ntpc internship report
TRANSCRIPT
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ANALYSIS OF FINANCIAL STATEMENTS
OF
NTPC
Summer Project submitted to Shaheed Sukhdev College of Business Studies, Delhi
University
For
BACHELOR OF BUSINESS STUDIES
BY:
BARKHA VERMA
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ACKNOWLEDGEMENT
I express my heartiest feelings of gratitude to my Faculty of Shaheed Sukhdev
College of Business Studies, Delhi University for their keen interest, constant
encouragement, and sympathetic attitude, parental advice at every step that
enabled me to face and encounter all the difficulties that came in my way to
reach this stage. I shall be highly grateful to them always.
I would also like to pay thanks to Almighty God for giving us power and the
mind to do work efficiently and effectively.
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CONTENTS
CHAPTER PAGE No.
ABSTRACT
1. INTRODUCTION 3 to 9
2. Company Profile 10-17
3. Achievements 15-16
4. Swot Analysis 17
5. Ratio analysis 18-22
6. Methodology 23-34
7. Data-Analysis 35-42
8. Findings / Results 42
9. Limitations 43
10. Conclusion 44-45
APPENDICES
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Introduction
Scenario of Power in India Growth of economy calls for watching the rate of growth in infrastructure facilities.
Power sector is one of the major aspects of this infrastructure building. Some prominent
people like the Ex Chairman of GE Jack Welch have gone to the extent of saying, “you
don’t have a chance to stand in the 21st century without lots of power………Without
this you miss the next revolution.”
Moreover, the growth rate of demand for power in developing countries is generally higher
than that of GDP. In India, the elasticity ratio was 3.06 in 1st plan, & peaked at 5.11 during
3rd plan and came down to 1.65 in 80’s. For 90’s a ratio of around 1.5 was projected. Hence,
in order to support a growth of GDP of around 7.45%, the rate of growth of power supply of
10.50% is required.
If we look at current scenario, electricity consumption in India has more than doubled in the
last decade, outpacing the economic growth. If we analyze the various statistics of Indian
power sector, we will find that the generating capacity has gone up tremendously from a mere
1712MW in 1950 to a whooping 147000MW today.
The critical role played by the power industry in the economic progress of a country has to be
emphasized. A self sufficient power industry is vital for a nation to achieve economic
stability.
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Indian Power Industry
Before Independence
The British controlled the Indian power industry firmly before Independence. Then legal and
policy framework was contributing to private ownership, with not much regulation with
regard to operational safety.
Post Independence
Immediately after Independence, the country was faced with capacity restraint. India adopted
a socialist structure for economic growth and all the major industries were controlled by
public sector enterprises. By 1970's, India had nationalized most of its energy assets, due to
its commitment to social goals. By the late 1980's, the Indian economy felt the strain of the
socialist agenda followed since independence. Faced with a serious deterioration in public
finance and balance of payment crisis, the Union government as part of its policy of
economic liberalization allowed greater investment by private sector in the power industry.
The electricity sector in India is predominantly controlled by Government of India's public
sector undertakings (PSUs). Major PSUs involved in the generation of electricity include
National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation
(NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state-level
corporations, such as Maharashtra State Electricity Board (MSEB), are also involved in the
generation and intra-state distribution of electricity. The Power Grid Corporation of India is
responsible for the inter-state transmission of electricity and the development of national grid.
India is world's 6th largest energy consumer, accounting for 3.4% of global energy
consumption. Due to India's economic rise, the demand for energy has grown at an 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.
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Electricity losses in India during transmission and distribution are extremely high and vary
between 30 to 45%. In 2004-05, electricity demand outstripped supply by 7-11%.
Due to shortage of electricity, power cuts are common throughout India and this has
adversely effected the country's economic growth.
Generation
Grand Total Installed Capacity is 147,402.81 MW
Thermal Power
Current installed capacity of Thermal Power (as of 12/2010) is 93,392.64 MW which
is 63.3% of total installed capacity.
Current installed base of Coal Based Thermal Power is 77,458.88 MW which comes
to 53.3% of total installed base.
Current installed base of Gas Based Thermal Power is 14,734.01 MW which is 10.5%
of total installed base.
Current installed base of Oil Based Thermal Power is 1,199.75 MW which is 0.9% of
total installed base. The state of Maharashtra is the largest producer of thermal power
in the country.
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Hydro Power
India was one of the pioneering states in establishing hydro-electric power plants, The power
plant at Darjeeling and Shimsa (Shivanasamudra) was established in 1898 and 1902
respectively and is one of the first in Asia. The installed capacity as of 2008 was
approximately 36647.76. The public sector has a predominant share of 97% in this sector.
Nuclear Power
Currently, 17 nuclear power reactors produce 4,120.00 MW (2.9% of total installed base).
Renewable Power
Current installed base of Renewable energy is 13,242.41 MW which is 7.7% of total installed
base with the southern state of Tamil Nadu contributing nearly a third of it (4379.64 MW)
largely through wind power.
Power for ALL by 2012
The Government of India has an ambitious mission of POWER FOR ALL BY 2012. This
mission would require that our installed generation capacity should be at least 200,000 MW
by 2012 from the present level of 144,564.97 MW. Power requirement will double by 2020 to
400,000MW.
Today’s environment is a tough environment to survive, with the new industries and the new
sectors coming up so strongly and financially sound. But to gain an extra edge over others
they ought to have an extra or special added advantage.
“Our people are our most important asset.” Nearly every organization report contains a
phrase like this & for good reason. Today, the last great source of competitive advantage is
human capital.
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Rationale
The purpose of the research was to criteria on which investment of the company is raised
every year and a favorable rate of return is arrived at, increasing the net result of the company
as per their budget.
