understanding financial statements of power grid dr manoj anand, mdi
TRANSCRIPT
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Understanding Financial Statements of Power Grid
Dr Manoj Anand, MDI
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Risk & Return Tradeoff
Investment Decisions
Capital Structure Decisions
Dividend Decisions
Management of Working Capital
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Financial Statements Objectives
Useful to present and potential investors & creditors
• in making rational investment & credit decisions
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Financial Statements Objectives
Comprehensible to those
• who have a reasonable understanding of business & economic activities &
• are willing to study the information with reasonable diligence
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Financial Statements Objectives
About the
• economic resources of an enterprise,
• the claim to those resources, &
• effects of transactions & events that change resources & claim to those resources
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Financial Statements Objectives
About an enterprise’s financial performance during a period
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Balance Sheet Concepts
Money Measurement Concept
The Entity Concept
The Going Concern Concept
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Balance Sheet Concepts
The Cost Concept
• Tangible Fixed Assets
• Intangible Assets
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Balance Sheet Concepts
Rationale for Cost Concept
• Relevance
• Objectivity
• Feasibility
Dual Concept
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Application of Funds
Fixed Assets
Investments
Current Assets, Loans & Advances
• Less: Current Liabilities & Provisions
Miscellaneous Expenditure
• (To the extent not written off)
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Sources of Funds
Shareholders Funds
Loan Funds
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Margins
Returns
Growth
Budget TargetsDividends
Earnings
Cash Flows
?
Compensation
Capital
Budgeting
Setting Goals
Strategic Planning
Measuring Performance
Corporate Tower of Babel
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VALUE DRIVER ANALYSIS
AN EXAMPLE
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VALUE DRIVERS
THREE LEVELSTHREE LEVELS
GENERIC
BUSINESS UNIT SPECIFIC
OPERATING
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GENERIC VALUE DRIVERS
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ROCEPOST TAX
1 -TAX RATE
ROCEPRE TAX
CAPITALTURNOVER
OPERATINGMARGIN
FIXEDASSETS
SALES
DEPRECIATION
SELLING & ADMNEXPENSES
COST OFGOODS SOLD
WORKINGCAPITAL
ROCE TREE
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ROCEPOST TAX
9.23% (7.87%)
1 -TAX RATE91.41% (88.28%)
ROCEPRE TAX
10.10% (8.92%)
CAPITALTURNOVER0.20 (0.18)
OPERATINGMARGIN
49.56% (48.31%)
FIXEDASSETS
0.26 (0.23)
SALES100%
GENERAL EXPENSES3.47% (3.89%)
PERSONNELEXPENSES
11.28% (9.28%)
ELECTRIC POWER6.68% (8.98%)
WORKINGCAPITAL
2.18 (2.24 )
Power Grid
2001
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Power Grid's ROE
9.99%
10.89%
9.50%
10.00%
10.50%
11.00%
1 2
Year
RO
E (%
)
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OPERATING VALUE DRIVERS
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ASSYSHOP
EXPENSES200
SHOPEXPENSES
183
ALLOCATEDOVERHEAD
17
LABOUR120
OVERHEAD63
CANTEEN12
TRANSPORT5
NO. OF WORKMEN 66
COST PER WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
VALUE DRIVER TREE
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NO. OF WORKMEN 66
COST/ WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos
PROD-MIX
LAB.UTL 0.58
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 24
OTH 19
P.I. 0.70
C.F 0.96
ABSENT 0.86
NO.OF SUP 7
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL 11
Rs. Lakhs
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NO. OF WORKMEN 58 ( 66 )
COST/ WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.66 ( 0.58 )
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 24
OTH 19
P.I. 0.80 ( 0.70 )
C.F 0.96
ABSENT 0.86
NO.OF SUP 7
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL 11
Rs.lakhs
IF PI ISRAISEDTO 0.80
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ASSYSHOP
EXPENSES183 (200 )
SHOPEXPENSES168 ( 183 )
ALLOCATEDOVERHEAD
15 (17)
LABOUR105 ( 120 )
OVERHEAD63
CANTEEN11 (12)
TRANSPORT4 (5)
NO. OF WORKMEN58 ( 66 )
COST PER WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
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NO. OF WORKMEN 66
COST/ WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.58
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 21 (24)
OTH 19
P.I. 0.70
C.F 0.96
ABSENT 0.86
NO.OF SUP 6 (7)
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL(SOC)
12 (11)
Rs.lakhs
IF SOC ISRAISEDTO 12
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ASSYSHOP
EXPENSES197 (200)
SHOPEXPENSES180 (183)
ALLOCATEDOVERHEAD
17
LABOUR120
OVERHEAD60 (63)
CANTEEN12
TRANSPORT5
NO. OF WORKMEN 66
COST PER WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
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NO. OF WORKMEN 58 (66)
COST/ WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.66 (0.58)
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 21 (24)
OTH 19
P.I. 0.80 (0.70)
C.F 0.96
ABSENT 0.86
NO.OF SUP 6 (7)
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OF CONTROL (SOC)
12 (11)
Rs.lakhs
COMBINEDEFFECT OF
PI & SOC
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ASSYSHOP
EXPENSES180 (200)
SHOPEXPENSES165 (183)
ALLOCATEDOVERHEAD
15 (17)
LABOUR105 (120)
OVERHEAD60 (63)
CANTEEN11 (12)
TRANSPORT4 (5)
NO. OF WORKMEN 58 (66)
COST PER WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
10 % Reductionin Expenses
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NO. OF WORKMEN 59 ( 66 )
COST/ WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.58
STD.TIME0.27 (0.3) HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 24
OTH 19
P.I. 0.70
C.F 0.96
ABSENT 0.86
NO.OF SUP 7
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL 11
Rs.lakhs
IF STD TIME IS REDUCEDTO 0.27 HRS
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ASSYSHOP
EXPENSES185 (200 )
SHOPEXPENSES170 ( 183 )
ALLOCATEDOVERHEAD
15 (17)
LABOUR107 ( 120 )
OVERHEAD63
CANTEEN11 (12)
TRANSPORT4 (5)
NO. OF WORKMEN59 ( 66 )
COST PER WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
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FOUR KEY STRATEGIES TO INCREASE VALUE
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EVA = {NOPAT/CAPITAL -COST OF CAPITAL} x CAPITAL
Operate: Improve the return earned on existing capital
Build: Invest as long as returns exceed the cost of capital
Harvest: Divest capital when returns fails to achieve cost of capital
Optimize: Reduce cost of capital by optimizing capital structure
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Strategic
Financial
Corporate Governance
VALUE
VALUE BASED MANAGEMENT FRAMEWORK
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DETERMINANTS OF VALUE
Return
Growth
Capital
Risk
Cash Flow
Cost of Capital
Company Value
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ShareholderValue Culture
Better Decisions
Better Morale Better Results
Better Pay
Virtuous Circle for Competitive Advantage
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VBM
Compensation
Capital
Allocation
Setting Goals
Strategic Planning
Measuring Performance
Uniform Standards, Goals & Terminology