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Transcript of NTPC
FINANCIAL RATIO ANALYSIS 2011
S.R.LUTHARA INSTITUTE OF MANAGEMENT
ASSIGNMENT
OF
ACCOUNTING FOR MANGERS
ON
Financial Ratio Analysis
At
National Thermal Power Corporation
SUBMITTED TO:
SUBMITTED BY: IMRAN KHAN JITHIN PONATHIL
(FSMBM110082)
Page 1
FINANCIAL RATIO ANALYSIS 2011
PREFACE
The conceptual knowledge acquired by management student is best manifested in the project and
training they undergo. As a part of curriculum of MBA, We have got a chance to undergo
practical training on “NATIONAL THERMAL POWER CORPORTION”. The present
project gives a perfect vent into our understanding of financial management.
The project report entitled “FINACIAL RATIO ANALYSIS” is based on the financial
statements viz the Balance sheet of the company.
The report will provide all information regarding the FINANCIAL RATIO ANALYSIS and their
importance in NATIONAL THERMAL POWER CORPORTION LTD.
Page 2
FINANCIAL RATIO ANALYSIS 2011
POWER SECTOR IN INDIA
The electricity sector in India is predominantly controlled by the 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.
The Ministry of Power is the apex body responsible for the development of electrical energy in
India. This ministry started functioning independently from 2 July 1992; earlier, it was known as
The Ministry of Energy. The Union Minister of Power at present is Sushil kumar Shinde of the
Congress Party, who took charge of the ministry on the 28th of May, 2009.
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.
About 75% of the electricity consumed in India is generated by thermal power plants, 21%
by hydroelectric power plants and 4% by nuclear power plants. More than 50% of India's
commercial energy demand is met through the country's vast coal reserves. The country has also
invested heavily in recent years on renewable sources of energy such as wind energy. As of
2008, India's installed wind power generation capacity stood at 9,655 MW. Additionally, India
has committed massive amount of funds for the construction of various nuclear reactors which
would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce
20,000 MW of solar power by 2020.
Page 3
FINANCIAL RATIO ANALYSIS 2011
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. Theft of electricity, common in most parts of urban India,
amounts to 1.5% of India's GDP. Despite an ambitious rural electrification program, some 400
million Indians lose electricity access during blackouts. While 80 percent of Indian villages have
at least an electricity line, just 44 percent of rural households have access to electricity.
According to a sample of 97,882 households in 2002, electricity was the main source of lighting
for 53% of rural households compared to 36% in 1993. Multi Commodity Exchange has sought
permission to offer electricity future markets.
Page 4
FINANCIAL RATIO ANALYSIS 2011
THEORETICAL ASPECTS
RATIO ANALYSIS
Meaning and Definition of Ratio Analysis
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as
its historical performance and current financial condition can be determined. The term ratio
refers to the numerical or quantitative relationship between two variables.
Ratio analysis is a very powerful analytical tool for measuring performance of an
organization. The ratio analysis concentrates on the inter – relationship among the figures
appearing in the aforementioned four financial statement s. the ratio analysis helps the
management to analyze the past performance of the firm . The ratio analysis allow
interested parties like shareholders, investors, creditors , government and analysts to make an
evaluation of certain aspects of a firm’s performance.
Significance or Importance of Ratio Analysis
It helps in evaluating the firm’s performance. With the help of ratio analysis conclusion
can be drawn regarding several aspects such as financial health, profitability and
operational efficiency of the undertaking. Ratio points out the operating efficiency of the
firm i.e. whether the management has utilized the firm's assets correctly, to increase the
investor's wealth. It ensures a fair return to its owners and secures optimum utilization of
firm’s assets.
It helps in inter-firm comparison. Ratio analysis helps in inter-firm comparison by
providing necessary data. An inter firm comparison indicates relative position. It provides
the relevant data for the comparison of the performance of different departments. If
comparison shows a variance, the possible reasons of variations may be identified and if
results are negative, the action may be initiated immediately to bring them in line.
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FINANCIAL RATIO ANALYSIS 2011
It simplifies financial statement. Yet another dimension of usefulness or ratio analysis,
relevant from the View point of management is that it throws light on the degree
efficiency in the various activity ratios measures this kind of operational efficiency.
Limitations
Ratios are calculated from the financial statements which are affected by the financial
bases and policies on such matters as depreciation and the valuation of stock
.
Financial statements do not represent a complete picture of the business, but merely a
collection of fact which can be expressed in monetary terms. These may not refer to both
factors which affect performance.
Over use of ratios as controls on managers could be dangerous, in that management
might concentrate more on simply improving the ratio than on dealing with the
significant issues.
A ratio is a comparison of two figures, a numerator and a denominator. In comparing
ratios it may be difficult to determine whether differences are due to changes in the
numerator, or in the denominator or in both.
Ratios are inter-connected. They should not be treated in isolation. The effective use of
ratios, therefore, depends on being aware of all these limitations and ensuring that,
following comparative analysis, they are used to trigger point for investigation and
corrective action rather than being treated as meaningful in them selves.
The analysis of ratios clarifies trends and weaknesses in performance as a guide to action
as long as proper comparisons are made and the reasons for adverse trends or deviations
from the norms are investigated thoroughly.
