ratio analysis
Short Description
a project on ratio analysis on ntpc...
Description
Project report On
Ratio analysis of NTPC and other players in Power Sector
Under the guidance of
MR. S.D. GUPTA Sr. Manager (Finance)
MS. KIRTI VERMA &
NTPC/NRHQ
Assistant Prof. ICCMRT (LUCKNOW)
Submitted By Surendra Kumar Shukla 3rd Sem. ICCMRT, LUCKNOW
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Acknowledgement
I would like to take this opportunity to convey my sincere thanks to the management of my institute i.e. Institute of Co-Operative and Corporate, Management, Research and Training (Lucknow) and Principal sir Dr. Ajay Prakash who had allowed me to venture into this project.
My special thanks and deep felt gratitude is due to Ms. Kirti Verma under whose kind endeavor and guidance has allowed me to carry this project.
I owe my sincere and whole hearted thanks to Mr.S.D.Gupta (Sr.Finance Officer N.T.P.C,NRHQ,LUCKNOW), Mr. S.S. Ojha (Sr. Finance Officer,NTPC/NRHQ,Lucknow) for constantly guiding me and tackling hurdles with implicit patience throughout my project .
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PREFACE
In the broad sense training is necessary to make the students of professional institutions familiar with the industrial environment. This not only helps professionals to speedily accommodate themselves in industries but also to have better usage of their studies. To be dynamic, strategic and work aggressively they need to know the policies, procedures and trends going in the present industrial environment apart from their studies. The training fulfills all these needs. Whether it is the question of demonstrating a modernized procedure, step by step to an old production hand or guiding a new division head through the intricacies of preparing his own budget, the responsible supervisor or manager must make the trainee learn and communicate. The purpose and objective of the study is to analyze the different aspect of financial position of the organization and list out the suggestions based on the studies. The main source of the study is secondary data collected from the annual and other public reports and other information received from Institute Of Co-operative & Corporate, Management, Research and Training,Lucknow. The analysis of the data is carried out by the various modern and standard tools to achieve the objective of the study.
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TABLE OF CONTENTS 1. Acknowledgment ….………………………………………………………………………2 2. Preface……………………………………………………………………………………...3 3. Introduction of NTPC….………………………………….………………………………. 5 4. SWOT Analysis of NTPC………….……………………………………………………...17 5. Introduction of topic……………………………………………………………………….19 6. Research Methodology… ………………………..………………………………………..37 7. Objective of project report………………………………………………………………....39 9. Balance sheet of NTPC……………………………………………………………………40 10. Ratios of NTPC………………………………………………………………………..…41 10. Introduction of Reliance Power………………………………………………………….43 11. Introduction of Tata Power………………………………………………………………50 12. Comparison of all ratios………………………………………………………………….59 13. Interpretation of all ratios………………………………………………………………...63 14. Conclusion ……………………………………………………………………………….72 15. Bibliography………………………………………………………………………………73 16. My learning at NTPC……………………………………………………………………..74
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INTRODUCTION
About Organization
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-: Introduction
Type-
State owner Enterprises
Traded as-
BSE 53255
of organization:-
NSE –NTPC BSE SENSEX Constituent Industry-
Electricity Utility
Founded-
1975
Head Quarter-
Delhi, India
Key People-
Arup Roy Choudhury
Products-
Electrical Power Natural Gas
Services-
Electricity Generation &Distribution
Revenue-
Rs. 620.53billion (US$11.23 billion) (2011-12)
Net Income-
Rs. 92.23billion (US$1.67billion) (2011-12)
Employee-
26,000 (2012)
Website-
www.ntpc.co.in
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National Thermal Power CorporationIndia‟s largest power company, NTPC was set up in 1975 to accelerate power development in India. NTPC is emerging as a diversified power major with presence in the entire value chain of the power generation business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilization and coal mining. NTPC ranked 341st in the „2010, Forbes Global 2000‟ ranking of the World‟s biggest companies. NTPC became a Maharatna company in May, 2010, one of the only four companies to be awarded this status.
The total installed capacity of the company is 34,194 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 5 stations are coal based & another station uses naptha/LNG as fuel. The company has set a target to have an installed power generating capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources(RES) including hydro. By 2032, non fossil fuel based generation capacity shall make up nearly 28% of NTPC‟s portfolio. NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency.
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In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed company in November 2004 with the Government holding 89.5% of the equity share capital. In February 2010, the Shareholding of Government of India was reduced from 89.5% to 84.5% through Further Public Offer. The rest is held by Institutional Investors and the Public.
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At NTPC, People before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been awarded No.1, Best Workplace in India among large organizations and the best PSU for the year 2010, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive CSR initiatives, NTPC strives to develop mutual trust with the communities that surround its power stations. NTPC Sale of energy up by 13.90% and Profit up by 5.6 % The state-owned power utility NTPC Ltd, formerly National Thermal Power Corp, posted a net profit after tax of Rs.8,201crore in 2008-09 against Rs.7,415 crore netted the last fiscal, an increase of Rs.786 crore. Total income increased from Rs.40, 018 crore 2008-09 to Rs.45, 273 crore the previous fiscal, NTPC said in a regulatory statement. Its net profit for the quarter ended March 31, 2009 was also up at Rs.2, 113.4 crore, as compared to the near Rs.1, 340 crore for the corresponding quarter the year before.
VISION“To be the world‟s largest and best power producer, powering India‟s growth.”
MISSION“Develop and provide reliable power related products and services at competitive prices, integrating multiple energy sources with innovative & Eco-friendly technologies and contribute to society.”
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CORE VALUES – BE COMMITTED B - Business Ethics. E - Environmentally& Economically Sustainable. C - Customer Focus. O - Organizational& Professional Pride. M - Mutual Respect & Trust. M – Motivating Self & Others. I – Innovation & Speed. T - Total Quality for Excellence. T – Transparent & Respected Organization. E – Enterprising. D– Devoted.
Recognitions & Awards –
Scope meritorious award for best practices in Human Resources Management on occasion of Public Sector Day(2010-2011)
Most Respected Company in the Power sector by Business world 2011
PSU Excellence award 2010in the Best Financial Performance Category by Chamber of Commerce and Department of Public Enterprise.
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Award for “Best HR Strategy in line with Business” and award for “Talent Management” at the Asia Best Employer Brand held by Singapore in 2010.
CII-EXIM Bank Excellence Award has conferred commendation for Anta and Kobra stations for “Strong Commitment to Excel” and commendation for “Significant Achievement “for Dadri Station.
Achievements:
Sixth largest thermal power generator in the World and the Second most efficient utility in terms of capacity utilization.
Contribution of NTPC in power generation: NTPC has contribution of 28% of total power generation capacity of India.
NTPC’S CULTURE Core values are both intensely and widely shared Climate of high behavioral control Low employee turnover High agreement among the employees, for what NTPC stands for.
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All these point to the fact that strong cohesiveness, loyalty and organization commitment exist in NTPC lowering he attrition Rate
POWER STATION OF NTPC IN INDIA
Singrauli
Korba Ramagundam Farakka Vindhyachal Rihand Kahalgaon NCTPP |
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Talcher Kaniha Unchahar Talcher Thermal Simhadri Tanda Anta Auraiya Kawas Dadri Gas Jhanor-Gandhar Kayamkulam Faridabad
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Power Generation -
Presently, NTPC generates power from Coal and Gas. With an installed capacity of 28840 MW, NTPC is the largest power generating major in the country. It has also diversified into hydro power, coal mining, power equipment manufacturing, oil & gas exploration, power trading & distribution. With an increasing presence in the power value chain, NTPC is well on its way to becoming an “Integrated Power Major.”
