financial statement analysis of ntpc

A Project Report on ANALYSIS OF FINANCIAL STATEMENTS OF

NATIONAL THERMAL POWER CORPORATION

PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF POST GRADUATE DIPLOMA IN MANAGEMENT

2009-2011

I – Business Institute Greater Noida (U.P) Under the supervision of

Submitted by

Mrs. Neeru

Nitin Garg PGDM-Finance

I-BUSINESS INSTITUTE

1

CERITIFICATE

This is to certify that MR. NITIN GARG, is a bonafide regular student of the I-BUSINESS INSTITUTE for the session 2009-2011 . He has completed the project report titled “ANALYSIS OF FININCIAL STATEMENT OF NATIONAL THERMAL POWER CORPORATION under my supervision as a part a partial fulfillment for the award of PGDM degree of AICTE. To the best of my knowledge the report is Good and not copied from anywhere.

Head of the Department


Project supervisior

2

DECLARATION

I Mr. NITIN GARG hereby declare that this project is the record of authentic work carried out by me during the academic year 2010-2011 and has not been submitted to any other University or Institute towards the award of any degree. All the details and analysis provided in the report hold true to the best of my knowledge.

Signature of the student (NITIN GARG)


3

ACKNOWLEDGEMENT

These eight weeks at National Thermal Power Corporation (NTPC) have been a great learning experience. It has been one of the most enriching experience for me to work along with the employees of one of the best managed organizations, a company rightly considered as one of the Navratna’s in the public sector of the country.

I am very thankful to Sh. R.A GOYAL , Sr. Manager (Finance & Accounts) who has given me full opportunity to learn the tendering operations executed here.

I am very thankful to Miss.Neeru , Faculty, I-BUSINESS INSTITUTE, Greater Noida for the guidance and interest evinced throughout the preparation of this project.

I take this opportunity, also to express my love and sincere thanks to my family members and friends for their support and advice during various stage of work.


-4-

EXECUTIVE SUMMARY

India is the emerging giants of the world economy and international energy markets. Energy development in India are transforming the global energy system by dint of their ize and there growing weight in international fossil-fuel trade. India is increasingly exposed to changes in world energy markets. The staggering pace of Indian economic growth in the past few years, out ripping that of all other major countries, has pushed up sharply their energy needs, a growing share of which has to be imported. The momentum of economic development look set to keep their energy demand growing strongly. As they become richer, the citizen of India are using more energy to run their offices and factories, and buying more electrical appliances and cars. These developments are contributing to a big improvement in their quality of life, a legitimate aspiration that needs to be accommodated and supported by the rest of the world. The consequences for India the OECD and the rest of the world of unfettered growth in global energy demand are, however, alarming. If government around the world stick with current policies-the underlying premise of our reference scenario-the world’s energy need would be well over 50% higher in 2030 than today, china and India together account for 45% of the increase in demand in this scenario. Globally, fossil fules continue to dominate the fuel mix. These trend lead to continued growth in energy-related emissions of carbon-dioxide (co2) and to increased reliance of consuming countries to imports of oil and gas-much of them from the middle east and Russia. Both development would heighten concerns about climate change and energy security. The challenges for all countries is to put in motion a transition to a more secure, lower-carbon energy system, without undermining economic


-5-

and social development. Now where will this challenges be tougher, or of greater importance to the rest of the world, than in china and India, vigorous, immediate and collective policy action by all government is essential to move the world onto a more sustainable energy path. There has so far been more talk than action in most countries. Were all the policies that governments around the world are considering today to be implemented, as we assume in an alternative policy scenario, the world’s energy demand and related emissions would be reduced substantially. Measure to improve energy efficiency stand out as the cheapest the fastest way to curb demand and emissions growth in the near term. But even in this scenario, c02 emissions are still one-quarter 4 world energy outlook 2007 above current levels in 2030. To achieve a much bigger reduction in emissions alternative policy scenario projections are based on what some might consider conservative assumptions about economic grow on average 1.5 percentage points per years faster than in the reference scenario (thought more slowly than of late), energy demand is 21% higher in 2030 in china and combined. The global increase in energy demand amounts to 6%, making it all the more urgent for governments around the world to implement policies, such as those taken into account in the alternative policy scenario, to curb the growth in fossil-energy demand and related emissions.


-6-

CONTENT C Chh..N Noo 1

PPaarrttiiccuullaarr Introduction……………………………... §

2

4

Objective…………………………………………….

9

INDUSTRY Profile………………………. § § § § § § § §

3

PPaaggee N Noo

Board of Director’s …………………………. Vision & Mission Statement…………………. Background of NTPC………………………… Market Share…………………………………. Achievements………………………………… Organization structure of NTPC………………

15 17 18 20 21 23

Location of NTPC Plants……………….

24

Joint ventures………………………………….

25

RESEARCH METHODOLOGY...

47

DATA ANALYSIS………………………. § Ratio Meaning & Technique…………………. § Limitations of Ratio Analysis……………… ... § Classification Of Ratios & interpretation….. ...

50 53 54

5

FINDING…………………………………… 103

6

CONCLUSION…………………………….. 105

7

SUGGESTION & RECOMMENDATIONS 109

8

LIMIATION OF STUDY………………….. 111

……………...BIBLOGRAPHY………………………………. 112 ………….............. ANNEXURE………………………………………. 113


-7-

CHAPTER 1

INTRODUNCTION • Objective


-8-

INTRODUCTION

Scenario of Power in India Growth of economy calls for watching the rate of growth in infrastructure facilities. Power sector is one of the major aspects of this infrastructure building. Some prominent people like the Ex Chairman of GE Jack Welch have gone to the extent of saying, “you don’t have a chance to stand in the 21st century without lots of power………Without this you miss the next revolution.” Moreover, the growth rate of demand for power in developing countries is generally higher than that of GDP. In India, the elasticity ratio was 3.06 in 1st plan, & peaked at 5.11 during 3rd plan and came down to 1.65 in 80’s. For 90’s a ratio of around 1.5 was projected. Hence, in order to support a growth of GDP of around 7%, the rate of growth of power supply of 10% is required. If we look at current scenario, electricity consumption in India has more than doubled in the last decade, outpacing the economic growth. If we analyze the various statistics of Indian power sector, we will find that the generating capacity has gone up tremendously from a meager 1712MW in 1950 to a whooping 147000MW today. The critical role played by the power industry in the economic progress of a country has to be emphasized. A self sufficient power industry is vital for a nation to achieve economic stability

Indian Power Industry Before Independence


-9-

The British controlled the Indian power industry firmly before Independence. Then legal and policy framework was contributing to private ownership, with not much regulation with regard to operational safety.

Post Independence Immediately after Independence, the country was faced with capacity restraint. India adopted a socialist structure for economic growth and all the major industries were controlled by public sector enterprises. By 1970's, India had nationalized most of its energy assets, due to its commitment to social goals. By the late 1980's, the Indian economy felt the strain of the socialist agenda followed since independence. Faced with a serious deterioration in public finance and balance of payment crisis, the Union government as part of its policy of economic liberalization allowed greater investment by private sector in the power industry. The electricity sector in India is predominantly controlled by Government of India's public sector undertakings (PSUs). Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state-level corporations, such as Maharashtra State Electricity Board (MSEB), are also involved in the generation and intra-state distribution of electricity. The Power Grid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid. India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India's economic rise, the demand for energy has grown at an


- 10 -

average of 3.6% per annum over the past 30 years. In March 2009, the installed power generation capacity of India stood at 147,000 MW while the per capita power consumption stood at 612 kWh. The country's annual power production increased from about 190 billion kWH in 1986 to more than 680 billion kWH in 2006. The Indian government has set an ambitious target to add approximately 78,000 MW of installed generation capacity by 2012. The total demand for electricity in India is expected to cross 950,000 MW by 2030. Electricity losses in India during transmission and distribution are extremely high and vary between 30 to 45%. In 2004-05, electricity demand outstripped supply by 7-11%. Due to shortage of electricity, power cuts are common throughout India and this has adversely effected the country's economic growth.

Generation Grand Total Installed Capacity is 147,402.81 MW

Thermal Power ₪

Current installed capacity of Thermal Power (as of 12/2008) is 93,392.64 MW which is 63.3% of total installed capacity.

₪

Current installed base of Coal Based Thermal Power is 77,458.88 MW which comes to 53.3% of total installed base.

₪

Current installed base of Gas Based Thermal Power is 14,734.01 MW which is 10.5% of total installed base.

₪

Current installed base of Oil Based Thermal Power is 1,199.75 MW which is 0.9% of total installed base.The state of Maharashtra is the largest


- 11 -

producer of thermal power in the country.

Hydro Power India was one of the pioneering states in establishing hydro-electric power plants, The power plant at Darjeeling and Shimsa (Shivanasamudra) was established in 1898 and 1902 respectively and is one of the first in Asia. The installed capacity as of 2008 was approximately 36647.76. The public sector has a predominant share of 97% in this sector.

Nuclear Power Currently, 17 nuclear power reactors produce 4,120.00 MW (2.9% of total installed base).

Renewable Power Current installed base of Renewable energy is 13,242.41 MW which is 7.7% of total installed base with the southern state of Tamil Nadu contributing nearly a third of it (4379.64 MW) largely through wind power.

Power for ALL by 2012 The Government of India has an ambitious mission of POWER FOR ALL BY 2012. This mission would require that our installed generation capacity should be at least 200,000 MW by 2012 from the present level of 144,564.97 MW. Power requirement will double by 2020 to 400,000MW.