Classification of Ratios
Different ratios are used for different purposes; these ratios can be grouped into various classes
according to the financial activity. Ratios are classified into four broad categories:
Liquidity Ratio
Solvency Ratio
Page 6
FINANCIAL RATIO ANALYSIS 2011
Profitability Ratio
Efficiency Ratio
Integrated Ratio
(I) Liquidity Ratio:
Liquidity ratio measures the firms ability to meet its current obligations i.e.
ability to pay its obligations and when they become due. Commonly used ratios are:
(1) Current Ratio
(2) Acid Test Ratio or Quick Ratio
(3) Inventory Turnover Ratio(Finished goods)
(4) Debtors Turnover Ratio
(5) Creditors Turnover Ratio
(6) Cash Flow From Opertions Ratio
(1) Current Ratio:
Current ratio is the ratio, which express relationship between current asset and current
liabilities. Current asset are those which can be converted into cash within a short period of time,
normally not exceeding one year. The current liabilities which are short- term and are maturing
to be met. It is calculated by following formula:
Current Ratio = Current Asset ÷Current liabilities
For the Year 2010-11= 35,396.79 13,675.86
=2.59 : 1
For the Year 2009-10 =30,815.70 10,967.30
=2.81 : 1
For the Year 2008-09 = 30,925.30 10,688.70
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FINANCIAL RATIO ANALYSIS 2011
=2.89 : 1
For the Year 2007-08 = 30,527.80 12,909
2.36 : 1
For the Year 2006-07 = 25,858.50 10,702.50
2.42 : 1
Interpretation:
(2) Acid Test Ratio or Quick Ratio:
The acid test ratio is a measure of liquidity designed to overcome the defect of current
ratio. It is often referred to as quick ratio because it is a measurement of firm's ability to convert
its current assets quickly into cash in order to meet its current liabilities. It is calculated by
following formula:
Page 8
FINANCIAL RATIO ANALYSIS 2011
Acid Test Ratio = (Current Asset – Inventories) ÷ Current liabilities
Liquid Assets= Current assets – Inventories – Advances
For the Year 2010-11= 35,396.79 - 3,639.12 13,675.86
=2.32 : 1
For the Year 2009-10 =30,815.70 - 3,347.7 10,967.30
=2.50 : 1
For the Year 2008-09 = 30,925.30 – 3,243.4
10,688.70
=2.59 : 1
For the Year 2007-08 = 30,527.80 - 2,675.7 12,909
2.16 : 1
For the Year 2006-07 = 25,858.50 – 2,510.2 10,702.50
2.18 : 1
Page 9
FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-071.9
2
2.1
2.2
2.3
2.4
2.5
2.6
Acid/ Quick Ratio
Acid/ Quick Ratio
(3) Inventory Turnover Ratio(Finished goods)
Inventory Turnover Ratio gives information regarding how many times company has
turned the stock in the one financial year. It is calculated by following formula:
Inventory Turn over Ratio= Cost of goods sold Average stock
Average stock = Opening Stock+ Closing Stock2
For the Year 2010-11= 42,293.69 3,493.41
=12Times
For the Year 2009-10 =33,939.40 3,295.55
=12Times
For the Year 2008-09 = 31,432.10 2,959.55
=11Times
Page 10
FINANCIAL RATIO ANALYSIS 2011
For the Year 2007-08 = 25,563.90 2,592.95
=10Times
For the Year 2006-07 = 22,472.10 2,510.2
=9 Times
2010-11 2009-10 2008-09 2007-08 2006-070
2
4
6
8
10
12
Inventory Ratio
Inventory Ratio
(4) Debtors Turnover Ratio
Debtors Turnover Ratio gives information about the Debtor’s outstanding times
for the payment. It is calculated by following formula:
Debtors turn over Ratio= Net Credit Sales Average Debtors
For the Year 2010-11= 58,359.78 7,287.85
=8 Times
Page 11
FINANCIAL RATIO ANALYSIS 2011
For the Year 2009-10 =48,221.32 5,117.8
=9Times
For the Year 2008-09 = 44,126.08 3,283.45
=13 Times
For the Year 2007-08 = 37,050.10 2,117.5
=18 Times
For the Year 2006-07 = 32,631.70 1,252.3
2010-11 2009-10 2008-09 2007-08 2006-070
5
10
15
20
25
30
Debtors t/o Ratio
Debtors t/o Ratio
Page 12
=26 Times
FINANCIAL RATIO ANALYSIS 2011
(5) Creditors Turnover Ratio:
Here, the Creditors figures are not available so that it is not possible to calculate
Creditors turn over Ratio.
(6) Cash Flow From Opertions Ratio:
Cash flow from operation ratio=Cash flow from operation ratio Current Liabilities
For the Year 2010-11= 11,095.20 13,675.86
= 0.81 : 1
For the Year 2009-10= 10,594.20 10,967.30
= 0.97 : 1
For the Year 2008-09= 9,688.10
10,688.70
= 0.91 : 1
For the Year 2007-08= 10,171.10
12,909
= 0.79 : 1
For the Year 2006-07= 8,065.30
10,702.50
= 0.75 : 1
Page 13
FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Cash flow from operation Ratio
Cash flow from operation Ratio
(II) Solvency Ratio
Solvency Ratio ratios are the ratios which indicate the relative interest of the owners and the
creditors in an enterprise. These ratios indicate the funds provided by the long-term creditors
and owners. To judge the long term financial position of the firm following ratios are
applied.
(1) Debt - Equity Ratio:
Debt-equity ratio which expresses the relationship between debt and equity. This ratio
explains how far owned funds are sufficient to pay outside liabilities. It is calculated by
following formula:
Debt-Equity Ratio = Long Term Debt/Share holder’s Equity
= Secured loan + unsecured loan Equity fund + Reserve & surplus
For the year 2010-11 = 9,910.68+33,277.56 8,245.46+60,138.66
Page 14
FINANCIAL RATIO ANALYSIS 2011
= 43,188.24 68,384.12
=0.63 : 1
For the year 2009-10 = 9,079.90+28,717.10 8,245.50+55,478.60
= 37,797 . 63,724.10
=0.59 : 1
For the year 2008-09 = 8,969.60+25,598.20 8,245.50+50,749.40
= 34,567.8 58,994.9
=0.58 : 1
For the year 2007-08 = 7,314.70+19,875.90 8,245.50+46,021.90
= 27,190.6 54,267.4
=0.50 : 1
For the year 2006-07 = 7,479.60+17,661.50 8,245.50+40,351.30
=25,141.10 48,596.8
=0.51 : 1
Page 15
FINANCIAL RATIO ANALYSIS 2011
(2)Debt - Equity Ratio (based on total external liabilities)
Debt-Equity Ratio = Total Debt . Share holder’s Equity
Here, the Total Debt includes only two thing i.e. Secured loan & Unsecured loan.
