)

o SPV set up under the Ministry of Railways
o Undertakes planning and development; mobilization
of financial resources; construction, maintenance and
operation of the Dedicated Freight Corridor (DFC)

3. Rail Vikas Nigam Limited

o SPV created by the Government of India
o Builds engineering works required by Indian
Railways

4. RAILTEL
o Mini Ratna PSU with one of the largest neutral
telecom infrastructure providers in the country
o Strives to modernise train control operation and safety
system of Indian Railways

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1.6 Growth & Opportunities

1.6.1 Rising income and urbanisation driving passenger traffic growth

• Increasing incomes in urban and rural areas have made rail travel affordable to
large number of Indians.
• Improvement of urban-rural connectivity has been another major contributor to
the growth of Railways & the country.
• Population residing in urban areas is expected to increase from 460.78 million^ in
2018 to 542.74 million^ in 2025F. The percentage of India’s total population
residing in urban areas is expected to increase from 34.03%^ in 2018 to 37.38%^
in 2025F.

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1.6.2 Expanding scope of Public Private Partnership (PPP)

• In December 2012, the cabinet approved the new policy of participative

models for rail-connectivity and capacity augmented projects. The policy
addressed the issues of ownership of the railway line and repayment of
investment.
• Since the launch of the policy, railway authorities have received various
proposals from private investors and have already given approval (can now
acquire land and begin construction) for four port connectivity projects to ease
congestion
• Areas proposed for private investment during this period would include
elevated rail corridor in Mumbai, some parts of dedicated freight corridor,
freight terminals, redevelopment of stations and power generation/energy
saving projects
• Other measures taken/proposed include:
o Setting up of a modern signalling equipment facility at Chandigarh
through PPP
o Construction of new lines - Bhupdeopur-Raigarh (Mand Colliery) and
Gevra Road-Pendara Road; Doubling of Palanpur-Samakhiali section
through PPP.
o Setting up of 2 locomotive plants through PPP is crucial for the
development of infrastructure sector.
o Setting up joint ventures (JV) with major public sector customers for
fulfilling the requirements of new lines.
• As per the Union Budget 2019-20, Government enhanced the metro railway
initiative by encouraging more purchasing power parity initiatives and
ensuring completion of sanctioned works, while supporting transit-oriented
development (TOD) to ensure commercial activity around transit hubs.
• Purchasing power parity projects in railways is expected to receive investment
of Rs. 50 trillion (US$ 750 billion) by 2030.
• Western Railways division has signed a deal with the logistics partner of
Amazon India for speedy transportation of parcels in Rajdhani Express. The
division completed its first consignment journey from Mumbai to New Delhi
in October 2020. The deal stipulates consignment deliveries for 113 days form
October 2020 to February 2021 with an estimated good transportation of 2,712
tonnes; this will help generate a revenue of Rs. 2 crore.
• In February 2021, Indian Railways called for ‘Request for Qualification
(RFQ)’ for redeveloping New Delhi railway station under a public-private

30
 partnership, with an estimated project cost of Rs. 5,000 crore (US$ 690.75
million).
• In June 2021, Indian Railway Stations Development Corporation Limited
(IRSDC) shortlisted nine bidders for redevelopment of Mumbai's Chhatrapati
Shivaji Maharaj Terminus Railway Station (CSMT).
• On 26 July 2021, the Ministry of Railways received bids from the private and
public sectors to operate 29 pairs of trains with about 40 modern rakes,
entailing an investment of ~Rs. 7,200 crore (US$ 966.74 million).

1.6.3 Modernisation Strategy

To modernise Indian Railways, the focus is on two fundamental drivers, safety and
growth along with a 5-pronged strategy:

• Modernise core assets - key revenue generating assets

• Explore new revenue models - to meet the funding needs for modernisation
and growth
• Review projects - to ensure financial viability, social benefits and timely
implementation
• Focus on enablers - for a holistic and longterm approach to modernisation and
execution
• Mobilise resources - to capitalise on an opportunity
Information Technology - to improve operational efficiency

31
 New theme of Indian Railways: -

I. Track upgradation and welded rails

▪ Indian Railways aims to achieve 100% electrification of all broad-gauge

routes by 2023.
▪ Sleepers have been upgraded from wooden, steel and CST-9 to PSC sleepers.
▪ Heavier section and high tensile strength rails are being used (52 kg/60 kg 90
UTS rails are being used in place of 90 R/52 kg 72 UTS rails).
▪ For FY22, Indian Railways has set a target of 300 kms of new lines, 1,600
kms of doubling single-line sections and gauge conversion of 500 kms,
totalling 2,400 kms.

II. Adarsh scheme

▪ In 2009-10, Indian Railways implemented the ‘Adarsh’ Station scheme,

wherein railway stations are upgraded/modernised to provide better and
enhanced amenities to passengers.
▪ Under the scheme, 1,253 stations were identified for development, of which
1,201 stations have been developed and the remaining 52 stations will be
developed by 2021-22.
▪ Total allocation for the scheme increased from Rs. 1,470.79 crore (US$
228.21 million) in 2017-18 to Rs. 3,422.57 crore (US$ 467.25 million) in
2019-20.