Objective
The study is aimed at:
To gain the overall idea about the organization.
To find out the financial performance of the organization
To find out the future requirement of finance in business
Scope of the Study
The study on the financial statements will help the interested parties to know about the
overall financial health of the company. The ratios are helpful to forecast the future of the
organization based on the past performance.
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Company Profile
Background of NTPC
NTPC – a global giant in power sector NTPC Limited is the largest power generating company of India. A public sector company, it
was incorporated in the year 1975 to accelerate power development in the country as a
wholly owned company of the Government of India. At present, Government of India holds
89.5% of the total equity shares of the company & the balance 10.5% is held by FIIs,
Domestic Banks, Public and others. Today, it has emerged as an ‘Integrated Power Major’,
with a significant presence in the entire value chain of power generation business.
Based on 1998 data, carried out by Data monitor UK, an ISO 9001:2000 certified
company, NTPC is the 6th largest in terms of thermal power generation & the second
most efficient in terms of capacity utilization amongst the thermal utilities in the world.
Within a span of 33 years, NTPC has emerged as a truly national power company, with
power generating facilities in all the major regions of the country. Driven by its vision to
lead, it has charted out an ambitious growth plan of becoming a 75000 MW plus company by
2017.
Vision
“A world class integrated power major, powering India’s growth, with increasing global presence."
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Mission
“Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco-friendly technologies and contribute to society.”
Core Values – BCOMIT
B – Business Ethics
C – Customer Focus (External & Internal)
O – Organizational & Professional Pride
M – Mutual Respect & Trust
I – Innovation & Speed
T – Total Quality for Excellence
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BOARD OF DIRECTORS
The Management of the Company is vested with the Board of Directors. In terms of the
Articles of Association of the Company the Board of Directors can have minimum four
Directors and maximum twenty Directors.
The Composition of the Board of Directors is given below
Name Designation
A K Singhal Director (Finance)
B P Singh Director (Projects)
Shanti Narain Director
K Dharmarajan Director
Kanwal Nath Director
A K Sanwalka Director
I C P Keshari Director
D K Jain Director (Technical)
S P Singh Director (Human Resources)
I J Kapoor Director (Commercial)
M N Buch Director
P K Sengupta Director
M Govinda Rao Director
Adesh C Jain Director
Santosh Nautiyal Director
Rakesh Jain Director
Arup Roy Choudhury Chairman and Managing director
N N Misra Director (Operations)
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Market Capitalisation of Power Sector Companies (Generation and Distribution)
Company Name Market Cap Market Cap
(Rs. cr) in %
NTPC 1,45,367.54 36.34206126
Power Grid Corp 44,561.11 11.14033153
Reliance Power 32,216.37 8.054131563
NHPC 29,091.26 7.272850273
Tata Power 28,396.18 7.099079431
Adani Power 25,495.51 6.373908413
Neyveli Lignite 16,768.71 4.192197832
Reliance Infra 16,465.07 4.116287464
JSW Energy 11,644.39 2.911111619
Torrent Power 10,431.66 2.607927648
SJVN 8,686.92 2.171740533
Jaiprakash Pow 8,298.89 2.074732562
IndiaBPower 4,692.69 1.17317819
GVK Power 4,390.20 1.097555323
KSK Energy Vent 4,095.21 1.023807465
CESC 3,720.78 0.930199511
BF Utilities 2,689.47 0.672370761
Guj Ind Power 1,321.94 0.330486603
Orient Green 1,134.84 0.283711376
Entegra 254.86 0.063715309
Indowind Energy 96.25 0.024062617
Energy Dev 89.93 0.022482609
Suryachakra Pow 88.28 0.022070107
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Graphical Presentation of Market Capitalisation
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Achievements
Recognizing its excellent performance and vast potential, Government of the India has
identified NTPC as one of the jewels of Public Sector 'MAHARATNA'- a potential global
giant.
A) NTPC ranked 317th in the ‘2009, Forbes Global 2000’ ranking of the World’s biggest
companies.
B) NTPC has been rated as one of the top most “Best Employer” of the country for the year
2003, 2004 & 2005 in a row.
C) It has also been rated as one of the “Best Companies to Work for in India” by
Mercer HR Consulting- Business Today Survey 2004, it has developed into a multi-location
and multi-fuel company over the past three decades.
D) NTPC has been awarded No.1, Best Workplace in India among large organizations for
the year 2008, by the Great Places to Work Institute, India Chapter in collaboration with The
Economic Times.
E) Leadership Award for CMD, NTPC in the 4th Global Leadership Summit by Amity
University for Sectoral Excellence in Power industry for his outstanding contribution to the
growth of Indian business & bringing glory to the country through his pioneering leadership.
F) Ranked #1 independent power producer in Asia in the THIRD ANNUAL PLATTS
TOP 250 GLOBAL ENERGY COMPANY AWARDS 2008 for outstanding Global
financial & Industrial performance at the award ceremony in Singapore. The corporation has
been simultaneously ranked #15, overall in Asia amongst the energy companies.
G) NTPC’s excellence in executing power projects & its initiative in Decentralized
Distributed Power Generation has been recognized and awarded at IEEMA Power Awards
2008. NTPC Vindhyachal Stage-III (2x 500MW) has been conferred the IPMA SILVER
MEDAL for Project Excellence by International Project Management
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Association, at the IPMA Congress, held in Rome, Italy, for implementation of project in
record time & achieving excellent environmental, economic performance and giving
outstanding support to the local community.
Some major awards given to the Company in the areas of environment management &
Corporate Social Responsibility include:
1) 2nd India Power Awards 2009
Organized by the Council of Power Utilities and KW Conferences Pvt. Ltd.
