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RAMAGUNDAM
PROJECT REPORT
Submitted to the Kakatiya University In the partial fulfillment for the Awards of the degree of MASTER OF BUSINESS ADMINISTRATION Submitted by MD MERAJ HUSSAIN H.T no! "#$$$C%"$&'(
)ARANGAL. &$"&%&$"*(
CERTIFICATE
This to certify that the project work entitled /FINANCIAL
PERFORMANCE
s!#mitted #y MD MERAJ HUSSAIN 0n partial f!lfillment of the re$!irement for the award of the de ree of M12ter o3 B420ne22 Ad50n02tr1t0on. %t is a #onafide work done #y him !nder my s!per&ision.
PROJECT GUIDE
Mr.,...JANARDHAN
F1c46t7 5e58er Dep1rt5ent o3 co55erce + 8420ne22 51n19e5ent ,1:1t071 Un0;er20t7 )1r1n916
CERTIFICATE
This to certify that the project work entitled /FINANCIAL
PERFORMANCE
s!#mitted #y MD MERAJ HUSSAIN 0n partial f!lfillment of the re$!irement for the award of the de ree of M12ter o3 B420ne22 Ad50n02tr1t0on. %t is a #onafide work done #y him !nder my s!per&ision.
IN NTPC
Mr.J.JANARDHANA SETTSr. FINANCE MANAGER
AC,NO)LEDGEMENTS
The s!ccessf!l completion of my project is indeed practically incomplete witho!t mentionin of all those enco!ra in people who en!inely s!pported and enco!ra ed me thro! h o!t this project. % wo!ld like to thank inde#ted to Mr.J.JANARDHANA SETT- Sr. MANAGER.FINANCE DEPT( % e'press my profo!nd ratit!de to Sr0. E. N1nd1 ,02=ore> AGM (R%EDC)> Sr0 B.S.,UMAR AGM(> Sr0.A2=?0n0 R1j1:451r En90neer HR%ED(> Sr0 C.,e2=1;464 ) and E*C +taff of NTPC Rama !ndam who ha&e taken at most interest on !idin me for preparin this project report. % thank e&ery employee of NTPC Rama !ndam for their Co,operation and completin my project work. -inally) % thank one and all who ha&e i&en their assistance directly or indirectly. MD MERAJ HUSSAIN "#$$$C%"$&' !idance in
DECLARATION
%) the !nder si ned here#y declare that the project entitled FINANCIAL PERFORMANCE is the a!thenticated work of mine d!rin the plant trainin at NTPC Ltd. RAMAGUNDAM. % declare that this project work is not s!#mitted any where else for the award of any de ree or diploma.
CONTENTS
CHAPETER%I INTRODUCTION CHAPETER%II ORGANIZATION PROFILE CHAPTER%III THEORITICAL FRAMEWORK OF TECHNIQUES OF FINANCIAL ANALYSIS CHAPETER%I. ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS CHAPTER%. CONCLUSIONS & SUGGESTIONS CHAPETER%.I
BIBLIOGRAPHY
CHAPTER-I
INTRODUCTION
INTRODUCTION
Accounting is the process of identifying, measuring and
communication economic information to present informed judgment and decision by users of the information. It involves recording, classifying and summarizing various business transactions. The end products of the business transaction are the financial statements comprising primarily the position statement or the balance sheet and outcome of the summarizing process of accounting and are therefore the sources of information on the basis of which conclusions are drawn about the profitability and the financial position of the concern.
Financial statements are the basis for decision making by the management as well as all the outsiders who are interested in the affairs of the firm such investors, creditors, customers and general public. The analysis and the interpretation of financial statements depend upon the nature and type of information available in these statements. The balance sheet and income statements of the business enterprise.
The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firm s position and performance.
The big organization of !T"# to analysis the financial position of the organization in last five years it in growth stage and improvement of financial position in year to year to taken analysis to over all organization that s we using the financial statement analysis it give overall position of company in last $ years.
FINANCIAL STATEMENTS
Meaning of Financial Statements:
Financial statements are the source of the information on the basis of which conclusions are drawn about the profitability and li%uidity position of a business enterprise at the end of financial year. They are the major means employed by firms to present their financial situation to owners, creditors and the general public.
Financial statements are the end products of financial accounting, prepared by the accountant that purport to reveal the financial position of the enterprise, the result of its recent activities and an analysis of what has been done with the earnings.
According to John. N.M e! &The financial 'tatements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement showing the results of operation during a certain period(. Financial statements are also called financial reports.
conventions applied affects them materially(. This implies that data e)hibited in the Financial 'tatements are affected by recorded facts, accounting conventions and personal judgment.
Reco!#e# Facts: The term*recorded fact means facts that have been in the accounting books. Facts that have not been recorded in the financial books are not depicted in the financial statements, however material they might be.
Acco"nting Con$ention: Accounting conventions imply certain fundamental accounting principles, which have been sanctioned by long usage. For e)ample on account of the convention of conversation provision is made for e)pected losses but the real financial position of the business may be much better than what has been shown by financial statements.
%e!sonal &"#gment: "ersonal judgment has also an important bearing on the financial statement. For e)ample, the choice of selection method of depreciation lies on the accountant, similarly the made of amortization of fictitious assets also depends on the personal judgment of the accountant.
a, As a report of 'tewardship b, As a basis for fiscal policy c, To determine the legality at dividends d, As guide to advice dividend action e, As a basis for the granting of credit f, As informative for prospective investors in an enterprise g, As a guide to the value of investment already made h, As an aid to government supervision i, As a basis for price or rate regulation
The
performance
of
any
organization
is
evaluated
through
of the firm. -ssentially my study, which is part of the re%uirements to be fulfilled, aimed at, evaluation of the performance of &National The!mal %o(e! Co!'o!ation(. Is under take to find the gap between the target and achieved results of the company. Its performance in evaluated by taking the past si) year s financial reports the study is under taken with the following objectives.
O)&ecti$es:
The present study entitled &Financial statements performance evaluation is under taken with the following objectives. To study the composition of assets and liabilities of the !T"# .imited. To evaluate financial performance of !T"# .imited. To study its overall position Industry. To draw conclusions and to suggest suitable measures, to over come problems, if any to improve its performance.
Limitations:
The present study suffers from the following limitations. /. The study is restricted to financial performance of the organization with no attention given to production and marketing. 0. Financial 1anagement covers topics like cost of capital, capital budgeting, financial analysis, working capital, cash and inventory management etc. The study dealt with the financial analysis of !T"# .imited only.. 2. #omparative statements are computed from historical accounting records. 'o they possess those limitations and weakness as accounting records posses.
3. Financial analysis and interpretation adopted techni%ue of 4atio Analysis has got its own .imitations. 5hile making comparison of rations no allowance for changes in general price level is made. A change in price level can seriously effect the validity of comparison of rations computed for different time periods. It is not always possible to make future estimations on the basis of the past, as it always does no come true.
