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Submitted by
Thatavarthy Swetha Sri
Reg No: 05BUC08 114
2007 - 2008
RSST
SSMRV College
R.V.INSTITUTE OF MANAGEMENT
JAYANAGAR 4th ‘T’ BLOCK
CERTIFICATE
GUIDE CERTIFICATE
This is to certify that Ms. Thatavarthy Swetha Sri, has
satisfactorily completed her project work on “Analysis of
Financial Statement using Ratio Analysis” under my guidance
and supervision.
This project study is being submitted in partial fulfillment of
the requirements for the award of the degree of Bachelor of
Business Management by the Bangalore University.
DECLARATION
Date:
Place: Bangalore
ACKNOWLEDGEMENT
I consider this as my privilege to express a few words of gratitude
and respect to all those who contributed for the completion of my
project.
I acknowledge my sincere thanks to Dr. T.V. RAJU the Director of
RVIM for his kind co-operation and encouragement.
I owe much to the pioneer internal guide, Ms. Pavithra S.T, faculty,
RVIM for the valuable guidance and assistance for the successful
accomplishment of the project work.
It gives me immense pleasure to take the opportunity to thank
Ms. SHILPA SHANBAG and Mr. SHRIRAM at GMR Energy
Limited, Bangalore, for guiding me and helping me at every step of
the project.
I also extend my heart felt thanks to all those who have contributed
towards the project directly and indirectly.
PLACE : Bangalore
CONTENETS
CHAPTER TOPIC PAGE NO.
1 INTRODUCTION 10-36
• Financial Statements
• Ratio Analysis
• Classification Of Ratios
2 RESEARCH METHODOLOGY 37-40
• Statement Of Problem
• Need For The Study
• Objectives Of The Study
• Scope Of the Study
• Data Collection
• Limitations Of The Study
3 COMPANY PROFILE 41-49
• GMR Group
• Businesses
• GMR Energy Limited
• Organizational Structure
4 DATA ANALYSIS AND INTERPRETATION 50-78
• Liquidity Ratios
• Leverage Ratios
• Profitability Ratios
5 FINDINGS AND SUGGESTIONS 79-82
6 CONCLUSION 83-84
BIBLOGRAPHY 85-86
ANNEXURES 87-99
CONTENT OF TABLES
O1 CURRENT RATIO 51
05 PROPRIETARY RATIO 59
08 OPERATING RATIO 65
10 RETURN ON EQUITY 69
11 RETURN ON ASSETS 71
CONTENT OF GRAPHS
O1 CURRENT RATIO 51
05 PROPRIETARY RATIO 59
08 OPERATING RATIO 65
10 RETURN ON EQUITY 69
11 RETURN ON ASSETS 71
1. INTRODUCTION
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GMR ENERGY LIMITED
This is therefore aimed at analyzing the performance and trend and the
areas of strengths and weakness and the financial strength of the firm in its
environment.
FINANCIAL STATEMENTS:
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GMR ENERGY LIMITED
investment decisions, they should be well prepared and should have sufficient
information.
RATIO ANALYSIS:
Ratio analysis is the most used tool of analysis. A ratio is quotient of two
numbers and is expression of relationship between the figures or two amounts. It
indicates a quantitative relationship, which is used for qualified judgment and
division making. The relationship between two accounting figures is known as
ratio. These ratios may be compared with the previous year or base year ratios of
the same firm.
A comparison may also be made with the selective firms in the same
industry i.e. inter-firm comparison. Ratio analysis is useful to share holders,
creditors and executives of the company.
Secondary ratios give the information about the financial position and
capital structure of the company. Liquidity ratios and leverage ratios are the
secondary ratios.
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GMR ENERGY LIMITED
With the help of ratio analysis, conclusions can be drawn regarding the
liquidity position of a firm. The liquidity position of a firm will be satisfactory if it is
able to meet its current obligations when they become due. A firm can be said to
have the ability to meet the short term liabilities if it has sufficient liquid funds to
pay the interest on its short term liabilities if it has sufficient liquid funds to pay
the interest on its short-making debt usually with in a year as well the principal.
