NTPC

FINANCIAL RATIO ANALYSIS 2011

S.R.LUTHARA INSTITUTE OF MANAGEMENT

ASSIGNMENT

OF

ACCOUNTING FOR MANGERS

ON

Financial Ratio Analysis

At

National Thermal Power Corporation

SUBMITTED TO:

SUBMITTED BY: IMRAN KHAN JITHIN PONATHIL

(FSMBM110082)

Page 1


PREFACE

The conceptual knowledge acquired by management student is best manifested in the project and

training they undergo. As a part of curriculum of MBA, We have got a chance to undergo

practical training on “NATIONAL THERMAL POWER CORPORTION”. The present

project gives a perfect vent into our understanding of financial management.

The project report entitled “FINACIAL RATIO ANALYSIS” is based on the financial

statements viz the Balance sheet of the company.

The report will provide all information regarding the FINANCIAL RATIO ANALYSIS and their

importance in NATIONAL THERMAL POWER CORPORTION LTD.

Page 2


POWER SECTOR IN INDIA

The electricity sector in India is predominantly controlled by the Government of India's public

sector undertakings (PSUs). Major PSUs involved in the generation of electricity include

National Thermal Power Corporation (NTPC), National Hydroelectric Power

Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). Besides PSUs, several

state-level corporations, such as Maharashtra State Electricity Board (MSEB), are also involved

in the generation and intra-state distribution of electricity. The Power Grid Corporation of

India is responsible for the inter-state transmission of electricity and the development of national

grid.

The Ministry of Power is the apex body responsible for the development of electrical energy in

India. This ministry started functioning independently from 2 July 1992; earlier, it was known as

The Ministry of Energy. The Union Minister of Power at present is Sushil kumar Shinde of the

Congress Party, who took charge of the ministry on the 28th of May, 2009.

India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption.

Due to India's economic rise, the demand for energy has grown at an average of 3.6% per annum

over the past 30 years. In March 2009, the installed power generation capacity of India stood at

147,000 MW while the per capita power consumption stood at 612 kWH. The country's annual

power production increased from about 190 billion kWH in 1986 to more than 680 billion kWH

in 2006. The Indian government has set an ambitious target to add approximately 78,000 MW of

installed generation capacity by 2012. The total demand for electricity in India is expected to

cross 950,000 MW by 2030.

About 75% of the electricity consumed in India is generated by thermal power plants, 21%

by hydroelectric power plants and 4% by nuclear power plants. More than 50% of India's

commercial energy demand is met through the country's vast coal reserves. The country has also

invested heavily in recent years on renewable sources of energy such as wind energy. As of

2008, India's installed wind power generation capacity stood at 9,655 MW. Additionally, India

has committed massive amount of funds for the construction of various nuclear reactors which

would generate at least 30,000 MW. In July 2009, India unveiled a $19 billion plan to produce

20,000 MW of solar power by 2020.

Page 3

http://en.wikipedia.org/wiki/Solar_power

http://en.wikipedia.org/wiki/Wind_energy

http://en.wikipedia.org/wiki/Coal

http://en.wikipedia.org/wiki/Nuclear_power_in_India

http://en.wikipedia.org/wiki/Hydroelectricity

http://en.wikipedia.org/wiki/Thermal_power

http://en.wikipedia.org/wiki/KWH

http://en.wikipedia.org/wiki/Megawatts

http://en.wikipedia.org/wiki/Economy_of_India

http://en.wikipedia.org/wiki/Sushilkumar_Shinde

http://en.wikipedia.org/wiki/PowerGrid_Corporation_of_India

http://en.wikipedia.org/wiki/PowerGrid_Corporation_of_India

http://en.wikipedia.org/wiki/Maharashtra_State_Electricity_Board

http://en.wikipedia.org/wiki/Nuclear_Power_Corporation_of_India

http://en.wikipedia.org/wiki/National_Hydroelectric_Power_Corporation

http://en.wikipedia.org/wiki/National_Hydroelectric_Power_Corporation

http://en.wikipedia.org/wiki/National_Thermal_Power_Corporation

http://en.wikipedia.org/wiki/Public_sector_undertaking

http://en.wikipedia.org/wiki/Public_sector_undertaking

http://en.wikipedia.org/wiki/Government_of_India


Electricity losses in India during transmission and distribution are extremely high and vary

between 30 to 45%. In 2004-05, electricity demand outstripped supply by 7-11%. Due to

shortage of electricity, power cuts are common throughout India and this has adversely effected

the country's economic growth. Theft of electricity, common in most parts of urban India,

amounts to 1.5% of India's GDP. Despite an ambitious rural electrification program, some 400

million Indians lose electricity access during blackouts. While 80 percent of Indian villages have

at least an electricity line, just 44 percent of rural households have access to electricity.

According to a sample of 97,882 households in 2002, electricity was the main source of lighting

for 53% of rural households compared to 36% in 1993. Multi Commodity Exchange has sought

permission to offer electricity future markets.