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Total income for the quarter increased to Rs.12, 481.5 crore from Rs.11, 487.5 crore in the like period the previous fiscal. The company said its board has recommended a final dividend at 8 percent of the paid-up equity capital in addition to the 28 percent interim dividend paid in February. (IANS)
Business strengths of NTPC In over 30 years of its existence, this huge power conglomerate has emerged as the world's most efficient electricity generator. It's is this consistency in performance that made the government look at NTPC for help turn around some other sick power companies, instead of going to some management consultants or privatizing it. NTPC did the government proud. One of these hopeless power plants was located in Unchahar in Uttar Pradesh, which has actually emerged as the world's best. It has won the prestigious 'Asian Power plant of the Year' award in 2006. It's truly teamwork that keeps an organization of 25,000 employees working in 25 plants across the country, going from strength to strength.
Major Achievements of NTPC
Largest thermal power generating company of India. Sixth largest thermal power generator in the world. Second most efficient utility in terms of capacity utilization. One of the nine PSUs to be awarded the status of Navratna. Provides power at the cheapest average tariff in the country.
Business strengths
24,375 highly trained employees Senior executives possess extensive experience of the industry Executive Turnover Rate 1.19% Planned interventions at various stages of career Systematic training ensures 7 man days training per employee per year Efficient and timely completion of projects Best-integrated project management systems Company with an excellent record and high profits An early starter-more than 30 years experience in power sector.
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Excellent growth prospects with significant additions, modifications and replacements. Employee-friendly personnel policies. Low project cost of NTPC‟s plants.
Services Offered By NTPC An entire gamut of services is offered in the areas mentioned above. These are: 1) Environment Engineering and Management 2) Project Management 3) Quality Assurance and Inspection Services 4) Materials Management 5) Construction Management, Erection and Commissioning 6) Financial Systems and Modeling 7) Operation and Maintenance 8) Restoration, Efficiency Improvement and Renovation and standardization
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SWOT ANALYSIS OF NATIONAL POWER THERMAL CORPORATION
STRENGTHS OF NTPC
The company has kept itself sufficient liquid funds to meet any kind of cash requirements. Efficient working capacity of the plants Efficient & timely completion of projects A minimum risk factor Best integrated project management system Company with excellent records & high profits An early starter more than 30 years experience in power sector One among the 9 jewels of India called as NAVRATANS Highly motivated & dedicated workers & officers. Excellent growth prospects with significant additions, modifications & replacements Employee friendly personnel policies Low project cost of NTPC‟s plants. one of the listed company on Bombay stock exchange
WEAKNESS OF NTPC
Depleting raw materials. Some of the plants of NTPC have become old and need investments for replacements or modifications.
OPPORTUNITIES FOR NTPC:
Demand & supply Gap. Upcoming hydro & nuclear sector Huge opportunity in the consultancy services both abroad as well as in India. Growth in power sector.
THREATS TO NTPC
Rising prices of raw materials makes working costly. Huge competition from SEB‟s, Reliance Energy, Tata Power & other private players in power industry. Coming up of other sources of power generation & consumption. Huge capital requirement for expansion, diversification, horizontal & vertical integration.
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All about Reliance Power - Introduction - Mission - Vision - Balance sheet - Ratios
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Reliance Power Limited is a part of the Reliance Group, one of India‟s largest business houses. The group comprises companies in the telecommunications, financial services, media and entertainment, infrastructure and energy sectors. The energy sector companies include Reliance Infrastructure Ltd and Reliance Power Limited. Reliance Power has been established to develop, construct and operate power projects domestically and internationally. The Company on its own and through subsidiaries has a portfolio of over 35,000 MW of power generation capacity, both operational as well as under development.
The power projects are planned to be diverse in geographic location, fuel type, fuel source and off-take, and each project is planned to be strategically located near an available fuel supply or load center. The company has 600 MW of operational power generation assets. The projects under development include seven coalfired projects to be fueled by reserves from captive mines and supplies from India and abroad, two gas-fired projects to be fueled primarily by reserves from the Krishna Godavari Basin (the "KG Basin") off the east coast of India, and seven hydroelectric projects, six of them in Arunachal Pradesh and one in Uttarakhand. The company has won three of the four Ultra Mega Power Projects (Sasan UMPP, Krishnapatnam UMPP & Tilaiya UMPP) awarded by the Govt. of India till date. The UMPP is an initiative by the government to collaborate with power generation companies to set up 4,000 MW projects to ease the country‟s power deficit situation.Besides these, Reliance Power is also developing coal bed methane (CBM) blocks to fuel gas based power generation. The company is also planning to register projects with the Clean Development Mechanism executive board for issuance of Certified Emission Reduction (CER) certificates to augment its revenues.
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Mission 1) To attain global best practices and become a leading power generating company. 2) To achieve excellence in project execution, quality, reliability, safety and operational efficiency. 3) To relentlessly pursue new opportunities, capitalizing on synergies in the power generation sector. 4) To consistently enhance our competitiveness and deliver profitable growth. 5) To practice highest standards of corporate governance and be a financially sound company. 6) To be a responsible corporate citizen nurturing human values and concern for society. 7) To improve the lives of local community in all our projects. 8) To be a partner in nation building and contribute towards India‟s economic growth. 9) To promote a work culture that fosters learning, individual growth, team spirit and creativity to overcome challenges and attain goals. 10) To encourage ideas, talent and value systems and become the employer of choice. 11) To earn the trust and confidence of all stakeholders, exceeding their expectations. 12) To uphold the guiding principles of trust, integrity and transparency in all aspects of interactions and dealings.
Vision:1) To build a global enterprise for all our stakeholders 2) To be the largest private sector power generation company in India 3) To be the largest hydro power generation company in India 4) To be the largest green power company in India 5) To be the largest coal mining company in India
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All about Tata Power – -
About its project CSR Awards Vision Mission Value Balance Sheet Ratios
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Tata Power is India‟s largest integrated power company with a significant international presence. The Company has an installed generation capacity of 5297 MW in India and a presence in all the segments of the power sector viz Generation (thermal, hydro, solar and wind), Transmission, Distribution and Trading. It has successful public-private partnerships in Generation, Transmission and Distribution in India namely “Tata Power Delhi Distribution Limited" with Delhi Vidyut Board for distribution in North Delhi, 'Power links Transmission Ltd.' with Power Grid Corporation of India Ltd. for evacuation of Power from Tala hydro plant in Bhutan to Delhi and 'Maithon Power Ltd.' with Damodar Valley Corporation for a 1050 MW Mega Power Project at Jharkhand. It is one of the largest renewable energy players in India and is developing country‟s first 4000 MW Ultra Mega Power Project at Mundra (Gujarat) based on super-critical technology. Its international presence includes strategic investments in Indonesia through 30% stake in coal mines and a geothermal project; in Singapore through Trust Energy Resources to securities coal supply and the shipping of coal for its thermal power generation operations; in South Africa through a joint venture called „Cennergi‟ to develop projects in South Africa, Botswana and Namibia; in Australia through investments in enhanced geothermal and clean coal technologies and in Bhutan through a hydro project in partnership with The Royal Government of Bhutan. With its track record of technology leadership, project execution excellence, world class safety processes, customer care and driving green initiatives, Tata Power is poised for a multi-fold growth and committed to 'lighting up lives' for generations to come. Recognized as India‟s largest private sector power utility, with a reputation for trustworthiness, built up over nearly nine decades, Tata Power surges ahead into yet another year with plans of sustained growth, greater value to consumer and reliable power supply. Led by a powerful vision, Tata Power pioneered the generation of electricity in India. It has now successfully served the Mumbai consumers for over ninety years and has spread its footprints across the nation. Today, it is the country‟s largest private player in the sector. Apart from Mumbai and Delhi, the company has generation capacities in Jojobera, Jharkhand and Karnataka.
