A Project Report on ANALYSIS OF FINANCIAL STATEMENTS OF NATIONAL THERMAL POWER CORPORATION PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF POST

GRADUATE DIPLOMA IN MANA GEMENT 2009-2011 I Business Institute Greater Noida (U.P) Under the supervision of Mrs. Neeru Submitted by Nitin Garg PGDM-Finance I-BUSINESS INSTITUTE 1

CERITIFICATE This is to certify that MR. NITIN GARG, is a bonafide regular student of the I-B USINESS INSTITUTE for the session 2009-2011 . He has completed the project repor t titled ANALYSIS OF FININCIAL STATEMENT OF NATIONAL THERMAL POWER CORPORATION un der my supervision as a part a partial fulfillment for the award of PGDM degree of AICTE. To the best of my knowledge the report is Good and not copied from any where. Head of the Department Project supervisior I-BUSINESS INSTITUTE 2

DECLARATION I Mr. NITIN GARG hereby declare that this project is the record of authentic wor k carried out by me during the academic year 2010-2011 and has not been submitte d to any other University or Institute towards the award of any degree. All the details and analysis provided in the report hold true to the best of my knowledg e. Signature of the student (NITIN GARG) I-BUSINESS INSTITUTE 3

ACKNOWLEDGEMENT These eight weeks at National Thermal Power Corporation (NTPC) have been a learning experience. It has been one of the most enriching experience for work along with the employees of one of the best managed organizations, a ny rightly considered as one of the Navratnas in the public sector of the . great me to compa country

I am very thankful to Sh. R.A GOYAL , Sr. Manager (Finance & Accounts) who has g iven me full opportunity to learn the tendering operations executed here. I am very thankful to Miss.Neeru , Faculty, I-BUSINESS INSTITUTE, Greater Noida for the guidance and interest evinced throughout the preparation of this project . I take this opportunity, also to express my love and sincere thanks to my family members and friends for their support and advice during various stage of work. I-BUSINESS INSTITUTE -4-

EXECUTIVE SUMMARY India is the emerging giants of the world economy and international energy marke ts. Energy development in India are transforming the global energy system by din t of their ize and there growing weight in international fossil-fuel trade. Indi a is increasingly exposed to changes in world energy markets. The staggering pac e of Indian economic growth in the past few years, out ripping that of all other major countries, has pushed up sharply their energy needs, a growing share of w hich has to be imported. The momentum of economic development look set to keep t heir energy demand growing strongly. As they become richer, the citizen of India are using more energy to run their offices and factories, and buying more elect rical appliances and cars. These developments are contributing to a big improvem ent in their quality of life, a legitimate aspiration that needs to be accommoda ted and supported by the rest of the world. The consequences for India the OECD and the rest of the world of unfettered growth in global energy demand are, howe ver, alarming. If government around the world stick with current policies-the un derlying premise of our reference scenario-the worlds energy need would be well o ver 50% higher in 2030 than today, china and India together account for 45% of t he increase in demand in this scenario. Globally, fossil fules continue to domin ate the fuel mix. These trend lead to continued growth in energy-related emissio ns of carbon-dioxide (co2) and to increased reliance of consuming countries to i mports of oil and gas-much of them from the middle east and Russia. Both develop ment would heighten concerns about climate change and energy security. The chall enges for all countries is to put in motion a transition to a more secure, lower -carbon energy system, without undermining economic I-BUSINESS INSTITUTE -5-

and social development. Now where will this challenges be tougher, or of greater importance to the rest of the world, than in china and India, vigorous, immedia te and collective policy action by all government is essential to move the world onto a more sustainable energy path. There has so far been more talk than actio n in most countries. Were all the policies that governments around the world are considering today to be implemented, as we assume in an alternative policy scen ario, the worlds energy demand and related emissions would be reduced substantial ly. Measure to improve energy efficiency stand out as the cheapest the fastest w ay to curb demand and emissions growth in the near term. But even in this scenar io, c02 emissions are still one-quarter 4 world energy outlook 2007 above curren t levels in 2030. To achieve a much bigger reduction in emissions alternative po licy scenario projections are based on what some might consider conservative ass umptions about economic grow on average 1.5 percentage points per years faster t han in the reference scenario (thought more slowly than of late), energy demand is 21% higher in 2030 in china and combined. The global increase in energy deman d amounts to 6%, making it all the more urgent for governments around the world to implement policies, such as those taken into account in the alternative polic y scenario, to curb the growth in fossil-energy demand and related emissions. I-BUSINESS INSTITUTE -6-

