Final

Project Report

(Submitted for the Degree of B.Com Honors in Accounting & Finance

under the University of Calcutta)

Title of the Project

Financial Statement Analysis of National Thermal Power Corporation (NTPC) Ltd & Calcutta Electric

Supply Corporation (CESC) Ltd

Submitted By

Name of the candidate: - ARIJIT CHAUDHURI

Registration No.: - 043-1121-0533-12

Roll No.: - 23

Name of the College: - HERAMBA CHANDRA COLLEGE

Supervised By

Name of the Supervisor: - Sharmistha Dasgupta

Name of the college: - HERAMBA CHANDRA COLLEGE

Month & Year of Submission

14th March, 2015

AKNOWLEDGEMENT

Successful completion of any work would be incomplete unless we

mention the name of the person, who made it possible. I am deeply

indebted to Prof. Sharmistha Dasgupta for giving me the opportunity to

undertake the project and for her valuable suggestions & guidance.

INDEX

INTRODUCTION

BACKGROUND

Financial statements are statements which contain summarized information of a

firms financial affairs organized systematically. They are intended to reveal the

financial position of an enterprise & on the basis of such information the users

predict the firms earning capacity & make economic decisions. By financial

statements, we mean two statements (1) profit & loss a/c and (2) balance sheet.

These are prepared at the end of given period of time. They are indicators of

profitability & financial soundness of the business concern. Analysis means

establishing a meaningful relationship between various items of two financial

statements with each other in such a way that conclusions can be drawn.

Therefore, financial statement analysis refers to the analysis of financial

statements along with various non-financial factors affecting the firm with the

help of various statistical tools & techniques to fulfill the interest of various

interested parties.

FSA can be done by using various techniques such as ratio analysis, fund flow,

cash flow, trend analysis, comparative statement analysis, common statement

analysis, etc.

(1)

LITERATURE REVIEW

According to Wild, Subramanyam & Halsey (2007), financial statements are the

major source of information used by its users to have an understanding about a

company. There are five components of financial statements that are available to

the users, which are balance sheet, income statement, owners equity statement,

cash flow statement and notes to financial statements. The preparation of

financial statements is required to provide information to its users regarding the

financial condition, performance and future prospects of a company.

FASB (2006) identifies that the objectives of financial reporting are to provide

useful information for investing and financing decisions, for assessing future cash

flows, and report information regarding the companys resources, claims on the

resources and the changes in resources and claims. In order to provide useful

information, FASB (2006) requires accounting information to possess qualitative

characteristics which are relevance, reliability, comparability and consistency.

Accounting information is relevant when it is able to influence the decisions of its

users, it is reliable if it is free from material error and bias, and it should be

comparable with other entity or comparable with accounting information over

time within the entity itself and consistent if financial statements are prepared

using the same accounting principles over time.

(2)

OBJECTIVES

The objectives of the project Financial Statement Analysis have been

identified as follows:-

Detailed analysis of the financial statement analysis i.e. balance

sheets and the income statements of National Thermal Power

Corporation of India Limited (NTPC) & Calcutta Electric Supply

Corporation Limited (CESC) for the past five years.

Understanding and assessment of financial ratios based on the

statements of the two companies as well as a common size

balance sheet analysis of both the companies.

To find out the financial position of the companies through those

ratios and the common size analysis.

(3)

METHODOLOGY

The study is based on the data collected of National Thermal Power Corporation

of India Limited (NTPC) & Calcutta Electric Supply Corporation (CESC) from the

internet which was the main source of information due to time and cost

constraint. The two companies have been studied thoroughly on the basis of ratio

analysis & common size analysis of the accounting information of the two

companies for the past five years. The variations in the ratio for the last five years

have been shown with the help of a chart as well as with the help of a bar graph.

The common size balance sheet analysis have been prepared for the last two

years. The whole survey had been done with the help of annual reports of the

respective companies for the past five years as well as by consulting various

books.

(4)

LIMITATIONS OF THE PROJECT

The study is based on secondary data due to time and cost constraint. So

the problems relating to such secondary data may crop up.

The lack of primary data could not make the whole survey a fruitful one

because of lack of time. The project would have been complete in all sectors

had there been any primary inputs.

The project had also been done within a short period of time as more time

was required to conduct the survey.

Ratios are based only on the information which has been recorded in the

financial statements. Financial statements themselves are subject to several

limitations. Thus ratios derived, there from, are also subject to those

limitations.

(5)

CHAPTER PLANNING

The project financial statement analysis is composed of different chapters which

are classified as follows:-

Introduction

Conceptual Framework consisting of Definitions, Advantages &

Disadvantages

Presentation of Data, Analysis & Findings

Conclusion

Bibliography

Annexures

(6)

CONCEPTUAL FRAMEWORK

ABSTRACT

Financial statements are the formal records of the financial activities of

a company, partnership, or other entity and provide an overview of the

financial condition of the business of the entity in both short term and

long term. They give an accurate picture of a business entity and its

operating results in a condensed form. Financial statements are used as

a management tool primarily by company executives and investors in

assessing the overall position and operating results of the company.

Analysis and interpretation of financial statements help in determining

the liquidity position, long term solvency, financial viability and

profitability of a firm. Ratio analysis shows whether the company is

improving or deteriorating in past years. Common size analysis helps to

find out the trend of profitability of business over the years and in

comparing the financial results of one accounting year with another. It

helps the clients to find out in which line of business the firms risk is

less or in which line they should invest so that maximum benefit can be

earned.

(7)

Introduction to financial statement

Financial statements are the records of any entity, whether it is profit

making or not, which outline the financial status or present the

financial information of the entity in question as perfectly and concisely

as possible for both the entity and for the readers. Financial statements

for business usually include income statements, balance sheet,

statements of retained earnings and cash flows, as well as other

possible statements.

It is a standard practice for business to present financial statements

that adhere to Generally Accepted Accounting Principles (GAAP), to

maintain consistency of information and presentation across the globe.