The ability is reflected in the liquid ratios of a firm. The liquid ratios are
particularly useful in credit analysis by banks and other suppliers of short term
loans.
Ratio analysis not only throws light on the financial position of a firm but
also serves as a stepping-stone to remedial measures. This is made possible
from inter-firm comparison with industry averages. An inter-firm comparison
would demonstrate the relative position vis-à-vis its competitors. If the results are
at variance either with the industry overage or with those of the competitors, the
firm can seek to identify the probable reasons and, in that light, take remedial
measures.
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GMR ENERGY LIMITED
The main objective of ratio analysis is to show the firms relative strengths
and weakness. The objectives of ratio analysis are as follows:
• It determines the financial condition and financial performance of the firm.
• It involves comparison for a useful interpretation of the financial statements.
• It helps in finding solutions to unfavorable financial statements.
• It helps to take suitable corrective measures when the financial conditions
and performance are unfavorable to the firm, in comparison to other firms in
the same industry.
• With the help of this analysis, an analyst can determine the
! The ability of the firm to meet its obligations.
! The efficiency with which the firm is utilizing its various assets in
generating sales.
! The overall operating efficiency and performance of the firm.
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GMR ENERGY LIMITED
6) Facilities Inter Firm Comparison and Trend Analysis: It provides data for
inter firm comparison and trend analysis ratio and highlights the factors
associated with successful and unsuccessful firms. They also reveal strong firms
over value and under value firm.
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GMR ENERGY LIMITED
4) The ratios are generally calculated from past financial statement and thus
are no indicators of future.
There are three main types of ratios, namely liquidity ratio, leverage ratios
or capital structure, profitability ratio. The ratios in each of these types are as
shown below:
LIQUIDITY RATIOS:
! Current ratios
! Liquid ratio or quick ratio
! Working capital ratio
! Inventory turnover ratio
! Debtors turnover ratio
! Creditors turnover ratio
! Fixed assets turnover ratio
LEVERAGR RATIOS:
! Debt equity ratio
! Proprietary ratio
! Capital gearing ratio
! Interest coverage ratio
! Total or overall coverage ratio
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PROFITABILITY RATIO:
! Gross profit Ratio
! Net profit Ratio
! Operating Ratio
! Return on Investment
! Return on share holders Equity
! Return on Equity capital
LIQUIDITY RATIOS:
The term liquidity refers to the firm's ability to meet its current liabilities. A
firm should ensure that it does not suffer from lack of liquidity and that it is not too
highly liquid. The failure of a firm to meet its obligations due to lack of sufficient
liquidity will result in closure of the firm. A very high degree of liquidity is also bad
as idle assets earn nothing. The firm's funds will necessarily get locked up in the
current assets. Therefore it is necessary to strike a proper balance between
liquidity and non-liquidity. The ratios which reflect the short term solvency of a
business unit are current ratio, quick ratio, working capital, turn over ratio, stuck
turn over ratio, debtors turn over ratio, creditors turn over ratio, fixed assets turn
over ratio etc.
Current Ratio:
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GMR ENERGY LIMITED
Current liabilities
Interpretation:
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GMR ENERGY LIMITED
When used in conjunction with current ratio, the liquid ratio gives a better
picture of the firm's liquidity.
Interpretation:
Working Capital is the excess of current assets over current liabilities. This
ratio is computed to test the efficiency with which the net working capital is
utilized. In other words, this ratio indicates whether working capital is effectively
used in making sales. It is calculated as follows:
Sales
Working capital turnover ratio = ----------------------------
Net working capital
Current assets mean cash or those assets, which can. be converted into
cash within a year, current assets normally include cash in hand and at bank,
marketable securities, stock, sundry debtors, bills receivable and prepaid
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GMR ENERGY LIMITED
expenses. Current liabilities are those, which are to be repaid within a year.
Current liabilities include sundry creditors, bill payable, bank overdraft, and
provision for taxation.
