BHEL

RATIO ANALYSIS

A CASE AT

HEEP - DIVISION

BHARAT HEAVY ELECTRICALS LIMITED HARIDWAR

A

SUMMER TRAINING REPORT

IN

PARTIAL FULFILLMENT OF REQUIMENT FOR THE DEGREE OF

MASTER OF BUSINESS FINANCE

SUPERVISION BY: SUBMITTED BY :Dr. Bindu Arora Neetu Malik

DEPARTMENT OF MANAGEMENT STUDIESKANYA GURUKUL MAHAVIDYALAYA (DEHRADUN)

2nd CAMPUS OF GURUKULA KANGRI VISHAVIDYALAYAHARIDWAR – 249403 (UTTRAKHAND)

[2006-2008]

ACKNOWLEDGEMENTACKNOWLEDGEMENT

I express my sincere thanks to the Management of HEEP(Heavy Electrical

Equipment Plant) of BHEL, Ranipur, Haridwar Unit for giving me an opportunity

to gain exposure on matter related to Project under the esteem guidance of Mr. ANIL

MALIK(Sr.Manager product cost section)

I hereby take this opportunity to put on records my sincere thanks to Shri ANIL

MALIK under the light of whose able guidance I could complete this project in an

effective and successful manner.

I am also indebted to MR.VIVEK GOYAL(Sr.Accounts officer Books&budget),

Mr.INDER KUMAR(Sr.A/O),Mr.SUJIT KUMAR(Sr.A/O) ,Smt Usha Verma

(Accounts officer) for their valuable information's and inputs, which added

dimensions and meaning to my project.

I am also thankful to the rest of the staff of the SALES section for their valuable

suggestion and cooperation to achieve the task.

With sincere thanks

NEETU MALIK

K.G.M. DEHRADUN

DECLARATION

I hereby declare that the study entitled “RATIO ANALYSIS” in the context of

H.E.E.P. BHEL being submitted by me in the partial fulfillment of the requirement

for the award of MASTER OF BUSINESS FINANCE by K.G.M.DEHRADUN is

a record of my own work.

The study was conducted at FINANCE DEPARTMENT , H.E.E.P. BHEL.

The matter embodied in this project report has not been submitted to any other

university or institution for the award of degree.

[NEETU MALIK]

PREFACE

As a part of my MBF programme, I was asked to undergo 8 weeks summer training

in any organization, to give the exposure to practical management and to get familiar

with the various activities taking place in the organization.

I got an opportunity to undergo my summer training in the reputed organization

“BHEL” Haridwar where I was allowed to work on the project titled “A Critical

Study of Ratio Analysis at H.E.E.P. Haridwar BHEL”.

In this project, an attempt has been made to study the Ratio Analysis of BHEL

Haridwar. The salient feature of this report is the comprehensive coverage and latest

information about the topic of the study.

Financial data of last 6 years have been taken and the working capital position is

evaluated and interpreted.

INDEX1}BHEL PROFILE*BHEL –AN OVERVIEW*BHEL –IN INDIA*COMPANY PROFILE*COMPANY’S MISSION, VISION & VALUES*COMPANY’S BUSINESS OBJECTIVES*BUSINESS SECTOR*RESEARCH AND DEVELOPMENT*TECHNICAL COLLABORATIONS*DIVISION OF BHEL*COMPETITOR OF BHEL*AWARD WON*SWOT ANAYSIS OF BHEL*QUALITY

2}BHEL-HARIDWAR PROFILE*INFORMATION ABOUT BHEL HARIDWAR UNIT*PRODUCT PROFILE OF HARIDWAR UNIT

3}FINANCIAL OVERVIEW *SIGNIFICANT ACCOUNTING POLICIES *FINANCE FUNCTION

4}RESEARCH MEHTODOLOGY 5}PROJECT * FINANCIAL ANALYSIS

* OBJECTIVE OF THE STUDY

* USES OF FINANCIAL STATEMENT TO DIFFERENT PARTIES

* PROBLEMS OF FINANCIAL STATEMENT OF DIFFERENT PARTIES

* RATIO ANALYSIS

(i) RATIOS AND ITS MEANING

(ii) GRAPHICAL PRESENTATION OF RATIOS

(iii) INTERPRETATION OF RATIOS

* CONCLUSIONS AND SUGGESTIONS

* LIMITATION OF STUDY

* BIBLIOGRAPHY

CHAPTER#1

B.H.E.L - PROFILE**********************

* B.H.E.L. AN OVERVIEW

* B.H.E.L. IN INDIA

* COMPANY PROFILE

* COMPANY’S MISSION , VISION & OBJECTIVES

*COMPANY’S BUSINESS OBJECTIVES

* BUSINESS SECTORS

* RESEARCH AND DEVELOPMENT

* TECHNICAL COLLABORATIONS

* DIVISIONS OF B.H.E.L.

* COMPETITORS OF B.H.E.L.

* AWARDS WON

* SWOT ANALYSIS OF B.H.E.L.

* QUALITY

B.H.E.L. AN OVERVIEW

Established in the late 50's BHARAT HEAVY ELECTRICALS LIMITED

(BHEL) is a name which is recognised across the industrial world. It is one of the

largest engineering and manufacturing enterprises in INDIA and is one of the leading

international companies in the power field.

BHEL offers a wide spectrum of products and services for core sectors like power

transmission, industrial transportation, oil and gas, telecommunication etc.

Besides supply of non conventional energy systems. It has also embarked into other

areas including defence and civil aviation.

A dynamic 63000 strong team embodies the BHEL philosophy excellence through

continuous striving for state of the art technology. With corporate headquarters in

NEW DELHI , fourteen manufacturing units, a wide spread regional services network

and projects sites all over India and even abroad, BHEL is India's industrial

ambassador to the world with export presence in more than 50 countries.

BHEL's range of services extent from project feasibility studies to after sales services,

successfully meeting diverse needs through turn key capability.

BHEL has had a consistent track record of growth, performance and profitability. The

world bank in its report on the Indian Public Sectors, has described BHEL as " one of

the most efficient enterprises in the industrial sector, at par with international

standards of efficiency". BHEL has acquired ISO 9000 certificate for most of its

operations and has taken up Total Quality Management (TQM).

B.H.E.L. IN INDIA# REGIONAL OFFICES (POWER SECTORS)***********************************1. NEW DELHI (NORTHERN REGION)2. CALCUTTA (EASTERN REGION)3. NAGPUR (WESTERN REGION)4. CHENNAI (SOUTHERN REGION)# BUSSINESS OFFICES*******************1. BANGLORE2. BARODA3. BHUBANESHWAR4. MUMBAI5. CALCUTTA6. CHANDIGARH7. GUWAHATI8. JABALPUR9. JAIPUR10. LUCKNOW11. CHENNAI12. NEW DELHI13. PATNA14. RANCHI15. SECUNDRABAD# MANUFACTURING UNITS***********************1. BANGALORE2. BHOPAL3. GOINDWAL4. HARDWAR5. HYDERABAD6. JAGDISHPUR7. JHANSI8. RUDRAPUR9. RANIPET10. TIRUCHIRAPALLY# SERVICE CENTRES******************1. BANGLORE2. BARODA3. CALCUTTA4. CHANDIGARH5. SECUNDRABAD6. NEW DELHI7. NAGPUR8. PATNA

9. VARANASI

COMPANY PROFILE

BHEL is India's largest engineering company and one of its kind in this part of the

hemisphere. It manufactures a wide range of state of the art power generation

equipment and systems besides equipment for industry, transmission, defence,

telecommunication and oil business. The first plant of BHEL was set up in Bhopal in

1956, which signalled the dawn of the heavy electrical industry in India. In the early

60's three more major plants were set up in Hardwar, Hyderabad and Tiruchirapalli.

The company now has 14 manufacturing divisions, 9 services centres and power

sectors regional centres besides project sites spread all over India and also abroad to

provide prompt and effective service to customers. BHEL's business broadly covers

conversions, transmission, utilisations and conservation of energy in core sectors of

economy that fulfill vital infrastructure needs of the country. Its product have

established an enviable reputation of high quality and reliability, which is largely due

to emphasises placed all along on contemporary some of the best technologies of the

world from the leading companies in U.S.A.,EUROPE, and JAPAN together with

techonologies from its own R&D centres technologies B.H.E.L.has consistently

upgraded its design and manufacturing facilities to international standards by

acquiring and assimilating.

