Power Sector in India

FINANCIAL RATIO ANALYSIS 2010
‘Summer Training Project Report ‘

ON
Financial Ratio Analysis
At
TEHRI HYDRO DEVELOPMENT CORPORATION LTD
(RISHIKESH, UTTRAKHAND)
Submitted in partial fulfillment for the Award of Degree of

MASTER OF BUSINESS ADMINISTRATION
(2008-10)
SUBMITTED TO: SUBMITTED BY:

NITIN MALLA
College Of Management Studies MBA 4TH SEM
ROLL NO: 520850077
CASE STUDY OF THDC LTD Page 1

PREFACE
The conceptual knowledge acquired by management student is best manifested in the project and
training they undergo. As a part of curriculum of MBA, I have got a chance to undergo practical
training at THDC LTD RISHIKESH. The present project gives a perfect vent into my
understanding of financial management.
The project report entitled “FINACIAL RATIO ANALYSIS” is based on the financial
statements viz the income statement, the Balance sheet of the company.
The report will provide all information regarding the FINANCIAL RATIO ANALYSIS and their
importance in TEHRI HYDRODEVLOPMENT CORPORATION LTD RISHIKESH.
I hope this report will be beneficial for my next batches and for those who are related to this
topic.

DECLARATION
I, Nitin Malla, hereby declare that the project titled “FINANCIAL RATIO ANALYSIS” of
THDC LTD; RISHIKESH is submitted in partial fulfillment to the requirement of my Master’s
in Business Administration.
NITIN MALLA
MBA 4TH SEM

ACKNOWLEDGEMENT
I express my sincere thanks to the management of THDC LTD RISHIKESH, for giving me an
opportunity to gain exposure on related to project under the guidance of Mr. K.K.
SRIVASTAVA (dy. Manager Finance).
I would also like to thank Mr. DILEEP Kr. DWIVEDI personnel officer (HRD).
I am indebted to Mrs. Amrita Basu (project guide) to give me a wonderful opportunity to widen
the horizons of my knowledge. I would like to thank her for her scholarly guidance, constant
supervision and encouragement. It is due to her personal interest and initiative that the project
work is published in the current form.

POWER SECTOR IN INDIA
The electricity sector in India is predominantly controlled by the 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.
The Ministry of Power is the apex body responsible for the development of electrical energy in
India. This ministry started functioning independently from 2 July 1992; earlier, it was known as
The Ministry of Energy. The Union Minister of Power at present is Sushil kumar Shinde of the
Congress Party, who took charge of the ministry on the 28th of May, 2009.
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 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.
About 75% of the electricity consumed in India is generated by thermal power plants, 21%
by hydroelectric power plants and 4% by nuclear power plants. More than 50% of India's
commercial energy demand is met through the country's vast coal reserves. The country has also
invested heavily in recent years on renewable sources of energy such as wind energy. As of
2008, India's installed wind power generation capacity stood at 9,655 MW. Additionally, India
has committed massive amount of funds for the construction of various nuclear reactors which
would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce
20,000 MW of solar power by 2020.
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. Theft of electricity, common in most parts of urban India,
amounts to 1.5% of India's GDP. Despite an ambitious rural electrification program, some 400
million Indians lose electricity access during blackouts. While 80 percent of Indian villages have
at least an electricity line, just 44 percent of rural households have access to electricity.
According to a sample of 97,882 households in 2002, electricity was the main source of lighting
for 53% of rural households compared to 36% in 1993. Multi Commodity Exchange has sought
permission to offer electricity future markets.
HISTORICAL BACKGROUND
The Tehri Dam & Hydro Electric Project had initially been accorded Investment Clearance by
the Planning Commission in June, 1972 for implementation by the Government of U.P., with an
installed generating capacity of 600 MW. The State Government commenced the construction of
the Project in 1978. Subsequently, in 1983, the proposed Installed Capacity of the Project was
increased by the State Government to 1000 MW.
In view of the shortage of funds for implementation of the Project in the State sector, it was
decided in Nov.,1986 to implement the Tehri project as a Joint Venture of the Govt. of India
and Govt. of U.P. through financial and technical assistance from erstwhile USSR.

In Nov.,1986, an agreement on economic and technical co-operation between the Govt. of
India and Govt. of USSR was signed, which interallia included execution of the 2400 MW
Tehri Hydro Power Complex comprising 1000 MW Tehri Dam & Hydro Power Plant, 400
MW Koteshwar Dam & Hydro Power Plant and 1000 MW Tehri Pumped Storage Plant.
This agreement envisaged financing in the form of credit amounting to 1000 million Rubles
from USSR.
The Government had also approved seeking the technical and financial assistance from the
then USSR for implementing the Tehri Power Complex. However, with the disintegration
of USSR, the financial assistance from USSR was not available.
ABOUT THE CORPORATION
THDC, a Joint Venture Corporation of the Govt. of India and Govt. of U.P., was incorporated as
a Limited Company under the Companies Act, 1956, in July’88, to develop, operate and
maintain the Tehri Hydro Power Complex and other Hydro Projects. The works were handed
over to THDC in June 1989. The equity portion the Project is being shared by Govt. of India &
Govt. of U.P in the ratio of 75:25. The Corporation has an authorized share capital of Rs.4000 cr.
The Government approved the implementation of Tehri Dam and HPP Stage-I (1000 MW) in
March, 1994, along with the essential works of Pumped Storage Plant and committed works of
Koteshwar HEP. Other components of the Tehri Power Complex, viz., Koteshwar Project, and
the Pumped Storage Plant, were envisaged to be taken up at a later stage.
The Koteshwar HEP (400 MW) was approved for implementation by the Government in
April’2000. Investment approval has been accorded by the Government in July’06 to the Tehri
PSP(1000 MW), the first Pumped Storage Scheme in the Central sector which would utilize the
Tehri & Koteshwar reservoirs as the requisite upstream & downstream reservoirs.
Govt. of India has accorded Investment Approval for execution of 444 MW Vishnugad Pipalkoti
Hydro Electric Project (VPHEP) on River Alaknanda in Aug’ 2008.
Govt. of Uttarakhand has also entrusted Hydro Projects to THDC in Bhagirathi, Alaknanda
and Sarda Valleys in Uttarakhand, totaling to 760 MW.

