Professional Documents
Culture Documents
Ratio Analysis
Ratio Analysis
CHAPTER
A
PARTICULARS
LIST OF TABLES
PAGE NO.
2
LIST OF FIGURES
LIST OF ABBREVIATIONS
CHAPTER I
CHAPTER III
CHAPTER IV
CHAPTER V
27
28
28
28
28
28
REVIEW OF LITERATURE
PROFILE
29
30-38
39-76
40
63
77-113
114-118
5.1 Findings
115
5.2 Suggestions
117
5-29
119-123
6.1 Conclusion
120
6.2 Bibliography
121
APPENDICES
124-136
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LIST OF TABLES
SR. NO.
PARTICULARS
PAGE NO.
Current Ratio
78
Liquid Ratio
80
83
86
Proprietary Ratio
88
90
92
94
96
10
98
11
100
12
102
13
104
14
106
15
108
16
110
17
112
18
Expenditure on EPC
114
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LIST OF FIGURES
SR. NO.
PARTICULARS
PAGE NO.
Current Ratio
79
Liquid Ratio
81
83
85
Proprietary Ratio
87
89
91
93
95
10
97
11
99
12
101
13
103
14
105
15
107
16
109
17
111
18
Expenditure on EPC
113
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LIST OF ABBREVIATIONS
GDP
EPS
ROI
OBC
ETFs
DEA
FDI
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CHAPTER - I
EXECUTIVE SUMMARY, INTRODUCTION AND
DESIGN OF THE STUDY
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1.1
EXECUTIVE SUMMARY
Infrastructure is the basic physical and organizational structures needed for the
operation of a society or enterprise, or the services and facilities necessary for
an economy to function. The term typically refers to the technical structures that
support a society, such as roads, water supply, sewers, power grids, and
telecommunications. Within the Infrastructure of India, the transportation sector
is the most important, including the aviation, ports, roads, rail system and
logistics. The agriculture sector comprises infrastructure-related storage
facilities, construction relating to agro-processing projects and reservation and
storage of perishable goods. Among others essential sectors, real-estate
development, including industrial parks, special economic zones, tourism and
entertainment centers, educational institutions and hospitals and solid waste
management systems, also play significant role in Indian economy.
Reliance Infrastructure Limited is a part of the Reliance Group, one of the
leading business houses in India.
Incorporated in 1929, Reliance Infrastructure is one of Indias fastest growing
companies in the infrastructure sector. It ranks among Indias top listed private
companies on all major financial parameters, including assets, sales, profits and
market capitalization.
Reliance Infrastructure companies distribute more than 36 billion units of
electricity to over 30 million consumers across an area that spans over 1,24,300
sq kms and includes Indias two premier cities, Mumbai and Delhi. The
Company generates over 940 MW of electricity through its power stations
located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa.
Reliance Infrastructure has emerged as the leading player in India in the
Engineering, Procurement and Construction (EPC) segment of the power sector.
In the last few years, Reliance Infrastructure has expanded its foot-print much
beyond the power sector. Currently, Reliance Infrastructure group is engaged in
the implementation of projects not only in the fields of generation, transmission,
distribution and trading of power but also in other key infrastructural areas such
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as highways, roads, bridges, metro rail and other mass rapid transit systems,
special economic zones, real estate, airports, cement, etc.
Thus this thesis is about financial statements analysis of Reliance Infrastructure
Limited. The main motto behind choosing this company is it is one of the
leading private sector undertaking and in the present context of disinvestment
policy of government of India, many of the investors are interested in knowing
the performance of this company and so the study has been undertaken. The
objectives of the research include analyzing the profitability and solvency
position of the company. In order to analyze the financial statements the Ratio
analysis method was used. The expected results would reveal the liquidity,
profitability and solvency position.
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Financial statement:
A financial statement is an organized collection of data according to logical and
consistent accounting procedures. Its purpose is to convey an understanding of
some financial aspects of a business firm. It may show a position at a moment
of time as in the case of a balance sheet, or may reveal a series of activities over
a given period of time, as in the case of an income statement. Thus, the term
financial statement generally refers to the basis statements;
i)
The income statement
An income statement is a summary of the revenues and expenses of business
over a period of time, usually one month, three months, or one year. It
summarizes the results of the firms operating and financing decisions during
that time. Due to income statement Operating decisions of the company
apply to production and marketing such as sales/revenues, cost of goods sold
administrative and general expenses (advertising, office salaries). It provides
operating income/earnings before interest and taxes (EBIT)
ii)
Balance sheets provide the observant with a clear picture of the financial
condition of the company as a whole. It lists in detail the tangible and the
intangible goods that the company owns or owes. These good can be broken
further down into three main categories; the assets, the liabilities and the
shareholders equity.
Assets
Assets include anything that the company actually owns and has disposal
over. Examples of the assets of a company are its cash, lands, buildings, and
real estates, equipment, machinery, furniture, patents and trademarks, and
money owed by certain individuals or/and other businesses to the particular
company. Assets that are owed to the company are referred to as accounts-, or
notes receivables.
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Liabilities
Liabilities are money or goods acquired from individuals, and/or other
corporate entities. Some examples of liabilities would be loans, sale of
property, or services to the company on credit. Creditors (those that loan to
the company) do not receive ownership in the business, only a (usually
written) promise that their loans will be paid back according to the term
agreed upon.
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Shareholder's equity
The shareholders equity (also called as net worth or capital) is money or
other forms of assets invested into the business by the owner, or owners,
to acquire assets and to start the business. Any net profits that are not paid
out in form of dividends to the owner, or owners, are also added to the
shareholders equity. Losses during the operation of the business are
subtracted from the shareholders equity.
standing and profit levels. These statements also help an investor, a regulator or
a company's top management understands operating data, evaluate cash receipts
and payments during a period and appraise owners' investments in the company.
Function
1.
Financial statement analysis allows a corporation to review operating data
and evaluate periodic business performance. For instance, Company A may
analyze levels of cash, inventories and accounts receivable to appraise shortterm assets. A corporation also may analyze financial statements to gauge levels
of cash flows and owner investments. Alternatively, a regulator, such as the
Securities and Exchange Commission (SEC), may review a company's retained
earnings statement to appraise corporate shareholders' accounts.
Time Frame
2.
A company's accounting department may perform financial statement
analysis throughout the year or at a specific point in time. As an example, Mr.
B., an accountant at a large retail store, may review the company's financial
position at the end of the year to gauge cash available and inventory quantities
on hand. Alternatively, Mr. B. may review levels of sales and expenses each
month to understand whether the company's expenses are appropriate based on
sales.
Types
3.
Features
4.
Financial statement analysis is a significant business practice because it
helps top management review a corporation's balance sheet and income
statement to gauge levels of economic standing and profitability. Let's say Mr.
A., the chief financial officer (CFO) of a large distribution company, reviews
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the company's balance sheet and compares short-term assets, such as cash and
inventories, and short-term liabilities, such as salaries, interest and taxes
payable. Mr. A. may note that the $100 million difference between short-term
assets and liabilities (also called working capital) is a sign of economic health.
Benefits
5.
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Types of Analysis
1) Comparative analysis statement
2) Common-size analysis statement
3) Trend analysis
4) Ratio analysis.
1) Comparative financial statement:
Comparative financial statement is those statements which have been designed
in a way so as to provide time perspective to the consideration of various
elements of financial position embodied in such statements. In these statements,
figures for two or more periods are placed side by side to facilitate comparison.
But the income statement and balance sheet can be prepared in the form of
comparative financial statement.
(i) Comparative income statement:
The income statement discloses net profit or net loss on account of operations.
A comparative income statement will show the absolute figures for two or more
periods; the absolute change from one period to another and if desired; the
change in terms of percentages. Since, the figures for two or more periods are
shown side by side; the reader can quickly ascertain whether sales have
increased or decreased, whether cost of sales has increased or decreased etc.
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3) Trend Analysis:
Trend analysis is a study of a company's financial performance over an
extended period of time. Trend analysis helps to understand overall financial
performance over a period of time. In other words it is a detailed examination of
a company's financial ratios and cash flow for several accounting periods to
determine changes in a borrower's financial position. Trend analysis is a key
part of credit underwriting, and is a useful and necessary tool in determining
whether the borrower's financial strength is improving or deteriorating. Key
ratios examined include debt coverage ratio, turnover ratio (conversion of
inventory and receivables to cash), and the quick assets ratio or quick ratio
(current assets divided by current liabilities).
4) Ratio analysis:
Ratio analysis is a widely used tool of financial analysis. The term ratio in it
refers to the relationship expressed in mathematical terms between two
individual figures or group of figures connected with each other in some logical
manner and are selected from financial statements of the concern. The ratio
analysis is based on the fact that a single accounting figure by itself may not
communicate any meaningful information but when expressed as a relative to
some other figure, it may definitely provide some significant information the
relationship between two or more accounting figure/groups is called a financial
ratio helps to express the relationship between two accounting figures in such a
way that users can draw conclusions about the performance, strengths and
weakness of a firm.
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Classification of ratios:
A) Liquidity ratios
B) Leverage ratios
C) Activity ratios
D) Profitability ratios
A) LIQUIDITY RATIOS:
These ratios portray the capacity of the business unit to meet its short term
obligation from its short-term resources (e.g.) current ratio, quick ratio.
i) Current ratio:
Current ratio may be defined as the relationship between current assets and
current liabilities it is the most common ratio for measuring liquidity. It is
calculated by dividing current assets and current liabilities. Current assets are
those, the amount of which can be realized with in a period of one year. Current
liabilities are those amounts which are payable with in a period of one year.
Current assets =
Current assets
-----------------------Current liabilities
Liquid ratio =
Liquid assets
------------------------Liquid liabilities
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B) LEVERAGE RATIOS:
Many financial analyses are interested in the relative use of debt and equity in
the firm. The term solvency refers to the ability of a concern to meet its longterm obligation. Accordingly, long-term solvency ratios indicate a firms ability
to meet the fixed interest and costs and repayment schedules associated with its
long-term borrowings. (E.g.) debt equity ratio, proprietary ratio, etc.
i) Debt equity ratio:
It expresses the relationship between the external equities and internal equities
or the relationship between borrowed funds and owners capital. It is a popular
measure of the long-term financial solvency of a firm. This relationship is
shown by the debt equity ratio. This ratio indicates the relative proportion of
debt and equity in financing the assets of a firm. This ratio is computed by
dividing the total debt of the firm by its equity (i.e.) net worth.
Outsiders funds
---------------------------Proprietors funds
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These ratios evaluate the use of the total resources of the business concern along
with the use of the components of total assets. They are intended to measure the
effectiveness of the assets management the efficiency with which the assts are
used would be reflected in the speed and rapidity with which the assets are
converted into sales. The greater the rate of turnover, the more efficient the
management would be (E.g.) stock turnover ratio, fixed assets turnover ratios
etc.
i) Fixed assets turnover ratio:
The ratio indicates the extent to which the investments in fixed assets contribute
towards sales. If compared with a previous year. It indicates whether the
investment in fixed assets has been judious or not the ratio is calculated as
follows.
Net sales
Fixed assets turnover ratio =
------------------Fixed assets
Net sales
---------------------------Net working capital
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Total assets
----------------Net assets
Sales
----------------------Proprietors fund
D) PROFITABILITY RATIOS:
The profitability ratios of a business concern can be measured by the
profitability ratios. These ratios highlight the end result of business activities by
which alone the overall efficiency of a business unit can be judged, (E.g.) gross
ratios, Net profit ratio.
i) Gross profit ratio:
This ratio expresses the relationship between Gross profit and sales. It indicated
the efficiency of production or trading operation. A high gross profit ratio is a
good management as it implies that cost of production is relatively low.
Gross profit
----------------------------------- x 100
Net sales
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Net profit ratio establishes a relationship between net profit (after taxes) and
sales. It is determined by dividing the net income after tax to the net sales for
the period and measures the profit per rupee of sales.
Net profit
----------------- x 100
Net sales
Expenses ratio =
Cost of energy
-----------------------------------------Sales
x 100
Expenses ratio =
Cost of Fuel
-----------------------------------Sales
x 100
Expenses ratio =
Cost of Tax
------------------------------------ x 100
Sales
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Expenses ratio =
Expenditure on EPC
------------------------------------ x 100
Sales
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Accounting ratios provide a reliable data, which can be compared, studied And
analyzed. These ratios provide sound footing for future prospectus. The ratios
can also serve as a basis for preparing budgeting future line of action.
Liquidity position:
With help of ratio analysis conclusions can be drawn regarding the Liquidity
position of a firm. The liquidity position of a firm would be satisfactory if it is
able to meet its current obligation when they become due. The ability to met
short term liabilities is reflected in the liquidity ratio of a firm.
Long term solvency:
Ratio analysis is equally for assessing the long term financial ability of the
Firm. The long term solvency s measured by the leverage or capital structure
and profitability ratio which shows the earning power and operating efficiency,
Solvency ratio shows relationship between total liability and total assets.
Operating efficiency:
Yet another dimension of usefulness or ratio analysis, relevant from the View
point of management is that it throws light on the degree efficiency in the
various activity ratios measures this kind of operational efficiency.
Help in investment decisions
It helps in investment decisions in the case of investors and lending decisions in
the case of bankers etc.
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1.3 OBJECTIVE
1
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CHAPTER- II
LITERATURE REVIEW
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LITERATURE REVIEW:
For the purpose of literature review the basic concepts of Fundamental analysis
were studied, and similar studies relating to financial statements analysis are
examined, following are some the articles collected from various blogs and
reports
Article1 : FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is defined as the process of identifying financial
strengths and weaknesses of the firm by properly establishing relationship
between the items of the balance sheet and the profit and loss account. There are
various methods or techniques that are used in analyzing financial statements,
such as comparative statements, schedule of changes in working capital,
common size percentages, funds analysis, trend analysis, and ratios analysis.
Financial statements are prepared to meet external reporting obligations and
also for decision making purposes. They play a dominant role in setting the
framework of managerial decisions. But the information provided in the
financial statements is not an end in itself as no meaningful conclusions can be
drawn from these statements alone. However, the information provided in the
financial statements is of immense use in making decisions through analysis and
interpretation of financial statements.
Tools and Techniques of Financial Statement Analysis:
Following are the most important tools and techniques of financial statement
analysis:
1. Horizontal and Vertical Analysis
2. Ratios Analysis
Article2: ANALYSIS OF FINANCIAL STATEMENTS-SELECTIVE
TOOLS
Any successful business owner is constantly evaluating the performance of his
or her company, comparing it with the company's historical figures, with its
industry competitors, and even with successful businesses
from other
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Its not an interrogation but youll want to ask the hard questions before you
invest. Only by examining and drawing conclusions from a financial statement,
will you truly know how well a company is doing.
Know the facts
Investing should never be based on emotion. While you might be tempted to
invest in a company because you like its products or because youve just read a
favorable article about it in a magazine or newspaper, you should make sure
youve done your research before ponging up your hard earned cash.
8.
ENVIRONMENTAL
AND
FINANCIAL
PERFORMANCE
LITERATURE, BY DONALD P. CRAM, ON MARCH 27, 2000
"We review the growing literature relating corporate environmental
performance to financial performance. We seek to identify achievements and
limitations of this literature and to highlight areas for further research. Our
primary interest is to assess the adequacy of the literature in informing corporate
managers how, when, and where to make pro-environment investments that will
pay off with financial returns for long-term shareholders. To do so, we create a
conceptual framework that maps the influence of regulators, public health
scientists, environmental advocates, consumers, employees, and other interested
parties upon corporate financial returns. Our discussion has relevance to all
parties interested in influencing corporate actions that affect the environment."
9. JOURNAL OF INDUSTRIAL TECHNOLOGY VOLUME 19,
NUMBER FEBRUARY 2003 To APRIL 2003 PAGE, BY Dr. DEVANG P.
MEHTA
"This paper is primarily based on Rogers diffusion of innovations theory and
Augers empirical study. An empirical research study was conducted to
investigate the perceived financial performance of commercial printing firms
for conducting business-to-customer (B2C) activities using Web technology.
Financial performance was measured using four financial indicators: sales,
profits, costs, and return-on-investment (ROI). The diffusion of innovations
theory states that an innovation brings changes to a company. Web technology is
an innovation that affects companys performance. This paper investigates the
effect of Web technology on commercial printing firms financial performance."
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CHAPTER III
PROFILE
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INFRASTRUCTURE IN INDIA
The time tested Indian organizations provide international investors a lucid
ambiance that ensures the protection of their long-standing endowments. These
entail an independent and vivacious media, a judicial system that can claim
superiority above the government, a refined legal and accounting structure and a
user-friendly infrastructure.
India's self-motivated and extremely viable private sector has been the strength
of character of its financial activities and accounts for more than 76% of its
Gross Domestic Product besides providing significant possibilities for joint
ventures and tie-ups.
At present, India is one of the rapidly emerging markets across the world.
Equipped with highly skilled professionals and technical workforce, that suits
the international standards provide the nation with a discrete cutting edge in
worldwide rivalry.
The road transport of India has been announced as a priority sector with loans
available from the governments at positive provisions. The Monopoly and
Restrictive Trade Practices Act (MRTP Act) was sanctioned in an attempt to
endorse bigger sector to make a foray into the road industry.
To develop the national highways, the National Highways Act has been altered
to assist the diminution of taxes on national motorways, suspension bridges and
passageways. Across the globe, Howrah Bridge at Kolkata is the busiest with
regular stream of 58,000 automobiles and countless pedestrians. Private
contribution in the energy industry has been motivated with the decline of
import tariffs that is a 5 year tariff relief for new energy schemes and a 16%
equity return.
The administration is also considering the latest telecommunications strategy
that targets at the enhancement of quality to an international level and indirectly
triggers the growth of India as a chief manufacturer and exporter of
telecommunication set-ups.
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The robust current growth in GDP has exposed the grave inadequacies in the
countrys infrastructure sectors. The strong population growth in India and its
booming economy are generating enormous pressures to modernize and expand
Indias infrastructure. The creation of world class infrastructure would require
large investments in addressing the deficit in quality and quantity. More than
USD 475 billion worth of investment is to flow into Indias infrastructure by
2012. No country in the world other than India needs and can absorb so many
funds for the infrastructure sector. With the above investments Indias
infrastructure would be equal to the best in the world by 2017.
In the next five years planned infrastructure investment in India in some key
sectors are (at current prices): Modernization of highways -US$ 75 billion,
Development of civil aviation US$ 12 billion, Development of Irrigation
system- US$ 18 billion, Development of Ports-US$ 26 billion, Development of
Railways- US$ 71 billion, Development of Telecom- US$ 32 billion,
Development of Power -US$ 232 billion. Thus in the eleventh five year plan
,investment in the above sectors (Aviation infrastructure ,Construction
infrastructure, Highway infrastructure ,Power infrastructure, Port
infrastructure ,Telecom infrastructure ) will be US$ 384 billions(Rs 17,20,000
Crores) considering the huge infrastructure market potential in India. In addition
to the above, investments to the tune of US$ 91 billions have been planned in
other infrastructure sectors like Tourism infrastructure ,Urban infrastructure
,Rural infrastructure, SEZs ,and water infrastructure and sanitation
infrastructure thus making the total infrastructure investments in the eleventh
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Power Policy in India: Indian power policy permit 100 percent FDI (except
atomic energy) in electricity generation, transmission, and distribution and
trading, Establishing power plants without any license, transmission services for
Independent power transmission companies.
Oil, Gas and mining Policy: 100% FDI permitted for mining (except coal).
CASs, levied earlier on crude production, has been abolished for the blocks
offered under NELP. In deepwater exploration royalty for areas beyond 400m
bathymetry will be charged at half the prevailing rate. In petroleum and natural
gas sector 100 FDI is permitted except refining ,subject to sectoral regulations;
and in the case of actual Trading and marketing of petroleum products,
divestment of 26% equity in favour of Indian partner/public within 5 years .In
refining 100% FDI is allowed in private companies and 26% FDI allowed in
Public sector companies.
Real Estate Policy in India: Corporate tax exemption of up to 100% for
industrial parks, SEZs and housing projects are permitted as per Indian Real
Estate Policy.
Telecommunication Policy in India: 74% FDI is allowed in Basic and cellular,
Unified Access Services, National/International Long Distance, V-Sat, Public
Mobile Radio Trucked Services (PMRTS), Global Mobile Personal
Communications Services (GMPCS) and Other value added telecom services,
ISP with gateways, radio paging, end-toend bandwidth. 100% FDI is permitted
in ISP without gateway, infrastructure provider providing dark fiber, electronic
mail and voice mail, subject to the condition that such companies shall divest
26% of their equity in favor of Indian public in 5 years, if these companies are
listed in other parts of the world as per the Indian telecommunication policy.
Why India -India at a glance- Attractive Destination
India has a population of 1.1 billion. More than 30% of the worlds youth live in
India. More than 55% (550 million) of the Indias population is less than 25
years of age. This is nearly twice the total population of the United States.
Indias urban population constitutes around 30%. India is a nation growing
younger (population in working age group projected to increase) as the
developed world faces the problem of aging. India has a huge reservoir of
English speaking, skilled and relatively inexpensive manpower with over 2.6
million engineers (degree and diploma holders), 814,000 software professionals,
growing every year. It also got a well developed banking system, with over
67,000 branches and banking practices conforming to international best
standards with net non performing assets ratio for all commercial banks 1.2%. It
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and new initiatives. Agriculture is the main occupation in rural India and most
of the rural population still depends either directly or indirectly on agricultural
activities for their living. But the lack of basic infrastructure for
pursuing agricultural activities has forced a large section of Indias agricultural
labour force to move to non-agricultural sectors for livelihood.
The rural India Infrastructure needs are:
Rural housing
Roads
Healthcare
Education
Irrigation
Drinking Water
Power
Telecommunication
Further, the tremendous growth of Indian IT, telecommunication,
manufacturing, and pharmaceutical industry has created an enormous pressure
on the limited world class urban infrastructure available in India. The Ministry
of Finance has realized that economic development of India is directly
connected to the availability of basic and modern urban infrastructure in Indian
cities. The government of India has now formulated policies to forge public and
private partnerships for tackling the problems related to infrastructure.
Urban housing
Business premises
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Power
Urban transport
Water supply,
Sewerage
Airports
Railways
Seaports
Roads
Bridges
Tourism infrastructure
Projects in SEZ
Health care
Entertainment
Communications
Financial limitations of the central government for providing world class
infrastructure made it impossible to meet India Infrastructure needs at every
village and cities in India. So the government of India's Infrastructure
development policy aims at engaging major financial contributions from private
partners for meeting India Infrastructure needs in urban as well as rural India.
This site provides detailed information on infrastructure problems in India. The
site also focuses on the growing problem of infrastructure limitations in India.
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Urban residence
Business premises
Power
Urban transport
Water
Sewerage
Airports
Railways
Seaports
Roads
Bridges
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Tourism infrastructure
Projects in SEZ
Health care
Entertainment
Communications
Rural infrastructure problems in India
Rural infrastructure problems in India has gone from bad to worse in recent
years. However, the government of India has taken some important steps to
arrest the age old problems of rural India, such as:
Power
Irrigation
Drinking Water
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Rural housing
Roads
Health care
Education
Telecommunication
of US$ 1.09 trillion in 2007. The economy of India is the second major growing
economy in the whole world for it has the GDP growing at the rate of 9.4% in
2006- 2007.
The Infrastructure Sector in India
The Infrastructure Sector in India was after independence completely in
the hands of the public sector and this hampered the growth of this sector.
India's less spending on real estate, power, telecommunications,
construction, and transportation prevented the country from sustaining
very high rates of growth. The amount that India was spending on the
Infrastructure Sector was 6% of GDP or US$ 31 billion in 2002.
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2. Absence of strong long term debt market in India. Corporate bond market is
almost non-existent (specially compared to domestic stock market or int'l bond
market). Indian banks are the only funding source which anyways charge very
high interest rates and come with many more strings attached. Any ways Indian
Banking sector is not the most revered one in the world.
3. Infrastructure projects need long term loans, for which insurance and pension
funds are extremely suitable. If we can't tap the western insurance and pension
funds then we can use our own domestic insurance and pension funds. However,
they are not developed enough. Also, they need to be opened up further to
attract foreign funds. LIC might need to play a decisive role in the infrastructure
projects in India which in turn needs a hell lot of money today.
4. India is competing with the likes of China, Korea and Brazil for infrastructure
related funds. While India plans to spend $500 billion on infra. projects from
2007-2012, China has already come up with a plan of over $550 billion
investment in infrastructure projects just to fight the recession. According to
some estimates China might be investing over $5000 billion in next 2 decades.
So the competition to get the funds is likely to remain high in years to come.
5. If funds are such a big problem then why can't Indian government just print
money and pay for it. The problem is not only the high budget deficit and high
public debt that we are already running in order to fight the recession. More
importantly the very nature of infrastructure projects which takes years to start
paying the benefits would mean inflation. No matter how the money comes, the
gestation period of infra projects would mean calls to inflation in short term.
Infra projects anyways take a long time to complete and still longer in India.
The time required has to be tightened. This would require minimum
governance. intervention, minimum red tapism, increased transparency,
consistent flow of fund and last but not the least, latest technology. Latest
technology would again require FDI flowing in. So quite a bit of challenges to
face.
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power plant projects. Along with full service project advisory capabilities, we
manage power plants on a turnkey basis and provide industry specialist services
such as fuel management advice and fiscal advice. Our the turnover of the
division was Rs 557 crore (US$ 120 million) and order book position of over Rs
18,530 crore (US$ 4 billion) as on June 30, 2010.
Energy
Our core competency in energy extends to generation, transmission, distribution
and trading. This comprehensive sphere of influence extends our vision of a
highly developed India within our realms. We distributed more than 36 billion
units of electricity to 30 million consumers and generate 941 MW of electricity
from our power stations. Our transmission division is developing 5 transmission
projects, with total project outlay of Rs 6,640 crore (US$ 1.4 billion).
Infrastructure
Reliance Infra has a significant presence in the construction of roads, metros,
airports and real estate. Infrastructure is decidedly the most visible and
important form of development in a nation. We signify this with our 11 road
projects of 970 kms worth about Rs 12,000 crores (US$ 2.6 billion). We are
currently implementing 3 metro rail projects in Mumbai and Delhi worth around
Rs 16,000 crores (US$ 3.4 billion).In the real estate space, we are in various
stages of bidding/negotiation/planning with over 400 million sq. feet of mixed
use built up potential.
Enhancing Our Legacy/ Carrying the Legacy
Our passion to excel in every endeavor emanates from the legacy of our founder
Late Shri Dhirubhai Ambani. His values and ideals stand with us as we
collectively seek to further develop the society, landscape and the nation we are
a proud part of. In the years ahead of us, we will keep exploring the unknown in
our quest for excellence.
Highlights for Company Profile
One of the largest Indian business conglomerate.
Leading Private Utility Firm in Transmission.
Significant presence in EPC, Energy and Infrastructure.
Mission: Excellence in Infrastructure
To attain global best practices and become a world-class utility.
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59 | P a g e
others can manage only 20% to 25% PLF. This farm has an attractive return of
investment (RoI) as the company is allowed 100% depreciation.
- Contracts and EPC Division: This division achieved a turnover of Rs 529
crore during the year ended March 2001 as against Rs 399 crore during the year
ended March 2000 and it. Its turnover was Rs 391 crore during the year ended
March 1999. This division has showed an improved performance and has been
growing at a good rate for the last three years. This division was instrumental in
construction and erection works of 5,000 mw in Indian and other industrial and
infrastructure projects. The cumulative value of works executed by this division
since inception is to the tune of Rs 3,500 crore. It has a good order booking of
Rs 1,400 crore as of June 2001.To keep up the growth in this business, the
company plans to target turnkey jobs with higher margins. It also needs to
diversify into larger civil jobs and other infrastructure sectors. The company
also plans to provide modern tools for faster project implementation and to
provide training inputs for better project management.
- BSES has several group companies - ST-BSES Coal Washery, BSES
Infrastructure Finance, Utility Powertech, Ticapco, BSES Telecom,
BSES
Kerala Power, BSES Andhra Power and three new companies of Orissa. The
company has a strategy of adding value by strategic alliances within the group.
- Coal Washery - JV Company: This JV is a backward integration project for
the Dahanu Power plant. It supplies washed coal to the plant as well as to
others. The total cost of this project is around Rs 60 crore out of which Rs 9
crore is by a US aid. The washery, which is already operational, has a 2.5 mmt
per annum capacity and is located at Madhya Pradesh. The return on equity in
this JV exceeds 25%. The company posted revenues of Rs 25 crore with net
profit of Rs 3.7 crore for the year 2000-01.
- BSES Infrastructure Finance (BIFL): This company is in the business of
providing advisory services on new businesses and financial engineering. It also
provides bridge finance and leasing services to group companies. It has tied up
funds for various projects to the tune of over Rs 1,500 crore. It has been a
dividend paying company since inception. It posted revenues of Rs 12.70 crore
and net profit of Rs 3
crore for the year 2000-01.
- Utility Powertech: This is a JV with National Thermal Power Corporation
(NTPC). Utility Powertech has taken up maintenance contracts for NTPC power
stations. It has 250 operational sites with Rs 25 crore orders on hand. The
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2005
-Dahanu of REL's bags CII`s National Award of Excellence 2005
2006
-Reliance Energy join hands with Bajaj for CFL bulbs
-The Company along with its consortium on November 07, 2006 signed
Contract with Ministry of Petroleum and Natural Gas (MoPNG) for exploration
and production of four Coal Bed Methane (CBM) blocks.
2007
-Reliance Energy Ltd has appointed Shri. Lalit Jalan as Whole-time Director on
the Board.
-CRISIL has reaffirmed its outstanding ratings of 'AAA/Stable/P1+' on
Reliance Energy Ltd's (Reliance Energy's) debt programmes.
-Reliance Energy Ltd bagged an Engineering, Procurement and Construction
(EPC) contract from Damodar Valley Corporation (DVC) to set up the 2 x 600
MW coal based power station at Raghunathpur in West Bengal.
2008
- Reliance Infrastructure has bagged the contract for four-laning of the
Gurgoan-Faridabad road and along with this the upgradation of the BallabgarhSohana road on a build-operate and transfer (BOT) basis.
This project involves the construction of 66 km of road on high density traffic
zone and the project is expected to be completed in two years from the date of
commencement with a concession period of
17 years.
-Company name has been changed from Reliance Energy Ltd to Reliance
Infrastructure Ltd.
-Reliance Infra's Dahanu Thermal Power Station bags award
2009
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CHAPTER IV
DATA ANALYSIS AND INTERPRETATION
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1) CURRENT RATIO:
Current ratio =
Year
Current assets
------------------------Current liabilities
2005-06
Current
Assets
7353.64
Current
liabilities
1570.82
Ratio
4.68140207
2006-07
3871.45
2246.55
1.723286818
2007-08
2384.93
2599.38
0.917499558
2008-09
3227.07
4655.5
0.69317367
2009-10
3735.52
5646.72
0.661538
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2005-06
3.5
2006-07
2007-08
2.5
2008-09
2009-10
1.5
1
0.5
0
1
2) LIQUID RATIO:
Liquid assets
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Liquid ratio =
----------------------Liquid liabilities
Year
Quick Liabilities
Quick ratio
2005-06
Quick
Asset
7058.59
1570.82
4.493570237
2006-07
3578.76
2246.55
1.593002604
2007-08
2084.64
2599.38
0.801975856
2008-09
2786.39
4655.5
0.59851573
2009-10
3466.01
5646.72
0.613809
2005-06
2006-07
2.5
2007-08
2008-09
2009-10
1.5
1
0.5
0
1
71 | P a g e
2005-06
Cash
and
securities
5652.9
2006-07
Current
Liabilities
Ratio
1570.82
3.598693676
2175.92
2246.55
0.968560682
2007-08
87.65
2599.38
0.033719579
2008-09
251.01
4655.5
0.05391687
2009-10
301.82
5646.72
0.05345
72 | P a g e
2005-06
2.5
2006-07
2007-08
2008-09
1.5
2009-10
1
0.5
0
1
Outsiders funds
-----------------------------73 | P a g e
Proprietors funds
Year
2005-06
Outsiders
fund
4494.54
2006-07
0.570859921
6114.25
9339.24
0.654683893
2007-08
5257.55
11686.96
0.449864635
2008-09
7526.13
11907.44
0.63205273
2009-10
4272.61
15152.19
0.28198
2005-06
0.4
2007-08
0.3
2008-09
2006-07
2009-10
0.2
0.1
0
1
74 | P a g e
The above table and diagram shows the debt equity relationship of the Reliance
Infrastructure company during the study period. The Bench Mark Debt-Equity
ratio is 2:1. During the FY 2005-06 it was 0.57 and then reached its highest in
the next year and from there it began to slope downwards and ultimately came
to 0.28 in the year 2009-10. In all the years the equity is more when compared
with borrowings. Hence the company is maintaining its debt position.
5) PROPRIETARY RATIO:
Proprietary ratio =
Year
2005-06
Proprietor
s fund
7873.28
2006-07
Proprietors funds
--------------------------Total tangible assets
Tangible assets
Ratio
2647.71
297.3618712
9339.24
2806.35
332.7895665
2007-08
11686.96
3056.49
382.365393
2008-09
11907.44
3331.37
357.433728
2009-10
15152.19
3468.61
436.8375
75 | P a g e
2005-06
300
2006-07
250
2007-08
200
2008-09
150
2009-10
100
50
0
1
Net sales
------------------76 | P a g e
Fixed assets
Year
2005-06
Net sales
4607.89
Fixed assets
2873.71
Ratio
1.603463815
2006-07
6575.25
3104.36
2.118069425
2007-08
7501.2
3636.5
2.062752647
2008-09
10958.79
3904.59
2.80664295
2009-10
10908.06
4079.41
2.673931
2006-07
2007-08
1.5
2008-09
2009-10
1
0.5
0
1
2009 -10. This indicates that fixed assets turnover ratio of the company is
gradually increasing which is a healthy indication that less amount of money is
tied up with fixed assets and thus fixed assets are effectively used to generate
the sales.
Year
Net sales
Net sales
---------------------------Net working capital
Net
working Ratio
capital
5782.82
2005-06
4607.89
0.796824041
2006-07
6575.25
1624.9
4.046556711
2007-08
7501.2
(214.45)
(34.9787829)
2008-09
10958.79
(1428.43)
(7.67191252)
2009-10
10908.06
(1911.2)
(5.70744)
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2005-06
2006-07
-10
2007-08
-15
2008-09
2009-10
-20
-25
-30
-35
Year
2005-06
Total
assets
12367.82
2006-07
---------------------Net assets
Net sales
Ratio
4607.89
2.684052788
15453.49
6575.25
2.350251321
2007-08
16944.51
7501.2
2.258906575
2008-09
19433.57
10958.79
1.77333173
2009-10
19424.8
10908.06
1.780775
2006-07
2007-08
1.5
2008-09
2009-10
1
0.5
0
1
80 | P a g e
Year
Net sales
Sales
---------------------Proprietors fund
2005-06
4607.89
Proprietor
s fund
7873.28
Ratio
2006-07
6575.25
9339.24
0.704045511
2007-08
7501.2
11686.96
0.641843559
2008-09
10958.79
11907.44
0.92033132
2009-10
10908.06
15152.19
0.7199
0.585256716
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2005-06
2006-07
2007-08
2008-09
2009-10
3
2
1
0
1
Net profit
------------------- x100
82 | P a g e
Total assets
Year
2005-06
Net
profit Total assets
After Tax
650.34
12367.82
Ratio
0.052583236
2006-07
801.45
15453.49
0.051862071
2007-08
1084.63
16944.51
0.064010703
2008-09
1138.88
19433.57
0.05860375
2009-10
1151.69
19424.8
0.05929
2005-06
0.04
2007-08
0.03
2008-09
2006-07
2009-10
0.02
0.01
0
1
Gross profit
----------------------------------- x 100
Net sales
Year
Net sales
2005-06
Gross
Profit
4607.89
4607.89
40.4825202
2006-07
2028.1
6575.25
30.84445458
2007-08
2530.7
7501.2
33.7372687
2008-09
3045.83
10958.79
27.7934881
2009-10
2949.67
10908.06
27.0412
Ratio
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2005-06
30
2006-07
25
2007-08
20
2008-09
2009-10
15
10
5
0
1
Net profit
----------------- x 100
85 | P a g e
Net sales
Year
2005-06
Net Profit
650.34
Net sales
4607.89
Ratio
2006-07
801.45
6575.25
12.18889016
2007-08
1084.63
7501.2
14.45941983
2008-09
1138.88
10958.79
10.3923882
2009-10
1151.69
10908.06
10.55816
14.11361816
2005-06
10
2006-07
2007-08
2008-09
2009-10
4
2
0
1
The above table and diagram shows the relationship between net profit and net
sales. During 2005-06 it was 14.11% on sales and in2006-07 it decreased
to12.18%. There is an further in percentage of 10.55 in 2009-10 The sales of the
organization are also increasing and the profit of the organization is also
increasingly proportionately .This shows Reliance infrastructure limited have
good control over direct and indirect cost and they have large amount available
to meet non-operating expenses/losses.
Profit
After Proprietor Ratio
Tax
s fund
650.34
7873.28
8.260089823
2006-07
801.45
9339.24
8.581533401
2007-08
1084.63
11686.96
9.280685482
2008-09
1138.88
11907.44
9.56444038
2009-10
1151.69
15152.19
7.600815
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2005-2006
2006-2007
2007-08
2008-09
2009-10
3
2
1
0
1
Sales
Year
2005-06
Administration&
Selling expenses
543.41
Net sales
Ratio
4607.89
11.79303325
2006-07
664.99
6575.25
10.1135318
2007-08
847.3
7501.2
11.29552605
2008-09
1277.02
10958.79
11.6529288
2009-10
1040.68
10908.06
9.540468
89 | P a g e
2006-07
2007-08
2008-09
2009-10
4
2
0
1
x 100
90 | P a g e
Sales
Year
Cost of Energy
Net sales
Ratio
2005-06
1087.56
4607.89
23.60212592
2006-07
1532.43
6575.25
23.30603399
2007-08
2487.69
7501.2
33.16389378
2008-09
4253.99
10958.79
38.8180629
2009-10
3321.94
10908.06
30.45399
91 | P a g e
2005-06
25
2006-07
2007-08
20
2008-09
15
2009-10
10
5
0
1
Expenses ratio =
Year
------------------------------------ x 100
Sales
Cost of fuel
Net sales
Ratio
2005-06
812.1
4607.89
17.62411863
2006-07
921.27
6575.25
14.01117828
2007-08
1015.52
7501.2
13.53810057
2008-09
1166.78
10958.79
10.6469784
2009-10
1219.83
10908.06
11.18283
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2005-06
12
2006-07
10
2007-08
2008-09
2009-10
6
4
2
0
1
Expenses ratio =
Cost of Tax
------------------------------------ x 100
94 | P a g e
Sales
Year
Cost of Tax
Net sales
Ratio
2005-06
114
4607.89
2.474017392
2006-07
124.26
6575.25
1.889814076
2007-08
131.58
7501.2
1.754119341
2008-09
152.96
10958.79
1.39577453
2009-10
154.13
10908.06
1.412992
2005-06
2006-07
1.5
2007-08
2008-09
2009-10
0.5
0
1
The above table and figure show that the cost of tax and net sales are increasing
proportionately indicating that there is good control on the expenditure and
ultimately resulting in higher productivity. From FY 2005 to FY 2010 the ratio
are marginally varied and remained more or less close to 1.50.
Expenses ratio =
Year
Expenditure on EPC
------------------------------------ x 100
Sales
Ratio
2005-06
2006-07
1969.19
6575.25
29.94851907
2007-08
1335.71
7501.2
17.80661761
2008-09
2339.23
10958.79
21.345696
15.81721786
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2009-10
3262.49
10908.06
29.90898
2006-07
2007-08
15
2008-09
2009-10
10
5
0
1
97 | P a g e
CHAPTER V
FINDINGS AND SUGGESTIONS
5.1 FINDINGS
98 | P a g e
This study is carried out with the objective of analyzing the financial
performance of Reliance Infrastructure to examine and understand the role of
finance in the growth of the company. This chapter attempts to highlight the
findings of the study.
1. The profit before interest and tax is in positive during the period of study.
2. The sales, PBIT, PBT, PAT all shows the increasing trend during the
period under review. It depicts that the company is working with more
efficiency.
3. Net Profit ratio shows that the sales of the organization are increasing and
the profit of the organization is also increasingly proportionately. This
shows Reliance infrastructure limited have good control over direct and
indirect cost and they have large amount available to meet non-operating
expenses/losses.
4. Fixed Assets turnover ratio shows the increasing trend. It depicts that the
companys fixed assets are utilized properly in relation to the sales. It
indicates that less amount of money is tied up with fixed assets and thus
fixed asset are effectively used to generate the sales.
5. Working capital turnover ratio is negative. Generally a negative working
capital is a sign of managerial efficiency in a business with low inventory
and accounts receivable, which means they operate on an almost strictly
cash basis.
6. The ideal current ratio is 2 which the firm does not obtained and this
shows the company has not maintained favourable liquidity position and
this can be treated as an unhealthy sign.
7. The ideal liquid ratio is 1 which is also not obtained by the firm and So
the company is not in a position to meet the short term obligations.
8. Proprietary ratio of the company fluctuates during the period of study
shows that the firm has good investment in fixed asset and favourable
long term solvency position over the year under study.
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9. There is decreasing trend in the absolute ratio for all the study years.
10 In all the years the debt equity is more, when compared with borrowings.
Hence the company is maintaining its debt position.
11 .Capital turnover ratio indicates that the sales are in between 0.58 and
0.90 times less than the proprietor's funds which shows the firms is not
maintaining the better utilization of own funds.
12 .Gross profit ratio indicates that sales are increasing but gross profit is not
increasing proportionately every year. This show there is low efficiency
in managing purchases, production, labour, sales and moderate amount is
available to meet the other expenses.
13 The administration and selling expenses during 2005-06 is very high and
gradually decreased to 9.54 in year 2009-10.This shows there is a good
control on expenditure and may be one of the reasons to net profit during
the study years.
5.2 RECOMMENDATIONS
1. The company may increase the performance by reducing the borrowed
capital, so that the interest an finance charges will be less.
2. The company may increase the sales if it attempts to move into export
market.
3. The company may reduce the operating inefficiencies through effective
utilization of all the resources.
4. The company may strike a balance between the current assets and current
liabilities to maintain the solvency position.
5. Optimum utilization of Working Capital can be planned so as to result in
sound financial position.
100 | P a g e
6. The Management must also study the market position and it also find the
demand prevailing in the market for the products and thus this will guide
them to enhance their sales volume.
7. The liquidity position of the company is quite satisfactory. And this must
be improved further for the purpose of proper utilization of the liquid
assets of the company.
8. The sales of the organization can be further increased by improving the
quality through optimum utilization of company's resources (i.e. assets,
raw materials, credit system, etc.) and that in turn will increase the overall
profits of the organization.
9. The Gross Profit ratio can be improved by increasing the gross profit and
the factors decreasing the gross profit ratio should be thoroughly checked
timely whither they are operating factors or any misleading factors.
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CHAPTER VI
CONCLUSION AND BIBLIOGRAPHY
6.1 CONCLUSION
102 | P a g e
6.2 BIBLIOGRAPHY
Books Referred
R.K. SHARMA and SHASHI K. GUPTA, Management Accounting and
Business Finance, Kalyani Publishers.
I.M. PANDEY, Financial Management, Vikas Publishing house private
limited, New Delhi, 2006
Advanced Accountancy, M. COM Part II, Institute of distance and open
Learning, University of Mumbai.
103 | P a g e
Websites:
www.rinfra.com
www.google.com
www.wikipedia.com
www.investopedia.com
Source:
http://www.palgravejournals.com/jors/journal/v54/n1/abs/2601475a.html
Article1: http://www.accountingformanagement.com/accounting_ratios.htm
Article 2:http://www.articlesbase.com/accounting-articles/analysis-of-financialstatementsselective-tools-1284945.html
Article3: http://www.abcsofinvesting.net/financial-statements-analysis/
Article4:http://businessfinancialplanning.suite101.com/article.cfm/financial_rat
io_analysis_for_performance_check
Article5: http://www.mint.com/blog/finance-core/understanding-financialstatements/
Article6: http://www.creditguru.com/ratios/inr.htm
Article7:http://www.cfainstitute.org/aboutus/press/pdf/TipSheetSevenHabitsUS
.pdf
105 | P a g e
APPENDICES
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