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FINANCIAL RATIO ANALYSIS 2011

S.R.LUTHARA INSTITUTE OF MANAGEMENT

ASSIGNMENT OF ACCOUNTING FOR MANGERS ON Financial Ratio Analysis At National Thermal Power Corporation

SUBMITTED TO: SUBMITTED BY: IMRAN KHAN JITHIN PONATHIL (FSMBM110082)

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FINANCIAL RATIO ANALYSIS 2011

PREFACE
The conceptual knowledge acquired by management student is best manifested in the project and training they undergo. As a part of curriculum of MBA, We have got a chance to undergo practical training on NATIONAL THERMAL POWER CORPORTION. The present project gives a perfect vent into our understanding of financial management. The project report entitled FINACIAL RATIO ANALYSIS is based on the financial statements viz the Balance sheet of the company. The report will provide all information regarding the FINANCIAL RATIO ANALYSIS and their importance in NATIONAL THERMAL POWER CORPORTION LTD.

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FINANCIAL RATIO ANALYSIS 2011

POWER SECTOR IN INDIA

The electricity sector in India is predominantly controlled by the Government of India's public sector undertakings (PSUs). Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), National Hydroelectric Power

Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several state-level corporations, such as Maharashtra State Electricity Board (MSEB), are also involved in the generation and intra-state distribution of electricity. The Power Grid Corporation of India is responsible for the inter-state transmission of electricity and the development of national grid. The Ministry of Power is the apex body responsible for the development of electrical energy in India. This ministry started functioning independently from 2 July 1992; earlier, it was known as The Ministry of Energy. The Union Minister of Power at present is Sushil kumar Shinde of the Congress Party, who took charge of the ministry on the 28th of May, 2009. India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to India's economic rise, the demand for energy has grown at an average of 3.6% per annum over the past 30 years. In March 2009, the installed power generation capacity of India stood at 147,000 MW while the per capita power consumption stood at 612 kWH. The country's annual power production increased from about 190 billion kWH in 1986 to more than 680 billion kWH in 2006. The Indian government has set an ambitious target to add approximately 78,000 MW of installed generation capacity by 2012. The total demand for electricity in India is expected to cross 950,000 MW by 2030. About 75% of the electricity consumed in India is generated by thermal power plants, 21% by hydroelectric power plants and 4% by nuclear power plants. More than 50% of India's commercial energy demand is met through the country's vast coal reserves. The country has also invested heavily in recent years on renewable sources of energy such as wind energy. As of 2008, India's installed wind power generation capacity stood at 9,655 MW. Additionally, India Page 3

FINANCIAL RATIO ANALYSIS 2011


has committed massive amount of funds for the construction of various nuclear reactors which would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce 20,000 MW of solar power by 2020. Electricity losses in India during transmission and distribution are extremely high and vary between 30 to 45%. In 2004-05, electricity demand outstripped supply by 7-11%. Due to shortage of electricity, power cuts are common throughout India and this has adversely effected the country's economic growth. Theft of electricity, common in most parts of urban India, amounts to 1.5% of India's GDP. Despite an ambitious rural electrification program, some 400 million Indians lose electricity access during blackouts. While 80 percent of Indian villages have at least an electricity line, just 44 percent of rural households have access to electricity. According to a sample of 97,882 households in 2002, electricity was the main source of lighting for 53% of rural households compared to 36% in 1993. Multi Commodity Exchange has sought permission to offer electricity future markets.

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THEORETICAL ASPECTS

RATIO ANALYSIS Meaning and Definition of Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables. Ratio analysis is a very powerful analytical tool for measuring performance of an organization. The ratio analysis concentrates on the inter relationship among the figures appearing in the aforementioned four financial statement s. the ratio analysis helps the management to analyze the past performance of the firm . The ratio analysis allow interested parties like shareholders, investors, creditors , government and analysts to make an evaluation of certain aspects of a firms performance.

Significance or Importance of Ratio Analysis It helps in evaluating the firms performance. With the help of ratio analysis conclusion can be drawn regarding several aspects such as financial health, profitability and operational efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the firm's assets correctly, to increase the investor's wealth. It ensures a fair return to its owners and secures optimum utilization of firms assets. It helps in inter-firm comparison. Ratio analysis helps in inter-firm comparison by providing necessary data. An inter firm comparison indicates relative position. It provides Page 5

FINANCIAL RATIO ANALYSIS 2011


the relevant data for the comparison of the performance of different departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be initiated immediately to bring them in line. It simplifies financial statement. Yet another dimension of usefulness or ratio analysis, relevant from the View point of management is that it throws light on the degree efficiency in the various activity ratios measures this kind of operational efficiency.

Limitations Ratios are calculated from the financial statements which are affected by the financial bases and policies on such matters as depreciation and the valuation of stock . Financial statements do not represent a complete picture of the business, but merely a collection of fact which can be expressed in monetary terms. These may not refer to both factors which affect performance. Over use of ratios as controls on managers could be dangerous, in that management might concentrate more on simply improving the ratio than on dealing with the significant issues. A ratio is a comparison of two figures, a numerator and a denominator. In comparing ratios it may be difficult to determine whether differences are due to changes in the numerator, or in the denominator or in both. Ratios are inter-connected. They should not be treated in isolation. The effective use of ratios, therefore, depends on being aware of all these limitations and ensuring that, following comparative analysis, they are used to trigger point for investigation and corrective action rather than being treated as meaningful in them selves. The analysis of ratios clarifies trends and weaknesses in performance as a guide to action as long as proper comparisons are made and the reasons for adverse trends or deviations from the norms are investigated thoroughly.

