Financial Analysis of Tnpl

Title:Financial analysis of Tnpl.

Subject:Financial frame work for business decision

Level/Semester: M.B.A-I

Programme: M.B.A.

Subject tutor: Professor - Agustin

Name of Student: V.G. ARUN PRAKASH

Submitted on: December, 1, 2009

Word count: 2196 Words

Word Limit: 2000 WORDS

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TABLE OF CONTENT DESCRIPTION PG:NO COVER PAGE : 1 TABLE OF CONTENT : 2 INTRODUCTION : 3 CURRENT RATIO : 4,5table-1 chart-1 FIXED ASSET TURNOVER RATIO : 5,6table-2 chart-2 INVENTORY TURNOVER RATIO : 6,7table-3 chart-3 DEBTORS TURNOVER RATIO : 7,8table-4 chart-4 ROE : 8,9table-5 chart-5 ROCE : 9,10table-6 chart-6 EPS : 10,11table-7 chart-7 DPS : 11,12table-8 chart-8 INTERPRETATION OF CASH FLOW STATEMENT : 13 CONCLUSION : 14 REFRENCES : 15 APPENDIX : 16,17,18,19,20

INTRODUCTION

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TNPL (TAMILNADU NEWSPRINT AND PAPER LIMITED) exports about 1/5th of its

production to more than 30 countries. Manufacturing of quality paper for the past two

and half decades from bagasse is an index of the company’s technological competence. A

strong record in adopting minimum impact best process technology, responsible waste

management, reduced pollution load and commitment to the corporate social

responsibility make the company one of the most environmentally compliant paper mills

in the world.

Reason for choosing this company

I have chosen this company because most of them like to analyze only on Automobile

industries, Telecom industries, Textile and eatable product industries but I want to do

analyze on some industries which is daily used by most of them and also some product

which is used by all the industries. So I selected “PAPER” Paper is a thing which is used

by all age groups and it is a very essential things. Almost everyone want to be very rich,

they need lot of money even for making that money paper is used. Even for submitting

this assignment paper is needed. This made me to choose this industry. In paper industry

I selected this company “TNPL” because I want to select a company in this industry

which is located in India who also exports their product and I wished to select a company

which is located in Tamilnadu. In exports this company has achieved “Zero Stock” for

the past 17 years in a row.

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Tnpl makes paper primarily from bagasse (sugarcane waste) using as little wood as possible. The company uses renewable raw material with minimum impact on the environment. Peoples do not know much about Tnpl because these companies do not normally advertise. They normally engaged in B2B sales and Exports.

These are the reasons for choosing TNPL.

EXAMINE AND ANALYSIS OF RATIOS:

Current Ratio – Current ratio is used to find the financial position of the business concern which is generally refers to short term solvency of the business concern, indicating safety to different parties.

The ratio of current assets to current liabilities is called as ‘Current Ratio’. The Current Ratio is a reflection of financial strength. A satisfactory current ratio indicates a firms’ ability to meet its obligations.

TABLE NO-1

YEAR CURRENT ASSETS

(Rs.in lakhs)

CURRENT LIABILITIES(Rs. in lakhs)

CURRENTRATIO

(In times)2005-2006 39633.87 22972.39 1.732006-2007 36790.98 25832.12 1.422007-2008 39051.45 31047.98 1.26

CHART NO-1

Current ratio

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2005-06 2006-07 2007-08

Current ratio

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITY

4

INFERENCE:

From the above analysis, it is inferred that current ratios is declining year by year. General acceptable rate of current ratio is 2 to 1 but the minimum acceptable ratio is 1 to 1. If a company matches the minimum requirement it means that the company is well enough to pay their current debts. Tnpl current ratio’s for these three years is low compared to general acceptable rate but they are much more than minimum required rate. In India point of view a good current ratio is 1.5:1. It means Tnpl has enough current assets to meet their debts. Year 2007 & 2008 has very low current ratio compared to previous year they can raise their current ratio by paying some debts, converting non-current asset in to current asset, putting profit back to business, increase current asset from loans or borrowing for more than one year. In the year 2008 current liabilities increases because of current asset but in the year 2007 there is decrease in current asset but increase in current liability. The Current Ratio is a reflection of financial strength. The Current Ratio of TNPL was increasing till the year 2006; later on it had a sharp downfall. This shows that the company is not maintaining a comfortable liquidity position. Correspondingly, the Gross Profit and the Net Profit of the respective periods are sowing a increasing trend which implies profitability is given importance than liquidity.