Govt. of Uttarakhand has accorded In-principle approval to allot Kishau Multi Purpose Project
(600 MW) on river Tons, a tributary of Yamuna. Govt. of India has given approval for updation
of DPR of the Project by THDC.
THDC has entered into an MOU with Nuclear Power Corporation of India Ltd. (NPCIL) to
synergize strengths and competencies for development of Hydro Power Projects including
Pumped Storage Schemes in the country. Govt. of Maharashtra has allotted 2 PSPs namely
Malshej Ghat (600 MW) & Humbarli (400MW) to the Joint Venture of THDC and NPCIL for
updation of DPR and subsequent implementation subject to commercial viability.
Under India-Bhutan Co-operation in hydro Sector development , MOP has allotted two Projects
namely Sankosh Multi Purpose Project (4060 MW) and Bunakha HEP (180 MW) in Bhutan for
updation of DPR, and subsequent implementation on Intergovernmental Authority Model / JV
with Bhutanese PSUs. The work of updation of DPRs has been taken up.
THDC is also engaged in the engineering consultancy work for stabilization of Varunavat Parvat
in Uttarkashi entrusted by Government of Uttarakhand. The work involves providing the
complete engineering solution to the major hill stabilization problem and also supervising the
execution of works at site.

The Corporation has commissioned Tehri Dam and HPP Stage-I (1000 MW) during Xth plan.
The Tehri Power Station is now fully operational.


Projects: location map
THEORETICAL ASPECTS
RATIO ANALYSIS

Meaning and Definition of Ratio Analysis
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as
its historical performance and current financial condition can be determined. The term ratio
refers to the numerical or quantitative relationship between two variables.
Ratio analysis is a very powerful analytical tool for measuring performance of an
organization. The ratio analysis concentrates on the inter – relationship among the figures
appearing in the aforementioned four financial statement s. the ratio analysis helps the
management to analyze the past performance of the firm . The ratio analysis allow
interested parties like shareholders, investors, creditors , government and analysts to make an
evaluation of certain aspects of a firm’s performance.
Significance or Importance of Ratio Analysis
 It helps in evaluating the firm’s performance. With the help of ratio analysis conclusion
can be drawn regarding several aspects such as financial health, profitability and
operational efficiency of the undertaking. Ratio points out the operating efficiency of the
firm i.e. whether the management has utilized the firm's assets correctly, to increase the
investor's wealth. It ensures a fair return to its owners and secures optimum utilization of
firm’s assets.
 It helps in inter-firm comparison. Ratio analysis helps in inter-firm comparison by
providing necessary data. An inter firm comparison indicates relative position. It provides
the relevant data for the comparison of the performance of different departments. If
comparison shows a variance, the possible reasons of variations may be identified and if
results are negative, the action may be initiated immediately to bring them in line.
 It simplifies financial statement. Yet another dimension of usefulness or ratio analysis,
relevant from the View point of management is that it throws light on the degree
efficiency in the various activity ratios measures this kind of operational efficiency.
Limitations

 Ratios are calculated from the financial statements which are affected by the financial
bases and policies on such matters as depreciation and the valuation of stock
.
 Financial statements do not represent a complete picture of the business, but merely a
collection of fact which can be expressed in monetary terms. These may not refer to both
factors which affect performance.
 Over use of ratios as controls on managers could be dangerous, in that management
might concentrate more on simply improving the ratio than on dealing with the
significant issues.
 A ratio is a comparison of two figures, a numerator and a denominator. In comparing
ratios it may be difficult to determine whether differences are due to changes in the
numerator, or in the denominator or in both.
 Ratios are inter-connected. They should not be treated in isolation. The effective use of
ratios, therefore, depends on being aware of all these limitations and ensuring that,
following comparative analysis, they are used to trigger point for investigation and
corrective action rather than being treated as meaningful in them selves.
 The analysis of ratios clarifies trends and weaknesses in performance as a guide to action
as long as proper comparisons are made and the reasons for adverse trends or deviations
from the norms are investigated thoroughly.
Classification of Ratios
Different ratios are used for different purposes; these ratios can be grouped into various classes
according to the financial activity. Ratios are classified into four broad categories:
 Liquidity Ratio
 Leverage Ratio
 Profitability Ratio
 Activity Ratio
 Liquidity Ratio:

Liquidity ratio measures the firms ability to meet its current obligations i.e. ability to pay its
obligations and when they become due. Commonly used ratios are:
(1) Current Ratio

(2) Acid Test Ratio or Quick Ratio
(1) Current Ratio:

Current ratio is the ratio, which express relationship between current asset and current liabilities.
Current asset are those which can be converted into cash within a short period of time, normally
not exceeding one year. The current liabilities which are short- term and are maturing to be met.
Current Ratio = Current Asset ÷Current liabilities
(2) Acid Test Ratio or Quick Ratio:

The acid test ratio is a measure of liquidity designed to overcome the defect of current ratio. It is
often referred to as quick ratio because it is a measurement of firm's ability to convert its current
assets quickly into cash in order to meet its current liabilities.
Acid Test Ratio = (Current Asset – Inventories) ÷ Current liabilities
 Leverage or Capital Structure Ratio:

Leverage or capital structure ratios are the ratios which indicate the relative interest of the
owners and the creditors in an enterprise. These ratios indicate the funds provided by the long-
term creditors and owners. To judge the long term financial position of the firm following ratios
are applied.
(1) Debt - Equity Ratio
(2) Total Debt Ratio
(1) Debt - Equity Ratio:

Debt-equity ratio which expresses the relationship between debt and equity. This ratio explains
how far owned funds are sufficient to pay outside liabilities. It is calculated by following
formula:

Debt Equity Ratio = (Long Term + Short Term Debts + Current Liabilities) ÷ Net Worth
(2) Total Debt Ratio:

This ratio explains how far owned and borrowed funds are sufficient to pay debt of a Firm.
Total Debt Ratio = (Long Term + Short Term Borrowing + Current Liabilities) ÷ Capital
employed
 Profitability Ratios
Profitability ratio are the best indicators of overall efficiency of the business concern, because
they compare return of value over and above the value put into business with sales or service
carried on by the firm with the help of assets employed. Profitability ratio can be determined on
the basis of:
1. Sales
2. Investment
(i) Profitability Ratios Related to Sales:
(ii) Gross Profit to Sales Ratio
(iii) Net Profit to Sales Ratio or Net Profit of Margin.
(i) Gross Profit to Sales Ratio

The gross profit to sales ratio establishes relationship between gross profit and sales to measure
the relative operating efficiency of the firm to reflect pricing policy.
Gross Profit to Sales Ratio = (Sales - Cost of Goods Sold) ÷ Sale
* 100
(iii) Net Profit Margin

The net margin indicates the management's ability to earn sufficient profit on sales to earn
sufficient profit on sales not only to cover all revenue operating expenses of the business, the
cost of borrowed funds and the cost of goods or servicing, but also to have sufficient margin to
pay reasonable comparison to shareholders on their contributions to the firm.

Net Profit Margin = Net profit after tax and interest * 100
Sales
Profitability Ratios Related to Investments:

Return on Assets
Return on Capital Employed
Return on Assets:
The profitability ratio here measures the relationship between net profit and assets.
Return on Assets = Net Profit after ÷ Tax Fixed Assets
Return on Capital Employed:

Return on Capital Employed = Net Profit after Taxes ÷ Total Capital Employed
 Activity Ratios or Efficiency Ratios:

Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with how
efficiently the assets of the firm are managed. These ratios express relationship between level of
sales and the investment in various assets inventories, receivables, fixed assets etc.
The important activity ratios are as follows:
(1) Inventory Turnover Ratio
(2) Debt Turnover Ratio
(3) Average Collection Period Ratio
(1) Inventory Turnover Ratio:

Inventory Turnover Ratio = Raw Materials Consumed ÷ Average Stock of Raw Materials
(2) Debt Turnover Ratio:

This ratio shows how quickly the debtors are converted into cash
Debt Turnover Ratio = Total Sales ÷ Debtors
(3) Average Collection Period Ratio

This ratio indicates how quickly the inventory is converted into cash.
Average Collection Period Ratio = Days in a Year ÷ Debtors Turnover
Parties Interested In Ratio Analysis
 Trade creditors
Trade creditors are interested in firm's ability to meet their claims over a very short period of
time. Their analysis will, there fore confine to the evaluation of the firm's liquidity positions.
 Suppliers of long-term debt

Suppliers of long-term debt on the other hand are concerned with firm's long-term solvency and
survival. They analysis the firms profitability over time, its ability to generate cash to be able to
pay interest and repay interest and repay principal and the relationship between various source of
funds. (Capital structure relationship).
Long-term creditors do analyses the historical financial statements but they place more emphasis
on the firm's projected financial statement to make analysis about its future solvency and
profitability.
 Investors
Investors who have invested their money in the firms share are most concerned about the firm
steady growth in earning. As such, they concentrate on the analysis of the firm's present and
future profitability. They are also interested in the firms financial structure of the extent it
influence the firms earning ability and risk.

 Management
An organization would be interested in every aspect of the financial analysis. It is their overall
responsibility to see that the resources of the firm are used most effectively and efficiently and
that the firm's financial condition is sound.
So thus management employee financial analysis for the purpose of internal control and to better
provide what capital supplier seeks in financial condition and performance from the business and
from an internal control standpoint, management needs to take financial analysis in order to plan
and control effectively.
RATIO ANALYSIS
Financial ratios are useful indicators of a firm's performance and financial situation. Financial
ratios can be used to analyze trends and to compare the firm's financials to those of other firms.
Ratio analysis is the calculation and comparison of ratios which are derived from the information
in a company's financial statements. Financial ratios are usually expressed as a percent or as
times per period. Ratio analysis is a widely used tool of financial analysis. It is defined as the
systematic use of ratio to interpret the financial statements so that the strength and weaknesses of
a firm as well as its historical performance and current financial condition can be determined.
The term ratio refers to the numerical or quantitative relationship between two variables. With
the help of ratio analysis conclusion can be drawn regarding several aspects such as financial
health, profitability and operational efficiency of the undertaking. Ratio points out the operating
efficiency of the firm i.e. whether the management has utilized the firm's assets correctly, to
increase the investor's wealth. It ensures a fair return to its owners and secures optimum
utilization of firm's assets. Ratio analysis helps in inter-firm comparison by providing necessary
data. An inter firm comparison indicates relative position. It provides the relevant data for the
comparison of the performance of different departments. If comparison shows a variance, the
possible reasons of variations may be identified and if results are negative, the action may be
initiated immediately to bring them in line. Yet another dimension of usefulness or ratio analysis,

relevant from the View point of management is that it throws light on the degree efficiency in the
various activity ratios measures this kind of operational efficiency.
Liquidity Ratios Leverage Ratios
Profitability Ratios Activity Ratios
Market Ratios Statements of Cash Flow
Ratio Analysis
Liquidity Ratios:
Liquidity ratios measure a firm's ability to meet its current obligations. These include:
Current Ratio:
Current Ratio = Current Assets / Current Liabilities
This ratio indicates the extent to which current liabilities are covered by those assets expected to
be converted to cash in the near future. Current assets normally include cash, marketable
securities, accounts receivables, and inventories. Current liabilities consist of accounts payable,
short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued

expenses. Current assets are important to businesses because they are the assets that are used to
fund day-to-day operations and pay ongoing expenses.
Year 2007 2008

Current asset 4707621 7581431
Current liability 3037283 3627890
Current ratio 1.55 2.09
2.09
2.5
2 2007
1.55
2008
1.5
2008
1
0.5
0 2007
CURRENT RATIO
Interpretation:
The current ratio for the year 2007 & 2008 is 1.55 & 2.09 respectively, compared to standard
ratio of
2:1 this ratio is lower which shows low short term liquidity efficiency at the same time holding
less than sufficient current assets means insufficient use of resources.
Sales to Working Capital:

Sales to Working Capital = Sales / Working Capital
Sales to working capital give an indication of the turnover in working capital per year. A low
working capital indicates an unprofitable use of working capital.