Data Collections:
The data for present study is collected through secondary source the data has been collected from the financial reports of the company for the last si) years. The data also collected from Industry reports. The collected data is presented in one way and two ways tables. The stateside like averages, percentages are used wherever me.
/. The administrative officer of the 4'T"'. 0. The annual report and other reports. 2. 8iscussion with senior manager6manager of finance, purchases and stores. 3. The !T"# library.
For the study the data collected from primary and secondary sources has been scrutinizes, edited and presented in the form of tables and statements. The analysis of the data has been made with the help of certain mathematical techni%ues like percentages, proportions etc., and ratio analysis to draw conclusions.
The presented study has been classified into five chapters as per convenience and availability of data. They are as follows7 /. First chapter being introduction chapter covers general introduction about the importance of Financial 'tatements Analysis, need for the study, objectives of the study and limitations. 0. The second chapter titled as profile of the Industry covers the entire information pertaining to the !T"# .imited. It includes location history, organization structure etc. 2. The third chapter covers theoretical aspects of financial statements analysis. 3. The fourth chapter is presented with the data and its interpretation. It contains various ratios and comparative 9alance sheets prepared on the basis of the data gather from the records of !T"# .td.
$. .ast chapter is tilled as conclusions and suggestions covers the functioning and performance of the host organization presented in the form of observations followed by researchers humble suggestions for improvement and overall growth of the !T"# .imited.
MET*ODOLO+,
In keeping view the objectives of the study the following methodology has been adapted7
-a. So"!ces of #ata: To provide a better understanding of the topic by adding a practical dimension to the same, practical illustration is very vital, such an e)ercise necessitates a great deal of data. The re%uisite data, which has been collected and used, thanks to the co*operation of the management, has two sources. +i, %!ima! #ata: 1ost of such information has been collected from
internal interviews and discussions with various officials in the finance department of 'agar #ements .imited. +ii, Secon#a! #ata: 1uch of the information has been collected from the books available and the annual reports maintained by the company facilitated the study. -). Tools an# Techni/"es a''lie#: The present study is basically based on &Financial 'tatement analysis( and for the purpose of analysis and interpretations, here in the
+i, Com'a!ati$e 0 Common si1e statements : 9alance 'heet : income statement in which items are e)pressed in percentage rather than in absolute rupees. +ii, T!en# anal sis: #omputation of the percentage relationship that each statement bears to the same item in the base year. +iii, Ratio anal sis7 ;ses of financial ratios to evaluate performance such as li%uidity, solvency and profitability.
CHAPTER%II
ORGANI@ATION PROFILE
-nergy is an important parameter in the over all economic development activity of any country. It has become synonymous with progress in all fields of activities. -nergy is the source and control of all the things and actions of human beings and it is also a measure of everything. It is the key of industry and economic growth. "lanned development e)ploitation and utilization of the energy resources is a pre*re%uisite for a speedy and balanced growth of the national economy. In general energy is one of the prime inputs for such important branches of the national economy as industry, agriculture, transport, and also for the domestic sector.
T*E ORI+IN:
!ational Thermal "ower #orporation .imited +!T"# .td, was incorporated on <th !ovember /=<$ in the central sector as a thermal power generating company, with the objective of planning, promoting and organizing an integrated development of thermal power in the country.
MISSION:
The #orporate mission of !T"# is to make available reliable and %uality power in increasingly large %uantities. Towards this end, the company will spearhead the process of accelerated development of the power sector by planning and e)peditiously implementing power projects and operating power stations economically and efficiently. In doing so the company will also seek opportunities for augmenting power generation through tie*ups with other organization in the area of conventional energy sources and additionally through non*conventional energy sources. The corporation will contribute to all round sector improvement by sharing its e)perience and e)pertise with other organizations. The company will participate in the e)ecution of power projects abroad, if necessary in collaboration with other reputed organizations.
NTPC today has #ecome in ho!se,e'pertise in desi nin ) constr!ction and commissionin of 9::B2:: 3C coal #ased thermal !nits and /2:B92: 3C as com#ined cycle power plants. Other technolo ical ad&ancements incl!de (D*C transmission lines) data ac$!isition system) microprocessor #ased *istri#!ted di ital electronics) control and instr!mentation systems) satellite Comm!nication and comp!ter applications. NTPCAs core #!siness is en ineerin . constr!ction and operation of power eneratin plants and also pro&ides cons!ltancy to power !tilities in %ndia and a#road. The %nstalled capacity of NTPC is 78/08 3C thro! h its /2 coal #ased =98)0:2 3C?) 1 as #ased =7022 3C? and Joint Dent!re Projects. NTPC ac$!ired 2:@ e$!ity of the +4%L Power +!pply Corporation Ltd. =+P+CL?. This JD company=77<83C? operates the capti&e power plants of *!r ap!r =/9: /&%C?) Ro!rkela =/9: 3C? and Ehilai =2:: 3C?. NTPC is also mana in Eadarp!r thermal power station =1:2 3C? of Fo&ernment Of %ndia. NTPCAs share on 7/st 3arch 9::< in the total installed capacity of the co!ntry was 9:@ and it contri#!ted 9;@ of the total power eneration of the co!ntry d!rin 9::2,:<.
NTPC has set new #enchmarks for the power ind!stry #oth in the area of power plant constr!ction and operations. %t is pro&idin power at the cheapest a&era e tariff in the co!ntry. Cith its e'perience and e'pertise in the power sector) NTPC is e'tendin cons!ltancy ser&ices to &ario!s or ani6ations in the power #!siness. NTPC has entered into a joint &ent!re with 4lstom) Fermany for reno&ation and moderni6ation of power plants in %ndia.
4 GCentre for Power Efficiency and En&ironment Protection =CENPEEP?G has #een esta#lished in NTPC with the assistance of "nited +tates 4 ency for %nternational *e&elopment. ="+4%*?. Cenpeep is an efficiency oriented) eco,
4s a responsi#le corporate citi6en) NTPC is makin constant efforts to impro&e the socio,economic stat!s of the people affected #y its projects. Thro! h itAs Reha#ilitation and Resettlement pro rammes) the company endea&o!rs to impro&e the o&erall socio,economic stat!s of Project 4ffected Persons. To reali6e this &ision) NTPC has drawn !p a detailed Corporate Plan for the period /001,9:/9 which represents the companyAs collecti&e optimism and enth!siasm) inspired #y a lorio!s past) a &i#rant present and a #rilliant f!t!re. The Plan has #een prepared in,ho!se in cons!ltation with the committed) competent and confident mem#ers of the NTPC family. The road map that has #een charted o!t was after a thoro! h scan of the stren ths and weaknesses within the or ani6ation as well as opport!nities and threats in the en&ironment. Considerin m!ltidimensional opport!nities in the ener y sector) NTPC will adopt a m!lti,pron ed rowth strate y for capacity addition thro! h Freenfield sites) e'pansion of e'istin stations) takeo&ers and joint &ent!res. The capacity addition plans that the company has drawn !p for the fifteen,year period !sin all the a#o&e. strate ies to ena#le the corporation to #ecome a 8:::: 3C company #y 9:/9 4.*.