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Tata Power has an installed power generation capacity of about 3000 Mega Watts, with the Mumbai power business, which has a unique mix of Thermal and Hydro Power, generated at the Thermal Power Station, Trombay, and the Hydro Electric Power Stations at Bhira, Bhivpuri and Khopoli, accounting for 1797 MW. Its diverse generation capability facilitates the company in producing low cost energy, thereby giving its consumers a greater value for money. Among its many achievements that Tata Power can proudly boast of are the installation and commissioning of India‟s first 500 MW unit (at its Thermal Power Generating Station, Trombay) the 150 MW Pumped Storage Unit at its Hydro Generating Station, Bhira, and environmental control systems like the Flue Gas Desulphurization plant. Tata Power has a first of its kind joint venture with Power Grid Corporation of India for the 1200 km Tata Transmission Project.
North Delhi Power Limited A joint venture with the State Government of Delhi for its North Delhi consumers, the NDPL serves over 8 lakhs satisfied consumers with a peak load of 1050 MW, also providing state-of-the-art technology driven processes for enhancing consumer billing and related services. Tata Power Trading Company Limited (TPTCL), a wholly owned subsidiary of the Tata Power Company has been awarded the first ever power trading license by the Central Electricity Regulatory Commission (CERC) under section 14 of the Electricity Act 2003, enabling it to carry out transactions all over India.
International Projects Leveraging upon its engineering skills and understanding of the power business, Tata Power has carried out several overseas projects and successfully completed erection, testing and commissioning of major power projects in Saudi Arabia, Bangladesh, Kuwait, Algeria, Myanmar and Thailand. The company has also undertaken projects pertaining to power plant / operations management and plant operations training.
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Strategic Electronics Division (SED) The Strategic Electronics Division of Tata Power has been in operation for over 30 years and has been pursuing development and production activities for the Indian defense sector. SED successfully developed the Multi Barrel Rocket Launcher, „Pinaka‟, proven in the field through extended user trials which led to its induction into the Indian Army. The Division has developed specialized equipment for Air Defense and Naval Combat systems.
Corporate Social Responsibility (CSR) Tata Power is committed to setting high standards in its pursuit of social responsibility and remaining sensitive to the issues of resource conservation, environment protection and enrichment and development of local communities in its areas of operations. The company has a simple philosophy that guides its activities in these matters, “Giving back is a means towards going ahead". Our widespread programs on biodiversity conservation, forestation, pisciculture, family planning, health services, primary and secondary education and many more have made inroads into the tiny hamlets and tribal regions of our hydro catchments areas and it is our Endeavour to light up these dark and narrow streets to new dawns.
Awards CII EXIM Bank Award 2005 – "Certificate for Strong Commitment to Excel". “Energy Efficient Unit Award” at the National Award for Excellence in Energy Management – 2005 for T&D divisions conducted by CII. Jojobera has been declared as the winner of Golden Peacock Special Commendation Certificate for the year 2005 (11 June 2005). Tata Power among the top 13 Best Managed Companies in India by Business Today – AT Kearney (11 March 2005). The 2nd Wartsila – Mantosh Sondhi Award for outstanding contribution to the Indian Power Sector in 2004.
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Greentech Environment Excellence Award: Platinum to Jojobera Thermal Power Plant, Jharkhand in 2004. Greentech Safety Award: Gold to Trombay Thermal Power Station, Mumbai in 2004. The Power Plant Award, instituted by Electric Power International, to the Trombay Thermal Power Station in 1995. Outstanding Structures of the Year by the American Concrete Institute: Bronze Award to the Trombay Thermal Power Station for the year 1988 – 1989.
Vision, Mission & ValuesStrong values are the base of any laudable mission and vision is vital to its realization. Tata Power's fundamentals have always been very clear in this direction.
Vision To be the most admired Integrated Power and Energy Company delivering sustainable value to all stakeholders
Mission They will become the most admired Company delivering sustainable value by: 1) Being the supplier and partner of choice 2) Achieving excellence in safety, operations and project management 3) Focusing on the culture of sustainability 4) Ensuring growth and delivering value to the stakeholders 5) Caring for the community
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Values Integrity: Honesty, fairness and transparency in our conduct and transactions Trust: Faith and belief in each other Care: Being concerned about the well being of all employees Collaboration: Excellence through teamwork, within employees and partners Agility: Speedy, responsive and proactive, achieved through empowering employees Respect: Treat all stakeholders with respect and dignity Excellence: Bettering standards continuously, with passion and pride
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INTRODUCTION OF TOPIC -
Meaning of ratio What is Ratio Analysis.??? Advantage of Ratio Analysis Limitations of Ratio Analysis Classification of Ratio Analysis
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Meaning of RatioA ratio is simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to Accountant‟s Handbook by Wixom, Kell and Bedford, “a ratio is an expression of the quantitative relationship between two numbers”.
Ratio Analysis:Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting “Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication”. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgment, otherwise complex situations.
Ratio may be expressed in the following three ways:
1. Pure Ratio or Simple Ratio:It is expressed by the simple division of one number by another. For example, if the current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the ratio of „Current assets to current liabilities‟ will be 2:1.
2. „Rate‟ or „So Many Times:In this type , it is calculated how many times a figure is, in comparison to another figure. For example , if a firm‟s credit sales during the year are Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.
3. Percentage:In this type, the relation between two figures is expressed in hundredth. For example, if a firm‟s capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in term of percentage, is 200000/1000000*100 = 20%
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ADVANTAGE OF RATIO ANALYSIS:There are various groups of people who are interested in analysis of financial position of a company. They use the ratio analysis to work out a particular financial characteristic of the company in which they are interested. Ratio analysis helps the various groups in the following manner: 1-To workout the profitability: Accounting ratio help to measure the profitability of the business by calculating the various profitability ratios. It helps the management to know about the earning capacity of the business concern. In this way profitability ratios show the actual performance of the business. 2-To workout the solvency: With the help of solvency ratios, solvency of the company can be measured. These ratios show the relationship between the liabilities and assets. In case external liabilities are more than that of the assets of the company, it shows the unsound position of the business. In this case the business has to make it possible to repay its loans. 3- Helpful in analysis of financial statement: Ratio analysis help the outsiders just like creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of the company to pay them interest and dividend etc. 4-Helpful in comparative analysis of the performance: With the help of ratio analysis a company may have comparative study of its performance to the previous years. In this way company comes to know about its weak point and be able to improve them. 5-To simplify the accounting information: Accounting ratios are very useful as they briefly summarize the result of detailed and complicated computations. 6-To workout the operating efficiency: Ratio analysis helps to workout the operating efficiency of the company with the help of various turnover ratios. All turnover ratios are worked out to evaluate the performance of the business in utilizing the resources. 7-To workout short-term financial position: Ratio analysis helps to workout the short-term financial position of the company with the help of liquidity ratios. In case short-term financial position is not healthy efforts are made to improve it.
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8-Helpful for forecasting purposes: Accounting ratios indicate the trend of the business. The trend is useful for estimating future. With the help of previous years‟ ratios, estimates for future can be made. In this way these ratios provide the basis for preparing budgets and also determine future line of action.