III. Increasing operational efficiency

▪ Design and development of 5500 HP WDG5 diesel locomotive for faster,

longer and heavier trains. Development of 25 KV HV connector for multiple
operation of WAP5 locomotives with 1 pantograph in raised condition.
▪ Launch of a zero-based timetable to increase efficiency by pruning 600 trains
and eliminating halts at 10,200 train stations; this will boost revenue by Rs.
2,000 crore (US$ 262 million)
▪ About 4,000 unmanned level crossings have been eliminated in one year by
the Indian Railways. In August 2020, freight trains ran about 94% faster than
in August 2019.
▪ As of May 5, 2021, Indian Railways commissioned Wi-Fi at 6,000 railway
stations.

32
 ▪ In June 2021, the Central Government approved a Rs. 25,000 crore (US$
3.43 billion) five-year plan to use 4G technology to modernise communication
networks in railway stations and improve safety and security of train journeys.

IV. Unreserved ticketing services (UTS)

▪ UTS was made functional at 5,778 locations with 10,760 terminals.

Currently, 90% of unreserved tickets are generated through UTS. The app
received 10,62,560 new users until January 2019.
▪ By June 2019, 3.87 lakh passengers purchased the unreserved tickets through
online application.

33
 CHAPTER 02: INTRODUCTION

2.1 Introduction of the study

Financial performance analysis can identify the financial strengths and weaknesses of
the firm by properly establishing the relationship between the items of balance sheet
and profit and loss. It helps a firm to identify short term and long term growth
forecasting. This analysis can be undertaken by management of the firm or by parties
outside namely, owner, creditors, investors. Financial statement analysis involves the
re-organization of the entire financial data contained the financial statements. It is the
establishment of significant relationships between the individual components of
balance sheet and profit loss account. This is done through the application tools of
financial analysis like ratio analysis, trend analysis, common size balance and
comparative balance sheet. This is used for determining the investment value of the
business, credit rating and for testing efficiency of operation. Every company need to
analyse financial statement to know the performance of a company and company take
their decision and recovery procedure if need.

2.2 Purpose of study

The present study is made as a part of the MBA Programme for training in the form of
on the job training with the following activites.

1. To know the financial position of the Indian Railways.

2. The organisation has the strength to fulfil its obligation or not.

3. Find out strength and weakness of Indian Railways.

4. Growth rate of Indian Railways.

5. Know the operating efficiency of Indian Railways.

6. Know the overall profitability of Indian Railways.

2.3 Place of study

All the activities are carried out in the Indian Railways Zone – SECR DRM office,
Bilaspur, Chhattisgarh,

34
2.4 Scope of Project
Indian Railways is a big PSU. Hence, their economic activities huge and versatile.
One month is not enough time to learn the vast financial activities and operation
process. I tied to note my daily experience and finally make a combination of them to
prepare my project. This study is focused on the following areas.

I. An overview of Indian Railways

II. Financial Statement analysis of Indian Railways

The data and information were gathered during training.

The scope is limited to the secondary data only.

2.5 Objective of the Report

The role objective of the project is to help the management of the organization in
decision making regarding the subject matter.

Calculation of the financial statement and ration is only the clerical task whereas the
interpretation of its needs immense skill intelligence and foresightedness.

One of the easiest and most popular ways of evaluating performance of the
organization is to compare and through development action plan.

It gives an indication of the direction of change and reflects whether the

organization’s financial position and predominance has improved deteriorated or
remained constant over period of time.

Here much emphasis is given to historical comparison and on forecasting the

immediate future trends.

2.6 Methodology

Research Design: The study on “Financial analysis of Indian Railways”, is

descriptive in nature which is mainly based on secondary data. The study focuses on
financial statement analysis using of ratios.

Data Used in the study: The study is mainly based on secondary data.
• Annual Reports of Indian Railways

• Balance sheet of Indian Railways

35
 • Journals of Indian Railways

• Financial Reports of Indian Railways

• Income statement of Indian Railways

2.7 Limitations of Report

Though I have given utmost effort to prepare this paper but there are some limitation
of the study. Such are as follows:

• The main constrain of the study was insufficiency of information, which was
required for the study. There was various information the DRM office
employee can’t provide due the confidential and other obligations.
• Time constrains, one month is not enough to collect all necessary material
• Lack of opportunities to see the balance sheet of Zonal Office.
• As I am a student it is not possible for me to collect all the necessary
information.
• Lack of experience.

36
 CHAPTER 03: PROJECT OVERVIEW

3.1 Meaning and concept of Financial Analysis

The term ‘financial analysis’, also known as and interpretation of financial statements,
refer to the process of determining financial strengths and weakness of the firm by
establishing strategic relationship between the items of the balance sheet, profit and
loss account and opposite data. “analysis financial statements, according to Metcalf
and Titard, “is a process of evaluating the relationship between component parts of a
financial statements to obtain a better understanding of a firm’s position and
performance”. In the words of Myers, “financial statement analysis largely a study of
relationship among the various financial factors in a business as disclosed by a single
set-of statement, and a study of the trend of these factors as shown in a series of
statement”.