Fixed Asset Turnover Ratio - This ratio determines efficiency of utilization of fixed assets and profitability of a business concern.

[Net Fixed Assets = Fixed Assets – Depreciation]

TABLE NO-2

YEAR NETSALES

(Rs.in lakhs)

NET FIXED ASSETS

(Rs. in lakhs)

FIXED ASSET TURNOVER

RATIO (In times)

2005-2006 77567.10 70239.19 1.102006-2007 85483.73 71842.70 1.192007-2008 93852.71 99290.69 0.95

CHART NO-2

FIXED ASSET TURNOVER = SALES/ COST OF SALES_ RATIO NET FIXED ASSETS

5

0

0.2

0.4

0.6

0.8

1

1.2

2005-06 2006-07 2007-08

Fixed asset turnover ratio

Fixed asset turnover ratio

INFERENCE:

Fixed asset turnover ratio is used in an industry where they will make a huge purchase of fixed asset which in turn will give a good return. This ratio tells how effectively dose the company use their fixed asset. If net sales are higher than the net fixed asset it is a good sign for the company but in Tnpl in the year 2008 they did not use their assets as they did in previous two years. But there were no consistencies in these ratios between the years they increase and decreases if we calculate this averagely for these 3 years we can say that they have used their asset 1.08 times the sales. Tnpl consumes low profit margins with high volume which tend to have high asset turnover ratio. Since this company manufacture and exports the paper they use their fixed asset very much since paper is used on daily basis.

Inventory Turnover Ratio - This ratio is also called as Stock Velocity Ratio. It is calculated to ascertain the efficiency on inventory management in terms of capital investment. It shows the relationship between the cost of goods sold and the amount of average inventory. If cost of goods sold information is not available, sales is taken into account.

TABLE NO-3

YEAR NETSALES

(Rs.in lakhs)

AVERAGE INVENTORY (Rs. in lakhs)

STOCK TURNOVER

RATIO (In times)

2005-2006 77567.10 12227.18 6.342006-2007 85483.73 13896.63 6.152007-2008 93852.71 15182.44 6.18

STOCK TURNOVER RATIO =______NET SALES_____ AVERAGE INVENTORY

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CHART NO-3

6.05

6.1

6.15

6.2

6.25

6.3

6.35

2005-06 2006-07 2007-08

Stock turnover Ratio

Stock turnover Ratio

INFERENCE:

This ratio analysis tells how many times, on average, inventory is sold doing the year. If you analyze Tnpl’s Stock Turnover Ratio you can find that they are declining but the value of Average inventory was increasing as like the net sales. Since average were taken from opening and closing of the year there will be some declining between the years but on an average they are consistently more than 6% for all the three years. For example: A fast-food restaurant would have a much higher inventory turnover than a company that sells jewelry because food is perishable, and obviously jewelry is not. Same way since paper is used almost by much people consistently there will be a high inventory turnover ratio.

Receivables Turnover Ratio - Debtors Turnover Ratio is also called as Receivables Turnover Ratio or Debtors Velocity. The ratio is helpful in determining the operational efficiency of a business concern and the effectiveness of its credit policy. This ratio also indicates the efficiency of credit collection and efficiency of credit policy.