CONTENT Ch..No Ch No 1 2 Partiicullar Part cu ar Introduction... Objective. 9 Page No Page No

INDUSTRY Profile. Board of Directors . Vision & Mission Statement. Background of NTPC 23 Location of NTPC Plants. Joint ventures. 3 24 25

RESEARCH METHODOLOGY... DATA ANALYSIS. Ratio Meaning & Technique. Limitations of Ratio Analysis ... Classification Of R pretation.. ... 47 4 50 53 54 5 6 7 8

FINDING 103 CONCLUSION.. 105 SUGGESTION & RECOMMENDATIONS 109 LIMIAT ...BIBLOGRAPHY. 112 .............. ANNEXURE. 113 I-BUSINESS INSTITUTE -7-

CHAPTER 1 INTRODUNCTION Objective I-BUSINESS INSTITUTE -8-

INTRODUCTION Scenario of Power in India Growth of economy calls for watching the rate of growth in infrastructure facili ties. Power sector is one of the major aspects of this infrastructure building. Some prominent people like the Ex Chairman of GE Jack Welch have gone to the ext ent of saying, you dont have a chance to stand in the 21st century without lots of powerWithout this you miss the next revolution. Moreover, the growth rate of demand for power in developing countries is generally higher than that of GDP. In Indi a, the elasticity ratio was 3.06 in 1st plan, & peaked at 5.11 during 3rd plan a nd came down to 1.65 in 80s. For 90s a ratio of around 1.5 was projected. Hence, i n order to support a growth of GDP of around 7%, the rate of growth of power sup ply of 10% is required. If we look at current scenario, electricity consumption in India has more than doubled in the last decade, outpacing the economic growth . If we analyze the various statistics of Indian power sector, we will find that the generating capacity has gone up tremendously from a meager 1712MW in 1950 t o a whooping 147000MW today. The critical role played by the power industry in t he economic progress of a country has to be emphasized. A self sufficient power industry is vital for a nation to achieve economic stability Indian Power Industry Before Independence I-BUSINESS INSTITUTE -9-

The British controlled the Indian power industry firmly before Independence. The n legal and policy framework was contributing to private ownership, with not muc h regulation with regard to operational safety. Post Independence Immediately after Independence, the country was faced with capacity restraint. I ndia adopted a socialist structure for economic growth and all the major industr ies were controlled by public sector enterprises. By 1970s, India had nationali zed most of its energy assets, due to its commitment to social goals. By the lat e 1980s, the Indian economy felt the strain of the socialist agenda followed si nce independence. Faced with a serious deterioration in public finance and balan ce of payment crisis, the Union government as part of its policy of economic lib eralization allowed greater investment by private sector in the power industry. The electricity sector in India is predominantly controlled by Government of Ind ias public sector undertakings (PSUs). Major PSUs involved in the generation of electricity include National Thermal Power Corporation (NTPC), National Hydroel ectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). B esides PSUs, several state-level corporations, such as Maharashtra State Electri city Board (MSEB), are also involved in the generation and intra-state distribut ion of electricity. The Power Grid Corporation of India is responsible for the i nter-state transmission of electricity and the development of national grid. Ind ia is worlds 6th largest energy consumer, accounting for 3.4% of global energy consumption. Due to Indias economic rise, the demand for energy has grown at an I-BUSINESS INSTITUTE - 10 -