Year 2007 2008

Sales 4441588 10947074
Working Capital 1670338 3953541
Sales to Working 2.66 2.77
2.77
2.78
2.76
2.74 2007
2.72 2008
2.7
2.68 2.66 2008
2.66
2.64
2.62
2.6 2007
SALES TO WORKING CAPITAL
Interpretation:
This liquidity ratio for the years 2007 & 2008 is 2.66 & 2.77, compared to standard ratio of 2:1.
Working Capital:
Working Capital = Current Assets ÷Current Liabilities
A measure of both a company's efficiency and its short-term financial health. Positive working
capital means that the company is able to pay off its short-term liabilities. Negative working

capital means that a company currently is unable to meet its short-term liabilities with its current
assets (cash, accounts receivable and inventory).
Also known as "net working capital” or the "working capital ratio".
Year 2007 2008

Current asset 4707621 7581431
Current liability 3037283 3627890
Working capital 1670338 3953541
Interpretation:
3953541
4000000
3500000
3000000 2007
2500000 2008
2000000 1670338
2008
1500000
1000000
500000
0 2007
WORKING CAPITAL
It is very clear from the above calculations that the working capital of THDC is gradually
increasing over d period of time, which shows good short term liquidity.

Leverage Ratios:
By using a combination of assets, debt, equity, and interest payments, leverage ratio's are used to
understand a company's ability to meet it long term financial obligations. Leverage ratios
measure the degree of protection of suppliers of long term funds. The level of leverage depends
on a lot of factors such as availability of collateral, strength of operating cash flow and tax
treatments. Thus, investors should be careful about comparing financial leverage between
companies from different industries. For example companies in the banking industry naturally
operates with a high leverage as collateral their assets are easily collateralized. These include:

Time Interest Earned : TIE Ratio = EBIT / Interest Charges

The interest coverage ratio tells us how easily a company is able to pay interest expenses
associated to the debt they currently have. The ratio is designed to understand the amount of
interest due as a function of company's earnings before interest and taxes (EBIT). This ratio
measures the extent to which operating income can decline before the firm is unable to meet its
annual interest cost.
Year 2007 2008

EBIT 3304444 7665197
Interest charges 1995314 3930222
TIE Ratio 1.66 1.95
1.95
1.95
1.9
1.85 2007
1.8 2008
1.75
1.7 1.66 2008
1.65
1.6
1.55
1.5 2007
TIE RATIO
Interpretation:
As we can see from this ratio analysis that, tie ratio in 2007 is 1.66 as compared to 1.95 in 2008
which means that the firm can easily meets its interest burden even if EBIT and Tax suffer a
considerable decline.

Debt Ratio:
Debt Ratio = Total Debt / Total Assets
The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of
funds provided by the creditors. The proportion of a firm's total assets that are being financed
with borrowed funds. The debt ratio is calculated by dividing total long-term and short-term
liabilities by total assets. The higher the ratio, the more leverage the company is using and the
more risk it is assuming. Assets and liabilities are found on a company's balance sheet.
year 2007 2008

Total debt 43800338 43754589
Total asset 91147208 97596187
Debt ratio .481 .448
0.49 0.48
0.48 0.45
2007
0.47 2008
0.46
2008
0.45
0.44
0.43 2007
DEBT RATIO
Interpretation:
Calculating the debt ratio, we came to know that company is mid leveraged one.

Debt to Equity Ratio:

Debt to Equity Ratio = Total debt / Total Equity
The debt to equity ratio is the most popular leverage ratio and it provides detail around the
amount of leverage (liabilities assumed) that a company has in relation to the monies provided
by shareholders. As you can see through the formula below, the lower the number, the less
leverage that a company is using. The debt to equity ratio gives the proportion of a company (or
person's) assets that are financed by debt versus equity. It is a common measure of the long- term
viability of a company's business and, along with current ratio, a measure of its liquidity, or its
ability to cover its expenses. As a result, debt to equity calculations often only includes long-
term debt rather than a company's total liabilities. A high debt to equity ratio implies that the
company has been aggressively financing its activities through debt and therefore must pay
interest on this financing.
Year 2007 2008

Total debt 43800338 43754589
Total equity 44301952 50207563
Debt to equity ratio .998 .871

Interpretation:
1
1
0.98 0.87
0.96 2007
0.94 2008
0.92
0.9
2008
0.88
0.86
0.84
0.82
0.8 2007
DEBT TO EQUITY RATIO
We can see from the calculation that ratio has been declining.
Total Capitalization Ratio:
Total Capitalization Ratio = Long-term debt / long-term debt + shareholders' equity
The capitalization ratio measures the debt component of a company's capital structure, or
capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a
company's operations and growth. Long-term debt is divided by the sum of long-term debt and
shareholders' equity. This ratio is considered to be one of the more meaningful of the "debt"
ratios - it delivers the key insight into a company's use of leverage.
Year 2007 2008