TABLE NO-4

YEAR TOTALSALES

(Rs.in lakhs)

CLOSING DEBTORS

(Rs. in lakhs)

DEBTORS TURNOVER

RATIO (In times)

2005-2006 77567.10 12776.68 6.072006-2007 85483.73 10533.06 8.122007-2008 93852.71 9856.46 9.52

CHART NO-4

DEBTORS TURNOVER= TOTAL SALES/ CLOSING DEBTORS

7

0

1

2

3

4

5

6

7

8

9

10

2005-06 2006-07 2007-08

Debtors turnover ratio

Debtors turnover ratio

INFERENCE:

From Tnpl’s Debtors Turnover ratio for the three years as shown in the table-4 we can see that debtors turnover ratio is keep on increasing for all the three years. It shows the ratio which indicates the amount due collected from the debtors. Higher the ratio’s for Tnpl from 2006-08 keep on increasing with consistent proves that Tnpl company debts are being collected very quickly. The Debtors Turnover Ratio is satisfactory. Higher the ratio better could indicate. In the year 2008 the ratio is 9.52 and the collection period is 38 days, showing a satisfactory position.

ROE – Return on Equity is nothing but return on share holders fund. This ratio determines the profitability from the shareholder’s point of view.

TABLE NO-5

YEAR NET PROFIT AFTER

INTEREST AND TAX

(Rs.in lakhs)

SHAREHOLDERS FUND

(Rs. in lakhs)

RETURN ON SHAREHOLDERS

FUND(In %)

2005-2006 8054.57 52251.81 15.412006-2007 8606.38 57650.05 14.932007-2008 11283.00 64000.98 17.63

CHART NO - 5

RETURN ON SHAREHOLDERS = NET PROFIT AFTER FUND INTEREST AND TAX * 100 SHAREHOLDERS FUND

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Return on share holders Fund

13.5

14

14.5

15

15.5

16

16.5

17

17.5

18

2005-06 2006-07 2007-08

Return on share holders Fund

INFERENCE

The Return on Equity of TNPL during the year 2008 increased to 17.63%when compared to the year 2007. This increasing trend indicates a great interest to the present as well as the prospective shareholder’s and also of great concern to management, who has the responsibility of maximizing the owner’s welfare.

Roce – Return on Capital Employed - Return on investment is considered by many executives to be the most important profitability ratio. It measures the return on the owner’s investment. This ratio is useful in measuring the sufficiency or otherwise of profit in relation to capital employed.The term

operating profit refers profit before interest and tax.The term capital employed includes net fixed assets and net current assets.

TABLE NO-6YEAR OPERATING

PROFIT (Rs.in lakhs)

CAPITAL EMPLOYED (Rs. in lakhs)

RETURN ON CAPITAL

EMPLOYED(In %)

2005-2006 10147.36 86900.67 11.682006-2007 12502.53 82801.56 15.102007-2008 16306.37 107294.16 15.20

CHART NO-6

ROI = OPERATING PROFIT/CAPITAL EMPLOYED* 100

9

0

5

10

15

20

ROCE

ROCE 11.68 15.1 15.2

2005-06 2006-07 2007-08

INFERENCE:

From the chart no-6 we can see that The Return on Capital Employed of TNPL had shown a constant increase because of the efficient utilization of the capital employed. This also indicates the rational employment of capital leading to fair capitalization and the proper capital structure design of the concern.

INVESTOR RATIO:

Earning Per Share (EPS) - This ratio highlights the overall success of the concern from owner’s point of view and it is helpful in determining market price of equity shares. It reflects upon the capacity of the concern to pay dividend to its equity shareholders.

TABLE NO-7

YEAR NET PROFIT AFTER TAX AND PREFERENCE DIVIDEND(Rs. in lakhs)

NO. OF EQUITY SHARES

EARNINGS PER SHARE(In Rs.)

2005-2006 8054.57 693.778 11.612006-2007 8606.38 694.62 12.432007-2008 11283.00 695.48 16.22

CHART NO-7

E.P.S.= NET PROFIT AFTER TAX AND PREFERENCE DIVIDEND NO. OF EQUITY SHARES

10

EPS

11.6112.43

16.22

0 2 4 6 8 10 12 14 16 18

2005-06

2006-07

2007-08

EPS

INFERENCE:

From seeing the chart table no-7 we can say that number of share is increased from 693.778 in the year 2006 to 695.48 in the year 2008, So this is a really is a good result as profit available for the shareholders must have significantly increased from 11.61% to 16.22%. EPS of 16.30 during 2007-08 shows a rise in earnings capacity of the company by shifting its productions mix between the newsprints and printing and writing paper as needed. The EPS of TNPL in the beginning period of study was only Rs.7.62 and in the year 2008 it has increased up to Rs.16.30. this shows the profitability of the firm on a per - share basis is quite good and satisfactory.

