Fiancial Statements On Ratio Analysis

A study on Financial Statement Analysis using Ratio Analysis with special reference to KPTCL
CHAPTER 1
INTRODUCTION
FINANCE
The word finance comes indirectly from the Latin word “finis” under Roman law.
Contracts were not completed until there was a binding agreement for monetary or
credit agreement. Finance is the lifeblood of business. Just as sales and production are
major function of an enterprise, finance too has an independent specialized function.
Finance is to business, what blood is to human body. A firm’s success and its survival
depend upon how efficiently it is able to generate funds, as and when needed. Finance
holds the key to all activities. “Finance is that business activity which is concern with
the acquisition and conversation of capital funds in meeting financial needs and
overall objective of a business enterprise” – Wheeler.
Finance is an important component which cuts across all other areas of management,
and is one of the basic foundations for all kinds of economic activities; it is regarded
as the master key which provides access to all other sources, employed in the
manufacturing and merchandising activities. Hence efficient management of every
business enterprise is closely linked with efficient management of its finance.
FINANCE FUNCTION
Finance function is the most important of all business function. It is not possible to
substitute or eliminate the function because the business will close down in the
absence of finance. It starts with the setting up of an enterprise and remains at all
times. The development and expansion of business rather needs more commitment
for funds. The funds will have to be raised from various sources. These sources will
be selected in relation to the implication attached with them. The receipts of money
are not enough, its utilization is more important. The money once received will have
to be returned also. If its use is proper then its return will be easy otherwise it will
create difficulties for repayment. The management should have an idea of using the
ACHARYA BANGALORE B SCHOOL Page 1

money profitably. It may be easy to raise funds but at the same time it may be
difficult to repay them. The inflow and outflow of funds should be properly matched.
OBJECTIVES OF FINANCE FUNCTION

• Acquiring sufficient funds: The main aim of finance function is to assess the
financial needs of an enterprise and them finding out suitable sources for raising them.
The sources should be commensurate with the needs of the business. If funds are
needed for longer period’s then long-term sources like share capital, debentures, term
loans may be explored. A concern with longer gestation period should rely more on
owner’s funds instead of interest-bearing securities because profits may not be there
for some years.
• Proper utilization of funds: Through rising of funds is important but their effective
utilization is more important. The funds should be used in such a way that maximum
benefits are derived from them. The returns from their use should be more than their
cost. It should be ensured that funds do not remain idle at any point of time. The funds
committed to various operations should be effectively utilized. Those projects should
be preferred which are beneficial to the business.
• Increasing profitability: The planning and control of finance functions aims at
increasing profitability of the concern. To increasing profitability; sufficient funds
will have to be invested. The cost of acquiring funds should be such that it results in
maximum returns.
• Maximizing concerns value: The demands of products are some other consideration
which influences a firm’s value. It is started that concern’s value is directly linked
with its profitability besides profits the type of sources used for raising funds, the cost
of funds and the conditions of money market.
TYPES OF FINANCES
• Public Finance: It is the study of the income and expenditure of the state. It deals
only with the finance of the government. Scope of public finance consists in the study
of the collection of funds and their allocation between various branches of state
activities which are regarded as essential duties or functions of the state.
• Private Finance: it is an alternative corporate finance method that an organization

raises cash to avoid limited time frame monetary shortfalls. This method typically
serves a firm that is not listed on a securities exchange or is unable to seek financing
on such markets.
• Personal Finance: It is the application of the principles of finance to the monetary
decision of an individual or family unit. It addresses the ways in which individuals or
families obtain, budget, save and spend monetary resources overtime, taking into
account various financial risks and future life events.
• Corporate Finance: It is primarily concerned with maximizing shareholder value
through long term and short-term financial planning and implementation of various
strategies. Corporate finance includes planning the finance, raising the finance,
investing the finance and monitoring the finance.
IMPORTANCE OF FINANCE FUNCTION:

• Estimating financial requirements: The first task of financial manager is to estimate
short term and long-term financial requirements of this business. For this purpose, he
will prepare a financial plan for presents as well as for future. The amount required
for purchasing fixed assets as well as, the need of funds for working capital will have
to be ascertained.
• Deciding the capital structure: The capital structure refers to the kinds and
proportion of different securities for raising funds. After deciding about the quantum
of funds required it should be decided which type of securities should be raised. It
may be wise to finance fixed asset through long term debts.
• Proper cash management: Cash management is also an important task of a finance
manager. He has to access various cash needs at different times and then make
arrangements for arranging cash.
Cash may be required to:
i. Purchasing raw materials

ii. Make payment to creditors
iii. Meet wage bills
iv. Meet day to day expenses

The usual sources of cash may be Cash sales

i. Collection of debts
ii. Short term arrangements with banks etc.
• Implementing financial controls: An effective system of financial management

necessitates the use of various control devices financial control device generally used
are:
a) Return on investment
b) Budgetary control
c) Breakeven analysis
d) Cost control
e) Ratio analysis
f) Cost and internal audit
Return on investment is the best control device to evaluate the performance of various
financial policies.
• Proper use of Surpluses: The utilization of profits or surpluses is also an important
factor in financial management
FINANCIAL STATEMENT ANALYSIS
Meaning of financial statement
At the end of the accounting year, every business concern is curious to get answers for
two crucial questions I.e. whether it has earned a profit or suffered a loss during the
last accounting period and how the business stands at the end of the period? The
answers for these questions are given in the form of formal reports prepared at the end
of the accounting period. Such reports are called ' Financial statements'. These
comprise two important statements, the profit and loss account/ Income statement
dealing with the first question and Balance sheet/ Position statement for the second
one. The profit and loss account presents a bird’s eye view of the operations for the
entire period, while the balance sheet portrays the financial position at a point of time
when the accounting period comes to a close. L.K. Rockley beautifully compares the
two financial statements: “The profit and loss account is very similar to a cine
camera’s picture of something occurring over period of time, while the balance sheet
may be one of the 'stills' taken at any stage during the run of that particular cine film”.

Apart from profit and loss account and Balance sheet, statement of retained earnings,
schedule of fixed assets, schedule of debtors, schedule of creditors and schedule of
investments are also presented to give a complete view of the financial affairs. These
statements put together are called “package of financial statements”.
Significance of financial statements
Financial statements are the blueprints of the financial affairs of a firm. It provides
meaningful, useful and valuable information periodically regarding financial position
and future prospects of the business concern. Many parties are interested to utilize the
information provided by the financial statements for the purpose of analysis and
interpretation. The significance of financial statements for each of the parties is
discussed below:
For owners Shareholders/proprietors of the business are interested in the well-being

of the business. They would like to have information about the progress and financial
condition of the business in which they have invested their funds. Therefore, financial
statements provide information to proprietors and prospective proprietors too, as
relating to earnings, divided, growth rates, past performance, etc. It acts as a guide to
the value of investments made.
For potential investors The potential investor depends heavily on the information
disclosed in the financial statements for the purpose of taking decisions regarding
investments in the securities of the company. It is due to this significance that the
disclosure of the financial data has been made mandatory for public companies while
inviting deposits, subscription to shares and debentures from public under the
companies’ act 1956.
For management Management, whether or not it is the same as owners, relies upon
financial statements for appraising the operating performance of the business.
Financial statements provide a basis for appraising the operating performance of the
business. Financial statements provide a basis for appraising its performance in
carrying on individual activities as well as conducting the business as a whole. For,
these statements can supply useful information about undesirable tendencies that need
to be corrected etc. The information furnished in the financial statements will form a
basis for future financial plans.

For creditors Creditors are interested in the continuing profitable performance of the
business to which they have provided financial resources. They are very much
concerned with receipt of interest and the repayment of credit given. The financial
statements provide a measure of degree of risk (credit worthiness) of lending
operations to the bank and other creditors.
For government The government likes to have a copy of financial statements of

every business concern as a means of complying with taxation, labor and corporate
laws. If needed, the government may direct the officials to examine the accounting
records of business concerns.
For public Public, in general, show a lot of interest in studying the financial
statements of a business concern as investors and consumers. With the help of
financial statements, they can judge whether the business concern is indulging in
profiteering, it may get reprimand from public.
For employees The employees mainly rely on the information supplied by the
financial statements because their fortune and well being are tied to the business.
They can bargain on matters relating to salary determination, bonus, fringe benefits or
working conditions on the basis of the information revealed in financial statements.
Thus, financial statements are useful to employees and unions as they get insight into
matters affecting their economic and social interests.
For students and research scholars Students and research scholars can utilize the
information given in the financial statements for their research studies relating to
industry or economy in general.
Limitations of financial statements
There is no such belief that information furnished in financial statements is

sacrosanct. Many a time, they conceal more than what they reveal. As such, financial
statements suffer from many limitations, some of which are as follows.
1. Financial statements do not give complete picture about various transactions

of the business concern. Only those transactions which can be measured in

terms of money alone are recorded in it, those transactions which cannot be
expressed in money are left, howsoever, important they may be.
2. Information furnished in financial statements is not precise, as it is prepared
based on practical experience and the conventions and rules developed there
from.
3. The financial statements essentially constitute interim reports prepared for an
accounting period, usually a year. These statements are neither complete nor
accurate as the flow of incomes and expenses is artificially cut off at the
balance sheet date. The ultimate gain or loss can be found out only when the
business is completely sold or liquidated.
4. Financial statements do not reflect the accounting principles followed and
assumptions made in their preparation. The accountant, who prepares the
financial statements, may make improper assumptions either mistakenly or to
distort the picture.
5. The number of parties interested in the financial statements is large and their
interests are diverse. The financial statements cannot, therefore, meet the
requirements of all parties interested in them.
6. Due to the choice made by the management in respect of the method of
valuation of investors, depreciation methods etc., the financial statements of
various companies are not easily comparable. In other words, one must have
knowledge of the accounting Policies adopted by the managements concerned.
7. Balance sheet is a static statement as it reveals the financial position of a
business concern on a particular date. But the values shown and consumption
of items keep changing day-by-day. Therefore, the information does not reveal
current realities.
8. Net profit disclosed by profit and loss account may not be real profit as many
items that appear in the profit and loss account are not real but estimated.
9. Financial statements are prepared on historical cost basis involving money
value of different dates. As such, the impact of price level changes is
completely ignored. Since these statements deal with past not the future, they
are of little value in managerial decision making.
10. Financial statements are dumb, because they cannot speak themselves. The
statements require further detailed analysis and interpretation.

