INTRODUCTION OF THE STUDY

“Finance may be defined as that administrative area or set of administrative

functions in an organization which relate with the arrangement of cash and credit so that
the organization may have the means to carry out its objective as satisfactorily as
possible”.

The main activities to the successful administration of finance in any

organization comprise financial planning, raising the needed funds, financial analysis and
control. Analysis of financial statement in a business deserves much attention in carrying
out finance function. It helps to regains prospective analysis of operative period for the
purpose of evaluating the wisdom and efficiency of financial planning. Analysis of what
has happened should be of great value in improving the standards, techniques and
procedures of financial control involved in carrying out finance function.

FINANCIAL MANAGEMENT

Financial management is broadly concerned with the procurement and

effective utilization of funds by a business firm. Financial management emerged as a
distinct field of study at the turn of this century. Its evolution may be divided into two
broad phases.
The Traditional Phase and Modern Phase Finance theory, in general resist on the
premise that the goal of the firm to its equity shareholders. This means that the goal of
the firm should be to maximize of market value of its equity shares the goals of
maximization of shared as wealth, expressing the shareholders point of view, several
alternatives have been suggested, maximization of earning per share, maximization of
returns on equity etc., maximization of profit is not as inclusive goal as maximization of
shareholders wealth
FINANCIAL ANALYSIS

The financial statement provides a summary of the account of a business

enterprise. To understand the financial performance and condition of a firm, its
stakeholders look at the three financial statements, Viz, the balance sheet, the profit and
loss account and the sources and uses of a funds statement.

BALANCE SHEET
It shows the financial position of the firm at the accounting period.

PROFIT AND LOSS ACCOUNT

It shows how the firm performed financially over the accounting period.

SOURCES AND USES OF FUNDS STATEMENT

It shows what have been the sources and uses of funds during the accounting
period.
 SYNOPSIS

The researcher as part of curriculum has conducted a study to find out to

financial performance of the company. The data utilized for the study is secondary in
nature. The required data is collected from the budgeted formats, Flash results and Five-
year annual diary of the company. The data has been collected for a period of five years
from 2004-05to 2008-09.

The ratios concerned in the study are profitability ratios and turnover ratios. The
profitability ratios includes Returns on total assets, Profitability ratio, Profitability
earnings, Administrative expenses ratio, Selling and Distribution expenses ratio, Return
on investment, operating profit ratio, Value added as a percentage on turnover, Value
Added Per employee.

The turnover ratios include inventory turnover ratio, inventory turnover Period,
Debtor turnover ratio, Debt collection period, creditors turnover ratio, Debt payment
period, working capital turnover ratio, Fixed assets turnover ratio, Capital turnover ratio,
Turnover per rupee of gross block, Turnover per employee. The Solvency ratio includes
current ratio.
 COMPANY PROFILE

Bharat Heavy Electrical Ltd., (BHEL) is the largest engineering and manufacturing
enterprise of its kind in India and is one of the leading international companies in the
field of power equipment manufacture. The first plant of BHEL was set up at Bhopal in
1956, which signaled the dawn of the Heavy Electrical Industry in India. In the early
sixties, three more major plants were set up at Haridwar, Hyderabad and Tiruchirappalli,
which form the core of the diversified range, systems and service the BHEL offers today.

BHEL range of services extends from project feasibility studies to after-sales-

service successfully meeting diverse needs through turnkey capability. The company has
14 manufacturing units, 4 power sector regional centers, 8 service centers and 18 regional
offices besides project sites spread all over India and abroad. The company has formed a
Strategic Business Unit for Ceramics at Bangalore. BHEL is today the largest
engineering and manufacturing enterprise of its kind in India, with a well recognized
track record of performance, making profits continuously since 1971 – 72 and paying
dividends since 1976-77. BHEL manufactures over 180 products under 30 major product
groups and caters to core sectors of the Indian economy viz., Power Generation and
Transmission Industry, Transportation, Telecommunication, Renewable Energy, etc.