Classification of Ratios

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Different ratios are used for different purposes; these ratios can be grouped into various classes according to the financial activity. Ratios are classified into four broad categories: Liquidity Ratio Solvency Ratio Profitability Ratio Efficiency Ratio Integrated Ratio

(I) Liquidity Ratio:


Liquidity ratio measures the firms ability to meet its current obligations i.e. ability to pay its obligations and when they become due. Commonly used ratios are:

(1) Current Ratio (2) Acid Test Ratio or Quick Ratio (3) Inventory Turnover Ratio(Finished goods) (4) Debtors Turnover Ratio (5) Creditors Turnover Ratio (6) Cash Flow From Opertions Ratio

(1) Current Ratio:


Current ratio is the ratio, which express relationship between current asset and current liabilities. Current asset are those which can be converted into cash within a short period of time, normally not exceeding one year. The current liabilities which are short- term and are maturing to be met. It is calculated by following formula: Current Ratio = Current Asset Current liabilities For the Year 2010-11= 35,396.79 13,675.86 =2.59 : 1 For the Year 2009-10 =30,815.70 10,967.30

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=2.81 : 1

For the Year 2008-09 = 30,925.30 10,688.70 =2.89 : 1

For the Year 2007-08 = 30,527.80 12,909 2.36 : 1 For the Year 2006-07 = 25,858.50 10,702.50 2.42 : 1

Interpretation:

(2) Acid Test Ratio or Quick Ratio:


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The acid test ratio is a measure of liquidity designed to overcome the defect of current ratio. It is often referred to as quick ratio because it is a measurement of firm's ability to convert its current assets quickly into cash in order to meet its current liabilities. It is calculated by following formula: Acid Test Ratio = (Current Asset Inventories) Current liabilities Liquid Assets= Current assets Inventories Advances

For the Year 2010-11= 35,396.79 - 3,639.12 13,675.86 =2.32 : 1 For the Year 2009-10 =30,815.70 - 3,347.7 10,967.30 =2.50 : 1 For the Year 2008-09 = 30,925.30 3,243.4 10,688.70 =2.59 : 1

For the Year 2007-08 = 30,527.80 - 2,675.7 12,909 2.16 : 1

For the Year 2006-07 = 25,858.50 2,510.2 10,702.50 2.18 : 1

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FINANCIAL RATIO ANALYSIS 2011 Acid/ Quick Ratio


2.6 2.5 2.4 2.3 2.2 2.1 2 1.9 2010-11 2009-10 2008-09 2007-08 2006-07 Acid/ Quick Ratio

(3) Inventory Turnover Ratio(Finished goods)


Inventory Turnover Ratio gives information regarding how many times company has turned the stock in the one financial year. It is calculated by following formula:

Inventory Turn over Ratio= Cost of goods sold Average stock Average stock = Opening Stock+ Closing Stock 2 For the Year 2010-11= 42,293.69 3,493.41 =12Times For the Year 2009-10 =33,939.40 3,295.55 =12Times For the Year 2008-09 = 31,432.10 2,959.55 =11Times

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For the Year 2007-08 = 25,563.90 2,592.95 =10Times

For the Year 2006-07 = 22,472.10 2,510.2 =9 Times

Inventory Ratio
12 10 8 6 4 2 0 2010-11 2009-10 2008-09 2007-08 2006-07 Inventory Ratio

(4) Debtors Turnover Ratio


Debtors Turnover Ratio gives information about the Debtors outstanding times for the payment. It is calculated by following formula:

Debtors turn over Ratio= Net Credit Sales Average Debtors For the Year 2010-11= 58,359.78 7,287.85 =8 Times

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For the Year 2009-10 =48,221.32 5,117.8 =9Times For the Year 2008-09 = 44,126.08 3,283.45 =13 Times For the Year 2007-08 = 37,050.10 2,117.5 =18 Times

For the Year 2006-07 = 32,631.70 1,252.3 =26 Times

Debtors t/o Ratio


30 25 20 15 10 5 0 2010-11 2009-10 2008-09 2007-08 2006-07 Debtors t/o Ratio

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(5) Creditors Turnover Ratio: Here, the Creditors figures are not available so that it is not possible to calculate Creditors turn over Ratio.

(6) Cash Flow From Opertions Ratio:


Cash flow from operation ratio=Cash flow from operation ratio Current Liabilities For the Year 2010-11= 11,095.20 13,675.86 = 0.81 : 1 For the Year 2009-10= 10,594.20 10,967.30 = 0.97 : 1 For the Year 2008-09= 9,688.10 10,688.70 = 0.91 : 1 For the Year 2007-08= 10,171.10 12,909 = 0.79 : 1 For the Year 2006-07= 8,065.30 10,702.50 = 0.75 : 1

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FINANCIAL RATIO ANALYSIS 2011 Cash flow from operation Ratio


1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Cash flow from operation Ratio

(II) Solvency Ratio


Solvency Ratio ratios are the ratios which indicate the relative interest of the owners and the creditors in an enterprise. These ratios indicate the funds provided by the long-term creditors and owners. To judge the long term financial position of the firm following ratios are applied.