Also, financial statements are often audited by government agencies,

accountants, firms, etc. to ensure accuracy and for tax, financing or

investing purposes. Financial statements are integral to ensuring

accurate and honest accounting for businesses and non-trading

organizations alike.

Financial statements are a collection of reports of an organizations

financial results and conditions. They are useful for the following

reasons:-

To determine the ability of a business to generate cash, and the

sources and uses of that cash. (8)

To determine whether a business has the capability to pay back its

debts.

To track financial results on a trend line to spot any looming

profitability issues.

Balance Sheet Shows the entitys assets, liabilities and

stockholders equity as of the report date.

Income statement Shows the results of the entitys operations

and financial activities for the reporting period.

Statement of cash flows Shows changes in the entitys cash

flows during the reporting period.

Supplementary Notes Includes explanations of various activities,

additional detail on some accounts, and other items as mandated

by GAAP or IFRS.

If a business plans to issue financial statements to outsiders, such as

investors or lenders, the financial statements should be formatted in

accordance with one of the major accounting frameworks, such as

GAAP or IFRS. These frameworks allow for some leeway in how

financial statements can be structured, so statements issued by

different firms even in the same industry are likely to have

somewhat different appearances.

If financial statements are issued strictly for internal use, there are no

guidelines, other than common usage, for how the statements are to

be presented.

(9)

ANALYSIS OF FINANCIAL STATEMENTS

Financial Statement conveys different pieces of information to different but

specific users who need this information for decision making. The users

analysis & interpret the statement in their own prospective and according to

their needs. In accounting process interpretation of the reported date is the

ultimate step. The data conveyed through financial statements need proper

analysis and interpretation for being usable for decision making. So financial

statement analysis implies interpretation of the financial statements for

facilitating the drawing of valid conclusions from the reported facts and

figures. It helps to understand the past performances of a firm based on the

particular prediction to be made and the overall risk involved for the firm. A

financial statement analyst applies different tools of analysis to gauge the

financial strength or weakness of a firm.

At present, Financial Statement Analysis does not remain confined within

the periphery of financial statements only. It also examines and covers the

internal environment in which the firm operates and also the external

environment in which the firm operates as well as the external environment

surrounding the firm. The financial statements invariably fail to project all

details needed for proper decision making. So the users of information have

to look beyond the financial statements also. The efficiency level of the

management, the nature of the product and its diversification, employees

moral, etc. can never be reported by financial statements.

(10)

OBJECTIVES OF FINANCIAL STATEMENT ANALYSIS

Whatever precision or efficiency is applied in preparing the

financial statements of a firm, they fail to convey requisite

information to the different users unless they are properly

analyzed and followed by adequate interpretations. The reasons

for which financial statement is needed or the objectives of such

analysis may be described as follows:-

Evaluation of the financial strength or weakness of a firm.

Evaluation of its solvency.

Ascertainment of its capacity to pay long-term debts.

Assessment of the liquidity position and ability to meet

short-term debts.

Finding out the financial risk as well as business risk

associated with the firm.

Ascertainment of the current earning capacity of a firm and

arrangement of predictions about its future earning

capacity.

Making comparative analysis of the firms financial

performance with that of similar firms.

Finding out the inter-relation among related matters.

Serving as the means or instrument for realizing the ultimate

requisite of a user.

Assessment of the ability of a firm to generate cash or cash

equivalent.

(11)

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

Accounting Concepts & Conventions: - Very often the existing

accounting concepts & conventions act as deterrent in preparation of

realistic financial statements which may lead to unreasonable

suppression of various material factors & accounting information

thereby preventing effective analysis of financial statements.

Price level changes: - The effectiveness of various tools of FSA

depends upon stable price level over a period of time. Unstable price

level renders them ineffective.

Influence of personal judgment: - The accounting treatment of various

items such as method of depreciation, valuation of stock etc. depends

on personal judgment. So reliability of FSA largely depends on the

soundness of personal judgment of the accountants.

Incomparability: - Since different firms adopt different accounting

policies, proper comparison cannot be made between the financial

performances of the two firms.

Dependence on financial data only: - FSA considers only financial data

to ascertain the soundness of a firm. Therefore, data such as loyalty of

work force, emergence of a competitor & other non financial aspects

remain out of the purview of FSA.

(12)

RATIO ANALYSIS

Financial ratio analysis is a useful technique to measure, compare, and

evaluate the financial condition and performance of a business. Ratio

analysis enables a credit manager to spot trends in a business financial

performance, and to compare its performance and financial condition

with the average performance of similar businesses in the same

industry. Balance sheet ratios measure liquidity and solvency (a

business ability to pay its bills as they come due) and leverage (the

extent to which the business is dependent on creditors).

Financial ratio analysis is a useful tool for determining a business

overall financial condition. Industry-wide financial ratios are published

by a variety of sources, including Dun & Bradstreet. Financial ratios are

useful for making quick comparisons. Banks and trade creditors use

financial ratio analysis to help them decide whether a business is a

good credit risk or not.

Ratio analysis is a tool to help evaluate the overall financial condition of

a customers business. Ratios are useful for making comparisons among

businesses in an industry. A financial ratio is a simple mathematical

comparison of two or more entries from a companys financial

statements. Creditors use ratios to chart a companys progress, uncover

trends and find out potential problem areas.