COMPANY’S MISSION ,VISION & VALUES

COMPANY’ BUSINESS OBJECTIVES

GROWTH :-

To ensure a steady growth by enhancing the compititive edge of BHEL defence,

telecommunication and electronics in existing business, new areas and international

operations so as to fulfill national expectations from BHEL.

PROFITABILITY:- To provide a reasonable and adequate return on capital employed, primarily through

improvements in operational efficiency, capacity utilisation , productivity and

generate adequate internal resources to finance the company's growth.

CUSTOMER FOCUS:-To build a high degree of customer confidence by providing increased value for his

money through international standards of product quality, performance and superior

services.

PEOPLE- ORIENTATION:-To enable each employee to achieve his potential, improve his capabilities, percieve

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 to

their needs.

TECHNOLOGY:-

Achieve technological excellence in operations by development of indigenous

technologies and efficient absorption and adaptations of imported technologies to suit

business need and priorities and provide the competitive advantage to the company.

IMAGE:-To fulfill the expectations which stakeholders like government as owner, employees,

customers and the country at large have from BHEL.

BUSINESS SECTORS

BHEL's operations are organised around three business sectors, mainly power,

industry and international operations. This enables BHEL to have a strong customer’s

orientation, to be sensitive to his needs and respond quickly to the changes in the

market.

POWER SECTORS:-

Power is the core sector of BHEL and comprises of thermal, nuclear gas, diesel and

hydro business. Today BHEL supplied sets, accounts for nearly 66 % of the total

installed capacity in the country as against nil till 1969-70.

BHEL manufactures boilers auxillaries, TG sets and associate controls, piping and

station C & I upto 500 MW rating with technology and capcbility to go upto 1000

MW range. The auxillary products high value capital equipment like bowl and tube

mills, pumps and heaters, electrostatic precipitators, gravimetric feeders, fans, valves

etc.

BHEL has contracted so far around 240 thermal sets of various ratings which includes

14 power plants set up on turn key basis. Nearly 85 % of world bank tenders for

thermal sets floated in India have been won by the company against international

competition.

BHEL has adopted the technology to the needs of the country and local conditions.

This has led to the development of several technologies in house. The fluidised bed

boiler that uses low graded high-ash abrasive indian coal is an outcome of such an

effort. With large scale availability of natural gas and the sudden increase in demand,

BHEL began to manufacture gas turbines and now possesses two streams of gas

turbine technology.

It has the capability to manufacture gas turbines upto 200 MW rating and custom

built combined cycle power plants. Nuclear steams generators, turbine generators, sets

and related equipment of 235 MW rating have been supplied to most of the nuclear

power plants in India. Production of 500 MW nuclear sets, for which orders have been

received.

BHEL has developed expertised in renovation and maintenance of power plant

equipment besides specialised know how of residual life assessment, health

diagnostic and life extensions of plants. The four power sectors regional centres at

New Delhi, Chennai, Kolkata and Nagpur will play a major role in giving a thrust to

this business and focus BHEL's efforts in this area.

INDUSTRY SECTORS :-

BHEL is a major producer of large size thyristor devices. The products include

centrifugal compressors, high speed industrial drive turbines, industrial boilers and

auxillaries, waste heat recovery boilers, gas turbines, electric motors, drives, and

control equipments, high voltage transformers, switch gears and heavy castings and

forgings.

Company in India with the capability to make simulators for power plants, defence

industrial process plants and other applications. An entry has been made in aviation

industry for which BHEL has set up facilities and is now producing two seater

aircraft.

TRANSMISSION:-

A wide range of transmission products and systems are produced by BHEL to meet

the needs of power transmission and distribution sector. These include:

Dry Type Transformers

SF6 Switch Gears

400 KW Transmission Equipment

High Voltage Direct Current System

Series and Shunt Compensation Systems

In anticipation of the need for improved substations, a 33 KV gas insulated sub

station with micro processors base control and protection system has been done.

TRANSPORTATION:-

65 % of trains in Indian Railways are equiped with BHEL's traction and traction

control equipment. These include :

Broad Gauge 3900 HP AC / DC locomotives

Diesel Shunting Locomotives upto 2600 HP

5000 HP AC Loco with thyristor control

Battery Powered Road Vehicles and Locomotives

RESEARCH AND DEVELOPMENT

BHEL has a corporate R & D center supported by R & D groups at each of the

manufacturing divisions. The dedicated effort of BHEL's R & D engineers have

produced several new products like automated storage retrieval system automated

guide vehicles for material transportation etc. Establishment of Asia's largest fuel

evaluation test facility at Tiruchy was high light of the year. This facility will enable

evaluation of combustion, heat transfer and pollution parameters in boilers.

Major R & D achievement include :

Design manufacture and supply of countries first 17.2 MW industrial steam

turbines.

Development of 4700 HP AC / DC loco for Indian Railways.

Development of largest capacitor voltage transformers of 8800 PF 400 KV rating.

Development and application low cost ROBOTS for job loading/unloading.

According to ex- CMD Mr. R.K.D. Shah , "BHEL is spending Rs. 60 Crores on

Research and Development. Earning from product which has been commercialised

has gone up 26 % to Rs. 760 Crores."

TECHNICAL COLLABORATIONS

PRODUCT COLLABORATIONS

# Thermal Sets, Hydro Sets, Motors & Prommashexport Control Gears. RUSSIA

# Bypass & Pressure Reducing Systems Sulzer Brother Ltd. SWITZERLAND

# Electronic Automation System for Siemens AG. Steam Turbine & Generators GERMANY

# Francis Type Hydro Turbines General Electric CANADA

# Moisture Separator Reheaters Baloke Duerr GERMANY

# Christmas Trees & Conventional Well National Oil Well Head Assemblies USA

# Steam Turbines , Generators and Axial Siemens AG. Condensers GERMANY

# Cam Shaft Controllers and Tractions Siemens AG. Current Control Units GERMANY

# HDVC ABBSWEDEN

# Programmable Controls ABBSWITZERLAND

# Gas Turbines General Electric Co. USA

# Tube Mills Stien Industries

FRANCE

# Dry Type Transformers May & Christe GERMANY

DIVISIONS OF BHEL

There are 20 Divisions of BHEL, they are as follows :

1. HEEP, Hardwar

2. HPEP, Hyderabad

3. HPBP, Tiruchy

4. SSTP & MHD, Tiruchy

5. CFFP, Hardwar

6. BHEL, Jhansi

7. BHEL, Bhopal

8. EPD, Bangalore

9. ISG, Bangalore

10. ED, Bangalore

11. BAP, Ranipet

12. IP, Jagdishpur

13. IOD, New Delhi

14. COTT, Hyderabad

15. IS, New Delhi

16. CFP, Rudrapur

17. HERP, Varanasi

18. Regional Operations Division ARP, New Delhi

19. TPG, Bhopal

20. Power Group (Four Regions and PEM)

MAJOR COMPETITORS OF BHEL

1. Ansaldo Italy

2. Asea Brown Boueri Switzerland

3. Beehtel USA

4. Block & Neatch USA

5. CNMI & EC China

6. Costain U.K.

7. Electrim Poland

8. Energostio Russia

9. Electro Consult Italy

10. Franco Tosi France

11. Fuji Japan

12. GEC Alsthom U.K.

13. General Electric USA

14. Hitachi Japan

15. LMZ Russia

16. Mitsubishi Japan

17. Mitsui Japan

18. NEI U.K.

19. Raytheon USA

20. Rolls Royce Germany

21. Sanghai Electric Co. China

22. Seimens Germany

23. Skoda Czechoslovakia

MAJOR MILE STONE

1975 Job Redesign concept launched for FIRST time in India.

1978 Well documented Suggestion Scheme launched.

1982 Launched Productivity Movement & Quality Circle. Concept

1993 Accreditation of ISO 9001 quality System.

1995 Adopted EFQM model of TQM for achieving Business

Excellence.

1997 BHEL one of the 9 PSE’s declared “Navratna” by Govt. of India .

1997 National Productivity Award for HEEP by the President of India .

1998 Certificate of Merit by National Productivity Council for outstanding

performance for 2nd consecutive year.