(1) Debt - Equity Ratio: Debt-equity ratio which expresses the relationship between debt and equity. This ratio explains how far owned funds are sufficient to pay outside liabilities. It is calculated by following formula: Debt-Equity Ratio = Long Term Debt/Share holders Equity = Secured loan + unsecured loan Equity fund + Reserve & surplus For the year 2010-11 = 9,910.68+33,277.56 8,245.46+60,138.66 Page 14

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= 43,188.24 68,384.12 =0.63 : 1

For the year 2009-10 = 9,079.90+28,717.10 8,245.50+55,478.60 = 37,797 . 63,724.10 =0.59 : 1

For the year 2008-09 = 8,969.60+25,598.20 8,245.50+50,749.40 = 34,567.8 58,994.9 =0.58 : 1 For the year 2007-08 = 7,314.70+19,875.90 8,245.50+46,021.90 = 27,190.6 54,267.4 =0.50 : 1

For the year 2006-07 = 7,479.60+17,661.50 8,245.50+40,351.30 =25,141.10 48,596.8

=0.51 : 1

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(2)Debt - Equity Ratio (based on total external liabilities)

Debt-Equity Ratio = Total Debt . Share holders Equity

Here, the Total Debt includes only two thing i.e. Secured loan & Unsecured loan. Total Debt= Secured Loan + Unsecured Loan Here, Debt-Equity Ratio (Based on Long term Debt) And the Debt-Equity Ratio (Based on External liability) will be same.

(3) Debt To Total Capital Ratio:

Debt to Total Capital Ratio = Long Term Debt Permanent Capital Long term Debt = Secured Loan + Unsecured Loan Permanent Capital= Share holders Fund + Long term Liability

For the year 2010-11 =

9,910.68+33,277.56 8,245.46+60,138.66+9,910.68+33,277.56

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=43,188.24 1,11,572.36 =0.39:1 For the year 2009-10 = 9,079.90+28,717.10 8,245.50+55,478.60+9,079.90+28,717.10 = 37,797 1,01,521.1 =0.37:1 For the year 2008-09 = 8,969.60+25,598.20 8,245.50+50,749.40+8,969.60+25,598.20

=34,567.7 93,562.7 =0.40:1

For the year 2007-08 =

7,314.70+19,875.90 8,245.50+46,021.90+7,314.70+19,875.90 =27,190.6 81,458 =0.33:1

For the year 2006-07 =

7,479.60+17,661.50 8,245.50+40,351.30+7,479.60+17,661.50 =25,141.10 73,737.9 =0.34:1

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FINANCIAL RATIO ANALYSIS 2011 Debt to Total Capital Ratio


0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0

Debt to Total Capital Ratio

(4)Debt To Total Assets Ratio Debt to Total Assets Ratio means firms ability to payment of Interest to the lender of loans. It is calculated by following formula:

Debt to Total Assets Ratio = Total Debt Total Assets Total Debt = Secured + Unsecured loan Total Assets = Share holders fund + Total loan + Cerrent Liability

For the year 2010-11 = 9,910.68+33,277.56 1,11,572.36+13,675.86 = 43,188.24 1,25,248.22 =0.34 : 1

For the year 2009-10 = 9,079.90+28,717.10 1,01,521.10+10,967.30 Page 18

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= 37,797 1,12,488.4 =0.33: 1

For the year 2008-09 = 8,969.60+25,598.20 93,562.70+10,688.70 = 34,567.8 1,04,251.4 =0.33 : 1 For the year 2007-08 = 7,314.70+19,875.90 81,458+12,909 = 27,190.6 94,367 =0.29: 1

For the year 2006-07 = 7,479.60+17,661.50 73,737.90+10,702.50 = 25,141.10 84,440.4 =0.30 : 1

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FINANCIAL RATIO ANALYSIS 2011 Debt to Total Assets Ratio


0.34 0.33 0.32 0.31 0.3 0.29 0.28 0.27 0.26

Debt to Total Assets Ratio

5)

Proprietary Ratio:

This Ratio gives information regarding proprietors fund to Total Assets proportion. It is calculated by following formula: Proprietary Ratio= Proprietors Fund . Total Assets- Misc.expenses Proprietors Fund = Equity + Reserve + P&L A/c - Miscellaneous expenses For the year 2010-11 = 8,245.46+60,138.66+9,102.59 1,58,767.41 = 77,486.71 1,58,767.41 =0.49 : 1

For the year 2009-10 = 8,245.50+55,478.60+8,728.20 1,44,577.20 = 72,452.30 . 1,44,577.20

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=0.50: 1

For the year 2008-09 = 8,245.50+50,749.40+8,201.30 1,33,666.7 = 67,196.20 1,33,666.7

=0.50 : 1 For the year 2007-08 = 8,245.50+46,021.90+7,414.80 1,21,641.30 = 61,682.20 1,21,641.30

=0.51: 1

For the year 2006-07 = 8,245.50+40,351.30+6,864.70 1,09,519.6 =55,461.5 1,09,519.6 =0.51 : 1

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0.51 0.505 0.5 Proprietary Ratio 0.495 0.49 0.485 0.48 2010-11 2009-10 2008-09 2007-08 2006-07

Interpretation: The standard ratio is 1:1 and here it is average around 0.50:1. Means haft of the Toal Assets is proprorted by the proprietors fund.

6) Interest Coverage Ratio:

This Ratio gives information regarding how many times is EBIT of the interest. It is calculated by following formula:

Interest Coverage Ratio = EBIT . Interest For the year 2010-11 = 12,754.23 2,149.08 =6 Times

For the year 2009-10 = 12,590.53 1,808.93 Page 22

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=7 Times

For the year 2008-09 = 11,767.90 2,022.90

=6 Times For the year 2007-08 = 12,159 1,798.10 =7 Times

For the year 2006-07 = 10,638.9 1,859.40 =6 Times

Interest Coverage Ratio


7 6.8 6.6 6.4 6.2 6 5.8 5.6 5.4 Interest Coverage Ratio

Interpretation:

Here it is Average around 6-7 times of the Interest which shows good result of the company.