The purpose of financial analysis is to diagnose the information contained in

financial statements so as to judge the profitability and financial soundness of the
firm, just like a doctor examines his patient by recording his body temperature, blood
pressure, etc. before making his conclusion regarding the illness and before giving his
treatment, a financial analyst before commenting upon the financial health or
weakness of an enterprise. The analysis and interpretation of financial statements is to
essential to bring out the mystery behind the figure in financial statements. Financial
statements analysis is an attempt to 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 maturities (both current and long-term) and profitability of a
sound dividend policy.

The term ‘financial statement analysis’ includes both ‘analysis’, and

‘interpretation’. A distinction should, therefore, be made between the two terms.
While the term ‘analysis’ is used to mean the simplification of financial data by
methodical classification of the data given in the financial statements, ‘interpretation’
means. ‘explaining the meaning and significance of the data so simplified however,
both analysis and interpretation are in interlinked and complimentary to each other a
analysis is useless without interpretation and interpretation without analysis is
difficult or even impossible most of the authors have used the term analysis only to
cover the meaning both analysis and interpretation as the objective of analysis is to
study the relationship between various items of financial statements by interpretation.
We have also used the terms financial statement analysis or simply financial analysis
to cover the meaning of both analysis is and interpretation.

37
3.2 Objective and importance of Financial Statement Analysis
The primary objective of financial statements analysis is to understand and diagnose
the information contained in financial statement with a view to judge the profitability
financial soundness of the firm and to make forecast about future prospects of the
firm. The purposed of analysis depends upon the person interested in such analysis
and his object. However, the following purposed or objectives of financial statements
analysis may be stated to bring out significance of such analysis.

1. To assess the earning capacity or profitability of the firm.

2. To assess the operational efficiency and managerial effectiveness.

3. To assess the short term as well as long term solvency of the firm.

4. To identify the reasons for change in profitability and financial position of the
form.
5. To make inter firm comparisons.
6. To make forecasts about future prospects of the firm
7. To assess the progress of the firm over a period of time.
8. To help in decision making and control.
9. To guide or determine the dividend action
10. To prove important information for granting credit.

Types of Financial Analysis

1. On the basis of material used

2. On the basis of modus operandic
3. On the bases of entities used
4. On the basis of time horizon

On the basis of Material Used

According to material used, financial analysis can be two types.
a) External Analysis
b) Internal Analysis

a) External Analysis: This analysis is done by outsiders who do not have access to
the detailed internal accounting records of the business firm. There outsiders include
investors, potential investors, creditors, potential creditors, credit agencies,
government agencies and general public. For financial analysis thus save only a

38
limited purpose, however the recent changes in the government regulations requiring
business firms to make available more detailed information to the public though
audited published accounts have considerably improved the position of the external
analysis.

b) Internal Analysis: This analysis is done by persons who have access who have
across to the detailed internal accounting records of the business firm is known as
internal analysis such an analysis can therefore be performed by executives and
employees of the employee of the organization as well as government agencies which
have statutory powers vested in them financial analysis for managerial purposed is the
internal type of analysis that can be effected depending upon the purpose to be
achieved.

On the basis of Modus Operandic

According to the method of operation followed in the analysis can be two types
a) Horizontal Analysis
b) Vertical Analysis

a) Horizontal Analysis: If refers to the comparison of financial data of a company for

several years. The figures of this type analysis are presented horizontally over a
number of columns. The figures of the variously years are compared with standard or
base year. A base year is a year chosen as beginning point. It is also called 'Dynamic
Analysis. This analysis makes it possible to focus attention on items that have
changed significantly during the period under review. Comparative statements and
trend percentages ate two tools employed in horizontal analysis.

b) Vertical Analysis: It refers to the study of relationship of the various items in the
financial statements of one accounting period. In this type of analysis the figures from
financial statements of a year are compared with a base year selected from the same
year's statement. It is also called 'Static Analysis'. Common size financial statements
and financial ratios are the two tools employed in vertical analysis. Since vertical
analysis considers data for one time period only, it is not vary conducive to a proper
analysis financial statements. However, it may be used along with horizontal analysis
to make it more effective and meaningful.

39
On the basis of Entities Involved

According to the method of operation followed in the analysis can be two types
a) Inter-firm or Cross Sectional Analysis
b) Intra-firm or Time Series Analysis

a) Inter-Firm or Cross Sectional Analysis: Cross sectional analysis involves

comparison of financial data of a firm with other firms (competitors) or industry
averages for the same time period.

b) Intra-firm or Time Series Analysis: Time series analysis involves the study of
performance of the same firm over a period of time.

On the basis of Time Horizon

According to the method of operation followed in the analysis can be two types
a) Short term Analysis
b) Long term Analysis.

a) Short term Analysis: Short term analysis measures the liquidity position of a firm,
i.e. short term paying capacity of a firm or the firm's ability to meet the current
obligations.

b) Long term Analysis: Long term analysis involves the of the firm's ability to meet
the interest costs and repayment schedules of its long term obligations. The solvency,
stability and profitability are measured under this type of analysis.

3.3 Procedure of Financial Statements Analysis

Broadly speaking there are three steps involved in the analysis of financial statements.
These are: -

(i) Selection

40
(ii) Classification
(iii) Interpretation

The first step involves selection of information (data) relevant to the purpose of
analysis of financial statements. The second step involved is the methodical
classification of the data and the third step includes drawing of inferences and
conclusions.
The following procedure is adopted for the analysis and interpretation of financial
statements.