The award was received by Shri A. C. Chaturvedi, ED(R&R, Safety & CSR) on 17th
November, 2009 at the India Habitat Centre, New Delhi
NTPC awarded in the category of 'Social and Community Impact' of 2nd India Power
Awards 2009 for pioneering in Corporate Social Responsibility strides.
2) CII ITC Sustainability Award
Instituted by CII-ITC Centre of Excellence for Sustainable Development
The award was received by Shri R.C. Shrivastav, Director(HR) from Mr. Jairam Ramesh,
Hon'ble Minister of Environment & Forests during the presentation ceremony held on 26-11-
2009 at India Habitat Centre, New Delhi.
NTPC – CSR has been conferred with CII-ITC Sustainability Award for the Commendation
for Significant Achievement among Large Business Organizations for the year 2009. NTPC
was a worthy winner after a rigorous two-stage assessment including a site visit, followed by
scrutiny by the Awards Jury.
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SWOT Analysis Strengths: -
1. Good corporate Image.
2. Complete range of product for transmission & distribution.
3. Established brand name with executive oriented program.
4. Strong & wide networks of manpower across India.
5. Considered to be having technology & design ability.
Weakness: -
1. The procurement process in the companies is cumbersome and subject to auditing.
2. Low exposure to the needs & dynamics of distribution business.
3. Role clarity on the requirement of being an equipment supplier or a solution provider.
As there are very few supplier of equipment manufacturing plant.
Opportunities: -
1. Huge Investment leading to greater demand of goods and services.
2. Demand leading to Industry operating at full & over capacity.
3. Better Price realization.
4. Early birds to learn faster and thus achieve repeat orders. Policy to bid from ultra mega
power plant.
5. Vertical integration for supply chain management of coal by acquiring coal blogs.
Threats: -
1. Purchases preference may be extended to distribution sector.
2. Increase in no. of small contractors leading to price war.
3. Emergence of competitors in the market like Schneider, Reliance, Tata etc.
4. Change in government policies for open trade or stock trading or energy trading.
5. Reduce the time lag.
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Ratio Analysis
INTRODUCTION Financial analysis is the process of identifying the financial strengths and weaknesses of the
firm and establishing relationship between the items of the balance sheet and profit & loss
account.
Financial ratio analysis is a fascinating topic to study because it can teach us so much about
accounts and businesses. When we use ratio analysis we can work out how profitable a
business is, we can tell if it has enough money to pay its bills and we can even tell whether its
shareholders should be happy!
Ratio analysis can also help us to check whether a business is doing better this year than it
was last year; and it can tell us if our business is doing better or worse than other businesses
doing and selling the same things. In addition to ratio analysis being part of an accounting
and business studies syllabus, it is a very useful thing to know anyway!
The overall layout of this section is as follows: We will begin by asking the question, what do
we want ratio analysis to tell us? Then, what will we try to do with it? This is the most
important question, funnily enough! The answer to that question then means we need to make
a list of all of the ratios we might use: we will list them and give the formula for each of
them.
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Once we have discovered all of the ratios that we can use we need to know how to use them,
who might use them and what for and how will it help them to answer the question we asked
at the beginning?
At this stage we will have an overall picture of what ratio analysis is, who uses it and the
ratios they need to be able to use it. All that's left to do then is to use the ratios; and we will
do that step- by-step, one by one.
Ratio analysis
Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition
and performance of a business concern. Simply, ratio means the comparison of one figure to
other relevant figure or figures. According to Myers , “Ratio analysis of financial statements
is a study of relationship among various financial factors in a business as disclosed by a
single set of statements and a study of trend of these factors as shown in a series of
statements."
Advantages and Uses of Ratio Analysis
There are various groups of people who are interested in analysis of financial position of a
company. They use the ratio analysis to work out a particular financial characteristic of the
company in which they are interested. Ratio analysis helps the various groups in the
following manner:
To work out the profitability: Accounting ratio help to measure the profitability of the
business by calculating the various profitability ratios. It helps the management to
know about the earning capacity of the business concern. In this way profitability
ratios show the actual performance of the business.
To work out the solvency: With the help of solvency ratios, solvency of the company
can be measured. These ratios show the relationship between the liabilities and assets.
In case external liabilities are more than that of the assets of the company, it shows
the unsound position of the business. In this case the business has to make it possible
to repay its loans.
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Helpful in analysis of financial statement: Ratio analysis help the outsiders just like
creditors, shareholders, debenture-holders, bankers to know about the profitability and
ability of the company to pay them interest and dividend etc.
Helpful in comparative analysis of the performance: With the help of ratio analysis a
company may have comparative study of its performance to the previous years. In this
way company comes to know about its weak point and be able to improve them.
To simplify the accounting information: Accounting ratios are very useful as they
briefly summarize the result of detailed and complicated computations.
Limitations of Ratio Analysis
In spite of many advantages, there are certain limitations of the ratio analysis techniques and
they should be kept in mind while using them in interpreting financial statements.
The following are the main limitations of accounting ratios:
Limited Comparability: Different firms apply different accounting policies.
Therefore the ratio of one firm cannot always be compared with the ratio of other
firm.
Some firms may value the closing stock on LIFO basis while some other firms may
value on FIFO basis. Similarly there may be difference in providing depreciation of
fixed assets or certain of provision for doubtful debts etc.
False Results: Accounting ratios are based on data drawn from accounting records.
In case that data is correct, then only the ratios will be correct. For example, valuation
of stock is based on very high price, the profits of the concern will be inflated and it
will indicate a wrong financial position. The data therefore must be absolutely correct.