- 12 -

Today’s environment is a tough environment to survive, with the new industries and the new sectors coming up so strongly and financially sound. But to gain an extra edge over others they ought to have an extra or special added advantage. “Our people are our most important asset.” Nearly every organization report contains a phrase like this & for good reason. Today, the last great source of competitive advantage is human capital.

OBJECTIVE OF THE STUDY The above study aimed at:

₪ To gain the overall idea about the organization. ₪ To gain a firsthand knowledge about the structure and the functioning of the finance department and the return on investment policy.

₪ To gain and enhance different managerial skills. ₪ 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 requirement of finance in business. ₪ To study the investment decisions based on the return. Depending on the studies as started above suggest some new innovative ideas which may beneficial to the organization.


- 13 -

CHAPTER 2

INDUSTRY PROFILE • Director’s Profile • Vision & Mission Statement • Background Of NTPC • Market Share • Achievements • Organization structure of NTPC • Joint Ventures • Location of NTPC Plant


- 14 -

INDUSTRY PROFILE

BOARD OF DIRECTORS The Management of the Company is vested with the Board of Directors. In terms of the Articles of Association of the Company the Board of Directors can have minimum four Directors and maximum twenty Directors. The Composition of the Board of Directors is given below


- 15 -

S.

Name

Designation

No.

Date of Appointment

Functional Directors 1

Shri R.S.Sharma

Chairman & Managing

01.04.2008

Director

2

Shri Chandan

Director (Operations)

01.01.2009

Roy 3

Shri I J Kapoor

Director (Commercial)

08.10.2008

4

Shri R.K. Jain

Director (Technical)

05.05.2008

5

Shri A.K. Singhal

Director (Finance)

01.08.2007

Part-Time Official Directors 1

Shri M. Sahoo

Joint Secretary and Financial

11.07.2007

Advisor Ministry of Power, Government of India 2

Shri Harish

Jointm Secretary (Thermal)

Chandra

Ministry of Power, Government of India


- 16 -

11.07.2008

Vision & Mission Statement

Vision “A world class integrated power major, powering India’s growth, with increasing global presence."

Mission “Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco-friendly technologies and contribute to society.”

Core Values – BCOMIT B – Business Ethics C – Customer Focus (External & Internal) O – Organizational & Professional Pride M – Mutual Respect & Trust I – Innovation & Speed T – Total Quality for Excellence


- 17 -

Background of NTPC NTPC – a global giant in power sector NTPC Limited is the largest power generating company of India. A public sector company, it was incorporated in the year 1975 to accelerate power development in the country as a wholly owned company of the Government of India. At present, Government of India holds 89.5% of the total equity shares of the company & the balance 10.5% is held by FIIs, Domestic Banks, Public and others. Today, it has emerged as an ‘Integrated Power Major’, with a significant presence in the entire value chain of power generation business. Based on 1998 data, carried out by Data monitor UK, an ISO 9001:2000 certified company, NTPC is the 6th largest in terms of thermal power generation & the second most efficient in terms of capacity utilization amongst the thermal utilities in the world. Within a span of 33 years, NTPC has emerged as a truly national power company, with power generating facilities in all the major regions of the country. Driven by its vision to lead, it has charted out an ambitious growth plan of becoming a 75000 MW plus company by 2017.


- 18 -

GROWTH RATE

Growth in electricity generation has decelerated to 6.6 per cent from 7.5 per cent in the corresponding period in 2008-09, the Economic Survey tabled in the Parliament by finance minister P. Chidambaram said. The government is expecting 9.5 per cent growth per annum in the power sector in the 11th Five Year Plan.


- 19 -

MARKET SHARE

While the majority of capital invested in these countries is domestic, the sovereign risk characteristics of these countries can differ significantly, which can influence the types of international lenders that are willing to invest in these markets. This aspect of investment risk, combined with the technological capacity of a country to deploy technologies, as well as the local policies and measures that govern them, can influence technology investment flows to Brazil, Russia, India, and China.


- 20 -

Achievements Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector 'Navratnas'- a potential global giant.

A) NTPC ranked 317th in the ‘2009, Forbes Global 2000’ ranking of the World’s biggest companies.

B) NTPC has been rated as one of the top most “Best Employer” of the country for the year 2003, 2004 & 2005 in a row.

C) It has also been rated as one of the “Best Companies to Work for in India” by Mercer HR Consulting- Business Today Survey 2004, it has developed into a multilocation and multi-fuel company over the past three decades.

D) NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times.

E) Leadership Award for CMD, NTPC in the 4th Global Leadership Summit by Amity University for Sectoral Excellence in Power industry for his outstanding contribution to


- 21 -

the growth of Indian business & bringing glory to the country through his pioneering leadership.

F) Ranked #1 independent power producer in Asia in the THIRD ANNUAL PLATTS TOP 250 GLOBAL ENERGY COMPANY AWARDS 2008 for outstanding Global financial & Industrial performance at the award ceremony in Singapore. The corporation has been simultaneously ranked #15, overall in Asia amongst the energy companies.

G) NTPC’s excellence in executing power projects & its initiative in Decentralized Distributed Power Generation has been recognized and awarded at IEEMA Power Awards 2008. NTPC Vindhyachal Stage-III (2x 500MW) has been conferred the IPMA SILVER MEDAL for Project Excellence by International Project Management Association, at the IPMA Congress, held in Rome, Italy, for implementation of project in record time & achieving excellent environmental, economic performance and giving outstanding support to the local community. Some major awards given to the Company in the areas of environment management & Corporate Social Responsibility include:


- 22 -

Organization Structure of NTPC

Source: www.ntpc.co.in

Figure 2.3: Organization structure of NTPC


- 23 -

Location of NTPC Plants

Anta


- 24 -

JOINT VENTURES

NTPC has identified Joint Ventures, strategic alliances as well as acquisitions & diversifications as viable and desired options for its business development. NTPC looks for opportunity to create such joint ventures & strategic alliances, in the entire value chain of the power business. NTPC as a partner endows the Joint Venture Alliances with a winning edge. Acquisitions & Diversifications in the areas related to the core business not only ensure growth but also add to the robustness of the company. Diversification is carried out either directly or through subsidiaries/JV


- 25 -

Name of the Joint S.No Venture Company

Date of Incorporation

1.

PTC India Limited

16.04.99

2.

Utility Powertech Limited (UPL)

23.11.95

3.

NTPC-SAIL Power Company Pvt. Ltd.

08.02.99

4.

NTPC-Alstom Power Services Private Limited

20.09.99

5.

NTPC Tamil Nadu Energy Company Ltd.

23.05.03


Promoter’s Equity Holding as on Area(s) of Operation 31.3.2008 Trading of power, import/export of NTPC 5.28% power and purchase NHPC 5.28% of power from PFC 5.28% identified private Power Grid 5.28% power projects and Corp selling it to identified SEBs/others. To take up assignments of NTPC 50% construction, erection and Reliance supervision in power Infrastructure 50% sector and other Ltd. sectors in India and abroad. To own and operate a capacity of 564 MW as captive power plants for SAIL’s steel manufacturing NTPC 50% facilities located at SAIL 50% Durgapur, Rourkela and Bhilai. Another unit of 250 MW is expected to be commissioned shortly. To take up NTPC 50% Renovation & Alstom Modernization Power 50% assignments of power Generation plants both in India AG and abroad. To set up a coalNTPC 50% based power station Tamil Nadu 50% of 1000MW capacity, Electricity at Vallur , using

- 26 -

Board

6.

7.

8.

9.

10.

Ratnagiri Gas and power Pvt. Limited

Aravali Power Company Private Ltd.

NTPC-SCCL Global Venture Pvt. Ltd.

Meja Urja Nigam Private Limited

NTPC BHEL Power Projects Pvt Ltd.


08.07.05

NTPC

21.12.06

NTPC 50% Indraprastha Power 25% Generation Co. Ltd. Haryana Power 25% Generation Corp. Ltd.

31.07.07

NTPC Singareni Collieries Company Ltd.

02.04.08

NTPC 50% To set-up a power plant of 1320 MW Uttar (2X660 MW) at Meja Pradesh Tehsil or any other Rajya Vidyut 50% suitable site in Utpadan Allahabad district in Nigam the state of UP. Limited

28.04.08

NTPC Bharat Heavy - 27 -

28.33%

Ennore port infrastructure facilities. The construction work at site is under progress. To take over and operate gas based Dabhol Power Project alongwith LNG terminal. NTPC’s shareholding is to be revised to 32.88%. To set up coal based power Project of 1500 MW (3x500 MW),in Jhajjar District of Haryana. NTPC would also operate and maintain the station on Management Contract basis for at least 25 years. To jointly undertake the development and operation & maintenance of coal Blocks and integrated coal based power projects in India and abroad.

50% 50%

To carry out Engineering Procurement and 50% Construction (EPC) 50%

Electrical Ltd

11.

BF-NTPC Energy Systems Limited

12.

Nabinagar Power Generating Company Private Limited

13.

National Power Exchange Limited

19.06.08

NTPC 49% Bharat Forge 51% Limited

09.09.08

NTPC 50% NTPC Bihar State 50% Electricity Board

11.12.08

NTPC NHPC PFC TCS


- 28 -

To establish a facility to take up manufacturing of castings, forgings, fittings and high pressure piping required for power projects and other industries, Balance of Plant (BOP) equipment for the power sector To set-up a coal based power project having capacity of 1980 MW (3X660 MW) and operation & maintenance thereof at Nabinagar in district Aurangabad of State of Bihar.

16.67% 16.67% To operate a Power Exchange at National 16.66% level. 50%

Fig-4: List of Joint Ventures

FUTURE CAPACITY ADDITIONS

activities in the power sector and to engage in manufacturing and supply of equipment for power plants and other infrastructure projects in India and Abroad.