Interpretation:
There is no standard or ideal set for working capital turnover ratio. But one
can say that a higher working capital turn over ratio indicates the efficiency of the
management in the utilization of the working capital.
Inventory turnover ratio is also known as stock turnover ratio. This ratio
indicates the number of times the inventory is replaced during the year. It shows
the rate at which inventories are converted in to sales and then into cash. It
establishes the relationship between cost of goods sold and average inventory.
Besides, it helps determine the liquidity of a business concern. It is computed as
follows:
365
Inventory holding period (days) = -------------------------------------
Inventory turnover ratio
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GMR ENERGY LIMITED
Interpretation:
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GMR ENERGY LIMITED
The second ratio is the average collection period ratio. It brings out the
nature of firm’s credit policy and the quality of the debtors more clearly.
This ratio is calculated as:
The term debtor for this ratio is the debtors plus bills receivables at the
end of the accounting period. Sometimes the ratio is computed by taking the
overage of opening and closing debtors. It should be remembered that provision
for bad and doubtful debts should not be deducted from debtors. When the credit
sales are not given the total sales may be used.
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GMR ENERGY LIMITED
The debtor turnover ratio indicates the quality of debtors by measuring the
rapidity or slowness in the collection process. A shorter collection period (on
higher turn over ratio) indicates prompt payment of debtors while a longer period
(lower turnover ratio) indicates the inefficiency of the credit collection.
Interpretation:
There are no fixed norms for this ratio. As a rule higher ratio indicates
better efficiency.
Creditor’s turnover ratio is the ratio between net credit purchase and the
amount of sundry creditors. It implies the credit period enjoyed by the firm in
paying its creditors.
It is computed by use the following formula:
The terms creditors for this ratio is the amount plus bills payable at the
end of the accounting period. Some times the ratio is computed by taking the
average of opening and closing creditors. The creditors turnover ratio may also
be expressed in days. Then it is known as creditors payment period or creditors
velocity.
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GMR ENERGY LIMITED
This ratio reflects whether terms of credit allowed by suppliers are liberal
or stringent. A high creditors Turnover ratio (shorter period) shows that creditors
are being paid promptly; while a low turn ratio (longer period) reflects liberal
credit terms granted by suppliers.
Fixed assets turn over ratio shows the relationship between sales and
fixed assets. It shows whether fixed assets are fully utilized, to be clearer,
This ratio measures the efficiency with which a firm is utilizing its fixed assets in
generating its sales.
It is computed as follows:
Sales
Fixed Assets Turn over Ratio = -----------------------
Fixed Assets
The term fixed assets for this ratio is the depreciated value i.e. the amount
of depreciation is deducted from the value of fixed assets.
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GMR ENERGY LIMITED
This ratio measures the efficiency in the utilization of fixed assets. A high
ratio reflects over trading. On the other hand, a lower ratio indicates idle capacity
and excessive investment in fixed assets.
Net sales
Fixed assets turnover ratio = -----------------------------
Fixed assets
Interpretation:
There cannot be any norms for these ratios. But as rule, a higher turnover
indicates better utilization.
LEVERAGE RATIOS:
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GMR ENERGY LIMITED
Accordingly, there are two types of leverage ratios. The first type of leverage
ratios is based on the relationship between owned capital and borrowed capital.
These ratios are calculated from the balance sheet items. The second type of
leverage ratios is coverage ratios. These are computed from the profit and loss
account.
Debt-Equity Ratio:
Debt-equity ratio shows the relationship between total debts and owned
capital. It is the ratio of the amount invested by outsides to the amount invested
by the shareholders. It is known as ‘External-internal Equity ratio’. This ratio
reflects claims of shareholders and creditors against the assets of a company
alternatively; this ratio indicates the relative proportion of debt and equity in
financing the assets of a company.
The term external equity refers to total outside liabilities or borrowed funds.
Outside liabilities include all debt whether long term or short term. Internal equity
or shareholders funds include equity share capital, preference share capital and
reserves and surpluses. Internal equity is equal to net worth.