Limitations of Ratio AnalysisIn spite of many advantages, there are certain limitations of the ratio analysis techniques and they should be kept in mind while using them in interpreting financial statements. The following are the main limitations of accounting ratios: 1-Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm can not always be compared with the ratio of other firm. Some firms may value the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there may be difference in providing depreciation of fixed assets or certain of provision for doubtful debts etc. 2-False Results: Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct. 3-Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price-level changes before any comparison. 4-Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis. 5-Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way.
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6-Costly Technique: Ratio analysis is a costly technique and can be used by big business houses. Small business units are not able to afford it. 7-Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10, 00,000 and sales are Rs. 40, 00,000. Even the profitability of the two firms is same but the magnitude of their business is quite different. 8-Absence of standard university accepted terminology: There are no standard ratios, which are universally accepted for comparison purposes. As such, the significance of ratio analysis technique is reduced.
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CLASSIFICATION OF RATIO
LIQUIDITY RATIOS Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the liquidity of the company as on a particular day i.e. the day that the Balance Sheet was prepared. These ratios are important in measuring the ability of a company to meet both its short term and long term obligations. 1) Current Ratio: This ratio is obtained by dividing the 'Total Current Assets' of a company by its 'Total Current Liabilities'. The ratio is regarded as a test of liquidity for a company. It expresses the 'working capital' relationship of current assets available to meet the company's current obligations. Formula: Total Current Assets/ Total Current Liabilities
2) Quick Ratio: This ratio is obtained by dividing the 'Total Quick Assets' of a company by its 'Total Current Liabilities'. Sometimes a company could be carrying heavy inventory as part of its current assets, which might be obsolete or slow moving. Thus eliminating inventory from current assets and then doing the liquidity test is measured by this ratio. The ratio is regarded as an acid test of liquidity for a company. It expresses the true 'working capital' relationship of its cash, accounts receivables, prepaid and notes receivables available to meet the company's current obligations. Formula: Quick Ratio = Total Quick Assets/ Total Current Liabilities Quick Assets = Total Current Assets (minus) Inventory
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3) Debt to Equity Ratio: This ratio is obtained by dividing the 'Total Liability or Debt ' of a company by its 'Owners Equity or Net Worth'. The ratio measures how the company is leveraging its debt against the capital employed by its owners. If the liabilities exceed the net worth then in that case the creditors have more stake than the shareowners. Formula: Total Liabilities / Owners Equity or Net Worth
PROFITABILITY RATIOS Profitability Ratios show how successful a company is in terms of generating returns or profits on the Investment that it has made in the business. If a business is liquid and efficient it should also be Profitable.
1) Return on Sales or Profit Margin (%): The Profit Margin of a company determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The ratio measures the percentage of profits earned per dollar of sales and thus is a measure of efficiency of the company. Formula:-
(Net Profit / Net Sales) x 100
2) Return on Assets: The Return on Assets of a company determines its ability to utilize the Assets employed in the company efficiently and effectively to earn a good return. The ratio measures the percentage of profits earned per dollar of Asset and thus is a measure of efficiency of the company in generating profits on its Assets. Formula: - (Net Profit / Total Assets) x 100
3) Return on Equity or Net Worth: Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders'
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equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good.
Its calculated as:
ROE = Net Income (After Tax)/Shareholders Equity.
ROE is equal to a fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage. As with many financial ratios, ROE is best used to compare companies in the same industry. High ROE yields no immediate benefit. Since stock prices are most strongly determined by earnings per share (EPS), you will be paying twice as much (in Price/Book terms) for a 20% ROE Company as for a 10% ROE company.
The DuPont Formula The DuPont formula, also known as the strategic profit model, is a common way to break down ROE into three important components. Essentially, ROE will equal the net margin multiplied by asset turnover multiplied by financial leverage. Splitting return on equity into three parts makes it easier to understand changes in ROE over time. For example, if the net margin increases, every sale brings in more money, resulting in a higher overall ROE. Similarly, if the asset turnover increases, the firm generates more sales for every unit of assets owned, again resulting in a higher overall ROE. Finally, increasing financial leverage means that the firm uses more debt financing relative to equity financing. Interest payments to creditors are tax deductible, but dividend payments to shareholders are not. Thus, a higher proportion of debt in the firm's capital structure leads to higher ROE. Financial leverage benefits diminish as the risk of defaulting on interest payments increases. So if the firm takes on too much debt, the cost of debt rises as creditors demand a higher risk premium, and ROE decreases. Increased debt will make a positive contribution to a firm's ROE only if the matching Return on assets (ROA) of that debt exceeds the interest rate on the debt.
ROE = Net Income/Sales*Sales/Total Assets*Total Assets/Average Shareholders’ Equity
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MANAGEMENT EFFICIENCY RATIOS Efficiency ratios are ratios that come off the Balance Sheet and the Income Statement and therefore incorporate one dynamic statement, the income statement and one static statement, the balance sheet. These ratios are important in measuring the efficiency of a company in either turning their inventory, sales, assets, accounts receivables or payables. It also ties into the ability of a company to meet both its short term and long term obligations. This is because if they do not get paid on time how will you get paid on time. You may have perhaps heard the excuse 'I will pay you when I get paid' or 'my customers have not paid me!'
1) DSO (Days Sales Outstanding): The Days Sales Outstanding ratio shows both the average time it takes to turn the receivables into cash and the age, in terms of days, of a company's accounts receivable. The ratio is regarded as a test of Efficiency for a company. The effectiveness with which it converts its receivables into cash. This ratio is of particular importance to credit and collection associates. Best Possible DSO yields insight into delinquencies since it uses only the current portion of receivables. As a measurement, the closer the regular DSO is to the Best Possible DSO, the closer the receivables are to the optimal level. Best Possible DSO requires three pieces of information for calculation: a) Current Receivables b) Total credit sales for the period analyzed c) The Number of days in the period analyzed Formula:
Best Possible DSO = Current Receivables/Total Credit Sales X Number of Days
Regular DSO =
(Total Accounts Receivables/Total Credit Sales) x Number of Days in the period that is being analyzed
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2) Inventory Turnover Ratio: This ratio is obtained by dividing the 'Total Sales' of a company by its 'Total Inventory'. The ratio is regarded as a test of Efficiency and indicates the rapidity with which the company is able to move its merchandise. Formula: Inventory Turnover Ratio = Net Sales / Inventory Inventory Turnover Ratio = Cost of Goods Sold / Inventory
3) Accounts Payable to Sales (%): This ratio is obtained by dividing the 'Accounts Payables' of a company by its 'Annual Net Sales'. This ratio gives you an indication as to how much of their supplier‟s money does this company use in order to fund its Sales. Higher the ratio means that the company is using its suppliers as a source of cheap financing. The working capital of such companies could be funded by their suppliers.. Formula: Accounts Payables to Sales Ratio = [Accounts Payables / Net Sales] x 100
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INVESTMENT VALUATION RATIO
1) Price/Book Value Ratio: A valuation ratio used by investors which compares a stock's per-share price (market value) to its book value (shareholders' equity). The price-to-book value ratio, expressed as a multiple (i.e. how many times a company's stock is trading per share compared to the company's book value per share), is an indication of how much shareholders are paying for the net assets of a company.
The book value of a company is the value of a company's assets expressed on the balance sheet. It is the difference between the balance sheet assets and balance sheet liabilities and is an estimation of the value if it were to be liquidated. The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm.