DI.IDEND!
4 di&idend of Rs.7/779 millions has #een paid for the financial year 9:/:,//as +ame of Rs.7/779 millions paid last year.
MEMORANDUM OF UNDERSTANDING!
The company has s!rpassed all its 3O" tar ets with Fo&ernment of %ndia for the year 9:/:,9:// and has achie&ed GE'cellentG ratin .
DOMESTIC BORRO)INGS!
NTPC has recei&ed f!ndin proposals a re atin to o&er Rs. ;::: crores from &ario!s #anks and financial instit!tions for participatin in the capacity addition pro ramme of NTPC. The a re ate amo!nt of domestic loans tied,!p is Rs. <9;0 crores) o!t of which Rs. 91:2.02 crores ha&e #een drawn and !tili6ed till 7/.:7. :<.
.ISION!
To #e the worldHs lar est and #est power prod!cer) powerin %ndiaHs rowth..
MISSION!
*e&elop and pro&ide relia#le power) related prod!cts and ser&ices at competiti&e prices) inte ratin m!ltiple ener y so!rces with inno&ati&e and eco,friendly technolo ies and contri#!te to society..
+i' coal stations achie&ed PL- of more than 02@. (i hest e&er interim di&idendI7;@ amo!nted to Rs.9817.<7 crore d!rin the year..9:/:,// %t has also achie&ed the 34(4R4T(4 stat!s in the year 9:/:. NTPC has #een identified as e'pert partner !nder the Partnership in E'cellence. pro ram taken !p #y ministry of power. The company contin!es to play an important role !nder the e&al!ated Power *e&elopment > Reforms Pro ram =4P*RP? and R4J%D F4N*(% D%*(J"T(%54R4N JOJN4..
CORE .ALUES! B M E C O M I T E(
E!siness ethics 3oti&atin self and others En&ironmentally and economically s!staina#le C!stomer foc!s Or ani6ational > professional pride 3!t!al respect > tr!st %nno&ation > speed Total $!ality for e'cellence Enterprisin de&oted
CORPORATE OBJECTI.ES
To reali6e the &ision and mission) ei ht key corporate o#jecti&es ha&e #een identified. these o#jecti&e wo!ld pro&ide the link #etween the defined mission and the f!nctional strate iesK
Per3or51nce Le1der2=0p!
To contin!o!sly impro&e on project e'ec!tion time and cost in order to s!stain lon r!n competiti&eness in eneration. To effecti&ely le&era e information technolo y to dri&e process efficiencies. To aim for performance e'cellence in the di&ersification #!sinesses. To em#ed $!ality in all systems and processes.
F0n1nc016 So4ndne22!
To maintain and impro&e the financial so!ndness of NTPC #y pr!dent mana ement of the financial reso!rces. To de&elop appropriate commercial policies and processes which wo!ld ens!re rem!nerati&e tariffs and minimi6e recei&a#les. To contin!o!sly stri&e for red!ction in cost of power enerations #y impro&in operatin practices.
C42to5er Foc42!
To e'pand the f!t!re c!stomer portfolio thro! h profita#le di&ersification into downstream #!siness) inter alia retail distri#!tion and direct s!pply. To foster a colla#orati&e style of workin preferred #rand for s!pply of $!ality power. with c!stomer) rowin to #e a
A906e Corpor1t0on!
To effecti&ely le&era e information technolo y to ens!re speedy decision makin across the or ani6ation. .
RAMA+UNDAM SU%ER T*ERMAL %O2ER STATION Address Approved #apacity Installed #apacity .ocation #oal 'ource 5ater 'ource 9eneficiary 'tates Approved Investment ;nit 'izes ;nits #ommissioned ".>. ?yothinagar,8ist. @arimnagar , "in7 $A$ 0/$,Andhra "radesh 0BAA 15 'tage I 7 2C0AA 15 'tage II 7 2C$AA 15 'tage III 7 /C$AA 15 4amagundam, @arimnagar, Andhra "radesh +i, 'outh Dodavari #oal Fields of 'ingrani #ollieries for 'tage I : II +ii, @orba #oal Fields of '-#. for 'tage III 'ri 4am 'agar 8am on Dodavari 4iver, 8*E2 #anal from pochampad 4eservoir "ondicherry, Doa, @erala, @arnataka, Tamil !adu, A", "D#I. +for FG8#, 4s. 0A$=.00 #r 'tage I : II 4s. /E/E.3B #r 'tage III 'tage * I7 2) 0AA 15 'tage *II7 2) $AA 15 ;nit *I 0AA 15 !ovember /=E2 ;nit *II 0AA 15 1ay /=E3 ;nit *III 0AA 15 8ecember /=E3 ;nit *IG $AA 15 ?une /=EE ;nit *G $AA 15 1arch /=E= ;nit *GI $AA 15 >ctober /=E= ;nit *GII $AA 15 August 0AA3 I8A
RAMA+UNDAM STATION *I+*LI+*TS: 4ecord haulage of coal in single day of <E,<0A 1T on 0= ?une, /==E Asian record. 'tation recorded Fighest .oading Factor of ==.3H for the Iear /===*0AAA. #ontinuous run of GI unit +$AA 15, for 3AB days, third best in the 5>4.8. 4amagundam $AA 15 ;nit*< +stage*III, has successfully completed one year of commercial operation on 0$.A2.AB without any tube leakage. The unit generated 2EA0.3=0 1;s J a ".F of EB.E/H considering the loss of generation of 0=< 1;s due to backing down, the deemed, ".F is =2.$=H. The unit also has achieved a continuous run of =< days without tripping in the first year of operation itself. 4amagundam 'tation achieved 3<.=3H +/E.B2 .1T, of Ash utilization during the financial year against the target of 3<H +/E.0A .1T,. 4amagundam bagged &Innovative 'afety "ractices &award for the year 0AA$ from Institution of -ngineer. 4amagundam 'tation bagged &9est 1anagement( award from Dovt. of A" for the year 0AA3*A$.
!T"# K 4amagundam bagged Dolden shied for the financial years 0AAA* A/, 0AA/*A0, 0AA0*A2 : 0AA2*A3 for outstanding performance in power generation.
6,
NT%C RAMA+UNDAM
7 7 7 7 7 7
Coal 6ase# %o(e! Stations: Sl. No. / 0 2 3 $ B < E = /A // /0 /2 /3 /$ Coal 6ase# A!eas 'ingrauli @orba 4amagundam Farakka Gindhyachal 4ihand @ahalgaon !T#"" Talcher @aniha ;nchahar Talchar Thermal 'imhadri Tanda 9adarpur 'ipat State ;ttar "radesh #hattisgarh Andhra "radesh 5est 9engal 1adhya "radesh ;ttar "radesh 9ihar ;ttar "radesh >rissa ;ttar "radesh >rissa Andhra "radesh ;ttar "radesh 8elhi #hattisgarh Commissione# Ca'acit -M2. 0AAA 0/AA 0BAA /BAA 20BA 0AAA /E3A E3A 2AAA /A$A 3BA /AAA 33A <A$ $AA
CHAPTER%III
Financial %e!fo!mance:
Financial "erformance refers to a firm s efficiency in ac%uiring funds and utilizing them in order to attain its goal of ma)imizing owner s wealth. The financial performance is measured in terms of li%uidity, solvency, operating efficiency and profitability.