1998 Accreditation of U stamp.

1999 Accreditation of R Stamp from National Board of Boiler and Pressure

Vessel Inspector, USA .

1999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine

Combustion Chambers

1999 INSAAN Award for Excellence in Suggestion for 9th consecutive year

1999 Launching of 5s concept

1999 PCRI recognized as Environmental Lab by Haryana State Board for

Prevention and Control of Pollution

1999 Accreditation of ISO 14001-Enviornment management system

2000 CII Site Visit for CII-EXIM Business Excellence Award-2000

2001 Top Management TQM Workshop at Rishikesh and HRDC

2001 INSAAN Award for excellence in Suggestion for 11 th consecutive

year

2001 Launching of QTM & RCA at HEEP Hardwar by CMD

2002 Launching of delivery Index , Turnover Index and Manufacturing Index

2002 Accreditation of ISO 9000-2k

2002 JBE Workshop of Apex TQM Group at Tehri to evolve Business policy

and CSF.

2004 New blade shop establishe

2005 Commendation of significant achievement in CII-EXIM award with T.Q

score 550-600

SWOT ANALYSIS OF BHEL

-S-T-R-E-N-G-T-H-S-

Low cost Producer of quality equipment due to cheap labour and fully depriciated

plants.

Flexible manufacturing set up .

Big entry barrier due to high replacement cost of its manufacturing facilities.

Comprehensive turn key experience from product design to commissioning.

-W-E-A-K-N-E-S-S-E-S-

High woking capital requirement due to its exposure to cash starved SEBs.

Inablity to provide project financing.

-O-P-P-O-R-T-U-N-I-T-I-E-S-

High expected growth in power sector (7000 MW per annum needs to be added ).

High Growth forecast in India's index of industrial production would increase

demand for industrial equipment such as motors & compressors.

-T-H-R-E-A-T-S-

Technology suppliers are becoming competitors with the opening up of the Indian

economy.

Fall in Global power equipment prices can affect profitability.

QUALITY

Quality is infact a way of life in BHEL Hardwar. It is a watch work whether in

coming material, in process, machining, assembly or testing.Quality assurance system

quality plant and field quality assurance are aids to tool quality concept.

A large number of sophisticated testing and measuring instruments including CNC 3-

D co-ordinate measuring machine, non destructive testing facilities like X-ray,

Gamma rays, Ultrasonic, magnetic particle inspection are being extensively used.

As a part of its continuous journey in attaining excellence in quality management,

BHEL (HEEP) Hardwar has also received global recognition with the award of ISO-

9001 certificate by Bureau Varities Quality International for all its products and

services.

The products, which had received ISO-9001 recognition, include steam turbine and

turbo generators, hydro turbines, hydro generators, gas turbines, condensers heat

exchangers, AC/DC motors and associated control panels.

CHAPTER # 2

B.H.E.L. - HARDWAR PROFILE **********************************

INFORMATION ABOUT B.H.E.L. HARDWAR UNIT

PRODUCT PROFILE OF HARDWAR UNIT

B.H.E.L. HARDWAR UNIT

BHEL is situated at Ranipur near Hardwar. There are two power equipments

manufacturing plants situated in BHEL. On the northern side is Heavy Electrical

Equipment Plant (HEEP) set up originally with Soviet collaboration. The plant went

into production in 1967 and is engaged in the manufacturing of power generation and

utilisation equipment. Located immediately to the south of HEEP is the Central

Foundry Forge Plant (CFFP), set up with French collaboration for the production of

alloy steel casting and forgings required to complete the production profile of BHEL.

A Pollution Control Research Institute has also been setup within the BHEL campus

at Ranipur to provide services to government and private agencies to control

industrial pollution with respect to air, water, noise and solid wastes reorienting itself

to be more responsive to customer need. Various in-house initiative aimed at

reducing cycle times,improving productivity in operations, cost control, business

process reengineering, advance procurement and manufacturing action on long lead

items, pre-contract engineering work, TQM etc. are all aimed at providing customers

with product, system and services that match their requirements.

PRODUCT PROFILE

PRODUCT CAPACITY RATINGS

* Thermal Sets Upto 1,000 MW

* Hydro Sets Maximum hydro runner

turbine diameter 6,600 manufacturing

upto 115 MW

* Gas Turbines 60,200 MW 150 ratings

* Light Aircraft Two Seater

* AC / DC Machines 5,20,000 KW

* Apparatus and Control Gears To match with the power equipment

* Steam Turbines for combined Various combinations

cycle power plant

* Heat Exchangers / condensers Manufacturing upto 800 MW ratings

* Medical Equipment Linac (for cancer treatment)

* Super Rapid Gun Mount Naval Gun

CHAPTER # 3

FINANCE OVERVIEW**************************

* SIGNIFICANT ACCOUNTING POLICIES

* FINANCE FUNCTIONS

SIGNIFICANT ACCOUNTING POLICIES

1. Accounts have drawn on historical cost convention based on accrual method of

accounting.

2. Accounting for Fixed Assets and Investments:

(i) Fixed assets: Fixed assets (other than land acquired free from states

government) are carried at cost of acquisition or construction or book

value less accumulated depreciation.

Cost include:

# Internal transfers for capital works, taken at actual/ estimated factory

cost or market price, whichever is lower. Effect of extraordinary events

such as devaluation / revaluation in respect of long term liabilities / loans

utilised for acquisition of fixed assets are added to / reduced from cost.

# Interest cost incurred on funds borrowed specifically for projects and

identified there with are capitalised up the time of commissioning of the

relevant projects.

(ii) Investments: Quoted investments are carried at lower of cost or market

price.Unquoted investments intended to be held till maturity are valued at cost.

3. Revenue Recognition

(i) Sales are recorded based on significant risks and rewards of ownership

being transferred in favour of the customer. Sales include goods

despatched to the customer by partial shipment which are billed /

unbilled pending formal billing.

(ii) Recognition of sales revenue in respect of long production cycle items is

made on technical estimates. When the aggregate value of shipment

represents 30 % or more of the realisable value, they are considered at

97.5 % of the realisable value or in its absence, at the quoted price.

(iii) Otherwise, they are considered at actual / estimated factory cost or 97.5

% of realisable value, which ever is lower. The balance 2.5 % is

recognised as revenue on completion of supplies under the contract.

(iv) Income from erection and project management services is recognised on

work done and billed based on the percentage of completion or the

intrinsic value, reckoned at 97.5 % of contract value. The balance 2.5 %

is recognised as income when the contract is completed.

(v) Income from supply / errection of non BHEL equipment / system and

civil works is recognised based on despatches to customer / work done

at project site.

4. Gratuity is determined in accordance with the actuarial valuation based on data

relatable to eligible employees in the service at the beginning of each calender

year.

5. Research and development expenditure is charged to profit and loss account.

Fixed assets acquired for purpose of research and development are capitalised.

6. Claims by / against the company claims for liquidated damages by / against the

company are recognised in the account of acceptance.

(i) Claims for export subsidy, duty drawback, refund of custom duty and

insurance are taken into account on accrual.

(ii) Amounts due in respect of price escalation claims and / or variation in

contract is recognised as revenue only when they are conditions in the

contract for such claims or variations and / or evidence of the

acceptablility of the same from customers.

7. Accounting for foreign currency transaction :

(i) In case of current assets and current liabilities the effect of conversion at

year and exchange rate is taken to the P & L a/c.

(ii) In case of long term liabilities, variations arising from normal exchange

fluctuations are recognised and taken to profit and loss a/c if it results in

loss and ignored if there is net gains.

8. Translation of financial statement of foreign branches.

(i) Items of income and expenditure are translated at average rate except

depreciation, which is converted at the rates adopted for corresponding

fixed assets.

(ii) Current assets and current liabilities are translated at closing rate while

fixed assets are translated at rates in force when the transaction takes place

(iii) All transaction variances at the end of the year are taken to the P & L a/c.

9. Provisions for contractual obligations in respect of completed contracts under

warranty at the year end is considered at 2.5 % value of the contract. In case of the

contract of suppliers of more than a single product, 2.5 % of the value of each

completed product is provided. Warranty claims / expenses on rectification work

are accounted for against natural heads in the year of actual incurrence.