NTPC has formulated a long term Corporate Plan upto 2017. In line with the Corporate Plan, the capacity addition under implementation stage is presented below:

S.No 1. 2. 3. 4. 5. 6. 7.

PROJECT STATE FUEL Kahalgaon-II (3X500) Bihar Coal Sipat I (3 x 660) Chhattisgarh Coal Barh I (3 x 660) Bihar Coal Korba III ( 1 x 500) Chhattisgarh Coal Farakka III ( 1 x 500) West Bengal Coal NCTPP II ( 2 x 490) Uttar Pradesh Coal Simhadri II ( 2 x 500) Andhra Pradesh Coal Indira Gandhi STPP- JV with IPGCL & 8. Haryana Coal HPGCL ( 3 x 500) 9. Vallur I -JV with TNEB ( 2 x 500) Tamilnadu Coal Nabinagar TPP-JV with Railways (4 x 10. Bihar Coal 250) 11. Bongaigaon(3 x 250) Assam Coal Himachal 12. Koldam HEPP ( 4 x 200) Pradesh 13. Loharinag Pala HEPP ( 4x 150) Uttarakhand 14. Tapovan Vishnugad HEPP (4 x 130) Uttarakhand 15. Mauda ( 2 x 500) Maharashta Coal 16. Barh II (2 X 660) Bihar Coal 17. Vindhyachal-IV (2X500) Madhya Pradesh Coal 18. Rihand III(2X500) Uttar Pradesh Coal Total

\


- 29 -

MW 500 1980 1980 500 500 980 1000 1500 1000 1000 750 800 600 520 1000 1320 1000 1000 17930

Subsidiaries

Subsidiaries of NTPC

Competitors

RELIANCE ENERGY LTD.

TATA POWER LTD.

NATIONAL HYDROELECTRIC POWER

POWER GRID

CORPORATION LTD. (NHPCL)

OF INDIA LTD. (PGCIL)


- 30 -

Acquisition Business development through Acquisition serves both NTPC's own commercial interest as well as the interest of the Indian economy. Taking over being a part of the acquisition process, is also an opportunity for NTPC to add to its power generation capacity through minimal investment & very low gestation period. NTPC has, over the years, acquired the following three power stations belonging to other utilities/SEBs and has turned around each of them using its corporate abilities.

POWER STATIONS TAKEN OVER 2x210 MW FEROZE GANDHI UNCHAHAR THERMAL POWER STATION 4x60 MW + 2x110 MW TALCHER THERMAL POWER

YEAR

1991

ORIGINAL OWNER UP RajyaVidyut Utpadan Nigam of Uttar Pradesh

1995

Orissa State Electricity Board

4x110 MW TANDA THERMAL POWER STATION

2000

UP State Electricity Board

705MW BADARPUR THERMAL POWER STATION

2006

Central Electricity Authority

STATION


- 31 -

Diversified Growth NTPC’s quest for diversification started about a decade back with its foray into Hydro Power. It has, since then, been moving towards becoming a highly diversified company through backward, forward and lateral integration. The company is well on its way to becoming ‘an Integrated Power Major’, having entered Hydro Power, Coal Mining, Power Trading, Equipment Manufacturing and Power Distribution. NTPC has made long strides in developing its Ash Utilization business. In its pursuit of diversification, NTPC has also developed strategic alliances and joint ventures with leading national and international companies.

₪

Hydro Power: In order to give impetus to hydro power growth in the country and to have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro projects in Himachal Pradesh. Two more projects have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW.

₪

Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Coal Production is likely to


- 32 -

start in 2009-10.

₪

Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPC’s assets. It is the second largest power trading company. In order to facilitate power trading in the country, ‘National Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange.

₪

Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input for cement companies\ and brick manufacturers. NVVN is engaged in the business of Fly Ash export and sale to domestic customers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations.

₪

Power Distribution: ‘NTPC Electric Supply Company Ltd.’ (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in ‘Rajiv Gandhi Gramin Vidyutikaran Yojana’programme for rural electrification and also working as 'Advisor cum Consultant' for Ministry of Power for implementation of Accelerated Power Development and Reforms Programmed (APDRP) launched by Government of India.

₪

Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity. NTPC


- 33 -

has formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformers and Electricals Kerela Ltd. (TELK) for manufacturing and repair of transformers

Power Generation

Presently, NTPC generates power from Coal and Gas. With an installed capacity of 30,144 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.”

Installed Capacity Be it the generating capacity or plant performance or operational efficiency, NTPC’s Installed Capacity and performance depicts the company’s outstanding performance across a number of parameters.

NTPC Owned Coal Gas/Liquid Fuel Total Owned By JVs Coal & Gas Total


15 7 22

2,383 3,955 27,850

4

2,294

26

30,144

- 34 -

Regional Spread of Generatin Facilities REGION

COAL

GAS

TOTAL

Nortern

7,035

2,312

9,347

Western

6,360

1,293

7,653

Southern

3600

350

3,950

Eastern

6,900

-

6,900

JVs

814

1,480

2,294

Total

24,709

5,435

30,144

Coal Based Power Stations With 15 coal based power stations, NTPC is the largest thermal power generating company in the country. The company has a coal based installed capacity of 23,895 MW.

S.no

COAL BASED (owned

STATE

COMMISSIONED CAPACITY(MW)

by N.T.P.C) 1

Singru li

Uttar Pradesh

2,000

2

Korba

Chhattisgarh

2,100

3

Ramag

Andhra Pradesh

2,600

4

Farakka

West Bengal

1,600

5

Vi\ndhyacha

Madhya Pradesh

3,260


- 35 -

6

Rih and

Uttar Pradesh

2,000

7

Kahalga

Bihar

1,840

8

Dadri

Uttar Pradesh

840

9

Talcher Kaniha

Orissa

3,000

10

Unchahar

Uttar Pradesh

1,050

11

Talcher Thermal

Orissa

460

12

Simh ad ri

Andhra Pradesh 1

1,000

13

Tand

Uttar Pradesh

440

14

Badarpur

Delhi

705

15

Sipat- II

Chhattisgarh

1,000

Total

23,895

Coal Based Power Stations: Based Joint Ventures:

S.NO

COAL BASED (owned

STATE

COMMISSIONED CAPACITY

by N.T.P.C) 1

Durgapur

West Bengal

120

2

Rourkela

Orissa

120

Bhilai

Chhattisgarh

574

3

Total


814

- 36 -

Gas/Liquid Fuel Based Power Stations With a combined gas based commissioned capacity of 3955 MW, NTPC caters to the peeking demand for power.

COAL BASED (owned

STATE

COMMISSIONED CAPACITY(MW)

by N.T.P.C) 1.

Anta

Rajasthan

413

2.

Auraiya

Uttar Pradesh

652

3.

Kawas

Gujarat

645

4.

Dadri

Uttar Pradesh

5.

Jhanor-Gan dhar

Gujarat

6.

Rajiv Gandhi CC PP

Kerala

817 350

Kayamkulam

7.

Haryana

Faridabad

Total

430

3,955

Hydro Based Power Projects (Under Implementation)

NTPC has increased thrust on hydro development for a balanced portfolio for long term sustainability. The first step in this direction was taken by initiating investment in Koldam Hydro Electric Power Project located on Satluj river in Bilaspur district of Himachal Pradesh. Two other hydro projects under construction are Tapovan Vishnu gad and Loharinag Pala. On all these projects construction activities are in full swing I-BUSINESS INSTITUTE

- 37 -

HYDRO BASED

STATE

APPROVED CAPACITY(MV)

S.NO

1

Kold am (HE PP) 800

Himachal Pradesh

800

2

oharina g Pala (HEP P)

Uttarakhand

600

3

Tapo van Vishnu gad (HE PP)

Uttarakhand

520

Total

1,920

NTPC ANTA National Thermal Power Corporation Limited (NTPC) is the largest thermal power generating company of India. A public sector company wholly owned by Govt. of India, it was incorporated in the year 1975 to accelerate power development in the country. NTPC Anta project is located about 23 Km. from Baran district headquarter and close to Anta town of the district. Anta project is the first in the series of combined cycle power projects set up by NTPC in different parts of the country. The installed capacity of first stage is 413 MW comprising 3 gas turbines of 88 MW each and a steam turbine of 149 MW. All the units were synchronized ahead of schedule. The project has strength of 240 employees.


- 38 -

The District Industries Centre (DIC) programme was introduced for the first time in the state in July 1978 for providing the necessary support services under one roof for industrial development in the district. Kota which is the major industrial town of the state is just 72 km. from Baran where industrialization has taken roots in the early sixties. After the creation of Baran district, office of the district industry centre office was established at Baran in September 1992. Main industries in Baran district are agro based industries included soyabean and mustard oil, pulse/rice mills, coriander &wheat grinding agriculture instruments, mineral based units like stone crashers etc. National Thermal Power Corporation (NTPC), a government of India enterprise, is also situated in Anta which produces electricity based on the Gas. The district has a tremendous scope for the rapid industrialization, especially among agro based industries. The main forest produce of district is “Tendu leave”. So Bidi, Dona pattal units are beneficial in the district. The minerals produced in the district are Limestone, Sandstone, building stone etc. So the units based on the above stones are also beneficial. Rajasthan Financial Corporation (RFC) is a leading financial institution of the state which caters to the industrial and financial requirements of the medium, small scale and tiny industrial units. For setting up the industrial units in the district, RIICO provide land and infrastructure facilities, technical consultancy and financial inputs. There are three industrial areas in the district.