Effect of Price Level Changes: Price level changes often make the comparison of
figures difficult over a period of time. Changes in price affect the cost of production,
sales and also the value of assets. Therefore, it is necessary to make proper adjustment
for price-level changes before any comparison.
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Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis
and thus, ignores qualitative factors, which may be important in decision making. For
example, average collection period may be equal to standard credit period, but some
debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.
Effect of window-dressing : In order to cover up their bad financial position some
companies resort to window dressing. They may record the accounting data according
to the convenience to show the financial position of the company in a better way.
Procedure (Stages) For Ratio-analysis
Classification of Ratios
Ratios may be classified in a number of ways to suit any particular purpose. Different kinds
of ratios are selected for different types of situations. Mostly, the purpose for which the ratios
are used and the kind of data available determine the nature of analysis. The various
accounting ratios can be classified as follows:
A. Profitability ratios :
1 Gross profit ratio
2 Net profit ratio
3 Operating ratio
4 Return on shareholders’ investment or net worth
5 Earnings Per Share Ratio
B. Liquidity ratios :
1 Current ratio
2 Liquid /Acid test / Quick ratio
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C. Activity ratios :
1 Inventory/Stock turnover ratio
2 Debtors/Receivables turnover ratio
3 Investment turnover ratio
4 Total assets turnover ratio
D. Leverage ratios or long term solvency ratios :
1 Debt equity ratio
2 Ratio of fixed assets to shareholders funds
3 Interest coverage or debt service ratio
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Methodology
Methodology (Sampling details)
Research design
Research design helps in proper collection and analysis of the data. It helps in further
course of action.
Research approaches
The most appropriate research is descriptive. This is because the goal of the study is
clear research will help to understand to concept better.
Classification of data
Secondary data
₪ This includes the information gathered from various websites.
Sample Size
₪ The sample size selected is of five years i.e. from 2006-2010.
Sampling technique
₪ The sampling procedure employed for this is judgmental sampling a convenience sampling
technique in which elements are based on the judgment of researcher
Software tools used for the data analysis
The software tools used for data analysis in MS WORD & MS EXCEL
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Methodology (Ratios Used for Financial Analysis)
A. Profitability ratios: 1. Gross profit ratio (GP ratio ):-
Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage. It
expresses the relationship between gross profit and sales.
Significance:
Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be
reduced without incurring losses on operations. It reflects efficiency with which a firm
produces its products. As the gross profit is found by deducting cost of goods sold from net
sales, higher the gross profit better it is. There is no standard GP ratio for evaluation.
It may vary from business to business. However, the gross profit earned should be sufficient
to recover all operating expenses and to build up reserves after paying all fixed interest
charges and dividends.
Hence, an analysis of gross profit margin should be carried out in the light of the information
relating to purchasing, mark-ups and markdowns, credit and collections as well as
merchandising policies.
Gross Profit Ratio= (Gross Profit/Net Sales)*100
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2. Net profit ratio: -
Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage.
Components of net profit ratio:
The two basic components of the net profit ratio are the net profit and sales. The net profits
are obtained after deducting income-tax and, generally, non-operating expenses and incomes
are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on
investments outside the business, profit on sales of fixed assets and losses on sales of fixed
assets, etc are excluded.
Here, Operating Net Profit = Gross Profit – Operating Expenses such as Office and
Administrative Expenses, Selling and Distribution Expenses, Discount, Bad Debts, Interest
on short-term debts etc.
Significance:
NP ratio is used to measure the overall profitability and hence it is very useful proprietors.
The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to
achieve a satisfactory return on its investment. This ratio also indicates the firm's capacity to
face adverse economic conditions such as price competition, low demand, etc. Obviously,
higher the ratio the better is the profitability. But while interpreting the ratio it should be kept
in minds that the performance of profits also be seen in relation to investments or capital of
the firm and not only in relation to sales.
3. Operating ratio: -
Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is
generally expressed in percentage. It measures the cost of operations per dollar of sales. This
is closely related to the ratio of operating profit to net sales.
Net Profit Ratio = Net Profit / Net sales *100
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Components:
The two basic components for the calculation of operating ratio are operating cost (cost of
goods sold plus operating expenses) and net sales. Operating expenses normally include (a)
administrative and office expenses and (b) selling and distribution expenses.
Financial charges such as interest, provision for taxation etc. are generally excluded from
operating expenses.
Formula of operating ratio:
Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other Direct
Expenses - Closing Stock
Operating Expenses = Office and Administration Exp. + Selling and Distribution Exp. +
Discount + Bad Debts + Interest on Short- term loans
Significance:- Operating Ratio is a measurement of the efficiency and profitability of the
business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of
goods sold and operating expenses. Lower the operating ratio is better, because it will leave
higher margin of profit on sales.
4. Return on share holder’s investment:-
It is the ratio of net profit to share holder's investment. It is the relationship between net profit
(after interest and tax) and share holder's/proprietor's fund. This ratio establishes the
profitability from the share holders' point of view. The ratio is generally calculated in
percentage.
Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100
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Components:
The two basic components of this ratio are net profits and shareholder's funds.
Shareholder's funds include equity share capital, (preference share capital) and all reserves
and surplus belonging to shareholders. Net profit means net income after payment of interest
and income tax because those will be the only profits available for share holders.
Formula of return on shareholder's investment or net worth Ratio:
Significance:
This ratio is one of the most important ratios used for measuring the overall efficiency of a
firm. As the primary objective of business is to maximize its earnings, this ratio indicates the
extent to which this primary objective of businesses being achieved. This ratio is of great
importance to the present and prospective shareholders as well as the management of the
company.
6. Earnings per Share (EPS) Ratio:-
Earnings per share ratio (EPS Ratio) are a small variation of return on equity capital ratio and
are calculated by dividing the net profit after taxes and preference dividend by the total
number of equity shares.