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GMR ENERGY LIMITED
Interpretation:
Proprietary Ratio:
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GMR ENERGY LIMITED
Interpretation:
This is one of the important ratios used to analyze the capital structure of
a company. The term capital gearing refers to the proportion b/w fixed income
bearing funds and equity shareholders funds. Fixed income bearing funds
include. Debentures other long term loans and preference share capital. Equity
shareholders funds include equity capital and all reserves and surplus that
belong to equity shareholders. Preference share carry a fixed rate of dividend on
equity shares and are notified.
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GMR ENERGY LIMITED
Capital gearing ratio reveals the company capital structure. This ratio is
important not only to the company but also to investors. The capital gearing ratio
may affect the company dividend policy building up of reserves etc. this ratio
shows the effects of use of fixed interest dividend funds on the profits available to
equity shareholders.
Interpretation:
If the preference share capital and other fixed interest bearing loans
exceed the equity share capital and reserve then, the firm is highly geared and
vice versa. Usually both are not preferred. A firm must be evenly geared.
Profitability Ratio:
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GMR ENERGY LIMITED
Gross profit ratio is also known as gross margin. This is the ratio of gross
profit to net sales. That is usually expressed as percentage.
It is computed as follows:
Gross profit
Gross profit ratio=-------------------------x100
Sales
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GMR ENERGY LIMITED
An increase in Gross Profit ratio may be due to any of the following factors:
• Increase in the selling price without any corresponding increase in the cost
of goods sold.
• Decrease in the cost of goods sold without any corresponding decrease in
the selling price and
• Under valuation of opening stock or overvaluation of closing stock
• A relatively low Gross Profit ratio is a danger signal.
The decrease in the Gross Profit Ratio may be due to following factors.
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GMR ENERGY LIMITED
Interpretation:
As the gross profit is found by deducting cost of goods sold from the net
sales, higher the gross profit ratio the better are the results. A low Gross Profit
ratio indicates high cost of goods sold due to unfavorable purchases, polices,
excessive competition etc.
Net profit ratio is the ratio of net profit to sales. It is know as profit margin.
It is usually expressed as percentage.
It is calculated as follows:
Net profit
Net profit ratio = ------------------------------------x 100
Sales
Here, net profit is the balance of profit and loss account after adjusting
interests and taxes and all non-operating expenses like less on sale of fixed
assets, provision or containment liability etc.
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GMR ENERGY LIMITED
A high Net Profit ratio could indicate higher over all efficiency of the
business, better utilization of limited resources and reasonable return to owners.
A low Net profit ratio could mean low efficiency and inadequate return to owners.
Interpretation:
A high Net Profit ratio indicates that the profitability of the firm is good. If
the Net Profit ratio is not sufficient, the firm may not be able to achieve a
satisfactory return on its investment.
Operating ratio:
The Operating Ratio is an important ratio that explains the changes in the
Net Profit Margin Ratio. This is calculated by dividing all the operating expenses
minus cost of goods sold, selling expenses and general administrative expenses
by net sales.
Interpretation:
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GMR ENERGY LIMITED
Where capital employed is computed from the assets side. It will include:
Fixed assets:
Current assets:
• Cash
• Bank balance
• Book debts
• Inventories
• Bills receivable
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GMR ENERGY LIMITED
Current liabilities:
• Sundry creditors
• Bills payable
• Bank over draft
Interpretation:
There cannot be any norms for this ratio. It depends on the industry.
This is the ratio of net profit shareholder’s fund or net worth. It measures
the profitability from the shareholder’s point of view. It is calculated as follows:
Here the profit is the profit after tax and preference dividend out of the
profit left after tax. The preference dividend is paid first. The remaining profit is
said to be available to equity shareholders. Equity shareholder’s fund includes
equity capital and reserves and surplus.