<. #onsumers7 #onsumers are interested in the establishment of good accounting control so that cost of production may be reduced with the resultant reduction of the prices of goods they buy.
The following are the limitations of the financial statements7* /. In profit and loss account net profit is ascertained on the basis of historical costs. 0. "rofit arrived by the profit and loss accounts is of interim nature. Actual profit can be ascertained only after the firm achieves its ma)imum capacity. 2. The net income disclosed by the profit and loss account is not absolute but relative. 3. The profit and loss account does not disclose factors like %uality of products, efficiency of the management etcL $. The net income is the result of personal judgment and bias of accountants cannot be removed in the matters of depreciation, stock valuation etcL B. There are certain assets and liabilities, which are not disclosed by the balance sheet. For e)ample, the most tangible assets of the company is its management force and dissatisfied labour force is their liability, which are not disclosed by the balance sheet. <. The book value of assets is shown as original cost less depreciation. 9ut in practice the value of the assets may differ depending upon the technological and economic charges. E. The assets are valued in a balance sheet on a going concern basis. 'ome of the assets may not be realize their value on winding up.
The American Institute of certified public Accounts defines balance sheet as, &a tabular statement of summary of balance +debits and credits, carried after actual and constructive closing books of account and kept according to principles of accounting(. The purpose of the balance is to show the resurgence that the company has i.e., its assets and from where those resources come from i.e.L its liabilities and investments by owners and outsiders. The balance sheet is one of the important statements depicting the financial strength of the concern. It shows on the one hand the properties that it utilizes and on the other hand the owned by the concerned the liabilities and claims it owns to owners and outsiders. The balance sheet is prepared on a particular date. The right hand side shows properties and assets. !ormally there is no particular se%uence for showing various assets and liabilities. The #ompanies Act, /=$B has prescribed a particular form for showing assets and liabilities in the balance for the companies registered under this act. These companies are also re%uired to give figures for the previous year along with the current year s figures.
Income statement is prepared to determine the operational position of the concern. It s a statement of revenue earned and the e)penses incurred for carrying that revenue. If there is e)cess of revenue over e)penditure it will show a profit and if e)penditure are more than the income then there will be a loss. The income statement is prepared for a particular period, generally a year. 5hen income statement is prepared for the year ending on 2/ st march 0AA< then all the revenues and e)penditure falling due in the year will be taken into account irrespective of payment. Income statement may be prepared in form of a manufacturing account to find out the cost of production, the form of trading account net profit or net loss. to determine the gross profit and gross loss, in the form of a profit : loss account to determine the
Analysis
such treatment of the information contained in the income statement and the balance sheet so as to afford full diagnosis of the profitability and the financial soundness of the business.
A distinction here can be made between the two terms and analysis and interpretation. The term Manalysis means methodical classification of the data given in financial statements. The figure given in the financial statements will not help unless they are put in a simplified form. For e)ample all items Mcurrent assets are put at one place while all items relating to the Mcurrent liabilities are put at another place. The term Minterpretation means e)plaining the meaning and significance of the data so simplified. Analysis and interpretation of financial statements involves a study of relationship among various financial factors and to judge their meaning and significance. The financial analyst must understand the plans and policies of management, determine the e)tent of analysis, reorganize data available as per re%uirements, establish relationship among financial figures and make interpretation. According to 1yers, Financial statements Analysis is largely a study of the relationship among the various financial factors in a business as disclosed by a single set of statement and a study of the trend of these factors as shown the series of statements.
Gertical
Forizontal
Internal
-)ternal
.ong term
'hort term
E9TERNAL ANAL,SIS: >utsiders who do not have access to the detailed internal accounting records of the business firm do this analysis. These outsiders include investors, potential creditors, potential sellers, government agencies, credit agencies, and the general public. For financial analysis these e)ternal parties to the firm depend almost entirely on the published financial statements. -)ternal analysis thus services only a limited purpose. Fowever, the changes in the government regulations re%uiring business firm to make available more detailed information to the public through audited published accounts have considerably improved the position of the e)ternal analysis.
INTERNAL ANAL,SIS: The analysis conducted by the persons who have access to the internal accounting records of a business firm is known as internal analysis such an analysis can therefore be performed by e)ecutives and employees of the organization. As well as government agencies, which have statutory powers, vested in them, financial analysis that can be effected depending upon the purpose to be achieved.
*ORI4ONTAL ANAL,SIS:
Forizontal analysis refers to the comparisons of financial data of a company for several years. The figures for this analysis are presented horizontally over a number of columns.
This type of analysis is also called dynamic analysis as it is based on the data from here to here rather than on data of any one year. The horizontal analysis makes it possible to focus attention on the items that have changed significantly during the period under review, #omparison of an item over several periods with a base may show attend deviation. #omparative statements and trend percentages are two tools employed in horizontal analysis. :ERTICAL ANAL,SIS: Gertical analysis refers to study of relationship of various in the financial statements of one accounting period. In this type of analysis the figures from financial statements of a year are compared with a base selected from the same year s statements and the financial ratios are the two tools employed in vertical analysis.
S*ORT;TERM ANAL,SIS: This type of analysis is used to determine the working capital re%uirement, profitability etcL of the concern. In short run, an enterprise must have ample funds to meet its re%uirements and sufficient borrowing capacity to meet its contingencies. Fence, current assets and current liabilities are properly analyzed and li%uidity position of the company is determined.
/. The figures drawn from one*year statements have limited use and value. Therefore, its dangerous to depend solely on them for the purpose of decision making. 0. Analysis of financial statements is only a means and not an end in itself. >ther factor should be taken into account while making decisions regarding the operations of the company. 2. Financial statements are historic in nature. Fence, entire dependence on these statements for future planning may give misleading results. 3. The results of the financial statement analysis cannot form basis for the efficiency or inefficiency of management. The ratios and other figures indicate only the probable state of affairs of the company. $. A variation in the accounting practices and policies followed over a period of time makes the analysis difficult and inaccurate. B. 'ometimes, the financial statements are manipulated to conceal facts and show better picture of the business, in such a case the limitations of the financial statements will be reflected in the analysis as well. <. The analysis of financial statements does not disclose factors like %uality of product, managerial efficiency etcL E. Analysis generally ignores the difference in the nature of products, accounting procedures, policies size and age of the firm etcL leading to inaccurate results. =. A change in the value of money over a period of time reduces the importance and validity of such analysis.