Formula of Earnings per Share Ratio:
The formula of earnings per share is:
Return on Net Worth= {(Net Profit after Tax – Preference Dividend)/Shareholder’s Fund}*100
Earnings Per Share= Net Earnings /Number of shares outstanding
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Significance:
Earnings per share allows us to compare different companies’ power to make money. The higher the earnings per share with all else equal, the higher each share should be worth. A positive trend of EPS indicates the company is constantly looking to increase their earnings
B. Liquidity Ratios
1. Current Ratio:
This ratio explains the relationship between current assets and current liabilities of a business.
Formula:
Current Assets:-‘Current assets’ includes those assets which can be converted into cash with
in a year’s time.
Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment +
Debtors(Debtors – Provision) + Stock(Stock of Finished Goods + Stock of Raw Material
+ Work in Progress) + Prepaid Expenses.
Current Liabilities :- ‘Current liabilities’ include those liabilities which are repayable in a
year’s time.
Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation +
Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable
within a Year.
Significance:
Current Ratio = Current Assets/ Current Liabilities
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According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio.
It means that current assets of a business should, at least, be twice of its current liabilities. The higher ratio indicates the better liquidity position. The firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicates lack of liquidity and shortage of working capital.
The biggest drawback of the current ratio is that it is susceptible to “window dressing”. This ratio can be improved by an equal decrease in both current assets and current liabilities.
2. Quick Ratio
Quick ratio indicates whether the firm is in a position to pay its current liabilities within a month or immediately.
Formula:
‘Liquid Assets’ means those assets, which will yield cash very shortly.
Liquid Assets = Current Assets – Stock – Prepaid Expenses
Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of short-term financial position of the company.
C. Activity Ratio or Turnover Ratio Activity Ratio or Turnover Ratio: - These ratios are calculated on the bases of ‘cost of sales’
or sales, therefore, these ratios are also called as ‘Turnover Ratio’. Turnover indicates the
speed or number of times the capital employed has been rotated in the process of doing
business. Higher turnover ratio indicates the better use of capital or resources and in turn
leads to higher profitability.
It includes the following:
a. Inventory Turnover Ratio:
Quick Ratio = Liquid Assets/ Current
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This ratio indicates the relationship between the cost of goods during the year and average stock kept during that year.
Formula:
Here, Cost of goods sold = Net Sales – Gross Profit
Average Stock = Opening Stock + Closing Stock/2
Significance:
This ratio indicates whether stock has been used or not. It shows the speed with which the stock is rotated into sales or the number of times the stock is turned into sales during the year.
The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business where stock turnover ratio is high, goods can be sold at a low margin of profit and even than the profitability may be quite high.
b. Debtors Turnover Ratio :
This ratio indicates the relationship between credit sales and average debtors during the year :
Formula:
While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors, so that it may not give a false impression that debtors are collected quickly.
Significance:
This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm.
Stock Turnover Ratio = Cost of Goods Sold / Average Stock
Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R
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By comparing the debtor’s turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not.
c. Investment Turnover / Stock Turnover ratio:
Definition:
Return earned on a capital invested in a business is termed as investment turnover ratio.
Following formula is used to calculate investment turnover ratio:
The three components of the ratio are sales , net worth and long term liabilities.
Significance:
The higher Ratio indicates the good use of the funds placed into business.
d. Total asset Turnover Ratio:
The total asset turnover ratio measures the ability of a company to use its assets to generate sales. The total asset turnover ratio considers all assets including fixed assets, like plant and equipment, as well as inventory and accounts receivable.
Formula:-
Net Fixed Assets = Fixed Assets – Depreciation*
Significance:-
The lower the total asset turnover ratio, as compared to historical data for the firm and industry data, the more sluggish the firm's sales. This may indicate a problem with one or
Total Assets Turnover Ratio = Net sales/ Total Assets
Investment turnover Ratio = Sales/Net Worth + Long Term liabilities
31
more of the asset categories composing total assets - inventory, receivables, or fixed assets. The business owner should analyse the various asset classes to determine where the problem lies.
D. Leverage or Capital Structure ratio
Leverage or Capital Structure Ratio :- This ratio disclose the firm’s ability to meet the interest costs regularly and Long term indebtedness at maturity.
These ratio include the following ratios :
1. Debt Equity Ratio:- This ratio can be expressed in two ways:
First Approach : According to this approach, this ratio expresses the relationship between long term debts and shareholder’s fund.
Formula:
Long Term Loans:- These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public Deposits etc.
Shareholder’s Funds :- These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account.
Second Approach : According to this approach the ratio is calculated as follows:-
Formula:
Debt Equity Ratio=Long term Loans/Shareholder’s Funds or Net Worth
Debt Equity Ratio=External Equities/internal Equities
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Debt equity ratio is calculated for using second approach.
Significance :-
This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of 2:1 is considered safe.
If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders.
The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.
2. Fixed Assets Turnover: Definition:
Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the
efficiency and profit earning capacity of the concern.
Formula:
The fixed assets are considered at their book value.
Significance:
Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-
utilization of fixed assets.
4. Interest Coverage Ratio:
This ratio is also termed as ‘Debt Service Ratio’. This ratio is calculated as follows:
Formula:
Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest Charges
Fixed Assets turnover ratio: Cost of Sales/ Net Fixed Assets
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Significance :
This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges.
This ratio measures the margin of safety for long-term lenders.
This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the company also , as nothing will be left for shareholders.