(13)

IMPORTANCE OF RATIO ANALYSIS

Accounting ratios are very useful in assessing the financial position and

profitability of a business enterprise. This can be achieved through

comparison by ratios in the following ways:-

For same enterprise over a number of years (horizontal analysis)

For one enterprise against another in the same industry (third

dimension analysis)

For one enterprise against the industry as a whole

For one standard against the pre-determined standards

For inter departmental comparisons within an organization

OBJECTIVES OF RATIO ANALYSIS

Ratios are worked out to analyze the following aspects of an enterprise:-

(A) SOLVENCY :-

1. Long Term

2. Short Term

3. Immediate

(B) PROFITABILITY

(C) OPERATIONAL EFFICIENCY

(14)

PROFILE OF THE COMPANIES

NATIONAL THERMAL POWER CORPORATION LIMITED

NTPC Limited (formerly known as National Thermal Power Corporation Limited) is an Indian Central

Public Sector Undertaking (CPSU) under the Ministry of Power, Government of India, engaged in the

business of generation of electricity and allied activities. It is a company incorporated under the

Companies Act 1956 and a "Government Company" within the meaning of the act. The headquarters of

the company is situated at New Delhi. NTPC's core business is generation and sale of electricity to state-

owned power distribution companies and State Electricity Boards in India. The company also undertakes

consultancy and turnkey project contracts that involve engineering, project management, construction

management and operation and management of power plants. The company has also ventured into oil

and gas exploration and coal mining activities. It is the largest power company in India with an electric

power generating capacity of 42,964 MW. Although the company has approx. 18% of the total national

capacity it contributes to over 27% of total power generation due to its focus on operating its power

plants at higher efficiency levels (approx. 83% against the national PLF rate of 78%).

It was founded by Government of India in 1975, which held 75% of its equity shares on 31 March 2013

(after divestment of its stake in 2004, 2010 and 2013).

In May 2010, NTPC was conferred Maharatna status by the Union Government of India. It is listed in

Forbes Global 2000 for 2014 at 424th rank in the world.

The company was founded in November 1975 as "National Thermal Power Corporation Private Limited".

It started work on its first thermal power project in 1976 at Singrauli in Uttar Pradesh. In the same year,

its name was changed to "National Thermal Power Corporation Limited". In 1983, NTPC began

commercial operations (of selling power) and earned profits of INR 4.5 crores in FY 1982-83. By the end

of 1985, it had achieved power generation capacity of 2000 MW. In October 2005, the company's name

was changed from "National Thermal Power Corporation Limited" to "NTPC Limited".

The National Thermal Power Corporation Ltd is on an expansion spree to meet the power requirements

of the country it has targeted to add 14058 MW in 12th Plan (From FY13 to FY 17) of which it had

already added 4170 MW in the year 2012-13 and 1780 MW from April to 26 March 2014. Dr. Arup Roy

Choudhury, Chairman and managing director, NTPC, said that capacity addition through greenfield

projects, expansion of existing stations, joint ventures and takeover of SEB stations were on the cards.

NTPC also plans to go global. The public sector company has signed a memorandum of agreement with

the Government of Sri Lanka and Ceylon Electricity Board for setting up a 500-mW (2x250 mW) coal-

based thermal power plant in the island nation. An MoU has also been signed with Kyushu Electric Power

Co. Inc., Japan, for establishing an alliance for exchange of information and experts from different areas

of the business.

(15)

CALCUTTA ELECTRIC SUPPLY CORPORATION LTD

The Calcutta Electric Supply Corporation or CESC is the flagship company of the RP-Sanjiv Goenka

Group. It is an Indian electricity generation and the sole distribution company serving 567 square

kilometres (219 sq mi) of area administered by the Kolkata municipal corporation, in the city of Kolkata,

as well as parts of Howrah, Hooghly, 24 Parganas (North) and 24 Parganas (South) districts in the state

of West Bengal. It serves 2.8 million consumers which includes domestic, industrial and commercial

users.

On 7 January 1897 Kilburn & Co. secured the Calcutta electric lighting license as agents of The Indian

Electric Company Limited. The company soon changed its name to the Calcutta Electric Supply

Corporation Limited and in 1897, The Calcutta Electric Supply Corporation Limited was registered in

London. In 1970, the control of the Company was transferred from London to Calcutta. In 1978 it was

christened as - The Calcutta Electric Supply Corporation (India) Ltd. The RPG Group was associated with

The Calcutta Electric Supply Corporation (India) Limited from 1989, and the name was changed from The

Calcutta Electric Supply Corporation (India) Limited to CESC Limited. In 2011, CESC became a part of the

RP-Sanjiv Goenka Group, which was formed on 13 July 2011 by Sanjiv Goenka, the youngest son of Dr RP

Goenka, the late founder of RPG Enterprises.

CESC owns and operates 4 thermal power plants generating a total of 1,225 MW of power. It also

operates two 20 MW gas turbine units as a Peak Load Power Plant to compensate the need for

additional power demand during the peak hours. The company has also established its footprint in

unconventional energy with a 9 MW solar project in Gujarat and a 50 MW wind project in Rajasthan. It is

also developing three hydro power projects, with a combined capacity of 236 MW, in Arunachal Pradesh.

In addition, the RP-Sanjiv Goenka Group has four captive power plants, with a combined capacity of 76

MW, which are fuelled by the process waste gas produced at its four carbon black manufacturing units in

India. CESC also has its own Transmission & Distribution system through which it supply electricity to its

consumers. This system comprises a 474-kilometre (295 mi) circuit of transmission lines linking the

company's generating and receiving stations with 85 distribution stations; a 3,837-kilometre (2,384 mi)

circuit of HT lines further linking distribution stations with LT substations, large industrial consumers and

a 9,867-kilometre (6,131 mi) circuit of LT lines connecting its LT substations to LT consumers.

Although CESC Limited performance is far better than any other electric supply company in India for their

uninterrupted power supply, but CESC is often criticized for its regular revision of their electricity bills as a

result of this the peoples of Kolkata pays the costliest pay per unit for electric power all over India, also

people had protested several times for these nuisance of Calcutta Electric Supply.