10. Government grants these are accounted when there is reasonable certainty of their

realisation grants related to fixed depreciable assets are adjusted against the gross

cost of the relevant assets while those related to non depreciable assets are

credited to capital reserve. Grants related to revenue, unless receives as

compensation for expenses / losses, are recognised as revenue over the period to

which relate on the principle of matching cost to revenue. Grants in the form of

non monetary assets are accounted for at the acquisition cost, or at nominal value

if received free.

FINANCE FUNCTIONS

COST SECTION

Cost- section of the company is divided into following two sections viz,

PRODUCT COST & CENTRAL COST and these deals with the following

functions :-

(i) Determination of periodic profits including inventory valuation.

(ii) Determination of pricing policy of the company.

(iii) Work related to capital expenditures of the company.

(iv) Developing variance Management Information report for different parts of

management for purpose of cost control and reduction.

(v) Valuation of work in progress and finished goods.

(vi) Interaction with management of top management link for achieving cost

control and cost reduction and thereby improving bottom line of the company.

(vii) Preparation of cost sheet of different product and their analysis for future

planning.

SALES SECTION

Sales accounts section will deal mainly with the following items :-

(i) Scrutiny and vetting of estimates / quotation for sale of products / services,

wherever financial concurrence is required.

(ii) Scrutiny and vetting of agreements for sales of products and services

(iii) Invoicing for sale / advance or progressive payment / erection income and

other.

(iv) Maintenance of subsidiary records like sales journals / sales day book, sundry

debtors ledgers, advances from customer ledger etc.

(v) Payments, recovery and accounting of sales tax, excise duty.

(vi) Accounting of claims on carriers/ insurance companies for missing items /

damages on outward consignments.

(vii) Scrutiny , payments and accounting of bills of carriers and insurers and other

miscellaneous claims relating to the outwards consignments.

(viii) Calculation and scrutiny of data for payments of royalties to the collaborators.

(ix) Review and reconciliation as well as follow up of recovery of outstanding

dues from the customers in coordination with the commercial department.

STORES SECTION

For the convenience of performance of various function it is divided in to further

three sections which are as follows :-

a) Stores bills.

b) Stores review.

c) Foreign payment.

They deal mainly with the following items of works:

(i) Payment of suppliers bills including bills for advances -indigenous and

foreign.

(ii) Pricing of stores receipt vouchers including fixed assets vouchers and fixed

assets receipt vouchers.

(iii) Maintenace of accounts of advances to suppliers,claims recoverable ,claims

for short suppliers ,rejections and rectifications of materials and sundry

creditors.

(iv) Opening of letter of credit and arranging payments to foreign suppliers under

foreign credit / deffered payment agreements.

(v) Payment of bills for ocean freight ,port trust dues ,custom duty,local agents

commission and clearing agents bills,transit insurance bills ,bills of contractors

for transport /handling etc. and accounting of such payments are made at

regional offices.

(vi) Maintenance of accounts of material issued on loan and materials issued to

subcontractors.

(vii) Keeping account of earnest money and security deposits received from tender

and suppliers.

(viii) Adjustment of stores in transit to be made at the close of the year.

BOOKS AND BUDGET SECTION

This section deals mainly with the following:-

(i) Preparation of operating budget for the company as a whole.

(ii) Co-ordination with various functions of organisation with regard to generation

and submission of important MIR's to corporate office.

(iii) Preparation of annual accounts of the company .

(iv) Coordination with company auditors with regard to company accounts.

(v) Maintenance and accounting of fixed assets accounts.

(vi) Preparation of long term profit plans based on broad objectives of the

company.

PAYROLL SECTION

This section deals mainly with the following functions :

(i) Preparation of monthly wage bills.

(ii) All account work related to personal payments and disclose profit and loss

account of the company.

(iii) Dealing with income tax authority with regard to personal taxation of

employee.

(iv) Dealing with other statutory authority such as P.F. Commissioner, ESI

(employee state insurance).

(v) To ensure correct payment of salary and wages and other benefits to

employees in line with policies.

(vi) Payments and accounting of all miscellaneous expenditures incurred on post

and telegraph, telephone and miscellaneous payments.

WORKS SECTION

Works section of the company is dealing with the following functions:

(i) Payments of contractors bills including bills for advance.

(ii) Maintenance of accounts of contractors with regard to security deposits,

earnest money, progressive payments.

(iii) 215 maintenance of accounts of materials issued on loans to contractors.

(iv) All accounting work related to capital expenditure in progress on erection of

plant & machinery and building.

(v) All other miscellaneous work relating to hiring of various facilities.

(vi) Payments and accounting of all expenditure related to revenue particularly

with regard to expenditure incurred on repair and maintenance of plant and

machinery, building and roads.

CASH SECTION

The cash section shall be responsible for banking of all money or money's worth

received by the company and the disbursement of all authorised payments on behalf

of the company and also for the safe custody of all cash and other valuables as may be

entrusted to that section. The broad functions are :

(i) Receipt of money in the form of cash, cheque, bank draft, postal orders etc.on

behalf of the company. Payment of money to the suppliers, contractors etc. on

behalf of the company and disbursement of salaries , wages and other personal

payments of employees.

(ii) Handling and custody of cash , cheque etc. till disbursement or deposit in bank

and custody of other valuables like govt. and other paper securities, share

certificates, bank guarantees etc.

(iii) Accounting of all receipt and payments on behalf of the company in cash /

bank books, maintenance of registers and other record incidental to and for the

efficient despatch of the responsibilities of the section.

(iv) Arrangement / operation of cash credit facility with banks.

(v) Preparation of cash flow statements, cash forecasts etc.

NOTE : The function of arrangements of cash credit facility specified at item (iv)

above is now discharged centrally by the cash management section of the corporate

office. However the division concerned will also keep proper liasions with all the

local members, banks consortium to ensure the smooth functioning of the centralised

cash credit system.

CHATER#4

RESEARCH METHODOLOGY

The term research methodology indicates an exhaustic investigation into some accepted principles and conclusion so as to bring into some new and novel facts. The first step towards any research is to identify the problem and to look at it objectively . Once the problem to be studied is decided,the step for research should be finalized . I choose the project of ‘RATIO ANALYSIS’. I discussed the project with my instructor & coordinator Mr. Anil Malik.

He approved the project , after that a simple course of action has been followed

for working on this project. Entire information & data were gathered from the

respected annual reports of BHEL , Haridwar. All the figures are taken from

their balance sheet, profit & loss a/c of the respective year & the other internal

documents . As highlights above secondary data is taken as a sour

CHAPTER # 5.

PROJECT *************

FINANCIAL ANALYSIS

OBJECTIVE OF THE STUDY

RATIO ANALYSIS

RATIOS AND ITS MEANING

GRAPHICAL PRESENTATION OF RATIOS

INTERPRETATION OF RATIOS

USES OF FINANCIAL STATEMENT TO DIFFERENT PARTIES

PROBLEMS OF FINANCIAL STATEMENTS

CONCLUSIONS AND SUGGESTIONS

FINANCIAL ANALYSIS

Financial analysis is the process of determining the operating and financial

characteristics of a firm from accounting data and financial statement. The goal of

such analysis is to determine efficiency and performance of the firm management, as

reflected in the financial records and reports. Its main aim is to measure the firm's

liquidity, profitability and other indications that business is conducted in a rational

and orderly way.

We will develop ratio analysis as the primary tool for examining the firm's financial

position and performance. There are two views points in receiving and evaluating

financial data :

1. External Analysis :-

This is performed by outsiders to the firm such as creditors, stock

holders, or investments analysis. It makes use of existing financial

statements and involves a limited access to confidential information on

a firm.

2. Internal Analysis :-

This is performed by the corporate finance and accounting

departments and is more detailed than external analysis. These

departments have available more details and current information than

is available to outsiders. They are able to prepare Performa, or future

statements and are able to produce a more accurate and timely analysis

of the firm's strength and weaknesses.

FINANCIAL RATIOS AND UTILITY

A ratio may be defined as a fixed relationship in degree or number between two

numbers. In finance, ratios are used to point out relationships that are not obvious

from the raw data. Some uses of ratios are following: -

1. To compare different companies in same industry . Ratios can highlight the

factors associated with successful and unsuccessful firms. They can reveal strong

firms and weak firms, overvalued undervalued firms.

2. To compare different industries. Every industry has its own unique set of

operating and financial characteristics. These can be identified with the help of

ratios.