COMMON;SI4E STATEMENT:
The common*size statement, balance sheet and income statement are shown in analytical percentages. The figures are shown as percentages of total assets, total liabilities and total sales. The total assets are taken as /AA and different assets are e)pressed as a percentage of the total. 'imilarly, various liabilities are taken as a part of total liabilities. These statements are also known as component percentage or /AA percent statements because every individual item is stated as a percentage of the total /AA. The shortcomings in comparative and trend percentages where changes in items could not be compared with the totals have been covered up. The analyst is able to assess the figures in relation to total values.
TREND ANAL,SIS:
The financial statement may be analyzed by computing trends of series of information this method determines the direction upwards or downwards and involves the computation of the percentage relationship that each statement item bears to the same item in base year. The figures of the base year are taken as
/AA and trend ratios for other years are calculated on the basis of base year. The analyst is able to see the trend of figures, whether upward or downward.
For e)ample, if sales figures for 0AAB to 0AA< are to be studied, then sales of 0AAB will be taken as /AA and the percentage of sales for all other years will be calculated in relation to the base year i.e., 0AAB. It helps in understanding the nature and rate of movements in various financial factors. Fowever, conclusions should not be drawn on the basis of single trend. Trends of related items should be carefully studied. 8ue weight age should be e)traneous factors such as government policy, economic conditions etc., as they can affect the trend significantly. Ste's in Com'"tation of T!en# :al"es: /, 'elect one of the period for which financial statements are available as the base period. 0, The selected period should be a normal period. 2, -very item in the base period is taken as /AA. 3, Trend value of each item for any other period7 Absolute value of the item for the period N ********************************************************* O/AA Absolute value of the item in the base period
COM%ARATI:E STATEMENT
The #omparative Financial 'tatements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to given an idea of financial position at two +or, more periods. Two financial statements are prepared in comparative from for financial analysis purpose. The comparative statement may show. Absolute figures +4upee amounts, #hange in absolute figures i.e. increase or decrease in absolute figures. Absolute data in terms of percentages. Increase or decrease interms of percentages. The financial data will be comparative only when same accounting principles are used in preparing this +i, 9alance sheet and +ii, Income 'tatement.
%a!tic"la!s
SOURCES OF FUNDS S*ARE *OLDERS FUNDS #apital 4eserves and 'urpluses 8eferred revenue on account against depreciation LOAN FUNDS 'ecured .oans ;nsecured .oans 8eferred ta) liability +!-T, .ess 7 4ecoverable TOTAL A%%LICATION OF FUNDS FI9ED ASSETS Dross 9lock .ess7 8epreciation !et 9lock #apital work in progress #onstruction stores : advances Investments #urrent assets loan : advances Inventories 'undry 8ebtors #ash : 9ank 9alances >ther #urrent Assets .oans : Advances Less: C"!!ent Lia)ilities an# %!o$isions .iabilities "rovisions
=>8>;88
=>88;8=
Change Amo"nt
NIL 302E/ ?=@B8 0/$= /A=A0 2/=B= ?A>@> /0A2 /0A2 NIL BC?88
%e!centage
E03$$ 2B//20 ??@ABC 33AE $<20< /33B3B =>E@B8 $2003 $2002 / E?DDEB
E03$$ 3A2$/2 ?BADEB B$B< BE00= /<BB/$ =A8?88 $330< $330B / C@C@CD
NIL //.< D.E 3=.A /=.A 00./ 0/.E 0.2 0.2 8@.?
=$E33 E?DDEB
/$/B03 C@C@CD
$$<EA BC?88
$E.0 8@.?
Inte!'!etation:
/. The balance sheet of the company during the year 0A//*/0 reveals that the current assets have increased by B3B3/ i.e. 3/./H. 0. There is increase in current assets we can say the short term solvency of the company is good. 2. The current liabilities have increase by EEB/ i.e. /3.3 H. 3. Fi)ed assets have increased by /0<B2E i.e. 30.=H. $. There is increase in share holder funds of company that is why we can say the long term solvency of the company is good satisfaction. B. There is an increase in working capital of $$<EA compared to the previous year. <. 9y overall conclusion we can say that the financial position of the company is satisfactory.
%a!tic"la!s
SOURCES OF FUNDS S*ARE *OLDERS FUNDS #apital 4eserves and 'urpluses 8eferred revenue on account against depreciation LOAN FUNDS 'ecured .oans ;nsecured .oans 8eferred ta) liability +!-T, .ess 7 4ecoverable TOTAL A%%LICATION OF FUNDS FI9ED ASSETS Dross 9lock .ess7 8epreciation !et 9lock #apital work in progress #onstruction stores : advances Investments #urrent assets loan : advances Inventories 'undry 8ebtors #ash : 9ank 9alances >ther #urrent Assets .oans : Advances Less: C"!!ent Lia)ilities an# %!o$isions .iabilities
=>>D;8>
<E/0$ 0<<2<B @AAA>8 /$=/ 3$E33 /AEBE3 8AE88D $00EA E00<= / A88E=>
=>8>;88
E03$$ 22$2AE ?8CCE@ 22<3 333A< 0B3</ C?=A= $A$<A $A$B= / ?D=>8A
Change Amo"nt
322A $<=20 E==E= /<E2 */32< *E00/2 ;B8BEC */</A *2/</A NIL ;8DE>A
%e!centage
$.$ 0A.= 8C.A //0./ *2./ *<$.B ;A=.? *2.2 *2E.$ NIL *2.E
B$033
$02AB
/0=2E
/=.E
Inte!'!etation:
/. The balance sheet of the company during the year 0AA=*/A reveals that the current assets have increased by *B2=$ i.e. 3.<H. 0. There is increase in current assets we can say the short term solvency of the company is good. 2. The current liabilities have increase by /23<3 i.e. /B.B H. 3. Fi)ed assets have 8ecreased by 23=2$ i.e. /0./$H. $. There is an increase in capital that is 322A i.e., $.$H B. There is increase in share holder funds of company that is why we can say the long term solvency of the company is good satisfaction. <. There is an increase in working capital of <A.<= i.e. /2H compared to the previous year. E. 9y over conclusion, we can say that the current financial position is not satisfactory because of decrease of current assets : increase of current liabilities. 9ut long term financial position is good. 9ecause increase in share holder in 0AAB i.e. $.$3H
%a!tic"la!s
SOURCES OF FUNDS S*ARE *OLDERS FUNDS #apital 4eserves and 'urpluses 8eferred revenue on account against depreciation LOAN FUNDS 'ecured .oans ;nsecured .oans 8eferred ta) liability +!-T, .ess 7 4ecoverable TOTAL A%%LICATION OF FUNDS FI9ED ASSETS Dross 9lock .ess7 8epreciation !et 9lock #apital work in progress #onstruction stores : advances Investments #urrent assets loan : advances Inventories 'undry 8ebtors #ash : 9ank 9alances >ther #urrent Assets .oans : Advances Less: C"!!ent Lia)ilities an# %!o$isions .iabilities "rovisions Net C"!!ent Assets Total :
=>>B;>D
<E/0$ 02<AA0 @8A8=C 0</ 3/00B =A=2/ 8@=?=B 332<= 332<E / ??CAAA
=>>D;8>
<E/0$ 0<<2<B @AAA>8 /$=/ 3$E33 /AEBE3 8AE88D $00EA E00<= / A88E=>
Change Amo"nt
!I. 3A2<3 ?>@C? /20A 3B/E /<<$2 =@ED8 <=A/ 2<=A/ !I. E?>EA
%e!centage
!I. /<.A 8=.B 3E<./ //.0 /=.$ 8C.D /<.E E$.3 !I. 8?.@
Inte!'!etation:
/. The balance sheet of the company during the year 0AAE*A=. reveals that the current assets have increased by $EBB3 i.e. 2A.0H. 0. There is increase in current assets we can say the short term solvency of the company is good. 2. The current liabilities have increase by 2<A=/ i.e. E3.B H. 3. Fi)ed assets have 8ecreased by 03=E$ i.e. =.$H. $. There is increase in share holder funds of company that is why we can say the long term solvency of the company is good . B. There is an decrease in working capital is negative that the company increase of liabilities : decrease of current asset. Its effect on working capital. <. 9y over conclusion, we can say that the current financial position is not satisfactory because of decrease of current assets : increase of current liabilities. 9ut long term financial position is good.