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7) Total Fixed Charge Coverage Ratio: Total Fixed Charge Coverage Ratio = EBIT . Interest Here, this ratio is same as Interest coverage Ratio. So the Ratio will be same. 8) Total Cashflow Coverage Ratio: This ratio gives information about howmany times Earning Before Interest & Depreciation is of the Interest. It is calculated by following formula:

Total Cashflow Coverage Ratio = EBIT + Depreciation . Interest For the year 2010-11 = 12,754.23+2,485.69 2,149.08 =7 Times

For the year 2009-10 = 12,590.53+2,650.06 1,808.93 =8 Times

For the year 2008-09 = 11,767.90+2,364.48 2,022.90

=7Times For the year 2007-08 = 12,159+2,138.50 1,798.10 =8 Times

For the year 2006-07 = 10,638.9+2,075.40 1,859.40

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=7Times

Interpretation: Here, this Ratio is average around 7-8 times shows good position of the firm.

Total Cash Flow Coverage Ratio


8 7.8 7.6 7.4 7.2 7 6.8 6.6 6.4

Total Cash Flow Coverage Ratio

Profitability Ratios
Profitability ratio are the best indicators of overall efficiency of the business concern, because they compare return of value over and above the value put into business with sales or service carried on by the firm with the help of assets employed. Profitability ratio can be determined on the basis of: 1. Sales 2. Investment

1) Gross profit margin:

The gross profit to sales ratio establishes relationship between gross profit and sales to measure the relative operating efficiency of the firm to reflect pricing policy. Gross Profit to Sales Ratio = (Sales - Cost of Goods Sold) Sale * 100 Page 25

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For the year 2010-11 = 14,535.29 *100 58,359.78 =24.91%

For the year 2009-10 = 13,535.52 *100 48,221.32 =28.06%

For the year 2008-09 = 11,723.95 *100 44,126.08

=26.57% For the year 2007-08 = 12,393.40 *100 37,050.10 =33.45%

For the year 2006-07 = 10,982.80 *100 32,631.70 =33.66%

Interpretation: Here, the gross profit margin is average around 29%. Which shows the companys earning capacity. It is good for the firm.

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FINANCIAL RATIO ANALYSIS 2011 Gross profit margin


40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2010-11 2009-10 2008-09 2007-08 2006-07 Gross profit margin

2) Operating Profit ratio:

Operating Profit ratio = Operating profit *100 Net Sales For the year 2010-11 = 15,796.31 *100 58,359.78 =27.06%

For the year 2009-10 = 14,319.12 *100 48,221.32 =29.69%

For the year 2008-09 = 12,600.17 *100 44,126.08

=28.55% For the year 2007-08 = 11,223.90 *100 37,050.10 Page 27

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=30.29%

For the year 2006-07 = 10,093.20 *100 32,631.70 =30.93%

Interpretation: Here, the operating profit ratio is average around 29%. Which shows the good position of the firm.

Operating profit ratio


31.00% 30.00% 29.00% 28.00% 27.00% 26.00% 25.00% Operating profit ratio

3) Pre-tax Profit ratio:

Pre-tax Profit ratio =

EBT *100 Net Sales

For the year 2010-11 = 10,605.15 *100 58,359.78 =18.17% Page 28

FINANCIAL RATIO ANALYSIS 2011

For the year 2009-10 = 10,718.60 *100 48,221.32 =22.36%

For the year 2008-09 = 9745 *100 44,126.08

=22.08% For the year 2007-08 = 10,360.90 *100 37,050.10 =27.96%

For the year 2006-07 = 8779.50 *100 32,631.70 =26.90%

Interpretation: Here, the pretax profit ratio is average around 23.50% for the last five years. The firm shows good result, but it declined during last year ie 2010-2011.

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4) Net Profit ratio:

Net Profit ratio =

PAT *100 Net Sales

For the year 2010-11 = 7,974.61 *100 58,359.78 =13.66%

For the year 2009-10 = 8,098.90 *100 48,221.32 =16.29%

For the year 2008-09 = 7190.30 *100 44,126.08

=16.29% For the year 2007-08 = 7,366.70 *100 37,050.10 Page 30

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=19.88%

For the year 2006-07 = 6615.80 *100 32,631.70 =20.27%

Net profit ratio


25.00% 20.00% 15.00% Net profit ratio 10.00% 5.00% 0.00% 2010-11 2009-10 2008-09 2007-08 2006-07

Interpretation: The net profit ratio tends to decline every year, the company should make effort to improve it. But the average for the last 5 years shows good result of the firm.

5) Cost Of Good Sold ratio:

Cost Of Good Sold ratio =

Cost Of Good Sold ratio *100 Net Sales

For the year 2010-11 = 42,293.69 *100 58,359.78 Page 31

FINANCIAL RATIO ANALYSIS 2011


=72.47%

For the year 2009-10 = 33,939.40 *100 48,221.32 =70.38%

For the year 2008-09 = 31,432.10 *100 44,126.08

=71.23% For the year 2007-08 = 25,563.90 *100 37,050.10 =69%

For the year 2006-07 = 22,472.10 *100 32,631.70 =68.86%

Cost of good sold


73.00% 72.00% 71.00% 70.00% 69.00% 68.00% 67.00% 2010-11 2009-10 2008-09 2007-08 2006-07 Cost of good sold

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Interpretation: The cost of good sold ratio tends to increase very year expect 2009-2010. It is average around 70% which shows companys efficiency in selling. This ratio is good for the company.