The quality & reliability of its products is due to the emphasis on design,
engineering and manufacturing to international standards by acquiring and adapting some
of the best technologies from leading companies in the world, together with technologies
developed in its own R & D centers. BHEL has acquired certifications to both ISO 9000
& ISO 14000 standards for its operations and has also adopted the concepts of Total
Quality Management. BHEL has adopted Occupational health and safety standards as
per OHSAS 18001. Two of its divisions have acquired certification to OHSAS 18001
standard and the other units are in the process of acquiring the same.
 BHEL’s operations are organized around three business sectors,
namely power industry including Transmission, Transportation, Telecommunication &
Renewable Energy and International Operations. This enables BHEL to have a strong
customer orientation, to be sensitive to his needs and respond quickly to the changes in
the market.

OBJECTIVES OF BHEL:

1. GROWTH

To ensure a steady growth by enhancing the competitive edge of BHEL in existing

business, new areas and international operations so as to fulfill national expectations from
BHEL.

2. PROFITABILITY

To provide a reasonable and adequate returns on Capital Employed, primarily through

improvement in operational efficiency capacity utilization and productivity and generate
adequate internal resources to finance the company’s growth.

3. CUSTOMER FOCUS

To build a high degree of customer confidence by providing increased value for his
money through in international standards of product quality, performance and superior
customer service.

4. ORIENTATIONS

To enable each employee to achieve his potential, improve his capabilities, perceive
his role and responsibilities and participate and contribute positively to the growth and
success of the company. To invest in human resources continuously and be alive their
needs.

5. TECHNOLOGY

To achieve technological excellence in operations by development of indigenous

technologies and efficient absorption and adaptation of imported technologies to suit
business needs and priorities and provide a competitive advantage to the company.

6. IMAGE

To fulfill the expectations, which stake holders like Government as owner,

employees, customers and the country at large have from BHEL.

BHEL has supplied :

• Equipment for over 90,000 MW of power generation – for utilities, captive and

industrial uses.

• Over 25,000 Motors with Drive Control Systems to Power Projects,

Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement Plants etc.

• Over one million Valves to Power Plants and other industries.

VISION:

BHEL’s vision is to make a world – class-engineering enterprise committed to

enhancing shareholder value.

MISSION:

BHEL mission is to be an Indian multinational engineering enterprise providing

total business solutions through quality products, system and service in the fields of

energy, transport, infrastructure and other potential areas.

STRENGTH:
The greatest strength of BHEL is its highly skilled and committed people. Every
employee is given an equal opportunity to develop himself and improve his position.
Continuous training and retraining, career planning, a positive work culture and
participative style of management have engendered development of a committed and
motivated work force leading to enhanced productivity and higher levels of quality.

VALUES:

• Zeal to excel and zest for change.

• Integrity and fairness in all matters.

• Respect for dignity and potential of individuals.

• Strict adherence to commitments.

• Ensure speed of response.

• Foster learning, creativity and teamwork.

• Loyalty and pride in the company.

OTHER UNITS OF BHEL:

1) Steam less Steel Tube Plant - Trichy

2) High Pressure Boiler Plant – Trichy

3) Heavy Electrical Plant – Bhopal

4) Industrial Valves Plant – Govindaval

5) Heavy Electrical Equipment Plant – Haridwar

6) Central Foundary Forge Plant – Haridwar

7) Heavy Equipment Plant – Haridwar

8) Electronic Division – Bangalore

9) Industrial Insulted Plant – Jagdishpur

10) Component Fabrication Plant – Rudhrapur

11) Silicon Solar Cell Plant – Gurgon

12) Heavy Equipment Repair Plant – Varanasi

COMPETITORS:

• ABB

• SIEMENS

• GEC

• VOLTAS
MAJOR IMPORTS FROM ABROAD:

a) AB Sand irk, Sweden.

b) Hyundai, South Korea.

c) Reiner Brach, Germany.

d) Ferromex, Belgium.

e) Metal one, Japan.

f) Ducon technologies, USA.