1. The analyst should acquaint himself with principles and postulates of accounting.
He should know the plans and policies of the management so that he may be able to
find out whether these plans are properly executed or not.

2. The extent of analysis should be determined so that the sphere of work may be
decided. If the aim is to find out the earning capacity of the enterprise then analysis of
income statement will be undertaken. On the other hand, if the financial position is to
be studied then balance sheet analysis will be necessary.

3.The financial data given in the statements should be re-organized and re-arranged. It
will involve the grouping of similar data under same heads, breaking down of
individual components of statements according to nature. The data is reduced to a
standard form.

4. A relationship is established among financial statements with the help of tools and
techniques of analysis such as ratios, trends, common size, finds flow etc.

5. The information is interpreted in a simple and understandable way. The

significance and utility of financial data is explained for helping decision-taking.

6. The conclusions drawn from interpretation are presented to the management in the
form of reports

3.4 Methods or Devices of Financial Analysis

A Number of methods or devices are used to study the relationship between different
statements. The following methods of analysis are generally used:

i. Comparative statement

41
ii. Trend analysis

iv. Ratio analysis

In this project the Comparative statement and Ratio Analysis is used to study the
financial statements of Indian Railways.

Comparative Statement: - The comparative financial statements are statements of

the financial position at different periods of time. The elements of financial position
ate shown in a comparative form so as to give an idea of financial position at two or
more periods. Any statement prepared in a comparative form will be covered in
comparative statements. From practical point of view generally two financial
statements.

1. Balance Sheet
2. Income Statement

Comparative balance sheet: - The comparative balance sheet analysis is the study
of the trend of the same items, group of items and computed items, group of items and
computed items in two or more balance sheets of the same business enterprise on
different dates. The changes in periodic balance sheet items reflect the conduct of a
business. The changes can be observed by comparison of th balance she at the
beginning and at the end of a period and these changes can help in forming an opinion
about the progress of an enterprise. The comparative balance sheet has two columns
for the data of original balance sheet. A third column is used to show this increase in
figures. The fourth column may be added for giving percentage of increases and
decreases.

Guidelines for Interpretation of Comparative Balance Sheet

While interpreting comparative balance sheet the interpreter is expected to study the
following aspects.

1. Current Financial Position and Liquidity Position

2. Long term Financial Position
3. Profitability of the Concern

l. For studying the Financial Position and short term Financial Position of a concern,
one sees the working capital in both the years. The excess of current assets over
current liabilities will give the figure of working capital. The increase in working

42
capital means improvement in the current financial position of the business. An
increase in current assets accompanied by the increase in current liabilities of the
same amount will not show any improvement in short term financial position. One
should study the increase or decrease in current assts and current liabilities and this
will enable him to analyze the current financial position.

2. The second aspect which should be studies in current financial position is the
liquidity position of the concern. If liquid assets like cash in hand, cash at bank, bills
receivable, debtors, etc. Show an increase in the second year over the first year, this
will improve the liquidity position of the concern, the increase in inventory can be on
account of accumulation of stocks for want customers, decrease in demand or
inadequate sales promotion efforts. An increase in inventory may increase working
capital of the business but it will not be good for business.

3. The long term financial position of the concern can be analyzed by studying the
changes in fixed assets, long term liabilities and capital. The pmper financial policy of
concern will be to finance fixed assets by the issue of either long term securities such
as debentures, bonds, loans from financial institutions or issue of fresh share capital,
an increase in fixed assets should be compared to the increase in long term loans and
capital if the increase in fixed assets is more than the long term securities then parts of
fixed assets have not only been financed from long term sources. A wise policy will
be to fiancé fixed assets by raising long term funds.

4. The new aspects to be studied in a comparative balance sheet questions is the

profitability of the concern. The study of increase or decrease in retained earning,
various resources and surpluses, etc will enable the interpreter to see whether the
profitability has improved or not. An increase in the balance of profit and loss account
and he other resources created from profits will mean an increase in profitability to
the concern. The decrease in such accounts may mean issue divided, issue dividend,
issue of bonus share or deterioration in profitability of the concern.

5. After studying various assets and liabilities and opinion should be formed about the
financial position of the concern. One cannot say if short term financial position is
good the n long term financial position will also be good or vice versa. A concluding
word about the overall financial position must be given at the end.

Comparative Income Statement: - The income statement gives the results of the
operation of a business. The comparative income statement gives an idea of the
progress of a business over a period of time. The changes in absolute data in money
values and percentages can be determined it analyze the profitability of the business.

43
.1ike comparative balance sheet income statement also has four columns. First two
columns give figures of various items for two years. Third and fourth columns are
used to show increase or decrease in figures in absolute amounts and percentages
respectively.

Guidelines for Interpretation of Comparative Income Statement

The analysis and interpretation of income statement will involve are following steps.

1. The increase or decrease in sales should be compared with the increase ore decrease
in costs of goods sold. An increase in sales will not always mean an increase in profit.
The profitability will improve if increase in sales is more than increase in costs of
goods sold. The amount of gross profit should be studied in the first step.