6) Operating expense ratio:

Operating expense ratio = administrative expenses + selling expense *100 Net Sales

For the year 2010-11 = 2,676.34+174.22 *100 58,359.78 =4.88%

For the year 2009-10 = 977.60+65.10 *100 48,221.32 =2.16%

For the year 2008-09 = 851.10+57.50 *100 44,126.08

=2.06% For the year 2007-08 = 726.80+45 *100 37,050.10 =2.08%

For the year 2006-07 = 656+57.70 *100 32,631.70

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=2.19%

Interpretation: The operating expense ratio was average around 2% during last four years but suddenly it become 4.88% during the previous year i.e 2010-2011. The ratio shows how many percent the firm spent on operating expense for selling that unit.

7) Administrative expense ratio:

Administrative expense ratio = administrative expenses Net Sales

*100

For the year 2010-11 = 2,676.34 *100 58,359.78 =4.59%

For the year 2009-10 = 977.60 *100 Page 34

FINANCIAL RATIO ANALYSIS 2011


48,221.32 =2.02%

For the year 2008-09 =

851.10 *100 44,126.08

=1.93% For the year 2007-08 = 726.80 *100 37,050.10 =1.96%

For the year 2006-07 =

656 *100 32,631.70 =2.01%

Administrative expense ratio


5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%

Administrative expense ratio

Interpretation: Page 35

FINANCIAL RATIO ANALYSIS 2011


The ratio shows how many percent you spent on administrative expense of yours sales. Here, it is average around 2% for the last 4 years but prevoius year i.e 2010-2011 it became more than double. So that firm should take care of it.

8) Selling expense ratio:

selling expense ratio = selling expense *100 Net Sales

For the year 2010-11 = 174.22 *100 58,359.78 =0.30%

For the year 2009-10 = 65.10 *100 48,221.32 =0.14%

For the year 2008-09 =

57.50 *100 44,126.08

=0.13% For the year 2007-08 = 45 *100 37,050.10 =0.12%

For the year 2006-07 = 57.70 *100 32,631.70

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=0.17%

Selling Expense Ratio


0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 2010-11 2009-10 2008-09 2007-08 2006-07 Selling Expense Ratio

Interpretation: Here, the selling expense ratio is average around 0.13% during last pervious year i.e 2009-2010 but it become more than double during year 2010-2011

9) Operating ratio:

Operating ratio =

Cost Of Good Sold ratio+operating expense *100 Net Sales

For the year 2010-11 = 42,293.69+12,644.99 *100 58,359.78 =94.14%

For the year 2009-10 = 33,939.40+12,438.30 *100 48,221.32

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=96.18%

For the year 2008-09 = 31,432.10+10,543.10 *100 44,126.08

=95.12% For the year 2007-08 = 25,563.90+11,527.10 *100 37,050.10 =100%

For the year 2006-07 = 22,472.10+10,159.60 *100 32,631.70 =106.13%

Operating ratio
108.00% 106.00% 104.00% 102.00% 100.00% 98.00% 96.00% 94.00% 92.00% 90.00% 88.00% 2010-11 2009-10 2008-09 2007-08 2006-07

Operating ratio

Interpretation: Here the figure shows declining in this ratio. So, firm should try to improve this ratio for the better running of business.

10) Financial expense ratio:

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Financial expense ratio = Financial expense *100 Net Sales

For the year 2010-11 =

2,027.21 *100 58,359.78 =3.47%

For the year 2009-10 =

1,861.90 *100 48,221.32 =3.86%

For the year 2008-09 =

1737 *100 44,126.08

=3.94% For the year 2007-08 = 1,982.20 *100 37,050.10 =5.35%

For the year 2006-07 =

2,055.70 *100 32,631.70 =6.30%

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Interpretation:

11) Return on asset:

Return on asset =

Net profit after tax *100 Average total asset

Total assets=( gross block + capital in progress + investment + current assests)

For the year 2010-11 =

7,974.61 *100 1,51,672.31 =5.26%

For the year 2009-10 =

8,098.90 *100 1,39,121.95 Page 40

FINANCIAL RATIO ANALYSIS 2011


=5.82%

For the year 2008-09 =

7,190.30 *100 1,27,654

=5.63% For the year 2007-08 = 7,366.70 *100 1,15,580.45 =6.37%

For the year 2006-07 =

6,615.80 *100 1,09,519.60 =6.04%

Return on assets
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2010-11 2009-10 2008-09 2007-08 2006-07 Return on assets

Interpretation:

Page 41

FINANCIAL RATIO ANALYSIS 2011


12) Return on capital employed:

Return on capital employed=

EBIT *100 Average Total capital employed

Particular Net fixed asset (+) Current asset Total (-) Current liability Capital employed

2011 39,064.75

2010 34,575

2009 32,937.7

2008 26,093.7

2007 25,525

35,396.79

30,815.7

30,925.3

30,527.8

25,858.8

74,461.54 13,675.86

65,390.7 10,967.3

63,863 10,688.7

56,621.5 12,909

51,383.8 10,702.50

60,785.68

54,423.4

53,174.3

43,172.5

40,681.3

For the year 2010-11 =

12,559.96 *100 57,604.54 =21.80%

For the year 2009-10 = 12,616.53 *100 53,798.85 =23.45%

For the year 2008-09 =

11,490.70 *100 48,429.9

=23.73%

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FINANCIAL RATIO ANALYSIS 2011


For the year 2007-08 = 12,327.5 *100 42,196.9 =29.21%

For the year 2006-07 =

10,755.9 *100 40,681.3 =26.44%

Return on capital employed


30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2010-11 2009-10 2008-09 2007-08 2006-07 Return on capital employed

Interpretation:

13) Return On Total Shareholders Equity:

Return On Total Shareholders Equity =

PAT *100 Average total shareholders equity

Shareholders equity = Share capital + retain earning Page 43

FINANCIAL RATIO ANALYSIS 2011

For the year 2010-11 =

7,974.61 *100 13,653.79 =58.40%

For the year 2009-10 =

8,098.90 *100 13,162.95 =61.53%

For the year 2008-09 =

7,190.30 *100 12,685.85

=56.68% For the year 2007-08 = 7,366.70 *100 12,265.55 =58.21%

For the year 2006-07 =

6,615.80 *100 12,157.3 =54.42%

Page 44

FINANCIAL RATIO ANALYSIS 2011

Interpretation:

14) Return On Equity Funds: Return On Equity Funds = Net profit after tax preference divident *100 AverageOrdinaryl shareholders equity

Page 45

FINANCIAL RATIO ANALYSIS 2011

15) Earning per share (EPS):

Earning per share = Net profit available to equity holders No of equity holders outstanding

For the year 2010-11 =

9,352.59 824.55 =11.34Rs

For the year 2009-10 =

8,728.20 824.55 =10.59 Rs

For the year 2008-09 =

8,201.30 824.55

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FINANCIAL RATIO ANALYSIS 2011


=9.95 Rs For the year 2007-08 = 7,414.80 824.55 =8.99 Rs

For the year 2006-07 =

6,864.70 824.55 =8.33 Rs

Interpretation:

16) Cash earning per share :

Cash earning per share = Cash+Net profit available to equity holders Page 47

FINANCIAL RATIO ANALYSIS 2011


No of equity holders outstanding

For the year 2010-11 =

2,240.58+ 9,352.59 824.55 =14.06Rs

For the year 2009-10 =

2,650.59+ 8,728.20 824.55 =13.80 Rs

For the year 2008-09 = 2,269.98+ 8,201.30 824.55

=12.70 Rs For the year 2007-08 = 2,141.73+7,414.80 824.55 =11.59 Rs

For the year 2006-07 =

2,082.26+6,864.70 824.55 =10.85 Rs

Page 48

FINANCIAL RATIO ANALYSIS 2011 Cash earning per share


16 14 12 10 8 6 4 2 0 2010-11 2009-10 2008-09 2007-08 2006-07 Cash earning per share

Interpretation:

17) Book value per share:

Book value per share = Net worth No of equity holders outstanding

For the year 2010-11 =

8,245.46+ 60,138.66 824.55 =82.94Rs

For the year 2009-10 =

8,245.46+ 55,478.60 824.55 =77.28 Rs

For the year 2008-09 = 8,245.46+ 50,749.40 824.55 Page 49

FINANCIAL RATIO ANALYSIS 2011

=71.55 Rs For the year 2007-08 = 8,245.46+46,021.90 824.55 =65.81 Rs

For the year 2006-07 =

8,245.46+40,351.30 824.55 =58.94 Rs

Book value per share


90 80 70 60 50 40 30 20 10 0 2010-11 2009-10 2008-09 2007-08 2006-07

Book value per share

Interpretation:

18) Dividend per share:

Dividend per share = Divident paid to ordinary shareholders No of ordinary shareholders Page 50

FINANCIAL RATIO ANALYSIS 2011

For the year 2010-11 =

31,332.60 8,245.46 =3.80Rs

For the year 2009-10 =

31,332. 8,245.46 =3.80Rs

For the year 2008-09 =

29,683 8,245.46

=3.60 Rs For the year 2007-08 = 28,859 8,245.46 =3.50 Rs

For the year 2006-07 =

26,385 8,245.46 =3.20 Rs

Page 51

FINANCIAL RATIO ANALYSIS 2011 Dividend per share


3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3 2.9 2010-11 2009-10 2008-09 2007-08 2006-07

Dividend per share

Interpretation:

19) Dividend pay out ratio:

Dividend pay out ratio= Total Divident paid to equity shareholders * 100 Total net profit

For the year 2010-11 =

31,332.60 *100 91,025.9 =34.42%

For the year 2009-10 =

31,332 *100 87,282 =35.90%

For the year 2008-09 =

29,683 *100 82,013 Page 52

FINANCIAL RATIO ANALYSIS 2011

=36.19% For the year 2007-08 = 28,859 *100 74,148 =38.92%

For the year 2006-07 =

26,385 *100 68,647 =38.44%

Dividend per share


39.00% 38.00% 37.00% 36.00% 35.00% 34.00% 33.00% 32.00% 2010-11 2009-10 2008-09 2007-08 2006-07 Dividend per share

Interpretation:

Page 53

FINANCIAL RATIO ANALYSIS 2011


4) Efficiency Ratios: Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with how efficiently the assets of the firm are managed. These ratios express relationship between level of sales and the investment in various assets inventories, receivables, fixed assets etc.

(1) Finished Goods Inventory Turnover :

Finished Goods Inventory Turnover = cost of good sold average inventory

For the year 2010-11 =

43,824.49 34,934.10 =1.25 Times

For the year 2009-10 =

34,685.80 32,955.50 =1.05 Times

For the year 2008-09 = 32,402.13 29,595.50

=1.09 times For the year 2007-08 = 24,656.7 25,929.50 =0.95 times

For the year 2006-07 =

21,648.9 25,102

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FINANCIAL RATIO ANALYSIS 2011


=0.86 times

Finished Goods Inventory Turnover


1.4 1.2 1 0.8 0.6 0.4 0.2 0 Finished Goods Inventory Turnover

Interpretation:

2) Raw Material Turnover :