average of 3.6% per annum over the past 30 years. In March 2009, the installed p ower generation capacity of India stood at 147,000 MW while the per capita power consumption stood at 612 kWh. The countrys annual power production increased f rom about 190 billion kWH in 1986 to more than 680 billion kWH in 2006. The Indi an government has set an ambitious target to add approximately 78,000 MW of inst alled generation capacity by 2012. The total demand for electricity in India is expected to cross 950,000 MW by 2030. Electricity losses in India during transmi ssion and distribution are extremely high and vary between 30 to 45%. In 2004-05 , electricity demand outstripped supply by 7-11%. Due to shortage of electricity , power cuts are common throughout India and this has adversely effected the cou ntrys economic growth. Generation Grand Total Installed Capacity is 147,402.81 MW Thermal Power Current installed capacity of Thermal Power (as of 12/2008) is 93,392.64 MW whic h is 63.3% of total installed capacity. Current installed base of Coal Based Thermal Power is 77,458.88 MW which comes t o 53.3% of total installed base. Current installed base of Gas Based Thermal Power is 14,734.01 MW which is 10.5% of total installed base. Current installed base of Oil Based Thermal Power is 1,199.75 MW which is 0.9% o f total installed base.The state of Maharashtra is the largest I-BUSINESS INSTITUTE - 11 -

producer of thermal power in the country. Hydro Power India was one of the pioneering states in establishing hydro-electric power plan ts, The power plant at Darjeeling and Shimsa (Shivanasamudra) was established in 1898 and 1902 respectively and is one of the first in Asia. The installed capac ity as of 2008 was approximately 36647.76. The public sector has a predominant s hare of 97% in this sector. Nuclear Power Currently, 17 nuclear power reactors produce 4,120.00 MW (2.9% of total installed base). Renewable Power Current installed base of Renewable energy is 13,242.41 MW which is 7.7% of tota l installed base with the southern state of Tamil Nadu contributing nearly a thi rd of it (4379.64 MW) largely through wind power. Power for ALL by 2012 The Government of India has an ambitious mission of POWER FOR ALL BY 2012. This mission would require that our installed generation capacity should be at least 200,000 MW by 2012 from the present level of 144,564.97 MW. Power requirement wi ll double by 2020 to 400,000MW. I-BUSINESS INSTITUTE - 12 -

Todays environment is a tough environment to survive, with the new industries and the new sectors coming up so strongly and financially sound. But to gain an ext ra edge over others they ought to have an extra or special added advantage. Our p eople are our most important asset. Nearly every organization report contains a p hrase like this & for good reason. Today, the last great source of competitive a dvantage is human capital. OBJECTIVE OF THE STUDY The above study aimed at: To gain the overall idea about the organization. To gain a firsthand knowledge a bout the structure and the functioning of the finance department and the return on investment policy. To gain and enhance different managerial skills. To see the applicability and us ability of theory which have been taught to us during the first year of the course? To find out the financial performance of the organization \ To find out the importance of finance in business. To find out the future requirement of finance in business. To study the investme nt decisions based on the return. Depending on the studies as started above suggest some new innovative ideas whic h may beneficial to the organization. I-BUSINESS INSTITUTE - 13 -

CHAPTER 2 INDUSTRY PROFILE Directors Profile Vision & Mission Statement Background Of NTPC Market Share Achi evements Organization structure of NTPC Joint Ventures Location of NTPC Plant I-BUSINESS INSTITUTE - 14 -

INDUSTRY PROFILE BOARD OF DIRECTORS The Management of the Company is vested with the Board of Directors. In terms of the Articles of Association of the Company the Board of Directors can have mini mum four Directors and maximum twenty Directors. The Composition of the Board of Directors is given below I-BUSINESS INSTITUTE - 15 -

S. No. Name Designation Date of Appointment Functional Directors 1 Shri R.S.Sharma Chairman & Managing Director 01.04.2008 2 Shri Chandan Roy Director (Operations) 01.01.2009 3 4 5 Shri I J Kapoor Shri R.K. Jain Shri A.K. Singhal Director (Commercial) Director (Technical) Director (Finance) 08.10.2008 05.05.2008 01.08.2007 Part-Time Official Directors 1 Shri M. Sahoo Joint Secretary and Financial Advis or Ministry of Power, Government of India 2 Shri Harish Chandra Jointm Secretary (Thermal) Ministry of Power, Government of India 11.07.2008 11.07.2007 I-BUSINESS INSTITUTE - 16 -

Vision & Mission Statement Vision A world class integrated power major, powering Indias growth, with increasi ng global presence." Mission Develop and provide reliable power, related products and services at comp etitive prices, integrating multiple energy sources with innovative and eco-frie ndly technologies and contribute to society. Core Values BCOMIT B Business Ethics C Customer Focus (External & Internal) O Or ganizational & Professional Pride M Mutual Respect & Trust I Innovation & Speed T Total Quality for Excellence I-BUSINESS INSTITUTE - 17 -