2. The second step of analysis should be the operational profits. The operating
expenses such as office and administrative expenses, selling and distribution expenses
should be deducted from gross profit to find out operating profits. An increase in
operating profit will result from the increase in sales position and control of operating
expenses. A decrease in operating profit may be due to an increase in operating
expenses or decrease in sales. The change in individual expenses should also be
studied. Some expenses may increase due to the expansion of business activities while
others may go u due to managerial inefficiency.

3. The increase or decrease in net profit will give an idea about the overall
profitability of the concern. Non operating expenses such as interest paid, losses from
sales of assets, writing off deferred expenses, payment of tax, etc. Decrease the figure
of operational profit, we get a figure of net profit. Some non operating incomes may
also be there which will increase net profit. An increase in net profit will gave us an
idea about the progress of the concern.

4. An opinion should be formed about profitability of the concern and it should be

given at the end. It should be mentioned whether the overall profitability of the
concern is good or not.
Focus on Financial statement Analysis:

Financial statement analysis involves evaluating different aspects of a business

enterprise, which are of great importance to different users such as management,
investors, creditors, bankers, analyst, investment advisers, etc. generally, the
following analyses are made while making Financial Statement Analysis.

44
1. Liquidity or short term solvency analysis
2. Profitability analysis
3.Capital structure or gearing analysis
4. Market strength or investor analysis
5. Growth and stability analysis

Application of Financial Analysis

Following are the application of financial analysis:

l. Assessing Corporate Excellence

2.Judging credit worthiness

3. Forecasting bankruptcy

4.Valuing equity shares

5. Predicting bonds ratings

6. Estimating market risk

3.5 Limitations of Financial Statement Analysis

Financial analysis is a powerful mechanism of determining financial strengths and
weakness of a firm. But, the analysis is based on the information available in the
financial statements. Thus, the financial analysis suffers from serious inherent
limitations of financial statements. The financial analysis has also be careful about the
impact of price level changes, windows dressing of financial statements, changes in the
accounting policies of a firm, accounting concepts and conventions, and personal
judgment, etc. the readers are advised to relate the limitations of financial statements as
given in the previous chapter and also the limitations of ratios as a tool of financial
analysis as discussed in Ratio Analysis. Some of the important limitations of financial
analysis are, however, summed up as below.

1. It is only a study of interim reports.

2. Financial analysis is based upon only monetary information and nonmonetary factors
are ignored.
3.It does not consider changes in price levels.
4. As the financial statements are prepared on the basis of a going concem, it does not
give exact position. Thus accounting concepts and conventions cause a serious
limitation to financial analysis.
5. Changes in accounting procedure by a firm may often make financial analysis

45
misleading.
6. Analysis is only a means and not an end in it self. The analyst has to make
interpretation and drawn his own conclusions. Different people may interpret the same
analysis in different ways.

3.6 Overview of Ratio Analysis

Introduction: - Ratio analysis is one of the techniques used to analyze the financial
statement. It is one of the most powerful tools of financial analysis. It is the process of
establishing and interpreting various ratios (quantitative relationship between figures
and group of figures). Through ratio analysis financial statement can analyze more
clearly and decision made from such analysis.
According to Accountant's Handbook by Wizon Kell and Bedford, a ratio 'is an
expression, of the quantitative relationship between the numbers'.

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 decision. However, ratio analysis is not an end in itself.
It is only a means of better understanding of financial strength and weaknesses of
affirm. Calculation of mere ratios does not serve any purpose, unless several appropriate
ratio are analyzed and interpreted. There are a number of ratios which can be calculated
from the information given in the financial statements, but the analyst select the
appropriate data and calculate only a few appropriate ratios from the same keeping in
mind the objective of analysis. The ratios may be used as a symptom like blood
pressure, the pulse rate or the body temperature and their interpretation depends upon
the caliber and competence of the analyst. The following are the four steps involved in
the ratio analysis:

1. Selection of relevant data from the financial statements depending upon the objective
of the analysis.
2. Calculation of appropriate ratios from the above data.
3. 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 ratio of some other firms
or the comparison with ratios of the industry to which the firm belongs.

4. Interpretation of the ratios.

Use and significance of Ratio Analysis: -

* Helpful in decision making.
* Helpful in financial forecasting and planning.
* Helpful in communication.
* Helpful in co-ordination.
* Helpful in Control.
* Helpful in efficiency appraisal

46
* Helpful in evaluation of financial position.
* Helpful to investors, financial institution, employee

Limitation of Ratio Analysis: -

The ratio analysis is one of the most powerful tools of financial management. Though
ratios are simple to calculate and easy to understand, they suffer from some serious
limitations.

Limited Use of Single Ratio: - A single ratio, usually, 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 on making any meaningful conclusion.

1. Lack of Adequate Standards: - There are no well adopted standards or rules of

thumb for all ratios which can be accepted as norms it renders interpretation of the
ratios difficult.

2. Inherent Limitation of Accounting: - Like financial statements, ratio also suffer

from the inherent weakness of accounting records such as their historical nature.
Ratios of the past are not necessarily true indicators of the future.