Total Debt= Secured Loan + Unsecured Loan
Here, Debt-Equity Ratio (Based on Long term Debt) And the Debt-Equity Ratio (Based on
External liability) will be same.
(3) Debt To Total Capital Ratio:
Debt to Total Capital Ratio = Long Term Debt Permanent Capital
Long term Debt = Secured Loan + Unsecured Loan
Permanent Capital= Share holder’s Fund + Long term Liability
For the year 2010-11 = 9,910.68+33,277.56 8,245.46+60,138.66+9,910.68+33,277.56
Page 16
FINANCIAL RATIO ANALYSIS 2011
=43,188.24 1,11,572.36
=0.39:1
For the year 2009-10 = 9,079.90+28,717.10 8,245.50+55,478.60+9,079.90+28,717.10
= 37,797 1,01,521.1
=0.37:1
For the year 2008-09 = 8,969.60+25,598.20 8,245.50+50,749.40+8,969.60+25,598.20
=34,567.7 93,562.7
=0.40:1
For the year 2007-08 = 7,314.70+19,875.90 8,245.50+46,021.90+7,314.70+19,875.90
=27,190.6 81,458
=0.33:1
For the year 2006-07 = 7,479.60+17,661.50 8,245.50+40,351.30+7,479.60+17,661.50
=25,141.10 73,737.9
=0.34:1
Page 17
FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Debt to Total Capital Ratio
Debt to Total Capital Ratio
(4)Debt To Total Assets Ratio
Debt to Total Assets Ratio means firm’s ability to payment of Interest to the lender of
loans. It is calculated by following formula:
Debt to Total Assets Ratio = Total Debt Total Assets
Total Debt = Secured + Unsecured loan
Total Assets = Share holder’s fund + Total loan + Cerrent Liability
For the year 2010-11 = 9,910.68+33,277.56 1,11,572.36+13,675.86
= 43,188.24 1,25,248.22
=0.34 : 1
For the year 2009-10 = 9,079.90+28,717.10 1,01,521.10+10,967.30
Page 18
FINANCIAL RATIO ANALYSIS 2011
= 37,797 1,12,488.4
=0.33: 1
For the year 2008-09 = 8,969.60+25,598.20 93,562.70+10,688.70
= 34,567.8 1,04,251.4
=0.33 : 1
For the year 2007-08 = 7,314.70+19,875.90 81,458+12,909
= 27,190.6 94,367
=0.29: 1
For the year 2006-07 = 7,479.60+17,661.50 73,737.90+10,702.50
= 25,141.10 84,440.4
=0.30 : 1
Page 19
FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070.26
0.27
0.28
0.29
0.3
0.31
0.32
0.33
0.34
Debt to Total Assets Ratio
Debt to Total Assets Ratio
5) Proprietary Ratio:
This Ratio gives information regarding proprietor’s fund to Total Asset’s proportion. It
is calculated by following formula:
Proprietary Ratio= Proprietor’s Fund . Total Assets- Misc.expenses
Proprietor’s Fund = Equity + Reserve + P&L A/c - Miscellaneous expenses
For the year 2010-11 = 8,245.46+60,138.66+9,102.59 1,58,767.41
= 77,486.71 1,58,767.41
=0.49 : 1
For the year 2009-10 = 8,245.50+55,478.60+8,728.20 1,44,577.20
= 72,452.30 . 1,44,577.20
=0.50: 1
Page 20
FINANCIAL RATIO ANALYSIS 2011
For the year 2008-09 = 8,245.50+50,749.40+8,201.30 1,33,666.7
= 67,196.20 1,33,666.7
=0.50 : 1
For the year 2007-08 = 8,245.50+46,021.90+7,414.80 1,21,641.30
= 61,682.20 1,21,641.30
=0.51: 1
For the year 2006-07 = 8,245.50+40,351.30+6,864.70 1,09,519.6
=55,461.5 1,09,519.6
=0.51 : 1
Page 21
FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070.48
0.485
0.49
0.495
0.5
0.505
0.51
Proprietary Ratio Series2
Interpretation:
The standard ratio is 1:1 and here it is average around 0.50:1. Means haft of the Toal
Assets is proprorted by the proprietor’s fund.
6) Interest Coverage Ratio:
This Ratio gives information regarding how many times is EBIT of the interest.
It is calculated by following formula:
Interest Coverage Ratio = EBIT . Interest
For the year 2010-11 = 12,754.23 2,149.08
=6 Times
For the year 2009-10 = 12,590.53 1,808.93
Page 22
FINANCIAL RATIO ANALYSIS 2011
=7 Times
For the year 2008-09 = 11,767.90 2,022.90
=6 Times
For the year 2007-08 = 12,159 1,798.10
=7 Times
For the year 2006-07 = 10,638.9 1,859.40
=6 Times
2010-11 2009-10 2008-09 2007-08 2006-075.4
5.6
5.8
6
6.2
6.4
6.6
6.8
7
Interest Coverage Ratio
Interest Coverage Ratio
Interpretation:
Here it is Average around 6-7 times of the Interest which shows good result of the company.
Page 23
FINANCIAL RATIO ANALYSIS 2011
7) Total Fixed Charge Coverage Ratio:
Total Fixed Charge Coverage Ratio = EBIT . Interest
Here, this ratio is same as Interest coverage Ratio. So the Ratio will be same.