Dividends per Share - The DPS ratio is very similar to the EPS: EPS shows what shareholders earned by way of profit for a period whereas DPS shows how much the shareholders were actually paid by way of dividends. The DPS formula is:

Dividends per share = Dividends paid to equity shareholders Average number of issued equity shares

TABLE NO-8

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YEAR Dividend paid to equity share holder(Rs. in lakhs)

NO. OF EQUITY SHARES

EARNINGS PER SHARE(In Rs.)

2005-2006 1730.27 693.778 2.492006-2007 1730.27 694.62 2.492007-2008 1038.16 695.48 1.49

CHART NO-8

DPS

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2006 2007 2008

DPS

INFERENCE:

From seeing the chart no-8 we can find that they have paid equal dividend for the year 2006 & 2007 but in the year 2008 it is less because number of share holder is less compared to two previous years.

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INTERPRETATION OF CASH FLOW STATEMENT:

2005-2006:

TNPL generated Rs. 13478.49 Cash from Operating Activities. The Net Outflow on account of Investment activities was Rs (13087.06).TNPL raised Rs. 5642.16 from proceeds. Its repayments were Rs. (5384.26) resulting in net positive Financing Flow of Rs. 257.90.

This net cash flow from its operating, investment and financing activities was a positive figure of Rs. 649.33 lakhs. Hence the company’s cash balance was by this amount.

2006-2007:

TNPL generated Rs.19945.86 Cash from Operating Activities. The Net Outflow on account of Investment activities was Rs.40077.58.TNPL raised Rs24363.14 from proceeds. Its repayments were Rs. (4357.11) resulting in net positive Financing Flow of Rs. 20006.06

This net cash flow from its operating, investment and financing activities was a negative figure of Rs. 125.66 lakhs. Hence the company’s cash balance was by this amount.

2007-2008:

TNPL generated Rs.25031.28 Cash from Operating Activities. The Net Outflow on account of Investment activities was Rs.18787.54.TNPL raised Rs. 232.89 from proceeds. Its repayments were Rs. (6080.32) resulting in net negative Financing Flow of Rs. (5847.43).

This net cash flow from its operating, investment and financing activities was a positive figure of Rs. 396.31lakhs. Hence the company’s cash balance was by this amount.

CONCLUSION

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A close analysis of the financial statements of TNPL for the past three year period reveals that the performance between the years is not consistent. Its performance falls up and down.

The concern will be able to prosper in the future if it makes effective use of the following measures:

Cost reduction measures

Inventory control measures

Suitable Credit policy

Efficient Working Capital Management

Suitable Purchase Policy to enjoy economies of large scale operations.

Sound Cash Management for optimum utilization of capital.

Reference:

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Mr.I.M.Pandey, Financial Management, Eighth Edition, Vikas Publishing House Pvt. Ltd, New Delhi.

Research Methodology – C.R. Kothari, Second Edition, published by K.K.Gupta for New Age International (P) Ltd

www.tnpl.com

APPENDIXCASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2006

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http://www.tnpl.com/

PARTICULARS 2005-2006 (Rs. in lakhs)

A. Cash Flow From Operating Activities Net Profit Before Tax 10654.85Adjustments for :Depreciation Provision 6249.64Interest Income (190.84)Dividend Income (8.01)Rental Income (97.47)(Profit)/ Loss on write off/ sale of Fixed Asset 20.07Exchange Fluctuations 165.00Provision of doubtful debts and Advances 322.27Interest Expenditure 1863.85Operating profit before Working Capital Changes 18979.36Decrease in Inventories 144.64Increase in Sundry Debtors (1284.75)Decrease in Loans and Advances 1083.98Decrease in Current Liabilities (2027.87)Cash from Operations 16895.36Income tax paid (3161.42)Deferred Revenue Expenditure 6.60Cash from Operating before Exceptional Items 13740.54Exceptional items (262.05)Net Cash From Operating Activities 13478.49