An interest coverage ratio of 6 or 7 times is considered appropriate
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Data Analysis Profitability Ratios
1. Gross Profit Ratio
Year Gross Profit Margin
2006-2007 33.28
2007-2008 25.31
2008-2009 19.48
2009-2010 21.1
2010-2011 33.28
Gross Profit Margin on NTPC was 33.28% in 2006-2007 but then it had fallen for consecutive 2 yrs to reach to the levelof 19.48 in 2008-09. It showed some improvement in 2009-10 but reached only till 21.1% not even close to the earlier levels. The reduction in the profits could be due to inefficiency or even may be because on the global economic slow down. But even in the slowdown period it was enough to recover the operating expenses and maintain reserve. In 2010 it showed a tremendous increase and augmented to the level of 33.28%.
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2. Net Profit Ratio
Year Net Profit Margin
2006-2007 19.39
2007-2008 18.51
2008-2009 18.11
2009-2010 17.72
2010-2011 15.85
The net profit margin for NTPC for the year 2006-07 was 19.39 since then it has been decreasing constantly reaching a level of 15.85 in the year 2010-11. The constant fall in the net profit shows loss to the proprietors.
3. Operating Ratio
Year Operating Ratio
2006-2007 31.13
2007-2008 31.07
2008-2009 25.11
2009-2010 26.81
2010-2011 23.01
Operating Profit Margin for NTPC for the Year 2006-07 and 2007-08 has been31.3 % and
31.07 respectively but slipped to 25.11% in the year 2008-2009 then again recovered in 2009-
10 and reached to 26.81%. But again went down to 23.01% which is a good indicator leaving
higher margins of profit on sales.
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4. Return On Shareholder’s Investment
Year Return on Net worth
2006-2007 14.13
2007-2008 13.66
2008-2009 13.9
2009-2010 13.69
2010-2011 13.31
Return on Net worth for NTPC in the year 2006-07 has been 14.13 then it decreased to 13.66% in 2007-2008, since then it has been almost constant to 13.31 in 2010-11.
5. Earnings Per Share
Year EPS
2006-2007 8.33
2007-2008 8.99
2008-2009 9.995
2009-2010 10.59
2009-2010 11.04
The Earning per share of NTPC was 8.33 in 2006-07 which increased up to the level of the level of 11.04 in 2009-10. This augmentation is a good indicator for the shareholders.
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Liquidity Ratios
1. Current Ratio
Year Current Ratio
2006-2007 2.42
2007-2008 2.36
2008-2009 2.89
2009-2010 2.81
2010-2011 2.59
The Current Ratio of NTPC is ideal since 2.42 in 2006-07 to 2.59 in 2010-11. The company is in a better position to pay its current liabilities.
2. Quick Ratio
Year Quick Ratio
2006-2007 2.18
2007-2008 2.16
2008-2009 2.59
2009-2010 2.5
2010-2011 2.32
The Quick ratio of NTPC in 2006-07 was 2.18 which is constant or rather has increased a bit to 2.32 in 2010-2011. The Quick ratio is greater than the ideal i.e. 1:1 which is a good indicator of the company’s position.
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Activity Ratios
1. Inventory Turnover Ratio
Year Inventory Turnover Ratio
2006-2007 14.1
2007-2008 33.59
2008-2009 28.21
2009-2010 27.54
2010-2011 29.18
Inventory turnover ratio in 2006-07 was 14.10 which increased to 33.59 in 2007-08 which indicates that stock has been used effectively. But decreased to 29.18 in 2010-11. The higher ratio indicates that stock is sold quickly.
2. Debtors Turnover Ratio
Year Debtors Turnover Ratio
2006-2007 30.78
2007-2008 17.52
2008-2009 12.78
2009-2010 9.06
2010-2011 7.54
The Debtors Turnover ratio in 2006-07 is 30.78 and reduced constantly from 17.52 in 2007-08 to 12.78 in 2008-09. There is a substantial decrease in debtors turnover ratio to 7.54 in 2010-011. This indicates that the amount is not collected at a faster pace from the debtors.
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3. Investment Turnover Ratio
Year Investment Turnover Ratio
2006-2007 30.51
2007-2008 33.59
2008-2009 28.21
2009-2010 27.54
2010-2011 29.18
The Investment turnover ratio in 2006-07 was 30.51 which increased to 33.59 in 2007-08 and is constantly decreasing to 29.18 in 2010-11. This indicates that earlier funds were placed properly earlier but the efficiency has reduced from the past years.
4. Total Assets Turnover Ratio
Year Total Assets Turnover Ratio
2006-2007 0.44
2007-2008 0.46
2008-2009 0.45
2009-2010 0.46
2010-2011 0.49
The asset turnover ratio has increased from 0.44 in 2006-07 to 0.49 in 2010-11, which has been apparantly constant indicating constant use of assets to generate sales.
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Leverage Ratios
1. Debt Equity Ratio
Year Debt Equity Ratio
2006-2007 0.52
2007-2008 0.5
2008-2009 0.59
2009-2010 0.59
2010-2011 0.63
The debt equity ratio of 2:1 is considered ideal and lower the ratio safe is the position of the company in terms of long term lenders. The Debt-Equity ratio in 2006-07 is 0.52 and is on increase to a level of 0.63 in 2010-2011.
2. Fixed Asset Turnover Ratio:
Year Fixed Assets turnover ratio
2006-2007 0.64
2007-2008 0.69
2008-2009 0.67
2009-2010 0.69
2010-2011 0.76
41
Higher the fixed asset Turnover Ratio better for the company indicating the better utilization of fixed assets. It was 0.64 in 2006-07 which is on a constant increase since then to a level of 0.76 in 2010-11. This implies that fixed assets are being used effectively.