- 39 -

Location & Origin With the findings of natural gas in Western Offshore fields of Bombay High, Central Government decided to take this gas upto North India and accordingly laid the HBJ Pipeline starting from Hazira. GOI directed to set up gas based CCPPs along with HBJ pipeline. Initially 3 such projects were conceived at Anta , Kawas, & Auraiya in States of Rajasthan, Gujarat & UP respectively. Anta project was set up to mitigate the power shortage in the Northen region which was estimated between 13-16% of the peak demand during the VIIth plan period. Further, looking at the benefit of the low gestation, high efficiency, quick (Black) start and quick loading capability with mix-fuel flexibility and low pollution impact, Anta project was considered the most viable option to eminently fulfill the supply demand gap in Nothern Region. A brief profile of Project is exhibited in o-3.

A Brief project profile of Anta

§ Station : Combined cycle Gas based Power Station § Gas Turbines: 3x88.71 MW § Steam Turbine : 1x153.2 MW. § Total Capcity: 419.33 MW § Commercial operation started w.e.f 01.08.1990. § Fig.0-3

Sole product of NTPC-Anta is electrical power generated by using gas or naphtha as main fuel. The generated power is transmitted through six 220 KV lines. Thus NTPC's role is limited upto the Switchyard, beyond which PGCIL network feeds to respective DISCOMs


- 40 -

.

ANTA PROJECT PROFILE The Anta project profile is given in Table 1 Table 1 Approved Capacity

419 MW

Installed Capacity

419 MW

Location

Anta, District Baran, Rajasthan

Gas Source

HBJ Pipeline – South Basin Gas field

Water Source

Kota Right Main Canal

Unit Size

3*8GT + 1*149 ST

Unit Commissioned Capacity

Year

Unit I

89 MW GT

January 1989

Unit II

89 MW GT

March 1989

Unit III

89 MW GT

May 1989

Unit IV

152 MW ST

March 1990

Beneficiary States

U.P., J&K, Himachal Pradesh , Delhi, Chandigarh, Rajasthan, Punjab, Haryana

International Assistance

IBRD & Japan

ANTA has many unique features and achievements Unique Features and achievements of ANTA § First Gas Power station of NTPC § First station in India where 13D2 ABB machine was installed. I-BUSINESS INSTITUTE

- 41 -

§ Anta is the first power station on HBJ gas pipe line. § Having world benchmark for ABB Gas Turbine overhaul period 15.25 days.

ANTA’s journey towards excellence had started since inception. Today ANTA is one of the best gas power plants in the country. For the financial year 2008-09, ANTA has been ranked first among all gas stations of NTPC under ABT regime. It has achieved unique distinction of being the first power station of the country having zero forced outage. ANTA is certified under ISO 9001: 2000; ISO 14001: 2004; OHSAS 18001: 2007; SA 8000: 2001 and Five-S.

Product and Market: The product of ANTA is Electricity at 220KV, which is supplied to its customers in northern grid. Allocation of Anta power to various states is shown in figure: 0-5.

1%

Rajasthan

3% 4%

U.p

6%

20%

Unallocated

7%

Punjab Delhi J&k

10%

22% 12%

Uttaranchal Haryana

15%

H.p Chandigarth


- 42 -

§ Only Power station in country to achieve zero forced outage in a financial year (2005-06). Customers

:

Customers :

Its customer consists of state distribution companies in member states of northern grid viz. Rajasthan, UP, Delhi, Punjab, Haryana, Himachal Pradesh, Uttaranchal, J&K and Chandigarh. The coordination for generation scheduling is done by ANTA with the NRLDC (Northern Region Load Dispatch Centre) of Power Grid located at New Delhi.

SWOT Analysis Strengths: 1. Good corporate Image. 2. Complete range of product for transmission & distribution. 3. Established brand name with executive oriented program. 4. Strong & wide networks of manpower across India. 5. Considered to be having technology & design ability.

Weakness: 1. The procurement process in the companies is cumbersome and subject to auditing. 2. Low exposure to the needs & dynamics of distribution business. I-BUSINESS INSTITUTE

- 43 -

3. Role clarity on the requirement of being an equipment supplier or a solution provider. As there are very few supplier of equipment manufacturing plant.

Opportunities: 1. Huge Investment leading to greater demand of goods and services. 2. Demand leading to Industry operating at full & over capacity. 3. Better Price realization. 4. Early birds to learn faster and thus achieve repeat orders. Policy to bid from ultra mega power plant. 5. Vertical integration for supply chain management of coal by acquiring coal blogs.

Threats: 1. Purchases preference may be extended to distribution sector. 2. Increase in no. of small contractors leading to price war. 3. Emergence of competitors in the market like Schneider, Reliance, Tata etc. 4. Change in government policies for open trade or stock trading or energy trading. 5. Reduce the time lag.


- 44 -

CHAPTER 3

RESEARCH METHODOLOGY


- 45 -

METHODOLOGY

The information was collected from various source which are listed below:-

₪ For the official document. ₪ From records and manuals of different departments of the organizations . ₪ From a close observation of the functioning of various departments of the organizations.

₪ Last but not least, knowledge, both negative and positive precipitated through informal discussions with the employees of different departments.

RESEARCH METHODOLOGY Plan of study:-


- 46 -

A proper and systematic approach is essential in any project work. Proper planning should be conducting the data collection, completion and presentation of the project. Each and every step must be so planned that it leads to the next step automatically. This systematic approach is a blend a planning and organization and major emphasis is given to independences of various steps. The plan of this study is as follows.

Research purpose The purpose of the research was to criteria on which investment of the company is raised every year and a favorable rate of return is arrived at, increasing the net result of the company as per their budget.

Research objective The main objective the research is:₪ To know the investment decisions. ₪ To analyze the investment depending on internal rate of return.

Research design ₪ Research design helps in proper collection and analysis of the data. It helps in further course of action.

Research approaches


- 47 -

₪ The most appropriate research is descriptive. This is because the goal of the study is clear research will help to understand to concept better.

Classification of data Primary data ₪ This includes the information collected mainly from the office. This has served as primary source of data for this study

Secondary data ₪ This includes the information gathered from various website.

Sample Size ₪ The sample size selected is of four years.

Sampling technique ₪ The sampling procedure employed for this is judgmental sampling a convenience sampling technique in which elements are based on the judgment of researcher Software tools used for the data analysis The software tools used for data analysis in MS WORD & MS EXCEL


- 48 -

CHAPTER 6

DATA ANALYSIS • Ratio Meaning & Technique • Advantages • Uses of Ratio Analysis • Limitations of Ratio Analysis • Classification Of Ratios & interpretation


- 49 -

RATIO ANALYSIS

INTRODUCTION Financial analysis is the process of identifying the financial strengths and weaknesses of the firm and establishing relationship between the items of the balance sheet and profit & loss account. Financial ratio analysis is a fascinating topic to study because it can teach us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareholders should be happy! Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other


- 50 -

businesses doing and selling the same things. In addition to ratio analysis being part of an accounting and business studies syllabus, it is a very useful thing to know anyway! The overall layout of this section is as follows: We will begin by asking the question, what do we want ratio analysis to tell us? Then, what will we try to do with it? This is the most important question, funnily enough! The answer to that question then means we need to make a list of all of the ratios we might use: we will list them and give the formula for each of them. Once we have discovered all of the ratios that we can use we need to know how to use them, who might use them and what for and how will it help them to answer the question we asked at the beginning? At this stage we will have an overall picture of what ratio analysis is, who uses it and the ratios they need to be able to use it. All that's left to do then is to use the ratios; and we will do that step- by-step, one by one.

Ratio analysis Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition and performance of a business concern. Simply, ratio means the comparison of one figure to other relevant figure or figures. According to Myers , “Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of trend of these factors as shown in a series of statements."

Advantages and Uses of Ratio Analysis


- 51 -

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:

₪

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.

₪

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.

₪

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.

₪

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.


- 52 -

₪

To simplify the ac counting information: Accounting ratios are very useful as they briefly summarize the result of detailed and complicated computations.

Limitations of Ratio Analysis In 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:

₪ Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm cannot 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.

₪ 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.

₪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. I-BUSINESS INSTITUTE

- 53 -

₪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.

₪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.

Procedure (Stages) For Ratio-analysis Classification Of Ratios Ratios may be classified in a number of ways to suit any particular purpose. Different kinds of ratios are selected for different types of situations. Mostly, the purpose for which the ratios are used and the kind of data available determine the nature of analysis. The various accounting ratios can be classified as follows: A. Profitability ratios : 1

Gross profit ratio

2

Net profit ratio

3

Operating ratio

4

Return on shareholders’ investment or net worth

5

Return on equity capital


- 54 -

6

Earnings Per Share Ratio

7

Price earnings ratio

B. Liquidity ratios : 1

Current ratio

2

Liquid /Acid test / Quick ratio

C. Activity ratios : 1

Inventory/Stock turnover ratio

2

Debtors/Receivables turnover ratio

3

Working capital turnover ratio

4

Fixed assets turnover ratio

D. Leverage ratios or long term solvency ratios : 1

Debt equity ratio

2

Proprietary or Equity ratio

3

Ratio of fixed assets to shareholders funds

4

Current Assets to Proprietor's Fund Ratio

5

Interest coverage or debt service ratio

A .Profitability ratios : 1. Gross profit ratio (GP ratio ):Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.


- 55 -

Gross Profit Gross profit ratio =

*100 Net Sales

Significance: Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation. It may vary from business to business. However, the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends. Hence, an analysis of gross profit margin should be carried out in the light of the information relating to purchasing, mark-ups and markdowns, credit and collections as well as merchandising policies.