8) Total Cashflow Coverage Ratio:
This ratio gives information about howmany times Earning Before Interest &
Depreciation is of the Interest. It is calculated by following formula:
Total Cashflow Coverage Ratio = EBIT + Depreciation . Interest
For the year 2010-11 = 12,754.23+2,485.69 2,149.08
=7 Times
For the year 2009-10 = 12,590.53+2,650.06 1,808.93
=8 Times
For the year 2008-09 = 11,767.90+2,364.48 2,022.90
=7Times
For the year 2007-08 = 12,159+2,138.50 1,798.10
=8 Times
For the year 2006-07 = 10,638.9+2,075.40 1,859.40
Page 24
FINANCIAL RATIO ANALYSIS 2011
=7Times
Interpretation:
Here, this Ratio is average around 7-8 times shows good position of the firm.
2010-11 2009-10 2008-09 2007-08 2006-076.4
6.6
6.8
7
7.2
7.4
7.6
7.8
8
Total Cash Flow Coverage Ratio
Total Cash Flow Coverage Ratio
Profitability Ratios
Profitability ratio are the best indicators of overall efficiency of the business concern, because
they compare return of value over and above the value put into business with sales or service
carried on by the firm with the help of assets employed. Profitability ratio can be determined on
the basis of:
1. Sales
2. Investment
1) Gross profit margin:
The gross profit to sales ratio establishes relationship between gross profit and sales to
measure the relative operating efficiency of the firm to reflect pricing policy.
Gross Profit to Sales Ratio = (Sales - Cost of Goods Sold) ÷ Sale * 100
Page 25
FINANCIAL RATIO ANALYSIS 2011
For the year 2010-11 = 14,535.29 *100 58,359.78
=24.91%
For the year 2009-10 = 13,535.52 *100 48,221.32
=28.06%
For the year 2008-09 = 11,723.95 *100 44,126.08
=26.57%
For the year 2007-08 = 12,393.40 *100 37,050.10
=33.45%
For the year 2006-07 = 10,982.80 *100 32,631.70
=33.66%
Interpretation:
Here, the gross profit margin is average around 29%. Which shows the companys earning
capacity. It is good for the firm.
Page 26
FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Gross profit margin
Gross profit margin
2) Operating Profit ratio:
Operating Profit ratio = Operating profit *100 Net Sales
For the year 2010-11 = 15,796.31 *100 58,359.78
=27.06%
For the year 2009-10 = 14,319.12 *100 48,221.32
=29.69%
For the year 2008-09 = 12,600.17 *100 44,126.08
=28.55%
For the year 2007-08 = 11,223.90 *100 37,050.10
Page 27
FINANCIAL RATIO ANALYSIS 2011
=30.29%
For the year 2006-07 = 10,093.20 *100 32,631.70
=30.93%
Interpretation:
Here, the operating profit ratio is average around 29%. Which shows the good
position of the firm.
2010-11 2009-10 2008-09 2007-08 2006-0725.00%
26.00%
27.00%
28.00%
29.00%
30.00%
31.00%
Operating profit ratio
Operating profit ratio
3) Pre-tax Profit ratio:
Pre-tax Profit ratio = EBT *100 Net Sales
For the year 2010-11 = 10,605.15 *100 58,359.78
=18.17%
Page 28
FINANCIAL RATIO ANALYSIS 2011
For the year 2009-10 = 10,718.60 *100 48,221.32
=22.36%
For the year 2008-09 = 9745 *100 44,126.08
=22.08%
For the year 2007-08 = 10,360.90 *100 37,050.10
=27.96%
For the year 2006-07 = 8779.50 *100 32,631.70
=26.90%
Interpretation:
Here, the pretax profit ratio is average around 23.50% for the last five years. The firm
shows good result, but it declined during last year ie 2010-2011.
Page 29
FINANCIAL RATIO ANALYSIS 2011
4) Net Profit ratio:
Net Profit ratio = PAT *100 Net Sales
For the year 2010-11 = 7,974.61 *100 58,359.78
=13.66%
For the year 2009-10 = 8,098.90 *100 48,221.32
=16.29%
For the year 2008-09 = 7190.30 *100 44,126.08
=16.29%
For the year 2007-08 = 7,366.70 *100 37,050.10
Page 30
FINANCIAL RATIO ANALYSIS 2011
=19.88%
For the year 2006-07 = 6615.80 *100 32,631.70
=20.27%
2010-11 2009-10 2008-09 2007-08 2006-070.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Net profit ratio
Net profit ratio
Interpretation:
The net profit ratio tends to decline every year, the company should make effort to
improve it. But the average for the last 5 years shows good result of the firm.
5) Cost Of Good Sold ratio:
Cost Of Good Sold ratio = Cost Of Good Sold ratio *100 Net Sales
For the year 2010-11 = 42,293.69 *100 58,359.78
Page 31
FINANCIAL RATIO ANALYSIS 2011
=72.47%
For the year 2009-10 = 33,939.40 *100 48,221.32
=70.38%
For the year 2008-09 = 31,432.10 *100 44,126.08
=71.23%
For the year 2007-08 = 25,563.90 *100 37,050.10
=69%
For the year 2006-07 = 22,472.10 *100 32,631.70
=68.86%
2010-11 2009-10 2008-09 2007-08 2006-0767.00%
68.00%
69.00%
70.00%
71.00%
72.00%
73.00%
Cost of good sold
Cost of good sold
Page 32
FINANCIAL RATIO ANALYSIS 2011
Interpretation:
The cost of good sold ratio tends to increase very year expect 2009-2010. It is average
around 70% which shows companys efficiency in selling. This ratio is good for the company.
