INTRODUCTION

Accounting is the process of identifying, measuring and communicating economic information to present informed judgment and decision by users of the information. It involves recording, classifying and summarizing various business transactions. The end products of the business transaction are the financial statements comprising primarily the position statement or the balance sheet and outcome of the summarizing process of accounting and are therefore the sources of information on the basis of which conclusions are drawn about the profitability and the financial position of the concern. Financial statements are the basis for decision making by the management as well as all the outsiders who are interested in the affairs of the firm such as investors, creditors, customers and general public. The analysis and the interpretation of financial statements depend upon the nature and type of information available in these statements i.e the balance sheet and income statements of the business enterprise. The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firms position and performance.

FINANCIAL STATEMENTS
Meaning of Financial Statements: Financial statements are the source of the information on the basis of which conclusions are drawn about the profitability and liquidity position of a business enterprise at the end of financial year. They are the major means employed by firms to present their financial situation to owners, creditors and the general public. Financial statements are the end products of financial accounting, prepared by the accountant that purport to reveal the financial position of the enterprise, the result of its recent activities and an analysis of what has been done with the earnings. According to John.N.Myer The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement showing the results of operation during a certain period. Financial statements are also called financial reports.

Nature of Financial Statements:

Financial statements are prepared for the purpose of presenting a periodical review or report by the management and deal with the state of investment in business and result achieved during the period under review. According to the American institute of Certified public Accountants the Financial Statements reflects, A combination of recorded facts, accounting conventions applied affects them materially. This implies that data exhibited in the Financial Statements are affected by recorded facts, accounting conventions and personal judgment. Recorded Facts: The term-recorded fact means facts that have been in the accounting books. Facts that have not been recorded in the financial books are not depicted in the financial statements, however material they might be. Accounting Convention: Accounting conventions imply certain fundamental accounting principles, which have been sanctioned by long usage. For example on account of the convention of conversation provision is made for expected losses but the real financial position of the business may be much better than what has been shown by financial statements. Personal judgment: Personal judgment has also an important bearing on the financial statement. For example, the choice of selection method of depreciation lies on the accountant, similarly the made of amortization of fictitious assets also depends on the personal judgment of the accountant.

Importance of Financial Statements:

The financial statements are mirrors, which reflect the financial position and operating strength or weakness of the concern (firm). These statements are useful to management, investors, creditors, bankers, workers, government and public at large. The importance of financial statements are: a) As a report of Stewardship b) As a basis for fiscal policy c) To determine the legality at dividends d) As guide to advice dividend action e) As a basis for the granting of credit f) As informative for prospective investors in an enterprise g) As a guide to the value of investment already made h) As an aid to government supervision i) As a basis for price or rate regulation

Need for the Study:

The performance of any organization is evaluated through their sales performance and their profitability during the existence of the firm. Essentially my study, which is part of the requirements to be fulfilled, aimed at, evaluation of the performance of National Thermal Power Corporation is undertaken to find the gap between the target and achieved results of the company. Its performance is evaluated by taking the past six years financial reports.

Objectives of the Study

The present study entitled Financial statement analysis is under taken with the following objectives. To study the composition of assets and liabilities of the NTPC Limited. To evaluate financial performance of NTPC Limited.

To study the overall position of NTPC Limited. To draw conclusions and to suggest suitable measures, to overcome problems, if any to improve its performance.

RESEARCH METHODOLOGY
Data collections: The data for present study is collected through secondary source the data has been collected from the financial reports of the company for the last six years. The data also collected from industry reports. The collected data is presented in one way and two way tables. The statements like averages, percentages are used wherever necessary. Data Methodology of Study: The data of RAMAGUNDAM Thermal Power Station (NTPC) has been collected mainly from secondary sources like: 1. The administrative officer of the RSTPS. 2. The annual report and other reports. 3. Discussion with senior manager/manager of finance, purchases and stores. 4. The NTPC library.
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For the study the data collected from primary and secondary sources has been scrutinizes, edited and presented in the form of tables and statements. The analysis of the data has been made with the help of certain mathematical techniques like percentages, proportions etc, and ratio analysis to draw conclusions. In keeping view the objectives of the study the following methodology has been adapted:

a) Sources of data: To provide a better understanding of the topic by adding a practical dimension to the same, practical illustration is very vital, such an exercise necessitates a great deal of data. The requisite data, which has been collected and used, thanks to the co-operation of the management, has two sources. (i) Primary data: Most of such information has been collected from internal interviews and discussions with various officials in the finance department of Sagar Cements Limited. (ii) Secondary data: Much of the information has been collected from the books available and the annual reports maintained by the company facilitated the study. b) Tools and Techniques applied: The present study is basically based on financial statement analysis and for the purpose of analysis and interpretations, here in the
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(i)

Comparative & Common size statements: Balance sheet & income statement in which items are expressed in percentage rather than in absolute rupees.

(ii)

Trend analysis: Computation of the percentage relationship that each statement bears to the same item in the base year.

(iii)

Ratio analysis: Uses of financial ratios to evaluate performance such as liquidity, solvency and profitability.

LIMITATIONS OF THE STUDY

The present study suffers from the following limitations. 1. The study is restricted to financial performance of the organization with no attention given to production and marketing. 2. Financial Management covers topics like cost of capital, capital budgeting, financial analysis, working capital, cash and inventory management etc. The study dealt with the financial analysis of NTPC Limited only. 3. Comparative statements are computed from historical accounting records. So they possess those limitations and weakness as accounting records posses.

4. Financial analysis and interpretation adopted technique of Ratio Analysis has got its own Limitations. While making comparison of ratios no allowance for changes in general price level is made. A change in price level can seriously affect the validity of comparison of ratios computed for different time periods. It is not always possible to make future estimations on the basis of the past, as it always does not come true. 5. In profit and loss account net profit is ascertained on the bases of historical costs. 6. Profit arrived by the profit and loss accounts is of interim nature. Actual profit can be ascertained only after the firm achieves its maximum capacity. 7. The net income disclosed by the profit and loss account is not absolute but relative. 8. The profit and loss account does not disclose factors like quality of products, efficiency of the management etc; 9. The net income is the result of personal judgment and bias of accountants cannot be removed in the matters of depreciation, stock valuation etc; 10. There are certain assets liabilities, which are not disclosed by the balance sheet. For example, the most tangible assets of the company is its management force and dissatisfied labor force is their liability, which are not disclosed by the balance sheet. 11. The book value of assets is shown as original cost less depreciation. But in practice the value of the assets may differ depending upon the technological and economic charges. 12. The assets are valued in a balance sheet on a going concern bases. Some of the assets may not be realize their value on winding up.

PROFILE OF NTPC
Enery is an important parmeter In the over all economic development activity of any country. It has become sysnonymous with progress in all fields of activities. Energy is the source and control of all the things and actions of human beings and it is also a measure of everything. It is the key of indusry and econonic growth. Planned development exploitation and utilization of the energy resources is a prerequisite for a speedy and balanced growth of the national economy. In general

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energy is one of the prime inputs for such important branches of the national economy as industry, agriculture, transport, and also for the domestic sector. National Thermal Power Corporation popularly known as NTPC was formed on 7th November 1975 as a central electric generating company. NTPC the Navaratna power giant today generates 1/4th of the total power in the country and is ranked 9th largest thermal power generating company in the world. It has a total generating capacity of 19,435MW. NTPC a front-runner in the Indian Power Sector is one of the largest & the best power utilities of the world, there by contributing to Indias emergence as one of the worlds leading economies. The world rank, in its performance audit report on NTPCs projects observed that NTPC record in plant construction, cost containment & operating efficiency has been exceptional, while as an institution it has broken new ground in Organization & Management, successfully navigated the transition from constructions to operating company & generally coped quite well with the problems of rapid expansion.

Two corporations The National Hydro Electric Power Corporation (NHPC) & National Thermal Power Corporation (NTPC) were set in 1975-76 in the center sector as a step to achieve the objectives. The company started functioning in March 1976 with the appointment of a Chairman & Managing Director.