(16)

PRESENTATION OF DATA

OPER ATING PROFIT RATIO

It refers to the ratio between operating profit and sales. It indicates the operating

profitability of business. Higher this ratio better is the picture of operating

profitability and vice versa. This ratio helps management to find out the cost of

capital. If the operating ratio is high, it indicates that the business has higher

ability to utilize debt capital for project financing. As a result Profit after Tax (PAT)

as well as Earning per Share (EPS) will increase, and the company will experience

Trading on Equity. Operating profit ratio is calculated as follows:-

Operating Profit Ratio= Operating Profit/Sale*100

E.g. Operating profit ratio of NTPC for 2013-14 = 13,904.65/72018.93*100 =

19.31%

(Rs in crores)

NTPC CESC

2009-10 19.87 28.26

2010-11 17.69 24.14

2011-12 16.88 24.72

2012-13 19.9 24.91

2013-14 19.31 25.99

(17)

COMMENTS

From the above it can be seen that the operating profit ratio of CESC is

higher than NTPC. In other words CESC has greater operating efficiency

compared to NTPC. The operating profit ratios of both the companies

remain almost same for the past five years. It hovers around 16-19% for

NTPC and 25-28% for CESC.

(18)

NET PROFIT RATIO

0

5

10

15

20

25

30

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

It is the ratio between profit and sale. In other words net profit is the difference

between cost of sale and sale provided there is no operating income and non-

operating expense. This ratio shows the ultimate profitability trend of business.

Higher this ratio better is the trend of absolute profitability and vice-versa. The

difference between gross profit ratio and net profit ratio helps to find out the

indirect expense ratio of business. Comparison of net profit ratios of a number of

years, say 3-5 year, helps management to find out the trend of indirect expenses

of business. On the basis of this management will decide to introduce appropriate

cost control techniques after analysis of indirect expenses. It is calculated as

follows:-

Net Profit Ratio= Net Profit/Sales*100

E.g. Net profit ratio of NTPC for 2013-14 = 10974.74/72018.93*100 = 15.24%

(Rs in crores)

NTPC CESC

2009-10 17.72 12.7

2010-11 15.85 11.93

2011-12 14.22 11.59

2012-13 18.34 11.43

2013-14 14.69 11.62

(19)

COMMENTS

From the above it can be seen that the net profit ratio of NTPC is

comparatively higher than CESC. The net profit ratio of NTPC is very

much fluctuating as derived from the data for the past five years

whereas the net profit ratio of CESC is comparatively stable changing

between 11-12%.

(20)

0

2

4

6

8

10

12

14

16

18

20

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

GROSS PROFIT RATIO

Gross profit ratio is the ratio between gross profit and sale of a firm.

Gross profit refers to the difference between sales and cost of goods

sold. This ratio determines the profitability trend of business but does

not show the absolute profitability which is shown by the net profit

ratio. Higher the G.P. ratio better is the sign of profitability and vice

versa. This ratio determines the cost of goods sold to sale ratio.

Comparison of G.P. ratios of a number of years, say 3-4 years, helps

management to find out the direct cost line. This ratio is calculated as

follows:-

Gross Profit Ratio= Gross Profit/Sales*100

E.g. Gross profit ratio of NTPC for 2013-14= 13633.18/72018.93*100= 18.93%

(Rs in crores)

NTPC CESC

2009-10 21.1 22.09

2010-11 18.49 17.42

2011-12 17.63 18.54

2012-13 20.84 19.15

2013-14 18.93 19.85

(21)

COMMENTS

From the above it can be seen that the gross profit ratio is stable for

both the companies for the past five years. The ratio is almost similar

for both the companies over the five years

(22)

0

5

10

15

20

25

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

OPERATING RATIO

Operating ratio is the ratio between operating cost and sale of a business.

Operating cost is the sum of cost of goods sold, administration expenses and

selling and distribution expenses. This ratio shows the proportion of

operating cost or total operating expenses (direct as well as indirect) in

respect of sale. Lower this ratio better is the picture of operating profitability

of business and vice-versa. Low operating ratio enables management to

utilize more debt capital for project financing because interest on debt

capital can be met out of the higher operating profit. As a result the

company will enjoy the benefits of trading on equity in form of higher EPS

(earning per share).It is calculated as follows:-

Operating Ratio= Operating Cost/Sales*100

E.g. Operating Ratio of NTPC for 2013-14= 58114.28/72018.93*100= 80.69

(Rs in crores)

NTPC CESC

2009-10 80.13 71.74

2010-11 82.31 75.86

2011-12 83.12 75.28

2012-13 80.1 75.09

2013-14 80.69 74.01

(23)

COMMENTS

From the above it can be seen that the operating ratio of NTPC is

comparatively higher than that of CESC. In other words, NTPC has to

incur more operating expenses than CESC. It is more than 80% for NTPC

and more than 70% but less than 80% for CESC. As a result, the capacity

of NTPC to utilize debt capital reduces and the company misses out on

the benefits of trading on equity in the form of higher earning per share.

(24)

66

68

70

72

74

76

78

80

82

84

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

CURRENT RATIO

It is the ratio between current assets and current liabilities. This ratio determines

the short-term liquidity position or short term liquidity position of business. The

term liquidity or solvency refers to the ability of business to meet its liabilities

by its assets. Higher the current ratio better is the picture of short term solvency

of business and vice-versa. Although high current indicates favorable short-term

liquidity position, very high current ratio is also not desirable because very high

current ratio means that optimum return on investment is yet to be achieved.

Although current ratio determines short-term liquidity position of business, it is

sometimes said that current ratio does not show this position properly. For

correct determination of short-term liquidity position, current ratio should be

read and studied with quick ratio. This ratio is calculated as follows:-

Current Ratio= Current Assets/Current Liabilities

E.g. Current ratio of NTPC for 2013-14= 2734.70/2648.79= 1.57

(Rs in crores)

NTPC CESC

2009-10 2.81 0.93

2010-11 2.13 0.91

2011-12 1.97 0.85

2012-13 1.83 0.76

2013-14 1.57 0.69

(25)

COMMENTS

Standard current ratio is 2:1. From the above we can see that NTPC has

a favorable current ratio for only two years i.e. 2009-10 and 2010-11

whereas CESC has adverse current ratios for all the five years. As a

whole, the short-term liquidity position of both the companies for the

past five years is not at all satisfactory. The current ratios of both the

companies have decreased over the years from the beginning.

