A Report on

Financial Analysis of Bharat Heavy

Electricals Ltd.

Submitted To: Prof. P. K. Priyan

Submitted by: Shikha Karamchandani

Subject: Financial Management

Roll No.: 15038

Division: A

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 Table of contents

Sr. No. Particular Page No.

1. Acknowledgement 3
2. Preface 4
3. Introduction of company 5
4. Analysis of Financial Statements 6
5. Ratio Analysis 7
6. Liquidity Ratio 7
7. Leverage Ratio 9
8. Profitability Ratio 11
9. Activity Ratio 14
10. Valuation ratio 17
11. Du-Pont analysis 20
11. Analysis of Cash flow Statement 22
12. Cash flow from operating activity 23
13. Cash flow from investing activity 24
14. Cash flow from financing activity 25
15. Working capital 26

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 Acknowledgement

I am feeling great pleasure to submit this report on Financial Statement

Analysis of Bharat heavy Electricals Ltd and thankful to all who have helped
me in this work. No creation in this world is a solo effort. Neither is this project.
From the person who makes photo copies of the project to the person who
checks my project, everyone has a role. Thank you is a very small word to
express my feelings for them, but still I try. My professors, you that are have
made me what i am. Please, continue with your support.

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 Preface

The process of reviewing and evaluating a company's financial statements (such as the
balance sheet or profit and loss statement), thereby gaining an understanding of the financial
health of the company and enabling more effective decision making. Financial statements
record financial data; however, this information must be evaluated through financial
statement analysis to become more useful to investors, shareholders, managers and other
interested parties.

Financial statement analysis is an evaluative method of determining the past, current and
projected performance of a company. Several techniques are commonly used as part of
financial statement analysis including horizontal analysis, which compares two or more years
of financial data in both dollar and percentage form; vertical analysis, where each category of
accounts on the balance sheet is shown as a percentage of the total account; and ratio
analysis, which calculates statistical relationships between data.

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 BHARAT HEAVY ELECTRICALS LIMITED

Bharat Heavy Electricals Limited (BHEL), owned by Government of India, is a power

plant equipment manufacturer and operates as engineering and manufacturing company based
in New Delhi, India. Established in 1964, BHEL is India's largest engineering and
manufacturing company of its kind. The company has been earning profits continuously since
1971-72 and paying dividends uninterruptedly since 1976-77.

BHEL was established in 1964. Heavy Electricals (India) Limited was merged with BHEL in
1974. In 1982, it entered into power equipment, to reduce its dependence on the power sector.
It developed the capability to produce a variety of electrical, electronic and mechanical
equipment for all sectors, including transmission, transportation, oil and gas and other allied
industries. In 1991, it was converted into a public limited company. By the end of 1996, the
company had handed over 100 Electric Locomotives to Indian Railway and installed 250
Hydro-sets across India.

It is engaged in the design, engineering, manufacturing, construction, testing, commissioning

and servicing of a wide range of products, systems and services for the core sectors of the
economy, viz. Power, Transmission, Industry, Transportation, Renewable energy, Oil & Gas
and Defence.

With a widespread network of 17 manufacturing units, 2 repair units, 4 regional offices, 8

service centres, 8 overseas offices, 15 regional centres, 7 joint ventures, and infrastructure to
execute more than 150 project sites across India and abroad, BHEL provides products,
systems and services to customers efficiently and at competitive prices. The company has
established capability to deliver 20,000 MW p.a. of power equipment to address the growing
demand for power generation equipment.

BHEL has retained its market leadership position during 2013-14 with 72% market share in
the Power Sector, even while operating in a difficult business environment. Improved focus
on project execution enabled BHEL record highest ever commissioning/synchronization of
13,452 MW of power plants in domestic and international markets in 2013-14, marking a
30% increase over 2012-13. The company has added more than 1,24,000 MW to the country's
installed power generating capacity so far.

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It also has been exporting its power and industry segment products and services for over 40
years. BHEL's global references are spread across over 76 countries across all the six
continents of the world. The cumulative overseas installed capacity of BHEL manufactured
power plants exceeds 9,000 MW across 21 countries
including Malaysia, Oman, Iraq, UAE, Bhutan, Egypt and New Zealand. Their physical
exports range from turnkey projects to after sales services.

Analysis of Financial Statements

Financial analysis depended primarily on financial statements to diagnose financial

performance. It appears that there are three principle reasons: (i) As long as the accounting
biases remain more or less the same over time, meaningful interferences can be drawn by
examining trends in raw data and in financial ratios. (ii) Since similar biases characterise
various firms in the same industry, inter-firm comparisons are useful. (iii) Experience seems
suggest that financial analysis works if one is aware of accounting biases and makes
adjustments for the same. While information found in published financial statements is often
not enough to form conclusive judgements about firm performance, financial statements do
provide important clues about what needs to be examined in greater detail. Analysis of
financial statements is interest to lenders, investors, security analysts, managers, corporate
boards, regulators, and others. Financial statement analysis may be done for a variety of
purposes, which may range from a sample analysis of the short term liquidity position of the
firm to a comprehensive assessment of the strengths and weaknesses of the firm in various
areas. It is helpful in assessing corporate excellence, judging creditworthiness, forecasting
bond rating, predicting bankruptcy, and assessing market risk.

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 Ratio Analysis

Financial ratio analysis is a study of ratios between various items of groups in financial
statements.
1) Liquidity ratio:
Liquidity ratio measure the ability of the firm to meet its current obligations.
a) Current ratio:
Current ratio is calculated by dividing current assets by current liabilities:
Current ratio: Current assets
Current liabilities

Year Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Current 1.74 1.70 1.83 2.40 2.18
ratio

Current ratio
3

2.5

2
Current ratio
1.5

0.5

0
2010-11 2011-12 2012-13 2013-14 2014-15

For the past 10 years of BHEL there is variation in current ratio. It was highest in 2014 which
was 2.04 it shows good asset position of the company and least value was in 2009.There were

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 sufficient liquidity in year 2014. The margin of safety was higher in 2014.It was decreasing
from March 2007 to March 2009. It is increasing from March 2012 to March 2014.

b) Quick ratio:

Quick ratio, also called acid-test ratio, establish relationship between quick, or liquid, asset and
current liabilities.

Quick ratio=current assets-inventory

Current liabilities

Descri Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
ption
Quick 1.65 1.41 1.23 1.30 1.03 1.02 1.09 1.14 1.18 1.20
ratio

Quick Ratio(x)
1.80
1.60
1.40
1.20
1.00 Quick Ratio(x)
0.80
0.60
0.40
0.20
0.00

Quick ratio is a more penetrating test of liquidity than current ratio. It has minimum value of
1.02 in 2009 and maximum value of 1.65 in 2014.In March 2009 it has value of 1.02 which
means company is company has all most same current obligation to its quick asset. It is
decreasing from 2005 to 2009.It is further increasing from 2012.

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 2) Leverage ratio:
To judge the long-term financial position of the firm, leverage ratios are calculated.

a) Interest coverage ratio:

The interest coverage ratio shows the number of items the interest charges are covered by
funds that are ordinarily available for payment.

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
Interest 38.81 76.30 201.90 165.54 197.74 158.89 126.08 87.22 44.65 20.43
coverag
e ratio

Interest Cover(x)
250.00
200.00
150.00 Interest Cover(x)
100.00
50.00
0.00

A high interest coverage ratio means that the company can easily pay its interest burden even
if profit after interest and taxes suffers a considerable decline. Here it is increases from year
2005 to 2012. It decreases in last two year .It was highest in 2012 and lowest in 2005. That
means company can easily pay interest in 2012.

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 b) Debt equity ratio:
Debt equity ratio is directly computed by dividing total debt by net worth.
Debt-Equity ratio=total debt
Net worth

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
Debt- 0.08 0.05 0.01 0.01 0.01 0.01 0.01 0.01 0.08 0.09
equity
ratio

Debt-equity ratio
0.1
0.09
0.08
0.07
0.06
0.05 Debt-equity ratio
0.04
0.03
0.02
0.01
0

Here for most of time debt-equity ratio remain same. It has highest value in year 2005 and
lowest value of 0.01 for all six year. In all year it has small value that means lenders
contribution for each rupee of owners contribution is small.

3) Profitability ratio:

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 The profitability ratios are calculated to measure the operating efficiency of the company.
There are two types of profitability ratios: profit margin ratio and rate on return ratios.
a) ROA:
The return on assets (ROA) is defined as:
ROA= profit after tax
Average total asset

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
ROA 4.42 8.74 10.78 11.10 8.94 7.93 9.62 10.71 6.64 14.70
(%)

ROA (%)
12.00

10.00

8.00

6.00 ROA (%)

4.00

2.00

0.00

ROA is an odd measure because its numerator measures the return to shareholders whereas its
denominator represents the contribution of all investors. It has highest value in 2005 and
lowest value 2014.It is decreasing after March 2011 to 2014.

b) EBITM:
This ratio is calculated on the earnings before interest and tax with relation to sales. It is
calculated by:
EBITM = EBIT
Sales

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Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
EBITM 12.72 18.99 20.78 20.58 19.12 17.09 20.46 19.77 17.72 15.46
(%)

EBITM (%)
25.00

20.00

15.00
EBITM (%)
10.00

5.00

0.00

The earnings before interest and tax margin of the company was fluctuating due to the selling
and administrating expense changes. In2012 it has highest value and in 2014 it has lowest
value. It is increasing for 2005 to 2008. Then it is decreases somehow. This margin is affected
by the selling and administrated expenses not the manufacturing expenses.

c) Profit before tax margin:

Taxes are not controllable by a firm, and also, one may not know the marginal corporate tax
rate while analysing the published data. Therefore, the margin ratio may be calculated on
before tax basis:
EBIT Interest
Sales

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
EBITM 12.40 18.74 20.68 20.46 19.02 16.99 20.30 19.54 17.32 14.70
(%)

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 Pre Tax Margin(%)
25.00
20.00
15.00
Pre Tax Margin(%)
10.00
5.00
0.00

In the case of this company it is fluctuating .It is increase from 2005 to 2008. Then decreases
in 2009.Further it is increases up to 2012.because of increases in sales. After 2012 somehow
it is decreases .In 2014 it is lowest because of high interest rate.

.
4) Activity ratios:
Activity ratios are employed to evaluate the efficiency with which the firm manages and
utilises its assets.

a) Asset turnover ratio:

ATR=sales
Net asset

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
ATR 0.52 0.66 0.76 0.81 0.72 0.72 0.73 0.85 0.83 0.75

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 Asset Turnover(x)
0.90
0.80
0.70
0.60
0.50 Asset Turnover(x)
0.40
0.30
0.20
0.10
0.00

It gives value of how net assets are turnover over the period of time. In this case it has highest
value of 0.85 in year 2007. This ratio shows the maximum utilisation of net assets. It has
lowest of 0.52 in 2014 which means it has least utilisation in 2014.It remains same for year
2009 and 2010.After that it somehow increases and then continuously decreases.

b) Inventory turnover ratio:

Inventory turnover indicates the efficiency of the firm in producing and selling its product.
ITR=COGS
Inventory

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
ITR 3.75 3.98 4.08 4.38 4.06 4.21 4.38 4.80 4.44 4.29

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 Inventory Turnover(x)
6.00

5.00

4.00

3.00 Inventory Turnover(x)

2.00

1.00

0.00

In the case of this company it is continuously decreases after 2011.It is increases for 2005 to
2007 which means the efficiency of the firm and the effective working capital management. It
defines the inventory holding period of the firm. So, the inventory holding period of the
company should be less. In this it is increases.

c) Account receivable (Debtors) turnover ratio:

It measures how many times the receivables have been turned over into cash during the year;
it provides insight into quality of the receivables.

A/RTR: credit sales

A/R

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
A/RTR 1.41 1.81 2.14 2.16 1.89 2.04 2.02 2.28 2.25 2.03

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 Debtors Turnover(x)
2.50

2.00

1.50
Debtors Turnover(x)
1.00

0.50

0.00

From 2005 to 2007 it is increases because of the lower debtors while from 2011 to 2014.It are
decreases due to higher number of debtors. It has highest value of 2.28 in 2007 which means
that year has higher number of debtors. . If Debtors turnover ratio is multiplied by 360 days
than we got the average collection period. So it defines the efficiency of the firm and
goodwill of the firm.

5) Valuation ratio(Market ratio):

a) EPS(Earnings per Share)

The profitability of the shareholders investment can also be measured in many other ways.
One such measure is to calculate the earnings per share. The earnings per share is calculated
by dividing the profit after taxes by the total number of ordinary shares outstanding.
EPS = Profit after tax
Number of share outstanding

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
EPS 14.14 27.03 28.76 122.80 88.06 64.11 58.41 98.66 68.60 38.95

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 Earnings Per Share (Rs)
140.00
120.00
100.00
80.00 Earnings Per Share
(Rs)
60.00
40.00
20.00
0.00

Earnings per share is highest in year in 2011.It is lowest in year 2014.From 2005 to 2007 it is
increases and after 2011 it is decreases. . It was decreasing because of the increase in the
number of share outstanding with compare to the profit after tax.

b) DPS:
Dividend per share is the earnings distributed to ordinary shareholders divided by the number
of ordinary shares outstanding:
DPS = Earnings paid to shareholders (dividend)
Number of ordinary shares outstanding

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
DPS 2.83 5.41 6.40 31.15 23.30 17.00 15.25 18.50 14.50 8.00

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 DPS(Rs)
35.00
30.00
25.00
20.00 DPS(Rs)
15.00
10.00
5.00
0.00

In year 2011 highest dividend was declared to share holder.in year 2014 lowest dividend was
declared .It is decreasing from 2011 to 2014.It is increasing from 2005 to 2007.But for year
2008 somehow it decreased.

c) Dividend payout ratio

The dividend payout or simply payout ratio is DPS divided by profit after tax.

Payout Ratio = DPS

EPS

Descripti Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
on
Payout 20.01 20.02 22.25 25.37 26.46 26.52 26.11 18.75 21.14 20.54

18
ratio

Dividend Pay Out Ratio(%)

30.00

25.00

20.00
Dividend Pay Out
15.00 Ratio(%)
10.00

5.00

0.00

In March 2010 highest dividend was paid. In March 2007 lowest dividend was paid. It is
continuously decreasing after 2009.

Du Pont analysis:
a) ROCE(Return on capital employed)
It measures overall effectiveness in generating profits with available assets; it defines the
earning power of invested capital:
ROI = EBIT
CE

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
ROCE 15.20 33.25 45.14 49.84 45.47 40.74 45.23 45.16 36.37 26.86
(%)

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 ROCE (%)
60.00

50.00

40.00

30.00 ROCE (%)

20.00

10.00

0.00

It is continuously increases from 2005 to 2008. Then it somehow decreases in 2008 and after
march 2011 it is continuously decreases. So the efficiency of the company is continuously
decreasing sharply.

b) ROE:
A return on shareholders equity is calculated to see the profitability of owners investment.
The shareholders equity or net worth will include paid up share capital, share premium and
reserves and surplus less accumulated losers. Net worth can also be found by subtracting total
liabilities from total assets.
ROE = Profit after tax
Net worth (Equity)

Descrip Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
tion
ROE 10.90 23.70 30.93 33.33 29.88 26.47 29.23 30.02 25.02 16.87
(%)

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 ROE (%)
35.00
30.00
25.00
20.00 ROE (%)
15.00
10.00
5.00
0.00

It is increases from year 2005 to 2007.After 2011 it is continuously decreases. , because of

the increasing into the net worth with compare to that of profit after tax It has lowest value of
10.90 in 2014.

Cash Flow Statement

The purpose of the statement of cash flows is to report a firms cash inflows and outflows,
during a period of time, segregated into three categories: operating, investing and financing
activities. This statement explains changes in cash and cash equivalents, such as treasury bills
etc. by listing the activities that increased cash and those that decreased cash. Each activitys
cash inflow or outflow is segregated according to one of three broad category types:
operating, investing or financing activity. The analysis of cash flows is useful for short run
planning. A firm needs sufficient cash to pay debts maturing in the near future, to pay interest
and other expenses and to pay dividend to shareholders. A statement of changes in financial
position on cash basis, commonly known as the cash flow statement, summarizes the causes
of changes in cash position between dares of two balance sheets. It indicates sources and uses
of cash.
Sources of cash
The profitable operations of the firm

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 Decrease in assets
Increase in liabilities
Sale proceeds from an ordinary or preference share issue

Uses of cash
The loss from operations
Increase in assets (accept cash)
Decrease in liabilities
Redemptions of redeemable preference shares
Cash dividends

Cash flow from operating activity

Descripti Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
on
Cash flow 4518.1 1864.7 -813.57 2658.62 1585.06 3291.22 3477.9 2821.37 1623.83 818.29
from 4 8 0
operating
activity

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 Cash From Operating Activities
5000.00

4000.00

3000.00
Cash From Operating
2000.00 Activities

1000.00

0.00

-1000.00

-2000.00

The operating activity includes cash flow from sales of goods and services, return of loans,
supply of inventory, employee expenses, interests, taxes and other operating expenses. It is
continuously increasing from 2005 to 2009. It shows the better operating management. In the
following year 2010 it was decreases.in year 2012 it is negative. It shows worst operating
management in this year. These cash flows are generally the cash effects of transactions that
enter into the determination of net income.

Cash Flow from investing Activity

Descriptio Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-
n 5
Cash flow -168.07 -338.05 -329.70 -1342.82 -966.64 -512.82 -12.54 -212.66 -156.51 -
from 35.25
investing
activity

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 Cash Flow from Investing Activities
200.00
0.00
-200.00 1 2 3 4 5 6 7 8 9 10

-400.00 Cash Flow from

Investing Activities
-600.00
-800.00
-1000.00
-1200.00
-1400.00

The cash flow from investing activity includes cash from sale of fixed assets like property,
plant, equipment etc., sale of debt or equity securities or other entities, acquire fixed assets or
purchase of debt equity securities. It shows impact of buying and selling fixed assets and
debt or equity securities of other entities. It is decreasing from 2005 to 2007.It somehow
increased in 2008.Then it is continuously decrease up to 2011.

Cash Flow from financing activity

Description Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
Cash flow -209.19 -466.66 -1814.90 -1475.73 -1143.01 -849.75 -888.25 -933.77 -511.21 -264.82
from
financing

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activity

Cash from Financing Activities

0.00
-200.00
-400.00
-600.00 Cash from Financing
-800.00 Activities
-1000.00
-1200.00
-1400.00
-1600.00
-1800.00
-2000.00

Cash flow from financing activity includes cash from borrowings, cash from the sale of the
owners own equity securities, payment of borrowed amount, and purchase of firms own
equity securities, payment of dividend to shareholders. It shows the impact of all transactions
with shareholders and the borrowing and repaying transactions with lenders. It is decreasing
till 2007. For 2008 and 2009 it is increases. Then it is decreases till 2012.

Working capital

Description Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-9 Mar-8 Mar-7 Mar-6 Mar-5
Changes in -534.03 -5552.31 -8585.20 -4024.65 -3686.68 1198.56 1863.79 597.58 -78.09 -295.41
working
capital

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 Changes In working Capital
2000.00

0.00

-2000.00 Changes In working

Capital
-4000.00

-6000.00

-8000.00

-10000.00

Working capital is the difference between current assets and current liabilities. This is from
management view point; however, it makes little sense to talk about trying to actively manage
a net difference between current assets and current liabilities, particularly when that
difference is continually changing. The current assets of a typical manufacturing firm account
for over half of its total assets. Excessive levels of current assets can easily result in a firm
realising a substandard return on investment. It is increasing from 2005 to 2009. It is sharply
decrease in 2010.

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