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With ambitious growth plans to become a 56,000MW power company by 2017, NTPC the largest power utility of India has already diversified into hydro sector further initiatives for greater organization transformation have been approved under PROJECT DISHA NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. NTPC has been placed under the 'Excellent category' (the best category) every year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector Navratnas a potential global giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realize its vision of being A world class integrated power major, powering Indias growth, with increasing global presence. NTPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive a forestation in the vicinity of its plants. Plantations have increased forest area and reduced barren land. NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash Utilization Division to manage efficient use of the ash produced at its coal stations. This quality of ash produced is ideal for use in cement, concrete, cellular concrete, building material. THE FINANCIAL PERFORMANCE :

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The companys market capitalization crossed

One trillion and also

generated 170.88 Bus during 2005-06 registering an increase of 7.40% over 2004-05. NTPC contributed 27.68% electricity in the country during 200506.Provisional and un audited Net profit after tax for the year 2005-06 is Rs.57,061 million as compared to Rs.58,070 million during the year 2004-05. Capital Outlay for 2006-07 was set at Rs.113, 250 million. It has an interim

d ividend
million.

of 20% for the financial year 2005-06 amounting to Rs.16, 491

NEW TECHNOLOGY INITIATIVES: NTPC has adopted super critical technology for SIPAT-1 (3*660 MW) and Barh (3*660 MW) projects. As part of long-term capacity addition programme, NTPC plans to develop coal-based thermal power projects with higher units sizes, machines along with integrated captive mining. These power projects will have higher efficiency, assured fuel availability at lower cost, lower project cost due to economy of scale and lower green house gas emissions. The unique features include training facility at remote terminal at NTPC PMINOIDA in addition to the main unit located at Sipat site. NTPC has taken steps to develop roadmap for adopting Clean Development Mechanism. This shall help in earning Citified emission Reduction and will attract advanced technologies and investment into the country.

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Geographical Information System based mapping interface is being developed in association with IIT-Delhi or integrating the topographical features with the environmental monitoring data and mapping it around Kahalgaon STPP.

RESEARCH AND DEVELOPMENT: R&D Center continued to provide scientific services to all the stations of NTPC and some other utilities to increase their availabilities and reliability by way of carrying out health assessment of the power plant components, carrying out failure analysis, condition monitoring of various equipment, post- operational chemical cleaning of boilers, formulations of chemical treatments etc. In addition, R&D center worked for attaining self-sufficiency in overhauling and spares parts development for gas turbines and also for the refurbishment of Gas Turbine components.

ENERGY TECHNOLOGIES :
Energy Technologies, a new initiative for the development of new technologies with focus on fundamental R&D, covering the entire energy spectrum has identified five important destinations for itself and power sectors. These are: I. II. Reduction in cost OF power, ii) Resolving energy-carbon conflict,

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III. IV.

iii) Strengthening the power delivery infrastructure, iv) Enabling digital society and Sustainable development.

To achieve the first two destinations, a comprehensive programme of various new technologies, has been formulated.

In its mission to create a world-class institute Energy Technologies is planning to establish various specialist divisions, research labs and centers of excellence. Centers of Excellence in Simulation & Modeling, Artificial intelligence, Computational Fluid Dynamics, Sensors and Material science are being proposed. CENTRE FO R P O WER EFFICIENCY & ENVIRONMENT PROTECTION (CenPEEP) : CenPEEP has been established in association with USAID to implement Greenhouse Gas Pollution Prevention Project to reduce emission of Greenhouse gases per unit of energy generated while increasing energy productivity. CenPEEP in its pursuit for improving performance of power plants has created Center of Excellence for Efficiency. This Center will monitor, evaluate and provide guidance to stations for achieving the goal of increased efficiency and productivity. CenPEEP is also involved in acquisition, demonstration and implementation of new techniques for performance improvement of Power Plants. HUMAN R ESO UR SE MANAGEM ENT: 15

NTPC takes pride in its highly motivated and trained Human Resource that has contributed its best to bring NTPC to its present height. The total strength of employees of the corporation stands at 23385 as on March 31,2005. To induct talent and groom them into a dedicated cadre of power professionals Executive Trainee Scheme was introduced in the year 1977 for recruitment in the disciplines of Mechanical Electrical, Civil, Control & instrumentation and now encompasses Computer Science, Chemistry, HR and Finance disciplines inputs as well as a on-the-job training. The new recruits are also attached with senior executives under a systematic and formal Mentoring System of the company to integrate them into the Culture of the company.

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STATION-WISE GENERATION 20010-11

STATIONS (MU) Gross Northern Region 33891 Singrauli Rihand Unchahar Tanda National Capital Region 22353 Dadri (Coal) Anta (Gas) Auraiya (Gas)

CAPACITY (MW)

Gen

4780

2000 1500 840 440 3152

15803 7989 6781 3318

840 413 652 17

6831 2785 4118

Badri (Gas) Faridabad (Gas) Western Region 41724 Korba 17049 Vindyhachal Kawas (Gas) Jhanor Gandhr (Gas) Easrern Region 35225 Kahalgaon Talcher Kaniha Talcher Thermal Southern Region 25917 Ramagundam Simhadri Rajiv Gandhi CCP (Gas) Total 159110

817 430 5653

5457 3162

2100

stss

2260 645 648 5900

17821 2822 4032

840 3000 460 3950

9701 16246 3196

2600 1000 350 23435

17172 8123 622

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NTPC ORGANISATION AND FUNCTIONS : The organization design is one of the main factors, which ultimately determines the effectiveness of an enterprise. The board of directors is the supreme policy making body, which give the direction to the activities of the organization. The head of this board is the Chairman and Managing Director who is also the full time Chief Executive of the company. The members of this board are both full-time directors as well as senior level officers. The basic divisions, which are accountable to CMD, are: Technical and Engineering Division, Corporate Commercial division, Operation Services division, Corporate Finance division, Corporate Human Resource division, Corporate Projects division, Vigilance division.

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OBJECTIVES OF NTPC: To add generating capacity within prescribed time and cost. To operate and maintain power stations at high availability ensuring minimum cost of generation. It has planned massive growth to make itself a 40,000 MW company. To maintain the financial soundness of the company by managing the financial Operations in accordance with good commercial utility practices. To function as a responsible corporate citizen and discharge Social Responsibility, in respect of environment protection and rehabilitation. To adopt appropriate human resources development policy leading to Creation of team of motivated and competent power professionals. To develop R & D for achieving improved plant reliability. CORPORATE OBJECTIVES : To add generating capacity within prescribed time and cost. To expand the constancy operations and to participate Ventures abroad. To maintain the financial soundness of the company by managing the financial operations in accordance with good commercial utility. To development (R&D) for achieving improved plant reliability.

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 To develop appropriate commercial policy leading to remunerative tariffs and minimum receivables. Implement strategic diversification in the areas of R&M, Hydro, LNG and non-conventional and eco-friendly fuels and explore new areas like transmission, information technology etc. Make prudent acquisitions. Continuously develop competent human resources to match world standards.

PRESTIGIOUS AWARDS WON BY NTPC: US Environmental Protection agencys 2003 Climate Protection Award. SCOPE Award for Excellence and Outstanding Contribution to the Public Sector Management-Institutional Category 2000-01. CII Award for Excellence in Infrastructure 2002. Teris CORE-BCSD Corporate Social Responsibility Award. Business Today-Hewitt Associate Best Employer Survey 2002-03 has ranked NTPC as the third best place to work among 220 major companies in India. NTPC CENPEEP received world climate technology award-2002 in recognition of institutes achievements in furthering the goal of Climate Technology Initiative.

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Ramagundam project received National Safety Council of Indias Safety Award PRASHANSA PATRA for developing and safety and health management systems.

NTPC Ramagundam has achieved first place in Raja-Bhasha Award in the year 2003.

NTPC has bagged Safety Innovation Award 2005. NTPC Limited bagged the IPMA (International Project Mngt Award).