0

0.5

1

1.5

2

2.5

3

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

(26)

QUICK RATIO

Quick ratio is the ratio between quick assets and quick liabilities. In above ratio

quick assets refer to those current assets which are quickly convertible into cash

e.g. sundry debtors, bills receivables, etc. Quick liabilities refer to those current

liabilities which are quickly payable in cash e.g. sundry creditors, bills payables,

etc. This ratio determines the short-term liquidity position of a business in a crude

manner than current ratio and that is why it is taken as the acid test of short-term

liquidity position. So, this ratio is also known as acid test ratio. Higher the quick

ratio better is the picture of short term liquidity position and vice versa but very

high quick ratio is not desirable because it indicates that optimum return on

investment is yet to be achieved due to high amount of idle cash. Standard quick

ratio is 1:1 but it varies from industry to industry. The ratio is calculated as

follows:-

Current Ratio=Quick Assets/Current Liabilities

E.g. Quick ratio of NTPC for 2013-14= 20531.45/13935.94= 1.47

(Rs in crores)

NTPC CESC

2009-10 2.5 0.86

2010-11 1.93 0.82

2011-12 1.8 0.77

2012-13 1.68 0.7

2013-14 1.47 0.63

(27)

COMMENTS

Standard quick ratio is 1:1. From the above we can see that the quick ratios of

NTPC for the past five years are favorable i.e. above 1:1 whereas the quick ratios

of CESC for the past five years are unfavorable i.e. below 1:1. The quick ratios of

both the companies have decreased over the past five years.

0

0.5

1

1.5

2

2.5

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

(28)

DEBT EQUITY RATIO

Debt equity ratio is the ratio between debt capital and equity. In this ratio debt

capital refers to either long term debt capital or total debt capital. The nature of

capital structure of business i.e. whether highly geared (debt>equity) or lowly

geared (debt

(29)

COMMENTS

Standard debt equity ratio is 2:1. From the above we can see that the capital

structures of both the companies are lowly geared i.e. below 2:1. As a result none

of the companies can enjoy the benefits of trading on equity in the form of higher

EPS. The ratios for the past five years are almost same for both the companies.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

(30)

STOCK TURNOVER RATIO

Stock turnover ratio is the ratio between sale and average stock. This ratio

shows the number of times the average stock is converted into sales. Higher

this ratio better is the picture of profitability of business and vice versa. This

ratio helps to find out average stock life and is also known as inventory

turnover ratio. Since this ratio shows the number of times average stock is

converted into sales it is also called stock velocity ratio. This ratio can also be

expressed in terms of months or days. Lower this ratio in terms of months or

days better is the picture of inventory utilization because average stock life

becomes shorter. This ratio can be calculated as follows:-

Stock Turnover Ratio= Sale/Average Stock

E.g. Stock turnover ratio of CESC for 2013-14= 5509.88/335.48= 16.42 times

(Rs in crores)

NTPC CESC

2009-10 27.54 31.83

2010-11 29.18 25.85

2011-12 16.87 15.88

2012-13 16.32 16.34

2013-14 13.4 16.42

(31)

COMMENTS

From the above we can observe that the stock turnover ratios of both

the companies have decreased drastically in the financial year 2011-

2012. This happened mainly because of increase in closing stock

accompanied by a corresponding decrease in sale.

0

5

10

15

20

25

30

35

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

(32)

DEBTORS TURNOVER RATIO

It is the ratio between average debtors or average accounts receivable and

credit sale. This ratio shows average credit allowed to customers. Lower this

ratio in terms of days or months better is the picture of liquidity position of

business because collection from customers has taken place quicker. This

ratio can also be expressed in terms of times. In that case, it is also called

debtors velocity ratio. If the ratio is expressed in terms of times, higher this

ratio in terms of times better is the picture of short term liquidity position of

business because credit period is shorter. The ratio is calculated as follows:-

Debtors Turnover Ratio = Credit Purchase/Average Accounts

Receivables

E.g. Debtors turnover ratio of CESC for 2013-14= 10112.30/1575.13= 6.42

times

(Rs in crores)

NTPC CESC

2009-10 9.06 9.05

2010-11 7.54 8.99

2011-12 9.02 7.48

2012-13 11.73 5.79

2013-14 13.61 6.42

(33)

COMMENTS

From the above it can be seen that the debtors turnover ratio of NTPC is

comparatively higher in recent years than that of CESC. It means that

the debtors are converted into cash at a faster rate in case of NTPC as

compared to CESC. As a result the short term liquidity position of NTPC

is far better than that of CESC.

0

2

4

6

8

10

12

14

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

(34)

FIXED ASSETS TURNOVER RATIO

It is the ratio between fixed assets and sale. This ratio shows the

number of times sale is generated by fixed assets. Higher this ratio

better is the picture of utilization of fixed assets and profitability

position. This ratio is expressed in terms of times. Since, this ratio shows

the efficiency or otherwise of fixed asset utilization it is also called fixed

asset leverage ratio. The ratio is calculated as follows:-

Fixed Assets Turnover Ratio= Sale/Fixed Assets

E.g. Fixed Assets Turnover ratio of NTPC for 2013-14=

72018.93/116999.50= 0.62 times

(Rs in crores)

NTPC CESC

2009-10 0.7 0.3

2010-11 0.76 0.34

2011-12 0.76 0.38

2012-13 0.64 0.4

2013-14 0.62 0.39

(35)

COMMENTS

From the above it can be seen that the fixed assets turnover ratio of

NTPC is higher than that of CESC. It means that fixed asset utilization of

CESC is less than that of NTPC. But the ratio has decreased for NTPC

over the past five years whereas that of CESC has increased.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2009-10 2010-11 2011-12 2012-13 2013-14