3. Interest Coverage Ratio
Year Interest Coverage Ratio
2006-2007 9.49
2007-2008 10.28
2008-2009 11.91
2009-2010 12.18
2010-2011 10.65
Interest Coverage ratio of 6-7 is considered most appropriate but interest coverage ratio of NTPC is 9.49 in 2006-07 and is on a constant increase since then to 12.18 in2009-10 but decreased in 2010-11 to 10.65. this implies regular payment of interest to the lenders.
42
Findings: There is a huge crisis over energy in the world especially in the field of electricity. India is also victim of the same condition. In spite of several efforts taken by the governments in this regard, there is enormous possibility exists. NTPC is a key organization in India as far as the supply of power is concerned. After successfully conducting this project work, it can be said that the financial health of NTPC is sound enough and it appears positive in accordance with its balance sheet and profit & loss A/c which are available to me. Some other finding there are: 1. We can easily found that company net profit ratio in 2010-2011 was 15.85 this ratio fallen Compare to previous year means company profit decrease. 2. In Return on equity capital ratio is 13.31 which shows the Company pays dividend regularly. 3. Company earning per ratio increase year by year to 11.04. 4. Company current ratio is very good which shows highly liquidity available. 5. Company stock turnover ratio 29.18 which shows full utilization of stock.
43
Limitations
The Limitations for the research are The data analysed that is the financial statements for the five years is not exhaustive
to determine the future performance on the company.
The data analysed is only quantitative and not qualitative like the human resource available to the company in the form of its management.
The factors analysed are only the internal factors the external factors that is the effect of the changes in the economy are not considerate.
44
Conclusion The electricity supply has been in the public domain in most of the developing countries.
Under public ownership, the sector has not been able to catch up with the growing demand
for electricity. The operational inefficiency and financial losses often lead to poor quality of
supply and underinvestment. A wave of reforms has swept through a number of developing
countries. These reforms were primarily targeted to improve the performance of the state
owned companies and to provide a conducive atmosphere for private investment in the sector.
The erstwhile vertically integrated SEBs in India has been riddled with inefficiencies due to a
lack of accountability and administrative bottlenecks. Reforms in the Indian power sector
were initiated to restructure the SEBs and to set up independent regulatory institutions.
The Electricity Act 2003 led to deepening of the reform process by enabling competition in
the wholesale electricity market and retail electricity supply, in phases. Thirteen SEBs have
so far unbundled into separate generation, transmission and distribution companies.
Beginning with the establishment of an independent regulatory commission in Orissa in
1996, the SERCs have been set up in all states. Some of the smaller states in the North East
have established a Joint Electricity Regulatory Commission. The process of tariff
determination has become more transparent and limited tariff rationalization has been
undertaken against consumer opposition and political meddling.
The emerging competition in the bulk power market and phased direct access to large
consumers is aimed at reducing the risks associated with sales to financially weak state
utilities. The policy and regulatory developments are promising, but more needs to be done to
improve the performance of distribution utilities. Amongst other factors, the autonomy to
manage these utilities in a commercial manner remains a key issue. In the long-run, the
state’s objectives are best served by nurturing a financially sustainable sector that can
improve access for poor and rural consumers. This research undertook a review of the policy
45
and regulatory developments in the Indian power sector. A review of the literature and a
comparative policy analysis helped us to unravel some of the lessons to be learned for the
process of reform in developing countries in general. The initial phase of power sector reform
in India allowed commercially-oriented IPPs to sell power to financially weak SEBs, which
do not rely on sound commercial principles. This marriage of convenience is not sustainable.
The initial phase of reforms in developing countries should be aimed to restructure the sector
and to set up an independent regulator. As private participation grows, it would be suitable to
introduce competition in the sector. This would not only help lower the cost of power
purchase, it would also provide greater incentive for performance improvement. The
experience of private sector investment in Latin American countries relied on the introduction
of commercial interest in the bulk power market by inviting IPPs as well as introducing
commercial principles at the end of buyer utilities through their divestiture.
The experience in East Asia and Latin America suggests that macroeconomic stability
remains a key to attracting sustainable and increased investment in the infrastructure sectors.
India continues to demonstrate macroeconomic stability along with prudent currency
management. Future growth prospects in the power sector hold substantial potential for
private investment. However, the financial performance of the state owned distribution
utilities remains a key concern for investors. A positive outcome of existing distribution
privatization programs would guide such future plans, which remain politically sensitive. The
regulatory challenge is to provide incentives for improvement in technical efficiency and
financial performance. The unavailability of sovereign guarantees can be adequately
addressed if state utilities become viable through greater commercialization, if not
privatization. Inability of the domestic capital market to provide long-term debt for the power
sector needs to be adequately addressed by encouraging contractual saving through life
insurance and pension funds, and channel zing these for the power sector. Securitization of
project loans after the construction period and development of secondary bond market would
help garner funds for investment in the sector. The long-term interest of the consumers can
only be served if reasonably priced electricity is available over the long-run. Political
interests would best be served by depoliticizing tariffs, which would be beneficial to
consumers in the long-term through improved quality and reliability of supply. Given the
objective to electrify all villages by 2010 and to double the generating capacity in the country
46
by 2012, the need to improve the policy environment and strengthen the regulatory
framework cannot be ignored.