Formula:
2) Price/Cash Flow Ratio:The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a value standpoint, of a company's stock. This metric compares the stock's market price to the amount of cash flow the company generates on a per-share basis. This ratio is similar to the price/earnings ratio, except that the price/cash flow ratio (P/CF) is seen by some as a more reliable basis than earnings per share to evaluate the acceptability, or lack thereof, of a stock's current pricing. The argument for using cash flow over earnings is that the former is not easily manipulated, while the same cannot be said for earnings, which, unlike cash flow, are affected by depreciation and other non-cash factors.
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Formula:
3) Price/Earnings Ratio: The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public. The financial reporting of both companies and investment research services use a basic earnings per share (EPS) figure divided into the current stock price to calculate the P/E multiple (i.e. how many times a stock is trading (its price) per each dollar of EPS). It's not surprising that estimated EPS figures are often very optimistic during bull markets, while reflecting pessimism during bear markets. Also, as a matter of historical record, it's no secret that the accuracy of stock analyst earnings estimates should be looked at skeptically by investors. Nevertheless, analyst estimates and opinions based on forward-looking projections of a company's earnings do play a role in Wall Street's stockpricing considerations. Historically, the average P/E ratio for the broad market has been around 15, although it can fluctuate significantly depending on economic and market conditions. The ratio will also vary widely among different companies and industries.
Formula:
38
4) Price/Earnings to Growth Ratio: The price/earnings to growth ratio, commonly referred to as the PEG ratio, is obviously closely related to the P/E ratio. The PEG ratio is a refinement of the P/E ratio and factors in a stock's estimated earnings growth into its current valuation. By comparing a stock's P/E ratio with its projected, or estimated, earnings per share (EPS) growth, investors are given insight into the degree of overpricing or under pricing of a stock's current valuation, as indicated by the traditional P/E ratio. The general consensus is that if the PEG ratio indicates a value of 1, this means that the market is correctly valuing (the current P/E ratio) a stock in accordance with the stock's current estimated earnings per share growth. If the PEG ratio is less than 1, this means that EPS growth is potentially able to surpass the market's current valuation. In other words, the stock's price is being undervalued. On the other hand, stocks with high PEG ratios can indicate just the opposite - that the stock is currently overvalued.
Formula:
5) Price/Sales Ratio: A stock's price/sales ratio (P/S ratio) is another stock valuation indicator similar to the P/E ratio. The P/S ratio measures the price of a company's stock against its annual sales, instead of earnings. Like the P/E ratio, the P/S reflects how many times investors are paying for every dollar of a company's sales. Since earnings are subject, to one degree or another, to accounting estimates and management manipulation, many investors consider a company's sales (revenue) figure a more reliable ratio component in calculating a stock's price multiple than the earnings figure.
Formula:
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6) Dividend Yield:
A stock's dividend yield is expressed as an annual percentage and is calculated as the company's annual cash dividend per share divided by the current price of the stock. The dividend yield is found in the stock quotes of dividend-paying companies. Investors should note that stock quotes record the per share dollar amount of a company's latest quarterly declared dividend. This quarterly dollar amount is annualized and compared to the current stock price to generate the per annum dividend yield, which represents an expected return. Income investors value a dividend-paying stock, while growth investors have little interest in dividends, preferring to capture large capital gains. Whatever your investing style, it is a matter of historical record that dividend-paying stocks have performed better than non-paying-dividend stocks over the long term.
Formula:
7) Enterprise Value Multiple:
This valuation metric is calculated by dividing a company's "enterprise value" by its earnings before interest expense, taxes, depreciation and amortization (EBITDA). Overall, this measurement allows investors to assess a company on the same basis as that of an acquirer. As a rough calculation, enterprise values multiple serves as a proxy for how long it would take for an acquisition to earn enough to pay off its costs (assuming no change in EBITDA).
Formula:
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8) DEBT COVERAGE RATIO: The Debt Coverage Ratio is also known as Debt Service Coverage Ratio or DSCR. The debt coverage ratio or DCR is a widely used benchmark which measures an income producing property's ability to cover the monthly mortgage payments. The DCR is calculated by dividing the net operating income (NOI) by a property's annual debt service. Annual debt service equals the annual total of all interest and principal paid for all loans on a property. A debt coverage ratio of less than 1 indicates that the income generated by a property is insufficient to cover the mortgage payments and operating expenses. For example, a DCR of .9 indicates a negative income. There is only enough income available after paying operating expenses to pay 90% of the annual mortgage payments or debt service. A property with a DCR of 1.25 generates 1.25 times as much annual income as the annual debt service on the property. In this example, the property produces 25% more income (NOI) than is required to pay the annual debt service and operating expenses. Formula: Net Operating Income / Annual Debt Service
CASH FLOW INDICATOR RATIO Cash flow indicators, focus on the cash being generated in terms of how much is being generated and the safety net that it provides to the company. These ratios can give users another look at the financial health and performance of a company. The ratios in this section use cash flow compared to other company metrics to determine how much cash they are generating from their sales, the amount of cash they are generating free and clear, and the amount of cash they have to cover obligations.
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1) Operating Cash Flow / Sales Ratio: This ratio, which is expressed as a percentage, compares a company's operating cash flow to its net sales or revenues, which gives investors an idea of the company's ability to turn sales into cash. It would be worrisome to see a company's sales grow without a parallel growth in operating cash flow. Positive and negative changes in a company's terms of sale and/or the collection experience of its accounts receivable will show up in this indicator.
Formula:
2) Free Cash Flow/ Operating Cash Flow Ratio: The free cash flow/operating cash flow ratio measures the relationship between free cash flow and operating cash flow. Free cash flow is most often defined as operating cash flow minus capital expenditures, which, in analytical terms, are considered to be an essential outflow of funds to maintain a company's competitiveness and efficiency. The cash flow remaining after this deduction is considered "free" cash flow, which becomes available to a company to use for expansion, acquisitions, and/or financial stability to weather difficult market conditions. The higher the percentage of free cash flow embedded in a company's operating cash flow, the greater the financial strength of the company.
Formula:
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3) Cash Flow Coverage Ratio: This ratio measures the ability of the company's operating cash flow to meet its obligations - including its liabilities or ongoing concern costs. The operating cash flow is simply the amount of cash generated by the company from its main operations, which are used to keep the business funded. The larger the operating cash flow coverage for these items, the greater the company's ability to meet its obligations, along with giving the company more cash flow to expand its business, withstand hard times, and not be burdened by debt servicing and the restrictions typically included in credit agreements.
Formulas:
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4) Dividend Payout Ratio: This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividend to shareholders. The dividend payout ratio is an indicator of how well earnings support the dividend payment. Here's how dividends "start" and "end." During a fiscal year quarter, a company's board of directors declares a dividend. This event triggers the posting of a current liability for "dividends payable." At the end of the quarter, net income is credited to a company's retained earnings, and assuming there's sufficient cash on hand and/or from current operating cash flow, the dividend is paid out. This reduces cash, and the dividends payable liability is eliminated. The payment of a cash dividend is recorded in the statement of cash flows under the "financing activities" section. Formula:
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Objective of Project Report
Main objective of the project report is to find ratio analysis of the different power sector company and comparison between them and sub-objective of the company is-To gain the overall idea about the organization -To have an effective exposure of the actual working situation of NTPC, Lucknow -To study the rules and practices implemented at NTPC, depending on the local environment and circumstances -To see the applicability and usability of theory which have been taught to us during the first year of the
course. -To find out the financial performance of the organization -To find out the importance of finance in business -To find out the future requirements of finance in business -To study the investment decisions based on the return which may beneficial to the organization
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RESEARCH DESIGN & METHODOLOGY:
Research: The research design of this project is exploratory. Though each research study has its own specific purpose but the research design of this project on NTPC Ltd. is exploratory in nature as the objective is the development of the hypothesis rather than their testing. The research design method financial analysis. Through of comparative balance sheet in comparative statement, I am studying on balance sheet of NTPC Ltd. of year 2011. So taking comparative statement, I am going to analyze balance sheet of NTPC Ltd, TATA Power, and Reliance Power and comparison among them.