NTPC

CESC

(36)

COMMON SIZE BALANCE SHEET ANALYSIS OF NTPC FOR THE PAST TWO

YEARS (2012-13 & 2013-14)

March 2014 March 2013

Amt.(Rs)

% Amt.(Rs) %

EQUITY AND LIABILITIES Shareholders' Funds

Share Capital

8,245.46 4.59 8,245.46 5.12

Reserves and surplus

77,569.86 43.2 72,142.05 44.78

Deferred revenue

1,609.88 0.9 1,244.05 0.77

Non-current liabilities Long term

borrowings

62,405.75 34.76 53,253.66 33.05

Deferred tax liabilities (net)

1,051.61 0.59 915.3 0.57

Other long-term liabilities

2,512.46 1.4 1,969.84 1.22

Long- term provisions

879.36 0.49 739.92 0.46

Current Liabilities Trade payables

6,633.34 3.7 5,132.39 3.19

Other current liabilities

11,343.86 6.32 10,469.25 6.5

Short term provisions

7,302.60 4.07 7,004.54 4.35

TOTAL

179,554.18 100 161,116.46 100

ASSETS Non-current assets

Fixed assets Tangible assets

71,865.86 40.02 62,687.42 38.91

Intangible assets

244.97 0.14 248.68 0.15

Capital work-in-progress

44,886.74 25 37,109.42 23.03

Intangible assets under development 1.93 0.001 -

-

Non-current investments

8,120.90 4.52 9,137.64 5.67

Long-term loans and advances

12,776.22 7.12 9,633.41 5.98

Other non-current assets

1,786.77 0.99 1,491.19 0.93

(37) Current assets

Current investments

1,636.96 0.91 1,622.46 1.01

Inventories

5,373.35 2.99 4,057.19 2.52

Trade recievables

5,220.08 2.91 5,365.00 3.33

Cash and bank balances

15,311.37 8.53 16,867.70 10.47

Short term loans and advances

3,117.08 1.74 1,745.57 1.08

Other current assets

9,211.95 5.13 11,150.78 6.92

TOTAL

179,554.18 100 161,116.46 100

COMMENTS

On the basis of the above common size balance sheet following comments can be developed:-

Financing of fixed assets: - Fixed assets represent 62.09% of total assets in 2012-13 and

65.161% of total assets in 2013-14. Shareholders fund represents 49.90% of total

liabilities in 2012-13 and 47.79% of total liabilities in 2013-14. It is clear in both the years

that a large part of the fixed assets have been financed by shareholders fund. It is a

picture of the situation where the company NTPC depends more on shareholders fund

for financing of fixed assets.

Long term solvency: - The debt equity ratio in the year 2012-13 is 0.66:1 and 0.73:1 in

the year 2013-14. In both the years proportion of debt capital is much lower than that of

shareholders fund. It is a picture of long term solvency but NTPC is not in a position to

derive the benefits of trading on equity.

Working capital position: - In the year 2012-13, current ratio is 1.83:1 and 1.57:1 in the

year 2013-14. Although current ratio has reduced marginally in 2013-14 compared to

that of 2012-13 in both the years however, current ratios are well below the standard i.e.

2:1. So, working capital position is very much unsatisfactory.

Growth of the firm: - In 2012-13, reserves and surplus account for 44.78% of total

liability whereas in 2013-14, reserves and surplus account for 43.20%. So, growth of the

firm is not satisfactory.

In conclusion it can be said that at NTPC depends more on shareholders fund but in future the

company should utilize more debt capital for financing its projects. It will help the company to

improve profitability and derive the benefits of trading on equity and the company will be on

the path of growth.

(38)

COMMON SIZE BALANCE SHEET ANALYSIS OF CESC FOR THE PAST TWO

YEARS (2012-13 & 2013-14)

March 2014 March 2013

Amt.(Rs) %

Amt.(Rs) %

EQUITY AND LIABILITIES Shareholders' Funds

Share Capital

125.6 0.77 125.6 0.84


6,913 37.93 6,369.35 42.75


borrowings

2,803.52 17.17 2,721.15 18.26

Advance against Depreciation

776.9 4.76 714.23 4.79

Consumers' Security Deposits

1,279.96 7.84 1,139.06 7.65

Other long term liabilities

1,641.14 10.05 1,504.90 10.1

Long-term provisions

140.52 0.86 107.27 0.72

Current Liabilities Short-term borrowings

575.58 3.52 492.19 3.3

Trade payables

207.97 1.27 301.26 2.02


1,684.70 10.32 1,304.37 8.75

Short term provisions

180.54 1.11 119.99 0.81

TOTAL

16,329.43 100 14,899.37 100



8,505.59 52.09 8,049.89 54.03

Intangible assets

113.33 0.69 121.08 0.81


410.46 2.51 397.09 2.67

Non-current investments

3,191.09 19.54 2,092.94 14.05

Long-term loans and advances

1,251.93 7.67 1,267.46 8.51


122.33 0.75 257.11 1.73

Current assets

(39)

Current investments

- - 85 0.57

Inventories

345.55 2.12 325.41 2.18

Trade recievables

1,184.82 7.26 1,209.38 8.12

Cash and bank balances

781.39 4.79 771.39 5.18

Short term loans and advances

200.55 1.23 148.5 0.99

Other current assets

222.39 1.36 174.12 1.17

TOTAL

16,329.43 14,899.37 100

COMMENTS

On the basis of above common size balance sheet following comments can be developed:-

Financing of fixed assets: - Fixed assets represent 54.03% of total assets in 2012-13 and

52.09% of total assets in 2013-14. Shareholders fund represents 43.59% of total

liabilities in 2012-13 and 38.70% of total liabilities in 2013-14. It is clear in both the years

that a large part of the fixed assets have been financed by shareholders fund. It is a

picture of the situation where the company CESC depends more on shareholders fund for

financing of fixed assets.