In view of all these limitations from which the financial statements suffer, one
can rightly say that the financial statements show the position of financial
accounting rather than the financial conditions of a business.
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS
Financial statements contain a lot of accounting figures, as given in the financial

statements, are nothing more than a group of accounting figures and they hardly
convey anything to a layman. So, to make the accounting figures in the financial
statements meaningful to a layman, the financial statements have to be analyzed and
interpreted.
Analysis and interpretation of financial statements are, therefore, an attempt to

determine the significance and the meaning of the financial statements data, so that a
forecast may be made by the prospects of future earnings, ability to pay interest, debt
maturities, both current as well as long term, profitability of a sound dividend policy
etc. In other words, it is a process of establishing the meaningful relationship between
the items of the two financial statements with the objective of identifying the financial
and operational strengths and weaknesses of a firm.
In the context of the study of the meaning of analysis and interpretation of financial
statements. It may be noted that the two terms “analysis” and “interpretation” can be
distinguished from each other. The term ‘analysis’ refers to the methodical
classification of the data given in the financial statements. It includes (a) breaking
financial statements into simpler ones; (b) regrouping; (c) rearranging the figures
given in financial statements; and (d) finding out ratios and percentages. Thus, all
processes which help in drawing certain results from the financial statements are
included in the analysis. The term ‘interpretation’ refers to the comparison of various
components and the examination of their content, so that useful and definite
conclusions may be drawn about the earning capacity, efficiency, profitability,
liquidity, solvency, etc. However, both ‘analysis’ and ‘interpretation’ are
complementary to each other and may be used as a single term. Interpretation
becomes difficult without analysis (i.e. interpretation requires analysis) and analysis is
useless without interpretation. So, most of the authorities on accounting use the term
‘analysis’ to cover both analysis and interpretation.

Objectives of financial statement analysis
Every user of financial statements has a distinct objective for which he attempts to
analyze and interpret. Inspite of the variations in the objectives of interpretation by
various classes of people, there are certain specific and common objectives for which
data analysis is undertaken. The important objectives are listed below:
1. To interpret the profitability and efficiency of various business activities with

the help of income statement.
2. To aid in economic decision making – investment and financial decision.
3. To gauge the financial position and financial performance of the concern.
4. To identify areas of mismanagement and potential danger.
5. To ascertain the investment pattern of the resources.
6. To ascertain the maintenance of financial leverage.
7. To determine the pattern of movement of inventory.
8. To identify diversion of funds, if any.
9. To measure utilization of various assents during the period.
10. To decide about the future prospects of the firms.
11. To compare operational efficiency of similar concerns engaged in the same
industry.
Procedure of financial statement analysis
It is necessary to take some preliminary steps before making an analysis of financial

statements. The procedure in this regard is outlined below:
1. First of all, the objectives of financial statements analysis have to be clearly

framed so as to select an appropriate technique of analysis.
2. The concepts and conventions applied in the preparation of the financial
statements are to be ascertained to understand the significance of financial
data.
3. Additional data required for the purpose of analysis are to be collected
properly.

4. The collected data is to be presented in a logical order by rearranging and

readjusting the different items.
5. The data is to be analyzed for the purpose of preparing comparative
statements, for calculation of ratios and for finding out averages and for
estimating trends.
6. The findings of analysis are to be interpreted by considering the general state
of market and economy.
7. The interpreted data and information is to be submitted in the form of report.
TYPES OF FINANCIAL ANALYSIS
The analysis of financial statements can be made in various ways. The different types
of financial analysis are presented below:
1. According to Materials Used

(a) External Analysis When analysis of the financial statements of a business
concern is done by external parties, it is termed as external analysis. Such
parties’ maybe shareholders, investors, lenders or creditors. As there is no
access to the books of accounts and the internal records of the concern, the
parties mainly depend on the data given in the financial statements and other
supplements in the annual reports for their analysis. This analysis, therefore,
serves a very limited purpose.
(b) Internal Analysis Such an analysis is undertaken by the persons inside the
business concern who have, obviously, access to all the relevant books,
records, statements and other information. The analyst may be the executive,
accountant or internal auditors. Sometimes, government agencies assume
powers to have access to the internal records of a company. As complete set of
information is available easily to the business concern, clearly stating the
reasons for improvements or decreasing trends in various indicators of
performance.
2. According to Modus Operandi of Analysis

(a) Horizontal Analysis Under these types of analysis, the financial
statements of a number of years or the financial statements of different

concerns are studied and analyzed. For effective interpretation, a comparative

study of the statements is undertaken. This type of analysis is also known as
‘Dynamic analyses’ as it is based on the data from year to year and measures
the change of position or trend of the business over a number of years. This
analysis provides considerable insight into the levels and areas of strength and
weakness of a business concern.
(b) Vertical analysis When only one year or the financial statements of only
one business concern is taken up for review or only one set of accounting data
is being examined, it is a case of vertical analysis. In this type of analysis, the
figures of the financial statements are analyzed vertically. That is, a figure
from a year’s financial statements is compared with a base figure selected
from the same financial statements. For example, the ratios of different items
of costs on a particular year may be compared with the sales of that year. This
type of analysis also known as static analysis or structural analysis is highly
useful to have an understanding of the performance of several companies in
the same group or the many divisions or departments in the same company.
It is clear from the above discussion that the use of both methods of analysis is
very much required for proper analysis. Each method provides specific type of
information. In fact, both methods constitute the backbone of financial
analysis.
TOOLS OR TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS
Financial statements as profit and loss account and balance sheet and the figures
within these statements can be re-arranged and presented in such forms which make
the complex data more intelligible and thereby facilitate analysis and interpretation.
Analysis is thus done by adopting different tools or techniques.
RATIO ANALYSIS
A financial statement depicts the financial position of the concern on a given date. To
understand the financial position, one should have Accounting Knowledge. And also,
many accounting statements on the apparent look do not reveal the actual solvency or
profitability position of the concern. For instance, the profitability of the concern
cannot just be understood by looking at the net profit. It will be more meaningful if it
is said in relation to the sales or capital employed in terms of percentages. Similarly

operating expenses when it is expressed in relation to sales it gives more clarity for
making decisions like cost control. Hence financial statements independently cannot
serve the purpose of the needy people like Creditors, Bankers, Investors, and others.
So, the concept of ratio is more important in the modern financial transactions and
managerial decisions.
Ratio is considered as one of the effective tools of financial analysis. It facilitates for
interpretation of the profitability and solvency position of a concern. The term ratio, is
understood as one number expressed in terms of another. It is an expression of
relationship between two numbers by dividing one figure by another.
EVOLUTION OF RATIO ANALYSIS
In the beginning of nineteenth century essential improvement in ratio analysis

occurred. In this period few developments are endogenous. First, large number of
ratios was conceived in comparison to earlier periods. Second, proper ratio criteria
were appeared. In this regard most famous was current ratio criterion. Third, different
analysts understand the need of inter-firm analysis and for that purpose it felt the need
for relative ratio criterion. Despite these developments ratio analysis has been used for
analysis in this period and those felt the need of using ratio analysis only used current
ratio.
Two very important exogenous developments in this period because of which need of
ratios has surfaced were federal income tax code in 1913 and the establishment of the
Federal Reserve System in 1914. These two developments also helped to improve the
content of financial statements as well as increased the demand of financial
statements.
In 1920s, interest in ratio analysis increased dramatically. Many publications on the

topic of ratio analysis published during this period. Different credit agencies, trade
unions, universities and individuals seeking analyses compiled industry data on ratio
analysis.
Justin (1924) argued that the method of gathering industry data and calculates
averages were called ‘Scientific ratio analysis’. The word ‘scientific’ in this title was

not entirely correct because no evidence had been found that the hypothesis
formulation and hypothesis testing actually carried out.
Horrigan (1968) says ratios analysis has come into existence since early ages and the
main reason of the development of ratio analysis was its use in the analysis of the
properties of ratios in 300 B.C. in recent time it is used as a standard tool for the
analysis of financial statement. In nineteenth century main reasons of using ratio
analysis are power of financial institutions and shifting of management to professional
managers. Ratio analysis used for two purposes that are credit and managerial. In
managerial approach profitability and in credit approach capacity of firm to pay debts
is the main point of focus. Generally, ratio analysis is used credit analysis.
Bliss (1923) says basic relationship within the business is indicated by the ratios and
developed complete model based on the ratios. The purpose model was not mature but
inspired others to start working on this theory.
Different critics of ratio analysis also appeared. Gilman (1925) has following
concerns on ratio analysis (1) ratios are bond with time and changed as time passed so
cannot be interpreted (2) ratios are not natural measure for judging the performance
companies manipulated them (3) ratios easily affect the mind of viewers and hide the
actual position and (4) ratios swing widely that also affect the dependability.
Beaver (1967) also examined the prediction power of ratio analysis and point out
ratios ability to predict failure as early as five years before the collapsed. Statistical
technique used in the study was more powerful than earlier studies and fund statement
data was used to calculate ratio. This study set the foundation for future research on
ratio analysis.
Sorter and Becker (1964) examined the relationship between psychological model and
corporate personality of financial ratios and find out that long-established corporation
maintain greater liquidity and solvency ratios.
In 1940s many nations expressed interest in ratio analysis. Current ratio has used in
credit management in Australia after intense scrutiny. In England data has collected
from different
Organizations and sorted in ‘pyramid’ in order to use that data in ratio analysis so that
decisions are made on more rational basis. In other wards British method is more

management oriented than American system that is credit oriented. Indian and
Canadian systems are similar to American system and the same kind of ratios and
criteria has been used. In Japan data is available in grouping on the basis of industry
and sizes of firms. China and Russia used several ratios as control measure in
investment and working capital.
Pinches and Mingo (1973) evaluate the structure of ratios and found that ratios can be
divided into different groups. Present general classification of financial ratios on
logical basis. Results concluded that the ratios can be divided into four groups that are
financial leverage, short-term capital intensiveness, return on investment and long-
term capital intensiveness.
MEANING OF RATIO ANALYSIS
An analysis of financial statements with the help of ‘ratio’ is termed as ratio analysis.
In other words, it is a technique of calculation of a number of accounting ratios from
the data contained in the financial statements, the comparison of the accounting ratios
with those of the previous years or with other business concerns engaged in similar
line of activities or with those of standard or ideal ratios and the interpretation of the
comparison.
Ratio is the relationship between two accounting numbers by dividing one number by
another. It is one of the effective tools of financial analysis. It indicates the
relationship of accounting aspects like profit and sales, income and expenses, current
assets and liabilities etc. with each other and reflects the soundness of the concern.
Ratio analysis is the technique of the computation of number of accounting ratios

from the data derived from the financial statements, and comparing those with the
ideal or standard ratios or the previous year's ratios or the ratios of other similar
concerns. It is a technique of comparative analysis in which current year ratios are
compared with the past or other organization’s which are in similar line of operation
so as to ascertain the financial soundness of the concern.