Page 4

http://en.wikipedia.org/wiki/Multi_Commodity_Exchange

http://en.wikipedia.org/wiki/Power_outage


THEORETICAL ASPECTS

RATIO ANALYSIS

Meaning and Definition of Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of

ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as

its historical performance and current financial condition can be determined. The term ratio

refers to the numerical or quantitative relationship between two variables.

Ratio analysis is a very powerful analytical tool for measuring performance of an

organization. The ratio analysis concentrates on the inter – relationship among the figures

appearing in the aforementioned four financial statement s. the ratio analysis helps the

management to analyze the past performance of the firm . The ratio analysis allow

interested parties like shareholders, investors, creditors , government and analysts to make an

evaluation of certain aspects of a firm’s performance.

Significance or Importance of Ratio Analysis

It helps in evaluating the firm’s performance. With the help of ratio analysis conclusion

can be drawn regarding several aspects such as financial health, profitability and

operational efficiency of the undertaking. Ratio points out the operating efficiency of the

firm i.e. whether the management has utilized the firm's assets correctly, to increase the

investor's wealth. It ensures a fair return to its owners and secures optimum utilization of

firm’s assets.

It helps in inter-firm comparison. Ratio analysis helps in inter-firm comparison by

providing necessary data. An inter firm comparison indicates relative position. It provides

the relevant data for the comparison of the performance of different departments. If

comparison shows a variance, the possible reasons of variations may be identified and if

results are negative, the action may be initiated immediately to bring them in line.

Page 5


It simplifies financial statement. Yet another dimension of usefulness or ratio analysis,

relevant from the View point of management is that it throws light on the degree

efficiency in the various activity ratios measures this kind of operational efficiency.

Limitations

Ratios are calculated from the financial statements which are affected by the financial

bases and policies on such matters as depreciation and the valuation of stock

.

Financial statements do not represent a complete picture of the business, but merely a

collection of fact which can be expressed in monetary terms. These may not refer to both

factors which affect performance.

Over use of ratios as controls on managers could be dangerous, in that management

might concentrate more on simply improving the ratio than on dealing with the

significant issues.

A ratio is a comparison of two figures, a numerator and a denominator. In comparing

ratios it may be difficult to determine whether differences are due to changes in the

numerator, or in the denominator or in both.

Ratios are inter-connected. They should not be treated in isolation. The effective use of

ratios, therefore, depends on being aware of all these limitations and ensuring that,

following comparative analysis, they are used to trigger point for investigation and

corrective action rather than being treated as meaningful in them selves.

The analysis of ratios clarifies trends and weaknesses in performance as a guide to action

as long as proper comparisons are made and the reasons for adverse trends or deviations

from the norms are investigated thoroughly.

Classification of Ratios

Different ratios are used for different purposes; these ratios can be grouped into various classes

according to the financial activity. Ratios are classified into four broad categories:

Liquidity Ratio

Solvency Ratio

Page 6


Profitability Ratio

Efficiency Ratio

Integrated Ratio

(I) Liquidity Ratio:

Liquidity ratio measures the firms ability to meet its current obligations i.e.

ability to pay its obligations and when they become due. Commonly used ratios are:

(1) Current Ratio

(2) Acid Test Ratio or Quick Ratio

(3) Inventory Turnover Ratio(Finished goods)

(4) Debtors Turnover Ratio

(5) Creditors Turnover Ratio

(6) Cash Flow From Opertions Ratio

(1) Current Ratio:

Current ratio is the ratio, which express relationship between current asset and current

liabilities. Current asset are those which can be converted into cash within a short period of time,

normally not exceeding one year. The current liabilities which are short- term and are maturing

to be met. It is calculated by following formula:

Current Ratio = Current Asset ÷Current liabilities

For the Year 2010-11= 35,396.79 13,675.86

=2.59 : 1

For the Year 2009-10 =30,815.70 10,967.30

=2.81 : 1

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

Page 7


=2.89 : 1

For the Year 2007-08 = 30,527.80 12,909

2.36 : 1

For the Year 2006-07 = 25,858.50 10,702.50

2.42 : 1

Interpretation:

(2) Acid Test Ratio or Quick Ratio:

The acid test ratio is a measure of liquidity designed to overcome the defect of current

ratio. It is often referred to as quick ratio because it is a measurement of firm's ability to convert

its current assets quickly into cash in order to meet its current liabilities. It is calculated by

following formula:

Page 8


Acid Test Ratio = (Current Asset – Inventories) ÷ Current liabilities

Liquid Assets= Current assets – Inventories – Advances

For the Year 2010-11= 35,396.79 - 3,639.12 13,675.86

=2.32 : 1

For the Year 2009-10 =30,815.70 - 3,347.7 10,967.30

=2.50 : 1

For the Year 2008-09 = 30,925.30 – 3,243.4

10,688.70

=2.59 : 1

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

2.16 : 1

For the Year 2006-07 = 25,858.50 – 2,510.2 10,702.50

2.18 : 1

Page 9


2010-11 2009-10 2008-09 2007-08 2006-071.9

2

2.1

2.2

2.3

2.4

2.5

2.6

Acid/ Quick Ratio

Acid/ Quick Ratio

(3) Inventory Turnover Ratio(Finished goods)