MAJOR SUPPLIERS IN INDIA:

a) Steel Authority of India

b) The Indian Iron Steel Co. Ltd

c) Tube Investment of India

d) Dynalog (India) Ltd

e) Controls & Switch Gear Co.

f) Delton Cables

g) Tata Iron & Steel Co. Ltd

h) Super Forgings & Steels Ltd

i) Bhushan Steel & Strips

 j) Jindal Steel & Steels

k) Uttam Galva Steels Ltd

MAJOR CUSTOMERS:

a) State Electricity Board

b) Tata Iron & Steel Co. Ltd

c) Jindal Steel & Steels

d) Hindustan Zinc

e) Bhushan Steel & Strips

f) Saint Gobain

g) National Thermal Power Corporation

h) Walchand

Board of Directors of BHEL:

1. K. Ravikumar, Chairman & Managing Director (Including Power)

2. B.P. Rao, Director (IS&P)

3. C.S. Verma, Director (finance)

4. C.P. Singh, Director (E, R&D)

5. Anil Sachdev, Director (Personnel)

BAP PRODUCT PROFILE:

Fans
• Fans for steam generators and various industrial applications:
• Axial reaction fans of single stage and double stage type for clean air application
• Axial impulse fans for clean air and flue gas applications
• Single and double suction type radial fans clean air dust laden hot gas applications
up to 400oC

Air Heaters
• Air heaters for steam generators and various industrial applications:
• Regenerative air heaters in s broad range of sized and capacities
• Tubular air heaters for steam generators and process industries, for various duty
conditions

Electrostatic Precipitators
• Dust collectors for steam generators and various industrial applications
• Electrostatic Precipitators in a broad range of sizes and capacities. Maximum gas
flow per precipitator up to 250 m3/sec and collection efficiency up to 99.99%
• Electrostatic precipitators for recovery boilers to recover black particulate for
recycling.

Mechanical Separators
 Cyclone type mechanical separators for steam generators and industrial
applications.
 Coal / Ash Handling Equipment, Desalination Plants and Wind Electric
Generators.
BOILER AUXILIARIES PLANT, RANIPET:

The boiler Auxiliaries Plant, a unit of BHEL located at Ranipet about 120
KMs from the city of Chennai is one of the manufacturing divisions of BHELs. The
plant has recorded a turn over of around Rs.30807 lakhs during the financial year 2001-
02. The product profile of the unit caters to both power and industrial sectors.

TECHNICAL COLLABORATION

BHEL, Ranipet had technical collaboration for boiler auxiliaries form leading
international players like erstwhile M/s. CE – APCo, USA, M/s. KKK, Germany and
M/s. Flakt industry, Sweden. Recently the company has extended its business portfolio
to non-conventional energy by supplying Wind Electric Generators with the back up of
M/s. Nordex A/S, Denmark. Another ongoing partnership of the company is with M/s.
Hamon Rothemuhle, Germany in the field of Bag Filters.

UNIT’S INSTALLED CAPACITY

In the power sector, BHEL, Ranipet was actively associated with the
enhancement of the installed capacity in the country, since the beginning of the plant in
1982. The unit has established itself as a reliable single source for air pollution control
equipments; fans air preheaters and other accessories like gates, dampers, and louvers for
power plants. BHEL, Ranipet has supplied ESP’s for eighteen 500MW units, 148 units
in the range of 200 MW to 250 MW, 65 units of 100 MW to 130 MW and 64 units of 12
MW to 80 MW.

In addition, BAP has supplied ESP’s for 71 industrial boilers and around 100
ESP’s for other industrial applications. The air preheaters and fans supplied for various
500 MW, 250 MW 200/210 MW and low rated units located at various sites in the
country are also performing to the utmost satisfaction of the customers. Boiler auxiliaries
have also been exported, for e.g. to Alarish in Egypt. The unit is actively participating in
few global renders and will be a strong contender for boiler auxiliaries required for IPPs
coming Up in India. In desalination business BHEL, Ranipet has presence in India with
eleven plants of capacities ranging from 20 cubic meters per day to1 MGD at
Ramanathapuram district in Tamilnadu. The company is keen to expand its business in
this area of business.