APPENDIX
47
48
BALANCE SHEET
Balance Sheet of NTPC
Mar’07 Mar’08 Mar’09 Mar’10 Mar’11
Sources Of Funds
Total Share Capital 8,245.50 8,245.50 8,245.50 8,245.50 8,245.46
Equity Share Capital 8,245.50 8,245.50 8,245.50 8,245.50 8,245.46
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 40,351.30 46,021.90 50,749.40 55,478.60 59,646.79
Revaluation Reserves 0 0 0 0 0
Networth 7,479.60 54,267.40 58,994.90 63,724.10 67,892.25
Secured Loans 17,661.50 7,314.70 8,969.60 9,079.90 9,910.68
Unsecured Loans 25,141.10 19,875.90 25,598.20 28,717.10 33,277.56
Total Debt 25,141.10 27,190.60 34,567.80 37,797.00 43,188.24
Total Liabilities 73,737.90 81,458.00 93,562.70 1,01,521.10 105,080.5
Assets
Gross Block 50,604.20 53,368.00 62,353.00 66,663.80 72,755.25
Less: Accum. Depreciation 25,525.00 27,274.30 29,415.30 32,088.80
33,519.19
Net Block 25,525.00 26,093.70 32,937.70 34,575.00
39,235.96
Capital Work in Progress 16,962.30 22,478.30 26,404.90 32,290.60
38,270.63
Investments 16094.30 15,267.20 13,983.50 14,807.10
12,344.84
Inventories 2,510.20 2,675.70 3,243.40 3,347.70
3,639.12
Sundry Debtors 1252.30 2,982.70 3,584.20 6,651.40
7,924.31
Cash and Bank Balance 13314.60 14933.20 16271.60 14459.50
16,185.26
Loans and Advances 8,781.70 9,936.20 7,826.10 6,357.10
8,107.25
Total Current Assets 25,858.80 30,527.80 30,925.30 30,815.70
35,855.94
Current Liabilities 5,422.20 5,548.40 7,439.20 7,896.80
10,923.43
Provisions 5,280.30 7,360.60 3,249.50 3,070.50
2,752.43
Total Current liabilities 10,702.50 12,909.00 10,688.70 10,967.30
13,675.86
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NET CURRENT ASSETS
15,156.30
17,168.80
20,236.60
19,848.40
22,180.08
Misc Expenses
0
0
0
0
0
TOTAL ASSETS
73,737.90
81,458.00
93,562.70
101,521.10
112,031.51
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Profit And Loss A/C of NTPC Ltd.
Mar’07 Mar’08 Mar’09 Mar’10 Mar’11
INCOME:
Sales Turnover 32,817.30 37,302.40 42,196.80 46,623.60 55152.01
Excise Duty 185.60 211.40 221.60 245.90 278.01
NET SALES 32,631.70 37,091.00 41,975.20 46,377.30 54,874.00
Other Income 0 0 0 0 0
TOTAL INCOME 35,932.60 40,048.60 45,282.20 49,237.30 57407.30
EXPENDITURE:
Manuf. Expenses 20,790.50 23,080.70 28,232.30 30,785.70 35,373.78
Mat. Consumed 23.70 26.80 31.00 31.10 0.00
Personal Expens. 1,362.60 2,229.30 2,897.60 2,946.80 2,789.71
Selling Expenses 57.70 45.00 57.50 65.10 0.00
Admin Expenses 656.00 726.80 851.10 977.60 4,198.16
Expenses Cap. -418.40 -544.70 -637.40 -866.90 0.00
Provisions Made 0.00 0.00 0.00 0.00 0.00
TOTAL EXP. 22,472.10 25,563.90 31,432.10 33,939.40 42,361.65
Operating profit 10,159.60 11,527.10 10,543.10 12,438.30 12,512.35
EBITDA 12,920.50 14,484.70 13,850.10 15,297.90 15,045.65
Depreciation 2,075.40 2,138.50 2,364.50 2,650.10 2,485.69
Other Write Off’s 9.90 3.10 3.60 4.30 0.00
EBIT 10,835.20 12,343.10 11,482.00 12,643.50 12,559.96
Interest 2,055.70 1,982.20 1,737.00 1,861.90 2,149.08
EBT 8,779.50 10,360.90 9,745.00 10,781.60 10,410.88
Taxes 2,163.70 2,994.20 2,554.70 2,682.70 2,630.54
P&L for Year 6,615.80 7,366.70 7,190.30 8,098.90 7,780.34
Non Recurring Items 114.70 162.10 -294.20 13.20 250.00
Other Non Cash Adjustments 134.20 -114.00 1305.20 616.10 1322.25
Other Adjustments 0.00 0.00 0.00 0.00 -250.00
Reported PAT 6,864.70 7,414.80 8,201.30 8,728.20 9,102.59
51
Key Items
Preference
Dividend
0.00 0.00 0.00 0.00 0.00
Equity Dividend 2,638.50 2,885.90 2,968.30 3,133.20 3,133.26
Equity div % 31.99 34.99 35.99 37.99 37.99
Shares in Issue
(Lakhs)
82,454.64 82,454.64 82,454.64 82,454.64 82,454.64
EPS - Annualised
(Rs)
8.33 8.99 9.95 10.59 11.04
52
CASH FLOW STATEMENT
Cash Flow of NTPC ------------------- in Rs. Cr. -------------------
Mar’07 Mar’08 Mar’09 Mar’10 Mar’11
Net Profit Before Tax 8,896.50 1,0529.40 9,467.80 1,080.60 1,0410.88
Net Cash Flow From Operating Activities 8,065.30 1,0171.10 9,688.10 10,594.20 11,095.20
Net Cash (used in)/from Investing Activities -3,145.80 -6,203.80 -7,500.40 -10,497.70 -7,658.85
Net Cash (used in)/from Financing Activities -76.30 -2,348.70 -849.30 -1,908.60 -1,710.57
Net (decrease)/increase In Cash and Cash Equivalent 4,843.32 1,618.60 1,338.40 -1,812.10 1,725.78
Opening Cash & Cash Equivalents 8,471.80 13,314.60 14,933.20 16,271.60 14,459.48
Closing Cash & Cash Equivalents 13,314.60 14,933.20 16,271.60 14,459.50 16,185.26