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GMR ENERGY LIMITED
Cash profit
Cash Profit Ratio = ------------------------------------------x100
Net sales
Administrative expense
Administrative Expense Ratio = -------------------------------------------x100
Net sales
Sales
Total Assets Turnover Ratio = ------------------------------------------
Total Assets
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
2. RESEARCH DESIGN
STATEMENT OF PROBLEM:
The analysis of the financial statements i.e. income statement and the
balance sheet it is very difficult to analyze the complete picture of financial
performance. Therefore there is a need of applying the modern tools of
management accounting to access the exact financial performance and position
of the business enterprise.
• To ascertain the financial ratios which are likely to reflect the liquidity,
profitability, solvency as well as the profit of “GMR Energy Limited”.
• To know the profit of “GMR Energy Limited” and understand the
movement of profits over the years.
• To assess the operating efficiency of “GMR Energy Limited.”
• To know the Equity position of “GMR Energy Limited.”
• To know the working capital position of “GMR Energy Limited.”
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GMR ENERGY LIMITED
This study is about the ratio analysis of “GMR ENERGY LIMITED”, which
is a part of financial analysis.
Ratio analysis is perhaps the first financial tool developed to analyze and
interpret the financial statement and is still used widely for this purpose. Financial
performance analysis is a well researched area and innumerable studies have
proved the utility and usefulness of this analytical technique. This research seeks
to investigate and constructively contribute to help:
• The company in finding out the gray areas for improvement in
performance.
• The company to understand its own position over time.
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GMR ENERGY LIMITED
The researcher can further analyze the cash flow statement, funds flow
statement, working capital analysis, balance sheet analysis, marketing trends to
know the financial and liquidity position of the “GMR Energy Limited.”
DATA COLLECTION:
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
3. COMPANY PROFILE
GMR GROUP:
The GMR Group is one of the leading and fastest growing private sector
organizations of India. The GMR group, established in 1978 and it is a listed
company on Bombay Stock Exchange (BSE) and National Stock Exchange
(NSE). Mr. Grandhi Mallikarjun Rao is the chairman of “GMR GROUP.”
VISION:
BUSINESSES:
Energy:
GMR Group operates three power plants: GMR Energy Ltd. in Mangalore,
GMR Power Corporation Pvt. Ltd. in Chennai and Vemagiri Power Generation
Ltd. in Andhra Pradesh. GMR's Mangalore Power plant uses environment
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GMR ENERGY LIMITED
friendly fuel and combined cycle gas turbine technology to achieve maximum
thermal efficiency. The plant received the ISO 14001 and OHSAS 18001
certifications from Det Norske Veritas for its compliance with internationally-
benchmarked environmental standards. GMR Power Corporation Pvt. Ltd
operates a 200 MW power plant in Chennai and supplies the entire power to the
Tamil Nadu State Electricity Board. Chennai plant too has received ISO 14001
and OHSAS 18001 certifications. Vemagiri Power Generation is a natural gas
based thermal power plant with an installed capacity of 388.5 MW. Besides these
power plants the GMR Group is developing three more power projects: GMR
Badrinath Hydro Power Generation Pvt. Ltd. in Alaknanda, Uttarakhand,
Kamalanga Power Project in Orissa and the Talong Power Project in Arunachal
Pradesh.
Airport:
Roads:
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GMR ENERGY LIMITED
Agri-Business:
Ferro Alloys:
GMR Ferro Alloys and Industries Ltd have an ISO 9001 certified plant
located in the Tekkali district of Andhra Pradesh. It manufactures internationally
accepted high carbon Ferro-chrome for the stainless steel industry.
GMRVF is a Section 25 company, and gets its funding from the various
Group companies.
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GMR ENERGY LIMITED
The Foundation has its own professional team, drawn from the top
academic and social work institutions in the country. GMRVF is governed by a
Board headed by the Chairman of the GMR Group.
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GMR ENERGY LIMITED
The Barge mounted combined cycle power plant at Mangalore has a net
power export capability of 220MW. The plant comprises of 4 X 46.48MW LM6000
PC GE make gas turbines using naphtha as fuel and 1 X 53.58MW ABB make
steam turbine.