Inventory Turnover Ratio gives information regarding how many times company has

turned the stock in the one financial year. It is calculated by following formula:

Inventory Turn over Ratio= Cost of goods sold Average stock

Average stock = Opening Stock+ Closing Stock2

For the Year 2010-11= 42,293.69 3,493.41

=12Times

For the Year 2009-10 =33,939.40 3,295.55

=12Times

For the Year 2008-09 = 31,432.10 2,959.55

=11Times

Page 10


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

=10Times

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

=9 Times

2010-11 2009-10 2008-09 2007-08 2006-070

2

4

6

8

10

12

Inventory Ratio

Inventory Ratio

(4) Debtors Turnover Ratio

Debtors Turnover Ratio gives information about the Debtor’s outstanding times

for the payment. It is calculated by following formula:

Debtors turn over Ratio= Net Credit Sales Average Debtors

For the Year 2010-11= 58,359.78 7,287.85

=8 Times

Page 11


For the Year 2009-10 =48,221.32 5,117.8

=9Times

For the Year 2008-09 = 44,126.08 3,283.45

=13 Times

For the Year 2007-08 = 37,050.10 2,117.5

=18 Times

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

2010-11 2009-10 2008-09 2007-08 2006-070

5

10

15

20

25

30

Debtors t/o Ratio

Debtors t/o Ratio

Page 12

=26 Times


(5) Creditors Turnover Ratio:

Here, the Creditors figures are not available so that it is not possible to calculate

Creditors turn over Ratio.

(6) Cash Flow From Opertions Ratio:

Cash flow from operation ratio=Cash flow from operation ratio Current Liabilities

For the Year 2010-11= 11,095.20 13,675.86

= 0.81 : 1

For the Year 2009-10= 10,594.20 10,967.30

= 0.97 : 1

For the Year 2008-09= 9,688.10

10,688.70

= 0.91 : 1

For the Year 2007-08= 10,171.10

12,909

= 0.79 : 1

For the Year 2006-07= 8,065.30

10,702.50

= 0.75 : 1

Page 13


2010-11 2009-10 2008-09 2007-08 2006-070

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Cash flow from operation Ratio


(II) Solvency Ratio

Solvency Ratio ratios are the ratios which indicate the relative interest of the owners and the

creditors in an enterprise. These ratios indicate the funds provided by the long-term creditors

and owners. To judge the long term financial position of the firm following ratios are

applied.

(1) Debt - Equity Ratio:

Debt-equity ratio which expresses the relationship between debt and equity. This ratio

explains how far owned funds are sufficient to pay outside liabilities. It is calculated by

following formula:

Debt-Equity Ratio = Long Term Debt/Share holder’s Equity

= Secured loan + unsecured loan Equity fund + Reserve & surplus

For the year 2010-11 = 9,910.68+33,277.56 8,245.46+60,138.66

Page 14


= 43,188.24 68,384.12

=0.63 : 1

For the year 2009-10 = 9,079.90+28,717.10 8,245.50+55,478.60

= 37,797 . 63,724.10

=0.59 : 1

For the year 2008-09 = 8,969.60+25,598.20 8,245.50+50,749.40

= 34,567.8 58,994.9

=0.58 : 1

For the year 2007-08 = 7,314.70+19,875.90 8,245.50+46,021.90

= 27,190.6 54,267.4

=0.50 : 1

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

=25,141.10 48,596.8

=0.51 : 1

Page 15


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

Debt-Equity Ratio = Total Debt . Share holder’s Equity

Here, the Total Debt includes only two thing i.e. Secured loan & Unsecured loan.

Total Debt= Secured Loan + Unsecured Loan

Here, Debt-Equity Ratio (Based on Long term Debt) And the Debt-Equity Ratio (Based on

External liability) will be same.

(3) Debt To Total Capital Ratio:

Debt to Total Capital Ratio = Long Term Debt Permanent Capital

Long term Debt = Secured Loan + Unsecured Loan

Permanent Capital= Share holder’s Fund + Long term Liability

For the year 2010-11 = 9,910.68+33,277.56 8,245.46+60,138.66+9,910.68+33,277.56

Page 16


=43,188.24 1,11,572.36

=0.39:1

For the year 2009-10 = 9,079.90+28,717.10 8,245.50+55,478.60+9,079.90+28,717.10

= 37,797 1,01,521.1

=0.37:1

For the year 2008-09 = 8,969.60+25,598.20 8,245.50+50,749.40+8,969.60+25,598.20

=34,567.7 93,562.7

=0.40:1

For the year 2007-08 = 7,314.70+19,875.90 8,245.50+46,021.90+7,314.70+19,875.90

=27,190.6 81,458

=0.33:1

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

=25,141.10 73,737.9

=0.34:1

Page 17


2010-11 2009-10 2008-09 2007-08 2006-070

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Debt to Total Capital Ratio

Debt to Total Capital Ratio

(4)Debt To Total Assets Ratio

Debt to Total Assets Ratio means firm’s ability to payment of Interest to the lender of

loans. It is calculated by following formula:

Debt to Total Assets Ratio = Total Debt Total Assets

Total Debt = Secured + Unsecured loan

Total Assets = Share holder’s fund + Total loan + Cerrent Liability

For the year 2010-11 = 9,910.68+33,277.56 1,11,572.36+13,675.86

= 43,188.24 1,25,248.22

=0.34 : 1

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

Page 18


= 37,797 1,12,488.4

=0.33: 1

For the year 2008-09 = 8,969.60+25,598.20 93,562.70+10,688.70

= 34,567.8 1,04,251.4

=0.33 : 1

For the year 2007-08 = 7,314.70+19,875.90 81,458+12,909

= 27,190.6 94,367

=0.29: 1

For the year 2006-07 = 7,479.60+17,661.50 73,737.90+10,702.50

= 25,141.10 84,440.4

=0.30 : 1

Page 19


2010-11 2009-10 2008-09 2007-08 2006-070.26

0.27

0.28

0.29

0.3

0.31

0.32

0.33

0.34

Debt to Total Assets Ratio

Debt to Total Assets Ratio

5) Proprietary Ratio:

This Ratio gives information regarding proprietor’s fund to Total Asset’s proportion. It

is calculated by following formula:

Proprietary Ratio= Proprietor’s Fund . Total Assets- Misc.expenses

Proprietor’s Fund = Equity + Reserve + P&L A/c - Miscellaneous expenses

For the year 2010-11 = 8,245.46+60,138.66+9,102.59 1,58,767.41

= 77,486.71 1,58,767.41

=0.49 : 1

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

= 72,452.30 . 1,44,577.20

=0.50: 1

Page 20


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

= 67,196.20 1,33,666.7

=0.50 : 1

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

= 61,682.20 1,21,641.30

=0.51: 1

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

=55,461.5 1,09,519.6

=0.51 : 1

Page 21


2010-11 2009-10 2008-09 2007-08 2006-070.48

0.485

0.49

0.495

0.5

0.505

0.51

Proprietary Ratio Series2

Interpretation:

The standard ratio is 1:1 and here it is average around 0.50:1. Means haft of the Toal

Assets is proprorted by the proprietor’s fund.

6) Interest Coverage Ratio:

This Ratio gives information regarding how many times is EBIT of the interest.

It is calculated by following formula:

Interest Coverage Ratio = EBIT . Interest

For the year 2010-11 = 12,754.23 2,149.08

=6 Times

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

Page 22


=7 Times

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

=6 Times

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

=7 Times

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

=6 Times

2010-11 2009-10 2008-09 2007-08 2006-075.4

5.6

5.8

6

6.2

6.4

6.6

6.8

7

Interest Coverage Ratio

Interest Coverage Ratio

Interpretation:

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

Page 23


7) Total Fixed Charge Coverage Ratio:

Total Fixed Charge Coverage Ratio = EBIT . Interest

Here, this ratio is same as Interest coverage Ratio. So the Ratio will be same.

8) Total Cashflow Coverage Ratio:

This ratio gives information about howmany times Earning Before Interest &

Depreciation is of the Interest. It is calculated by following formula:

Total Cashflow Coverage Ratio = EBIT + Depreciation . Interest

For the year 2010-11 = 12,754.23+2,485.69 2,149.08

=7 Times

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

=8 Times

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

=7Times

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

=8 Times

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

Page 24


=7Times

Interpretation:

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

2010-11 2009-10 2008-09 2007-08 2006-076.4

6.6

6.8

7

7.2

7.4

7.6

7.8

8

Total Cash Flow Coverage Ratio

Total Cash Flow Coverage Ratio

Profitability Ratios

Profitability ratio are the best indicators of overall efficiency of the business concern, because

they compare return of value over and above the value put into business with sales or service

carried on by the firm with the help of assets employed. Profitability ratio can be determined on

the basis of:

1. Sales

2. Investment

1) Gross profit margin:

The gross profit to sales ratio establishes relationship between gross profit and sales to

measure the relative operating efficiency of the firm to reflect pricing policy.

Gross Profit to Sales Ratio = (Sales - Cost of Goods Sold) ÷ Sale * 100

Page 25


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

=24.91%

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

=28.06%

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

=26.57%

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

=33.45%

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

=33.66%

Interpretation:

Here, the gross profit margin is average around 29%. Which shows the companys earning

capacity. It is good for the firm.

Page 26


2010-11 2009-10 2008-09 2007-08 2006-070.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

Gross profit margin

Gross profit margin

2) Operating Profit ratio:

Operating Profit ratio = Operating profit *100 Net Sales

For the year 2010-11 = 15,796.31 *100 58,359.78

=27.06%

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

=29.69%

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

=28.55%

For the year 2007-08 = 11,223.90 *100 37,050.10

Page 27


=30.29%

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

=30.93%

Interpretation:

Here, the operating profit ratio is average around 29%. Which shows the good

position of the firm.

2010-11 2009-10 2008-09 2007-08 2006-0725.00%

26.00%

27.00%

28.00%

29.00%

30.00%

31.00%

Operating profit ratio

Operating profit ratio

3) Pre-tax Profit ratio:

Pre-tax Profit ratio = EBT *100 Net Sales

For the year 2010-11 = 10,605.15 *100 58,359.78

=18.17%

Page 28


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

=22.36%

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

=22.08%

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

=27.96%

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

=26.90%

Interpretation:

Here, the pretax profit ratio is average around 23.50% for the last five years. The firm

shows good result, but it declined during last year ie 2010-2011.

Page 29


4) Net Profit ratio:

Net Profit ratio = PAT *100 Net Sales

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

=13.66%

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

=16.29%

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

=16.29%

For the year 2007-08 = 7,366.70 *100 37,050.10

Page 30


=19.88%

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

=20.27%

2010-11 2009-10 2008-09 2007-08 2006-070.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Net profit ratio

Net profit ratio

Interpretation:

The net profit ratio tends to decline every year, the company should make effort to

improve it. But the average for the last 5 years shows good result of the firm.

5) Cost Of Good Sold ratio:

Cost Of Good Sold ratio = Cost Of Good Sold ratio *100 Net Sales

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

Page 31


=72.47%

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

=70.38%

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

=71.23%

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

=69%

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

=68.86%

2010-11 2009-10 2008-09 2007-08 2006-0767.00%

68.00%

69.00%

70.00%

71.00%

72.00%

73.00%

Cost of good sold

Cost of good sold

Page 32


Interpretation:

The cost of good sold ratio tends to increase very year expect 2009-2010. It is average

around 70% which shows companys efficiency in selling. This ratio is good for the company.

6) Operating expense ratio:

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

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

=4.88%

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

=2.16%

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

=2.06%

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

=2.08%

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

Page 33


=2.19%

Interpretation:

The operating expense ratio was average around 2% during last four years but

suddenly it become 4.88% during the previous year i.e 2010-2011. The ratio shows how many

percent the firm spent on operating expense for selling that unit.

7) Administrative expense ratio:

Administrative expense ratio = administrative expenses *100 Net Sales

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

=4.59%

For the year 2009-10 = 977.60 *100

Page 34


48,221.32

=2.02%

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

=1.93%

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

=1.96%

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

=2.01%

2010-11 2009-10 2008-09 2007-08 2006-070.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

Administrative expense ratio

Administrative expense ratio

Interpretation:

Page 35


The ratio shows how many percent you spent on administrative expense of yours

sales. Here, it is average around 2% for the last 4 years but prevoius year i.e 2010-2011 it

became more than double. So that firm should take care of it.

8) Selling expense ratio:

selling expense ratio = selling expense *100 Net Sales

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

=0.30%

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

=0.14%

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

=0.13%

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

=0.12%

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

Page 36


=0.17%

2010-11 2009-10 2008-09 2007-08 2006-070.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

Selling Expense Ratio

Selling Expense Ratio

Interpretation:

Here, the selling expense ratio is average around 0.13% during last pervious year i.e

2009-2010 but it become more than double during year 2010-2011

9) Operating ratio:

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

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

=94.14%

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

=96.18%

Page 37


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

=95.12%

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

=100%

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

=106.13%

2010-11 2009-10 2008-09 2007-08 2006-0788.00%

90.00%

92.00%

94.00%

96.00%

98.00%

100.00%

102.00%

104.00%

106.00%

108.00%

Operating ratio

Operating ratio

Interpretation:

Here the figure shows declining in this ratio. So, firm should try to improve this ratio

for the better running of business.

10) Financial expense ratio:

Page 38


Financial expense ratio = Financial expense *100 Net Sales

For the year 2010-11 = 2,027.21 *100 58,359.78

=3.47%

For the year 2009-10 = 1,861.90 *100 48,221.32

=3.86%

For the year 2008-09 = 1737 *100 44,126.08

=3.94%

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

=5.35%

For the year 2006-07 = 2,055.70 *100 32,631.70

=6.30%

Page 39


Interpretation:

11) Return on asset:

Return on asset = Net profit after tax *100 Average total asset

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

For the year 2010-11 = 7,974.61 *100 1,51,672.31

=5.26%

For the year 2009-10 = 8,098.90 *100 1,39,121.95

Page 40


=5.82%

For the year 2008-09 = 7,190.30 *100 1,27,654

=5.63%

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

=6.37%

For the year 2006-07 = 6,615.80 *100 1,09,519.60

=6.04%

2010-11 2009-10 2008-09 2007-08 2006-070.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Return on assets

Return on assets

Interpretation:

Page 41


12) Return on capital employed:

Return on capital employed= EBIT *100 Average Total capital employed

Particular 2011 2010 2009 2008 2007

Net fixed

asset

39,064.75 34,575 32,937.7 26,093.7 25,525

(+) Current

asset

35,396.79 30,815.7 30,925.3 30,527.8 25,858.8

Total 74,461.54 65,390.7 63,863 56,621.5 51,383.8

(-) Current

liability

13,675.86 10,967.3 10,688.7 12,909 10,702.50

Capital

employed

60,785.68 54,423.4 53,174.3 43,172.5 40,681.3

For the year 2010-11 = 12,559.96 *100 57,604.54

=21.80%

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

=23.45%

For the year 2008-09 = 11,490.70 *100 48,429.9

=23.73%

Page 42


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

=29.21%

For the year 2006-07 = 10,755.9 *100 40,681.3

=26.44%

2010-11 2009-10 2008-09 2007-08 2006-070.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Return on capital employed