3. To compare performance in different time periods . Over a period of years, a firm

or a industry develop certain norms That may indicate future success or failure. If

relationship change in firm's data over different time periods, the ratio may

provide clues and trends of future problems.

USERS OF RATIOS

1. Short term creditors . These persons hold obligation that will soon mature, and are

concerned with firm's ability to pay its bills promptly. In the short run, the amount

of liquid assets determines the ability to pay off current liabilities. These persons

are interested in liquidity.

2. Long term creditors . These persons hold bonds or mortgages against the firm and

are interested in current payment of interest and eventual payment of principal.

The firm must be sufficiently liquid in the short term and have adequate profits for

the long terms. These persons examine liquidity and profitability.

3. Stock holders . In the addition to liquidity and profitability the owners of the firm

are concerned about the policies of the firm that affect the market price of firm's

stock. Without liquidity, the firm could not pay cash dividend.

Without profits, the firms will not be able to declare the dividends.

With

poor policies the common stock would trade at low prices in the market.

OBJECTIVE OF STUDY

The project "ANALYSIS AND INTERPRETATION OF FINANCIAL

STATEMENTS" is undertaken to fulfil the following objectives : -

To estimate the earning capacity.

To gauge the financial position and financial performance of the firm.

To determine the long term liquidity of the funds as well as solvency.

To determine the debt capacity of the firm.

To decide about the future prospects of the firm.

UTILITY OF FINANCIAL ANALYSIS: -

Following are the advantages of financial analysis.

With the help of ratios we can determine the ability of the firm to meet its

current obligations.

Overall operating efficiency and performance of the firm.

Efficiency with which firm is utilising its various assets in generating sales

revenue.

Ratios help in inter firm and intra firm comparison.

They help in determining the financial strength by highlighting the liquidity,

solvency and profitability of the firm.

They are useful in comparison of performance.

They are also useful in forecasting purpose.

RATIO ANALYSIS

Financial statement contain a wealth of information which, if properly analysed and

interpreted, can provide valuable insights in to firms performance and position.

Financial statement analysis may be done for a variety of purpose, which may range

from simple analysis of the short term liquidity position of the firm to comprehensive

assessment of the strengths and weaknesses of the firm in various areas.

The principle tool for financial statement analysis is Financial Ratio Analysis. A ratio

is an arithmetical relationship between two figures. Financial ratio analysis is a study

of ratios between various items or groups of items. Financial ratio have been

classified as follows: -

TYPES OF FINANCIAL RATIOS

LIQUIDITY RATIOS

ACTIVITY RATIOS

LEVERAGE RATIOS

PROFITABILITY RATIOS

OTHER RATIOS

LIQUIDITY RATIOS : - Liquidity refers to the ability of the firm to meet its

obligations in the short run, usually one year. Liquidity ratios are generally based on

the relationship between current assets and current liabilities (the sources for meeting

short-term obligations).

LEVERAGE RATIOS: - Financial leverage refers to the use of debt finance. While

debt capital is a cheaper source of finance, it is also a riskier source of finance.

Leverage ratios helps in assessing the risk arising from the use of debt capital.

ACTIVITY RATIOS : - They are also called Turnover ratios or Asset management

ratios. They measures how efficiently the assets are employed by the firm. These

ratios are based on the relationship between the level of activity and the level of

various assets.

PROFITABILITY RATIOS: - Profitability reflects the final result of business

operations. There are two types of profitability ratio. Profit margin ratios and rate of

return ratios. A profit margin ratio shows the relationships between profit and sales.

Rate of return reflects the relationship between profit and investment.

OTHER RATIOS: - In this project we have analysed some other ratios of

BHEL. Such as EPS, PER, Personal payment per employee, Turnover per employee,

Overtime per employee etc.

ADVANTAGES OF RATIOS: -

The ratio analysis is one of the most powerful tools of financial analysis. It is use as a

device to analysis and interpret the financial health of enterprise. Just like a doctor

examines his patient by recording his body temperature, blood pressure etc. Before

making his conclusion regarding the illness and before giving his treatment, a

financial analyst analyses the financial statement with various tools of analysis before

commenting upon the financial health or weaknesses of an enterprise. 'A ratio is

known as a symptom like blood pressure, the pulse rate or the temperature of the

individual.' It is with help of ratios that the financial statements can be analysed and

decision made from such analysis.

1. HELPS IN DECISION-MAKING: Financial statements are prepared primarily

for decision making. But the information provided in financial statements is not an

end in itself and no meaningful conclusions can be drawn from these statements

alone. Ratio Analysis helps in making decisions from the information provided in

these financial statements.

2. HELPS IN FINANCIAL FORECASTING AND PLANNING: Ratio analysis

is of much help in financial forecasting and planning. Planning is looking ahead

and the ratios calculated for a number of year's work as a guide for the future.

Meaningful conclusions can be drawn for future from these ratios. Thus, ratio

analysis helps in forecasting and planning.

3. HELPS IN COMMUNICATING: The financial strength and weaknesses of a

firm are communicated in a more easy and understandable manner by the use of

ratios the information contained in a financial statement is conveyed in a

meaningful manner to the one for whom it is meant. Thus, ratios help in

communication and enhance the value of financial statements.

4. HELPS IN CO-ORDINATION: Ratios even helps in coordination, which is

utmost importance in effective business management. Better communication of

efficiency and weakness of an enterprise results in better co-ordination in the

enterprise.

5. HELPS IN CONTROL: Ratio analysis even helps in making effective control of

the business. Standard ratios can be based upon Performa financial statements

and variance or deviations, if any, can be found by comparing the actual with the

standards so as to take corrective action at the right time. The weaknesses or

otherwise, if any, come to the knowledge of the management which helps in

effective control of the business.

USES OF FINANCIAL STATEMENTS TO DIFFERENT PARTIES

The analysis and interpretation of financial statements is an important accounting

activity. The end users of business statements are interested in these statements

primarily as an aid to determine the financial position and the results of the

operations. There are different parties interested in the financial analysis of their

statements and their aims and their objectives also differ significantly. The following

are the use of statement analysis to different parties :

TO THE FINANCIAL EXECUTIVES : - The first party interested in the

financial statement analysis is the finance department of the business concern itself

to the financial managers such analysis provides a deep insight into the financial

condition of the enterprises and the view of the past performance which helps in

future decision making. The financial statements give vital information concerning

the position of the enterprise as well the result of the operations.

TO THE TOP MANAGEMENT : - The top management of the concern is also

increased in the analysis of these statements because it helps them reaching

conclusions regarding:

Performance appraisal of overall business activities.

Enquiry about current financial position and long term strategic planning.

Queries concerning the relationships of earnings to trends in sales etc.

Queries concerning the relationships of earnings to investment.

TO THE CREDITORS:- The analysis of these statements is very essential to the

creditors. Also some aspects of enterprise operations are of interest to creditors in

regard to liquidity of funds, soundness of financial structure, profitability of the

operations, effectiveness of working capital management etc.

TO THE INVESTORS AND OTHERS :- Investors presents as well as prospects

are also interested in the measurement of earning capacity of the securities. Investors

have been increasingly concerned with the cash generation capability of an

enterprise, primarily in terms of the flexibility available to such enterprises to acquire

other business and new assets on an advantage basis for this purpose.

PROBLEMS OF FINANCIAL STATEMENTS

There are certain problems and issues encountered in financial analysis which call for

care, circumspection and judgement in such exercise.

DEVELOPMENT OF BENCHMARKS:- given the diversity of BHEL product

lines, it is difficult to find suitable benchmarks for evaluating its financial

performance and conditions. Hence even for such firm, the financial analyst may

run into difficulty. If information is available only about industry average or some

other standard and not about the entire dispersion of ratios for various firms in the

industry, it may not be possible to draw meaningful inferences.

WINDOW DRESSING:- firm may resort to window dressing to project a

favorable financial picture. When window dressing is suspected, the financial

analyst should look at the average data available as per resource.

PRICE LEVEL CHANGES:- In India financial accounting takes into

consideration price level changes. As a result, balance sheet figures are distorted

and profits are misreported. Hence financial statement analysis can be vitiated.

VARIATIONS IN ACCOUNTING POLICIES :- Business firms have some

latitudes in accounting treatment like depreciation, valuation of stocks research

and development expenses, foreign exchange transactions, installment sales,

preliminary and preoperative expenses, provision of reserve and revaluation of

assets. Due to diversity of accounting practices found in practice, comparative

financial statement analysis may be vitiated.