It is the world largest power plant on barge and first of its kind in India. The
major milestones achieved are:
ENVIRONMENT:
They are using about 18000 M3 per hour of seawater for cooling the
Steam Turbine and Chiller condensers. The water carries lot of organic debris
which is trapped in the Traveling water screens before the pump suction. The
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GMR ENERGY LIMITED
debris, when disposed as a land fill, created bad smell and attracted lot of flies
causing nuisance to the work force. A compost pit has been made to convert the
marine debris to organic manure which is used in the development of green belt.
They achieved Zero accident record for the last three years and they plan
to maintain the zero accident record for the entire PPA period of Seven years.
They are certified for OSHAS 18001.
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GMR ENERGY LIMITED
ENERGY POLICY:
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GMR ENERGY LIMITED
MVS Rao
S.N. Barde S. Nagarajan VP Commercial
VP (O&M) Advisor & CR IVS Rao
Shared Services Company
Departments Secretary
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
LIQUIAITY RATIOS:
CURRENT RATIO
2.5
1.5
RATIO
2.38
1 1.52 1.6
Current
Ratio
0.5
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The table 1 reveals that the current ratio is 1.52 in the year 2004-2005, it
has increased to 2.38 in the year 2005-06. It is again decreased to 1.60 in the
year 2006-07.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 2 – Working Capital Turnover Ratio:
4.5
3.5
3 4.75
RATIO
2.5
2 3.03 3.36
W.C
1.5 Turnover
Ratio
1
0.5
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The table 2 reveals that the working capital turnover ratio is 4.75 in the
year 2004-05; it is decreased to 3.03 in the year 2005-06 and it is increased to
3.36 in the year 2006-07.
The working capital turnover ratio is decreased in the year 2006-07 when
compared to base year i.e. 2004-05 because of increase in net working capital.
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GMR ENERGY LIMITED
(Rupees in lakhs)
0.7
0.6
0.5
0.69
0.4 0.63
0.56
RATIO
0.3
Fixed
0.2 Assets
Turnover
Ratio
0.1
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
From the above table we observe that Fixed Asset Turnover Ratio is 0.63
in the year 2004-05, it is increased to 0.69 in 2005-06, and it has decreased to
0.56 in the year 2006-07.
The fixed assets turnover ratio is increased in the year 2005-06 because
of decrease in sales which indicates assets are not utilized efficiently.
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GMR ENERGY LIMITED
LEVERAGE RATIOS:
1.2
0.8
1.11
0.97
RATIO
0.6
0.81
Debt
0.4 Equity
Ratio
0.2
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The table 4 reveals that the debt equity ratio is 1.11 in the year 2004-05, it
is decreased to 0.97 in the year 2005-06, and again it is decreased to 0.81 in
2006-07.
Therefore, there is a gradual decrease in the debt equity ratio during the 3
years due to repayment of borrowings.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 5 – Proprietary Ratio:
0.6
0.5
0.4
RATIO
0.55
0.3 0.47 0.5
0.2 Proprietary
Ratio
0.1
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
As there is a gradual increase in the proprietary ratio over the 3 years, the
long-term solvency is satisfactory.
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GMR ENERGY LIMITED
PROFITABILITY RATIOS:
70
60
50
40
64.95
RATIO
51.63
30 49.4
Gross
Profit
20 Ratio
10
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The table 6 reveals that the Gross Profit Ratio is 49.40 in the year 2004-
05, it is increased to 51.63 in 2005-06, and again it is increased to 64.95 in the
year 2006-07.
The gross profit ratio is gradually increasing every year. It shows that,
higher the gross profit ratio the better is the results i.e. the company’s profitability
has been increased in the past 3 years. Hence it is satisfactory.
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GMR ENERGY LIMITED
(Rupees in lakhs)
25
20
15
RATIO
20.1
10
15.3
14.42 Net Profit
Ratio
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
In above table the net profit is gradually increasing every year i.e. 14.42 in
the year 2004-05, 15.30 in 2005-06 and 20.10 in 2006-07.