Long term solvency: - The debt equity ratio in the year 2012-13 is 0.4:1 and 0.39:1 in the

year 2013-14. In both the years proportion of debt capital is much lower than that of

shareholders fund. It is a picture of long term solvency but CESC is not in a position to

derive the benefits of trading on equity.

Working capital position: - In the year 2012-13, current ratio is 0.76:1 and 0.69:1 in the

year 2013-14. Although current ratio has reduced marginally in 2013-14 compared to

that of 2012-13 in both the years however, current ratios are well below the standard i.e.

2:1. So, working capital position is very much unsatisfactory.

Growth of the firm: - In 2012-13, reserves and surplus account for 42.75% of total liability

whereas in 2013-14, reserves and surplus account for 37.93%. So, growth of the firm is not

satisfactory.

In conclusion it can be said that at CESC depends more on shareholders fund but in future

the company should utilize more debt capital for financing its projects. It will help the

company to improve profitability and derive the benefits of trading on equity and the

company will be on the path of growth.

(40)

CONCLUSION

Analysis and interpretation of financial statements is an important tool in

assessing company performance. It reveals the strength and weakness of a firm. It

helps the clients to decide in which the firms risk is less or in which one they

should invest so that maximum benefit can be earned. It is known that investing in

any company involves a lot of risk. So before putting up money in any company

one must have thorough knowledge about its past records and performance.

Based on the data available the trend of the company can be predicted in near

future.

This project mainly focuses on the basics of different types of financial statements.

Balance Sheet and Profit and Loss of five years have been studied as well as

compared. It provides an insight into the financial position of the two companies.

However ratios are based only on the information which has been recorded in the

financial statements. Financial statements are themselves are subject to various

limitations. Therefore, the above study is not to be considered as fully conclusive

but only as a guiding force into the overall position of the two companies.

(41)

BIBLIOGRAPHY

Name of the author:- Basu Amitabha

Name of the book:- Financial Accounting (3)

Publisher:- Tee Dee Publications

Year of Publication:- 2014

Name of the author:- G. Foster

Name of the book:- Financial Statement Analysis

Publisher:- Prentice Hall


Name of the author:- Porwal L.S.

Name of the book:- Accounting Theory

Publisher:- Tata Mcgraw Hill


Name of the author:- Wood Frank

Name of the book:- Business Accounting Vol. II

Publisher:- Pearson


Internet

(42)

ANNEXURES

Supervisors Certificate

This is to certify that Mr. Arijit Chaudhuri a student of B.Com Honours in Accounting & Finance of

Heramba Chandra College under the University of Calcutta has worked under my supervision and

guidance for his Project Work and prepared a Project Report with the title Financial Statement Analysis

of NTPC and CESC.

The project report, which he is submitting is his genuine and original work to the best of my knowledge.

Signature:-

Place: - Kolkata Name: - Sharmistha Dasgupta

Date: - 14th March,2015 Designation:-

Name of the College: - HERAMBA CHANDRA COLLEGE

(43)

Students Declaration

I hereby declare that the Project Work with the title FINANCIAL STATEMENT ANALYSIS OF NTPC AND

CESC submitted by me for the partial fulfillment of the degree of B.Com Honours in Accounting &

Finance under the University of Calcutta is my original work and has been submitted earlier to any other

University/Institution for the fulfillment of the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or part has been incorporated in this report

from any earlier work done by others for me. However, extracts of any literature which has been used

for this report has been duly acknowledged providing details of such literature in the references.

Signature:-

Place:- Kolkata Name:- Arijit Chaudhuri

Date:- 14th March, 2015 Address:- 23/2 Kali Charan Dutta Road,

Kolkata- 700069

Registration No.:- 043-1121-0533-12

Roll No.:- 23

(44)

BALANCE SHEET OF NATIONAL THERMAL POWER CORPORATION(NTPC)

LTD FOR THE PAST FIVE YEARS

Mar. '10 Mar. '11 Mar. '12 Mar. '13 Mar '14

EQUITY AND LIABILITIES Shareholders' Funds Share Capital

8,245.46 8,245.46 8,245.46 8,245.46 8,245.46


54,191.96 59,646.79 65,045.71 72,142.05 77,569.86

Deferred revenue

1,610.84 854.48 1430.06 1,244.05 1,609.88


borrowings

9,079.92 39,735.68 45,908.27 53,253.66 62,405.75

Deferred tax liabilities (net)

270.3 602.95 636.9 915.3 1,051.61 Other long-term liabilities

28,717.10 2,050.58 1,729.06 1,969.84 2,512.46

Long- term provisions

2,303.72 561.9 603.7 739.92 879.36

Current Liabilities Trade payables

6,884.40 4,088.01 4,468.07 5,132.39 6,633.34


813.80 7,762.50 9,554.95 10,469.25 11,343.86 Short term provisions

766.86 2,190.53 3,215.62 7,004.54 7,302.60

TOTAL

112,873.74 125,738.88 140,837.80 161,116.46 179,554.18



34,725.44 39,029.07 45,046.47 62,687.42 71,865.86 Intangible assets

25.85 206.89 211.89 248.68 244.97


26,762.39 35,495.30 41,827.82 37,109.42 44,886.74 Intangible assets under development 10 0.03 0.04 - 1.93 Non-current investments

11,492.72 10,532.84 9,583.92 9,137.64 8,120.90

Long-term loans and advances 4,629.34 3,901.96 3,883.26 9,633.41 12,776.22


4,944.24 459.15 1,371.88 1,491.19 1,786.77

Current assets

(45)

Current investments

3,314.37 1,812 1,622.46 1,622.46 1,636.96 Inventories

3,347.71 3639.12 3,702.85 4,057.19 5,373.35

Trade recievables

6,651.46 1434.96 5,832.51 5,365.00 5,220.08 Cash and bank balances

14,459.48 16,185.26 16,146.11 16,867.70 15,311.37

Short term loans and advances 883.77 3,777.86 2,754.73 1,745.57 3,117.08 Other current assets