Long term debt 43800338 43754589
Long term debt+ equity 93962152 88102290

Total capitalization ratio .466 .497
0.5
0.5
0.5
0.49 2007
0.49 2008
0.48
0.48
0.47 2008
0.47
0.47
0.46
0.46
0.45 2007
TOTAL CAPITALIZATION RATIO
Interpretation:
As we can see from the calculation that there is gradual increase in the ratio from .466 in 2007 to
.497 in 2008.
Long term Assets versus Long term Debt:

Long term Assets versus Long term Debt = Long Term Assets / Long Term Debts
year 2007 2008

Long term asset 86431952 90008611
Long term debt 43800338 43754589
LT assets/LT debts 1.97 2.06

2.06
2.06
2.04
2007
2.02
2008
2
1.97 2008
1.98
1.96
1.94
1.92 2007
LT ASSETS/LT DEBTS
Profitability Ratios:
Profitability is the net result of a number of policies and decisions. This section of the discusses
the different measures of corporate profitability and financial performance. These ratios, much
like the operational performance ratios, give users a good understanding of how well the
company utilized its resources in generating profit and shareholder value. The long-term
profitability of a company is vital for both the survivability of the company as well as the benefit
received by shareholders. It is these ratios that can give insight into the all important "profit".
Profitability ratios show the combined effects of liquidity, asset management and debt on
operating results. These ratios examine the profit made by the firm and compare these figures
with the size of the firm, the assets employed by the firm or its level of sales. There are four
important profitability ratios that I am going to analyze:
Net Profit Margin:
Net Profit margin = Net Profit / Sales x 100
Net Profit Margin gives us the net profit that the business is earning per dollar of sales.
This margin indicates the profit after all the costs have been incurred it shows that what % of
turnover is represented by the net profit. An increase in the ratios indicates that a firm is
producing higher net profit of sales than before.

Year 2007 2008

Net profit 1174809 3269869
Sales 4441588 10947074
Net profit margin 26.45% 29.87%
29.87%
30.00%
29.00%
2007
28.00% 2008
27.00% 26.45%
2008
26.00%
25.00%
24.00% 2007
NET PROFI MARGIN
Interpretation:
Here we can see that net profit margin have increased from 26.45% In 2007 to 29.87% in
2008
Return on Equity (ROE):

Return on Total Equity = Profit after taxation/ Total Equity x 10
Return on Equity measures the amount of Net Income earned by utilizing each dollar of Total
common equity. It is the most important of the "Bottom line" ratio. By this, we can find out how
much the shareholders are going to get for their shares. This ratio indicates how profitable a
company is by comparing its net income to its average shareholders' equity. The return on equity
ratio (ROE) measures how much the shareholders earned for their investment in the company.
The higher the ratio percentage, the more efficient management is in utilizing its equity base and
the better return is to investors.

Year 2007 2008

Profit after tax 1174809 3235761
Total equity 31296204 33003604
Return on total equity 3.75% 9.80%
9.80%
10.00%
9.00%
8.00%
2007
7.00%
2008
6.00%
5.00% 3.75%
4.00% 2008
3.00%
2.00%
1.00%
0.00% 2007
RETURN ON TOTAL EQUITY
Interpretation:
The return on equity was 3.75 in 2007 and 9.80 in 2008.
Return on total assets: Net profit after tax/ Total Assets

This ratio is computed to know the ‘Productivity of the Total Assets’.
Year 2007 2008

PAT 1174809 3235761
Total assets 91147208 97596187
Return on total assets 1.29% 3.32%

3.32%
3.50%
3.00%
2007
2.50%
2008
2.00%
1.29%
1.50% 2008
1.00%
0.50%
0.00% 2007
RETURN ON TOTAL ASSETS
Return on net worth: Profit after tax / Net worth
The ratio expresses the net profit in term of the equity share holders fund. The ratio is an
important yardstick of performance for equity shareholders since it indicates the return on the
funds employed by them.
Year 2007 2008

PAT 1174809 3235761

Net worth 44301952 50207563
Return on net worth .027 .064
6.40%
7.00%
6.00%
2007
5.00%
2008
4.00%
2.70%
3.00% 2008
2.00%
1.00%
0.00% 2007
RETURN ON NET WORTH
DuPont Return on Assets:

DuPont Return on Assets = Profit after taxation x 100
Total Assets
Year 2007 2008

Total assets 91147208 97596187
DuPont ROA 1.29% 3.32%

3.32%
3.50%
3.00%
2007
2.50%
2008
2.00%
1.29%
1.50% 2008
1.00%
0.50%
0.00% 2007
DU PONT ROA
Operating Assets Turnover:

Operating Assets Turnover = Operating Assets x 100
Net Sales
Year 2007 2008

Operating assets 75719410 79107857
Net sales 4441588 10947074
Operating assets turnover 1704.78% 722.64%

Return on Operating Assets:
Return on Operating Assets = Profit after Taxation x 100
Operating assets
Year 2007 2008

Operating assets 75719410 79107857
Return on operating 1.55% 4.09%
assets
4.09%
4.50%
4.00%
3.50% 2007
3.00% 2008
2.50%
2.00% 1.55% 2008
1.50%
1.00%
0.50%
0.00% 2007
RETURN ON OPERATIN ASSETS
Operating assets= Cash & Bank Balance + prepaid expense + Fixed Assets
2008:
1052476 + 22653 + 78032728 = 79107857
2007:
388281 + 66656 + 75264473 = 75719410
Sales to Fixed Assets:

This ratio is indicates that how much sales are contributed by investment in fixed Assets.
Sales to Fixed Assets = Net Sales / Fixed Assets