6) Operating expense ratio:
Operating expense ratio = administrative expenses + selling expense *100 Net Sales
For the year 2010-11 = 2,676.34+174.22 *100 58,359.78
=4.88%
For the year 2009-10 = 977.60+65.10 *100 48,221.32
=2.16%
For the year 2008-09 = 851.10+57.50 *100 44,126.08
=2.06%
For the year 2007-08 = 726.80+45 *100 37,050.10
=2.08%
For the year 2006-07 = 656+57.70 *100 32,631.70
Page 33
FINANCIAL RATIO ANALYSIS 2011
=2.19%
Interpretation:
The operating expense ratio was average around 2% during last four years but
suddenly it become 4.88% during the previous year i.e 2010-2011. The ratio shows how many
percent the firm spent on operating expense for selling that unit.
7) Administrative expense ratio:
Administrative expense ratio = administrative expenses *100 Net Sales
For the year 2010-11 = 2,676.34 *100 58,359.78
=4.59%
For the year 2009-10 = 977.60 *100
Page 34
FINANCIAL RATIO ANALYSIS 2011
48,221.32
=2.02%
For the year 2008-09 = 851.10 *100 44,126.08
=1.93%
For the year 2007-08 = 726.80 *100 37,050.10
=1.96%
For the year 2006-07 = 656 *100 32,631.70
=2.01%
2010-11 2009-10 2008-09 2007-08 2006-070.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
Administrative expense ratio
Administrative expense ratio
Interpretation:
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FINANCIAL RATIO ANALYSIS 2011
The ratio shows how many percent you spent on administrative expense of yours
sales. Here, it is average around 2% for the last 4 years but prevoius year i.e 2010-2011 it
became more than double. So that firm should take care of it.
8) Selling expense ratio:
selling expense ratio = selling expense *100 Net Sales
For the year 2010-11 = 174.22 *100 58,359.78
=0.30%
For the year 2009-10 = 65.10 *100 48,221.32
=0.14%
For the year 2008-09 = 57.50 *100 44,126.08
=0.13%
For the year 2007-08 = 45 *100 37,050.10
=0.12%
For the year 2006-07 = 57.70 *100 32,631.70
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FINANCIAL RATIO ANALYSIS 2011
=0.17%
2010-11 2009-10 2008-09 2007-08 2006-070.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
Selling Expense Ratio
Selling Expense Ratio
Interpretation:
Here, the selling expense ratio is average around 0.13% during last pervious year i.e
2009-2010 but it become more than double during year 2010-2011
9) Operating ratio:
Operating ratio = Cost Of Good Sold ratio+operating expense *100 Net Sales
For the year 2010-11 = 42,293.69+12,644.99 *100 58,359.78
=94.14%
For the year 2009-10 = 33,939.40+12,438.30 *100 48,221.32
=96.18%
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FINANCIAL RATIO ANALYSIS 2011
For the year 2008-09 = 31,432.10+10,543.10 *100 44,126.08
=95.12%
For the year 2007-08 = 25,563.90+11,527.10 *100 37,050.10
=100%
For the year 2006-07 = 22,472.10+10,159.60 *100 32,631.70
=106.13%
2010-11 2009-10 2008-09 2007-08 2006-0788.00%
90.00%
92.00%
94.00%
96.00%
98.00%
100.00%
102.00%
104.00%
106.00%
108.00%
Operating ratio
Operating ratio
Interpretation:
Here the figure shows declining in this ratio. So, firm should try to improve this ratio
for the better running of business.
10) Financial expense ratio:
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FINANCIAL RATIO ANALYSIS 2011
Financial expense ratio = Financial expense *100 Net Sales
For the year 2010-11 = 2,027.21 *100 58,359.78
=3.47%
For the year 2009-10 = 1,861.90 *100 48,221.32
=3.86%
For the year 2008-09 = 1737 *100 44,126.08
=3.94%
For the year 2007-08 = 1,982.20 *100 37,050.10
=5.35%
For the year 2006-07 = 2,055.70 *100 32,631.70
=6.30%
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FINANCIAL RATIO ANALYSIS 2011
Interpretation:
11) Return on asset:
Return on asset = Net profit after tax *100 Average total asset
Total assets=( gross block + capital in progress + investment + current assests)
For the year 2010-11 = 7,974.61 *100 1,51,672.31
=5.26%
For the year 2009-10 = 8,098.90 *100 1,39,121.95
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FINANCIAL RATIO ANALYSIS 2011
=5.82%
For the year 2008-09 = 7,190.30 *100 1,27,654
=5.63%
For the year 2007-08 = 7,366.70 *100 1,15,580.45
=6.37%
For the year 2006-07 = 6,615.80 *100 1,09,519.60
=6.04%
2010-11 2009-10 2008-09 2007-08 2006-070.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Return on assets
Return on assets
Interpretation:
Page 41
FINANCIAL RATIO ANALYSIS 2011
12) Return on capital employed:
Return on capital employed= EBIT *100 Average Total capital employed
Particular 2011 2010 2009 2008 2007
Net fixed
asset
39,064.75 34,575 32,937.7 26,093.7 25,525
(+) Current
asset
35,396.79 30,815.7 30,925.3 30,527.8 25,858.8
Total 74,461.54 65,390.7 63,863 56,621.5 51,383.8
(-) Current
liability
13,675.86 10,967.3 10,688.7 12,909 10,702.50
Capital
employed