844.04 9,264.44 8,853.86 11,150.78 9,211.95

TOTAL

112,873.74 125,738.88 140,837.80 161,116.46 179,554.18

(46)

BALANCE SHEET OF CALCUTTA ELECTRIC SUPPLY CORPORATION(CESC)

LTD FOR THE PAST FIVE YEARS

Mar'10 Mar. '11 Mar. '12 Mar. '13 Mar '14

EQUITY AND LIABILITIES Shareholders' Funds Share Capital

125.6 125.6 125.6 125.6 125.6


5,064.06 5,443.64 5,886.17 6,369.35 6,913


borrowings

1,899.82 2,152.93 2,167.13 2,721.15 2,803.52

Advance against Depreciation 446.71 514.26 566.03 714.23 776.9

Consumers' Security Deposits 896.48 935.46 1,050.90 1,139.06 1,279.96

Other long term liabilities

540.12 742.3 799.67 1,504.90 1,641.14

Long-term provisions

63.42 67.26 89.27 107.27 140.52

Current Liabilities Short-term borrowings

309.1 489.73 432.76 492.19 575.58

Trade payables

263.92 280.34 291.03 301.26 207.97


1,342.33 908.43 1,230.48 1,304.37 1,684.70 Short term provisions

59.25 72.12 88.38 119.99 180.54

TOTAL

9,344.56 11,732.07 12,727.42 14,899.37 16,329.43



7,083.82 7,339.48 7,584.14 8,049.89 8,505.59 Intangible assets

148.89 139.07 129.91 121.08 113.33


250.46 256.9 376.45 397.09 410.46 Non-current investments

214.06 854.32 1,048.18 2,092.94 3,191.09

Long-term loans and advances 72.82 77.09 69.54 1,267.46 1,251.93 Other non-current assets

7.22 18.61 5.01 257.11 122.33

Current assets

(47)

Current investments

214.06 230 85 85 - Inventories

238.28 294.44 294.7 325.41 345.55

Trade recievables

512.96 558.94 977.01 1,209.38 1,184.82 Cash and bank balances

1,119.79 838.84 859.84 771.39 781.39

Short term loans and advances 1,095.75 1,090.75 1,221.47 148.5 200.55 Other current assets

15.49 33.63 75.17 174.12 222.39

TOTAL

9,344.56 11,732.07 12,727.42 14,899.37 16,329.43

(48)

PROFIT AND LOSS ACCOUNT OF NTPC LTD FOR THE PAST FIVE YEARS


Revenue Revenue from operatios (gross)

46,568.48 55,340.66 62,480.88 66,263.35 72,644.02

Less: Electricity duty

245.89 278.01 428.65 526.31 625.09

Revenue from operatios (net)

46,324 55,062.65 62,052.23 65,737.04 72,018.93

Other income

2,924.06 2,344.65 2,778.42 3,118.77 2,688.89

Total revenue

49,246.65 57,407.30 64,830.65 68,855.81 74,707.82

Expenses Fuel

29,462.74 35,373.78 41,636.46 41,018.25 45,829.71

Emplyee benefits expense

2,412.36 2,789.71 3,090.48 3,415.96 3,867.99

Finance costs

1,808.93 1,420.96 1,711.64 1,924.36 2,406.59

Depreciation and ammortisation expense 2,650.06 2,485.69 2,791.70 3,396.76 4,142.19

Generation, administration and other expenses 2,094.03 4,926.28 3,588.79 4,235.68 4,543.85

Prior period items (net)

10.90 -1,638.72 -313.58 -29.72 12.84

Total expenses

38,439.02 45,357.70 52,504.49 53,961.29 60,803.17

Profit before tax and exceptional items 10,807.63 12,049.60 12,326.16 14,894.52 13,904.65

Exceptional items

-77.83 - - 1,684.11 -

Profit before tax

10,885.46 12,049.60 12,326.16 16,578.63 13,904.65

Tax expense Current tax Current year

2,473.53 2,497.30 2,913.64 3,839.69 3,230.56

Earlier years

-525.4 56.02 154.84 -158.85 -436.96

Deferred tax Current year

209.13 133.24 327.85 278.4 136.31

Earlier years

- 260.45 -293.9 - -

Total tax expense

2,157.26 2,947.01 3,102.43 3,959.24 2,929.91

Profit for the year

8,728.20 9,102.59 9,223.73 12,619.39 10,974.74

(49)

PROFIT AND LOSS ACCOUNT OF CESC LTD FOR THE PAST FIVE YEARS


Revenue Revenue from operations

3,292.84 4,172.54 4,680.54 5,303.07 5,509.88

Other income

156.2 74.11 101.31 106.72 99.66

Total revenue

3,449.04 4,246.65 4,781.85 5,409.79 5,609.54

Expenses Cost of electrical energy purhased

636.99 665.42 636.05 945.16 891.04

Cost of fuel

1,077.07 1,428.30 1,761.97 1,796.75 1,861.49

Employee benefits expense

426.02 432.71 470.96 558.52 694.18

Finance costs

178.22 275.47 275.81 337.52 368.66

Depreciation and ammortisation expense 205.64 267.37 289.48 306.21 338.59

Other expenses

403.05 563.13 654.27 692.13 630.69

Total expenses

2,926.99 3,632.40 4,088.54 4,636.29 4,784.65

Profit before tax

522.05 614.25 693.31 773.5 824.89

Tax expense

Current

-88.75 -125.85 -139 -155 -173

Deferred tax (net)

-141.78 -99.12 -35.61 -177.53 -172.72

Recoverable/(Payable)

141.78 99.12 35.61 177.53 172.72

Profit for the year- transferred to surplus 433.3 488.4 554.31 618.5 651.89

Final

Documents

Transcript of Final