CURRENT RATIO (CR)

This ratio indicates the extent of the soundness of the current

financial position of an undertaking and the degree of safety provided

to the creditors. The higher the current ratio, the larger amount of

rupee available per rupee of current liability, the more the firms ability

to meet current obligations and the greater safety of funds of short term

creditors.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Current assets 100962 80044 100608 112836 139668 139029

Current l iabi l i t ies 71641 61375 82133 99390 110923 12332

Ratio 1.41 1.30 1.22 1.13 1.25 1.13

Current Ratio = Current Assets/Current Liabi l i t ies

INFERENCE : From the above ratios it is clear that Current Ratio

of last six years is greater than one and on an average it is 1.24:1 that

means for every one Re. of current liabilities there is Rs. 1.24 of

current assets to meet the short term obligation.. So this indicates that

the short-term liquidity position of the company is very good and short-

term condition are safe as far as payment is

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QUICK RATIO (QR)

Quick ratio is a more refined tool to measure the liquidity of an

organization. It is a better test of financial strength than the current

ratio, because it excludes very slow moving inventories and the items

of current assets, which cannot be converted into cash easily. This ratio

shows the extent of cushion of protection provided from the Quick

assets to the current creditors. A Quick ratio of 1:1 is usually

considered satisfactory.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Quick assets 57501 47674 61394 53860 110923 84781

Current l iabi l i t ies 71641 61375 82133 99390 123322

Ratio 0.80 0.78 0.75 0.54 0.63 0.69

Quick Ratio = Quick Assets / Current Liabilities

INFERENCE : Quick Ratio is not even approaching one, hence there is

liquidity problem in payment in time, here paymentof creditors are not

made in time due to lack of cash/liquid fund

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STOCK TURNOVER RATIO (STR)

A considerable amount of a company’s capital may be tied up in

the raw material, work-in-progress and finished goods. It is important

to ensure that the level of stock is kept as low as possible, consistent

with the need to fulfill customer order in time.

The higher the stock turnover rate or the lower the stock turnover

period the better, although the ratio will vary between companies.

Stock turnover Ratio = Cost of Goods Sold / Avg. Inventory

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

COGS 108811 101336 97432 140697 164059 210494

Avg. inventory 45414 37915 35792 49095 64387 62023

Ratio 2.40 2.67 2.72 2.87 2.55 3.39

INFERENCE: Stock turnover ratio indicates that how quick inventories are converted into sales. It gives the position of the inventory management of the company.

The average of STR comes out to be 2.77 which shows that for every Re 1 of average inventory these are Rs 2.77 of net sales this indicates that short term liquidity position of the company is satisfactory and the inventory management of the company was improving year to year .but in current . So average inventory is satisfactory.

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DEBTORS TURNOVER RATIO (DTR)

Debtor T/O, which measures whether the amount of resources

tied up in debtors is reasonable and whether the company has been

efficient in converting debtors into cash.

The higher the ratio, the better the position.

Debtors Turnover Ratio (as a %) = Credit Sales/Avg. Debtors

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Credi t sales 108811 101336 97432 140697 164059 210494

Avg. debtors 52490 46161 48642 52209 56630 73981

Ratio 2.07 2.20 2.00 2.69 2.90 2.85

INFERENCE : This ratio indicates that how quick dr are collected and

greater the ratio shows better the position of the company.

Here from the graph and the ratio of the last six years it is clear that

the debtors are collected quickly as the Dr. T.R. is increasing year by

year from 2.07 times in year 2001-02 to 2.85 times in year 2006-07.

Showing that average collection period is short and so there are less or

say no bad debts for the company. So it is clear from the above that the

short-term liquidity position of the company is good.

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FIXED ASSETS TURNOVER RATIO

Fixed assets are used in the business for producing goods to be

sold. The effective utilization of fixed assets will result in increased

production and reduced cost. It also ensures whether investment in the

assets have been judicious or not.

Fixed Assets Turnover Ratio = Cost of Goods Sold / Fixed Assets

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Cost of Goods Sold 108811 101336 97432 140697 164059 210494

Fixed Assets 7281 14634 14082 16471 13896 21062

Ratio 14.94 6.92 6.92 8.54 11.80 9.99

INFERENCE : The ratio from last 6 years shows that it increases year

by year indicating that fixed assets of the company are being utilized

effectively that means the profit fixed assets are improving year by

year showing the better performance of the company.

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TOTAL ASSETS TURNOVER RATIO :-

This ratio shows the relationship between sales and total assets of the

company and also compare the total sales with total assets.

Total assets turn over ratio= net sale/ Total assets

According to rule of thumb

Total assets turnover ratio indicate that if turnover is less that means

there is a lack of proper utilization of invested assets and if it is higher

that means company is using it’s investing properties in an impressive

manner.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Net sale 108811 101336 97432 140697 164059 210494

Total assets 108243 94678 114690 129307 153564 160091

Ratio 1.01 1.07 0.85 1.09 1.068 1.31

INFERENCE The total assets turn over ratio is the relationship

between total assets and sales. According to the rule, in the case of

BHEL Haridwar we compare the six year data and graph and find out in

the year 2001&2002 the total assets turn over increasing, it indicates

that company using its investment in assets and properties in an

impressive manner but after 2003 it is decreasing but still i t is well

sufficient for a company. After 2003 the company took its best position

and again in year 2004, the company achieves the higher total assets

turnover. This is an indication of proper utilization of investing assets

in comparison to sales of the company.

DEBT EQUITY RATIO (DER)

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Long term debt 238 308 447 364 499 910

Shareholders fund 47581 62410 67756 82644 102423 130389

Ratio 0.005 0.005 0.007 0.004 0.005 0.006

The ratio indicates the relationship between loan fund and net

worth of the company, which is known as gearing. If the proportion of

debt to equity is low a company is said to be low-geared and vice

versa. A debt equity ratio of 2:1 is the norm accepted by financial

institutions for financing projects.

The higher the gearing,the more volatile the return to the

shareholders.

Debt Equity Ratio = Long Term Debt/Share Holders Funds

INFERENCE : Debt Equity Ratio shows that how much funds a

company has to meet the long-term obligations. Lesser the ratio shows

better the position of the company.

The Debt Equity Ratio goes on decreasing from year by year and is less

than 1 in each year also. The average of Debt Equity Ratio comes out

to be 0.005 which is less then 1,which means that long term liquidity

position of the company is very good . The Debt Equity Ratio is‘0.006’

in 2006-07 and this is a very good position of the company hence it is

clear that long term liquidity position of the company is good.

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PROPRIETOR RATIO or (SHARE HOLDER EQUITY RATIO)

It is assumed that larger the proportion of the shareholders

equity, the stronger is the financial position of the firm. This ratio will

supplement the debt-equity ratio. In this ratio a relationship established

between the shareholder’s fund and the total assets. A reduction in

shareholder’s equity signally the over dependence on outside source for

long term financial needs and this carries the risk of higher level of

gearing. This ratio indicates the degree to which unsecured creditors

are protected against loss in the event of liquidation.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Share Holder Funds 47581 62410 67756 82644 102423 130389

Total Assets 108243 94678 114690 129307 153564 160091

Ratio 0.44 0 .7 0.6 0.64 0.67 0.81

Prop Ratio = Share Holder Funds / Total Assets

INFERENCE : There is increase in shareholders fund but there is no

fresh investment in FA is made and this may affect future profitability

of the company.

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SOLVENCY RATIO

Solvency is a state where the company is supposed to be

financially sound and capable of meeting its liability out of its assets.

This ratio indicates the relationship between total liabilities and total

assets of the business.

Solvency Ratio = Total outside Liabilities /Total real Assets

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Total Liabi l i t ies 71945 61683 82580 99754 111422 12432

Total Assets 108243 94678 114690 129307 153564 160091

Ratio 0.66 0.65 0.72 0.77 0.725 0.78

INFERENCE : Here from the data and the ratio of last six years it is

clear that the company’s financial position is sound and is capable of

meeting its liabilities out of its total assets. From the last six years data

we see that the solvency ratio is increasing slowly and it has increased

from 0.66 in 2001-02 to 0.78 in 2006-07. It indicating a sound financial

position of the company.