60,785.68 54,423.4 53,174.3 43,172.5 40,681.3
For the year 2010-11 = 12,559.96 *100 57,604.54
=21.80%
For the year 2009-10 = 12,616.53 *100 53,798.85
=23.45%
For the year 2008-09 = 11,490.70 *100 48,429.9
=23.73%
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FINANCIAL RATIO ANALYSIS 2011
For the year 2007-08 = 12,327.5 *100 42,196.9
=29.21%
For the year 2006-07 = 10,755.9 *100 40,681.3
=26.44%
2010-11 2009-10 2008-09 2007-08 2006-070.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Return on capital employed
Return on capital employed
Interpretation:
13) Return On Total Shareholders Equity:
Return On Total Shareholders Equity = PAT *100
Average total shareholders equity
Shareholders equity = Share capital + retain earning
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FINANCIAL RATIO ANALYSIS 2011
For the year 2010-11 = 7,974.61 *100 13,653.79
=58.40%
For the year 2009-10 = 8,098.90 *100 13,162.95
=61.53%
For the year 2008-09 = 7,190.30 *100 12,685.85
=56.68%
For the year 2007-08 = 7,366.70 *100 12,265.55
=58.21%
For the year 2006-07 = 6,615.80 *100 12,157.3
=54.42%
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FINANCIAL RATIO ANALYSIS 2011
Interpretation:
14) Return On Equity Funds:
Return On Equity Funds = Net profit after tax – preference divident *100
AverageOrdinaryl shareholders equity
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FINANCIAL RATIO ANALYSIS 2011
15) Earning per share (EPS):
Earning per share = Net profit available to equity holders
No of equity holders outstanding
For the year 2010-11 = 9,352.59 824.55
=11.34Rs
For the year 2009-10 = 8,728.20 824.55
=10.59 Rs
For the year 2008-09 = 8,201.30 824.55
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FINANCIAL RATIO ANALYSIS 2011
=9.95 Rs
For the year 2007-08 = 7,414.80 824.55
=8.99 Rs
For the year 2006-07 = 6,864.70 824.55
=8.33 Rs
Interpretation:
16) Cash earning per share :
Cash earning per share =
Cash+Net profit available to equity holders
No of equity holders outstanding
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FINANCIAL RATIO ANALYSIS 2011
For the year 2010-11 = 2,240.58+ 9,352.59 824.55
=14.06Rs
For the year 2009-10 = 2,650.59+ 8,728.20 824.55
=13.80 Rs
For the year 2008-09 = 2,269.98+ 8,201.30 824.55
=12.70 Rs
For the year 2007-08 = 2,141.73+7,414.80 824.55
=11.59 Rs
For the year 2006-07 = 2,082.26+6,864.70 824.55
=10.85 Rs
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FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070
2
4
6
8
10
12
14
16
Cash earning per share
Cash earning per share
Interpretation:
17) Book value per share:
Book value per share =
Net worth
No of equity holders outstanding
For the year 2010-11 = 8,245.46+ 60,138.66 824.55
=82.94Rs
For the year 2009-10 = 8,245.46+ 55,478.60 824.55
=77.28 Rs
For the year 2008-09 = 8,245.46+ 50,749.40 824.55
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FINANCIAL RATIO ANALYSIS 2011
=71.55 Rs
For the year 2007-08 = 8,245.46+46,021.90 824.55
=65.81 Rs
For the year 2006-07 = 8,245.46+40,351.30 824.55
=58.94 Rs
2010-11 2009-10 2008-09 2007-08 2006-070
10
20
30
40
50
60
70
80
90
Book value per share
Book value per share
Interpretation:
18) Dividend per share:
Dividend per share = Divident paid to ordinary shareholders
No of ordinary shareholders
Page 50
FINANCIAL RATIO ANALYSIS 2011
For the year 2010-11 = 31,332.60 8,245.46
=3.80Rs
For the year 2009-10 = 31,332. 8,245.46
=3.80Rs
For the year 2008-09 = 29,683 8,245.46
=3.60 Rs
For the year 2007-08 = 28,859 8,245.46
=3.50 Rs
For the year 2006-07 = 26,385 8,245.46
=3.20 Rs
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FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-072.9
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Dividend per share
Dividend per share
Interpretation:
19) Dividend pay out ratio:
Dividend pay out ratio= Total Divident paid to equity shareholders * 100
Total net profit
For the year 2010-11 = 31,332.60 *100 91,025.9
=34.42%
For the year 2009-10 = 31,332 *100 87,282
=35.90%
For the year 2008-09 = 29,683 *100 82,013
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FINANCIAL RATIO ANALYSIS 2011
=36.19%
For the year 2007-08 = 28,859 *100 74,148
=38.92%
For the year 2006-07 = 26,385 *100 68,647
=38.44%
2010-11 2009-10 2008-09 2007-08 2006-0732.00%
33.00%
34.00%
35.00%
36.00%
37.00%
38.00%
39.00%
Dividend per share
Dividend per share
Interpretation:
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FINANCIAL RATIO ANALYSIS 2011
4) Efficiency Ratios:
Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with
how efficiently the assets of the firm are managed. These ratios express relationship between
level of sales and the investment in various assets inventories, receivables, fixed assets etc.