Equipment for over 90,000 MW of power generation – for utilities, captive and
industrial uses. Over 25,000 Motors with Drive Control Systems to Power Projects,
Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement Plants etc. Over one
million Valves to Power Plants and other industries.

The unit a shop floor area of around 93000 Sq.m. and has the state of the art
manufacturing facilities along with necessary inspection and testing facilities. The
manufacturing facilities include sophisticated CNC turning and machining centers,
vertical borers, metal forming machines like press brakes, rolling machining centers,
vertical borers, metal forming machines like press brakes, rolling machines, sectional
rolling machines, presses etc. the plant has modern welding facilities, heat treatment
facilities and has the capability to meet stringent quality in fabrication and machining.
The inspection and testing like ultrasonic scanning, radiography and a modern metrology.
ORGANISATION CHART OF BHEL, BAP, RANIPET
 THEORETICAL EXPLANATION OF FINANCIAL ANALYSIS
TOOLS

In business usage the term financial statement analysis and interpretation are applied to
almost any kind of detailed inquiry into financial data. It is a technical tool in the hands
of financial executives to measures the financial progress. It is an attempt to determine
the significance and meaning of the financial statement data so that a forecast can be
made on the prospects of future earning ability to pay interest and debt maturity both
current as well as long term and to study the probability of a sound dividend policy
Review of literature consists of theoretical study of the following sub
topics

• Ratio Analysis
• Comparative Balance Sheet Analysis
• Common size Balance Sheet Analys

RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is the
process of establishing and interpreting various ratios. A financial ratio is the relationship
between two accounting figures expressed mathematically. Ratios provide clues to the
financial position of a concern. These are the pointers and indicators of financial strength,
soundness, position or weakness of an enterprise concern with the help of ratios.

MEANING OF RATIOS

“Ratios are relationship express in mathematical terms between figures which are

connected with each other in some manner. Obviously, no purpose will be served by

comparing two sets of figures which are not at all connected with each other”. Moreover,

absolute figures are also unfit for comparison. Ratios can be expressed in two ways;
TIMES

When another divides one value, the unit to express the Quotient is
termed as “Times”. For example, if out of 100 product is Employees 95% is Finishing
goods or product ratio can be expressed as follows:
95/100 = 0.95 times.

PERCENTAGE

If 100 multiply the quotient obtained, the unit of expression is termed as

“PERCENTAGE”. For instance, in the above example, the product ratio as a Percentage
of the total number of employees is as follows:
0.95* 100 = 95%

CLASSIFICATION OF RATIOS:

Ratios are classified in several ways. Different approaches are used for classifying
ratios. There is no uniformity in classification by experts. They have adopted different
standpoints for classifying ratios into various groups. Some of the classifications are
discussed below:

a) Classification of ratio by statements.

Under this method, ratios are classified on the basis of statements from
which the information is obtained for calculating the ratios. The only statements that
provide information are balance sheet and profit and loss account.

b) Classification of ratio by users.

 Under this classification the ratios are grouped on the basis of the parties who are
interested in making use of the ratios.

Ratios for management Ratios for creditors

Operating ratio Current ratio
Return on Investment Solvency ratio
Stock turnover Creditors turnover
Debtors turnover Fixed assets
Debt equity
Creditor’s turnover

c) Classification of ratios by purpose/function.

Generally ratios are used for the purpose of assessing Profitability,

activity or operating efficiency and financial position of Concern. Based on the purpose

the ratios are classified as Profitability

Classifications of ratios Analyzed

1. Short term solvency ratio

2. Profitability ratio
3. Turnover Ratio

Short-Term Solvency Ratio:

The short-term solvency ratios, which measure the liquidity of the firm and its
ability to meet its maturing short-term obligations. Liquidity is defined as the ability to
realize value in money, the most liquid of assets. It refers to the ability to pay in cash,
the obligations that are due.