B. CASH FROM INVESTING ACTIVITIESProceeds on Sale of fixed Assets 0.95Additions to Fixed Assets & Capital Work-In -Progress (15184.33)Decrease in Advances 1800.00Interest Income 190.84Dividend Income 8.01Other Income 97.47Net Cash from Investing Activities (13087.06)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from Issue of Shares 24.04Proceeds from Borrowings (Secured & Unsecured) 5618.12Interest aid (2022.90)Dividend paid (2947.91)Dividend Tax paid (413.45)Net Cash From Financing Activities

D. NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C)

649.33

Cash and Cash equivalents in the beginning of the year 1328.40Cash and Cash equivalents in the end of the year 1977.73

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CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2007PARTICULARS 2006-2007

(Rs. in lakhs)A. Cash Flow From Operating Activities

Net Profit Before Tax 12729.45Adjustments for :Depreciation Provision 6673.48Interest Income (272.31)Dividend Income (21.00)Rental Income (95.47)(Profit)/ Loss on write off/ sale of Fixed Asset 1.19Exchange Fluctuations (297.29)Interest Expenditure 2053.37Operating profit before Working Capital Changes 20770.12Decrease in Inventories (3483.55)Increase in Sundry Debtors 2407.93Decrease in Loans and Advances 728.79Decrease in Current Liabilities 4747.53Cash from Operations 23713.54Income tax paid (3577.71)Deferred Revenue Expenditure 6.59Cash from Operating before Exceptional Items 20142.42Exceptional items (196.56)Net Cash From Operating Activities 19945.86

B. CASH FROM INVESTING ACTIVITIESProceeds on Sale of fixed Assets 2.26Additions to Fixed Assets & Capital Work-In -Progress (41804.61)Decrease in Advances 1335.99Interest Income 272.31Dividend Income 21.00Other Income 95.47Net Cash from Investing Activities (40077.58)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from Borrowings (Secured & Unsecured) 24363.14Interest Paid (1989.56)Dividend paid (2076.32)Dividend Tax paid (291.20)Net Cash From Financing Activities 20006.06


(125.66)


CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2008

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PARTICULARS 2007-2008(Rs. in lakhs)

A. Cash Flow From Operating Activities Net Profit Before Tax 16321.68Adjustments for :Depreciation Provision 7553.58Interest Income (107.91)Dividend Income (15.06)Rental Income (96.39)(Profit)/ Loss on write off/ sale of Fixed Asset 167.97Exchange Fluctuations (93.31)Interest Expenditure 2424.58Operating profit before Working Capital Changes 26155.11Decrease in Inventories 911.95Increase in Sundry Debtors 652.38Decrease in Loans and Advances (4251.59)Decrease in Current Liabilities 3199.24Cash from Operations 26667.09Income tax paid (1627.10)Deferred Revenue Expenditure 6.60Cash from Operating before Exceptional Items 25046.59Exceptional items (15.31)Net Cash From Operating Activities 25031.28

B. CASH FROM INVESTING ACTIVITIESProceeds on Sale of fixed Assets 338.81Additions to Fixed Assets & Capital Work-In -Progress (19519.14)Decrease in Advances 1774.80Decrease in Advances (1601.37)Interest Income 107.91Dividend Income 16.06Rental Income 96.39Net Cash from Investing Activities (18787.54)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from Borrowings (Secured & Unsecured) 20117.89Proceeds from Borrowings (Secured & Unsecured) (19885.00)Interest Paid (2436.53)Dividend paid (3114.48)Dividend Tax paid (529.31)Net Cash From Financing Activities (5847.43)