CHAPTER%I.
RATIO ANAL,SIS:
A ratio analysis is a statistical yardstick or mathematical e)pression that provides a measure of relationship between two figures or amounts. 4atio is simply one number e)pressed in terms of another.
The ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios +%uantitative relationship between figures and groups of figures,. It is with the help of ratios that the financial statements can be analyzed more clearly and decisions made from such analysis.
4atio analysis is a techni%ue of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Fowever, ratio analysis is not an end in itself. It is only means of better understanding of financial strength and weakness of a firm. #alculation of mere ratios does not serve any purpose, unless several appropriate ratios are analyzed and interpreted. There are a number of ratios which can be calculate from the information given in the financial statements, but the analyst has to select the appropriate from the same keeping in mind the objective of analysis.
USES AND SI+NIFICANCE OF RATIO ANAL,SIS A. Manage!ial "ses of !atio anal sis: /. Financial statements are prepared primarily for decision*making, but the information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn from these statements alone. 4atio analysis helps in making decisions from the information provided in these financial statements. 0. 4atio analysis is of much help in financial forecasting and planning. "lanning is looking ahead and the ratios calculated for a number of years work as a guide for the future. 1eaningful conclusions can be drawn for future from these ratios. Thus ratio analysis helps in future forecasting and planning. 2. The financial strength and weakness of a firm are communicated in a more and easy and understandable manner by the use of ratios. The information contained in the financial statements is conveyed in a meaningful manner to the one for whom it s meant. Thus ratios help in communication and hence the value of the financial statements. 3. 4atio analysis even helps in co*ordination which is of utmost importance in effective business management. 9etter communication of efficiency and weakness of an enterprise results in better co*ordination in the enterprise. $. 4atio analysis even helps in making effective control of the business. 'tandard ratios can be based upon performance of financial statements and variances or deviations, if any, can be found by comparing the actual with the standards so as to take a corrective action at the right time.
6. UTILIT, TO S*ARE*OLDERSFIN:ESTORS: An investor in the company will like to access the financial position of the concern where he is going to invest. Fis first interest will be the security of his investment and then a return in the form of dividend or interest. For the first purpose he will try to access the value of fi)ed assets and the loans raised against them. The investor will feel satisfied only if the concern has sufficient amount of assets. "rofitability ratios will be useful to determine profitability position. 4atio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not.
C. UTILIT, TO CREDITORS: The creditors or suppliers e)tend short*term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The concern pays short*term creditors out of its current assets. If the current assets are %uite sufficient to meet current liabilities then the creditor will not hesitate in e)tending credit facilities. #urrent and acid test ratios will give an idea about the current financial position of the concern.
D. UTILIT, TO EM%LO,EES: The employees are also interested in the financial position of the concern especially profitability. Their wage increases and amount of the make use of information available in the financial statements. Garious profitability ratios relating to gross profit, operation cost, and net profit enable employees to put forward their viewpoint for the increase of wages and other benefits.
0. 4atios bring out the inter*relationship among various financial figures and bring to light their financial significance. 4atio analysis is a device to analyze and interpret the financial health of the enterprise.
2. 4atios contribute significantly towards effective planning and forecasting. A study of a trend in the past works as a helpful guide for the future.
3. 4atios facilitate inter*firm and intra*firm comparisons, thereby bringing out the strength weakness, efficiency of their firms and their department.
$. 4atios serve as effective control tools. They also facilitate establishment of a standard costing and budgeting control.
B. 4atios cater to the particular information need of a particular person depending upon his interest in the business for which ratios are to be calculated. A creditor may be interested in the li%uidity ratios, while an investor may want to study profitability ratios.
/, 4atio may not prove to be the ideal tool for inter*firm comparisons. The two firms may adopt different accounting policies and hence the results might not be comparable. 'imilarly a change in accounting policies by a firm will make intra*firm comparisons meaningless
0, A study of ratios in isolation, without studying the actual figure, may lead to wrong conclusions. 4atios are only supplementary to and not substitutes for absolute figures.
2, 4atios can be as correct as the data on which they are based, if the original data is not reliable then ratios will be misleading.
3, 4atio analysis suffers from each consistency. 4atios are defined differently by various e)perts and hence are prone to manipulations.
B, 4ations fail to reflect the impact of price level changes, and hence can be misleading.
<, 4atios are only tools of %uantitative analysis and fail to take into account the %uantitative aspects of a business.
T,%ES OF RATIOS:
4atios #lassified into four categories7 LI<UIDIT, RATIOS: #urrent 4atio Puick 4atio Absolute Puick 4atio SOL:ENC, RATIOS: 8ebt and -%uity 4atio "roprietary 4atio Fi)ed Assets 4atio Total .iabilities to Total Assets 4atio Fi)ed Assets to long term funds 4atio TURNO:ER RATIOS: #apital employed Turnover 4atio Fi)ed Assets Turnover 4atio O:ERALL %ROFITA6ILIT, RATIOS: 4eturn on capital employed 4atio 4eturn on !et worth 4eturn on -%uity capital 4eturn on assets 4atio -%uity 4atio Galue added by -mployee 4atio -arning per share 4atio +ENERAL %ROFITA6ILIT, RATIOS: Dross "rofit 4atio !et "rofit 4atio >perating 4atio -)penses 4atio
/. #urrent ratio 0. Puick ratio 2. "roprietary ratio 3. 8ebt*e%uity ratio $. Fi)ed asset ratio
/.Dross profit ratio 0.!et profit ratio 2. Inventory turn over ratio. 3. -)pense ratio. $. >perating ratio.