3. Change of Accounting Procedure: - Change in accounting procedure by a firm

often makes ratio analysis misleading. Changes in the valuation of methods of
inventories, from FIFO to LIFO increases the cost of sales and reduces considerably
the value of closing stocks which makes stock turnover ratio to be lucrative and an
unfavorable gross profit ratio.

4. 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
very careful in making a decision from ratios calculated from such financial
statements. But it may be very difficult for an outsider to know about the window
dressing made by a firm.

5. Personal Bias: - Ratio are only means of financial analysis and not an end in itself.
Ratios have to be interpreted and different people may interpret the same ratio in
different ways.

6. Incomparable: - Not only industries differ in their nature but also the firms of the
similar business widely differ in their size and accounting procedures, etc. it makes
comparison of difficult and misleading. Moreover comparisons are made difficult due
to differences in definitions of various financial terms used in the ratio analysis.

7. Absolute Figures Distortive: - Ratios devoid of absolute figures may prove

distortive as ratio analysis is primarily a quantitative analysis and not a qualitative
analysis.

47
8. Price Level Changes: - While making ratio analysis, no consideration is made to the
changes in price levels and this makes the interpretation of ratio invalid.

9. Ratios no Substitutes: - Ratio analysis is merely a tool of financial statements.

Hence, ratios become useless if separated from the statements form which they are
computed.

10. Clues not Conclusions: - Ratios provide only clue s to analysts and not final
conclusion. These ratios have to be interpreted by these experts and there are no
standard rules for interpretation.

Classification of Ratios:

The use of ratio analysis is not confined to financial manager only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. In view of various users of ratios, there are many types of ratios
which can be calculated from the information given in the financial statements. The
particular purpose of the user determines the ratios that might be used for financial
analysis.

Various accounting ratios can be classified as follows: -

48
 Ratio

Traditional Functional Significance

Classification Classification Ratio

Balace sheet
ratio Liquidity ratio Primary ratio

Profit & loss Leverage Secondary

account ratio ratio ratio

Comosite
Activity ratio
ratio

Profitability
ratio

Functional Classification in view of Financial Management or classification

According to Tests

Liquid Ratio:

(A) 1. Current ratio

2. Liquid ratio

3. Cash ratio

4. Interval Measure

49
(B) 1. Debtors Turnover ratio

2. Creditors Turnover ratio

3. Inventory Turnover ratio

Long-term solvency and Leverage ratios:

1. Debt/Equity ratio

2. Debt to total capital ratio

3. Invest Coverage

4. Cash Flow/Debt

5. Capital Gearing

Activity ratios or Asset Management ratio: -

1. Inventory Turnover ratio

2. Debtors Turnover

3. Fixed Assets Turnover ratio

4. Total Assets Turnover ratio

5. Working Capital Turnover ratio

6. Payables Turnover ratio

7. Capital Employed Turnover

Profitability Ratio: -

(A) In relation to Sales

1. Gross profit ratio

2. Operating ratio

3. Operating profit ratio

4. Net profit ratio

50
 5. Expense ratio

(B) In relation to Investment

1. Return on investments

2. Return on Capital

3. Return on Equity Capital

4. Return on Total Resources

5. Earning Per Share

6. Price-Earning Ratio

51
 CHAPTER 04: ANALYSIS & INTERPRETATION

4.1 Trend Analysis

The below table describes the total liabilities of Indian Railway. The liabilities of the
Indian Railway have raised from 21129.15 Crores in the year 2005 to 378051.73
Crores in the year 2021. The trend analysis shows a growth rate of 1689 percent with
an average growth rate of 397 percent. The degree of relationship of share capital and
Reserve & Surplus over the year is calculated as a high positive Correlation of 0.96
and the same non-current liabilities and current liabilities have the positive correlation
of 0.72.

The trend percentage calculated in this regard share capital, Reserve & Surplus, Non
Current Liabilities and Current Liabilities is high in the year 2021 the growth
percentage of the same is 1672,190,308, 2976. The trend line is positive with an
exponential growth rate of 25.7 percent, 15.6 percent, 15 percent, 32 percent and 0.97,
0.88, 0.99, 0.89 as the co-efficient of determination.

Trend on the Total Liabilities of Indian Railways

52
Year SC Trend R&S Trend NCL Trend CL Trend TC & TL Trend
on on on on on
SC R&S NCL CL TC&TL

2005 232 100 2160.91 100 18057.13 100 679.11 100 21129.15 100

2006 232 100 1863.76 86 21022.54 116 439.54 65 23557.84 111

2007 500 216 1621.25 75 23504.31 130 600.42 88 26225.98 124

2008 500 216 1925.76 89 25953.22 144 813.8 120 29192.79 138

2009 800 345 1980.70 92 360645.26 164 985.36 145 33411.32 158

2010 1091 470 2314.48 107 36075.60 200 1183.02 174 40664.10 192

2011 1602 691 2683.97 124 37448.04 207 4976.37 733 46710.38 221

2012 2352 1014 3048.53 141 49987.98 277 5200.79 766 60589.30 287

2013 2952 1272 3442.28 159 55967.31 310 5200.79 1236 70755.04 335

2014 3583.96 1545 3978.08 184 69258.16 384 7109.83 1047 83930.02 397

2015 4126.45 1779 4555.15 211 66747.57 370 12217.82 1799 87646.99 415

2016 4526 1951 6998.89 324 82051.32 454 14823.72 2183 108399.93 513

2017 6526.46 2813 5483.14 254 104842.55 581 12797.48 1884 129649.63 614

2018 6526.46 2813 7038.75 326 123295.85 683 25471.07 3751 162332.13 768

2019 9380.46 4043 15648.19 724 173952.26 963 7622.70 1122 206603.13 978

2020 11880.46 5121 19081.97 883 155336.48 860 89635.26 13199 275934.17 1306

53
2021 13068.51 5633 22844.88 1057 179983.87 997 162154.47 23877 378051.73 1789

Average 4110.57 1772 6247.75 290 73713 408 20888 3076 104987 497

Relationship 0.96 0.72

Note: SC= Share Capital; R&S= Reserves and Surplus; NCL=Non-current liabilities;
CL= current Liabilities; TC&TL= Total capital and Liabilities

Trend on the total Assets of Indian Railways

54
The above table describes the total assets of Indian Railway. The assets of the Indian
Railway have raised from 21,129Crores in the year 2005 to 378,052Crores in the year
2021. The trend analysis shows a growth rate of 1689 percent with an average growth
rate of 397 percent. The degree of relationship of Current Assets and Non Current
Assets over the year is calculated as a negative Correlation of -0.42

The trend percentage calculated in this regard Current Assets and Non-Current Assets
is high in the year 2021 the growth percentage of the same is 28241 and -60.46. The
current Asset trend line is positive with an exponential growth rate of 20.2 and the
Non-Current Asset trend line is negative with an exponential growth rate 26.3percent
and 0.38, 0.26 as the co-efficient of determination.

55
 Particulars As at 31st march 2022 As at March 2021

Assets

Financial Assets

Cash & cash equivalents 146.49 297.19

Bank balance other than above 156.88 161.73

Derivative financial instruments 202.33 76.01

Receivables nil nil

-lease receivables 200692.50 165569.99

Loans 6824.81 6969.81

Investments 10.01 11.98

Other financial assets 224777.92 197128.25

Total financial assets 432810.92 370213.97

Current tax assets (net) 627.31 933.38

Property, plant & equipment 13.89 19.95

Right to use of assets 22.43 34.37

Other intangible assets 1.65 0.04

Other non-financial assets 16494.03 6859.00

Total non-financial assets 17169.30 7837.74

Total assets 449980.22 380481.52

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LIABILITIES & EQUITY

Liabilities

Financial liabilities nil nil

Derivative financial instruments 566.93 360.13

Payables nil nil

-trade payables nil nil

(i) total outstanding dues of micro enterprise nil nil

and small enterprises

(ii) total outstanding dues of creditors other nil nil

than micro enterprise and small enterprises

-other payables nil nil

(i) total outstanding dues of micro enterprise 1.00 0.38

and small enterprises

(ii) total outstanding dues of creditors other 23.57 50.38

than micro enterprises and small enterprises

Due securities 194174.95 178574.79

Borrowings (other than securities) 194174.66 144535.89

Lease liabilities 23.35 34.59

Other financial liabilities 19425.20 19602.90

Total financial liabilities 408456.67 343159.06

Non- financial liabilities nil nil

Current tax liabilities (net) nil nil

Provisions 53.57 29.12

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Deferred tax liabilities (net) nil nil

Other non-financial liabilities 473.64 1379.96

Total non-financial liabilities 527.21 1409.08

Total liabilities 408983.88 344568.14

EQUITY

Equity share capital 13068.51 13068.51

Other equity 27927.83 22844.88

Total equity 40996.34 35913.38

Total liabilities and equity 449980.22 380481.52

4.3 Comparative P&L Statement

(In Crore) Year ended Year ended

March 2022 March 2021

Revenue from operations

Interest income 7294.67 3943.66

Dividend income 0.99 0.25

Lease income 13003.59 11826.56

Total revenue from operations 20299.25 15770.47

Other income 2.33 0.39

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Total income 20301.58 15770.86

Finance costs 14074.78 11237.05

Impairment on financial instruments 0.46 2.72
Employee benefit expense 10.75 7.85

Depreciation, amortization and impairment 14.02 4.43

Other expenses 111.43 102.68

Total expenses 14211.44 11354.73

Profit before exceptional items and tax 6090.15 4416.13

Exceptional items Nil Nil

Profit before tax 6090.15 4416.13

Tax expenses Nil Nil

Current tax Nil Nil

Deferred tax Nil Nil

Adjustment for earlier year 0.32 Nil

Total tax expenses 0.32 Nil

Profit for the period from continuing operations Nil 4416.13

Profit from the discontinued operations Nil Nil

Tax expenses of discontinued operations Nil Nil

Profit from discontinued operations (after tax) Nil Nil

Profit for the period 6089.83 4416.13

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 4.4 Key Financials

(In crore)