(1) Finished Goods Inventory Turnover :
Finished Goods Inventory Turnover = cost of good sold
average inventory
For the year 2010-11 = 43,824.49 34,934.10
=1.25 Times
For the year 2009-10 = 34,685.80 32,955.50
=1.05 Times
For the year 2008-09 = 32,402.13 29,595.50
=1.09 times
For the year 2007-08 = 24,656.7 25,929.50
=0.95 times
For the year 2006-07 = 21,648.9 25,102
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FINANCIAL RATIO ANALYSIS 2011
=0.86 times
2010-11 2009-10 2008-09 2007-08 2006-070
0.2
0.4
0.6
0.8
1
1.2
1.4
Finished Goods Inventory Turnover
Finished Goods Inventory Turnover
Interpretation:
2) Raw Material Turnover :
Raw Material Turnover = cost of raw material
Average raw material inventory
For the year 2010-11 = 31.33 3,639.12+3,347.71 2
=0.009 Times
For the year 2009-10 = 31.10 33,477+32,434 2
=0.0009 Times
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FINANCIAL RATIO ANALYSIS 2011
For the year 2008-09 = 31 32,434+26,757 2
=0.001Times
For the year 2007-08 = 26.80 25,102+26,757 2
=0.001Times
For the year 2006-07 = 23.70 25,102
=0.0009 times
2010-11 2009-10 2008-09 2007-08 2006-070
0.001
0.002
0.003
0.004
0.005
0.006
0.007
0.008
0.009
Raw Material Turnover
Raw Material Turnover
Interpretation:
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FINANCIAL RATIO ANALYSIS 2011
3) Stock In Process Turnover :
Stock In Process Turnover = cost of goods manufactured
Average work in progress inventory
For the year 2010-11 = 37,069.51 1320.7+1,584 2
= 25.52 Times
For the year 2009-10 = 30785.70 1584+1527 2
=19.79 Times
For the year 2008-09 = 28232.30 1527+1772 2
=17.12 Times
For the year 2007-08 = 23080.70 1772+1546 2
=13.91Times
For the year 2006-07 = 20,790.5 1546
=13.45 Times
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FINANCIAL RATIO ANALYSIS 2011
1 2 3 4 50
5
10
15
20
25
30
Stock In Process Turnover
Stock In Process Turnover
Interpretation:
4) Average Collection Period :
Average Collection Period = Days in a year
Debtors turnover
For the year 2010-11 = 365 8 times
= 45.625 days
For the year 2009-10 = 365 9 times
=40.56 days
For the year 2008-09 = 365 13 times
=28.08 days
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FINANCIAL RATIO ANALYSIS 2011
For the year 2007-08 = 365 18 times
=20.28 days
For the year 2006-07 = 365 26 times
=14.04 Times
2010-11 2009-10 2008-09 2007-08 2006-070
5
10
15
20
25
30
35
40
45
50
Average Collection Period
Average Collection Period
Interpretation:
5) Total Assets Turnover :
Total Assets Turnover = Cost of goods sold
Average Total Assets
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FINANCIAL RATIO ANALYSIS 2011
For the year 2010-11 = 43,824.49 1,51,672.31
=0.29 Times
For the year 2009-10 = 34,685.80 1,39,121.95
=0.25 Times
For the year 2008-09 = 32,402.13 1,27,654
=0.25 times
For the year 2007-08 = 24,656.7 1,15,580.45
=0.21 times
For the year 2006-07 = 21,648.9 1,09,519
=0.20 times
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FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070
0.05
0.1
0.15
0.2
0.25
0.3
Total Assets Turnover
Total Assets Turnover
Interpretation:
6) Fixed Assets Turnover :
Fixed Assets Turnover = Cost of goods sold
Average Fixed Assets
For the year 2010-11 = 43,824.49 69,623.87
=0.62 Times
For the year 2009-10 = 34,685.80 64,508.4
=0.54 Times
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FINANCIAL RATIO ANALYSIS 2011
For the year 2008-09 = 32,402.13 57,860.05
=0.56 times
For the year 2007-08 = 24,656.7 51,986.1
=0.47 times
For the year 2006-07 = 21,648.9 50604
=0.43 times
2010-11 2009-10 2008-09 2007-08 2006-070
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Fixed Assets Turnover
Fixed Assets Turnover
Interpretation:
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FINANCIAL RATIO ANALYSIS 2011
7) Capital Turnover Ratio :
Capital Turnover ratio = Cost of goods sold
Average Fixed Assets
Particular 2011 2010 2009 2008 2007
Net fixed
asset
39064.75 34575 32937.7 26093.7 25525
(+) Current
asset
35396.79 30815.7 30925.3 30527.8 25858.8
(+) Investment
12,344.84 14807.1 13983.5 15267.2 16094.3
Total Assets 86,806.38 80,197.8 77,846.5 71,888.7 67,478.1
(-) Current
liability
13,675.86 10,967.3 10,688.7 12,909 10,702.50
Capital
employed
75,839.08 69,230.5 67,157.8 58,979.7 56,775.6
For the year 2010-11 = 43,824.49 72,534.79
=0.60 Times
For the year 2009-10 = 34,685.80 68,194.15
=0.51 Times
For the year 2008-09 = 32,402.13 63,068.75
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FINANCIAL RATIO ANALYSIS 2011
=0.51 times
For the year 2007-08 = 24,656.7 57,877.65
=0.43 times
For the year 2006-07 = 21,648.9 56,775.6
=0.38 times
Interpretation:
8) Current Asset Ratio :
Page 64
2010-11 2009-10 2008-09 2007-08 2006-070
0.1
0.2
0.3
0.4
0.5
0.6
Capital Turnover Ratio
Capital Turnover Ratio
FINANCIAL RATIO ANALYSIS 2011
Current Asset Ratio = Cost of goods sold
Total average current assets
For the year 2010-11 = 43,824.49 33,106.25
=1.32 Times
For the year 2009-10 = 34,685.80 30,870.50
=1.12 Times
For the year 2008-09 = 32,402.13 30,726.55
=1.05 times
For the year 2007-08 = 24,656.7 28,193.3
=0.87 times
For the year 2006-07 = 21,648.9 25,858.80
=0.84 times
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FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Current Asset Ratio :
Cash flow from operation Ratio
Interpretation:
9) Working Capital turnover Ratio :
Working Capital turnover Ratio = Cost of goods sold
Average working capital
For the year 2010-11 = 43,824.49 35,366.22
=1.24 Times
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FINANCIAL RATIO ANALYSIS 2011
For the year 2009-10 = 34,685.80 29,347.75
=1.18 Times
For the year 2008-09 = 32,402.13 24,441.6
=1.33 times
For the year 2007-08 = 24,656.7 19,720.3
=1.25 times
For the year 2006-07 = 21,648.9 16,962.30
=1.28 times
2010-11 2009-10 2008-09 2007-08 2006-071.1
1.15
1.2
1.25
1.3
1.35
Working Capital turnover Ratio
Working Capital turnover Ratio
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FINANCIAL RATIO ANALYSIS 2011
Interpretation:
10) Earning Power :
Earning Power= PAT *100 * Sales Sales Total Assets
For the year 2010-11 = 7974.61 *100 * 58359.78 58359.78 86806.38
=9.19 %
For the year 2009-10 = 8,098.90 *100 * 48,221.32 48,221.32 80,197.8
=10.10%
For the year 2008-09 = 7,190.30 *100 * 44,126.08 44,126.08 77,846.8