/. 4eturn on assets ratio. 0. Fi)ed assets ratio. 2. #reditors turn over ratio. 3. 8ebtors turnover ratio. $. 5orking capital turns over ratio.
These are the ratios which measure the short*term solvency or financial position of the firm. These ratios are calculated to comment upon the short*term paying capacity of a concern or the firm s ability to meet its current obligations, the various li%uidity ratios are7 #urrent ratio, Puick ratio.
-A.C"!!ent !atio o! 2o!7ing ca'ital !atio: #urrent ratio is the ratio of current assets and current liabilities.
#urrent assets are the assets which can be converted into cash within one year and include cash in hand and cash at bank, bills receivables, net sundry debtors, stock or raw material, finished goods and work in progress, prepaid e)penses, outstanding and accrued incomes and short*term or temporary investments.
#urrent liabilities are the liabilities which are to be paid within a period of one year and include bills payable, sundry creditors, bank overdraft, outstanding e)penses, incomes received in advance, proposed dividend, provision for ta)ation, unclaimed dividends and short term loan and advances repayable within one year. #urrent 4atio N #urrent Assets ************************* #urrent .iabilities
-6.<"ic7 Ratio: Puick ratio is the ratio of %uick assets to current liabilities. Puick assets are the assets which can be converted into cash very %uickly without much loss. All current assets e)cept stock and prepaid e)penses are %uick assets. All current liabilities are liabilities which are to be repaid with in one year. Puick Assets ********************* Puick liabilities
Puick 4atio
.ong*term solvency ratios convey a firms ability to meet the interest costs and repayments schedules of its long*term obligations e.g., debt e%uity and interest coverage ratio. .everage ratios show the proportions of debt and e%uity in financing of the firm. These ratios measure the contribution of financing as compared to financing by outsiders. -a. De)t e/"it !atio: It reflects the relative claims of creditors and shareholders against the assets of the business. 8ebt usually refers to long*term liabilities. -%uity includes e%uity and preference share capital and reserves. .ong*term .iabilities N ************************** 'hareholders fund
8ebt*-%uity ratio
-).
%!o'!ieta!
total assets. !et worth N -%uity share capital Q "reference share capital Q reserves and surplus Fictitious Assets. Total Assets N Fi)ed assets Q #urrent assets +e)cluding Fictitious Assets, !et 5orth ******************** Total Assets
"roprietary 4atio
-c. FiGe# Assets Ratio: This ratio indicates the mode of financing fi)ed assets. This is the ratio of fi)ed assets to capital employed. #apital employed N -%uity share capital Qpreference share capital Q 4eserves and surplus Q .ong*term liabilities*Fictitious assets
Fi)ed Assets Fi)ed Assets 4atio N ************************* #apital -mployed -#. Inte!est co$e!age !atio o! #e)t Se!$ice !atio: This ratio indicates whether a business is earning sufficient profits to pay the interest charges. It is calculated as follows7 8ebt 'ervice 4atio "9IT N ************************ Fi)ed Interest charges
#ost of goods sold N sales * gross "rofit Average 'tock N +>pening stock Q #losing 'tock,60
-). De)to!s T"!no$e! !atio: It e)presses the relationship between debtors and sales. It is calculated as7 !et credit sales 8ebtors Turnover ratio N ************************** Average 8ebtors -c. C!e#ito!s t"!no$e! Ratio: It e)presses the relationship between creditors and purchases. It is calculated as7 !et credit purchases #reditors turnover 4atio N *********************************** Average #reditors -#. 2o!7ing ca'ital t"!no$e! !atio: This ratio is used to know the efficient utilization of fund. It is calculated as7 5orking #apital Turnover 4atio N #ost of goods sold ************************** 5orking #apital
Dross "rofit N !et sales K #ost of Doods 'old !et 'ales N Total sales K 'ales 4eturns #ost >f Doods 'old N opening 'tock Q "urchases Q manufacturing
-). Net %!ofit Ratio: It e)presses the relationship between e)penses incurred for running the resultant net sales. It is calculated as7 >perating 4atio N >peration cost ************************ !et sales
>perating #ost N #ost of Doods 'old Q >ffice : administrative -)penses Q selling -)penses Q 8istribution -)penses.
-6. O$e!all %!ofita)ilit Ratios: 8. Ret"!n On Assets Ratio H It is calculated as7 4-T;4! >! A''-T' 4ATI>! N "AT ************************* T>TA. A''-T'
=. Ret"!n On Ca'ital Em'lo e#: It is calculated as7 4># "9IT N "rofit before interest and ta). #apital -mployed N 'hare #apital Q 4eserves : surplus Q .ong Term loan K Fictitious Assets "9IT N ***************** #apital -mployed
@. Ret"!n on net (o!th : It is calculated as7 4!>5 N "AT **************** !et worth
I. LIBUIDIT- RATIOS
CURRENT RATIO!
,ea! 0AA<*AE 0AAE*A= 0AA=*/A 0A/A*// 0A//*/0 C"!!ent Assets /BA<$B /B<<== /=3/20 /2$3BE /$=A<2 C"!!ent Lia)ilities B<203 3E/3B 3$E$A EA=3/ B<3B< Ratio 0.2= 2.3= 3.02 /.B< 0.2B
D>>>>> B>>>>> C>>>>> E>>>>> A>>>>> ?>>>>> @>>>>> =>>>>> 8>>>>> > C"!!ent Assets C"!!ent Lia)ilities Ratio
Inte!'!etations:
The above table shows that the li%uidity position of the firm is very good. The current assets increased on the whole from 0AAE*A= to 0AA=*/A. This is because of continues increases in sundry debtors and decreases in loans and advances. Though inventory and bank balance fluctuated during these $ years
and the other current assets increasing by 0AAE. It also implies a large part of the current assets is idle. <UICI RATIO:
8B>>>> 8E>>>> 8?>>>> 8=>>>> 8>>>>> B>>>> E>>>> ?>>>> =>>>> >
<"ic7 Assets
<"ic7 Lia)ilities
Ratio
Inte!'!etations:
The above table shows that the li%uidity position of the firm is very good. The Puick assets increased on the whole from 0AAE*A= to 0AA=*/A. The company should make sure that it should not increase its ratio more than / it s not advisable the present position companies ratio indicates normal li%uidity position in the business.
?A>>>> ?>>>>> @A>>>> @>>>>> =A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > Long te!m lia)ilities Sha!ehol#e!s f"n# Ratio
Inte!'!etations: From the above it is clear that shareholders fund is more than that of the long term debt. 'o, we can infer that the firm assets are financed more by the internal funds rather than the e)ternal funds by which it is using its resources more effectively.