EXECUTIVE SUMMAR: Why I have chosen NTPC to do project? Being a power giant with huge manpower and being a public sector organization with number of trade unions where they have major role and it also posses: Navaratna status, Core values, Takes care of society, It has CSR i.e., corporate social Responsibility, Highly skilled people, Welfare Activities, Provides R & R i.e., Responsibilitation and Resettlement to the surrounding People

R AMAGUNDA M A LEGEND 22

Ramagundam (including Godavarikhani Town) is a city and municipality in the Karimnagar district of northern Andhra Pradesh, India. It has a population of 236,623 (2001 census). The town Ramagundam gets its name from combination of two words (Rama + Gundam). A famous temple of Hindu god Lord Rama is situated in old part of the town and Gundam means water springs. Legend has it, in the age bygone, LO R D R AMA traversing the banks of Godavari River left his immortal footprints on a small hillock. Today his blessings lives on-enshrined in a small immortal footprints that Ramagundam is considered as Manchester of India in light of the companies around it. Some of them are FCI (Fertilizer Corporation of India) , Kesoram Cement (Basanth Nagar) , NTPC (RSTPS-Ramagundam super thermal power station sourcing 2600 MW of power 24/7), and APSEB unit ( Ramagundam) . Around 24 units of coal mines belt in Godavarikhani stretching 25 km including opencasts (state of the art proclainers) are used in these open coal mines. There are many factories around this place that take the raw material from the coalmines and prepare carbon derivatives. River Godavari flowing through this region gave this a strategic location for all these companies providing employment to more than 15,000 people. Transport

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Ramagundam is connected to major parts of the State through a well connected road, Rajiv Rahadari (Freeway of Late Shri Rajiv Gandhi) in remembrance of Gandhi family and the Party he hailed from (Congress I). APSRTC is well connected across all communities of this region. Ramagundam is connected through the South Central Railway which connects to all the four metropolitan cities of India. Most of the trains passing through this route stop at Ramagundam. Ramagundam Airport code is RMD. The nearest airport (other than unused RDM) is around 250 km (Hyderabad-HYD) away and connected through Highway NH-7 via Karimnagar and Siddipet.

RAMAGUNDAM SUPER THERMAL POWER STATION (RSTPS) November 14th 1978, suddenly the sleepy village R AMAGUNDA M became the scene of hectic activities. Barricades Welcome arches were erected all along the road leading to what is now the site of 2600 MW POWER STATION. It is on this auspicious day of14th November 1978 the Honable Prime Minister of INDIA Late. Shri.Morarji Desai laid the foundation stone for a MAMMOTH POWER STATION IN SOUTHERN INDIA. NTPC Ramagundam spread over 1000 acres of land, is considered to be one of the best in the nation (among 24locations). Constructed at a cost

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of Rs.1762 crores, the station has been one of the largest recipients of the WORLD BANK loan. its project implementation and financial control has pause from the World Bank, Ramagundam can be considered as the school for Construction of Power Projects. NTPC is divided into 5 regions: Ramagundam falls in southern region along with Simhadri and Kayankulam. NTPC Ramagundam unit with Approved and Installed capacity of 2600MW is the largest Thermal Power plant powering South Indias growth. Ramagundam unit of NTPC credited with ISO 14001 certified Super Thermal Power Station in our country. This provides major chunk of power supply to Dadar Nagar Haveli, Daman & Dui, PGCIL (Powergrid Corporation of India Limited). PGCIL has a capacity of 9500MW and expects to grow into 30,000 MW by 2012 with a 16 billion USD investment. Less than 25% of the power is provided to the State of Andhra Pradesh More than 38000 crores are invested to build this massive organisation which provides employment to more than 6000. Recently 7th unit was added (August 2004) with additional capacity of 500 MW. NTPC Ramagundam has exemplary vision for the environment which includes afforestation, monitoring environment impacts using NRSA satellite imaging services, Ash pond treatment, Ash brick plants, awareness of environment to the local community NTPC has gained accolades for its highest quality of disaster management policies.

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RSTPS has less than 10 disturbances in 2005-2006 and non last more than a day.

Chairman & Managing Director

Shri Arup Roy Choudhury

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Board of directors

Sh. I.J.Kapoor, D.K. Jain, (dept. commercial)

Shri A.K. Singhal

Sri B.P. Singh

Shri

finance

projects

technical

Shri S. P. Singh HR

Shri N.N.Misra Operations

DISTRIBUTION OF POWER OF NTPC RAMAGUNDAM

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S.No Percentage

States

Distributed Capacity in MW

01 27.619

Andhra Pradesh

580

02 22.381

Tamilnadu

470

03 16.429

Karnataka

345

04 11.667

Kerala

245

05 4.762

Goa

100

06 2.381

Pondicharry

50

07 14.762

Unallocated

310

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RSTPS ACHEVEMENT AND AWARDS : NTPC has been awarded the prestigious SCOPE AWARD 2004, for its exemplary contribution in management of Public Sector Enterprise. BEST HR HEAD AWARD by Amity School of Business for its contribution to Corporate Human Resource Management in August 2004. Greentech Safety Award 2004-05: NTPC won 9 Gold, 4 Silver, 1 Bronze award for outstanding achievement in the field of safety and environment management. International Market Assessment India (IMA) has adjudged NTPC Chief Finance officer of the year for excellence in Finance of Public Sector Undertaking for the year 2004. RSTPS has bagged the Golden trophy, in Performance Excellence Award for the year 2003-04 instituted by Indian Institute of Industrial Engineering, in recognition of its performance in financial achievement, Customer Satisfaction, Internal processes,Innovation and learning, Strategy for development.

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RSTPS AT A GLANCE Address: AndhraPradesh Approved Capacity P.O. Jyothinagar, Dist. KarimNagar-505215, 2600 MW Stage I: 3X200 MW Installed Capacity Stage II: 3X500 MW Stage III: 1X500 MW Coal Source i. South Godavari Coal Fields of Singrani Collieries for Stage ii. Korba Coal Fields of SECL for Stage III Water Source Sri Ram Sagar Dam on Godavari river,D_83 Canal from Pochampad Reservoir Beneficiary States Pondicherry, Goa, Kerala, Karnataka, Tamil Nadu, AP, PGCIL (for Unit Sizes Stage - I: 3x 200 MW Stage -II: 3x 500 MW Units Commissioned Unit -I 200 MW November 1983 Unit -II 200 MW May 1984 Unit -III 200 MW December 1984 30 HVDC)

Unit -IV 500 MW June 1988 Unit -V 500 MW March 1989 Unit -VI 500 MW October 1989 Units Commissioning Schedule International Unit -VII 500 MW August 2004 IDA, IBRD loan, OPEC, KFW, EXIM Bank, Japan

POWER SECTOR
Energy is an important parameter in the overall economic development activity of any country. It has become synonymous with the progress in all fields of activities. Its standard of living in the words of DAGLI is as follows it is said that the difference between a starving Indian peasant and a prosperous American former is that behind his elbow the Indian farmer has almost nothing while his American counterpart has thousands of horse power. Thus, it is energy, which is the dividing line between any subsistence economy and a highly developed economy. India is poor and America is rich because America consumes nearly 50 times as much energy as is consumed by India. Energy is at the heart of the modern industrial society. It could also be an effective weapon in the battle against object poverty. There is a close correlation between energy consumption and level of economic development. Energy means capacity of doing work. There are various sources of energy but in India the important sources are coal, hydroelectricity, oil and natural gas, nuclear fuels, firewood and animal wastes.

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Despite the development of various sources in the energy sector, the fact still remains that low cost energy sources like fire wood, cattle dung and vegetable wastes account for as much as 45 percent of energy consumption in the country.

