ntpc sip ppt (1)

8/3/2019 NTPC Sip Ppt (1)

1/18

Click to edit Master subtitle style

5/5/12

A STUDY ON EARNINGQUALITY OF

NATIONAL THERMAL POWERCORPORATION (NTPC)

Presented By:Amulya Raj2010002

PGDM 2nd Year


2/18

5/5/12

About Topic

Earnings quality, in accounting,refers to the overall reasonablenessof reported earnings. It is an

assessment criterion for how"repeatable, controllable andbankable" a firm's earnings are,

amongst other factors.

The focus is on measuring earnings

quality by comparing the differences
http://en.wikipedia.org/wiki/Accountancyhttp://en.wikipedia.org/wiki/Earningshttp://en.wikipedia.org/wiki/Earningshttp://en.wikipedia.org/wiki/Earningshttp://en.wikipedia.org/wiki/Earningshttp://en.wikipedia.org/wiki/Accountancy


3/18

5/5/12

Cash Basis April May June

IncomeStatement

Revenue 0 120 0

Expense 0 0 (50)

Net income

(loss)

120 (50)

Balance Sheet

Assets 150 270 220

Equity 150 270 220

By Cash basis ofaccoun

ting

Here in this case the company provide service to theircustomer in april but earn the amount in May. However, in

july, company loss of Rs 50. Under cash basis, we must waituntil the end of july for getting the clear picture.


4/18

5/5/12

Accrual Basis April May June

Income

StatementRevenue 120 0 0

Expense (50) 0 0

Net Income 70 0 0

Balance Sheet

Cash 150 270 220

Receivables 120 0 0

Total assets 270 270 220

Lease Liability 50 50 0

Equity 220 220 220

L & E 270 270 220

By Accrual Basis of accounting

By accrual basis accounting all o

f revenue and expenses arerecognized in april because that is when the main businessactivities were completed.In this case, we can use the receivables and payables toforecast future cash flow.


5/18

5/5/12

Objective of Study

To study the earning quality of NTPC.

To analyze the earning quality andthe measures of earnings quality.

To study the earning qualitycompassion and contrast of peercompanies.


6/18

5/5/12

Measuring Earning Quality

There are two approaches formeasuring earning quality:

Balance Sheet approach

Cash Flow approach

The interpretation of both

approach is the lower the ratio,


7/18

5/5/12

Balance Sheet approach

accrualsBS = NOAEND NOABEG

Net operating assets (NOA)= Operatingassets- Operating Liabilities

Operating assets= total assets- cash

Operating Liabilities= total liabilities- total


8/18

5/5/12

Cash Flow approach

AccrualsCF= NI- CFO- CFI

Accrual ratioCF= (NI- CFO- CFI)

(NOAEND + NOABEG)/2


9/18

5/5/12

NTPC Earning Quality

2010 2009 2008 2007 2006

Total Assets 1128536 1052248 893880 807643 717371

Cash 144595 162716 149332 133146 84714

OperatingAssets 983941 889532 744548 674497 632657Total Liabilities 485551 452564 351205 315107 263375

Debt 377970 345678 271906 244844 201973

OperatingLiabilities 107581 106886 79299 70263 61402

NOA 876360 782646 665249 604234 571255

Accruals 93714 117397 61015 32979

Accruals Ratio 11.30% 16.22% 9.61% 5.61%

Balance Sheet approch

* all values are in million

NTPC Earning Quality as perBalance Sheet approach


10/18

5/5/12

2010 2009 2008 2007 2006

NI 87282 82013 74148 68647 58202CFO 105942 96881 101711 80653 62064

CFI -104977 -75004 -62038 -31458 -27136

Accruals 86317 60136 34475 19452 23274

Accruals Ratio 10.41% 8.31% 5.43% 3.31%

Cash Flow approch

* all values are in mi

NTPC Earning Quality as per

Cash Flow approach


11/18

5/5/12

na ys s o earn ng qua yof NTPC with peer company

Tata Power As per Balance Sheer Approach

0

2

4

6

8

10

12

Chart Title


12/18

5/5/12

na ys s o earn ng qua yof NTPC with peer company

Tata Power As per cash flow approach

0

2

4

6

8

10

12

Comprative Chart


13/18

5/5/12

OF NTPC WITH ACCRUAL

RATIO As per Gross Profit ratio

0

2

4

6

8

10

12


14/18

5/5/12

OF NTPC WITH ACCRUAL

RATIO As per Net Profit Ratio

0

2

4

6

8

10

12


15/18

5/5/12

Recommendation

With the cash basis of accounting,revenues are recognized when cashis collected, and expenses are

recognized when cash is paid.

With the accrual basis of accounting,revenues are recognized whenearned, and expenses are recognizedwhen incurred, regarding of timing of

cash flow. Accrual accounting


16/18

5/5/12

Cont

Lower persistency is not always theresult of strategic manipulation.Estimation errors can also be

unintentional. However, if theinvestor fails to assign a lowerweighting to the accrual component

of the earnings, securities becomemispriced.

Earning at extreme levels tend to


17/18

5/5/12

Conclusion

Accrual accounting shows theearning quality of the company andgive sufficient time forusing the

receivables and payables to forecastfuture cash flow.


18/18

5/5/12

ntpc sip ppt (1)

Documents