Year 2007 2008

Net sales 4441588 10947074
Fixed assets 75264473 78032728
Sales to fix asset .059 TIMES .141 TIMES
0.14
0.16
0.14
0.12 2007
2008
0.1
0.08 0.06
2008
0.06
0.04
0.02
0 2007
SALES TO FIXED ASSETS
Activity Ratios:
Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with how
efficiency the assets of the firm are managed. These ratios express relationship between level of
sales and the investment in various assets inventories, receivables, fixed assets etc.
Total Asset Turnover:
Total Asset Turnover = Total Sales / Total Assets
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales
in dollars by assets in dollars. Asset turnover measures a firm's efficiency at using its assets in
generating sales or revenue - the higher the number the better. It also indicates pricing strategy:

companies with low profit margins tend to have high asset turnover, while those with high profit
margins have low asset turnover.
Year 2007 2008
Total sales 4441588 10947074
Total assets 91147208 97596187
Total asset turnover .049 .112
0.11
0.12
0.1
2007
0.08 2008
0.06 0.05
2008
0.04
0.02
0 2007
TOTAL ASSETS TURNOVER
Interpretation:
The return on equity was .049 in 2007 and has increased to .112 in 2008 due to issue of
long term debt.
Debtors turn over ratio: Net credit sales/ debtors

The ratio shows how many times sundry debtors turn over during the year.
Year 2007 2008

Net credit sales 4441588 10947074
Debtors 2492617 4652777
Debtor turnover ratio 1.78 2.35

2.35
2.5
2 1.78
2007
2008
1.5
2008
1
0.5
0 2007
DEBTOR TURNOVER RATIO
Interpretation:
As we can see that higher the debtor turn over ratio the greater is the efficiency of credit
management.
Average collection period: 365/ Debtors turnover

The average collection period represents the num of days worth of credit sales that is locked in
sundry debtors.
Year 2007 2008

No of days 365 365
Debtors turn over 1.78 2.35
AVG collection period 205 days 156 days

156
250
205
200 2007
2008
150
2008
100
50
0 2007
AVG COLLECTION PERIOD
Interpretation:
As we can see from the above calculation that the collection period in 2007 was 205 days which
has reduced to 156 days in 2008
Market Ratio:

Market Value Ratios relate an observable market value, the stock price, to book values obtained
from the firm's financial statements.
Dividend per Share - DPS:
Dividend per Share = Total amount of Dividend
Number of outstanding shares
Per share capital = 1000 per share
Or
No. of shares outstanding = share capital / 1000
Year 2007 2008
Total amount of dividend 975000
Number of shares 32396
Dividend per shares 30.09
30.09
35
30
2007
25
2008
20
15 2008
10
5
0 2007
DIVIDEND PER SHARES
Interpretation:
There is no dividend paid in 2007.
Earning Per Share- EPS:

Earning Per Share = Profit after Taxation / Number of Shares
The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serve as an indicator of a company's profitability. Earnings per share are generally
considered to be the single most important variable in determining a share's price. It is also a
major component used to calculate the price-to-earnings valuation ratio.
Year 2007 2008

Number of shares 31296 32396
Earning per share 37.5 99.88
99.88
100
90
80 2007
70 2008
60
50 37.5
2008
40
30
20
10
0 2007
EARNING PER SHARE
Interpretation:
The EPS in 2008 is 99.88 as compared to 38.05 in 2007.
Price / Earning Ratio:

Price / Earning Ratio = Stock Price per Share
Earning Per Shares

The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock
by earnings per share (EPS). (Earnings per share are calculated by dividing net income by the
number of shares outstanding.)
The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As
such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high
price for a dollar of current earnings obviously expect high earnings in the future.) In this
manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not
meaningful, however, if the firm has very little or negative earnings. The Price-Earnings Ratio is
calculated by dividing the current market price per share of the stock by earnings per share
(EPS). (Earnings per share are calculated by dividing net income by the number of shares
outstanding.) The P/E Ratio indicates how much investors are willing to pay per dollar of current
earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing
to pay a high price for a dollar of current earnings obviously expect high earnings in the future.)
In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not
meaningful, however, if the firm has very little or negative earnings.
Year 2007 2008

Stock price per share 1000 1000
EPS 37.5 99.88
Price / Earning Ratio 26.67 10.01

30 26.67
10.01
25
2007
20 2008
15
2008
10
0 2007
PRICE/ EARNING RATIO
Interpretation:
The P/E ratio in 2007 was 26.66time n it has decreased to 10.01 in 2008 that’s alarming for the
investors.

Dividend Payout Ratio:

Dividend Payout Ratio = Dividend per Share / Earning per Share:
The percentage of earnings paid to shareholders in dividends. The payout ratio provides an idea
of how well earnings support the dividend payments. More mature companies tend to have a
higher payout ratio. This ratio identifies the percentage of earnings (net income) per common
share allocated to paying cash dividends to shareholders. The dividend payout ratio is an
indicator of how well earnings support the dividend payment.
Year 2007 2008

Dividend per share 30.09
EPS 99.88
Dividend payout ratio .301
0.3
0.35
0.3
2007
0.25
2008
0.2
0.15 2008
0.1
0.05
0 2007
DIVIDEND PAYOUT RATIO

Dividend Yield:
Dividend Yield = Dividend per Share / Share Price
Financial ratio that shows how much a company pays out in dividends each year relative to its
share price. In the absence of any capital gains, the dividend yield is the return on investment for
a stock. A stock's dividend yield is expressed as an annual percentage and is calculated as the
company's annual cash dividend per share divided by the current price of the stock. The dividend
yield is found in the stock quotes of dividend-paying companies. Investors should note that stock
quotes record the per share dollar amount of a company's latest quarterly declared dividend. This
quarterly dollar amount is annualized and compared to the current stock price to generate the per
annum dividend yield, which represents an expected return.
Year 2007 2008

DPS 0 30.09
Share price 1000
Dividend yield .0301

0.3
0.35
0.3
2007
0.25
2008
0.2
0.15 2008
0.1
0.05
0 2007
DIVIDEND YEILD
Book Value per Share:

Book Value per Share = Shareholders' Equity
Share Capital
This is defined as the Common Shareholder's Equity divided by the Shares Outstanding at the
end of the most recent fiscal quarter. It is the Indication of the net worth of the corporation.
Somewhat similar to the earnings per share, but it relates the stockholder's equity to the number
of shares outstanding, giving the shares a raw value. Comparing the market value to the book
value can indicate whether or not the stock in overvalued or undervalued
Year 2007 2008