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FIXED ASSETS TO NET WORTH RATIO

This ratio shows that how efficiently the fixed assets are utilized

by the company. This also shows that what portion of net worth is

invested in the fixed assets.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Fixed Assets 7281 14634 14082 16471 13896 21062

Proprietor Funds 47581 62410 67756 82644 102423 130389

Ratio 0 .15 0.23 0.21 0.20 0.14 0.16

Fixed Assets to Net Worth Ratio = Fixed Assets / Proprietor Funds

INFERENCE : Here this ratio is going on decreasing and the average

comes out to be 0.18 which means for every Re. 1 of Proprietor Fund

there are Rs. 0.18 of Fixed Assets indicating that Fixed Assets are

utilized properly but there are no fresh investments made in Fixed

Assets which may effect the future profitability of the company.

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FIXED ASSETS RATIO

This ratio indicates the proportion of long funds deployed in

fixed assets. Fixed assets minus depreciation provided on this till the

date of calculation. The higher the ratio indicates the safer the funds

available in case of liquidation. It also indicates the portion of long-

term fund that is invested in the working capital.

Fixed Assets Ratio = Capital Employed / Net Fixed Assets

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Capital Employed 54002 62718 68203 83008 102922 131299

Net Fixed Assets 7281 14634 14082 16471 13896 21062

Ratio 7.42 4.28 4.84 5 .03 7.41 6.23

INFERENCE : This ratio indicates that proportion of long funds

deployed in fixed assets here the fixed assets ratio is increasing .But

from the data we found that there are no fresh investment made in

Fixed Assets. But there is continuous decrease in long-term funds,

which may affect the future profitability of the company.

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INTEREST COVERAGE RATIO

This ratio shows how many times the profit covers the interest. It

shows the margin of cover to lenders of the company. It is always

desirable to have profit more than the interest payable. In case profit is

either equal or lesser than the interest, the position will be unsafe and

it will show that there is nothing left for the shareholder and the

position of lender is also unsafe. The net income of the company

should be ideally 6 or 7 times of the fixed interest charges.

Interest Coverage Ratio = Profit before interest and tax / Interest

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

PBIT 7205 11083 12324 22338 31552 42957

Interest 632 -622 -474 -623 -937 -390

Ratio 11.4 -17.8 -26 -35.8 -33.67 -110.15

INFERENCE : Interest Coverage Ratio had increased in 2001-02 while

after that it is decreasing year by year as it shows negative. It is clear

that there is no risk for lenders and share holders.

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GROSS PROFIT RATIO (GPR)

This ratio measures the gross profit margin on the total net sales

made by the company.

The ratio measures the efficiency of the company’s operation and

this can also be compared with the previous years results to ascertain

the efficiency partners with respect to the previous year. When every

thing is normal the gross profit margin should remain unchanged,

irrespective of the level of production and sales, since it is based on

the assumption that all costs deducted when computing gross profit,

which are directly variable with sales. A stable gross profit margin is

therefore the norm.

Gross Profit Ratio = (Gross Profit / Net Sales) 100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Gross Profi t 10487 14260 17176 25901 35329 48196

Net Sales 108811 101336 97432 140697 164059 210494

Ratio 9.60 14.07 17.60 18.40 21.50 22.90

INFERENCE : Gross Profit Ratio is increasing year by year. It has

22.90 in 2006-07 from 9.6 in 2001-02. For improving the more

profitiability of the company, company should take in plans relating to

cost reduction and cost control. Efforts should also be made to take up

contracts having greater margins such as renovation / retrofitting etc.

In addition to regular contracts which has very less margin.

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NET PROFIT MARGIN

This ratio established relationship between net profit and net

sales. Net profit ratio shows the operational efficiency of the

managerial inefficiency and excessive selling and distribution

expenses. In the same way, increase shows better performance. Increase

or decrease in the ratio is determined in comparison to pervious year’s

performance.

Net Profit Margin = Profit After Tax / Net Sales 100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

PAT 4354 7078 7248 14523 21553 26400

Net Sales 108811 101336 97432 140697 164059 210494

Ratio 4 7 7.4 10.3 13.1 12.54

INFERENCE : Net profit of last six years is continuously increasing

this indicating a good operating efficiency of the company. The

average of net profit ratio comes out to be 9.07% which means that for

every Rs. 100 of net sales profit margin is of Rs 9.07 and this is a

satisfactory position for the company and also indicates that

Managerial skills are efficient. The company’s performance is good.

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NET PROFIT TO FIXED ASSETS RATIO

The ratio shows relationship of net profit to fixed assets and also

indicates, whether fixed assets are being properly used or not. It will

be in the favor of the business, if this ratio higher.

Net Profit to Fixed Assets Ratio = Net Profit / Fixed Assets

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Net Profit 4354 7078 7248 14553 21553 26400

Fixed Assets 7281 14634 14082 16471 13896 21062

Ratio 0.87 0.57 0.65 0.87 1.45 1.25

INFERENCE : Here this ratio is going on increasing however in 2002-

03 to 2006-07. it increased from 0.57 in year 2002-03 to 1.45 in year

2005-06, indicating that the fixed assets of the company is being used

effectively. But there is no fresh investment made in Fixed Assets

during these years and can affect future profitability of the company.

The earning capacity of the company from utilization of Fixed Assets is

improving year by year. But this year ratio decline means fixed assets

are not being properly used in this year .

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RETURN ON INVESTMENT (ROI)

Return on investment ratio measures, how effectively the capital

employed in the business is used. It shows the earning capacity of the

net assets of the business. The ratio judges the performance of the

business. It can be used for comparing the performance of even

dissimilar business or different department of the same business.

Return on Investment = Profit After Tax/Share Holder Funds 100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Profit After Tax 4354 7078 7248 14523 21553 26400

Share Holder Funds 53697 62410 67756 82644 102423 130389

Ratio 8.11 11.3 10.6 17.5 21.04 20.25

INFERENCE : Return on investment is increasing year by year that is

8.11 in year 2001-02 and it increased to 20.25 in year 2006-07. it is

indicating that the capital employed in the business is used effectively

and the performance of the company is increasing hence, company

should not invest in the fixed assets and R & D expenditures.

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RETURN ON ASSETS

Return on assets is define as: PAT / ATA, its numerator measures the

return to shareholders where as its denominator represents the

contribution of all investors.

This ratio indicates the management efficiency in

use of invested funds. Hence, this ratio should be high, because as

much high this ratio will be , the position of the company will be good.

RETURN ON ASSETS = PAT / AVERAGE TOTAL ASSETS

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Profit After Tax 4354 7078 7248 14523 21553 26400

ATA 115637 101460 104684 113173 141435 156827

RATIO 0.038 0.07 0.07 0.12 0.15 0.17

INFERENCE: The return on assets ratio is increasing year by

year. It was 0.038 in 2001-02 but it has increased continuously and

extend to 0.17 in 2006-07. it indicates that management efficiency

regarding invested fund is improving.

EARNING POWER

Earning power is a measure of business performance, which is not

affected by interest charges and tax burden. It abstract away the effect

of capital structure and tax factor and focuses on operating

performance the numerator represents a measure of pre-tax earnings

belonging to all sources of finance and the denominator represents

total financing.

EARNING POWER = PBIT / AVERAGE TOTAL ASSETS

Year 2001-02 2002-03 2003-04 2004-05 2005-06 20006-07

PBIT 7205 11083 12324 22338 31552 42957

ATA 115637 101460 104684 113173 141435 156827

RATIO 0.062 0.11 0.12 0.2 0.22 0.27

INFERENCE: from the above graph we can analyse that the earning

power of the company is gradually increasing. In 2001-02 it was

0.06 but gradually it has increased up to 0.27 in 2006-07. although

ratio is increasing but not in effective way so company should use

there assets affectively.

RETURN ON EQUITY

Return on equity is a measure of great interest to equity share holders.

Return on equity is defined as equity earning / avg. equity. The

numerator of this ratio is equal to PAT and the denominator includes

all contribution made by equity share holders (Paid-up + reserve &

surplus). Return on equity measures the profitability of equity funds

invested in the firm. it is regarded as a very important measures as it

reflects the productivity of the ownership capital employed in the firm.