(in crore)

GROSS PROFIT RATIO YEAR

GROSS PROFIT


NET SALES - 56 -

RATIO

2004

7,912.00

18,871.20

41%

2005

8,036.60

22,565.00

36%

2006

8,070.10

26,142.90

31%

2007

10,982. 80

32,631.70

34%

2008

12,393.40

37,050.10

33%

GRAPHICAL REPRESENTATION

50 45 40 35 30 25 20 15 10 5 0

41 36 31

2004

2005

2006

Interpretation:


- 57 -

34

33

2007

2008

Ratio

The Gross profit of NTPC was 41% in 2003 – 2004 it had fallen up by 36%. in 20042005. in 2005 – 2006 it had again fallen to 30.86% %. But in 2006-2007 had gone to 34% which shows company earned profit . in year 2007-08 it had fallen up to 33%.

2. Net profit ratio : Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage.

Components of net profit ratio: The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on investments outside the business, profit on sales of fixed assets and losses on sales of fixed assets, etc are excluded. Formula:

Net Profit Net profit ratio =

*100 Net Sales

Significance: NP ratio is used to measure the overall profitability and hence it is very useful proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low


- 58 -

demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in minds that the performance of profits also be seen in relation to investments or capital of the firm and not only in relation to sales. (in crore)

NET PROFIT RATIO YEAR

NET PROFIT

NET SALES

RATIO

2004

5286.00

18,871.20

28%

2005

5807.00

22,565.00

26%

2006

5820.00

26,142.90

22%

2007

6865.00

32,631.70

21%

2008

7415.00

37,050.10

20%

GRAPHICAL REPRESENTATION I-BUSINESS INSTITUTE

- 59 -

50 45 40 35 30 25 20 15 10 5 0

Ratio

28

2004

26

2005

22

21

22

2006

2007

2008

Interpretation: The net profit ratio of NTPC was 28% in 2003 – 2004 it had fallen up by 26%. in 20042005. again in 2005 – 2006 it had fallen down to 22%. Further it had fallen to 21% in 2006-2007 and again in year 2007-08 it had fallen down up to 20% which shows the loss.

3. Operating ratio : Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. It measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales.

Components: The two basic components for the calculation of operating ratio are operating cost (cost of goods sold plus operating expenses) and net sales. Operating expenses normally include (a) administrative and office expenses and (b) selling and distribution expenses.


- 60 -

Financial charges such as interest, provision for taxation etc. are generally excluded from operating expenses. Formula of operating ratio:

Cost of good sold+ Operating expenses Operating ratio =

*100 Net Sales

Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns (in crore)

OPERATING RATIO YEAR

COST OF GOOD SOLD

NET SALES

RATIO

2004

13,667.00

18,871.20

72%

2005

15,276.10

22,565.00

68%

2006

18,718.30

26,142.90

71%

2007

22,472.10

32,631.70

69%

2008

25,519.70

37,050.10

69%


- 61 -


50 45 40 35 30 25 20 15 10 5 0

Ratio

2004

2005

2006

2007

2008

Interpretation: In The graph Operating ratio of NTPC was 72% in 2003 – 2004 it had fallen up by 68%. in 2004-2005. in 2005 – 2006 it had gone to 71%. Further it had fallen to 69% in 20062007 and again in year 2007-08 it had fallen down up to 69% which shows company earned maximum profit

4. Return on share holder’s investment:It is the ratio of net profit to share holder's investment. It is the relationship between net profit (after interest and tax) and share holder's/proprietor's fund. This ratio establishes the profitability from the share holders' point of view. The ratio is generally calculated in percentage.

Components:


- 62 -

The two basic components of this ratio are net profits and shareholder's funds. Shareholder's funds include equity share capital, (preference share capital) and all reserves and surplus belonging to shareholders. Net profit means net income after payment of interest and income tax because those will be the only profits available for share holders. Formula of return on shareholder's investment or net worth Ratio:

Net profit after tax - Preference dividend) Return on Shareholder’s investment =

*100 Share holder’s fund

Significance: This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary objective of businesses being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company.


- 63 -

(in crore)

RETURN ON SHAREHOLDER’S INVESTEMENT

YEAR

NET PROFIT AFTER TAX

SHAREHOLDER’S FUND

RATIO

2004

5286.00

35,992.00

.15

2005

5807.00

41,776.00

.14

2006

5820.00

44,959.00

.13

2007

6865.00

48,597.00

.14

2008

7415.00

52,639.00

.14

GRAPHICAL REPRESENTATION 50 40 30

Ratio

20

13

10 0.15

0.14

2004

2005

0.14

0.14

2007

2008

0

2006

Interpretation: The Return on Shareholder’s investment of NTPC was 15% in 2003 – 2004 it had fallen up by 14%. in 2004-2005. again in 2005 – 2006 it had fallen down to 13%. But in 2006I-BUSINESS INSTITUTE

- 64 -

2007 this ratio had fallen to 14% and again in year 2007-08 it had fallen down up to 14% we can see by analysis of table sometimes ratio increase some time constant and some time decrease which shows company shareholder’s investment up and down.

5. Return on Equity Capital (ROEC) Ratio In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company. Return on equity capital which is the relationship between profits of a company and its equity, can be calculated as follows: Formula of return on equity capital or common stock: Formula of return on equity capital ratio is:

Net profit after tax - Preference dividend) Return on Equity Capital

=

*100 Equity share capital

Components:


- 65 -

Equity share capital should be the total called-up value of equity shares. As the profit used for the calculations are the final profits available to equity shareholders as dividend, therefore the preference dividend and taxes are deducted in order to arrive at such profits.

Significance: This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them. Interpretation of the ratio is similar to the interpretation of return on shareholder's investments and higher the ratio better is. (in crore)

RETURN ON EQUITY CAPITAL

YEAR


EQUITY SHARE CAPITAL

RATIO

2004

5286.00

7,812.50

.68

2005

5807.00

8,245.50

.70

2006

5820.00

8,245.50

.71

2007

6865.00

8,245.50

.83

2008

7415.00

8,245.50

.90


- 66 -

GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0

Ratio

0.68

0.7

0.71

0.83

0.9

2004

2005

2006

2007

2008

Interpretation: The Return on Equity capital of NTPC was .68 in 2003 – 2004 it had gone up by .70. in 2004-2005. again in 2005 – 2006 it had gone to .71. But in 2006-2007 this ratio had again gone to .83 and again in year 2007-08 it had gone up to .90 we can see by analysis of graph return on equity capital ratio was continuous increase which shows company in better position.

6. Earnings per Share (EPS) Ratio :- Definition: Earnings per share ratio (EPS Ratio) are a small variation of return on equity capital ratio and are calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. Formula of Earnings per Share Ratio: The formula of earnings per share is:


- 67 -

Net profit after tax - Preference dividend

Earinings per Share

= No. of Equity share

Significance: The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased. (in crore)

RETURN ON EQUITY CAPITAL

YEAR


2004

5286.00

781.00

6.77

2005

5807.00

825.00

7.04

2006

5820.00

825.00

7.05

2007

6865.00

825.00

8.32

2008

7415.00

825.00

8.99


NO OF EQUITY SHARE

- 68 -

RATIO


Ratio 6.77

7.04

7.05

8.32

8.39

2004

2005

2006

2007

2008

Interpretation: NTPC EPS was Rs. 6.77 in 2003-04 which has raises to Rs.7.04 in 2004 – 2005 further in the year 2005 – 2006 it has increased to Rs 7.05.. In 2006-2007 the ratio gone to 8.32 and in 200-2008 gone upto 8.99 which shows A higher value of EPS in these years shows that the company is trying to maintain its net profit available to equity share holder of NTPC, which also assure efficient utilization of equity capital

7. Price Earnings Ratio (PE Ratio): Definition: Price earnings ratio (P/ E ratio) is the ratio between market price per equity share and earning per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. Formula of Price Earnings Ratio: Following formula is used to calculate price earnings ratio:


- 69 -

Market price per equity share Price Earnings Ratio = Earning per share Significance of Price Earnings Ratio:

Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price. Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio. (in crore)

PRICE EARNINGS RATIO

YEAR

MARKET PRICE PER EQUITY SHARE

EARNINGS PER SHARES

RATIO

2004

19.20

676.54

.03

2005

3,524.90

704.26

5.01

2006

951.60

705.86

1.35

2007

316.40

832.54

0.38

2008

304.30

899.25

0.34


- 70 -


Ratio

5.01 0.03 2004

2005

1.35

0.38

0.34

2006

2007

2008

Interpretation: The Price earning Ratio of NTPC was .03 in 2003 – 2004 .it had increased by 5.01 which’s shows company in better position .in 2004-2005. again in 2005 – 2006 it had fallen down to 1.35. and in 2006-2007 this ratio had fallen to .38 and again in year 200708 it had fallen down up to .34 .

B. Liquidity ratios : 1. Current Ratio: Definition: Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capita l ratio ". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. Formula: Following formula is used to calculate current ratio: I-BUSINESS INSTITUTE

- 71 -

Current Assets Current Ratio = Current Liability Components: The two basic components of this ratio are current assets and current liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally, one year, such as marketable securities or readily realizable investments, bills receivables, sundry debtors, (excluding bad debts or provisions), inventories, work in progress, etc. Prepaid expenses should also be included in current assets because they represent payments made in advance which will not have to be paid in near future. Current liabilities are those obligations which are payable within a short period of tie generally one year and include outstanding expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc. However, sometimes a controversy arises that whether overdraft should be regarded as current liability or not. Often an arrangement with a bank may be regarded as permanent and therefore, it may be treated as long term liability. At the same time the fact remains that the overdraft facility may be cancelled at any time. Accordingly, because of this reason and the need for conversion in interpreting a situation, it seems advisable to include overdrafts in current liabilities. Significance : This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firm’s financial stability. It is also an index of technical solvency and an index of the strength of working capital.