DEVELOPMENT IN INDIA
Power development in India began in 1897 when a 200KW hydro station was first commissioned at DARJEELING. In 1899, a first steam station was set-up in Calcutta with a total capacity of 100KW. Thereafter, a series of hydro and steam power station were commissioned. But the power development was not in a systematic and planned manner in the country. Therefore to achieve the objective of promoting the co-ordination development and rationalization of generation, transmission and distribution of electricity on a regional basis throughout the country in the most efficient and economic way, the stateel ectricity board (SEBs) was constituted in the various states of the country under the provisions of the electricity (supply) act 1948. These SEBs, were to enjoy the monopoly in respect of generation, transmission and distribution of electricity in the country. The efficiency of working of power plant and their maintenance have been unsatisfactory as a 32

result of which the power generating capacity already created could not have been fully utilized. Power is the single factor, which changed the way of living. The National Thermal Power Corporation Limited, established on November 7th 1975, has become the most important infrastructure input for improving the standard of living to meet the growing demand and to fulfill the needs of the country. Just in 29 years this company has grown to be the largest producer of power in the country. Keeping the significance of power supply in sight, N T P C has been chosen for the purpose of the study as it has many units under its control. Ramagundam Super Thermal Power Station (RSTPS) has been selected for the study. PRESENT SCENARIO Several measures have been taken in line with the Electricity Act, 2003. The National Electricity Policy has been notified. Main targets of National Electricity Policy (NEP) are: Availability of electricity to all households in five years. Demand to be fully met by 2012. Minimum lifeline consumption of 1unit per household per day. RECENT DEVELOPMENT In 2004-05, the economy has maintained the growth momentum despite a deficient

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South west monsoon, hardening international prices of steel and extensive devastation caused by Tsunami. He macroeconomic stability observed in recent years needs to be sustained and Strengthened. Further improvements in investment climate and augmenting Infrastructure, especially electricity infrastructure are being given high priority.

POWER GENERATION IN INDIA: SOURCE Coal Gas Diesel Total thermal Hydro Nuclear Wind Total CENRTAL 21417.51 449.00 0 25836.51 3049.00 2720.00 0 31605.50 STATE 36302.00 2661.70 582.89 39546.59 22636.0 0 62.86 62245.47 PRIVATE 4414.38 4082.40 551.94 9045.72 576.20 0 1444.60 11066.52 TOTAL 62130.89 11163.1 1134.80 74428.82 26261.22 2720.00 1507.46 104917.5 % SHARE 59.22 1.64 1.08 7.94 25.03 2.59 1.44 100

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REVIEW OF LITERATURE
According to JOHN.N.MYER The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement showing the results of operation during a certain period. Financial definition: A written report which quantitatively describes the financial health of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis.
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Financial management definition: Financial management refers to that part of the management activity which is concerned with the planning and controlling of firms financial resources. It deals with finding out various sources for raising funds for the firm. The sources must be suitable and economical for the needs of the business and the most appropriate use of such funds also forms a part of financial management. Financial statement analysis: Evaluation of a firms financial statements in order to assess the firms worth and its ability to meet its financial obligations.

Types of Financial Statements:

Financial statements primarily compress two basic statements: I) II) The position statement or balance sheet. The income statement or profit & loss account.

I)

The Position statement or Balance sheet: The American Institute of certified public Accounts defines balance sheet as, a tabular statement of summary of balance (debits and credits) carried after actual and
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constructive closing books of account and kept according to principles of accounting. The purpose of the balance is to show the resurgence that the company has i.e. its assets and from where those resources come from i.e.: its liabilities and investments by owners and outsiders. The balance sheet is one of the important statements depicting the financial strength of the concern. It shows on the one hand the properties that it utilizes and on the other hand the owned by the concerned the liabilities and claims it owns to owners and outsiders. The balance sheet is prepared on a particular date. The right hand side shows properties and assets. Normally there is no particular sequence for showing various assets and liabilities. The companies Act, 1956 has prescribed a particular form for showing assets and liabilities in the balance for the companies registered under this act. These companies are also required to give figures for the previous year along with h current years figures. II) Income statement or Profit & Loss Account: Income statement is prepared to determine the operational position of the concern. Its a statement of revenue earned and the expenses incurred for carrying that revenue. If there is excess of revenue over expenditure it will show a profit and if expenditure are more than the income then there will be a loss. The income statement is prepared for a particular period, generally a year. When income statement is prepared for the year ending on 31st march then all the revenues and

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expenditure falling due in the year will be taken into account irrespective of payment. Analysis and Interpretation of Financial Statements: Financial statements are indicators to two significant factors: 1) Profitability 2) Financial soundness. Analysis and interpretation of financial statements therefore refers to such treatment of the information contained in the income statement and the balance sheet so as to afford full diagnosis of the profitability and the financial soundness of the business. A distinction here can be made between the two terms and analysis and interpretation. The term analysis means methodical classification of the data given in financial statements. The figure given in the financial statements will not help unless they are put in a simplified form. For example all item current assets are put at one place while all items relating to the current liabilities are put at another place. The term interpretation means explaining the meaning and significance of the data so simplified. Analysis and interpretation of financial statements involves a study of relationship among various financial factors and to judge their meaning and significance. The financial analyst must understand the plans and policies of management, determine the extent of analysis, reorganize data available as per requirements, establish relationship among financial figures and make interpretation.

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According to Myers, Financial statements Analysis is largely a study of the relationship among the various financial factors in a business as disclosed by a single set of statement and a study of the trend of these factors as shown the series of statements.

TYPES OF FINANCIAL ANALYSIS

Theoretical Framework of Financial Performance

Financial Performance: Financial performance refers to a firms efficiency in acquiring funds and utilizing them in order to attain its goal of maximizing owners wealth. The financial performance is measured in terms of liquidity, solvency, operating efficiency and profitability. Financial Analysis:
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Financial Analysis involves identifying the reasons behind the results and financial position of a business firm, which can controllable and uncontrollable ones or temporary and permanent. Then the firm has to plan a corrective action against the controllable reasons while the uncontrollable factors should be taken into account while planning for the future. Analysis of Financial Statements: Analysis of Financial statements can be defined as the process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firms position and performance in a given industry. In other words, financial statement analysis is the process of identifying the financial strengths and weaknesses of the firm by analyzing the financial statements. Importance of Financial Statements: The information given in the Financial Statements is very useful to a number of parties. These are the following: 1. Owners: The owners provide funds for the operations of a business and they want to know whether their funds are being properly utilized or not. The financial statements prepared from time to time satisfy their curiosity. 2. Creditors: Creditors (i.e. Suppliers of goods and services on credit, bankers and other lenders of money) want to know the financial position of a concern before giving loans or granting credit, the financial statements help them in judging such position.

40

3. Investors: Prospective investors, who want to invest money in firm, would like to make an analysis of the financial statements of that firm to know how safe proposed investment will be. 4. Employees: Employees are interested in the financial position of a concern they serve, particularly when payment of bonus depends upon the size of the profits earned. They would like to know the bonus being paid to them is correct so they become interested in the preparation of correct profit and loss account. 5. Government: Central and State governments are interested in the financial statements because they reflects the earnings for a particular period for purpose of taxation. Moreover, these financial statements are used for compiling national accounts. 6. Research Scholars: The financial statements, being a mirror of the financial position of a firm are of immense value to research scholars who wants to make a study into financial operation of particular firm. 7. Consumers: Consumers are interested in the establishment of good accounting control so that cost of production may be reduced with the resultant reduction of the prices of goods they buy. 8.

1. According to Material Used:

External Analysis:

41

Outsiders who do not have access to the detailed internal accounting records of the business firm do this analysis. These outsiders include investors, potential creditors, potential sellers, government agencies, credit agencies, and the general public. For financial analysis these external parties to the firm depend almost entirely on the published financial statements. External analysis thus services only a limited purpose. However, the changes in the government regulations requiring business firm to make available more detailed information to the public through audited published accounts have considerably improved the position of the external analysis. Internal Analysis: The analysis conducted by the persons who have access to the internal accounting records of a business firm is known as internal analysis such an analysis can therefore be performed by executives and employees of the organization. As well as government agencies, which have statutory powers, vested in them, financial analysis that can be effected depending upon the purpose to be achieved.

2. According to the Objective of the Analysis:

Horizontal Analysis:
42

Horizontal analysis refers to the comparisons of financial data of a company for several years. The figures for this analysis are presented horizontally over a number of columns. This type of analysis is also called dynamic analysis as it is based on the data from here to here rather than on data of any one year. The horizontal analysis makes it possible to focus attention on the items that have changed significantly during the period under review, comparison of an item over several periods with a base may show attend deviation. Comparative statements and trend percentages are two tools employed in horizontal analysis. Vertical Analysis: Vertical analysis refers to study of relationship of various in the financial statements of one accounting period. In this type of analysis the figures form financial statements of a year are compared with a base selected from the same years statements and the financial ratios are the two tools employed in vertical analysis.