Raw Material Turnover = cost of raw material Average raw material inventory

For the year 2010-11 =

31.33 3,639.12+3,347.71 2 =0.009 Times

For the year 2009-10 =

31.10 33,477+32,434 2 =0.0009 Times Page 55

FINANCIAL RATIO ANALYSIS 2011


For the year 2008-09 = 31 32,434+26,757 2

=0.001Times For the year 2007-08 = 26.80 25,102+26,757 2 =0.001Times

For the year 2006-07 =

23.70 25,102 =0.0009 times

Raw Material Turnover


0.009 0.008 0.007 0.006 0.005 0.004 0.003 0.002 0.001 0

Raw Material Turnover

Interpretation:

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FINANCIAL RATIO ANALYSIS 2011


3) Stock In Process Turnover :

Stock In Process Turnover = cost of goods manufactured Average work in progress inventory

For the year 2010-11 =

37,069.51 1320.7+1,584 2 = 25.52 Times

For the year 2009-10 =

30785.70 1584+1527 2 =19.79 Times

For the year 2008-09 =

28232.30 1527+1772 2

=17.12 Times For the year 2007-08 = 23080.70 1772+1546 2 =13.91Times

For the year 2006-07 =

20,790.5 1546 =13.45 Times

Page 57

FINANCIAL RATIO ANALYSIS 2011 Stock In Process Turnover


30 25 20 15 10 5 0 1 2 3 4 5 Stock In Process Turnover

Interpretation:

4) Average Collection Period :

Average Collection Period =

Days in a year Debtors turnover

For the year 2010-11 =

365 8 times = 45.625 days

For the year 2009-10 =

365 9 times =40.56 days

For the year 2008-09 =

365 13 times

=28.08 days Page 58

FINANCIAL RATIO ANALYSIS 2011


For the year 2007-08 = 365 18 times =20.28 days

For the year 2006-07 =

365 26 times =14.04 Times

Average Collection Period


50 45 40 35 30 25 20 15 10 5 0

Average Collection Period

Interpretation:

5) Total Assets Turnover :

Total Assets Turnover =

Cost of goods sold Average Total Assets

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FINANCIAL RATIO ANALYSIS 2011


For the year 2010-11 = 43,824.49 1,51,672.31 =0.29 Times

For the year 2009-10 =

34,685.80 1,39,121.95 =0.25 Times

For the year 2008-09 = 32,402.13 1,27,654

=0.25 times For the year 2007-08 = 24,656.7 1,15,580.45 =0.21 times

For the year 2006-07 =

21,648.9 1,09,519 =0.20 times

Page 60

FINANCIAL RATIO ANALYSIS 2011 Total Assets Turnover


0.3 0.25 0.2 0.15 0.1 0.05 0 Total Assets Turnover

Interpretation:

6) Fixed Assets Turnover :

Fixed Assets Turnover =

Cost of goods sold Average Fixed Assets

For the year 2010-11 =

43,824.49 69,623.87 =0.62 Times

For the year 2009-10 =

34,685.80 64,508.4 =0.54 Times

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FINANCIAL RATIO ANALYSIS 2011


For the year 2008-09 = 32,402.13 57,860.05

=0.56 times For the year 2007-08 = 24,656.7 51,986.1 =0.47 times

For the year 2006-07 =

21,648.9 50604 =0.43 times

Fixed Assets Turnover


0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2010-11 2009-10 2008-09 2007-08 2006-07 Fixed Assets Turnover

Interpretation:

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FINANCIAL RATIO ANALYSIS 2011


7) Capital Turnover Ratio :

Capital Turnover ratio

Cost of goods sold Average Fixed Assets

Particular Net fixed asset (+) Current asset (+) Investment Total Assets (-) Current liability Capital employed

2011 39064.75

2010 34575

2009 32937.7

2008 26093.7

2007 25525

35396.79

30815.7

30925.3

30527.8

25858.8

12,344.84 86,806.38 13,675.86

14807.1 80,197.8 10,967.3

13983.5 77,846.5 10,688.7

15267.2 71,888.7 12,909

16094.3 67,478.1 10,702.50

75,839.08

69,230.5

67,157.8

58,979.7

56,775.6

For the year 2010-11 =

43,824.49 72,534.79 =0.60 Times

For the year 2009-10 =

34,685.80 68,194.15 =0.51 Times

For the year 2008-09 =

32,402.13 63,068.75 Page 63

FINANCIAL RATIO ANALYSIS 2011

=0.51 times For the year 2007-08 = 24,656.7 57,877.65 =0.43 times

For the year 2006-07 =

21,648.9 56,775.6 =0.38 times

Capital Turnover Ratio


0.6 0.5 0.4 0.3 0.2 0.1 0 2010-11 2009-10 2008-09 2007-08 2006-07 Capital Turnover Ratio

Interpretation:

8) Current Asset Ratio :

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FINANCIAL RATIO ANALYSIS 2011


Current Asset Ratio = Cost of goods sold Total average current assets For the year 2010-11 = 43,824.49 33,106.25 =1.32 Times

For the year 2009-10 =

34,685.80 30,870.50 =1.12 Times

For the year 2008-09 =

32,402.13 30,726.55

=1.05 times For the year 2007-08 = 24,656.7 28,193.3 =0.87 times

For the year 2006-07 =

21,648.9 25,858.80 =0.84 times

Page 65

FINANCIAL RATIO ANALYSIS 2011 Current Asset Ratio :


1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2010-11 2009-10 2008-09 2007-08 2006-07

Cash flow from operation Ratio

Interpretation:

9) Working Capital turnover Ratio :

Working Capital turnover Ratio =

Cost of goods sold Average working capital

For the year 2010-11 =

43,824.49 35,366.22 =1.24 Times

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FINANCIAL RATIO ANALYSIS 2011