RETURN ON EQUITY = PAT / AVERAGE EQUITY

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

PAT 4354 7078 7248 14523 21553 26400

AVG.EQUITY 4570 4570 4570 4570 4570 4570

RATIO 0.95 1.55 1.58 3.18 4.72 5.78

INFERENCE: from the above graph we can see, return on equity is

increasing by leaps& bounds. As in 2001-02 it was 0.95 & in 2006-07it

has increased up to 5.78, so it is indicating good financial position of

the company

TURNOVER PER EMPLOYEE

This ratio is calculated by dividing turnover of the company by

the number of employees working in the company. This indicating how

efficiently manpower is used to generate turnover.

Turnover Per Employee = Turnover / No. of Employees

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Turnover 108811 101336 97432 140697 164059 210494

No. of Employees 7463 7222 6811 6434 6195 6577

Ratio 14.58 14.03 14.30 21.86 26.48 32.00

INFERENCE : As this ratio is increasing continuously year by year this

indicates that the Human Resources of the company is utilized

effectively and are generating high turnover which is good for the

company. Hence company’s performance is good.

PERSONAL PAYMENT PER EMPLOYEE

YEAR

R

A

T

This ratio is achieved by dividing personal payment by number

of employees working in the company. The higher the personal payment

per employee, the higher the satisfaction level of the employees.

Personal Payment Per Employee = Personal Payment/No. of Employees

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Personal Payment 22994 24317 25467 25361 28114 29800

No. of Employees 7463 7222 6811 6434 6195 6577

Ratio 3.08 3.36 3.74 3.94 4.54 4.56

INFERENCE : Personal payment is increasing in last six years and also

the turnover per employee is increasing which shows that there is

effective utilization of man power.

YEAR

R

A

T

OVERTIME PER EMPLOYEE

This ratio is achieved by dividing overtime given to the

employees by the number of employees working in the company. This

ratio should be minimum then we can say that the company’s Human

Resource Management is working efficiently.

Overtime Per Employee = Overtime/ No. of Employees

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Overtime 1026 824 917 1148 1209 1337

No. of Employees 7463 7222 6811 6434 6195 6577

Ratio 0.14 0.11 0.13 0.18 0.19 0.20

INFERENCE : As the ratio is increasing at an increasing rate which

shows that the Human Resource Management of B.H.EL. Is not

satisfactory and the time management is not good in the company this

is a caution for the company. Resource management and Planning

Management should be reviewed.

YEAR

R

A

T

COLLABORATOR’S PAYMENT AS A PERCENTAGE OF

TURNOVER

This ratio is calculated as a percentage and is used to medicates

weather the company is dependent on the collaborator’s payment for

the R & D expenses or it uses its own fund for the same.

Collaborator’s Payment of Turnover = Collaborator’s Payment /

Turnover 100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

C. payment 808 1104 885 765 1076 1517

Turnover 108811 101336 97432 140697 164059 210494

Ratio 0.74 1.08 0.91 0.54 0.64 0.72

INFERENCE : As the ratio varies year by year but decreasing in the

last four years, it shows that company is using its own funds for the R

& D expenses. Dependability on collaborator’s payment has decreased.

R & D per turnover has not increased, hence company can’t sustain in

long run without its own efforts on R & D.

YEAR

R

A

T

REPAIR/MAINTENANCE AS A PERCENTAGE OF GROSS

BLOCK

This ratio calculated by dividing repair and maintenance

expenses by the gross block of the company. The ratio medicates the

repair and maintenance expenses made on gross block.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Repair 452 618 1052 654 1065 1015

Gross Block 43644 52619 54668 59170 60233 72957

Ratio 1.03 1.17 1.92 1.12 1.76 1.39

Repair/Maintenance As a Percentage of Gross Block = Repair /

Gross Block 100

INFERENCE : It has increased 2001-02 to 2003-04 but after than in

2004-05 it has decreased slightly and again increased in 2005-06 that

means that the repair and maintenance expenses are increasing so fresh

investment is required, otherwise it may effect the future profitability

of the company.

YEAR

R

A

T

R & D EXPENSES AS A PERCENTAGE OF TURNOVER

This ratio is achieved by dividing R & D Expenses by the

turnover of the company. The ratio indicates how much efforts are

made on R & D.

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

R & D Expenses 2 0 0 0 0 0

Turnover 108811 101336 97432 140697 164059 210494

Ratio 0.002 0 0 0 0 0

R & D Expenses As a Percentage of Turnover = R & D Expenses /

Turnover 100

INFERENCE : This ratio is decreasing continuously which is a bad

sign, as we are not carrying out R & D, though the product requires

high technology. Own technology can be developed.

YEAR

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A

T

BAD DEBTS AS A PERCENTAGE OF TURNOVER

This ratio indicates how effectively the debts are collected and

also indicates that how effectively debtors are managed.

Bad debts As a Percentage of Turnover = Bad debts/Turnover 100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Bad debts 76 705 1061 412 50 75

Turnover 108811 101336 97432 140697 164059 210494

Ratio 0.07 0.7 1.08 0.29 0.13 0.03

INFERENCE : As the ratio is initially increased till 2003-04 but after

that it is decreasing at a decreasing trend so it is clear that there are no

or less bad debts in the company, which indicates better Debtor

Management.

YEAR

R

A

T

COLLECTABLE DEBTS AS A PERCENTAGE OF TURNOVER

This ratio indicates how effectively debtors are collected out of

turnover.

Collectable Debts As a Percentage of Turnover = Collectable

debts/Turnover 100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Collectable debts 26745 21373 39335 29938 37566 44743

Turnover 108811 101336 97432 140697 164059 210494

Ratio 25 22.3 40 21.28 22.89 21.26

INFERENCE : As above graph shows fluctuating ratio year by year.

Hence, efforts should be made that goods are dispatched to only

customers who are making timely payments.

YEAR

R

A

T

TURNOVER AS A PERCENTAGE OF GROSS BLOCK

This ratio indicates out of gross block how much turnover can be

generated & how effectively can it be generated.

Turnover As a Percentage of Gross block =Turnover/Gross block

100

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Turnover 108811 101336 97432 140697 164059 210494

Gross block 43644 52619 54668 59170 60233 72957

Ratio 249.31 192.58 178.22 237.7 272.37 288.52

INFERENCE : Turnover is decreasing initially in 2001-02 to 2003-04

after that it is increasing at a faster rate as compared to fresh

investments. Fresh investments are required as company’s product is a

product involving high technology and in absence of fresh investments

growth in turnover can’t be maintained.

YEAR

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LIMITATION OF STUDY

1 It took a lot of time in collection of data as the data Available in

BHEL Haridwar is so wide and covers great deal of extensive

information.

2 All the data collected was from the secondary sources and I had to

rely on the data collected by them.

3 The conclusion given regarding BHEL is based on the present

economic condition.

CONCLUSIONS AND SUGGESTIONS

I have obtained some weak and strong points of the company during the analysis of

financial statements which are as follows : -

As just only the analysis financial statement is not only mean to reach at conclusions

we cannot substitute it for sound judgement. Furthermore good judgement depends

upon the intelligence and ability of the analyst.

On seeing the liquidity position of BHEL. I conclude that it is not very good as the

current assets are in the form of inventories and debtors. The debt collection

period is high and inventories are least liquid current assets. So maintaining the

inventories are relatively costly affair for the company and the management must

have to investigate properly. It is very necessary so that fund should not be

blocked unreasonably. Efficient inventory management is required in BHEL.

On seeing the leverage position of the BHEL, I conclude that it is very good as the

stake of owners in company is continuously increasing and its long term debt

continuously decreasing it means that company is paying its debt promptly and

creditors will not face any risk in investing in BHEL as also BHEL is giving

assured ROI.

On seeing turnover, fixed assets and current assets turnover of company goes on

increasing which is a good indicator as it brings commensurate gain and also the

average collection goes on decreasing but management should take more efficient

steps to reduce it.

On seeing the profitability of the BHEL its overall performance is very good. A

continuous increase in the values of EPS and DPS results, investors feel safe to

invest money in BHEL.

BIBLIOGRAPHY

* Annual Report of BHEL ( Share holder’s Copy)

*Annul Report of BHEL ( Management Copy)

*Auditors Report

*Management Accounting- Dr. S. N.Maheshwari

*Financial Management- Ravi M.Kishore

*Financial Management- Subir kumar Banerjee