DEFINITION OF RATIO
Ratio analysis is the process of examining and comparing financial information by

calculating meaningful financial statement figure percentages instead of comparing
line items from each financial statement.
Managers and investors use a number of different tools and comparisons to tell
whether a company is doing well and whether it is worth investing in. The most
common ways people analysis a company’s performance are horizontal analysis,
vertical analysis, and ratio analysis. Horizontal and vertical analyzes compare a
company’s performance over time and to a base or set of standard performance
numbers.
INTERPRETATION OF RATIOS
The interpretation of ratios is an important factor. Though calculation of ratios is also

important but it is only a clerical task whereas interpretation needs skill, intelligence
and foresightedness. The inherent limitations of ratio analysis should be kept in mind
while interpreting them. The impact of factors such as price level changes, change in
accounting policies, window dressing etc., should also be kept in mind when
-attempting to interpret ratios.
A single ratio in itself does not convey much of the sense. To make ratios useful, they
have to be further interpreted. For example, say, the current ratio of 3: 1 does not
convey any sense unless it is interpreted and conclusion is drawn from it regarding the
financial condition of the firm as to whether it is very strong, good, questionable or
poor.
The interpretation of the ratios can be made in the following ways:
1. Single Absolute Ratio: Generally speaking, one cannot draw any meaningful
conclusion when a single ratio is considered in isolation. But single ratios may be
studied in relation to certain rules of thumb which are based upon well proven
conventions as for example 2: 1 is considered to be a good ratio for current assets to
current liabilities.

2. Group of Ratios: Ratios may be interpreted by calculating a group of related ratios.

A single ratio supported by other related additional ratios becomes more
understandable and meaningful. For example, the ratio of current assets to current
liabilities may be supported by the ratio of liquid assets to liquid liabilities to draw
more dependable conclusions.
3. Historical Comparison: One of the easiest and most popular ways of evaluating the
performance of the firm is to compare its present ratios with the past ratios called
comparison overtime. When financial ratios are compared over a period of time, it
gives an indication of the direction of change and reflects whether the firm’s
performance and financial position has improved, deteriorated or remained constant
over a period of time. But while interpreting ratios from comparison over time, one
has to be careful about the changes, if any, in the firm’s policies and accounting
procedures.
4. Projected Ratios: Ratios can also be calculated for future standards based upon the
projected or proforma financial statements. These future ratios may be taken as
standard for comparison and the ratios calculated on actual financial statements can be
compared with the standard ratios to find out variances, if any. Such variances help in
interpreting and taking corrective action for improvement in future.
5. Inter-Firm Comparison: Ratios of one firm can also be compared with the ratios of
some other selected firms in the same industry at the same point of time. This kind of
comparison helps in evaluating relative financial position and performance of the
firm. But while making use of such comparison one has to be very careful regarding
the different accounting methods, policies and procedures adopted by different firms.
CLASSIFICATION OF RATIOS
The use of ratio analysis is not confined to financial manager only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. In view of various users of ratios, there are many types of ratios
which can be calculated from the information given in the financial statements.
The particular purpose of the user determines the particular ratios that might be used
for financial analysis. For example, a supplier of goods of a firm on credit or a banker

advancing a short-term loan to a firm, is interested primarily in the short-term paying

capacity of the firm, or says in its liquidity.
On the other hand, a financial institution advancing a long-term credit to a firm will
be primarily interested in the solvency or long- term financial position of the concern.
Similarly, the interests of the owners (shareholders) and the management also differ.
The shareholders are generally interested in the profitability or dividend position of a
firm while management requires information on almost all the financial aspects of the
firm to enable it to protect the interests of all the parties.
Various Accounting Ratios
(A)Traditional Classification or Statement Ratios:
Traditional classification or classification according to the statement, from which

these ratios are calculated, is as follows:
1. Balance Sheet or Position Statement Ratios: Balance Sheet ratios deal with the
relationship between two balance sheet items, e.g. the ratio of current assets to current
liabilities, or the ratio of proprietors’ funds to fixed-assets. Both the items must,
however, pertain to the same balance sheet. The various balance sheet ratios have
been named in the chart classifying statement ratios.
2. Profit and Loss Account or Revenue/Income Statements Ratios: These ratios deal
with the relationship between two profit and loss account items, e.g., the ratio of gross
profit to sales, or the ratio of net profit to sales. Both the items must, however, belong
to the same profit and loss account. The various profit and loss account ratios,
commonly used, are named in the chart classifying statement ratios.
3. Composite/Mixed Ratios or Inter Statement Ratios: These ratios exhibit the relation
between a profit and loss account or income statement item and a balance sheet item,
e.g., stock turnover ratio, or the ratio of total assets to sales. The most commonly used
inter-statement ratios are given in the chart exhibiting traditional classification or
statement ratios.
(B) Functional Classification or Classification According to Tests:
Various ratios have been classified as below:

1. Liquidity Ratios: These are the ratios which measure the short-term solvency or
financial position of a firm. These ratios are calculated to comment upon the short-
term paying capacity of a concern or the firm’s ability to meet its current obligations.
The various liquidity ratios are: current ratio, liquid ratio and absolute liquid ratio.
Further to see the efficiency with which the liquid resources have been employed by a
firm, debtors’ turnover and creditor’s turnover ratios are calculated.
2. Long-term Solvency and Leverage Ratios: Long-term solvency ratios convey a

firm’s ability to meet the interest costs and repayments schedules of its long-term
obligations e.g. Debt Equity Ratio and Interest Coverage Ratio. Leverage Ratios show
the proportions of debt and equity in financing of the firm. These ratios measure the
contribution of financing by owners as compared to financing by outsiders.
The leverage ratios can further be classified as:
(i) Financial Leverage,
(ii) Operating Leverage,
(iii) Composite Leverage.
3. Activity Ratios: Activity ratios are calculated to measure the efficiency with which
the resources of a firm have been employed.
These ratios are also called turnover ratios because they indicate the speed with which
assets are being turned over into sales, e.g., debtor’s turnover ratio. The various
activity or turnover ratios have been named in the chart classifying the ratios.
4. Profitability Ratios: These ratios measure the results of business operations or

overall performance and effectiveness of the firm, e.g., gross profit ratio, operating
ratio or return on capital employed. The various profitability ratios have been given in
the chart exhibiting the classification of ratios according to test. Generally, two types
of profitability ratios are calculated
(i) In relation to sales, and
(ii) In relation to investments.
(C) Classification According to Significance or Importance:

There ratios have also been classified according to their significance or importance.
Some ratios are more important than others and the firm may classify them as primary
and secondary ratios. The British Institute of Management has recommended the
classification of ratios according to importance for inter-firm comparisons. For inter-
firm comparisons, the ratios may be classified as Primary Ratios and Secondary
Ratios.
CLASSIFICATION OF RATIOS:
Ratio can be classified as per the need and requirement of the users. Ratios are not
only useful for internal users but also to many others like Investors, Bankers, creditors
and government. In this view point, ratios can be classified as follows.
On the basis of nature and significance of ratios it can be classified as follows:
1) LIQUIDITY RATIO
It is the ratio which measures the short-term solvency position of an organization. It

brings out the ability of an organization to meet its immediate or short-term financial
commitments with its short term or liquid resources. Such ratios are highly needful for
parties like creditors, banker's and other private lenders. It enables the lenders to know
the repayment ability of an organization with in short period.
Liquidity Ratio can be broadly classified into:
A. Current ratio
B. Quick ratio (liquid ratio or acid test ratio)
A. CURRENT RATIO: It is the ratio which is computed by taking into consideration

the current assets and current liabilities of an organization. It is calculated as follows:
Current Assets
Current ratio =
Current Liabilities
Interpretation of Current ratio: The generally accepted current ratio or Ideal ratio is
2:1. It means for every one rupee of current liability, there should be two rupees of
current assets to ensure better solvency position. An organization which has Current
ratio as 2 or more reflects the sufficient liquidity and enough working capital.

B. QUICK RATIO: Quick ratio is that ratio which measures the immediate solvency
position of an enterprise. It establishes relationship between quick assets and quick
liabilities. It is computed as follows:
Current assets
Quick ratio =
Current liabilities
Interpretation of Quick ratio: Ideal or standard quick ratio, which are generally
expected is 1:1. It means for every quick liability there should be at least once quick
assets.
2) CAPITAL STRUCTURE RATIO
Capital structure ratio is that ratio which reflects the ability of an organisation to meet
its obligation in the long-term. It signifies the financial capacity of a concern over a
period of time to meet its financial commitments through its capital allocation in
various assets. It is a very useful ratio for creditors, Investors, and long-term lender's
since it reflects the long-term solvency position of an enterprise.
Some of the imperative Capital structure ratios are as follows:
A. DEBT-EQUITY RATIO: It is the ratio of debts or long-term liabilities, and equity

or owner's funds. Debt includes long-term as well as short-term liabilities of an
organisation. Equity includes equity capital, reserves and surplus and any other
reserves created out of past profits.
Debt equity ratio is computed as follows:
Debt
Debt equity =
Equity
Interpretation of capital structure ratio: The generally expected level of debt equity
ratio is 2:1 i.e. when there is two rupees of debt for every one rupee of equity fund, it
is understood as the financial soundness of a firm is satisfactory.
B. PROPRIETARY RATIO: This ratio is also known as owner's fund ratio or net
worth ratio. It is the ratio between net worth or equity and tangible assets. It is
expressed as follows:

Net worth
Proprietary ratio =
Total assets
Interpretation of proprietary ratio (Net-worth ratio): The generally expected net

-worth ratio is 5:1. When this ratio is more, it is said that the financial soundness is
more favorable.
C. CAPITAL GEARING RATIO: It is the ratio which is computed between equity

capital and fixed interest-bearing securities like debentures, long term loan's, public
deposits, and preference share capital.
¿ interest
Capital gearing ratio =
Equity fund
When capital gearing ratio is more than one, it is interpreted as the company is highly
geared, which poses threat for further fund raising, and need more consistent fund
inflow for meeting those fixed commitments.
3) TURNOVER RATIO (EFFICIENCY RATIO or ACTIVITY RATIO)
Turnover ratios are those ratio's which measures the operational efficiency of an
organisation. It reflects the efficient use of the organisation resources in terms of
revenue generation.
It is also termed as performance ratio since it measures the performance of different

operations.
It reflects the number of times the stocks have been rolled out, the frequency of debt
collection, the frequency of creditor’s payment, cash turnover etc.
It enables management to make decisions about the speedy movement of stocks, debt
collection, creditor’s payment and many other such operational aspects.
Turnover ratios can be broadly classified into:
A. STOCK TURNOVER RATIO: Inventory turnover ratio or stock turnover ratio

indicates the relationship between “cost of goods sold” and “average inventory”. It
indicates how efficiently the firm’s investment in inventories is converted to sales and
thus depicts the inventory management skills of the organization.