3. According to the Modus Operandi of Analysis:

Long-Term Analysis:

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In the long-term analysis emphasis is given to stability and potential of the company. Fixed assets, long-term debt structure and ownership interests are fully analyzed in the longterm analysis. Long-term analysis is done to determine the solvency, stability and profitability of the company. Short- Term Analysis: This type of analysis is used to determine the working capital requirement, profitability etc; of the concern. In short run, an enterprise must have ample funds to meet its requirements and sufficient borrowing capacity to meet its contingencies. Hence, current assets and current liabilities are properly analyzed and liquidity position of the company is determined.

LIMITATIONS OF FINANCIAL STATEMENTS ANALYSIS

1. The figures drawn from one year statements have limited use and value. Therefore, its dangerous to depend solely on them for the purpose of decision making.
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2. Analysis of financial statements is only a means and not an end in itself. Other factor should be taken into account while making decisions regarding the operations of the company. 3. Financial statements are historic in nature. Hence, entire dependence on these statements for future planning may give misleading results. 4. The results of the financial statement analysis cannot form basis for the efficiency or inefficiency of management. The ratios and other figures indicate only the probable state of affairs of the company. 5. A variation in the accounting practices and policies followed over a period of time makes the analysis difficult and inaccurate. 6. Sometimes, the financial statements are manipulated to conceal facts and show better picture of the business, in such a case the limitations of the financial statements will be reflected in the analysis as well. 7. The analysis of financial statements does not disclose factors like quality of product, managerial efficiency etc; 8. Analysis generally ignores the difference in the nature of products, accounting procedures, policies size and age of the firm etc; leading to inaccurate results. 9. A change in the value of money over a period of time reduces the importance and validity of such analysis.

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TECHNIQUES OF FINANCIAL ANALYSIS:

Among the techniques of financial analysis, the important tools of financial analysis are: 1. Comparative and Common size financial statements 2. Trend Analysis 3. Ratio Analysis 4. Fund Flow Analysis 5. Cash Flow Analysis Common-Size Statement: The common-size statement, balance sheet and income statement are shown in analytical percentages. The figures are shown as percentages of total assets, total liabilities and total sales. The total assets are taken as 100 and different assets are expressed as a percentage of the total. Similarly, various liabilities are taken as a part of total liabilities. These statements are also known as component percentage or 100 percent statements because every individual item is stated as a percentage of the total 100. The shortcomings in comparative and trend percentages where changes in items could not be compared with the totals have been covered up. The analyst is able to assess the figures in relation to total values. Trend Analysis: The financial statement may be analyzed by computing trends of series of information this method determines the direction upwards or downwards and involves the computation of the

46

percentage relationship that each statement item bears to the same item in base year. The figures of the base year are taken as 100 and trend ratios for other years are calculated on the basis of base year. The analyst is able to see the trend of figures, whether upward or downward. For example, if sales figures for 2006 to 2007 are to be studied, then sales of 2006 will be taken as 100 and the percentage of sales for all other years will be calculated in relation to the base year i.e., 2006. It helps in understanding the nature and rate of movements in various financial factors. However, conclusions should not be drawn on the basis of single trend. Trends of related items should be carefully studied. Due weight age should be extraneous factors such as government policy, economic conditions etc., as they can affect the trend significantly. Steps in computation of Trend Values: 1) Select one of the period for which financial statements are available as the base period. 2) The selected period should be a normal period. 3) Every item in the base period is taken as 100. 4) Trend value of each item for any other period: Absolute value of the item for the period = ------------------------------------------------------- 100 Absolute value of the item in the base period Funds Flow Analysis:

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A statement of sources of application of funds is a technical device designed to analyze the change in the financial condition of a business enterprise between two dates Cash Flow Analysis: Cash plays very important role in the entire economic life of a business. What blood is a human body, cash is to business enterprises. It is very essential for a business to maintain an adequate balance of cash. Comparative Statement The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to given an idea of financial position at two or more periods. Two financial statements are prepared in comparative from for financial analysis purpose. The comparative statement may show. Absolute figures (Rupee amounts) Change in absolute figures i.e. increase or decrease in absolute figures. Absolute data in terms of percentages. Increase or decrease in terms of percentages. The financial data will be comparative only when same accounting principles are used in preparing this (i) Balance sheet and (ii) Income Statement. Comparative Balance Sheet:

48

The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The comparative balance sheet has two columns. A third column is used to show increase in figures. The forth column may be added for giving percentages of increase or decrease. Interpretation of comparative Balance Sheet: While interpreting comparative balance sheet the interprets is expected to study the following aspects. Current financial position and liquidity position. Long term financial position. Profitability of the concern (firm). Comparative Income Statements: The income statements give the results of the operations of a business. The comparative income statement gives an idea of the progress of a business over period of time. The change in absolute data in money values and percentages can be determined to analysis the profitability of the business. Income statements also have four columns. First two columns give figures of various items for two years. Third and fourth columns are used to show increase or decrease in figures in absolute amounts and percentages respectively. Interpretation of Income Statements: The analysis and interpretation of income statement with involve the following steps:
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 The increase or decrease in sales should be compared with the increase or decrease in cost of goods sold. The amount of gross profit should be studied in the first step. The second step of analysis should be the study of operational profits. The increase or decrease in net profit, which give an idea about the overall profitability of the concern (firm). An opinion should be formed about profitability of the concern and it should be given at the end. It should be mentioned whether the overall profitability is good or not.

RATIO ANALYSIS:
A ratio analysis is a statistical yardstick or mathematical expression that provides a measure of relationship between two figures or amounts. Ratio is simply one number expressed in terms of another. The ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and groups of figures). It is with the help of ratios that the financial statements can be analyzed more clearly and decisions made from such analysis. Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself. It is only means of better understanding of financial strength and weakness of a firm. Calculation of mere ratios does not serve any purpose,
50

unless several appropriate ratios are analyzed and interpreted. There are a number of ratios which can be calculate from the information given in the financial statements, but the analyst has to select the appropriate from the same keeping in mind the objective of analysis.

Uses and Significance of Ratio Analysis A) Managerial uses of ratio analysis: 1. Financial statements are prepared primarily for decision-making, but the information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn from these statements alone. Ratio analysis helps in making decisions from the information provided in these financial statements. 2. Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for the future. Meaningful conclusions can be drawn for future from these ratios. Thus ratio analysis helps in future forecasting and planning. 3. The financial strength and weakness of a firm are communicated in a more and easy and understandable manner by the use of ratios. The information contained in the financial statements is conveyed in a meaningful manner to the one for whom its meant. Thus ratios help in communication and hence the value of the financial statements.
51

4. Ratio analysis even helps in co-ordination which is of utmost importance in effective business management. Better communication of efficiency and weakness of an enterprise results in better co-ordination in the enterprise. 5. Ratio analysis even helps in making effective control of the business. Standard ratios can be based upon performance of financial statements and variances or deviations, if any, can be found by comparing the actual with the standards so as to take a corrective action at the right time.

B) Utility to Shareholders/Investors: An investor in the company will like to access the financial position of the concern where he is going to invest. His first interest will be the security of his investment and then a return in the form of dividend or interest. For the first purpose he will try to access the value of fixed assets and the loans raised against them. The investor will feel satisfied only if the concern has sufficient amount of assets. Profitability ratios will be useful to determine profitability position. Ratio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not. C) Utility to Creditors: The creditors or suppliers extend short-term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The concern pays short-term creditors out of its current assets. If
52

the current assets are quite sufficient to meet current liabilities then the creditor will not hesitate in extending credit facilities. Current and acid test ratios will give an idea about the current financial position of the concern. D) Utility to Employees: The employees are also interested in the financial position of the concern especially profitability. Their wage increases and amount of the make use of information available in the financial statements. Various profitability ratios relating to gross profit, operation cost, and net profit enable employees to put forward their viewpoint for the increase of wages and other benefits.

Advantages of Ratio Analysis

1. Ratio analysis simplifies the understanding of financial statements. 2. Ratios bring out the inter-relationship among various financial figures and bring to light their financial significance. Ratio analysis is a device to analyze and interpret the financial health of the enterprise. 3. Ratios contribute significantly towards effective planning and forecasting. A study of a trend in the past works as a helpful guide for the future. 4. Ratios facilitate inter-firm and intra-firm comparisons, thereby bringing out the strength weakness, efficiency of their firms and their department.