For the year 2009-10 = 34,685.80 29,347.75 =1.18 Times

For the year 2008-09 =

32,402.13 24,441.6

=1.33 times For the year 2007-08 = 24,656.7 19,720.3 =1.25 times

For the year 2006-07 =

21,648.9 16,962.30 =1.28 times

Working Capital turnover Ratio


1.35 1.3 1.25 1.2 1.15 1.1 Working Capital turnover Ratio

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FINANCIAL RATIO ANALYSIS 2011


Interpretation:

10) Earning Power :

Earning Power= PAT *100 * Sales Sales Total Assets

For the year 2010-11 =

7974.61 *100 58359.78 =9.19 %

58359.78 86806.38

For the year 2009-10 =

8,098.90 *100 48,221.32

48,221.32 80,197.8

=10.10%

For the year 2008-09 =

7,190.30 *100 44,126.08

44,126.08 77,846.8

=9.24 % For the year 2007-08 = 7,366.70 *100 37,050.10 * 37,050.10 71,888.7

=10.25 %

For the year 2006-07

= 6,615.80 *100 32,631.70

32,631.70 67,478.10 Page 68

FINANCIAL RATIO ANALYSIS 2011


=9.8 %

Earning Power
10.40% 10.20% 10.00% 9.80% 9.60% 9.40% 9.20% 9.00% 8.80% 8.60% 2010-11 2009-10 2008-09 2007-08 2006-07

Earning Power

Interpretation:

11) Return On Equity:

Return on equity=

PAT * 100 Equity on capital

For the year 2010-11 =

7,974.61 *100 82,455 =9.67 %

For the year 2009-10 =

8,098.90 *100 Page 69

FINANCIAL RATIO ANALYSIS 2011


82,455

=9.82%

For the year 2008-09 =

7,190.30 *100 82,455

=8.72 %

For the year 2007-08 =

7,366.70 * 100 82,455

=8.93 %

For the year 2006-07

= 6,615.80 *100 82,455

=8.02 %

Page 70

FINANCIAL RATIO ANALYSIS 2011 Return On Equity


10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2010-11 2009-10 2008-09 2007-08 2006-07

Return On Equity

Interpretation:

SUMMARY

Financial Statement Analysis is a method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm. This report mainly deals with the insight information of the two mentioned companies. In the current picture where financial volatility is endemic and financial intuitions are becoming popular, when it comes to investing, the sound analysis of financial statements is one of the most important elements in the fundamental analysis process. At the same time, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, I tried to work with these numbers in an organized fashion and presented them in a summarizing form easily understandable to both the management and interested investors. It is required by law that all private and public limited companies must prepare the financial statements like, income statement, balance sheet and cash flow statement of the particular accounting period. The management and financial analyst of the company analyze the financial statements for making any further financial and administrative decisions for the betterment of the Page 71

FINANCIAL RATIO ANALYSIS 2011


company. Therefore, I select this topic, so that I have done some solid financial analysis that will certainly help the management of review their performance and also assist the interested people like investors and creditors. As a financial analyst it is important that a financial decision be made by analyzing the financial statements of the company. It is the primary responsibility of the financial managers or financial analyst to manage the financial matters of the company, by evaluating the financial statements. I am also providing some important suggestions and opinions about the financial matters of the business.

CONCLUSION AND RECOMMENDATION

Conclusion and Findings I analyzed the financial statement of National Thermal Power Corporation The analysis is as follows: The liquidity position of the company is not up to the standard, is below the industrial average in 2007, but it has improved a little in 2008 and is near the industrial average. There is a considerable rise in the working capital of the company from 2007 to 2008 which shows good liquidity position of the company. Leverage ratio indicates the high risk associated with the company. Leverage ratio helps in helps in assessing the risk arising from the use of debt capital. As we can see that in both the years debt to equity ratio is slightly below the industrial average. Profitability ratio is good as the earnings have increased for its share holders from 26% to almost 30%. The profitability ratio is high because of the low financial charge. Activity ratio of the company is not that efficient, as we can see that the debtor turnover ratio has increased but is not as much as company would have expected. The average collection period is also late. Company did not pay any dividend in 2007. EPS has also jumped from a mere Rs37 to almost Rs 100. Book value per share is the indication of the net worth of the corporation. It is somehow similar to the earning per share, but it relates to stockholders equity to the number of shares outstanding, so we can say net worth of the company is good. Page 72

FINANCIAL RATIO ANALYSIS 2011


The operating cash flow of the company is also good.

RECOMMENDATIONS

As I have realized that the National Thermal Power Corporation is doing well since its inception. It is quite difficult to give any suggestion to such a corporation but still no one is perfect, There is always a room for improvement so I will recommend the following suggestions for NTPC LTD: Employee training must be introduced on continuous basis so that the employees have the understanding of the latest development especially with its customers. As observed the company has an Internal Audit system wherein external Chartered Accountant Firms appointed to carry out periodic audits of the different units of the Corporation. In my opinion, the scope and coverage of internal Audit needs to be enhanced in order to make it proportionate with the size of the business. As seen from the physical verification there is a great deal of mismanagement of resources and it must be avoided, as it decreases the profit. Company should hire fresh graduates. As the combination of experienced and fresh talent can produce better results and will improve the efficiency of the management. As the company is not a listed company. The company has implemented DPE guidelines. The company has to make continuous efforts to maintain transparency, disclosures and fairness in dealing with stakeholders. Aggressive publicity campaign must be introduced by the company about there new project, as there is little awareness about there new projects. The vigilance department of the corporation has to improve the level of transparency for implementing the proper system of E- tendering.

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