A high Net Profit ratio indicates that the profitability of the firm is good.
Since the Net Profit Ratio is satisfactory, the company can see gradual growth in
coming days.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 8 – Operating Ratio:
120
100
80
113.44 108.92
RATIO
106.98
60
Operating
40 Ratio
20
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The above table 8 reveals that the operating ratio is 113.44 in 2004-05, it
has decreased to 106.98 in the 2005-06 and it is increased to 108.92in the year
2006-07.
Even though there is a decrease operating ratio in the year 2005-06 which
is an unfavourable situation as it can be 70% to 85%, but it has crossed 100%.
So operating ratio is considered to be satisfactory.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 9 – Return on Shareholder’s Fund:
20
16
12
RATIO
8 Return on
Shareholder’s
Fund
4
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
In the year 2004-05 the return on shareholder’s fund was 17.03, in 2005-
06 it has increased to 17.13 and in the year 2006-07 again it is increased to
17.75.
There is a gradual increase in the share holder’s fund. Thus, the overall
efficiency of a firm has been increased gradually. Hence the company measures
its profitability from the share holder’s point of view which is good sign for the
company.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 10 – Return on Equity:
20
16
12 17.76
17.13
RATIO
17.03
Return
8 on
Equity
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 11 – Return on Assets:
10
9
8
7
6 9.79
RATIO
8.67
5 8.03
Return
4 on
assets
3
2
1
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The above table reveals that the Return on Assets is 8.03 in the year
2004-05, it has increased to 8.67 in 2005-06 and again it is increased to 9.79 in
the year 2006-07.
There is gradual increase in the return on assets from past 3 years which
indicates the assets are not fully utilized and maintained well.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 12 – Cash Profit Ratio:
45
40 43.89
35
30
35.73
25
RATIO
34.95
20
Cash
15 Profit
Ratio
10
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The table 12 shows that the Cash Profit Ratio is 35.73 in the year 2004-
05, it has decreased to 34.95 in 2005-06 and it has increased to 43.89 in the year
2006-07.
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GMR ENERGY LIMITED
(Rupees in lakhs)
Graph 13 – Administrative Expense Ratio:
16
14
12
10 14.96
RATIO
8 12.66
Administrative
Expense
6
7.86
4
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The above table 13 reveals that the administration expense ratio is 7.86 in
the year 2004-05, it has increased to 12.66 in 2005-06 and it is again increased
to 14.96 in the year 2006-07.
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GMR ENERGY LIMITED
(Rupees in lakhs)
0.6
0.5
0.4
0.56
RATIO
0.55
0.3 0.48
Total
0.2 Asset
Ratio
0.1
0
2004-2005 2005-2006 2006-2007
YEARS
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GMR ENERGY LIMITED
The table 14 shows that the Total Turnover Ratio is 0.55 in the year 2004-
05, it has increased to 0.56 in 2005-06 and it has decreased to 0.48 in 2006-07.
It has decreased in 2006 due to decrease in the total assets and sales.
This shows that the total assets are not utilized effectively to generate sales.
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
FINDINGS:
• In the year 2005-06 the ratio has been increased to 2.38 but it has come
down to 1.60 in the year 2006-07. Hence the company must take
necessary measures to meet standard ratio.
• The working capital turnover ratio has decreased to 3.36 in the year 2006-
07 when compared to the base year 2004-05 which indicates that the ratio
is not satisfactory.
• The fixed asset turnover ratio has been increased in the year 2005-06
when compared to base year i.e. 2004-05 but it has got down in the year
2006-07. Hence the company must utilize the assets efficiently.
• The debt equity ratio has decreased gradually during the 3 years. So the
company must repay the borrowings within given time.
• The proprietary ratio has increased in 3 years. Hence, the long term
solvency is satisfactory.
• Gross profit ratio is increased to 64.95 in the year 2006-07 when
compared to the year 2004-05. Hence, the gross profit ratio is highly
satisfactory.