53

5. Ratios serve as effective control tools. They also facilitate establishment of a standard costing and budgeting control. 6. Ratios cater to the particular information need of a particular person depending upon his interest in the business for which ratios are to be calculated. A creditor may be interested in the liquidity ratios, while an investor may want to study profitability ratios.

Limitations of Ratio Analysis:

1) Ratio may not prove to be the ideal tool for inter-firm comparisons. The two firms may adopt different accounting policies and hence the results might not be comparable. 2) A study of ratios in isolation, without studying the actual figure, may lead to wrong conclusions. Ratios are only supplementary to and not substitutes for absolute figures. 3) Ratios can be as correct as the data on which they are based; if the original data is not reliable then ratios will be misleading.

54

4) Ratio analysis suffers from each consistency. Ratios are defined differently by various experts and hence are prone to manipulations. 5) In the absence of well accepted standards interpretation of ratio becomes subjective.

TYPES OF RATIOS
Ratios classified into five categories:

55

56

TYPES OF RATIOS CALCULATED FOR THE PRESENT STUDY Balance sheet ratios Profit & Loss account ratios 1. Current ratio 2. Quick ratio 3. Proprietary ratio 4. Debt-equity ratio 1. Gross profit ratio 2. Net profit ratio 3. Inventory turnover ratio 4. Expense ratio 5. Operating ratio. Inter statement (balance sheet and P&L a/c) 1. Return on assets ratio 2. Fixed asset ratio 3. Creditors turnover ratio 4. Debtors turnover ratio 5. Working capital turnover ratio

1. LIQUIDITY or SHORT-TERM SOLVENCY RATIOS: These are the ratios which measure the short-term solvency or financial position of the firm. These ratios are calculated to comment upon the short-term paying capacity of a concern or the firms ability to meet its current obligations, the various liquidity ratios are: current ratio, quick ratio. A) Current ratio or Working capital ratio: Current ratio is the ratio of current assets and current liabilities. Current assets are the assets which can be converted into cash within one year and include cash in hand cash at bank, bills receivables, net sundry debtors, stock or raw material, finished goods and work in progress, prepaid expensed, outstanding and accrued incomes and short-term or temporary investments.

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 Current liabilities are the liabilities which are to be paid within a period of one year and include bills payable, sundry creditors, bank overdraft, outstanding expenses, incomes received in advance, proposed dividend, provision for taxation, unclaimed dividends and short term loan and advances repayable within one year. Current Assets Current Ratio = --------------------------------------Current Liabilities B) Quick Ratio: Quick ratio is the ratio of quick assets to current liabilities. Quick assets are the assets which can be converted into cash very quickly without much loss. All current assets except stock and prepaid expenses are quick assets. All current liabilities are liabilities which are to be repaid within one year. Quick Assets Quick Ratio =---------------------------------------Quick Liabilities

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2. LEVERAGED or CAPITAL STRUCTURE RATIO or LONG-TERM SOLVENCY RATIOS: Long-term solvency ratios convey a firms ability to meet the interest costs and repayments schedules of its long-term obligations e.g. debt equity and interest coverage ratio. Leverage ratios show the proportions of debt and equity in financing of the firm. These ratios measure the contribution of financing as compared to financing by outsiders. A) Debt equity ratio: It reflects the relative claims of creditors and shareholders against the assets of the business. Debt usually refers to long-term liabilities. Equity includes equity and preference share capital and reserves. Long-term liabilities Debt-Equity Ratio = -----------------------------Shareholders fund B) Proprietary ratio: It expresses the relationship between net worth and total assets. Net worth = Equity Share Capital + Preference Share Capital + reserves and surplus fictitious assets. Total Assets = Fixed assets + Current assets (excluding Fictitious Assets) Net Worth

59

Proprietary Ratio = --------------------Total Assets C) Fixed assets ratio: This ratio indicates the mode of financing fixed assets. This is the ratio of fixed assets to capital employed. Capital employed = Equity share capital + Preference share capital + Reserves and surplus + Long-term liabilities Fictitious assets Fixed Assets Fixed Assets Ratio = --------------------------Capital Employed D) Interest coverage ratio or debt Service ratio: This ratio indicates whether a business is earning sufficient profits to pay the interest charges. It is calculated as follows: PBIT Debt Service Ratio = ------------------------------Fixed Interest charges PBIT = Profit before Interest and Taxes.

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3. ACTIVITY RATIOS or TURNOVER RATIOS: An activity ratio measures the efficiency or effectiveness with which a firm manages its resources or assets. They calculated the speed with which various assets, in which funds are blocked up, get converted into sales. The significant activity or turnover ratios are: A) Inventory Turnover ratio: Stock turnover ratio indicates the number of times the stock has turned over into sales in a year. It is calculated as: Cost of goods or sales Inventory Turnover Ratio = -------------------------------Average Stock Cost of goods sold = sales gross profit Average stock = (Opening Stock + Closing Stock)/2 B) Debtors Turnover ratio: It expresses the relationship between debtors and sales. It is calculated as: Net credit sales

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Debtors Turnover ratio = ----------------------------Average Debtors C) Creditors Turnover ratio: It expresses the relationship between creditors and purchases. It is calculated as: Net credit purchases Creditors Turnover ratio = ----------------------------------Average Creditors

D) Working capital turnover ratio: This ratio is used to know the efficient utilization of fund. It is calculated as: Cost of goods sold Working capital turnover ratio = ------------------------------Working Capital 4. PROFITABILITY RATIOS: A profitability ratio measures the profitability of a concern. Generally they are calculated either in relation to sales or in relation to investment. A) General Profitability Ratios:

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a. Gross Profit Ratio: It reveals of trading operations of the business. It is calculated as: Gross Profit Gross Profit Ratio = --------------------Net Sales Gross Profit = Net sales cost of Goods sold Net sales = Total sales Sales returns Cost of goods sold = opening stock + purchases + manufacturing expenses closing stock.

b. Net Profit Ratio: It expresses the relationship between expenses incurred for running the resultant net sales. It is calculated as: Operation Cost Operating Ratio = ------------------------------Net sales Operating cost = cost of goods sold + office & administrative expenses + selling expenses + distribution expenses.

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B) Overall Profitability Ratios: a. Return on Assets ratio: It is calculated as: PAT Return on Assets ratio = ----------------------------Total Assets Total assets do not include fictitious assets. b. Return on Capital Employed: It is calculated as: PBIT Return on Capital Employed = --------------------------Capital Employed PBIT = profit before interest and tax. Capital Employed = Share Capital + Reserves & surplus + Long term loan Fictitious Assets c. Return on net worth: It is calculated as: PAT Return on net worth = -------------------------------Net worth

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 Net worth = Share Capital + Reserves and Surplus

COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2009-10 TO 2010-11 Particulars Sources of funds share holders funds Capital Reserves and Surpluses Deferred revenue on account against depreciation LOAN FUNDS Secured Loans 2009-2010 (Rupees) 82455 361132 443587 4408 2010-11 (Rupees) 82455 403513 485968 6567 Change Amount 42381 42381 2159 11.7 9.6 49.0 Percentage (%)

57327
65

68229

10902

19.0

Unsecured Loans Deferred tax liability (NET) Less: Recoverable TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Depreciation Net Block Capital work in progress Construction stores & advances Investments Current assets loan & advances Inventories Sundry debtors Cash & Bank balances Other current assets Loans & Advances Less: Current liabilities and provisions Liabilities Provisions Net Current Assets Total

144646 206381 53224 53223 1 649968 460396 299501 160895 103999 32341 297235 192891 23405 8679 84714 10161 30287 157246

176615 251411 54427 54426 1 737379 507273 250792 256481 128567 39825 424873 160943 25102 12583 133146 10580 40476 221887

31969 45030 1203 1203 87411 46877 (48709) 95586 24568 7484 127638 (31948) 1697 3904 48432 419 10189 64641

22.1 21.8 2.3 2.3 13.4 10.2 (16.3) 59.4 23.6 23.1 23.1 (16.6) 7.3 45.0 57.2 4.1 33.6 41.1

49102 12300 61402 95844 649968

54221 16042 70236 151624 737379

5119 3742 8861 55780 87411

10.4 30.4 14.4 58.2 13.4

Interpretation:
1. The company balance sheet of the company during the year 2009-10 reveals that the current assets have increased by 64641 i.e. 41.1%.
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2. There is increase in current assets we can say the short term solvency of the company is good. 3. The current liabilities have increase by 8861 i.e. 14.4%. 4. Fixed assets have increased by 127638 i.e. 42.9% 5. There is increase in share holder funds of company that is why we can say the long term solvency of the company is good satisfaction.

COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2008-09 TO 2009-10 Particulars 2008-2009
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2009-10

Change

Percentage

(Rupees) Sources of funds share holders funds Capital Reserves and Surpluses Deferred revenue on account against depreciation LOAN FUNDS Secured Loans Unsecured Loans Deferred tax liability (NET) Less: Recoverable TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Depreciation Net Block Capital work in progress Construction stores & advances Investments Current assets loan & advances Inventories Sundry debtors Cash & Bank balances Other current assets Loans & Advances Less: Current liabilities and provisions Liabilities Provisions Net Current Assets Total 52306 15161 67467 61606 492015 82455 335308 417763 3374

(Rupees) 82455 361132 443587 4408

Amount 25824 25824 1034 7.7 6.2 30.6

(%)

44407 26471 74252 50570 50569 1 492015 431062 207914 223148 67063 67063 322433 207977 17777 13747 60783 9714 27052 129073

57327 144646 206381 53224 53223 1 649968 460396 299501 160895 103999 32341 297235 192891 23405 8679 84714 10161 30287 157246

12920 118175 118175 2654 2654 157953 29334 91587 (62253) 36936 119 (25198) (15086) 5628 (5068) 23931 447 3235 28173

29.1 446.4 177.9 5.2 5.2 32.1 6.8 44.1 (27.9) 55.1 0.4 (7.8) (7.3) 31.7 (36.9) 39.4 4.6 12.0 21.8

49102 12300 61402 95844 649968

3204 2861 6065 34238 157953

6.1 18.9 9.0 55.6 32.1

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Interpretation:
1. The company balance sheet of the company during the year 2008-09 reveals that the current assets have increased by 28172 i.e. 22%. 2. There is increase in current assets we can say the short term solvency of the company is good. 3. The current liabilities have increase by 6065 i.e. 9.00%. 4. Fixed assets have decreased by -25198 i.e. -7.8% 5. There is increase in share holder funds of company that is why we can say the long term solvency of the company is good satisfaction.

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COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2007-08 TO 2008-09 Particulars Sources of funds share holders funds Capital Reserves and Surpluses Deferred revenue on account against depreciation LOAN FUNDS Secured Loans Unsecured Loans Deferred tax liability (NET) Less: Recoverable TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Depreciation Net Block Capital work in progress Construction stores & advances Investments Current assets loan & advances Inventories Sundry debtors Cash & Bank balances Other current assets Loans & Advances Less: Current liabilities and 2007-2008 (Rupees) 78125 277376 355501 1591 2008-09 (Rupees) 82455 335308 417763 3374 Change Amount 4330 57932 62262 1783 Percentage (%) 5.5 20.9 17.5 112.1

45844 108684 156119 52280 82279 1 511620 400281 187736 212545 56413 18540 287498 173380 17380 4699 6091 80023 27275 135468

44407 26471 74252 50570 50569 1 492015 431062 207914 223148 67063 67063 322433 207977 17777 13747 60783 9714 27052 129073

(1437) (82213) (81867) (1710) (31710) (19605) 30781 20178 10603 10650 13682 34935 34597 397 9048 54692 (70309) (223) (6395)

(3.1) (75.6) (52.4) (3.3) (38.5) (3.8) 7.7 10.7 5.0 18.9 73.8 12.2 20.0 2.3 192.6 897.9 (87.9) (0.8) (4.7)

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provisions Liabilities Provisions Net Current Assets Total

65244 15697 80941 54527 511620

52306 15161 67467 61606 492015

12938 536 (13474) 7079 (19605)

19.8 3.4 (16.6) 13.0 (3.8)

Interpretation:
1. The company balance sheet of the company during the year 2007-08 reveals that the current assets have increased by -6395 i.e. 4.7%. 2. There is increase in current assets we can say the short term solvency of the company is good. 3. The current liabilities have increase by 13474 i.e. 16.6%. 4. Fixed assets have decreased by 34935 i.e. 12.15% 5. There is an increase in capital that is 4330 i.e.5.5%..

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COMPARATIVE BALANCE SHEET ANALYSIS FOR THE YEAR 2006-07 TO 2007-08 Particulars Sources of funds share holders funds Capital Reserves and Surpluses Deferred revenue on account against depreciation LOAN FUNDS Secured Loans Unsecured Loans Deferred tax liability (NET) Less: Recoverable TOTAL APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Depreciation Net Block Capital work in progress 2006-2007 (Rupees) 78125 237002 315127 271 2007-08 (Rupees) 78125 277376 355501 1591 Change Amount 40374 40374 1320 Percentage (%) 17.0 12.8 487.1

41226 90931 132428 44379 44378 1 447555 366106 167456 198650 51543
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45844 108684 156119 52280 82279 1 511620 400281 187736 212545 56413

4618 17753 23691 7901 37901 64065 34175 20280 13895 4870

11.2 19.5 17.9 17.8 85.4 14.3 9.3 12.1 7.0 9.4

Construction stores & advances Investments Current assets loan & advances Inventories Sundry debtors Cash & Bank balances Other current assets Loans & Advances Less: Current liabilities and provisions Liabilities Provisions Net Current Assets Total

12320 262513 36674 17712 124349 5447 25149 21475 194132

18540 287498 173380 17380 4699 6091 80023 27275 135468

6220 24985 136706 (332) (119650) 644 54874 5800 (58664)

50.5 9.5 372.8 (1.9) (96.2) 11.8 218.2 27.0 (30.2)

32202 11648 43850 150282 447555

65244 15697 80941 54527 511620

(33042) (4049) 37091 95755 64065

(102.6) (34.8) 84.6 63.7 14.3

Interpretation:
1. The company balance sheet of the company during the year 2006-07 reveals that the current assets have increased by 58664 i.e. 30.2%. 2. There is increase in current assets we can say the short term solvency of the company is good. 3. The current liabilities have increase by 37091 i.e. 84.6%. 4. Fixed assets have decreased by 24985 i.e. 9.5%

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5. There is increase in share holder funds of company that is why we can say the long term solvency of the company is good.

I.

LIQUIDITY RATIOS

CURRENT RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Current Assets 160756 167799 194132 135468 159073 Current Liabilities 67324 48146 45850 80941 67467 Ratio 2.39 3.49 4.23 1.67 2.36

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Interpretation: The above table shows that the liquidity position of the firm is very good. The current assets increased on the whole from 2006-07 to 2008-09. This is because of continues increases in sundry debtors and decreases in loans and advances. Though inventory and bank balance fluctuated during these 5 years and the other current assets increasing by 2010. It also implies a large part of the current assets is idle. QUICK RATIO YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Quick Assets 142400 147655 176420 118080 145650 Quick Liabilities 67320 48140 45850 80946 67467 Ratio 2.12 3.07 3.85 1.46 2.16

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Interpretation: The above table shows that the liquidity position of the firm is very good. The quick assets increased on the whole from 2006-07 to 2008-09. The company should make sure that it should not increase its ratio more than 1 its not advisable the present position companies ratio indicates normal liquidity position in the business.

II.

LEVERAGED OR CAPITAL STRUCTURE RATIOS

DEBT & EQUITY RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Long term Liabilities 98047 115812 132157 138263 160878 Shareholders fund 258117 286453 315040 335501 417763 Ratio 0.38 0.40 0.42 0.41 0.39

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Interpretations: From the above it is clear that shareholders fund is more than that of the long term debt. So, we can infer that the firm assets are financed more by the internal funds rather than the external funds by which it is using its resources more effective.