- 72 -

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been deterioration in the liquidity position of the firm. A ratio equal to or near 2:1 is considered as a standard or normal or satisfactory. The idea of having doubled the current assets as compared to current liabilities is to provide for the delays and losses in the realization of current assets. However, the rule of 2:1 should not be blindly used while making interpretation of the ratio. Firms having less than 2 : 1 ratio may be having a better liquidity than even firms having more than 2 : 1 ratio. This is because of the reason that current ratio measures the quantity of the current assets and not the quality of the current assets. If a firm's current assets include debtors which are not recoverable or stocks which are slow-moving or obsolete, the current ratio may be high but it does not represent a good liquidity position.

Limitations of Current Ratio : This ratio is measure of liquidity and should be used very carefully because it suffers from many limitations. It is, therefore, suggested that it should not be used as the sole index of short term solvency. 1. It is crude ratio because it measures only the quantity and not the quality of the current

assets.


- 73 -

2. Even if the ratio is favorable, the firm may be in financial trouble, because of more stock and work in process which is not easily convertible into cash, and, therefore firm may have less cash to pay off current liabilities.

(in crore)

CURRENT RATIO YEAR

CURRENT ASSETS

CURRENT LIABILITY

RATIO

2004

14,642.40

9,189.80

1.32

2005 2006

14,721.80 18,234.80

8,561.30 8,650.60

1.72 2.11

2007

25,858.80

10,702.50

2.42

2008

30,527.80

13,164.40

2.32



- 74 -

50 45 40 35 30 25 20 15 10 5 0

Ratio

1.32

1.72

2.11

2.42

2.32

2004

2005

2006

2007

2008

Interpretation: We can see that there is a clear rise in the current ratio in 2003-04 and 2004-05. As a conventional rule a current ratio of 2:1 is considered satisfactory. The company has achieved the current ratio of 2.32, 2.42 & 2.11 during the years 2007-08,2006-07,2005-06 respectively. Company may have adapted aggressive working capital policy. The company has high liquidity because of high value of current ratio. The company can easily fulfill the short term liability. 2. Liquid or Liquidity or Acid Test or Quick Ratio: - Definition: Liqu id ratio is also termed as "Liquidity Ratio ”, “Acid Test Ratio " or "Quick Ratio ". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due.

Components: The two components of liquid ratio (acid test ratio or quick ratio) are liquid assets and liquid liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and marketable securities or temporary investments. In other words they are


- 75 -

current assets minus inventories (stock) and prepaid expenses. Inventories cannot be termed as liquid assets because it cannot be converted into cash immediately without a loss of value. In the same manner, prepaid expenses are also excluded from the list of liquid assets because they are not expected to be converted into cash. Similarly, Liquid liabilities means current liabilities i.e., sundry creditors, bills payable, outstanding expenses, short term advances, income tax payable, dividends payable, and bank overdraft (only if payable on demand). Some time bank overdraft is not included in current liabilities, on the argument that bank overdraft is generally permanent way of financing and is not subject to be called on demand. In such cases overdraft will be excluded from current liabilities. Formula of Liquidity Ratio

Quick Assets Liquidity Ratio = Current Liability Significance: The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. Usually a high liquid ratio an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the f


- 76 -

irm's liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory. Although liquidity ratio is more rigorous test of liquidity than the current ratio , yet it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations. In the same manner, a low liquid ratio does not necessarily mean a bad liquidity position as inventories are not absolutely non-liquid. Hence, a firm having a high liquidity ratio may not have a satisfactory liquidity position if it has slow-paying debtors. On the other hand, a firm having a low liquid ratio may have a good liquidity position if it has a fast moving inventory. Though this ratio is definitely an improvement over current ratio, the interpretation of this ratio also suffers from the same limitations as of current ratio. (in crore)

LIQUIDITY RATIO YEAR

CURRENT ASSETS

CURRENT LIABILITY

RATIO

2004

12904.40

9,189.80

1.40

2005

12944.10

8,561.30

1.50

2006

15894.30

8,650.60

1.84

2007

23348.60

10,702.50

2.18

2008

27852.00

13,164.40

2.12


- 77 -


1.4

1.5

1.84

2.18

2.12

2004

2005

2006

2007

2008

Interpretation: From the above graph we can easily point out that there is a clear rise in the quick ratio in 2003-04 and 2004-05. As a conventional rule a quick ratio of 1:1 is considered satisfactory. The company has achieved the current ratio satisfactorily. The company has high liquidity because of high value of current ratio. Thus NTPC has the capacity to pay off current obligations immediately the short term liability.

C. Activity ratios : 1 .Inventory Turnover Ratio or Stock Turnover Ratio (ITR): Definition: Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover

ratio / Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage I-BUSINESS INSTITUTE

- 78 -

its inventory. This ratio indicates whether investment in stock is within proper limit or not. Components of the Ratio: Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding the stock in the beginning and at the end of the period and dividing it by two. In case of monthly balances of stock, all the monthly balances are added and the total is divided by the number of months for which the average is calculated. Formula of Stock Turnover/Inventory Turnover Ratio:

Cost Of Good Sold Inventory Turnover ratio = Average inventory at cost Generally, the cost of goods sold may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may be calculated by dividing net sales by average inventory at cost. If average inventory at cost is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure may be taken as the average inventory.

Inventory Turnover Ratio = Net Sales/ Average Inventory at Cost Inventory Turnover Ratio = Net Sales /Average inventory at Selling Price Inventory Turnover Ratio = Net Sales/Inventory


- 79 -

Significance of ITR : Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit; a low ratio signifies low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively a high profit. Similarly a high turnover ratio may be due to underinvestment in inventories. It may also be mentioned here that there are no rule of thumb or standard for interpreting the inventory turnover ratio. The norms may be different for different firms depending upon the nature of industry and business conditions. However the study of the comparative or trend analysis of inventory turnover is still useful for financial analysis


- 80 -

(in crore)

INVENTORY TURNOVER RATIO

YEAR

NET CREDIT SALES

AVERAGE INVENTORY AT COST

RATIO

2004

18,871.20

1,738.00

11

2005

22,565.00

1,777.00

13

2006

26,142.90

2,340.00

11

2007

32,631.70

2,510.00

13

2008

37,050.10

2,675.00

14

GRAPHICAL REPRESENTATION \ 50 45 40 35 30 25 20 15 10 5 0

Ratio 13

11

2004

2005

11

2006

13

14

2007

2008

Interpretation: We can see in graph in 2003-04 inventory was 11 times and in 2004-05 the ratio had gone to 13 times which shows more profit earn by company in 2005-06 this ratio


- 81 -

decrease by 11 times in 2006-07 the ratio increased by 13 times. And in 2007-08 the ratio had gone 14 times which shows full utilizatation of stock

2. Debtors Turnover Ratio or Receivables Turnover Ratio: A concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. The effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligations in time

depends upon the quality of its trade debtors.

Definition: Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Formula of Debtors Turn over Ratio :

Net Credit Sales Debtors turnover Ratio = Average Trade Debtor The two basic components of the ratio are net credit annual sales and average trade debtors. The trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills Receivables. The average receivables are found by adding the opening receivables and closing balance of receivables and dividing the total by two. It should be noted that provision for bad and doubtful debts should not be deducted since this may I-BUSINESS INSTITUTE

- 82 -

give an impression that some amount of receivables has been collected. But when the information about opening and closing balances of trade debtors and credit sales is not available, then the debtors turnover ratio can be calculated by dividing the total sales by the balance of debtors (inclusive of bills receivables) given. and formula can be written as follows.

Net Sales Debtor Turnover Ratio = Debtor Significance of the Ratio: This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtor’s turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.


- 83 -

(in crore)

DEBTOR TURNOVER RATIO YEAR

NET CREDIT SALES

AVERAGE DEBTOR AT COST

RATIO

2004

18,871.20

469.00

40

2005

22,565.00

1,374.70

16

2006

26,142.90

867.8

30.12

2007

32,631.70

1,252.30

26

2008

37,050.10

2,982.70

12


40 30.12 26

Ratio

16 12

2004

2005

2006

Interpretation:


- 84 -

2007

2008

The debtor’s turnover ratio in 2003 – 2004 40 times which show efficient management of credit. But in year 2004 – 2005 it has fallen down to 16 times further in the year 2005 – 2006 it had gone to 30.12 times and it again fallen down in next year i.e. 26 times and 2007-08 it has fallen up to 12 times .

3. Working Capital Turnover Ratio: Definition: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows: Formula of Working Capital Turnover Ratio: Following formula is used to calculate working capital turnover ratio

Cost Of Sales Working Capital turnover Ratio = Net Working Capital

The two components of the ratio are cost of sales and the net working capital. If the information about cost of sales is not available the figure of sales may be taken as the numerator. Net working capital is found by deduction from the total of the current assets the total of the current liabilities. Significance: The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working


- 85 -

capital and a low ratio indicates otherwise. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation. (in crore)

WORKING CAPITAL TURNOVER RATIO YEAR

COST OF SALES

NET WORKING CAPITAL

RATIO

2004

18,871.20

5,452.60

3.46

2005

22,565.00

6,160.50

3.66

2006

26,142.90

9,584.20

2.73

2007

32,631.70

15,156.30

26

2008

37,050.10

17,363.4

12



- 86 -

50 40

20 10

Ratio

26

30

12 3.46

3.66

2.73

2004

2005

2006

0

2007

2008

Interpretation In case of NTPC the ratio was 3.46 times in 2003-2004 it has been increased to 3.66 times in 2004 – 2005 to 2.73 in 2005 – 2006. Further in 2006 – 2007 it had fallen to 2.15and in the year 2007-08 it has again fallen up to 2.13 times this shows company has not utilized owners and long-term borrowed funds efficiently.