396.31


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Balance sheet of Tnpl (All the figures in lakhs) Mar-08 Mar-07 6-MarSources of funds Shareholder's Funds Share Capital 6937.78 6937.78 6937.78 Employee Stock Option Outstanding Reserves and Surplus 57,063.20 50,712.27 45,314.03 Total 64,000.98 57,650.05 52,251.81 Loan Funds Secure Loans 47,060.39 49,586.46 22,428.92 Unsecured Loan 8373.43 6,353.48 8384.46 Total 55,433.82 55,939.94 30,813.38 Defered Tax Liabilities 18835 15284 15476Net Fixed Assets 138,269.80 128,873.99 98,541.19 APPLICATION OF FUNDS Fixed Assets Gross Block 186,091.03 151,436.40 143,235.13 Less: Depreciation/Amortisation 86,800.34 79,593.70 72,995.94 Net Block 99,290.69 71,842.70 70,239.19 Capital Work-in-Progress 29,070.30 45,951.78 11,513.28

128,360.99 117,794.48 81,752.47Investments 1715.42 114.05 114.05

Inventories 14726.46 15182.44 15638.41 13896.64 12154.86 Sundry Debtors 9856.46 10533.06 12825.63 Cash and Bank Balances 2304.42 1900.21 2021.49 Loans and Advances 12,164.11 8,719.30 9,356.86 39,051.45 36,790.98 36,358.84 Less Current Liabilities and Provisions Liabilities 23,260.74 20,855.25 16,492.02 Provisions 7507.32 4976.87 3205.34 30,768.06 25,832.12 19,697.36

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8,283.39 10,958.86 16,661.48Net Current Assets Misc exp 6.6 13.19Total 138,359.80 128,873.99 98,541.19

PROFIT & LOSS ACCOUNT Year Mar-08 Mar-07 6-Mar INCOME Gross Sales 102,047.21 92047.73 84,922.46Less: Excise Duty 8,194.50 6,564.00 7,355.36Net Sales 93,852.71 85,483.73 77,567.10Other Income 3112.75 255.89 2573.61 96,965.46 85,739.62 80,140.71EXPENDITURE Manufacturing Expenses 57,364.57 53,669.14 49,514.78Personnel expenses 6811.06 6,378.25 5166.68Selling, Distribution, Administration and Other Expenses 6,490.02 6,536.93 6,525.91Interest 2424.58 2,052.37 2028.85Depreciation and Amortisation 7553.55 6673.48 6249.64 80,643.78 75,310.17 69,485.86 Profit before prior period/exceptional items 16,321.68 12,729.45 10,654.85Pior period exceptional item -15.31 226.92 507.49Extra-ordinary Items 0 0 16,306.37 12,502.53 10,147.36Profit before Tax from Ordinary Activities Provision for Current Tax 3960 3650.96Mat credit availed 1840 Deferred Tax 4214 -192 -1381Fringe benefit tax 57.75 53 95.35Earlier year tax -120.38 75.15 -272.52Deffered tax earlier year Mat credit earlier year -968

5,023.37 3896.15 2092.79Profit after Tax from Ordinary Activities 11,283.00 8,606.38 8,054.57Balance brought forward 2,002.87 2,004.59 2,020.15Profit available after appropriation 13,285.87 10,610.97 10,074.72Appropriations

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Transfer to general reserve 7400 5400 5700Dividend adjusment 0 0.05 0Interim dividend 1384.21 1038.16 1040.44Propose divend 1730.27 1730.27 1038.16Tax on dividend 529.31 439.66 291.53Balance carried forward 2242.08 2002.83 2004.59 13,285.87 10,610.97 10,074.72Basic&diluted earning per share Before prior period 16.32 After prior period 16.3 Basic Earnings Per Share before Prior Period / Exceptional Items 12.76 12.39Diluted Earnings Per Share before Prior Period / Exceptional Items 12.76 12.37Basic Earnings Per Share after Prior Period / Exceptional Items 12.43 11.66Diluted Earnings Per Share after Prior Period / Exceptional Item 12.43 11.64

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Financial Analysis of Tnpl

Documents

current ratio current

ratio of current assets

current ratio of tnpl

low current ratio

satisfactory current

good current ratio

current ratio inference

current debts