Shareholder’s equity 44301952 50207563
Share capital 31296204 32396204
Book value P/E share 1.42 1.55

1.55
1.55
1.5 2007
2008
1.45 1.42 2008
1.4
1.35 2007
BOOK VALUE PER SHARE
Statement of Cash Flow:

Cash flow ratios indicate liquidity, borrowing capacity or profitability. This section of the
financial ratio looks at cash flow indicators, which focus on the cash being generated in terms of
how much is being generated and the safety net that it provides to the company. These ratios can
give users another look at the financial health and performance of a company.
Operating Cash Flow to Total Debt:
Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt
This coverage ratio compares a company's operating cash flow to its total debt, which, for
purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-
term debt and long-term debt. This ratio provides an indication of a company's ability to cover
total debt with its yearly cash flow from operations. The higher the percentage ratio, the better
the company's ability
To carry its total debt.

Year 2007 2008

Operating cash flow 3170123 7216396
Total debt 43800338 43754589
Operating cash flow to total .072 .165
debt
0.17
0.18
0.16
0.14 2007
0.12 2008
0.1 0.07
0.08 2008
0.06
0.04
0.02
0 2007
OPERATING CASH TO TOTAL DEBT
Operating Cash Flow per Share:

Operating Cash Flow per Share = Operating cash flow / Total Shares
Year 2007 2008

Operating cash flow 3170123 7216396
Total shares 31296 32396
Operating cash flow to total 101.30 222.76
shares

222.76
250
200 2007
2008
150
101.3
2008
100
50
0 2007
OPERATING CASH TO TOTAL SHARES
Trend Analysis:
A firm's present ratio is compared with its past and expected future ratios to determine whether
the company's financial condition is improving or deteriorating over time. Trend analysis studies
the financial history of a firm for comparison. By looking at the trend of a particular ratio, one
sees whether the ratio is falling, rising, or remaining relatively constant. This helps to detect
problems or observe good management.

TREND ANALYSIS OF THDC LTD FOR THE YEAR 2007 & 2008
Performance 2007 2008 trend

A)liquidity ratio
Current ratio 1.55 2.09 Higher liquidity in
2008
Sales to Working 2.66 2.77 Increase in 2008
capital
Working capital 1670338 3953541 Higher liquidity in
2008
B)leverage ratio
Time interest earned 1.66 1.95 Higher in 2008
Debt ratio .481 .448 Minimum difference
in leverage
Debt to equity ratio .998 .871 There is a slight
drop in leverage
Total capitalization .466 .497 Higher in 2008
ratio
LT/ Long term debt 1.97 2.06 Increase in leverage
C) Profitability ratio
Net profit margin 26.45% 29.87% Profitability
increased in 2008
Return on 3.75% 9.80% Increase in 2008
equity(ROE)
Return on asset 1.29% 3.32% Higher ROA in 2008
Return on net worth .027 .064 Higher in 2008
DuPont return on 1.29% 3.32% Higher in 2008
assets
Operating assets 1704.78% 722.64% Lower efficiency in
turnover 2008
Return on operating 1.55% 4.09% Higher efficiency in

assets 2008
Sales to fix asset .059times .141times Slight change in
2008
D)Activity ratio
Total asset turnover .049 .112 Higher efficiency in
2008
Debtor turnover 1.78 2.35 Increased in 2008
ratio
Average collection 205 days 156 days Collection period
period decreased in 2008
E ) Market ratio
DPS 30.09 No dividend paid in
2007
EPS 37.5 99.88 Increase in EPS in
2008
PE Ratio 26.67 10.01 Decreased in 2008
Dividend payout .301 No DP ratio in 2007
ratio
Dividend yield .301
Book value per share 1.42 1.55 Good market
perception
Operating cash flow .072 .165 Increased in 2008
to Total debt
Operating cash flow 101.30 222.76 Increased in 2008
to Total shares
SUMMARY
Financial Statement Analysis is a method used by interested parties such as investors, creditors,
and management to evaluate the past, current, and projected conditions and performance of the
firm. This report mainly deals with the insight information of the two mentioned companies. In
the current picture where financial volatility is endemic and financial intuitions are becoming
popular, when it comes to investing, the sound analysis of financial statements is one of the most
important elements in the fundamental analysis process. At the same time, the massive amount of

numbers in a company's financial statements can be bewildering and intimidating to many
investors. However, through financial ratio analysis, I tried to work with these numbers in an
organized fashion and presented them in a summarizing form easily understandable to both the
management and interested investors.
It is required by law that all private and public limited companies must prepare the financial
statements like, income statement, balance sheet and cash flow statement of the particular
accounting period. The management and financial analyst of the company analyze the financial
statements for making any further financial and administrative decisions for the betterment of the
company. Therefore, I select this topic, so that I have done some solid financial analysis that will
certainly help the management of review their performance and also assist the interested people
like investors and creditors. As a financial analyst it is important that a financial decision be
made by analyzing the financial statements of the company. It is the primary responsibility of the
financial managers or financial analyst to manage the financial matters of the company, by
evaluating the financial statements. I am also providing some important suggestions and opinions
about the financial matters of the business.
CONCLUSION AND RECOMMENDATION
Conclusion and Findings

I analyzed the financial statement of TEHRI HYDRO DEVELOPMENT CORPORATION LTD.
The analysis is as follows:
 The liquidity position of the company is not up to the standard, is below the industrial average
in 2007, but it has improved a little in 2008 and is near the industrial average.
 There is a considerable rise in the working capital of the company from 2007 to 2008 which
shows good liquidity position of the company.
 Leverage ratio indicates the high risk associated with the company. Leverage ratio helps in
helps in assessing the risk arising from the use of debt capital. As we can see that in both the
years debt to equity ratio is slightly below the industrial average.
 Profitability ratio is good as the earnings have increased for its share holders from 26% to
almost 30%. The profitability ratio is high because of the low financial charge.