Methodology: Every project work is based on certain methodology, which is a way to systematically solve the problem or attain its objectives. It is a very important guideline and lead to completion of any project work through observation, data collection and data analysis. “Research Methodology comprises of defining 7 redefining problems, collecting, organizing & evaluating data, making deductions 7 researching to conclusions.” “According to Clifford Woody” Accordingly, the methodology used in the project is as follow:
Defining the objectives of the study
Framing of questionnaire keeping objectives in mind (considering the objectives)
Feedback from the employees, Analysis of feedback, Conclusion, findings and suggestions.
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SAMPLING TECHNIQUE USED: This research has used convenience sampling technique.
SAMPLING TECHNIQUE: Convenience sampling is used in exploratory research where the researcher is interested in getting an inexpensive approximation of the truth. As the name implies, the sample is selected because they are convenient.
Source of data – Collecting primary data is not possible as my client will be companies so only secondary data & previous analysis can be used.
Sample size - Approximately 3-4 companies. Sampling technique – Here sampling technique used is convenience sampling. This type of sampling technique is used where sampling technique.
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Balance Sheet of NTPC (Rs crore)
Balance sheet Mar ' 11
Equity share capital
8,245.46
Share application money
-
Preference share capital
-
Reserves & surplus
60,138.66
Secured loans
9,910.68
Unsecured loans
33,277.56
Total
1,11,572.36
Gross block
72,583.94
Less : revaluation reserve
-
Less : accumulated depreciation
33,519.19
Net block
39,064.75
Capital work-in-progress
38,441.84
Investments
12,344.84
Current assets, loans & advances
35,396.79
Less : current liabilities & provisions
13,675.86
Total net current assets
21,720.93
Miscellaneous expenses not written
-
Total
1,11,572.36
Book value of unquoted investments
12,332.84
Market value of quoted investments
100.92
Contingent liabilities
33,227.29
Number of equity shares outstanding (Lacs)
82454.64
48
Key Financial Ratios of NTPC Mar '11 Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin (%) Profit Before Interest And Tax Margin (%) Gross Profit Margin (%) Cash Profit Margin (%) Adjusted Cash Margin (%) Net Profit Margin (%) Adjusted Net Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%) Adjusted Return on Net Worth (%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds (%)
10.00 3.80 15.34 66.63 69.08 -23.01 17.69 18.49 18.22 18.22 15.85 15.85 11.32 13.31 11.66 82.94 82.94 11.32
Liquidity And Solvency Ratios Current Ratio
2.59
Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio
2.32 0.63 0.63
Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio
10.65 0.63 7.46 6.72
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Post Tax Management Efficiency Ratios Inventory Turnover Ratio
29.18
Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio
7.54 29.18 0.76 0.49 0.76
Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital
---
Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales
142.33
0.05 -0.31 --
Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit 40.07 Dividend Payout Ratio Cash Profit 31.46 Earning Retention Ratio 54.26 Cash Earning Retention Ratio Adjusted Cash Flow Times
65.14 4.13
Earnings Per Share Book Value
Mar '11 11.04 82.94
50
Balance Sheet of Reliance Power Rs crore)
Balance sheet Mar ' 11 Equity share capital
2,805.13
Share application money
-
Preference share capital
-
Reserves & surplus
13,091.44
Secured loans
-
Unsecured loans
1,554.05
Total
17,450.62
Gross block
96.53
Less : revaluation reserve
-
Less : accumulated depreciation
11.30
Net block
85.23
Capital work-in-progress
58.86
Investments
8,578.32
Current assets, loans & advances
8,847.04
Less : current liabilities & provisions
118.84
Total net current assets
8,728.20
Miscellaneous expenses not written
-
Total
17,450.62
Book value of unquoted investments
6,943.32
Market value of quoted investments
1,708.94
Contingent liabilities
2.90
Number of equity shares outstanding (Lacs)
28051.26
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Key Financial Ratios of Reliance Power Mar '11 Investment Valuation Ratios Face Value
10.00
Dividend Per Share
--
Operating Profit Per Share (Rs)
-0.49
Net Operating Profit Per Share (Rs)
0.13
Free Reserves Per Share (Rs)
46.60
Bonus in Equity Capital
4.87
Profitability Ratios Operating Profit Margin (%)
-376.26
Profit Before Interest And Tax Margin (%)
-49.29
Gross Profit Margin (%)
-379.40
Cash Profit Margin (%)
22.97
Adjusted Cash Margin (%)
22.97
Net Profit Margin (%)
98.06
Adjusted Net Profit Margin (%)
98.06
Return On Capital Employed (%)
0.60
Return On Net Worth (%)
1.72
Adjusted Return on Net Worth (%)
0.39
Return on Assets Excluding Revaluations
56.67
Return on Assets Including Revaluations 56.67 Return on Long Term Funds (%)
0.61
Liquidity And Solvency Ratios Current Ratio
26.50
Quick Ratio
74.44
Debt Equity Ratio
0.10
Long Term Debt Equity Ratio
0.08
Debt Coverage Ratios Interest Cover
3.12
Total Debt to Owners Fund
0.10
Financial Charges Coverage Ratio
2.52
Financial Charges Coverage Ratio Post Tax
7.51
Management Efficiency Ratios Inventory Turnover Ratio
--
Debtors Turnover Ratio
2.98
Investments Turnover Ratio
--
Fixed Assets Turnover Ratio
--
Total Assets Turnover Ratio
--
Asset Turnover Ratio
0.38
Average Raw Material Holding
--
52
Average Finished Goods Held
--
Number of Days In Working Capital
86,373.81
Profit & Loss Account Ratios Material Cost Composition
11.91
Imported Composition of Raw Materials Consumed
--
Selling Distribution Cost Composition
10.60
Expenses as Composition of Total Sales -Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit
--
Dividend Payout Ratio Cash Profit
--
Earning Retention Ratio
100.00
Cash Earning Retention Ratio
100.00
Adjusted Cash Flow Times
24.16 Mar '11
Earnings Per Share
0.98
Book Value
56.67
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Balance Sheet of Tata Power Balance SheetMar ' 11
Equity share capital
237.33
Share application money
-
Preference share capital
-
Reserves & surplus
11,002.66
Secured loans
4,753.91
Unsecured loans
2,235.37
Total
18,229.27
Gross block
10,518.92
Less : revaluation reserve
-
Less : accumulated depreciation
4,735.98
Net block
5,782.94
Capital work-in-progress
1,469.50
Investments
7,939.91
Current assets, loans & advances
6,012.71
Less : current liabilities & provisions
2,975.79
Total net current assets
3,036.92
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Mar ' 11
Miscellaneous expenses not written
-
Total
18,229.27
Book value of unquoted investments
7,473.08
Market value of quoted investments
640.96
Contingent liabilities
1,165.53
Number of equity shares outstanding (Lacs)
2373.07
Key ratio of Tata Power-
Mar '11
Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs)
10.00 12.50 63.98