• The net profit ratio is also highly satisfactory. By this the company can
enjoy huge profits and it also indicates growth trend of the company.
• The operating ratio is favorable because it has crossed 100%.
• The return share holder’s fund has increased gradually which measure its
profitability from the shareholder’s point of view.
• The increase in return on equity indicates that the company is performing
well and the equity share holder’s can get back high returns. This helps
the company to gain popularity.
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
SUGGESTIONS
• The company has to take measures to increase sales and utilize the
assets effectively.
• There is an increase in return on assets. Hence, the company should
take measures to maintain with the return on assets.
• The company must control the administrative expenses so that it does
not indicate negative effect on net profit.
• Optimum utilization of resources will help the company to get more
profits.
• Maintenance of liquid assets will definitely help the company in facing
the unexpected situation.
• In conducting of successful business, shareholder’s wealth plays a vital
role.
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
6. CONCLUSIONS
The analysis and interpretation of various ratios will help in giving better
understanding of the financial conditions and the performance of the
organization.
Though the company assets are not fully utilized and maintained well, the
firm is in a liquidity position as it is earning profit from last 3 years. The company
should take some necessary precautions regarding utilizing the assets.
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
BIBLOGRAPHY
Text books:
1. Financial Management
- Reddy, Appaniah
- B.S.Raman
2. Management Accounting
- R.K.Sharma and S.K.Gupta
Web sites:
• www.gmrgroup.co.in
• www.studyfinance.com
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
ANNEXURES
2005 2004
I. Sources of Funds
1. Shareholders’ Funds
2. Loan Funds
1. Fixed Assets
3. Current Assets,
Loans and Advances
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GMR ENERGY LIMITED
d) Other Current
Assets 257.00 235.05
29,700.92 32,223.46
Less : Current
Liabilities and
Provisions
12,474.09 21,133.06
Statement on Significant
Accounting Policies
and Notes to the Accounts
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GMR ENERGY LIMITED
PROFIT AND LOSS ACOOUNT FOR THE YEAR ENDED MARCH 31st 2005
2005 2004
I.
Income
54,316.92 55,239.83
II. Expenditure
Generation
Expenses 25,324.98 26,676.35
45,483.58 47,000.40
V. Available for
Appropriation 13,693.56 10,669.77
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GMR ENERGY LIMITED
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GMR ENERGY LIMITED
2006 2005
I. Sources of Funds
1. Shareholders’ Funds
49,650.64 46,778.28
2.Share Application Money
Pending Allotment 26.71 -
3. Loan Funds
40,392.25 45,639.00
30,004.98 38,560.14
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GMR ENERGY LIMITED
34,692.58 29,700.92
Less : Current Liabilities
and Provisions
21,637.00 12,474.09
Statement on Significant
Accounting Policies
and Notes to the Accounts
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GMR ENERGY LIMITED
PROFIT AND LOSS ACOOUNT FOR THE YEAR ENDED MARCH 31st 2006
2006 2005
I.
Income
45,514.51 54,271.08
II. Expenditure
Generation
Expenses 15,375.18 25,324.98
35,771.60 45,437.74
V. Available for
Appropriation 15,915.81 13,693.56
Interim Dividend @ Rs.Nil (2005 - Rs. 1.60) per
Equity Share - 5,217.19
Proposed Final Dividend @ Rs. 1.60 (2005- Rs. Nil)
per equity Share 5,217.19 -
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GMR ENERGY LIMITED
Tax on
Dividend 731.71 681.82
Transfer to General
Reserve 800.00 700.00
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GMR ENERGY LIMITED
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March 31, 2007 March 31, 2006
I. Sources of Funds
1. Shareholders’ Funds GMR ENERGY LIMITED
a) Capital 39,952.35 32,607.41
b) Reserves and
Surplus 26,817.69 17,043.23
66,770.04 49,650.64
3. Loan Funds
49,901.64 40,392.25
19,637.94 30,004.98
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