Profitability Ratio:
 The purpose of study and analysis of profitability ratios are to help assessing
the adequacy of profits earned by the company and also to discover whether
profitability is increasing or declining.
EPS is one of the most important ratios, which measures the net profit
earned per share. EPS is one of the major factors affecting the dividend policy of the
firm and the market prices of the company.
A steady growth in EPS year after year indicates a good track of profitability.

Turnover Ratios:

Activity ratios measure how effectively the firm employs its resources. These
ratios are also called turnover ratios which involve comparison between the level of
sales and investment in various accounts - inventories, debtors, fixed assets, etc.,
activity ratios are used to measure the speed with which various accounts are converted
into sales or cash.

COMPARATIVE BALANCE SHEET ANALYSIS

The comparative balance sheet analysis is the study of the trend of the same
items, group of items and computed items in two or more balance sheets of the same
business enterprise on different dates. The changes in periodic balance sheet items reflect
the conduct of a business. The changes can be observed by comparison of the balance
sheet at the beginning and at the end of a period and these changes can help in forming an
opinion about the progress of an enterprise.
Balance sheets as on two or more different dates are used for comparing the
assets, liabilities and the net worth of the company. Comparative balance sheet
analysis is useful for studying the trends of an undertaking.

Advantages
 • Comparative statements help the analyst to evaluate the performance of the
company.

• Comparative statements can also be used to compare the performance of the firm
with
• The average performance of the industry between different years.

• It helps in identification of the weaknesses of the firm and remedial measures can
be done meritly
• Taken accordingly.

COMMON SIZE BALANCE SHEET ANALYSIS :

A statement in which balance sheet items are expressed as the ratio of each asset to
total assets and the ratio of each liability is expressed as a ratio of total liabilities is called
common size balance sheet. The figures are shown as percentages of total assets, total
assets and total liabilities. The total assets are taken as 100 and different
assetsareexpressed as a percentage of the total. Similarly, various liabilities are taken as a
percentage of total liabilities.
These statements are useful in analysis of the performance of the company by
analyzing each individual element to the total figure of the statement. These statements
will also assist in analyzing the performance over years and also with the figures of the
competitive firm in the industry for making analysis of relative efficiency.
 OBJECTIVES OF THE STUDY

Primary Objective

The primary objective of the present study is to conduct a comprehensive

financial performance analysis of BHEL by analyzing the profitability, solvency &
liquidity position of the company

Secondary objective

The secondary objectives are listed below:

• To study the present financial position of BHEL

• To study the financial performance of BHEL by analyzing the profitability,

solvency and liquidity position of the company.

• To project the future Sales, Profit & working Capital of BHEL and to ascertain
the strengths and weaknesses of the company

• To suggest measures for further improvement, if any.

STATEMENT OF THE PROBLEM:

The success of industry mainly depends on many factors viz., sales and profit
of a business concern, rate of return of the industry and the organization, optimum
inventory the industry carries, methods of long term and short term funding, treasury
management etc., and this could be achieved by observing good management practices. It
is in this context the study is initiated in BHARAT HEAVY ELECTRICIAL LIMITED
to find out their financial management system of previous 5 years and find out the
problems if any and the performance of the BHEL with the help of ratios and other
techniques of financial analysis.

SCOPE OF THE STUDY:

The purpose of the study was to know the financial performance of the unit. For this the
ratio analysis tool was most suitable. This would reveal the solvency position of the
unit. The trend of sales and profitability for the past 5 years was calculated to know if
any deviations occurred and to know the reasons for it. However the study had its own
limitations like ratio analysis is a post-mortem analysis and the data utilized were
secondary in nature etc.