4. Fixed Assets Turnover Ratio: Definition: Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets. The ratio is calculated by using following formula:

Formula of Fixed Assets Turnover Ratio: Fixed assets turnover ratio turnover ratio is calculated by the following formula:


- 87 -

Cost Of Sales Fixed Assets turnover Ratio = Net Fixed Assets (in crore)

FIXED ASSETS TURNOVER RATIO YEAR

COST OF SALES

NET FIXED ASSETS

RATIO

2004

18,871.20

21,160.10

.89

2005

22,565.00

22,204.70

1.02

2006

26,142.90

22,967.50

1.14

2007

32,631.70

25,525.00

1.28

2008

37,050.10

39,933.70

.93

GRAPHICAL REPRESENTATION 50 40 30

Ratio 20 10

0.89

1.02

1.14

1.28

0.93

2004

2005

2006

2007

2008

0


- 88 -

Interpretation A high ratio indicates efficient utilization of fixed assets in generating sales. In case of NTPC the ratio was .89 in the year 2003-2004,which had gone to 1.02 in 2004-2005.in the year 2005-2006 the ratio had again increased to 1.14 and in 2006-2007 it is 1.28 and same is in case of 2007-08 the ratio had fallen .93 .its Cleary that in previous year full utilization of fixed assets but in 2007-08 this ratio decrease .

D. Leverage ratios or long term solvency ratios : 1. Debt –to- Equity Ratio: Definition: Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal

equity ratio . It is determined to ascertain soundness of the long term financial policies of the company. Formula of Debt to Equity Ratio: Following formula is used to calculate debt to equity ratio

External equities Debt Equity Ratio = Internal equities

Outsider funds Debt Equities Ratio = Shareholder’s fund As a long term financial ratio it may be calculated as follows:


- 89 -

Total Long Term Debts Debt Equities Ratio = Total Long Term Fund Total Long Term debt Debt Equities Ratio = Shareholders fund Components: The two basic components of debt to equity ratio are outsiders’ funds i.e. external equities and share holders’ funds, i.e., internal equities. The outsiders’ funds include all debts / liabilities to outsiders, whether long term or short term or whether in the form of debentures, bonds, mortgages or bills. The shareholders funds consist of equity share capital, preference share capital, capital reserves, revenue reserves, and reserves representing accumulated profits and surpluses like reserves for contingencies, sinking funds, etc. The accumulated losses and deferred expenses, if any, should be deducted from the total to find out shareholder's funds Some writers are of the view that current liabilities do not reflect long term commitments and they should be excluded from outsider's funds. There are some other writers who suggest that current liabilities should also be included in the outsider's funds to calculate debt equity ratio for the reason that like long term borrowings, current liabilities also represents firm's obligations to outsiders and they are an important determinant of risk. However, we advise that to calculate debt equity ratio current liabilities should be included in outsider's funds. The ratio calculated on the basis outsider's funds excluding liabilities may be termed as ratio


- 90 -

of long-term debt to share holders funds. It means that for every four dollars worth of the creditors investment the shareholders have invested six dollars. That is external debts are equal to 0.66% of shareholders funds. Significance of Debt to Equity Ratio: Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firms assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm. However, the interpretation of the ratio depends upon the financial and business policy of the company. The owners want to do the business with maximum of outsider's funds in order to take lesser risk of their investment and to increase their earnings (per share) by paying a lower fixed rate of interest to outsiders. The outsider’s creditors) on the other hand, want that shareholders (owners) should invest and risk their share of proportionate investments. A ratio of 1:1 is usually considered to be satisfactory ratio although there cannot be rule of thumb or standard norm for all types of businesses. Theoretically if the owner’s interests are greater than that of creditors, the financial position is highly solvent. In analysis of the long-term financial position it enjoys the same importance as the current ratio in the analysis of the short-term financial position.


- 91 -

(in crore)

DEBT EQUITIES RATIO YEAR

LONG TERM DEBT

SHAREHOLDER”S FUND

RATIO

2004

15,612.00

35,992.00

.43

2005 2006

17,425.00 20,638.00

41,776.00 44,959.00

.42 .46

2007

25,141.00

48,597.00

.52

2008

28,564.0

52,639.00

.54


Ratio

0.43

0.42

0.46

0.52

0.54

2004

2005

2006

2007

2008

Interpretation:


- 92 -

we can easily point out that there is a sharp rise in the debt-equity ratio from 2004-05 to 2007- 08. From the above data we conclude that the company has less debt it can also pay off the current obligations very easily.

2. Proprietary or Equity Ratio: Definition: This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business. Formula of Proprietary/ Equity Ratio:

Shareholders funds Proprietary ratio = Total assets

Components: Shareholder's funds include equity share capital plus all reserves and surpluses items. Total assets include all assets, including Goodwill. Some authors exclude goodwill from total assets. In that case the total shareholder's funds are to be divided by total tangible assets. As the total assets are always equal to total liabilities, the total liabilities, may also be used as the denominator in the above formula. Significance: This ratio throws light on the general financial strength of the company. It is also regarded as a test of the soundness of the capital structure. Higher the ratio or the share of shareholders in the total capital of the company better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors.


- 93 -

(in crore)

PROPRIETARY RATIO YEAR

SHAREHOLDER’S FUND

TOTAL ASSETS

RATIO

2004

35,992.00

51,540.40

.70

2005 2006

41,776.00 44,959.00

59,201.50 65,596.80

.71 .69

2007

48,597.00

73,737.90

.66

2008

52,639.00

81,202.60

.65


Ratio

0.7

0.71

0.69

0.66

0.65

2004

2005

2006

2007

2008

Interpretation We can see by graph in 2003-04 the ratio was .70 and in 2004-05 ratio had increased .71 which shows company soundness and capital structure was good. in 2005-06 the proportions had fallen up to .69 and continued had fallen up to 2008 which shows general risk to the creditor included.


- 94 -

3. Fixed Assets to Proprietor's Fund Ratio: Definition: Fixed assets to proprietor’s fund ratio establish the relationship between fixed assets and shareholders’ funds. The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed assets. Formula:

Shareholders funds fixed Assets to Proprietors = Proprietors Fund The fixed assets are considered at their book value and the proprietor's funds consist of the same items as internal equities in the case of debt equity ratio.

Significance: The ratio of fixed assets to net worth indicates the extent to which shareholder's funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owners’ funds are more than fixed assets and a part of the working capital is provided by the shareholders. When the ratio is more than the 100%, it implies that owners’ funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. There is no rule of thumb to interpret this ratio by 60 to 65 percent is considered to be a satisfactory ratio in case of industrial undertakings.


- 95 -

(in crore)

FIXED ASSETS TO PROPRIETORS Year

FIXED ASSETS

PROPRIETORS FUND Proprietors Fund

2004

21,160.10

2005

22,204.70

41,776.00

.53

2006

22,967.50

44,959.00

.51

2007

25,525.00

48,597.00

.52

2008

39,933.70

52,639.00

.76

35,992.00

Ratio

.56


Ratio

0.56

0.53

0.51

0.52

0.76

2004

2005

2006

2007

2008

Interpretation In the year 2003-2004 the ratio was 0.56. In 2004-2005 the ratio had decreased to .53. But in 2005-2006 the ratio had again falled to 0.51. Further it had increased to .52 in I-BUSINESS INSTITUTE

- 96 -

2006-2007 but in 2007-08 the ratio is 0.76 which is very close to the ideal ratio. From the analysis it is found out that since last four years company is investing average more than 70% of its long-term fund in fixed assets. There is more investment in fixed assets so if that excess fund can be utilized effectively at some other place that should be done.

4. Current Assets to Proprietor's Fund Ratio:

Current Assets to Proprietor’s Fund Ratio establishes the relationship between current assets and shareholder's funds. The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets.

Formula:

Shareholders funds Current Assets to Proprietors fund = Proprietors Fund Significance: Different industries have different norms and therefore, this ratio should be studied carefully taking the history of industrial concern into consideration before relying too much on this ratio.


- 97 -

(in crore)

UCURRENT ASSETS TO PROPRITORS FUND

Year

CURRENT ASSETS

PROPRIETORS FUND Proprietors Fund

35,992.00

Ratio

2004

14,642.40

.41

2005

14,721.80

41,776.00

.35

2006

18,234.80

44,959.00

.41

2007

25,858.80

48,597.00

.53

2008

30,527.80

52,639.00

.58


Ratio

0.41

0.35

0.41

0.53

0.58

2004

2005

2006

2007

2008


- 98 -

Interpretation In the year 2003-2004 the ratio was 0.41. In 2004-2005 the ratio had decreased to .35. But in 2005-2006 the ratio had again increased to 0.41. Further it had increased to .53 in 2006-2007 but in 2007-08 the ratio is increased.

5. Debt Service Ratio or Interest Coverage Ratio: Definition: Interest coverage ratio is also known as debt service ratio or debt service coverage ratio . This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. It is calculated by using the following formula. Formula:

Net profit before interest and tax Interest Coverage ratio = Fixed interest charge

Significance of debt service ratio: The interest coverage ratio is very important from the lender's point of view. It indicates the number of times interest is covered by the profits available to pay interest charges. It is an index of the financial strength of an enterprise. A high debt service ratio or interest coverage ratio assures the lenders a regular and periodical interest income. But the weakness of the ratio may create some problems to the financial manager in raising funds from debt sources.