=9.24 %
For the year 2007-08 = 7,366.70 *100 * 37,050.10 37,050.10 71,888.7
=10.25 %
For the year 2006-07 = 6,615.80 *100 * 32,631.70 32,631.70 67,478.10
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FINANCIAL RATIO ANALYSIS 2011
=9.8 %
2010-11 2009-10 2008-09 2007-08 2006-078.60%
8.80%
9.00%
9.20%
9.40%
9.60%
9.80%
10.00%
10.20%
10.40%
Earning Power
Earning Power
Interpretation:
11) Return On Equity:
Return on equity= PAT * 100 Equity on capital
For the year 2010-11 = 7,974.61 *100 82,455
=9.67 %
For the year 2009-10 = 8,098.90 *100
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FINANCIAL RATIO ANALYSIS 2011
82,455
=9.82%
For the year 2008-09 = 7,190.30 *100 82,455
=8.72 %
For the year 2007-08 = 7,366.70 * 100
82,455
=8.93 %
For the year 2006-07 = 6,615.80 *100 82,455
=8.02 %
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FINANCIAL RATIO ANALYSIS 2011
2010-11 2009-10 2008-09 2007-08 2006-070.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
Return On Equity
Return On Equity
Interpretation:
SUMMARY
Financial Statement Analysis is a method used by interested parties such as investors, creditors,
and management to evaluate the past, current, and projected conditions and performance of the
firm. This report mainly deals with the insight information of the two mentioned companies. In
the current picture where financial volatility is endemic and financial intuitions are becoming
popular, when it comes to investing, the sound analysis of financial statements is one of the most
important elements in the fundamental analysis process. At the same time, the massive amount of
numbers in a company's financial statements can be bewildering and intimidating to many
investors. However, through financial ratio analysis, I tried to work with these numbers in an
organized fashion and presented them in a summarizing form easily understandable to both the
management and interested investors.
It is required by law that all private and public limited companies must prepare the financial
statements like, income statement, balance sheet and cash flow statement of the particular
accounting period. The management and financial analyst of the company analyze the financial
statements for making any further financial and administrative decisions for the betterment of the
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FINANCIAL RATIO ANALYSIS 2011
company. Therefore, I select this topic, so that I have done some solid financial analysis that will
certainly help the management of review their performance and also assist the interested people
like investors and creditors. As a financial analyst it is important that a financial decision be
made by analyzing the financial statements of the company. It is the primary responsibility of the
financial managers or financial analyst to manage the financial matters of the company, by
evaluating the financial statements. I am also providing some important suggestions and opinions
about the financial matters of the business.
CONCLUSION AND RECOMMENDATION
Conclusion and Findings
I analyzed the financial statement of National Thermal Power Corporation The analysis is as
follows:
The liquidity position of the company is not up to the standard, is below the industrial average
in 2007, but it has improved a little in 2008 and is near the industrial average.
There is a considerable rise in the working capital of the company from 2007 to 2008 which
shows good liquidity position of the company.
Leverage ratio indicates the high risk associated with the company. Leverage ratio helps in
helps in assessing the risk arising from the use of debt capital. As we can see that in both the
years debt to equity ratio is slightly below the industrial average.
Profitability ratio is good as the earnings have increased for its share holders from 26% to
almost 30%. The profitability ratio is high because of the low financial charge.
Activity ratio of the company is not that efficient, as we can see that the debtor turnover ratio
has increased but is not as much as company would have expected. The average collection
period is also late.
Company did not pay any dividend in 2007. EPS has also jumped from a mere Rs37 to almost
Rs 100.
Book value per share is the indication of the net worth of the corporation. It is somehow
similar to the earning per share, but it relates to stockholder’s equity to the number of shares
outstanding, so we can say net worth of the company is good.
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FINANCIAL RATIO ANALYSIS 2011
The operating cash flow of the company is also good.
RECOMMENDATIONS
As I have realized that the National Thermal Power Corporation is doing well since its
inception. It is quite difficult to give any suggestion to such a corporation but still no one is
perfect,
There is always a room for improvement so I will recommend the following suggestions for
NTPC LTD:
Employee training must be introduced on continuous basis so that the employees have the
understanding of the latest development especially with its customers.
As observed the company has an Internal Audit system wherein external Chartered
Accountant Firms appointed to carry out periodic audits of the different units of the
Corporation. In my opinion, the scope and coverage of internal Audit needs to be
enhanced in order to make it proportionate with the size of the business.
As seen from the physical verification there is a great deal of mismanagement of
resources and it must be avoided, as it decreases the profit.
Company should hire fresh graduates. As the combination of experienced and fresh talent
can produce better results and will improve the efficiency of the management.
As the company is not a listed company. The company has implemented DPE guidelines.
The company has to make continuous efforts to maintain transparency, disclosures and
fairness in dealing with stakeholders.
Aggressive publicity campaign must be introduced by the company about there new
project, as there is little awareness about there new projects.
The vigilance department of the corporation has to improve the level of transparency for
implementing the proper system of E- tendering.
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FINANCIAL RATIO ANALYSIS 2011
Page 74