Particulars Year ended Growth in % Year ended

31st march 2022 31st march 2021

Revenue from 20298 29% 15770

operations

Finance cost 14075 25% 11237

Net interest income 6223 37% 4533

Profit before tax 6090 38% 4416

Profit after tax 6090 38% 4416

Total comprehensive 6090 38% 4418

income

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 4.5 Key Ratios

Key ratios of FY 2021-22

Particulars FY 2021-22

Net interest margin 1.60%

Return on equity 14.86%

Net gearing ratio 9.47%

CRAR 440%

EPS 4.66

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4.6 Financial Performance

62
63
Operating Ratio:
Operating Ratio represents the ratio of working expenses to traffic earnings. A higher
ratio indicates poorer ability to generate surplus. Against the target of 95 per cent in
the Budget Estimates, the Operating Ratio of Railways was 98.36 per cent in 2019-20.
This meant that railways spent ` 98.36 to earn ` 100. As compared to the Operating
Ratio of 97.29 per cent during 2018-19, there was deterioration in 2019-20. The
Operating Ratio of Indian Railways during the past ten years is as follows:

As can be seen from the Graph above, the Operating Ratio of Indian Railways reached
an all-time high of 98.44 per cent in 2017-18, which marginally came down to 97.29
per cent in 2018-19, and increased to 98.36 per cent in 2019-20.

Operating Ratio of zonal railways during the last five years ended on 31 March 2020
is shown in the following Table:

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Operating Ratio of six Zonal Railways (South Central, North Central, West Central,
South Eastern, South East Central and East Coast Railways) ranged between 87 per
cent and 51 per cent. Operating Ratio of eleven Zonal Railways (Metro
Railway/Kolkata, North Eastern, Eastern, Northern, Northeast Frontier, Southern,
South Western, Western, North Western, Central and East Central Railways) was
more than 100 per cent during 2019-20 implying that their working expenditure was
more than their traffic earnings. Operating Ratio of seven Zonal Railways (Metro
Railway/Kolkata, North Eastern, Eastern, Northern, Northeast Frontier, Southern and
South Western Railways) had continued to be more than 100 per cent in the last five
years.

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Capital output ratio:
Capital Output Ratio (COR) indicates the amount of capital employed to produce one
unit of output. Total Traffic in terms of NTKMs (for both Goods and Passenger
Traffic) is considered as the output in the case of IR. Higher COR indicates lower
performance. COR of IR during the last five years ended on 31 March 2020 was as
follows:

COR had increased from 374 paise in 2015-16 to 479 paise in 2019-20 indicating
decrease in physical performance of the IR as compared to capital employed. Higher
cost overruns due to non-completion of projects in time coupled with investment in
financially unviable projects contributed to higher COR.

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Return on Equity of Railway PSU:

Return on Equity (RoE) is a measure of financial performance of companies

calculated by dividing net income by shareholders’ equity.

Return on Equity = (Net Profit after Tax and preference Dividend/Equity)*100 where
Equity = Paid up Capital + Free Reserves – Accumulated Loss – Deferred Revenue
Expenditure

Activity wise Return on Equity

Activity wise analysis of RoE of Railway PSUs indicates that only Consultancy and
Catering & Tourism activities had shown an increase of RoE. The RoE had increased
from 15.37 per cent (2017-18) to 23.15 per cent (2019-20) in respect of Consultancy
whereas the RoE had increased from 23.22 per cent (2017-18) to 39.81 per cent
(2019-20) in respect of Catering & Tourism activities. In respect of all other activities,
the RoE had decreased during the past three years.

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 CHAPTER 05: FINDINGS AND SUGGESTIONS

5.1 Findings

• Railways’ ability to generate its own revenue has been slowing

• Freight traffic has been declining, and is limited to a few items
• Freight traffic cross-subsidises passenger traffic
• Losses made by passenger business are classified as social obligations
• Financing for roads and railways is skewed
• Railways’ accounting system does not create any distinction between the
commercial and social role of Railways
• Railways’ ability to invest in capita expenditure has been declining
• Consequently, dependence on market borrowing has been
increasing

5.2 Suggestions

• Needs to take steps to diversify their freight basket to enhance

freight earnings and also consider to exploit its idle assets to
increase other earnings.
• Needs to revisit the passenger and other coaching tariff so as to
recover the cost of operations in a phased manner and reduce its
losses in its core activities.
• Needs to ensure that surplus and operating ratio represent a true
picture of its financial performance.
• Speeding up the winding-up process of non-working railway PSUs.

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 CHAPTER 06: CONCLUSION

This paper has provided an overview of the performance of Indian Railways. The
liabilities of the Indian Railway have raised from 21129.15 Crores in the year 2005 to
378051.73 Crores in the year 2021. The trend analysis shows a growth rate of 1689
percent with an average growth rate of 397 percent. The degree of relationship of
share capital and Reserve and Surplus over the year is calculated as a high positive
Correlation of 0.96 and the same non-current liabilities and current liabilities have the
positive correlation of 0.72. The degree of relationship of Current Assets and Non-
Current Assets over the year is calculated as a negative Correlation of -0.42.

69
 BIBLOGRAPHY/REFERENCE

Reference from:
Journal, Magazine, Annual Reports, Audit Reports, Financial Reports of Indian
Railways

Websites:
Indianrailways.gov.in

En.m.wikipedia.org

Cag.gov.in

www.managementparadise.com

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