PROPRIETARY RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Net Worth 258117 280453 315040 355501 417763 Total Assets 423489 450411 493319 596346 659483 Ratio 0.61 0.62 0.64 0.60 0.63

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Interpretation: As the total debt ratio represents relationship of the owners funds to total assets, higher the ratio the better the solvency position of the firm. The above ratio shows that the 5 years ratios more than 50%. So we consider that the long term solvency of the firm is satisfaction.

FIXED ASSETS RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Fixed Assets 184450 177697 190019 188178 225069 Capital Employed 174657 176781 198650 212545 223148 Ratio 1.06 1.01 0.96 0.89 1.01

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Interpretation: This ratio indicates the mode of financing the fixed assets. A financially well managed company will have its fixed assets financed by long term funds. Therefore the fixed assets ratio should never be more than one. The ratio of 0.89 is considered ideal. Here the companys ratio is ideal in 2009-10 and then it increased in 2010-11, which indicates that the company reduced financing the fixed assets by along term funds. INTEREST COVERAGE/DEBT SERVICE RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 EBIT 51656 46201 47456 92594 77837 Fixed Interest 10918 8680 9916 33697 16958 Ratio 4.73 5.32 4.79 2.75 4.59

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Interpretation: The above ratio indicates that the firm covers a good deal of interest liability with the operation profit of the firm. The ratio of the company is increasing every year. This indicates the company is earning sufficient profits to pay the interest charges of the investors.

III.

ACTIVITY OR TURNOVER RATIOS

INVENTORY RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Cost of Goods Sold 14103 13830 15024 11250 10525 Average Inventory 1975 1962 2096 1605 1512 Ratio 7.14 7.05 7.17 7.01 6.96

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Interpretation: The ratio indicates the efficiency of the firm is selling its products or services. A high ratio indicates efficient management of inventory. In the above ratio it indicated that the inventory is getting converted into cash in the five years. This implies that the management of inventory is satisfied. DEBT TURNOVER RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Cost of Credit Sales 18256 17952 17236 17025 16986 Average Debtors 2186 2170 2109 2052 2053 Ratio 8.35 8.27 8.17 8.30 8.27

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Interpretation: The debtors turnover ratio of 10-12 is considered to be ideal. A high ratio is indicative of a sound credit management policy; this ratio has been fluctuating due to increase in sales and debtors. The ratio as decreased in 2008-09 but again increased towards the ideal ratio.

CREDITORS TURNOVER RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Credit Purchase 18256 17952 17236 17025 16986 Average Creditors 5256 4896 4860 5012 4806 Ratio 3.47 3.67 3.55 3.40 3.53

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Interpretation: The creditors turnover ratio is more indicates the firm is not able to get the best terms of credit. A low creditors turnover ratio indicates the companies inability in meeting its obligations in time. The company ratio is fluctuating and low but satisfactory in meeting its obligations in time.

WORKING CAPITAL TURNOVER RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Sales 189450 177697 190019 188178 225069 Working Capital 93427 119651 148282 54527 61606 Ratio 2.03 1.49 1.28 3.45 3.65

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Interpretation: From the above ratio it indicates that utilization of the working capital is not, so efficient but is satisfactory, as it is turned over at least once in all the five years i.e. in the year 2009-09, it turned to 3.45 which are satisfactory. In the year 2010-11 it is 3.65.

FIXED ASSETS TURNOVER RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Sales 189450 177697 190019 188178 225069 Fixed Assets 184657 176781 198650 212545 223385 Ratio 1.03 1.01 0.96 0.89 1.01

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Interpretations: The above ratios indicate that the fixed asset turnover ratios are in the increasing trend, which is satisfactory. It shows that there is a scope for increasing in production and sales with effective use of fixed assets. But 2009-10 year the ratio is decreased to 0.89.

IV.

PROFITABILITY RATIOS

GROSS PROFIT RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Gross Profit 51655 45700 38343 59080 60680 Sales 189450 179697 190019 188178 225069 Ratio 0.27 0.25 0.20 0.31 0.26

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Interpretation: This ratio indicates the extent to which selling prices of goods per unit way decline without resulting losses in operation of a firm. The higher the ratio the better the results. It lies that the profitability of the firm is satisfactory and it is covering various operation expenses without incurring losses. NET PROFIT RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Net Profit 37338 35396 36078 52608 58070 Sales 189450 179697 190019 188178 225069 Ratio 0.20 0.20 0.19 0.28 0.26

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Interpretation: The above ratio shows that the firms earning the constant returns over its sales. The above table shows that the firm is earning profit over its Net sales, which is good for any manufacturing concern.

OPERATING RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Operating Profit 51656 46201 47456 92594 77758 Sales 189450 179697 190019 188178 225069 Ratio 0.27 0.26 0.25 0.49 0.35

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Interpretation: From the above table we can inter that more than 80% of the sale has been consumed by the operating profit, only less than 20% is left to cover interest charges, income tax payments, dividend and the retention of profits as a reserve.

OVERALL PROFITABILITY RATIOS RETURN ON TOTAL ASSETS RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 Profit After Tax 37338 35396 36075 52608 58070 Average Total Assets 211745 225205 246660 298173 329742 Ratio 0.18 0.16 0.15 0.18 0.18

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Interpretation: With the help of above ratio we can inter that the return on assets is increasing from year to year which is very good and it reflects that the resources are effectively utilized.

RETURN ON CAPITAL EMPLOYED RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 EBIT 51656 46201 47456 92594 77837 Capital Employed 174657 176781 198650 212545 223148 Ratio 0.30 0.26 0.24 0.44 0.35

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Interpretation: The above ratio indicate that the profit of the company is in increasing trend and the capital employed is also increasing which helps in increasing the return on capital employed.

RETURN ON NET WORTH RATIO: YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 PAT 37338 35396 36075 52608 58070 Net worth 258117 280453 315040 355501 417763 Ratio 0.14 0.13 0.11 0.15 0.14

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Interpretation: The higher the ratio the better it is. It indicates the return which the shareholders are earning on their resources invested in the business. The investors of the company are earning high level of returns which are increasing though slightly decreased in 2010-11.

CONCLUSIONS
The present study entitled Techniques of financial analysis in National Thermal Power Corporation Ltd. Is taken up by me in partial fulfillment of the award of Degree of Master of Business Administration. During my study, based on the data collected and presented the earlier chapter the following observations were made. 1. The sales to assets ratio is reveals that except in 2007-08, in all the years it is more than I indicating good sales position of the firm in the market.

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2. During the study period the working capital position is found to be satisfactory. In last 2 years of study current assets are more than double to that of current liabilities. 3. The net profit is more in the last year i.e. 63.7% because of the reduced operation expenses. 4. It is observed that the total assets are almost same during the same period with a slight variation of 1% to 3%. 5. Over all the company current position is good but years 2005-06 & 2005-04 the company current position not good. 6. The company paid to the dividend to shareholders in last year 2009-2010 it is the more than the last 4 years company debt position is good. 7. The company equity capital in year 2005-06 is 78125 millions but last 3 years capital is 82455 millions is increase of 5.5%.

SUGGESTIONS
1. Company should maintain adequate liquidity. 2. To improve the liquidity position of the company it is suggested that the company shall finance more in current assets or pay off part of current liabilities from long term funds.

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3. Company should take the measure to promote its sales, which improves the profit of the firm. 4. It should concentrate on long term funds. If long term funds are utilized for working capital problem will not arise in future. 5. Company should maintain adequate reserves. 6. It should try to raise its owner equity to see that the interest burden (because of debt capital) be reduced. 7. It should control the operating costs further and should also see that the cost of production will be low. 8. A wise policy will be taken by the company to finance fixed assets by raising long term funds. 9. Company should take some measure to increase the return on investment. It should try to utilize the funds to the maximum extent. 10. Company should try to utilize its assets to extent.

BIBLIOGRAPHY

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BOOKS: Foster G, Financial Statements Analysis, Prentice-Hall, Englewood Cliff, 1986. Helfert. EH Techniques for Financial Analysis, Irwin, Homewood, 1997. M.Y.Khan and P.K Jain Financial Management, Tata McGraw-Hill. R.K sharma and Shashi K.Gupta, Management Accounting, Sultan Chand & Sons, New Delhi. WEBSITES:
www.ntpc.co.in www.ntpcindia.com

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