It is both an activity and efficiency ratio. This ratio helps to determine stock related
issues such as overstocking and overvaluation.
It is computed as follows:
Cost of goods sold

Stock turnover ratio =
Average stock
In some cases, the numerator may be “Cost of Revenue from Operations” which is
calculated as “Revenue from operations – Gross profit"
COGS (cost of goods sold) – It can be calculated as follows:
Cost of goods sold = sales - Gross profit
Average Inventory – Average of stock levels maintained by a business in an

accounting period, it can be calculated as;
Opening stock +Closing stock

Avg. Inventory (stock) =
2
Interpretation of Stock turnover ratio: Inventory or Stock turnover indicates the

efficiency of a firm’s inventory management. This ratio gives the rate at which stocks
are converted into sales and then into cash.
If the stock turnover ratio is high it shows more sales are being made with each unit of
investment in inventories. Though high is favorable, a very high ratio may indicate a
shortage of working capital and lack of sufficient inventories.
A low inventory turnover ratio may indicate unnecessary accumulation of stock,

inefficient use of investment, over-investment in inventories, etc. This is a concern for
the company as inventory could become obsolete and may result in future losses.
B. DEBTORS TURNOVER RATIO: Debtor’s turnover ratio is also known as

Receivables Turnover Ratio, Debtor’s Velocity and Trade Receivables Ratio.
It is an activity ratio that finds out the relationship between net credit sales and
average trade receivables of a business.
It helps in cash budgeting as cash flow from customers can be computed on the basis
of total sales generated by a business.

Debtor’s Turnover Ratio is calculated as follows:
Formula:
Net annual credit sales

Debtors turnover ratio =
Average trade debtors
Interpretation of Debtors turnover ratio:
High and Low Debtor’s Turnover Ratio
A high ratio may indicate:
• Low collection period allowed to customers.
• The company may operate majorly on the cash basis.
• Company’s collection of accounts receivable is efficient.
• A high proportion of quality customers pay off their debt quickly.
• The company is conservative with regard to the extension of credit.
A low ratio may indicate:
• High collection period allowed to customers.
• Good credit period availed by the company from its suppliers.
• The company may have a high amount of cash receivables for collection.
C. WORKING CAPITAL TURNOVER RATIO: Generally, the working capital is

ascertained based on the turnover or sales. Working capital is the difference between
current assets and current liabilities. Working capital turnover ratio is the ratio
between net sales and working capital of an organization.
Formula:
Net sales
Working capital turnover ratio =
Workingcapital

Interpretation of working capital turnover ratio: working capital is directly co-related

with sales or turnover. More the turnover more will be the working capital
requirement. As such, there is no ideal working capital turnover ratio.
It is said that more the ratio more will be the solvency and operational efficiency of an
enterprise.
4) PROFITABILITY RATIO'S
Profitability ratios are the real measures of the operational efficiency of an enterprise.
It indicates the operational results in a given financial year. It is of great importance to
managers, owner's, shareholders, creditors, bankers, government and general public
for making decisions.
These are the ratios which reflect the profitability position of a concern. It is the ratios
in terms of sales and profit or cost of goods sold or profit at different level denoted in
percentages.
Profitability ratios can be classified as follows:
A. GROSS PROFIT RATIO: Also known as Gross Profit Margin ratio, it establishes
a relationship between gross profit earned and net revenue generated from operations
(net sales). Gross profit ratio is a profitability ratio which is expressed as a percentage
hence it is multiplied by 100.
Net sales consider both Cash and Credit Sales; on the other hand, gross profit is
calculated as Net Sales minus COGS (Cost of goods sold). Gross profit ratio helps to
ascertain optimum selling prices and improve the efficiency of trading activities.
It also helps find out the lowest selling price of goods per unit to an extent that the
business will not suffer a loss.
Gross profit ratio can be calculated as follows:
Formula:
Gross profit
Gross profit ratio = ×100
Net sales
Interpretation of Gross Profit:

A business is rarely judged by its Gross Profit ratio, it is only a mild indicator of the
overall profitability of the company.
A high ratio may indicate high net sales with a constant cost of goods sold or it may
indicate reduced COGS with constant net sales.
A low ratio may indicate low net sales with a constant cost of goods sold or it may
also indicate increased COGS with constant net sales.
B. NET PROFIT RATIO: Net profit ratio also known as Net Profit Margin ratio, it
establishes a relationship between net profit earned and net revenue generated from
operations (net sales). Net profit ratio is a profitability ratio which is expressed as a
percentage hence it is multiplied by 100.
Net profit ratio helps to determine the overall efficiency of the business’ operations;
furthermore, it is an indicator of how well a company’s trading activities are
performing.
Net profit ratio can be calculated as follows:
Formula:
Net profit
Net profit ratio = × 100
Net sales
Interpretation of Net Profit Ratio: This ratio is the main indicator of a firm’s
profitability; a trend analysis is usually done between two different accounting
periods to assess improvement or deterioration of operations.
A high ratio may indicate low direct and indirect costs which will result in a higher
net profit of the organization.
A low ratio may indicate unnecessarily high direct and indirect costs which will result
in a lower net profit of the organization, thus reducing the numerator to lower than the
desired number.
C. OPERATING PROFIT RATIO: Operating profit ratio establishes a relationship

between operating Profit earned and net revenue generated from operations (net
sales).

Operating profit ratio is a type of profitability ratio which is expressed as a

percentage.
It helps to find out Operating Profit earned in comparison to revenue earned from
operations.
Calculation of operating profit ratio
Formula:
Operating profit
Operating profit ratio = ×100
Net sales
Interpretation of Operating profit ratio:
This ratio helps to analyze a firm’s operational efficiency; a trend analysis is usually
done between two different accounting periods to assess improvement or deterioration
of operational capability.
A high ratio may indicate better management of resources i.e. a higher operational
efficiency leading to higher operating profits in the company.
A low ratio may indicate operational flaws and improper management of resources; it
is an indicator that the profits generated from operations are not enough as compared
to the total revenue generated from sales.
Advantages of ratio analysis:
Ratio analysis is widely used as a powerful tool of financial statement analysis. It

establishes the numerical or quantitative relationship between two figures of a
financial statement to ascertain strengths and weaknesses of a firm as well as its
current financial position and historical performance. It helps various interested
parties to make an evaluation of certain aspect of a firm’s performance.
The following are the principal advantages of ratio analysis:
1. Forecasting and Planning: The trend in costs, sales, profits and other facts can be
known by computing ratios of relevant accounting figures of last few years. This trend
analysis with the help of ratios may be useful for forecasting and planning future
business activities.

2. Budgeting: Budget is an estimate of future activities on the basis of past experience.

Accounting ratios help to estimate budgeted figures. For example, sales budget may
be prepared with the help of analysis of past sales.
3. Measurement of Operating Efficiency: Ratio analysis indicates the degree of

efficiency in the management and utilization of its assets. Different activity ratios
indicate the operational efficiency. In fact, solvency of a firm depends upon the sales
revenues generated by utilizing its assets.
4. Communication: Ratios are effective means of communication and play a vital role
in informing the position of and progress made by the business concern to the owners
or other parties.
5. Control of Performance and Cost: Ratios may also be used for control of
performances of the different divisions or departments of an undertaking as well as
control of costs.
6. Inter-firm Comparison: Comparison of performance of two or more firms reveals

efficient and inefficient firms, thereby enabling the inefficient firms to adopt suitable
measures for improving their efficiency. The best way of inter-firm comparison is to
compare the relevant ratios of the organization with the average ratios of the industry.
7. Indication of Liquidity Position: Ratio analysis helps to assess the liquidity position
i.e., short-term debt paying ability of a firm. Liquidity ratios indicate the ability of the
firm to pay and help in credit analysis by banks, creditors and other suppliers of short-
term loans.
8. Indication of Long-term Solvency Position: Ratio analysis is also used to assess the
long-term debt-paying capacity of a firm. Long-term solvency position of a borrower
is a prime concern to the long-term creditors, security analysts and the present and
potential owners of a business. It is measured by the leverage/capital structure and
profitability ratios which indicate the earning power and operating efficiency. Ratio
analysis shows the strength and weakness of a firm in this respect.
9. Indication of Overall Profitability: The management is always concerned with the

overall profitability of the firm. They want to know whether the firm has the ability to
meet its short-term as well as long-term obligations to its creditors, to ensure a

reasonable return to its owners and secure optimum utilization of the assets of the
firm. This is possible if all the ratios are considered together.
10. Signal of Corporate Sickness: A company is sick when it fails to generate profit
on a continuous basis and suffers a severe liquidity crisis. Proper ratio analysis can
give signal of corporate sickness in advance so that timely measures can be taken to
prevent the occurrence of such sickness.
11. Aid to Decision-making: Ratio analysis helps to take decisions like whether to
supply goods on credit to a firm, whether bank loans will be made available etc.
12. Simplification of Financial Statements: Ratio analysis makes it easy to grasp the
relationship between various items and helps in understanding the financial
statements.
Limitations of Ratio Analysis:
The technique of ratio analysis is a very useful device for making a study of the
financial health of a firm. But it has some limitations which must not be lost sight of
before undertaking such analysis.
1. Financial Statements: Ratios are calculated from the information recorded in the
financial statements. But financial statements suffer from a number of limitations and
may, therefore, affect the quality of ratio analysis.
2. Historical Information: Financial statements provide historical information. They

do not reflect current conditions. Hence, it is not useful in predicting the future.
3. Different Accounting Policies: Different accounting policies regarding valuation of

inventories, charging depreciation etc. make the accounting data and accounting ratios
of two firms non-comparable.
4. Lack of Standard of Comparison: No fixed standards can be laid down for ideal
ratios. For example, current ratio is said to be ideal if current assets are twice the
current liabilities. But this conclusion may not be justifiable in case of those concerns
which have adequate arrangements with their bankers for providing funds when they
require, it may be perfectly ideal if current assets are equal to or slightly more than
current liabilities.