Net Operating Profit Per Share (Rs) 290.82 Free Reserves Per Share (Rs) 399.41 Bonus in Equity Capital 0.47 Profitability Ratios Operating Profit Margin (%) Profit Before Interest And Tax Margin (%)
22.00 13.68
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Gross Profit Margin (%) Cash Profit Margin (%) Adjusted Cash Margin (%)
14.60 18.10 18.10
Net Profit Margin (%) Adjusted Net Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%) Adjusted Return on Net Worth (%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds (%)
12.78 12.78 8.07 8.37 7.32
Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales
473.65 473.65 8.39 1.56 1.81 0.62 0.56 3.53 0.62 4.31 4.16
17.79 3.49 17.79 0.66 0.38 0.66 --158.41
63.18 -0.88 1.70
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Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit 33.26 Dividend Payout Ratio Cash Profit 21.57 Earning Retention Ratio Cash Earning Retention Ratio Adjusted Cash Flow Times
61.97 76.52 5.24
Earnings Per Share Book Value
Mar '11 39.67 473.65
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Comparison and Interpretation of Ratios of NTPC, Reliance Power and Tata Power
58
COMPARISON_ OF RATIOS OF NTPC, TATA POWER AND RELIANCE –
NAME OF THE RATIOS
NTPC
RELIANCE
TATA POWER
23.01
-376.26
22.00
17.69
-49.29
13.68
Gross Profit Margin (%)
18.49
-379.40
14.60
Cash Profit Margin (%)
18.22
22.97
18.10
Adjusted Cash Margin (%)
18.22
22.97
18.10
Net Profit Margin (%)
15.85
98.06
12.78
15.85
98.06
12.78
11.32
0.60
8.07
13.31
1.72
8.37
11.66
0.39
7.32
82.94
56.67
473.65
82.94
56.67
473.65
11.32
0.61
8.39
Current Ratio
2.59
26.50
1.56
Quick Ratio
2.32
1.93
1.81
Debt Equity Ratio
0.63
0.10
0.62
Profitability Ratios Operating Profit Margin (%) Profit Before Interest And Tax Margin (%)
Adjusted Net Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%) Adjusted Return on Net Worth (%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds (%) Liquidity And Solvency Ratios
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Long Term Debt Equity Ratio
0.63
0.08
0.56
Debt Coverage Ratios Interest Cover
10.65
3.12
3.53
Total Debt to Owners Fund
0.63
0.10
0.62
Financial Charges Coverage Ratio
7.46
2.52
4.31
Financial Charges Coverage Ratio Post Tax
6.72
7.51
4.16
Inventory Turnover Ratio
29.18
3.12
17.79
Debtors Turnover Ratio
7.54
0.10
3.49
Investments Turnover Ratio
29.18
2.52
17.79
Fixed Assets Turnover Ratio
0.76
7.51
0.66
Total Assets Turnover Ratio
0.49
3.12
0.38
Asset Turnover Ratio
0.76
0.10
0.66
Management Efficiency Ratios
2.52
Average Raw Material Holding
--
7.51
--
Average Finished Goods Held
--
3.12
--
Number of Days In Working Capital
142.33
0.10
158.41
Material Cost Composition
0.05
11.91
63.18
Imported Composition of Raw Materials Consumed
--
--
--
Profit & Loss Account Ratios
60
Selling Distribution Cost Composition
0.31
10.60
0.88
Expenses as Composition of Total Sales
--
--
1.70
40.07
--
33.26
Dividend Payout Ratio Cash 31.46 Profit
--
21.57
Earning Retention Ratio
54.26
100.00
61.97
Cash Earning Retention Ratio
65.14
100.00
76.52
Adjusted Cash Flow Times
4.13
24.16
5.24
Earnings Per Share
11.04
0.98
39.67
Book Value
82.94
56.67
473.65
Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit
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INTERPRETATION OF RATIOSLIQUIDITY RATIO-
NTPC is maintaining a higher liquidity ratio, e.g. current ratio with TATA POWER and RELIANCE which means it has a margin of safety to pay off its short term obligations.
Current Ratio3 2.59 2.5 2.02 2 1.56 1.5
NTPC TATA RELAINCE
1
0.5
0 Current Ratio
The current ratio of NTPC on 2010-11 is 2.59, for TATA is 2.02 and for RELAINCE is 1.56. It indicates that NTPC has less current liabilities as compared to current assets. Current assets are 2.5 times more than current liabilities and others i.e. TATA POWER and RELAINCE have more current liabilities than current assets. NTPC has more liquid assets than TATA POWER and RELAINCE .Here, more liquid assets denote cash and bank balances, debtors etc.NTPC has 2.23 quick ratio as compared to TATA POWER which has 1.14 and Reliance which has 1.93.As there is a comparison among 3, we see that NTPC is better.
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Acid Test Ratio
8
7.53
7 6 5 NTPC 4
3.7
TATA Power 2.93
3
Reliance
2 1 0 Acid Test Ratio
The quality of sundry debtors is good at N.T.P.C as compared to Reliance and TATA POWER.NTPC has 7.53 debtors turnover ratio as compared to TATA POWER which has 3.7 and Reliance 2.93.So, this indicates that debtors of NTPC are realizable in earlier time as compared to other.
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Debtors Turnover Ratio –
8
7.54
7
6
5 NTPC 4
TATA Power
3.49 2.98
3
Reliance
2
1
0 Debtors Turnover Ratio
NTPC„s Debtors Turnover ratio is better than TATA POWER and Reliance .NTPC has 7.54 in comparison to Tata which has 3.49 and Reliance which has 2.98. This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm.
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Inventory Turnover Ratio
35
30
29.18
25
20 17.79
NTPC TATA Power
15
13.12
Reliance
10
5
0 Inventry Turnover Ratio
Inventory turnover ratio shows the movement of inventory. Thus, NTPC„s inventory ratio is better than TATA POWER and Reliance which has its ratios respectively 29.18, 13.12 and 17.79. This ratio shows the number of times a company‟s inventory is turned into sales. Investment in inventory represents idle cash. The lesser the inventory, the greater the cash available for meeting operating needs. Besides, lean, fast-moving inventory runs a lower risk of obsolescence and reduces interest, insurance and storage charges. High inventory turnover is a sign of efficient inventory management.
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On the basis of profitability Gross Profit Margin Ratio
20
18.49
14.6
15
10
NTPC TATA Power Reliance
5
0
-5
-3.79
This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for depreciation, interest on loans, dividends and creation of reserves. Here NTPC has 18.49% gross profit margin ratio which is better than Reliance‟s -3.79% and Tata power‟s 14.60%.
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Net Profit Margin Ratio
20 18 16 14 12 NTPC 10
TATA Power Reliance
8 6 4 2 0 Net Profit Margin Ratio
The same is with net profit margin ratio i.e. the higher the ratio the better it is. Thus Reliance has better net profit margin ratio that is 18.06 in comparison to NTPC which has 15.85 and Tata Power which has 12.76. The Profit Margin of a company determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The ratio measures the percentage of profits earned per dollar of sales and thus is a measure of efficiency of the company.
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Asset Turnover Ratio
0.8 0.7 0.6 0.5 NTPC 0.4
TATA Power Reliance
0.3 0.2 0.1 0 Asset Turnover Ratio
The higher the asset turnover indicates that the enterprise is managing its assets efficiently while a low asset turnover implies the presence of more assets than a business needs for its operations. TATA POWER has 0.66 ratios as compared to NTPC 0.76 and Reliance 0.10. This indicates that TATA POWER and NTPC are managing their assets efficiently as compared to Reliance.