 Activity ratio of the company is not that efficient, as we can see that the debtor turnover ratio
has increased but is not as much as company would have expected. The average collection
period is also late.
 Company did not pay any dividend in 2007. EPS has also jumped from a mere Rs37 to
almost Rs 100.
 Book value per share is the indication of the net worth of the corporation. It is somehow
similar to the earning per share, but it relates to stockholder’s equity to the number of shares
outstanding, so we can say net worth of the company is good.
 The operating cash flow of the company is also good.
RECOMMENDATIONS
As I have realized that the Tehri Hydro Development Corporation LTD is doing well since its
inception. It is quite difficult to give any suggestion to such a corporation but still no one is
perfect,
There is always a room for improvement so I will recommend the following suggestions for
THDC LTD:
 Employee training must be introduced on continuous basis so that the employees have the
understanding of the latest development especially with its customers.
 As observed the company has an Internal Audit system wherein external Chartered
Accountant Firms appointed to carry out periodic audits of the different units of the
Corporation. In my opinion, the scope and coverage of internal Audit needs to be
enhanced in order to make it proportionate with the size of the business.
 As seen from the physical verification there is a great deal of mismanagement of
resources and it must be avoided, as it decreases the profit.
 Company should hire fresh graduates. As the combination of experienced and fresh talent
can produce better results and will improve the efficiency of the management.

 As the company is not a listed company. The company has implemented DPE guidelines.
The company has to make continuous efforts to maintain transparency, disclosures and
fairness in dealing with stakeholders.
 Aggressive publicity campaign must be introduced by the company about there new
project, as there is little awareness about there new projects.
 The vigilance department of the corporation has to improve the level of transparency for
implementing the proper system of E- tendering.
GLOSSARY
Acid test ratio
Also called the quick ratio. The ratio of current asset minus inventories, accrual and prepaid item
to current liability.
Analytical
This is auditor-speak for finding the percentage difference from the current year revenue balance
to the prior year balance. Ignore the awkward phrase. It’s a great exercise as it can help you find
large swing from one year to next year.
Balance sheet
A statement of financial position of business at a specified moment of time.
Balance sheet ratio

Ratio calculated on the basis of figures of balance sheet only.
Composite ratio
Ratio based on figures of profit and loss account as well as balance sheet. They are also known
as inter- statement ratio.
Financial ratio
Critical evaluation of data given in the financial statements.
Financial ratio
Ratio disclosing the financial position or solvency of the firm. They are also known as solvency
ratios.
Accounting ratio
It is the relationship expressed in mathematical terms between two accounting figures related
with each other.
Financial statement

An organized collection of data according to logical and consistent accounting procedures
conveying an understanding of some financial aspects of business firm.
Interpretation
Explaining the meaning and significance of the financial data.
Profitability ratio
Ratio which reflects the final results of the financial data.
Turnover ratio
Ratio measuring the efficiency with which the assets are employed by a firm. They are also
known as Activity ratio or Efficiency ratios.

Power Sector in India

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Power Sector in India

Caricato da

Copyright:

Formati disponibili

FINANCIAL RATIO ANALYSIS 2010

‘Summer Training Project Report ‘

Submitted in partial fulfillment for the Award of Degree of

SUBMITTED TO: SUBMITTED BY:

CASE STUDY OF THDC LTD Page 1

CASE STUDY OF THDC LTD Page 2

MBA 4TH SEM

CASE STUDY OF THDC LTD Page 3

CASE STUDY OF THDC LTD Page 4

POWER SECTOR IN INDIA

The electricity sector in India is predominantly controlled by the Government of India's public

CASE STUDY OF THDC LTD Page 5

CASE STUDY OF THDC LTD Page 6

ABOUT THE CORPORATION

CASE STUDY OF THDC LTD Page 7

CASE STUDY OF THDC LTD Page 8

Projects: location map

CASE STUDY OF THDC LTD Page 9

Significance or Importance of Ratio Analysis

CASE STUDY OF THDC LTD Page 10

CASE STUDY OF THDC LTD Page 11

(1) Current Ratio

(1) Current Ratio:

(2) Acid Test Ratio or Quick Ratio:

 Leverage or Capital Structure Ratio:

(1) Debt - Equity Ratio:

CASE STUDY OF THDC LTD Page 12

(2) Total Debt Ratio:

(i) Gross Profit to Sales Ratio

(iii) Net Profit Margin

CASE STUDY OF THDC LTD Page 13

Profitability Ratios Related to Investments:

Return on Assets = Net Profit after ÷ Tax Fixed Assets

Return on Capital Employed:

 Activity Ratios or Efficiency Ratios:

(1) Inventory Turnover Ratio:

(2) Debt Turnover Ratio:

CASE STUDY OF THDC LTD Page 14

(3) Average Collection Period Ratio

Parties Interested In Ratio Analysis

 Suppliers of long-term debt

CASE STUDY OF THDC LTD Page 15

CASE STUDY OF THDC LTD Page 16

Liquidity Ratios Leverage Ratios

Profitability Ratios Activity Ratios

Market Ratios Statements of Cash Flow

CASE STUDY OF THDC LTD Page 17

Year 2007 2008

Sales to Working Capital:

CASE STUDY OF THDC LTD Page 18

Year 2007 2008

Working Capital 1670338 3953541

Sales to Working 2.66 2.77

SALES TO WORKING CAPITAL

CASE STUDY OF THDC LTD Page 19

Year 2007 2008

CASE STUDY OF THDC LTD Page 20

CASE STUDY OF THDC LTD Page 21

Time Interest Earned : TIE Ratio = EBIT / Interest Charges

Year 2007 2008

CASE STUDY OF THDC LTD Page 22

year 2007 2008

CASE STUDY OF THDC LTD Page 23

Debt to Equity Ratio: