FINANCIAL RATIO ANALYSIS 2010 ‘Summer Training Project Report ‘ ON Financial Ratio Analysis At TEHRI HYDRO DEVELOPMENT CORPORATION LTD (RISHIKESH, UTTRAKHAND) Submitted in partial fulfillment for the Award of Degree of MASTER OF BUSINESS ADMINISTRATION (2008-10) SUBMITTED TO: SUBMITTED BY: NITIN MALLA College Of Management Studies MBA 4 TH SEM ROLL NO: 520850077 CASE STUDY OF THDC LTD Page 1
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FINANCIAL RATIO ANALYSIS 2010
‘Summer Training Project Report ‘ON
Financial Ratio Analysis At
TEHRI HYDRO DEVELOPMENT CORPORATION LTD
(RISHIKESH, UTTRAKHAND)
Submitted in partial fulfillment for the Award of Degree of
MASTER OF BUSINESS ADMINISTRATION
(2008-10)
SUBMITTED TO: SUBMITTED BY: NITIN MALLA College Of Management Studies MBA 4TH SEM ROLL NO: 520850077
CASE STUDY OF THDC LTD Page 1
FINANCIAL RATIO ANALYSIS 2010
PREFACEThe conceptual knowledge acquired by management student is best
manifested in the project and training they undergo. As a part of curriculum
of MBA, I have got a chance to undergo practical training at THDC LTD
RISHIKESH. The present project gives a perfect vent into my understanding
of financial management.
The project report entitled “FINACIAL RATIO ANALYSIS” is based on the
financial statements viz the income statement, the Balance sheet of the
company.
The report will provide all information regarding the FINANCIAL RATIO
ANALYSIS and their importance in TEHRI HYDRODEVLOPMENT
CORPORATION LTD RISHIKESH.
I hope this report will be beneficial for my next batches and for those who
are related to this topic.
CASE STUDY OF THDC LTD Page 2
FINANCIAL RATIO ANALYSIS 2010
DECLARATIONI, Nitin Malla, hereby declare that the project titled “FINANCIAL RATIO
ANALYSIS” of THDC LTD; RISHIKESH is submitted in partial fulfillment
to the requirement of my Master’s in Business Administration.
NITIN MALLA
MBA 4TH SEM
CASE STUDY OF THDC LTD Page 3
FINANCIAL RATIO ANALYSIS 2010
ACKNOWLEDGEMENTI express my sincere thanks to the management of THDC LTD
RISHIKESH, for giving me an opportunity to gain exposure on related to
project under the guidance of Mr. K.K. SRIVASTAVA (dy. Manager Finance).
I would also like to thank Mr. DILEEP Kr. DWIVEDI personnel officer
(HRD).
I am indebted to Mrs. Amrita Basu (project guide) to give me a wonderful
opportunity to widen the horizons of my knowledge. I would like to thank
her for her scholarly guidance, constant supervision and encouragement. It
is due to her personal interest and initiative that the project work is
published in the current form.
CASE STUDY OF THDC LTD Page 4
FINANCIAL RATIO ANALYSIS 2010
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
This ratio is indicates that how much sales are contributed by investment in
fixed Assets.
Sales to Fixed Assets = Net Sales / Fixed Assets
Year 2007 2008
Net sales 4441588 10947074
Fixed assets 75264473 78032728
Sales to fix asset .059 TIMES .141 TIMES
CASE STUDY OF THDC LTD Page 37
FINANCIAL RATIO ANALYSIS 2010
SALES TO FIXED ASSETS
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
2007
2008
0.0590000000000001
0.141
20072008
Activity Ratios:
Activity ratio are sometimes are called efficiency ratios. Activity ratios are
concerned with how efficiency 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.
Total Asset Turnover:
Total Asset Turnover = Total Sales / Total Assets
The amount of sales generated for every dollar's worth of assets. It is
calculated by dividing sales in dollars by assets in dollars. Asset turnover
measures a firm's efficiency at using its assets in generating sales or
revenue - the higher the number the better. It also indicates pricing
strategy: companies with low profit margins tend to have high asset
turnover, while those with high profit margins have low asset turnover.
Year 2007 2008
CASE STUDY OF THDC LTD Page 38
FINANCIAL RATIO ANALYSIS 2010
Total sales 4441588 10947074
Total assets 91147208 97596187
Total asset turnover .049 .112
TOTAL ASSETS TURNOVER
0
0.02
0.04
0.06
0.08
0.1
0.12
2007
2008
0.0490000000000001
0.112
20072008
Interpretation:
The return on equity was .049 in 2007 and has increased to .112 in
2008 due to issue of long term debt.
Debtors turn over ratio: Net credit sales/ debtors
The ratio shows how many times sundry debtors turn over during the year.
Year 2007 2008
Net credit sales 4441588 10947074
Debtors 2492617 4652777
Debtor turnover
ratio
1.78 2.35
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FINANCIAL RATIO ANALYSIS 2010
DEBTOR TURNOVER RATIO
0
0.5
1
1.5
2
2.5
2007
2008
1.78
2.35
20072008
Interpretation:
As we can see that higher the debtor turn over ratio the greater is the
efficiency of credit management.
Average collection period: 365/ Debtors turnover
The average collection period represents the num of days worth of credit
sales that is locked in sundry debtors.
Year 2007 2008
No of days 365 365
Debtors turn over 1.78 2.35
AVG collection period 205 days 156 days
CASE STUDY OF THDC LTD Page 40
FINANCIAL RATIO ANALYSIS 2010
AVG COLLECTION PERIOD
0
50
100
150
200
250
2007
2008
205
156
20072008
Interpretation:
As we can see from the above calculation that the collection period in 2007
was 205 days which has reduced to 156 days in 2008
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FINANCIAL RATIO ANALYSIS 2010
Market Ratio:
Market Value Ratios relate an observable market value, the stock price, to
book values obtained from the firm's financial statements.
Dividend per Share - DPS:
Dividend per Share = Total amount of Dividend
Number of outstanding shares
Per share capital = 1000 per share
Or
No. of shares outstanding = share capital / 1000
Year 2007 2008
Total amount of
dividend
975000
Number of shares 32396
Dividend per shares 30.09
DIVIDEND PER SHARES
0
5
10
15
20
25
30
35
2007
2008
30.09
20072008
Interpretation:
There is no dividend paid in 2007.
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FINANCIAL RATIO ANALYSIS 2010
Earning Per Share- EPS:
Earning Per Share = Profit after Taxation / Number of Shares
The portion of a company's profit allocated to each outstanding share of
common stock. Earnings per share serve as an indicator of a company's
profitability. Earnings per share are generally considered to be the single
most important variable in determining a share's price. It is also a major
component used to calculate the price-to-earnings valuation ratio.
Year 2007 2008
Profit after tax 1174809 3235761
Number of shares 31296 32396
Earning per share 37.5 99.88
EARNING PER SHARE
0102030405060708090
100
2007
200837.5
99.88
20072008
CASE STUDY OF THDC LTD Page 43
FINANCIAL RATIO ANALYSIS 2010
Interpretation:
The EPS in 2008 is 99.88 as compared to 38.05 in 2007.
Price / Earning Ratio:
Price / Earning Ratio = Stock Price per Share
Earning Per Shares
The Price-Earnings Ratio is calculated by dividing the current market price
per share of the stock by earnings per share (EPS). (Earnings per share are
calculated by dividing net income by the number of shares outstanding.)
The P/E Ratio indicates how much investors are willing to pay per dollar of
current earnings. As such, high P/E Ratios are associated with growth
stocks. (Investors who are willing to pay a high price for a dollar of current
earnings obviously expect high earnings in the future.) In this manner, the
P/E Ratio also indicates how expensive a particular stock is. This ratio is not
meaningful, however, if the firm has very little or negative earnings. The
Price-Earnings Ratio is calculated by dividing the current market price per
share of the stock by earnings per share (EPS). (Earnings per share are
calculated by dividing net income by the number of shares outstanding.)
The P/E Ratio indicates how much investors are willing to pay per dollar of
current earnings. As such, high P/E Ratios are associated with growth
stocks. (Investors who are willing to pay a high price for a dollar of current
earnings obviously expect high earnings in the future.)
In this manner, the P/E Ratio also indicates how expensive a particular
stock is. This ratio is not meaningful, however, if the firm has very little or
negative earnings.
Year 2007 2008
Stock price per 1000 1000
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FINANCIAL RATIO ANALYSIS 2010
share
EPS 37.5 99.88
Price / Earning
Ratio
26.67 10.01
PRICE/ EARNING RATIO
0
5
10
15
20
25
30
2007
2008
26.6710.01
20072008
Interpretation:
The P/E ratio in 2007 was 26.66time n it has decreased to 10.01 in 2008
that’s alarming for the investors.
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FINANCIAL RATIO ANALYSIS 2010
Dividend Payout Ratio:
Dividend Payout Ratio = Dividend per Share / Earning per Share:
The percentage of earnings paid to shareholders in dividends. The payout
ratio provides an idea of how well earnings support the dividend payments.
More mature companies tend to have a higher payout ratio. This ratio
identifies the percentage of earnings (net income) per common share
allocated to paying cash dividends to shareholders. The dividend payout
ratio is an indicator of how well earnings support the dividend payment.
Year 2007 2008
Dividend per share 30.09
EPS 99.88
Dividend payout
ratio
.301
CASE STUDY OF THDC LTD Page 46
FINANCIAL RATIO ANALYSIS 2010
DIVIDEND PAYOUT RATIO
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2007
2008
0.301
20072008
Dividend Yield:
Dividend Yield = Dividend per Share / Share Price
Financial ratio that shows how much a company pays out in dividends each
year relative to its share price. In the absence of any capital gains, the
dividend yield is the return on investment for a stock. A stock's dividend
yield is expressed as an annual percentage and is calculated as the
company's annual cash dividend per share divided by the current price of
the stock. The dividend yield is found in the stock quotes of dividend-paying
companies. Investors should note that stock quotes record the per share
dollar amount of a company's latest quarterly declared dividend. This
CASE STUDY OF THDC LTD Page 47
FINANCIAL RATIO ANALYSIS 2010
quarterly dollar amount is annualized and compared to the current stock
price to generate the per annum dividend yield, which represents an
expected return.
Year 2007 2008
DPS 0 30.09
Share price 1000
Dividend yield .0301
DIVIDEND YEILD
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2007
2008
0.301
20072008
Book Value per Share:
Book Value per Share = Shareholders' Equity
Share Capital
This is defined as the Common Shareholder's Equity divided by the Shares
Outstanding at the end of the most recent fiscal quarter. It is the Indication
of the net worth of the corporation. Somewhat similar to the earnings per
share, but it relates the stockholder's equity to the number of shares
outstanding, giving the shares a raw value. Comparing the market value to
CASE STUDY OF THDC LTD Page 48
FINANCIAL RATIO ANALYSIS 2010
the book value can indicate whether or not the stock in overvalued or
undervalued
Year 2007 2008
Shareholder’s equity 44301952 50207563
Share capital 31296204 32396204
Book value P/E share 1.42 1.55
BOOK VALUE PER SHARE
1.35
1.4
1.45
1.5
1.55
2007
20081.42
1.55
20072008
Statement of Cash Flow:
Cash flow ratios indicate liquidity, borrowing capacity or profitability. This
section of the financial ratio looks at cash flow indicators, which focus on
the cash being generated in terms of how much is being generated and the
CASE STUDY OF THDC LTD Page 49
FINANCIAL RATIO ANALYSIS 2010
safety net that it provides to the company. These ratios can give users
another look at the financial health and performance of a company.
Operating Cash Flow to Total Debt:
Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt
This coverage ratio compares a company's operating cash flow to its total
debt, which, for purposes of this ratio, is defined as the sum of short-term
borrowings, the current portion of long- term debt and long-term debt. This
ratio provides an indication of a company's ability to cover total debt with
its yearly cash flow from operations. The higher the percentage ratio, the
better the company's ability
To carry its total debt.
Year 2007 2008
Operating cash flow 3170123 7216396
Total debt 43800338 43754589
Operating cash flow
to total debt
.072 .165
OPERATING CASH TO TOTAL DEBT
00.020.040.060.08
0.10.120.140.160.18
2007
20080.072
0.165
20072008
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FINANCIAL RATIO ANALYSIS 2010
Operating Cash Flow per Share:
Operating Cash Flow per Share = Operating cash flow / Total Shares
Year 2007 2008
Operating cash flow 3170123 7216396
Total shares 31296 32396
Operating cash flow
to total shares
101.30 222.76
OPERATING CASH TO TOTAL SHARES
0
50
100
150
200
250
2007
2008101.3
222.76
20072008
CASE STUDY OF THDC LTD Page 51
FINANCIAL RATIO ANALYSIS 2010
Trend Analysis:
A firm's present ratio is compared with its past and expected future ratios
to determine whether the company's financial condition is improving or
deteriorating over time. Trend analysis studies the financial history of a firm
for comparison. By looking at the trend of a particular ratio, one sees
whether the ratio is falling, rising, or remaining relatively constant. This
helps to detect problems or observe good management.
TREND ANALYSIS OF THDC LTD FOR THE YEAR 2007 & 2008
Performance 2007 2008 trend
A)liquidity ratio
Current ratio 1.55 2.09 Higher liquidity
in 2008
Sales to
Working capital
2.66 2.77 Increase in
2008
Working capital 1670338 3953541 Higher liquidity
in 2008
B)leverage
ratio
Time interest
earned
1.66 1.95 Higher in 2008
Debt ratio .481 .448 Minimum
CASE STUDY OF THDC LTD Page 52
FINANCIAL RATIO ANALYSIS 2010
difference in
leverage
Debt to equity
ratio
.998 .871 There is a
slight drop in
leverage
Total
capitalization
ratio
.466 .497 Higher in 2008
LT/ Long term
debt
1.97 2.06 Increase in
leverage
C) Profitability
ratio
Net profit
margin
26.45% 29.87% Profitability
increased in
2008
Return on
equity(ROE)
3.75% 9.80% Increase in
2008
Return on asset 1.29% 3.32% Higher ROA in
2008
Return on net
worth
.027 .064 Higher in 2008
DuPont return
on assets
1.29% 3.32% Higher in 2008
Operating
assets turnover
1704.78% 722.64% Lower
efficiency in
2008
Return on
operating
assets
1.55% 4.09% Higher
efficiency in
2008
CASE STUDY OF THDC LTD Page 53
FINANCIAL RATIO ANALYSIS 2010
Sales to fix
asset
.059times .141times Slight change
in 2008
D)Activity ratio
Total asset
turnover
.049 .112 Higher
efficiency in
2008
Debtor turnover
ratio
1.78 2.35 Increased in
2008
Average
collection
period
205 days 156 days Collection
period
decreased in
2008
E ) Market ratio
DPS 30.09 No dividend
paid in 2007
EPS 37.5 99.88 Increase in EPS
in 2008
PE Ratio 26.67 10.01 Decreased in
2008
Dividend
payout ratio
.301 No DP ratio in
2007
Dividend yield .301
Book value per
share
1.42 1.55 Good market
perception
Operating cash
flow to Total
debt
.072 .165 Increased in
2008
Operating cash 101.30 222.76 Increased in
CASE STUDY OF THDC LTD Page 54
FINANCIAL RATIO ANALYSIS 2010
flow to Total
shares
2008
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 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
CASE STUDY OF THDC LTD Page 55
FINANCIAL RATIO ANALYSIS 2010
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 TEHRI HYDRO DEVELOPMENT
CORPORATION LTD. 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
CASE STUDY OF THDC LTD Page 56
FINANCIAL RATIO ANALYSIS 2010
stockholder’s equity to the number of shares outstanding, so we can say
net worth of the company is good.
The operating cash flow of the company is also good.
RECOMMENDATIONS
As I have realized that the Tehri Hydro Development Corporation LTD 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 THDC 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
CASE STUDY OF THDC LTD Page 57
FINANCIAL RATIO ANALYSIS 2010
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.
GLOSSARY
Acid test ratioAlso called the quick ratio. The ratio of current asset minus inventories, accrual and prepaid item to current liability.
Analytical This is auditor-speak for finding the percentage difference from the current year revenue balance to the prior year balance. Ignore the awkward phrase. It’s a great exercise as it can help you find large swing from one year to next year.
Balance sheetA statement of financial position of business at a specified moment of time.
Balance sheet ratio Ratio calculated on the basis of figures of balance sheet only.
Composite ratioRatio based on figures of profit and loss account as well as balance sheet. They are also known as inter- statement ratio.
Financial ratioCritical evaluation of data given in the financial statements.
Financial ratioRatio disclosing the financial position or solvency of the firm. They are also known as solvency ratios.
Accounting ratioIt is the relationship expressed in mathematical terms between two accounting figures related with each other.
CASE STUDY OF THDC LTD Page 58
FINANCIAL RATIO ANALYSIS 2010
Financial statementAn organized collection of data according to logical and consistent accounting procedures conveying an understanding of some financial aspects of business firm.
InterpretationExplaining the meaning and significance of the financial data.
Profitability ratio Ratio which reflects the final results of the financial data.
Turnover ratioRatio measuring the efficiency with which the assets are employed by a firm. They are also known as Activity ratio or Efficiency ratios.