.
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Fixed Assets Turnover Ratio-
8 7 6 5 NTPC 4
TATA Power Reliance
3 2 1 0 Fixed Asset Turnover Ratio
This ratio is particular importance in manufacturing concerns where the investment in fixed asset is quite high. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the previous year. Here Reliance has fixed assets turnover ratio that is 7.51 which is better than NTPC which is 0.76 and Tata Power which is 0.66.
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Earnings per share
45 40 35 30 25
NTPC TATA Power
20
Reliance
15 10 5 0 Earning Per Share
The higher the EPS is, the better, because the value of the share will increase. EPS of NTPC is 11.04, TATA POWER is 39.68 and Reliance is 9.98. This helps the stockholders to decide in which company they should invest their money so as to get more dividends out of the profits. Then the higher the EPS is the better, since than more dividends will be received after each shares owned. Another implication of the Earnings per Share ratio is that it tells investors in what stock their invested money should go, as EPS tells how much each dollar or rupees invested earns.
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Findings:The Current ratio of NTPC on 2010-11 is 2.59, for TATA is 2.02 and for RELAINCE is 1.56. It indicates that NTPC has less current liabilities as compared to current assets. Current assets are 2.5 times more than current liabilities and others i.e. TATA POWER and RELAINCE have more current liabilities than current assets.
The quality of sundry debtors is good at N.T.P.C as compared to Reliance and TATA POWER.NTPC has 7.53 debtors turnover ratio as compared to TATA POWER which has 3.7 and Reliance 2.93.So, this indicates that debtors of NTPC are realizable in earlier time as compared to other.
NTPC„s Debtors Turnover ratio is better than TATA POWER and Reliance .NTPC has 7.54 in comparison to Tata which has 3.49 and Reliance which has 2.98. This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm.
Inventory turnover ratio shows the movement of inventory. Thus, NTPC„s inventory ratio is better than TATA POWER and Reliance which has its ratios respectively 29.18, 13.12 and 17.79. This ratio shows the number of times a company‟s inventory is turned into sales. Investment in inventory represents idle cash. The lesser the inventory, the greater the cash available for meeting operating needs. Besides, lean, fast-moving inventory runs a lower risk of obsolescence and reduces interest, insurance and storage charges. High inventory turnover is a sign of efficient inventory management.
Gross Profit margin ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for depreciation, interest on loans, dividends and creation of reserves. Here NTPC has 18.49% gross profit margin ratio which is better than Reliance‟s -3.79% and Tata power‟s 14.60%. The same is with Net Profit Margin ratio i.e. the higher the ratio the better it is. Thus Reliance has better net profit margin ratio that is 18.06 in comparison to NTPC which has 15.85 and Tata Power which has 12.76. The Profit Margin of a company determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The ratio measures the percentage of profits earned per dollar of sales and thus is a measure of efficiency of the company
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The higher the Asset Turnover Ratio indicates that the enterprise is managing its assets efficiently while a low asset turnover implies the presence of more assets than a business needs for its operations. TATA POWER has 0.66 ratios as compared to NTPC 0.76 and Reliance 0.10. This indicates that TATA POWER and NTPC are managing their assets efficiently as compared to Reliance. Earnings Per Share ratio is particular importance in manufacturing concerns where the investment in fixed asset is quite high. Compared with the previous year, if there is increase in this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the previous year. Here Reliance has fixed assets turnover ratio that is 7.51 which is better than NTPC which is 0.76 and Tata Power which is 0.66.
CONCLUSION-
Ratio Analysis is the basic tool of financial analysis and financial analysis is itself an important part of any business planning process as SWOT, being basic tool of the strategic analysis plays a vital role in a business planning process and no SWOT analysis would be complete without an analysis of company‟s financial position. In this way ratio analysis is very important part of whole business strategic planning. As companies dispatch their long annual report once a year, the financial ratio helps us to profile a company easily. There is a huge crisis over energy in the world especially in the field of electricity. India is also victim of the same condition. In spite of several efforts taken by the governments in this regard, there is enormous possibility exists. NTPC is a key organization in India as far as the supply of power is concerned. After successfully conducting this project work, it can be said that the financial health of NTPC is sound good and it appears positive in accordance with its balance sheet and profit & loss A/c.
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Annexure Balance Sheet of NTPC (Rs crore)
Balance sheet Mar ' 11
Equity share capital
8,245.46
Share application money
-
Preference share capital
-
Reserves & surplus
60,138.66
Secured loans
9,910.68
Unsecured loans
33,277.56
Total
1,11,572.36
Gross block
72,583.94
Less : revaluation reserve
-
Less : accumulated depreciation
33,519.19
Net block
39,064.75
Capital work-in-progress
38,441.84
Investments
12,344.84
Current assets, loans & advances
35,396.79
Less : current liabilities & provisions
13,675.86
Total net current assets
21,720.93
Miscellaneous expenses not written
-
Total
1,11,572.36
Book value of unquoted investments
12,332.84
Market value of quoted investments
100.92
Contingent liabilities
33,227.29
Number of equity shares outstanding (Lacs)
82454.64
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Balance Sheet of TATA POWER Balance Sheet-(FY-2011) Mar ' 11
Equity share capital
237.33
Share application money
-
Preference share capital
-
Reserves & surplus
11,002.66
Secured loans
4,753.91
Unsecured loans
2,235.37
Total
18,229.27
Gross block
10,518.92
Less : revaluation reserve
-
Less : accumulated depreciation
4,735.98
Net block
5,782.94
Capital work-in-progress
1,469.50
Investments
7,939.91
Current assets, loans & advances
6,012.71
Less : current liabilities & provisions
2,975.79
Total net current assets
3,036.92
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Mar ' 11
Miscellaneous expenses not written
-
Total
18,229.27
Book value of unquoted investments
7,473.08
Market value of quoted investments
640.96
Contingent liabilities
1,165.53
Number of equity shares outstanding (Lacs)
2373.07
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Balance Sheet of Reliance Power Rs crore)
Balance sheet Mar ' 11 Equity share capital
2,805.13
Share application money
-
Preference share capital
-
Reserves & surplus
13,091.44
Secured loans
-
Unsecured loans
1,554.05
Total
17,450.62
Gross block
96.53
Less : revaluation reserve
-
Less : accumulated depreciation
11.30
Net block
85.23
Capital work-in-progress
58.86
Investments
8,578.32
Current assets, loans & advances
8,847.04
Less : current liabilities & provisions
118.84
Total net current assets
8,728.20
Miscellaneous expenses not written
-
Total
17,450.62
Book value of unquoted investments
6,943.32
Market value of quoted investments
1,708.94
Contingent liabilities
2.90
Number of equity shares outstanding (Lacs)
28051.26
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BIBLIOGRAPHY:-
• Financial Accounting - S.N.Maheshwari • www.moneycontrol.com • www.ntpc.com • www.tatapower.com • www.relaincepower.co.in www.moneyrediff.com
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My Learning outcomes:This project has helped me in gaining and understanding the insights into what NTPC is and how it works. The importance of different ratios to the organization. In NTPC, I have also learnt SAP and ESS (Employee Self Service) and how to work on this i.e. - Passing and making entries in ESS for those who are employees of NTPC. - Learning how to make entries of E-Payments in SAP. - Making postings of E-Payments - In SAP software I used ZNS04- for note sheet payment ZNS02- for modification ZNS03- for verification of note sheet ZNS04- for payment below Rs. 10,000/MIRO- for payment above Rs 10,000/-
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