FINANCIAL ANALYSIS:

The financial statement provides a summary of the account of a business

enterprise. To understand the financial performance and condition of a firm, its
stakeholders look at the three financial statements, Viz, the balance sheet, the profit and
loss account and the sources and uses of a funds statement
 RESEARCH METHODOLOGY

This part highlights the period of the study, sources of data and techniques used in
the analysis. It focuses on the critical assessment of the financial position of BHEL
These are illustrated and explained as under:

RESEARCH DESIGN

• Research design is purely and simply the framework or plan for a study
that guides the collection and analysis of the data. The function of
researcher is to ensure that the required data collected are accurate and
economical also
• Analytical research technique was adopted in the project. Generally,
analytical techniques are designed to analyze something and it collects
data for a definite and certain purpose.
• The project study mainly focuses on the critical assessment of the
financial position of BHEL, and deals with financial statement analysis,
financial planning and financial control.

PLAN OF ANALYSIS

Data collected from all the available sources will be tabulated, analyzed, interpreted
and supported with relevant chart, ratios, tables, graphs, etc., where ever necessary and
suggestions arising there of will also be listed in the project. An attempt has been made
to study the working capital management as part and parcel of treasury operations at
BHEL.

PRIMARY DATA
  With a purpose to strengthen and validate the study, personal contacts were made
with the executives and officials of the finance division of BHEL in the form of
personal discussion, data collection, analysis of reports and MIS formats etc.,

SECONDARY DATA

 The secondary data are collected from Company reports, institute magazines,
department manuals, brochures mainly form the balance sheet, income and
expenditure and periodicals etc.,

METHOD OF COLLECTION

 The data for the analysis are collected and gathered from the printed company
reports of BHEL, official files, records, ledgers and other available related
materials

PERIOD OF STUDY

 The study period covers the financial performance of BHEL during the five year
period commencing 2004-05 to 2008-09.

DATA ANALYSIS

TECHNIQUES USED UNDER THE STUDY

 Ratio analysis

 Comparative balance sheet analysis

 Common size balance sheet analysis

LIMITATIONS OF THE STUDY

 The project study is mainly based on information gathered from

secondary data, mainly the printed Balance Sheet and Profit and Loss Account.

 Time period being a major constraint, it is insufficient to cover the

various aspects of finance within the prescribed period.

 The whole study is based on the observations in the past over a five-
year time horizon, which can be related to the laws that operated in the past, as there is no
evidence that the laws will continue to operate in future also.

 Being a company under the direct control of BHEL Delhi and also
under the indirect administration of the government, it is not possible to fix the prices for
some of the major products produced. It is not in a position to enjoy the control of
ownership.

 The company faces the challenges of the international boilers markets,

on the profitability of the boiler industry as a whole in India. Therefore, five-year period
is subject to major fluctuations in terms of profitability.

PROFITABILITY RATIOS

Profit making is the main objective of business. Aim of every business concern is
to earn maximum profit in absolute terms and also in relative terms. Profit is to maximum
in terms and also in relative terms. Profit is to maximum in terms of risk undertaken and
capital employed. Ability to make maximum profit from optimum utilization of resources
by a business concern is termed as “profitability”. Profit is an absolute measure of
earning capacity. Profitability depends on sales, costs and utilization of resources. The
following are various ratios used to analyze profitability.

EXPENSES RATIOS

These ratios are also known as supporting ratios to operating ratio. They indicate
the efficiency with which business as a whole functions. It is better for the concern to
know how it is able to save or waste over expenditure in respect of different items of
expenses.
i) Administration expenses ratio:
Administration expenses ratio / net sales * 100
ii) Selling and distribution expenses ratio:
Selling and distribution expenses ratio / Net sales * 100

TURN OVER RATIOS

This ratio is called stock velocity ratio. It is calculated to ascertain the

efficiency of inventory management in terms of capital investment. It shows the

relationship between the cost of goods sold and the amount of average inventory. Stock

turnover ratio is obtained by dividing the cost of sales by average stock.