%RO%RIETAR, RATIO:
C>>>>> E>>>>> A>>>>> ?>>>>> @>>>>> =>>>>> 8>>>>> > Net 2o!th Total Assets Ratio =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etations:
As the total debt ratio represents relationship of the owner s funds to total assts, higher the ratio the better the solvency position of the firm. The above ratio
shows that the $ years ratios more then $AH. 'o we consider that the long*term solvency of the firm is satisfaction.
=A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > FiGe# Assets Ca'ital Em'lo e# Ratio =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etations:
This ratio indicates the mode of financing the fi)ed assets. A financially well managed company will have its fi)ed assets financed by long term funds. Therefore the fi)ed assets ratio should never be more than one. The ratio of A.E= is considered ideal. Fere the companies ratio is ideal in 0A/A*// and then it increased in 0A//*/0, which indicates that the company reduced financing the fi)ed assets by along term funds.
8>>>>> B>>>> E>>>> ?>>>> =>>>> > E6IT FiGe# Inte!est Ratio =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etation
The above ratio indicates that the firm covers a good deal of interest liability with the operating profit of the firm. The ratio of the company is increasing every year. This indicates the company is earning sufficient profits to pay the interest charges of the investors.
=>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8= Cost of +oo#s Sol# A$e!age In$ento! Ratio
Inte!'!etations:
The ratio indicates the efficiency of the firm is selling its products or services. A high ratio indicates efficient management of inventory. In the above
ratio it indicated that the inventory is getting converted into cash in the five years. This implies that the management of inventory is satisfied.
=>>>> 8A>>> 8>>>> A>>> > =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8= Cost of C!e#it Sales A$e!age De)to!s Ratio
Inte!'!etations:
The debtor s turn over ratio of /A*/0 is considered to be ideal. A high ratio is indicative of a sound credit management policyL this ratio has been fluctuating
due to increase in sales and debtors .The ratio as decreased in 0A/A*0A// but again increased towards the ideal ratio.
=>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8= C!e#it %"!chase A$e!age C!e#ito!s Ratio
Inte!'!etations:
The creditors turn over ratio is more indicates the firm is not able to get the best terms of credit. A low creditor s turn over ratio indicates the companies
inability in meeting its obligations in time. The company s ratio is fluctuating and low but satisfactory in meeting its obligations in time
=A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > Sales 2o!7ing Ca'ital Ratio =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etations:
From the above ratio it indicate that utilization of the working capital is not , so efficient but is satisfactory, as it is turned over at least once in all the five years
i.e. in the year 0A/A*//, it turned to 2.3$ which is satisfactory. In the year 0A//* /0 it is 2.B$.
=A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Sales
FiGe# Assets
Ratio
Inte!'!etations:
The above ratios indicate that the fi)ed asset Turnover 4atios are in the increasing trend, which is satisfactory. It shows that there is a scope for increasing in production and sales with effective use of fi)ed assets. 9ut 0A/A* A// year the ratio is deceased to A.E=.
I:.
%ROFITA6ILIT, RATIOS
=A>>>> =>>>>> =>>C;>B 8A>>>> 8>>>>> A>>>> > =>>B;>D =>>D;8> =>8>;88 =>88;8=
+!oss %!ofit
Sales
Ratio
Inte!'!etations:
This ratio indicates the e)tent to which selling prices of goods per unit way decline without resulting losses in operating of a firm. The higher the ratio the better the results. It lies that the profitability of the firm is satisfactory and it is covering various operating e)penses without incurring losses.
=A>>>> =>>>>> =>>C;>B 8A>>>> 8>>>>> A>>>> > Net %!ofit Sales Ratio =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etations:
The above ratio shows that the firm s earning the constant returns over its sales. The above table shows that the firm is earning profit over its !et sales, which is good for any manufacturing concern.
OPERATING RATIO!
=A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > O'e!ating '!ofit Sales Ratio =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etations:
From the above table we can inter that more than EAH of the sale has been consumed by the operating profit, only less than 0AH is left to cover interest charges, income ta) payments, dividend and the retention of profits as a reserve.
@A>>>> @>>>>> =A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > %!ofit Afte! A$e!age TaG Total Assets Ratio
Inte!'!etations:
5ith the help of above ratio we can inter that the return on assets is increasing from year to year which is very good and its reflects that the resources are effectively utilized.
=A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> > E6IT Ca'ital Em'lo e# Ratio =>>C;>B =>>B;>D =>>D;8> =>8>;88 =>88;8=
Inte!'!etations:
The above ratio indicate that the profit of the company is in increasing trend and the capital employed is also increasing which helps in increasing the return on capital employed.
?A>>>> ?>>>>> @A>>>> @>>>>> =A>>>> =>>>>> 8A>>>> 8>>>>> A>>>> >
%AT
Net 2o!th
Ratio
Inte!'!etations:
The higher the ratio the better it is. It indicates the return which the shareholders are earning on their resources invested in the businesses. The investors of the company are earning high level of returns which are increasing though slightly decreased in 0A//*0A/0.
CHAPTER%.
CONCLUSIONS + SUGGESTIONS
CONCLUSIONS
The present study entitled JTechni/"es of Financial Anal sisK in !ational Thermal "ower #orporation .td. Is taken up by me in partial fulfillment of the award of 8egree of 1aster of 9usiness Administration. 8uring my study, based on the data collected and presented the earlier chapter the following observations were made. /. The sales to assets ratio is reveals that e)cept in 0A//*/0, in all the years it is more than I indicating good sales position of the firm in the market. 0. 8uring the study period the working capital position is found to be satisfactory. In last 0 years of study current assets are more than double to that of current liabilities. 2. The net profit is more in the last year i.e. B2.<H reduced operating e)penses. 3. It is observed that the total assets are almost same during the same period with a sight variation of /H to 2H. $. >ver all the company current position is good but years 0AA$*AB : 0AA$*A3 the company current position not good. B. The company paid to the dividend to shareholders in last year 0AA<*AE it is the more than the last 3 years company debt position is good. <. The company e%uity capital in year 0A/A*// is <E/0$ million s but last 2 years capital is E03$$ million s is increase of $.$H. because of the
SUGGESTIONS:
/. #ompany should maintain ade%uate li%uidity. 0. To improve the li%uidity position of the company it is suggested that the company shall finance more in current assets or pay off part of current liabilities from long term funds. 2. #ompany should take the measure to promote its sales, which improves the profit of the firm. 3. It should concentrate on long term funds. If long term funds are utilized for working capital problem will not arise in future. $. #ompany should maintain ade%uate reserves. B. It should try to raise it s owner e%uity to see that the interest burden +because of debt capital, be reduced. <. It should control the operating costs further and should also see that the cost of production will be low. E. A wise policy will be taken by the company to finance fi)ed assets by raising long term funds. =. #ompany should take some measure to increase the return on investment. It should try to utilize the funds to the ma)imum e)tent. /A. #ompany should try to utilize its assets to the fullest e)tent.
6I6ILIO+RA%*,
6OOIS:
'harma. 4.@, and 'hashi @. Dupta, 1anagement Accounting, 'ultan #hand : 'ons, !ew 8elhi.