5. Quantitative Analysis: Ratios are tools of quantitative analysis only and qualitative
factors are ignored while computing the ratios. For example, a high current ratio may
not necessarily mean sound liquid position when current assets include a large
inventory consisting of mostly obsolete items.
6. Window-Dressing: The term ‘window-dressing’ means presenting the financial

statements in such a way to show a better position than what it actually is. If, for
instance, low rate of depreciation is charged, an item of revenue expense is treated as
capital expenditure etc. the position of the concern may be made to appear in the
balance sheet much better than what it is. Ratios computed from such balance sheet
cannot be used for scanning the financial position of the business.
7. Changes in Price Level: Fixed assets show the position statement at cost only.
Hence, it does not reflect the changes in price level. Thus, it makes comparison
difficult.
8. Causal Relationship Must: Proper care should be taken to study only such figures
as have a cause-and-effect relationship; otherwise ratios will only be misleading.
9. Ratios Account for one Variable: Since ratios account for only one variable, they
cannot always give correct picture since several other variables such Government
policy, economic conditions, availability of resources etc. should be kept in mind
while interpreting ratios.
10. Seasonal Factors Affect Financial Data: Proper care must be taken when
interpreting accounting ratios calculated for seasonal business. For example, an
umbrella company maintains high inventory during rainy season and for the rest of
year its inventory level becomes 25% of the seasonal inventory level. Hence, liquidity
ratios and inventory turnover ratio will give biased picture.
CONCLUSION:
On the basis of advantages and limitations of ratio analysis discussed above it, it may
be concluded that ratio is extremely useful if used with caution. Ratio analysis should
not be performed mechanically. This may prove not only misleading but also
dangerous. Limitations of ratio analysis should always be kept in mind as precautions
while drawing any conclusions from the ratios.

CHAPTER 2
RESEARCH DESIGN
Research simply means a search for facts, answer to questions and solution to
problems. Research is a systematic and logical study of an issue or problem or
phenomenon through scientific method. It is a systematic and objective analysis and
according of controlled observations that may lead to development generalization
principle resulting in prediction and possibly ultimate control of events.
A research design is simply the framework or plan for a study that is used as a guide
in collecting and analyzing the data. A research design is arrangements of condition
for the collection and analysis of data in a manner that aims to combine relevance to
the research purpose with economy procedure. There various research design but
descriptive and analytical research design is more sui0table for the study. Research
design is a logical and systematic planning which helps in directing to carry out a
research.
It is overall operational pattern or framework of the project that stipulates what

information is to be collected from which sources and by what procedures.
TITLE OF THE STUDY:

“A STUDY ON THE RATIO ANALYSIS of KARNATAKA POWER
TRANSMISSION CORPORATION LIMITED”

OBJECTIVES OF THE STUDY:

1. To know the short-term solvency of the company.
2. To analyze long term solvency of the company.
3. To indicate the efficiency with which assets and resources of the firms utilized.
4. To calculate and measure the efficiency of the company.
5. To establish the inter-relationship between the various financial figures.
6. To find out the problems faced relating to liquidity ratios, leverage ratios, Activity
ratios, profitability ratios by the company.
7. To suggest remedial measures to solve the problems faced by the company.
8. To compare the performance of the company on various aspects in the past 5 years.
9. To draw valid conclusions recommendations based on the study.
10. To show the firm’s relative strength and weakness.
11. To involve comparison for a useful interpretation of the financial statements.
12. The firm’s financial condition and performance are unfavorable to the firm when
compared.
STATEMENT OF THE PROBLEM:
The performance of the company is based vitally on the Ratio Analysis. In

KARNATAKA POWER TRANSMISSION CORPORATION LIMITED the
company usually deals with assets and liabilities, non-current liabilities, shareholders’
funds etc. are very important in the organization. These are the components of ratio
analysis. Therefore, a proper and cautious calculation of these is very important.
Hence an attempt is made to see whether there is improvement and efficiency of these
aspects in KARNATAKA POWER TRANSMISSION CORPORATION LIMITED.
SCOPE OF THE STUDY:
The study would give an insight about the different statistics and position of the
organization, which would be easy to understand and hence compare the various
factors like financial status of the company and future expansion.

PLAN OF THE STUDY:
Data collected was tabulated, analyzed and interpreted using Ratio analysis formulas
and interferences were drawn and findings were enumerated and suggestions are
made on the findings of my study.
• Stratification of the data – 10 days.

• Tabulation of data, sequencing and arranging of the data properly in order of
matching with the studies of my study – 6 days
• Graphical representation of tabulated data – 4 days
• Drawing conclusion from key findings in comparison with the objectives – 10 days.
REFERENCE PERIOD:
For the aim of conducting study at “KARNATAKA POWER TRANSMISSION

CORPORATION LIMITED”. The data for the past 5 financial years i.e., 2014-15
to 2018-19 have been taken into consideration.
METHODOLOGY OF THE STUDY:
The study is entirely based on the data collected. The data for every study is based on
types:
a. Primary data: Primary sources of data are those sources in which data are collected
through original investigation. In other words, it is a process in which statistical data
are collected first hand. In my study this was collected through personal interview
with designed officer and manager of KPTCL.
b. Secondary data: Secondary sources of data are those in which the data is already
collected and published are assembled. The data are called secondary data. The task
of gathering secondary data is the task of the compilation of data from various
published sources. Here in my study such data is collected through the,
LIMITATIONS OF THE STUDY

• The study takes into consideration only few accounting ratios.

• Ratios give just a fraction of information needed for judging financial soundness of
the concern.
•The secondary data has been just taken from the records of the company.
• It is only a study of interim reports.

• This study extensively uses the data provided in the financial reports of the
company. If there is any window dressing, the findings could be misleading.
• This being an academic study suffers from time and cost constraint.
• The data was collected for only four years.

• Only selective ratios have been calculated and analyzed.
• The conclusion of this study may not directly reflect the management policies as
policies are influenced by many factors that are beyond the scope of the study.
• Ratios are only meaning of financial analysis and not an end in itself. Limitations of
ratios also hold good in this case. Different people interpret ratios in different ways.

CHAPTER 3
COMPANY PROFILE
INDUSTRY PROFILE
INTRODUCTION
The power quarter within the country has been witnessing long way-attaining changes
Within the last few years. Most of the monolithic nation power forums had been
unbundled and era, transmission and distribution activities separated by means of
developing separate groups. Regulatory fee has been installation to make certain
performance and economic system in activities of power enterprise besides fixing
power tariffs in a transparent manner. All these measures had been initiated to
improve the terrible financial health of the state owned energy utilities, triumph over
the strength shortage (mainly throughout height hours) and to ensure reliability and
pleasant of strength to the clients.
Sources from Ministry of power indicate that during 10 years, the financial health of
the owned power utilities have rapidly deteriorated with the aggregate annual loss
rising from rupees 30 billion. If the rising trend is not arrested and reversed, in the
next five years, this could exceed rupees 500 billion.

It is a recognized fact that in the past, of the 3 main segments of the power industry,
Generation, transmission and distribution, the distribution segments was getting the
least attention, both technically and financially and needed an immediate action plan.
Karnataka is one of the few states0in the country, which is in the forefront of power
sector reforms. It caused the Karnataka Electricity Reforms Act in 1999, which
covered the way for establishment of KERC and re organization of KEB into KPTCL
w.e.f.1-08-1999, which was formed four independent distribution companies
BESCOM, MESCOM, HESCOM and GESCOM 1-06-2002. Another distribution
company by name CESC came into existence w.e.f. 1-04-2006.
HISTORY
The earlier Mysore state had the enviable and super position of setting up the primary
essential hydro-electric station at Shiva samudram as early as 1902 for business
operation.
The art at that time changed into still in its infancy, even in the superior countries. The
Longest transmission wishes of mining operation at Kolar Gold Fields.
The producing capacity of the Shiva samudram power house step by step increased to
42 M.W. in stages. To meet increasing demand for electricity, the Shimsha
Generating Station, with an established potential of 17.0 MW, changed into
commissioned inside the 12 Months 1938.The energy demand changed into ever on
the increase, for industries and rural electrification, and additions to producing
became imperative. The 1st degree of forty eight M.W. and 2nd degree of seventy two
M.W. of the Mahatma Gandhi Hydro-Electric station were commissioned during 1948
and 1952, respectively.
Subsequently, the Bhadra project, with an installed capacity of 33.2 M.W., and the
Tungabhadra Left Bank Power House, with an installed capacity of 27 M.W. at
Munirabad has been commissioned throughout 1964 and 1965, respectively.
The State of Karnataka, with availability of cheap electric powered electricity, and
Other infrastructure facilities became conducive for elevated pace of commercial
interest. It has become essential consequently, to enhance electricity producing
capability by harnessing the whole potential of the Sharavathi Valley. The first unit of
89.1 M.W. Became commissioned in 1964 and completed in 1977.
The demand for electricity saw an exceptional boom within the mind sixty and on
Wards with the putting in place of many public zone and personal industries within
the state. As power era within the country changed into absolutely depending on
monsoon and became subject to its vagaries, the nation authorities set up a cool
primarily based power plant at Raichur. The gift set up ability of the strength plant at
Raichur in 1260 M.W. To augment the strength resources of country, the Kalinadi
task with a hooked up potential of 810 M.W. at Nagjhari strength house and a
hundred M.W. at Supa Dam electricity house, with an power capacity of 4112 Mkwh,
were installation.
The transmission and distribution system in State turned into beneath the manipulate
of government of Karnataka (then Mysore) till year 1957. In the year 1957, Karnataka
Electricity Board has been amalgamated with Karnataka Electricity Board.
To enhance the performance of the strength area and in tune with the reforms initiated
through Government of India, the Government of Karnataka got here out with a well-
known coverage offering essential and radical reforms in the energy sectors.
COMPANY PROFILE
Karnataka Power Transmission Corporation Limited is a registered business

enterprise underneath the Companies Act, 1956 changed into incorporated on 28-7-
1999 and is accompany owned with the aid of the Government of Karnataka with a
licensed share
capital of Rs. 808.38 crores. KPTCL became shaped on 1-08-1999 by carving out the
Transmission and Distribution feature of the sooner Karnataka Electricity Board. Due
to the
enforcement of Reforms Act, the entire power sector in Karnataka was divided into
three
depending upon the activity viz, Generation, Transmission and Distribution.
The Generation Activity is carried out by Karnataka Power Corporation Limited is an
organization owned by State Government of Karnataka which generates and operates

important power producing initiatives within the state together with Hydel, Thermal
and other assets.
The Transmission Activity is performed with the aid of Karnataka Power Corporation
Limited. Karnataka Power Transmission Corporation confined is in particular vested
with the functions of transmission of energy in the whole state of Karnataka. It
operates beneath a license issued by way of Karnataka energy regulatory commission.
Karnataka Power Transmission Corporation Limited
Native name ಕರ್ನಾಟಕವಿದ್ಯುತ್ಪ್ರಸರಣನಿಗಮನಿಯಮಿತ
Type Public company
Industry Power Transmission
Predecessor Karnataka Electricity Board
Founded 1 August 1999; 20 years ago
Headquarters Bangalore, India
Area served Karnataka
Key people B S Yediyurappa, Chairman