Return on capital employed

Interpretation:

13) Return On Total Shareholders Equity:

Return On Total Shareholders Equity = PAT *100

Average total shareholders equity

Shareholders equity = Share capital + retain earning

Page 43


For the year 2010-11 = 7,974.61 *100 13,653.79

=58.40%

For the year 2009-10 = 8,098.90 *100 13,162.95

=61.53%

For the year 2008-09 = 7,190.30 *100 12,685.85

=56.68%

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

=58.21%

For the year 2006-07 = 6,615.80 *100 12,157.3

=54.42%

Page 44


Interpretation:

14) Return On Equity Funds:

Return On Equity Funds = Net profit after tax – preference divident *100

AverageOrdinaryl shareholders equity

Page 45


15) Earning per share (EPS):

Earning per share = Net profit available to equity holders

No of equity holders outstanding

For the year 2010-11 = 9,352.59 824.55

=11.34Rs

For the year 2009-10 = 8,728.20 824.55

=10.59 Rs

For the year 2008-09 = 8,201.30 824.55

Page 46


=9.95 Rs

For the year 2007-08 = 7,414.80 824.55

=8.99 Rs

For the year 2006-07 = 6,864.70 824.55

=8.33 Rs

Interpretation:

16) Cash earning per share :

Cash earning per share =

Cash+Net profit available to equity holders


Page 47


For the year 2010-11 = 2,240.58+ 9,352.59 824.55

=14.06Rs

For the year 2009-10 = 2,650.59+ 8,728.20 824.55

=13.80 Rs

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

=12.70 Rs

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

=11.59 Rs

For the year 2006-07 = 2,082.26+6,864.70 824.55

=10.85 Rs

Page 48


2010-11 2009-10 2008-09 2007-08 2006-070

2

4

6

8

10

12

14

16

Cash earning per share

Cash earning per share

Interpretation:

17) Book value per share:

Book value per share =

Net worth


For the year 2010-11 = 8,245.46+ 60,138.66 824.55

=82.94Rs

For the year 2009-10 = 8,245.46+ 55,478.60 824.55

=77.28 Rs

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

Page 49


=71.55 Rs

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

=65.81 Rs

For the year 2006-07 = 8,245.46+40,351.30 824.55

=58.94 Rs

2010-11 2009-10 2008-09 2007-08 2006-070

10

20

30

40

50

60

70

80

90

Book value per share

Book value per share

Interpretation:

18) Dividend per share:

Dividend per share = Divident paid to ordinary shareholders

No of ordinary shareholders

Page 50


For the year 2010-11 = 31,332.60 8,245.46

=3.80Rs

For the year 2009-10 = 31,332. 8,245.46

=3.80Rs

For the year 2008-09 = 29,683 8,245.46

=3.60 Rs

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

=3.50 Rs

For the year 2006-07 = 26,385 8,245.46

=3.20 Rs

Page 51


2010-11 2009-10 2008-09 2007-08 2006-072.9

3

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

Dividend per share

Dividend per share

Interpretation:

19) Dividend pay out ratio:

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

Total net profit

For the year 2010-11 = 31,332.60 *100 91,025.9

=34.42%

For the year 2009-10 = 31,332 *100 87,282

=35.90%

For the year 2008-09 = 29,683 *100 82,013

Page 52


=36.19%

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

=38.92%

For the year 2006-07 = 26,385 *100 68,647

=38.44%

2010-11 2009-10 2008-09 2007-08 2006-0732.00%

33.00%

34.00%

35.00%

36.00%

37.00%

38.00%

39.00%

Dividend per share

Dividend per share

Interpretation:

Page 53


4) Efficiency Ratios:

Activity ratio are sometimes are called efficiency ratios. Activity ratios are concerned with

how efficiently the assets of the firm are managed. These ratios express relationship between

level of sales and the investment in various assets inventories, receivables, fixed assets etc.

(1) Finished Goods Inventory Turnover :

Finished Goods Inventory Turnover = cost of good sold

average inventory

For the year 2010-11 = 43,824.49 34,934.10

=1.25 Times

For the year 2009-10 = 34,685.80 32,955.50

=1.05 Times

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

=1.09 times

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

=0.95 times

For the year 2006-07 = 21,648.9 25,102

Page 54


=0.86 times

2010-11 2009-10 2008-09 2007-08 2006-070

0.2

0.4

0.6

0.8

1

1.2

1.4

Finished Goods Inventory Turnover

Finished Goods Inventory Turnover

Interpretation:

2) Raw Material Turnover :

Raw Material Turnover = cost of raw material

Average raw material inventory

For the year 2010-11 = 31.33 3,639.12+3,347.71 2

=0.009 Times

For the year 2009-10 = 31.10 33,477+32,434 2

=0.0009 Times

Page 55


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

=0.001Times

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

=0.001Times

For the year 2006-07 = 23.70 25,102

=0.0009 times

2010-11 2009-10 2008-09 2007-08 2006-070

0.001

0.002

0.003

0.004

0.005

0.006

0.007

0.008

0.009

Raw Material Turnover

Raw Material Turnover

Interpretation:

Page 56


3) Stock In Process Turnover :

Stock In Process Turnover = cost of goods manufactured

Average work in progress inventory

For the year 2010-11 = 37,069.51 1320.7+1,584 2

= 25.52 Times

For the year 2009-10 = 30785.70 1584+1527 2

=19.79 Times

For the year 2008-09 = 28232.30 1527+1772 2

=17.12 Times

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

=13.91Times

For the year 2006-07 = 20,790.5 1546

=13.45 Times

Page 57


1 2 3 4 50

5

10

15

20

25

30

Stock In Process Turnover

Stock In Process Turnover

Interpretation:

4) Average Collection Period :

Average Collection Period = Days in a year

Debtors turnover

For the year 2010-11 = 365 8 times

= 45.625 days


=40.56 days


=28.08 days

Page 58



=20.28 days


=14.04 Times

2010-11 2009-10 2008-09 2007-08 2006-070

5

10

15

20

25

30

35

40

45

50

Average Collection Period

Average Collection Period

Interpretation:

5) Total Assets Turnover :

Total Assets Turnover = Cost of goods sold

Average Total Assets

Page 59


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

=0.29 Times

For the year 2009-10 = 34,685.80 1,39,121.95

=0.25 Times

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

=0.25 times

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

=0.21 times

For the year 2006-07 = 21,648.9 1,09,519

=0.20 times

Page 60


2010-11 2009-10 2008-09 2007-08 2006-070

0.05

0.1

0.15

0.2

0.25

0.3

Total Assets Turnover

Total Assets Turnover

Interpretation:

6) Fixed Assets Turnover :

Fixed Assets Turnover = Cost of goods sold

Average Fixed Assets

For the year 2010-11 = 43,824.49 69,623.87

=0.62 Times

For the year 2009-10 = 34,685.80 64,508.4

=0.54 Times

Page 61


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

=0.56 times

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

=0.47 times

For the year 2006-07 = 21,648.9 50604

=0.43 times

2010-11 2009-10 2008-09 2007-08 2006-070

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Fixed Assets Turnover

Fixed Assets Turnover

Interpretation:

Page 62


7) Capital Turnover Ratio :

Capital Turnover ratio = Cost of goods sold

Average Fixed Assets

Particular 2011 2010 2009 2008 2007

Net fixed

asset

39064.75 34575 32937.7 26093.7 25525

(+) Current

asset

35396.79 30815.7 30925.3 30527.8 25858.8

(+) Investment

12,344.84 14807.1 13983.5 15267.2 16094.3

Total Assets 86,806.38 80,197.8 77,846.5 71,888.7 67,478.1

(-) Current

liability

13,675.86 10,967.3 10,688.7 12,909 10,702.50

Capital

employed

75,839.08 69,230.5 67,157.8 58,979.7 56,775.6

For the year 2010-11 = 43,824.49 72,534.79

=0.60 Times

For the year 2009-10 = 34,685.80 68,194.15

=0.51 Times

For the year 2008-09 = 32,402.13 63,068.75

Page 63


=0.51 times

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

=0.43 times

For the year 2006-07 = 21,648.9 56,775.6

=0.38 times

Interpretation:

8) Current Asset Ratio :

Page 64

2010-11 2009-10 2008-09 2007-08 2006-070

0.1

0.2

0.3

0.4

0.5

0.6

Capital Turnover Ratio

Capital Turnover Ratio


Current Asset Ratio = Cost of goods sold

Total average current assets

For the year 2010-11 = 43,824.49 33,106.25

=1.32 Times

For the year 2009-10 = 34,685.80 30,870.50

=1.12 Times

For the year 2008-09 = 32,402.13 30,726.55

=1.05 times

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

=0.87 times

For the year 2006-07 = 21,648.9 25,858.80

=0.84 times

Page 65


2010-11 2009-10 2008-09 2007-08 2006-070

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Current Asset Ratio :


Interpretation:

9) Working Capital turnover Ratio :

Working Capital turnover Ratio = Cost of goods sold

Average working capital

For the year 2010-11 = 43,824.49 35,366.22

=1.24 Times

Page 66


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

=1.18 Times

For the year 2008-09 = 32,402.13 24,441.6

=1.33 times

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

=1.25 times

For the year 2006-07 = 21,648.9 16,962.30

=1.28 times

2010-11 2009-10 2008-09 2007-08 2006-071.1

1.15

1.2

1.25

1.3

1.35

Working Capital turnover Ratio

Working Capital turnover Ratio

Page 67


Interpretation:

10) Earning Power :

Earning Power= PAT *100 * Sales Sales Total Assets

For the year 2010-11 = 7974.61 *100 * 58359.78 58359.78 86806.38

=9.19 %

For the year 2009-10 = 8,098.90 *100 * 48,221.32 48,221.32 80,197.8

=10.10%

For the year 2008-09 = 7,190.30 *100 * 44,126.08 44,126.08 77,846.8

=9.24 %

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

=10.25 %

For the year 2006-07 = 6,615.80 *100 * 32,631.70 32,631.70 67,478.10

Page 68


=9.8 %

2010-11 2009-10 2008-09 2007-08 2006-078.60%

8.80%

9.00%

9.20%

9.40%

9.60%

9.80%

10.00%

10.20%

10.40%

Earning Power

Earning Power

Interpretation:

11) Return On Equity:

Return on equity= PAT * 100 Equity on capital

For the year 2010-11 = 7,974.61 *100 82,455

=9.67 %

For the year 2009-10 = 8,098.90 *100

Page 69


82,455

=9.82%

For the year 2008-09 = 7,190.30 *100 82,455

=8.72 %

For the year 2007-08 = 7,366.70 * 100

82,455

=8.93 %

For the year 2006-07 = 6,615.80 *100 82,455

=8.02 %

Page 70


2010-11 2009-10 2008-09 2007-08 2006-070.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Return On Equity

Return On Equity

Interpretation:

SUMMARY

Financial Statement Analysis is a method used by interested parties such as investors, creditors,

and management to evaluate the past, current, and projected conditions and performance of the

firm. This report mainly deals with the insight information of the two mentioned companies. In

the current picture where financial volatility is endemic and financial intuitions are becoming

popular, when it comes to investing, the sound analysis of financial statements is one of the most

important elements in the fundamental analysis process. At the same time, the massive amount of

numbers in a company's financial statements can be bewildering and intimidating to many

investors. However, through financial ratio analysis, I tried to work with these numbers in an

organized fashion and presented them in a summarizing form easily understandable to both the

management and interested investors.

It is required by law that all private and public limited companies must prepare the financial

statements like, income statement, balance sheet and cash flow statement of the particular

accounting period. The management and financial analyst of the company analyze the financial

statements for making any further financial and administrative decisions for the betterment of the

Page 71


company. Therefore, I select this topic, so that I have done some solid financial analysis that will

certainly help the management of review their performance and also assist the interested people

like investors and creditors. As a financial analyst it is important that a financial decision be

made by analyzing the financial statements of the company. It is the primary responsibility of the

financial managers or financial analyst to manage the financial matters of the company, by

evaluating the financial statements. I am also providing some important suggestions and opinions

about the financial matters of the business.

CONCLUSION AND RECOMMENDATION

Conclusion and Findings

I analyzed the financial statement of National Thermal Power Corporation The analysis is as

follows:

The liquidity position of the company is not up to the standard, is below the industrial average

in 2007, but it has improved a little in 2008 and is near the industrial average.

There is a considerable rise in the working capital of the company from 2007 to 2008 which

shows good liquidity position of the company.

Leverage ratio indicates the high risk associated with the company. Leverage ratio helps in

helps in assessing the risk arising from the use of debt capital. As we can see that in both the

years debt to equity ratio is slightly below the industrial average.

Profitability ratio is good as the earnings have increased for its share holders from 26% to

almost 30%. The profitability ratio is high because of the low financial charge.

Activity ratio of the company is not that efficient, as we can see that the debtor turnover ratio

has increased but is not as much as company would have expected. The average collection

period is also late.

Company did not pay any dividend in 2007. EPS has also jumped from a mere Rs37 to almost

Rs 100.

Book value per share is the indication of the net worth of the corporation. It is somehow

similar to the earning per share, but it relates to stockholder’s equity to the number of shares

outstanding, so we can say net worth of the company is good.

Page 72



The operating cash flow of the company is also good.

RECOMMENDATIONS

As I have realized that the National Thermal Power Corporation is doing well since its

inception. It is quite difficult to give any suggestion to such a corporation but still no one is

perfect,

There is always a room for improvement so I will recommend the following suggestions for

NTPC LTD:

Employee training must be introduced on continuous basis so that the employees have the

understanding of the latest development especially with its customers.

As observed the company has an Internal Audit system wherein external Chartered

Accountant Firms appointed to carry out periodic audits of the different units of the

Corporation. In my opinion, the scope and coverage of internal Audit needs to be

enhanced in order to make it proportionate with the size of the business.

As seen from the physical verification there is a great deal of mismanagement of

resources and it must be avoided, as it decreases the profit.

Company should hire fresh graduates. As the combination of experienced and fresh talent

can produce better results and will improve the efficiency of the management.

As the company is not a listed company. The company has implemented DPE guidelines.

The company has to make continuous efforts to maintain transparency, disclosures and

fairness in dealing with stakeholders.

Aggressive publicity campaign must be introduced by the company about there new

project, as there is little awareness about there new projects.

The vigilance department of the corporation has to improve the level of transparency for

implementing the proper system of E- tendering.

Page 73



Page 74

NTPC

Documents

financial ratio analysis

ministry of power

finacial ratio analysis

ratio analysis concentrates

power sector

power consumption

generation of electricity

tool of financial analysis