- 99 -

(in crore)

INTEREST COVERAGE RATIO

Year

NET PROFIT BEFORE INTEREST AND TAX

t FIXED INTEREST CHARGES

Ratio

2004

10317.00

3,372.70

3

2005

7092.00

1,014.20

7

2006

6981.00

958.50

7.28

2007

10767.00

1,859.40

6

2008

12053.00

1,798.10

7


50 40 30

Ratio

20 10

7

7.28

6

7

2005

2006

2007

2008

3

0

2004

Interpretation This ratio suggests that whether company manages to earn sufficient income to cover its expenses. The ratio of the company indicates that company depends much on borrowed


- 100 -

funds. In 2008 company interest coverage ratio was 7 which shows high ratio compare to previous year The high interest ratio means that company depends more on debt funds.


- 101 -

CHAPTER 7

Findings


- 102 -

FINDINGS

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 enough and it appears positive in accordance with its balance sheet and profit & loss A/c which are available to me. Some other finding there are 1. We can easily found that company net profit ratio in 2007-2008 was 20 this ratio fallen compare to previous year means company profit decrease. 2. in Return on equity capital ratio compare to previous year ratio .90 which shows the company regularly dividend paid 3. company earning per ratio increase year by year 4. company current ratio is very good which shows highly liquidity available 5. company stock turnover ratio 14 which shows full utilization of stock I-BUSINESS INSTITUTE

- 103 -

CHAPTER 6

CONCLUSION


- 104 -

CONCLUSION

The electricity supply has been in the public domain in most of the developing countries. Under public ownership, the sector has not been able to catch up with the growing demand for electricity. The operational inefficiency and financial losses often lead to poor quality of supply and underinvestment. A wave of reforms has swept through a number of developing countries. These reforms were primarily targeted to improve the performance of the state owned companies and to provide a conducive atmosphere for private investment in the sector. The erstwhile vertically integrated SEBs in India has been riddled with inefficiencies due to a lack of accountability and administrative bottlenecks. Reforms in the Indian power sector were initiated to restructure the SEBs and to set up independent regulatory institutions. The Electricity Act 2003 led to deepening of the reform process by enabling competition in the wholesale electricity market and retail electricity supply, in phases. Thirteen SEBs have


- 105 -

so far unbundled into separate generation, transmission and distribution companies. Beginning with the establishment of an independent regulatory commission in Orissa in 1996, the SERCs have been set up in all states. Some of the smaller states in the North East have established a Joint Electricity Regulatory Commission. The process of tariff determination has become more transparent and limited tariff rationalization has been undertaken against consumer opposition and political meddling. The emerging competition in the bulk power market and phased direct access to large consumers is aimed at reducing the risks associated with sales to financially weak state utilities. The policy and regulatory developments are promising, but more needs to be done to improve the performance of distribution utilities. Amongst other factors, the autonomy to manage these utilities in a commercial manner remains a key issue. In the long-run, the state’s objectives are best served by nurturing a financially sustainable sector that can improve access for poor and rural consumers. This research undertook a review of the policy and regulatory developments in the Indian power sector. A review of the literature and a comparative policy analysis helped us to unravel some of the lessons to be learned for the process of reform in developing countries in general. The initial phase of power sector reform in India allowed commercially-oriented IPPs to sell power to financially weak SEBs, which do not rely on sound commercial principles. This marriage of convenience is not sustainable. The initial phase of reforms in developing countries should be aimed to restructure the sector and to set up an independent regulator. As private participation grows, it would be suitable to introduce competition in the sector. This would not only help lower the cost of power purchase, it would also provide greater incentive for performance improvement. The experience of private sector investment in Latin American countries relied on the introduction of commercial interest in the bulk power market by inviting IPPs as well I-BUSINESS INSTITUTE

- 106 -

as introducing commercial principles at the end of buyer utilities through their divestiture. The experience in East Asia and Latin America suggests that macroeconomic stability remains a key to attracting sustainable and increased investment in the infrastructure sectors. India continues to demonstrate macroeconomic stability along with prudent currency management. Future growth prospects in the power sector hold substantial potential for private investment. However, the financial performance of the state owned distribution utilities remains a key concern for investors. A positive outcome of existing distribution privatization programs would guide such future plans, which remain politically sensitive. The regulatory challenge is to provide incentives for improvement in technical efficiency and financial performance. The unavailability of sovereign guarantees can be adequately addressed if state utilities become viable through greater commercialization, if not privatization. Inability of the domestic capital market to provide long-term debt for the power sector needs to be adequately addressed by encouraging contractual saving through life insurance and pension funds, and channel zing these for the power sector. Securitization of project loans after the construction period and development of secondary bond market would help garner funds for investment in the sector. The long-term interest of the consumers can only be served if reasonably priced electricity is available over the long-run. Political interests would best be served by depoliticizing tariffs, which would be beneficial to consumers in the long-term through improved quality and reliability of supply. Given the objective to electrify all villages by 2010 and to double the generating capacity in the country by 2012, the need to improve the policy environment and strengthen the regulatory framework cannot be ignored.


- 107 -

CHAPTER 7

SUGGESTION & RECOMMENDATIONS


- 108 -

SUGGESTION

₪ Regulatory commission should work properly. They should try to minimize the cost, so that general customer should meet the cost easily.

₪ Company should try to get ultra mega power plant project. ₪ They should try to improve the operational efficiency and financial performance of state utilities.

₪ Company has sound data system from where they can start the cost cut methods at different measures to improve their performance.

₪ The human resource can be optimizing to a certain extent for increasing profitability.


- 109 -

CHAPTER 8

LIMITATION OF STUDY


- 110 -

LIMITATION OF THE STUDY

The limitations faced during the summer course are:₪ First-it was not possible to study various aspect of the organization in detail.\ ₪ Employees were apprehensive of secrecy data therefore hesitated in disclosing all the data regarding some of the points concerning to this study.

₪ As this is a general study, hypothesis could not be drawn. ₪ Some executives could not afford time because of their busy schedule ₪ The time was a big constraint as the two months was a short span of time. As the respondents are no high designations, reaching them was hectic task.

₪ The respondents were to be reached through emails and by personals and the time were not enough get the response about the quarries and doubts raised.


- 111 -

BIBLIOGRAPHY

Reference Books

Financial management Management Accounting

: I.M Pandey : Sharma & Gupta

management accountancy

: Pillai & bagavati

Websites: ü ü ü ü

www.ntpc.co.in www. moneycontrol.com www.myiris.com www.indiabudget.nic.in

Search Engine: ü www.google.com ü www.wikipedia.com


- 112 -

ANNEXURE PARTICULARS FINANCIAL

2008 2007 STATISTICS OF NTPC

2006

(IN2005 CRORE)2004

Long Term Loans

19,875.90 17,661.50 14,464.60 12,647.10 10,868.40

Long Term Debt

28,564.00 25,141.00 20,638.00 17,425.00 15,612.00

Ordinary Equity

8,245.50

8,245.50

8,245.50

8,245.50

7,812.50

Shareholder's Equity

8,245.50

8,245.50

8,245.50

8,245.50

7,812.50

General Reserve

44,393.10 40,351.30 36,713.20 33,530.80 28,116.00

Shareholder's Fund

52,639.00 48,597.00 44,959.00 41,776.00 35,992.00

Capital Employed

64,269.00 58,013.00 51,178.00 46,178.00 29,574.00

Fixed Asset

39,933.70

Current Asset

30,527.80 25,858.80 18,234.80 14,721.80 14,642.40

Total Asset

81,202.60 73,737.90 65,596.80 59,201.50 51,540.40

25,525 22,967.50 22,204.70 21,160.10

473.00

750.10

176.80

367.30

602.50

Inventory

2,675.70

2,510.20

2,340.50

1,777.70

1,738.00

Quick Asset

27852.00

23348.60

15894.30

12944.10

12904.40

Cash & Cash Equivalent

Cash Sales

Total Sales I-BUSINESS INSTITUTE

Cost Of Goods Sold

37,050.10 32,631.70 26,142.90 22,565.00 18,871.20 - 113 -

25,519.70 22,472.10 18,718.30 15,276.10 13,667.00

Gross Profit

12,393.40 10,982.80

8,070.10

8,036.60

7,912.90

1,252.30

867.80

1,374.70

469.90

Operating Profit

11,585.10 10,170.10

7,434.20

7,313.10

5,226.10

Current Liability

13,164.40 10,702.50

8,650.60

8,561.30

9,189.80

Long Term liability

19876.00

17662.00

14465.00

12647.00

1458.00

Total Liability

33040.00

28364.00

23115.00

21208.00

10648.00

Net working Capital

17363.00

15156.00

9584.00

6161.00

5453.00

PBIT

12053.00

10767.00

6981.00

7092.00

10317.00

Interest

1,798.10

1,859.40

958.50

1,014.20

3,372.70

10,254.90

8,907.40

6,022.40

6,078.20

6,943.80

Tax Payment

2,840.10

2,042.70

202.20

271.20

1,658.30

PAT

7415.00

6865.00

5820.00

5807.00

5286.00

Total No. Of shares IN million

825.00

825.00

825.00

825.00

781.00

EPS

899.25

832.54

705.86

704.26

676.54

3.50

3.20

2.80

2.40

1.39

304.30

316.40

951.60

3,524.90

19.20

6384.00

5894.00

5453.00

5067.00

4599.00

Operating Cost 2,982.70

Debtors Creditors

PBT

Dividend Paid/share Market Price in Rs Book Value


- 114 -


- 115 -

financial statement analysis of ntpc

Recommend Documents