Dr. Manjula N , IAS MD
Dr.Praveen Kumar G L KAS, Director
(Administration and Human Resource)
Products Power Transmission
Revenue 2,875.43 crore (2015–16)
2395.80 crore (2014–15)
Website kptcl.com
GOVERNANCE

Company is governed under the purview of Ministry of Energy. Department is headed

by a cabinet grade minister. Currently H D Kumaraswamy is the minister under the
chief minister ship of him.
BOARD OF DIRECTORS
NAME DESIGNATION
Sri H.D. Kumaraswamy Chairman, KPTCL
Dr. S. Selvakumar, IAS Managing Director
Sri P. Ravikumar, IA Director
Sri I.S.N. Prasad, IAS Director
Dr. Ramana Reddy E.V. IAS Director
Sri G. Kumar, IAS Director
Dr. Aditi Raja Director (Finance)
Smt. C. Shikha, IAS Director
Dr. H.N. Gopala Krishna, Director (Admin & HR)
Sri Shivakumar K.V Director (Finance)
Sri T.R. Ramakrishnaiah Director
Sri A.N. Jayaraj Director
Sri K.T. Hiriyanna, FCS Authorized Signator

VISION, MISSION & QUALITY POLICY
VISION
To make the sector consumer friendly, financially viable and function effectively on
commercial principles coupled with social obligations, a comprehensive action plan
for the next 10-15 years in the form of VISION-2020 Envisages plans and strategies
to achieve the objectives of making Karnataka power sector number one in the
country. Good Governance total transparency in functioning and extensive use of IT
and ITES are key strategies indicated to make the vision reality.
MISSION
The mission of Karnataka Power Transmission Corporation Limited is to make

certain reliable exceptional power to its clients at competitive charges.
• Inspiring best practices in transmission and distribution.
• Safeguarding high order renovation of all its technical centers.
• Highlighting the best requirements in customer services.
QUALITY POLICY
In order to maintain the growth of its financial system and decrease poverty,
Karnataka needs to enforce an in-depth reform of its electricity zone. In spite a few
stunning achievements, strength quarter has come to be a main bottleneck to the
financial development of state and has not been able to meet the desires of the human
beings of Karnataka, mainly that of rural population and the terrible. Power Sector is
also exerting a tremendous drain on Karnataka public range, which in turn reduces
potential of the State Government to address social desires, the detached popularity of
availability, exceptional and reliability of electricity has decreased the competiveness
of the Karnataka enterprise, rapid growth of electricity has decreased the pump sets
imposed excessive charges on KPTCL with regard its agricultural and rural
operations. High costs on purchases also are attributable on high T&D losses. The

negative great of electricity and resultant damage to their machinery has left a good
sized quantity of consumers disappointed. Furthermore, too massive part of rural
population nevertheless does not have right of entry to electricity offerings.
In precise, Government of Karnataka acknowledges the wants to have specific power
regulations and objectives to reap the subsequent two priorities;
(1) Ensuring that human of Karnataka have equitable get entry to primary and fairly
priced
strength offerings, in that to power all the closing households and settlements by the
12 months.
(2) Providing strength substances that company wants to reap monetary increase.
PRODUCT AND SERVICES
KPTCL Limited offers a various services in the Distribution System for customer
BESCOM is chargeable for strength distribution in eight districts of Karnataka.
BESCOM covers a place of forty one, 092 Sq. Kms, with a populace of over 207
lacks. In the year 1999, Karnataka boarded on a chief reform of the power area.
MESCOM the Company has introduced round the clock mobile service
vans in all the O M Sub-Divisions which has gone a long way in providing reliable &
qualitative power supply to the Consumers.
HESCOM it covers area of 54513 Sq. Km. Servings a population of over 140 lakhs.
The general assets of the organizations are about INR 2622 Crore. HESCOM has the
only duty for electricity distribution in Dharwad, Gadag, Bijapur, Bagalkot, Uttara
Karnataka, Haveri and Belgaum districts of Karnataka.
Gulbarga Electricity Supply Company Limited has taken over the obligation from
KPTCL for the distribution of energy in 6 districts and began its operations from 1 ST
June 2002. The company has efficaciously entered into 14th year of operation.
CESC has taken the duty for the distribution of Electricity in five districts of
Karnataka. CESC covers a place of 27858 Sq.Km. with a population covers 8155369
within the year of 2016.

AREA OF OPERATION
CHART PRESENTING THE DISTRIBUTION ACTIVITY OF KPTCL
Distribution activity is vested with 5 distribution company’s viz., BESCOM,

HESCOM, MESCOM, CESC, and GESCOM. The areas of operation of each
ESCOM are as show below:
ESCOM purchase power from various generating companies. Karnataka Power
Corporation Limited is the main company with whom maximum power purchase
transaction being carried out. ESCOM purchases power from KPC at fixed rate from
State Government.
The dispensing agencies serve almost 109 lakhs consumers of different classes unfold
all around the country masking a place of 192 lakhs rectangular kilometers. To
transmit and distribute power inside the State, it operates almost 284 sub-stations, one
rural Electric Cooperative Society is functioning in Hukkeri Taluk, Belgaum district
which purchases within the taluk.
INFRASTRUCTURE FACILITIES
The KPTCL has manpower of around 9000 Employees working all over Karnataka.
HRDC complex is newly constructed at Whitefield road, Hoody. HRD centre,
KPTCL is situated in a campus which has spread over 8 acres of land.
This complex has 3 blocks, Admin block, Hostel block and Sports block. The
infrastructure is available for training class/experience and having in depth knowledge
in various fields such as personality development, motivational skills, leadership
skills, customer care, time management, positive attitude, team work, team building &
relationship management. The knowledge of is essential.
COMPETITORS INFORAMATION
POWER COMPANIES IN INDIA

Many Government as well as private organization have taken up the task of power
generation in India. The major Indian power companies are:
• Enercom System India
• Essar Group
• Gujarat state petroleum corporation Ltd
• Jindal steel & power limited
• Karnataka Power Transmission corporation Ltd
• Karnataka power transmission Energy development limited
• Reliance energy Ltd
• Alton power India
SWOT ANALYSIS
STRENGTHS
• It is the first Electricity transmission Company in Karnataka.

• It’s operates with the centralized accounts.
• It undertakes supply of Electricity according to the requirements of the users.
• It provided quality services.
• It is monopolist in this area of services.
• Highly qualified and experienced engineers.
• Adopting new technology and concept
WEAKNESS
• Safety measures are less.

• Storage of Electricity is less.
• Prevention of Accident is less.
• Wastage of Electricity is more.
OPPORTUNITIES
• It can implement changes in technology

• It can frame better policies and procedures
• Electricity can be generated from different sources like;

• Thermal
• Biomass
• Solar energy
• Wind energy
THREATS
• The rules and -regulation for purchasing power is followed by KPTCL and
Government.
• Shortage of coal.
• Lack of rain.

CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
The analysis and interpretation of financial statements are helpful in determining

the /company’s financial positions and results of operation as well. It will further help
managers in the process of making decision.
Managers are the people who make use of a number of techniques in analyzing and
interpreting the data to make and take the decisions. And the Ratio Analysis along
with comparative statements are the techniques which are mostly used and useful for
knowing the strength and incompleteness of a company.
Current Ratio: Current ratio may be defined as the relationship between current
assets and current liabilities. This ratio, also known as working capital ratio, is a
measure of general liquidity and is most widely used to make the analysis of a short-
term financial position or liquidity of a firm. It is calculated by dividing the total of
current assets by total of current liabilities.
Current assets
Current Ratio =
Current liabilities
Showing computation of Current Ratio:

Year Current Assets Current liabilities Current ratio
2014-15 6084919923 34420358914 0.177
2015-16 7519794181 42831670587 0.176
2016-17 12779498959 34765855212 0.368
2017-18 11846789777 34878384059 0.340
2018-19 11775607585 41825457461 0.282
Analysis:
An ideal current ratio is considered to be 2:1. In the financial year 2014-15, the ratio
is 0.177 and in 2015-16 it has declined to 0.176. But again, in financial year 2016-17
the ratios have been increased to 0.368 and again in 2017-18 and 2018-19 it has
decreased to 0.340 and 0.282 respectively.
Showing Current Ratio

Current ratio
0.4
0.35
0.3
0.25
Current ratio
0.2
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
From the above graph it is inferred that the current ratio in the previous year 2014-15
was 0.177 then slightly decreased to 0.176 in the year 2015-16. But after that the ratio
is increased to 0.368 in the year 2016-17. In year 2017-18, the ratio in reduced to
0.340. But in 2018-19 it is decreased to 0.282.This data shows that the company is not
stable and need to maintain its current assets and control the huge liabilities and its
progress.
Cash Ratio: Although receivables, debtors and bills receivable are generally more
liquid than inventories, yet there may be doubts regarding their realization into cash
immediately or in time. Hence, some authorities are of the opinion that the absolute
liquid ratio should also be calculated together with current ratio and acid test ratio so
as exclude even receivables from the current assets and find out the absolute liquid
assets. Absolute liquid assets include cash in hand and at bank and marketable
securities or temporary investments.
Cash Equivalents +Cash

Cash Ratio =
Current liabilities
Showing computation of Cash Ratio:

Year Cash & securities Current liabilities Cash ratio
2014-15 1537485243 34420358914 0.045
2015-16 1492630457 42831670587 0.035
2016-17 1963637435 34765855212 0.056
2017-18 1303140350 34878384059 0.037
2018-19 527459151 41825457461 0.013
Analysis:
An ideal cash ratio is considered to be 1. In the financial year 2014-15, the ratio is
0.045 and in 2015-16 it has decreased to 0.035. Further in financial year 2016-17 the
ratios is increased to 0.056 and again in 2017-18 and 2019 it has decreased to 0.037
and 0.013 respectively.

Showing Cash Ratio
Cash ratio
0.06
0.05
0.04
Cash ratio
0.03
0.02
0.01
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
From the above graph it is inferred that the cash ratio in the previous year 2014-15
was 0.045 and it is decreased to 0.035 in the financial year 2015-16 respectively. The
ratio is slightly increased to 0.056 in the year 2016-17 but again showed a negative
value by having the ratio of 0.037 and 0.013 in the year 2017-18 and 2018-19. If the
company’s cash ratio is equal to 1, the company has exactly the same amount of
current liabilities as it does cash equivalents to pay off those debts. To see it further
the company is not keep able of increasing the cash with the efforts done but there is
slight increase in the year 2016-17 to 0.056. This is less than 1 and is not sufficient.
The company needs more cash to the short-term debts of its own.

Proprietary Ratio: Proprietary Ratio is the ratio which expresses the relationship
between net worth and total assets. A proprietary ratio of 5:1 is generally considered
ideal. A higher Proprietary ratio denotes that the shareholders have provided the funds
to purchase the assets of the concern instead of rely-in on other sources of funds like
bank borrowings, trade creditors and others.
Shareholders equity
Proprietary Ratio = ×100
Total assets
Showing computation of Proprietary Ratio:
Year Shareholder's Equity Total Assets Proprietary

ratio
2014-15 24957772757 124986593419 0.200
2015-16 26602440987 133753739490 0.200
2016-17 40638801481 142772960581 0.285
2017-18 42760248942 155868352671 0.274
2018-19 44881953881 172537205829 0.260
Analysis:
The Proprietary Ratio in the above table in the financial year ended 2014-15 and
2015-16 it is 0.200 respectively. Then there is little increased in the year 2016-17 by
0.285 and again in 2017-18 and 2018-19 it is decreased by 0.274 and 0.260
respectively.
Showing Proprietary Ratio

Proprietary ratio
0.3
0.25
0.2
Proprietary ratio
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
The ideal value of the Proprietary Ratio of the firm should be 0.5:1 and it depends on
the risk appetite of the investor. From the above figure we can observe that the
company has taken low rate of risk. So that the proprietary ratios of the company are
less than which is an ideal value for it.
Fixed Assets Turnover Ratio: A financial ratio of net sales to fixed assets. The
fixed-asset turnover ratio measures a company's ability to generate net sales from
fixed-asset investments - specifically property, plant and equipment (PP&E) - net of
depreciation. A higher fixed-asset turnover ratio shows that the company has been
more effective in using the investment in fixed assets to generate revenues. It shows
the ratio between net sales and fixed assets. Fixed assets, here, mean net fixed assets,
i.e., fixed assets less depreciation. Net sales means, i.e., total sales less sales returns.
Net sales−return on sales

Fixed Assets Turnover Ratio =
¿ assets
Showing computation of Fixed Assets turnover ratio:

Year Net Sales Fixed Assets FA turnover ratio
2014-15 23251201825 95122125029 0.244
2015-16 27589325095 103034555974 0.268
2016-17 32049695210 122008650525 0.263
2017-18 28595310195 136573976137 0.209
2018-19 29521224471 152348418810 0.194
Analysis:
Here the Fixed Asset Turnover Ratio is 0.244 in the financial year 2014-15 which is
increased in the next financial years 2015-16 and 2016-17 by 0.268 and 0.263. Further
in the latter year the ratios are slightly decreased. In the financial year 2017-18 and
2018-19 by 0.209 and 0.194 respectively.
Showing computation of Fixed Assets Turnover Ratio:
Fixed assets turnover ratio

0.3
0.25
0.2
0.15
Fixed assets
0.1 turnover ratio
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19

Interpretation:
Fixed Asset Turnover Ratio is almost in the stable mode in the year covered for the
study. While interpreting the reciprocals of these ratios one may offer that for
generating the sales of one rupee, company need respectively 0.65 and in the Fixed
Assets and 0.35 in the Current Assets. And here the decline in the ratio shows that the
business is investing more money in the Fixed Assets if the ratio goes up its better but
if it’s declining, this will not help the company in its future operations and planning.
Current Assets Turnover Ratio: This ratio indicates how efficiently a firm is using
its current assets to generate revenue. Current assets turnover ratio is the ratio between
current assets turnover and sales.
Net sales
Current Assets Turnover Ratio =
Current assets
Showing computation of Current Asset Turnover Ratio:
Year Net Sales Current Assets C.A turnover ratio
2014-15 23251201825 6084919923 3.821
2015-16 27589325095 7519794181 3.668
2016-17 32049695210 12779498959 2.507
2017-18 28595310195 11846789777 2.413
2018-19 29521224471 11775607585 2.506
Analysis:
The above table shows that the Current Asset Turnover Ratios for the financial year
ended 2014-15 was 3.821 and has little bit declined to 3.668 in the year 2015-16.

Further the ratio is dipped down to 2.507, 2.413 in the financial year 2016-17 and
2017-18. But in 2018-19 there is slightly increased to 2.506 respectively.
Showing computation of Current Assets turnover ratio:
Current assets turnover ratio

4.5
4
3.5
3
2.5
2
Current assets
1.5 turnover ratio
1
0.5
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
From the above graph it is said to be said that the company is maintaining good
Current Asset Turnover Ratio. Though it had fluctuated but still it can be considered
as a good sign if the company keeps trying to make ratio 2:1 which is better for
maintaining the firm for long run. And the study from above the final financial year
2017-18 was towards decreasing the Current Assets Turnover Ratio which showed
ratio of 2.413.
Total Asset turnover Ratio: Total Assets Turnover Ratio (TATR) is used to measure
the firm's ability to utilize its assets to generate sales. It is an indication to the firm's
operation efficiency. A lower ratio means inefficient utilization of assets. It shows the
relationship between the total assets and sales (i.e., net sales).
Net sales
Total Assets Turnover Ratio =
Total assets
Showing computation of Total asset turnover ratio:

Year Net Sales Total Assets Total Assets turnover

ratio
2014-15 23251201825 124986593419 0.186
2015-16 27589325095 133753739490 0.206
2016-17 32049695210 142772960581 0.224
2017-18 28595310195 155868352671 0.183
2018-19 29521224471 172537205829 0.171
Analysis:
In the financial year 2014-15 the Total assets turnover ratio is 0.186 which is lesser as
compared to the next two years. Ratios for the financial year 2015-16 and 2016-17 are
0.206 and 0.224. But in the final year 2017-18 and 2018-19 ratios is dropped to 0.183
and 0.171 respectively.
Showing computation of Total Assets Turnover Ratio:
Total assets turnover ratio

0.25
0.2
0.15
0.1 Total assets

turnover ratio
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
It is noticed from the above graph that the Asset turnover Ratio of KPTCL, is
continuously increasingly for three years but there is a little dip in the year 2017-18

and 2018-19 by 0.183 and 0.171. Thus, it is proving that the company is getting better
and successful in generating revenue in the following years.
Quick Ratio: Quick ratio is that ratio which expresses the relationship between quick
or liquid assets and current liabilities. Quick/liquid ratio may be defined as the
relationship between quick/liquid assets and current or liquid liabilities. An asset is
said to be liquid if it can be converted into cash within a short period of time. Current
assets include inventories and prepaid expenses which are not easily convertible into
cash, thus are excluded in liquid/quick/acid test ratio which is more rigorous test of
liquidity.
Cash+ Cashequivalents+ Short term investment + current receivables

Quick Ratio =
Current liabilities
Quick Assets = Current Assets – Stock & Prepaid Expenses
Showing computation of Quick Ratio:
Year Quick Assets Quick Liabilities Quick Ratio
2014-15 5220885115 34420358914 0.151
2015-16 6869423645 42831670587 0.160
2016-17 12162449101 34765855212 0.349
2017-18 11238648579 34878384059 0.322
2018-19 11046300764 41825457461 0.264
Analysis:

The table above shows that the company is continuously increasing in term of ratio
year by year but is still lesser than the ratio of 1:1 The company has steadily moved
from ratio 0.151 in the financial year 2014-15 to 0.264 in the financial year 2018-19.
Showing computation of Quick Ratio:
Quick ratio
0.4
0.35
0.3
0.25
Quick ratio
0.2
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
The table located above shows us the ratio of 0.151 in the financial year 2014-15
which tells that the company is unable to pay its quick liabilities. Every year there is
frequent increase in the quick ratio but it couldn’t achieve the 1:1 ratio till the year
2018-19. The company either has to increase the stock of assets or lower the liabilities
to balance its company’s financial data.
Cash Turnover Ratio: A company’s cash Turnover Ratio measures how many times
per year it replenishes its sales revenues. A higher Cash Turnover Ratio is generally
better than lower one. Analyzing the Cash Turnover Ratio helps in determining flow
of cash in business and it can be calculated as below;

Net sales
Cash Turnover Ratio =
Cash
Showing Calculation of Cash Turnover Ratios
Year Net Sales Cash Cash turnover

ratio
2014-15 23251201825 1537485243 15.122
2015-16 27589325095 1492630457 18.483
2016-17 32049695210 1963637435 16.321
2017-18 28595310195 1303140350 21.943
2018-19 29521224471 52745915 559.687
Analysis:
Cash Turnover Ratio of the firm is 15.122 in the financial year 2014-15. Then there is
increase in the turnover for the financial year 2015-16, the ratios were 18.483 and in
2016-17 the cash turnover ratio is slightly decreased to 16.321. Again, there was
increase in the ratio for the financial year 2017-18 and 2018-19 by 21.943 and
559.687 respectively.
Showing computation of Cash Turnover Ratio:

Cash turnover ratio

600
500
400
Cash turnover ratio
300
200
100
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
The Cash Turnover Ratio of the company is calculated by dividing the Net Sales of
the company over the Cash. Here, there is increase in turnover for two consecutive
years but then little slide in the year 2016-17 for 16.321 but again increased to 21.94
and 559.687 in the year 2017-18 and 2018-19. Company is getting strong year by year
but uncertainty is there about the company getting stable and is in profit.
Earning power ratio: Earning Power is a business ability to generate profit from
conducting its operation. It is used analyze stocks to access whether the underlying to
generate income or profits over time, assuming all current operational conditions
remain constant. It can be calculated as below;
Net profit
Earning Power Ratio =
Total assets
Showing Calculation of Earning Power Ratios

Year Net profit Total Sales Earning power

ratio
2014-15 791667798 124986593419 0.006
2015-16 1781143226 133753739490 0.013
2016-17 12966360497 142772960581 0.090
2017-18 2121447461 155868352671 0.013
2018-19 2142551107 172537205829 0.012
Analysis:
In the financial year 2014-15 Earning Power Ratio was 0.006 and later in the three
financial years 2015-16, 2016-17 the ratios was 0.013, 0.09 respectively. In the
financial year 2017-18 and 2018-19 the ratio dipped to 0.013 and 0.012.
Showing computation of earning power ratio:
Earning power ratio

0.1
0.09
0.08
0.07
0.06 Earning power ratio
0.05
0.04
0.03
0.02
0.01
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
The Earning Power Ratio of the company is calculated by dividing the total income
on total assets. The Earning Power Ratio of KPTCL has increased continuously from

the financial years 2014-15 to 2016-17. But in the financial year 2017-18 and 2018-19
it went down to 0.013 and 0.012, where a little fluctuation is seen.
Gross Profit Ratio: Gross profit is the ratio of Gross Profit to Net Sales. The ratio
thus reflects the margin of profit that a concern is able to earn on its trading and
manufacturing activity. It can be calculated as below;
Gross profit
Gross Profit Ratio =
Sales
Showing calculation of Gross Profit Ratio
Year Gross Profit Net Sales Gross Profit

ratio
2014-15 1010293471 23251201825 0.043
2015-16 2295323390 27589325095 0.083
2016-17 14475600327 32049695210 0.451
2017-18 7966649260 28595310195 0.278
2018-19 3401722096 29521224471 0.115
Analysis:
It can be noticed from the above table that the Gross Profit Ratios of KPTCL is
always in fluctuation. In the financial 2014-15 it shows 0.043, then next year i.e.
2015-16 it goes up to 0.083. Again, in the year 2016-17, 2017-18 and 2018-19 the
Gross profit ratio is declined to 0.451, 0.278 and 0.115 respectively.
Showing computation of Gross Profit Ratio:

Gross profit ratio

0.5
0.45
0.4
0.35
0.3 Gross profit ratio
0.25
0.2
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19
Interpretation:
The above graph shows us that the Gross Profit Ratio of KPTCL is fluctuating year to
year. This ratio indicates the between average spread of the cost of goods sold and
sales with this respect. It is observed the Gross Profit of KPTCL is not in bad
condition.

CHAPTER 5
FINDINGS SUGGESTIONS AND CONCLUSION
A. FINDINGS:-
 An ideal cash ratio is considered to be 1. In the financial year 2014-15, the

ratio is 0.045 and in 2015-16 it has decreased to 0.035. Further in financial
year 2016-17 the ratios is increased to 0.056 and again in 2017-18 and 20189
it has decreased to 0.037 and decreased to 0.013 respectively. The company
needs to follow necessary strategy to improve the short term liquidity position
in upcoming years.
 In the financial year 2014-15, the ratio is 0.045 and in 2015-16 it has
decreased to 0.035. Further in financial year 2016-17 the ratio is increased to
0.056 and again in 2017-18 and 2018-19 it has decreased to 0.037 and 0.013
respectively. If the company’s cash ratio is equal to 1, the company has
exactly the same amount of current liabilities as it does cash with the odd
those debts. To see it further the company is not capable of increasing the cash
with the efforts done but there is a slight increase in the year 2017-18 to 0.056
which is less than 1 and is not sufficient. The company needs more cash to
meet the short-term debts of its own.
 The Proprietary Ratio in the above table in the financial year ended 2014-15
and 2015-16 the ratio is 0.200. Then there is little increased in the year 2016-
17, by 0.285. But again in the financial year 2017-18 and 2018-19 it is slightly
decreased to 0.274 and 0.260 respectively. From the above figure we can
observe that the company has taken low rate of risk. So the proprietary ratio of
the company is less than the (0.5) which is less than the ideal value of it,
 Here the Fixed Asset Turnover Ratio is 0.244 in the financial year 2014-15
which is increased in the next year 2015-16 by 0.273 Further in the latter year
the ratios are similar to the previous years. In the financial year 2016-17,
2017-18 and 2018-19 the ratios are 0.263, 0.209 and 0.194 respectively. The
Fixed Assets Turnover ratio of the firm is in fluctuation mode in the years

covered for the study. While interpreting the reciprocal of these ratios one may
offer that for generating the sales of rupee, company has to spend 0.65 in
Fixed Assets and 0.35 in Current Assets.
 The Current Asset Turnover Ratios for the financial year ended 2014-15 was
3.821 and has little bit declined to 3.668 in the financial year 2015-16. Further
the ratio is dipped down to 2.507 and 2.413 in the financial year 2016-17 and
2017-18. But again in the year 2018-19 it is slightly increased to 2.507
respectively.
 Total Asset Turnover Ratio is 0.186 which is lesser as compared to the next
year. Ratios for the financial year 2016-17 are 0.224. But in the final year
2017-18 and 2018-19 ratios is dropped to 0.183 and 0.171 respectively. This
shows the company is not having stagnant or stable balance between liabilities
respectively.
 Quick Ratio shows that the company is continuously increasing in term of
ratio year by year but is still lesser than the ratio of 1:1 The Company has
steadily moved from ratio 0.152 in the financial year 2014-15 to 0.264 in the
financial year 2018-19.
 Cash Turnover Ratio of the firm is 15.122 in the financial year 2014-15.Then
there is increase in the turnover for the financial year 2015-16 by 18.484, and
decrease in the year 2016-17 by 16.322. Again there was steep increase in the
ratio for the financial year years 2017-18 and 2018-19 as 21.943 and 559.687
respectively.
 In the financial year 2014-15 Earning Power Ratio was 0.006 and later in the
three financial years 2015-16 and 2016-17 the ratios was 0.013 and 0.091
respectively. In the financial year 2017-18 and 2018-19 the ratio dipped to
0.014 and 0.012.
 It can be noticed from the Table 4.10 that the Gross Profit Ratios of KPTCL is
always in fluctuation. In the financial 2014-15 it shows 0.043, then next year
i.e. 2015-16 it goes up to 0.083. Again in the year 2016-17 the ratio is
increased by 0.451. But in financial years 2017-18 and 2018-19 ratios was
down to 0.278 and 0.115.

B. SUGGESTIONS:-
 The liquidity of the company is not satisfactory & the company has to work
over keeping the current assets two times the current liabilities. While keeping
the current assets twice the current liabilities, the Company must keep in mind
the quality of current assets also.
 The Proprietary Ratio should be improved so as to ensure and protect the
interest of shareholders and by increasing the shareholder’s funds.
 Financing cost is the crux of the problem to any company so it is better for the
company to raise funds through cheaper loans from the financial institutions
and thereby decrease depending on lower cost of electricity units by the
consumers.
 The Net Sales of the company is one of the significant aspects. Therefore
various strategies involving marketing and advertising, innovation in services
etc. have to be put into consideration.
 The Company must give importance to make contribution to reserve fund, a
little more so that future can be faced with much confidence. Facilitate the
sales; the company should develop new policy.
 For the smooth functioning of the company co-ordination and planning among
the each department is essential.
C. CONCLUSION:-
After this study conclusion is that the Ratio Analysis done in this company is
satisfactory. If the company concentrates in reducing the cost of operation then the
company will positively be in a good financial position and increase the profit. The
analysis of past five years shows high fluctuation in most of the areas. It affects the
company to meet their day to day goals. And it’s a matter of fact that power is in
unity, so the management and employee need to hard work towards keeping the
company revenue in profit.

On the financing cash flow the flow of cash were negative for
the years 2016,2017,2018,2019,value of (423571) but in the
year 2020 the invert flow f a to 173.43 means issue of share
capital were 397138. Thus, the cash flow in the year, 2020
increased to 68.99%, 32.11%, 11.75%, 97.39%, 1.18%
SUGGESTION
The radiant inflation rate of net income and the thumping cash
flow of operating activity fecit the cash flow mightiest. The
repulsing investing cash flow deduct the rate of cash. The
deflationary rate of cash in financing activity. Rise in the cash
flow by 836920. Howbeit the excess rupees decrease the cash
flow by (-131245)
On the flatten year of 2019, the net profit remit by 1780159.
Operating profit extensively deflate by 10.53% and the investing
activity profoundly less. Largish negative value of financing
cash flow, operating profit made the year drastic progress on the
cash excellance.

CHAPTER 6
ANNEXURES

CHAPTER 7
BIBLIOGRAPHY
1. Management Accounting
Author Name- Venkataraman R.
Gurumurthy K.H.
Publisher- Vision
Edition- 2018
Page no. 16-33
2. Financial Management
Author Name- Shashi K. Gupta, R.K. Sharma
Publisher- Kalyani
Edition- 2017
Page no. 9.1-9.25
Websites:
www.kptcl.com
www.wikipedia

Fiancial Statements On Ratio Analysis

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Fiancial Statements On Ratio Analysis

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A study on Financial Statement Analysis using Ratio Analysis with special reference to KPTCL

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OBJECTIVES OF FINANCE FUNCTION

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IMPORTANCE OF FINANCE FUNCTION:

i. Purchasing raw materials

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The usual sources of cash may be Cash sales

• Implementing financial controls: An effective system of financial management

FINANCIAL STATEMENT ANALYSIS

Meaning of financial statement

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Significance of financial statements

For owners Shareholders/proprietors of the business are interested in the well-being

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For government The government likes to have a copy of financial statements of

Limitations of financial statements

There is no such belief that information furnished in financial statements is

1. Financial statements do not give complete picture about various transactions

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ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS

Financial statements contain a lot of accounting figures, as given in the financial

Analysis and interpretation of financial statements are, therefore, an attempt to

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Objectives of financial statement analysis

1. To interpret the profitability and efficiency of various business activities with

Procedure of financial statement analysis

It is necessary to take some preliminary steps before making an analysis of financial

1. First of all, the objectives of financial statements analysis have to be clearly

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4. The collected data is to be presented in a logical order by rearranging and

TYPES OF FINANCIAL ANALYSIS

1. According to Materials Used

2. According to Modus Operandi of Analysis

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concerns are studied and analyzed. For effective interpretation, a comparative

TOOLS OR TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS

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EVOLUTION OF RATIO ANALYSIS

In the beginning of nineteenth century essential improvement in ratio analysis

In 1920s, interest in ratio analysis increased dramatically. Many publications on the

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MEANING OF RATIO ANALYSIS

Ratio analysis is the technique of the computation of number of accounting ratios

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Ratio analysis is the process of examining and comparing financial information by

The interpretation of ratios is an important factor. Though calculation of ratios is also

The interpretation of the ratios can be made in the following ways:

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2. Group of Ratios: Ratios may be interpreted by calculating a group of related ratios.

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advancing a short-term loan to a firm, is interested primarily in the short-term paying

Various Accounting Ratios

(A)Traditional Classification or Statement Ratios:

Traditional classification or classification according to the statement, from which

(B) Functional Classification or Classification According to Tests:

Various ratios have been classified as below:

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2. Long-term Solvency and Leverage Ratios: Long-term solvency ratios convey a

The leverage ratios can further be classified as:

(i) Financial Leverage,