Background of NTPC NTPC a global giant in power sector NTPC Limited is the largest power generating company of India. A public sector c ompany, it was incorporated in the year 1975 to accelerate power development in the country as a wholly owned company of the Government of India. At present, Go vernment of India holds 89.5% of the total equity shares of the company & the ba lance 10.5% is held by FIIs, Domestic Banks, Public and others. Today, it has em erged as an Integrated Power Major, with a significant presence in the entire valu e chain of power generation business. Based on 1998 data, carried out by Data mo nitor UK, an ISO 9001:2000 certified company, NTPC is the 6th largest in terms o f thermal power generation & the second most efficient in terms of capacity util ization amongst the thermal utilities in the world. Within a span of 33 years, N TPC has emerged as a truly national power company, with power generating facilit ies in all the major regions of the country. Driven by its vision to lead, it ha s charted out an ambitious growth plan of becoming a 75000 MW plus company by 20 17. I-BUSINESS INSTITUTE - 18 -

GROWTH RATE Growth in electricity generation has decelerated to 6.6 per cent from 7.5 per ce nt in the corresponding period in 2008-09, the Economic Survey tabled in the Par liament by finance minister P. Chidambaram said. The government is expecting 9.5 per cent growth per annum in the power sector in the 11th Five Year Plan. I-BUSINESS INSTITUTE - 19 -

MARKET SHARE While the majority of capital invested in these countries is domestic, the sover eign risk characteristics of these countries can differ significantly, which can influence the types of international lenders that are willing to invest in thes e markets. This aspect of investment risk, combined with the technological capac ity of a country to deploy technologies, as well as the local policies and measu res that govern them, can influence technology investment flows to Brazil, Russi a, India, and China. I-BUSINESS INSTITUTE - 20 -

Achievements Recognizing its excellent performance and vast potential, Government of the Indi a has identified NTPC as one of the jewels of Public Sector Navratnas- a poten tial global giant. A) NTPC ranked 317th in the 2009, Forbes Global 2000 ranking of the Worlds biggest companies. B) NTPC has been rated as one of the top most Best Employer of the country for the year 2003, 2004 & 2005 in a row. C) It has also been rated as one of the Best Companies to Work for in India by Mercer HR Consulting- Business Today Survey 2004, it has developed into a multil ocation and multi-fuel company over the past three decades. D) NTPC has been awarded No.1, Best Workplace in India among large organizations for the year 2008, by the Great Places to Work Institute, India Chapter in colla boration with The Economic Times. E) Leadership Award for CMD, NTPC in the 4th Global Leadership Summit by Amity University for Sectoral Excellence in Power industry for his outstanding contrib ution to I-BUSINESS INSTITUTE - 21 -

the growth of Indian business & bringing glory to the country through his pionee ring leadership. F) Ranked #1 independent power producer in Asia in the THIRD ANNUAL PLATTS TOP 250 GLOBAL ENERGY COMPANY AWARDS 2008 for outstanding Global financial & Ind ustrial performance at the award ceremony in Singapore. The corporation has been simultaneously ranked #15, overall in Asia amongst the energy companies. G) NTPCs excellence in executing power projects & its initiative in Decentralized Distributed Power Generation has been recognized and awarded at IEEMA Power Awar ds 2008. NTPC Vindhyachal Stage-III (2x 500MW) has been conferred the IPMA SILVE R MEDAL for Project Excellence by International Project Management Association, at the IPMA Congress, held in Rome, Italy, for implementation of project in reco rd time & achieving excellent environmental, economic performance and giving out standing support to the local community. Some major awards given to the Company in the areas of environment management & Corporate Social Responsibility include : I-BUSINESS INSTITUTE - 22 -

Organization Structure of NTPC Source: www.ntpc.co.in Figure 2.3: Organization structure of NTPC - 23 I-BUSINESS INSTITUTE

Location of NTPC Plants Anta I-BUSINESS INSTITUTE - 24 -

JOINT VENTURES NTPC has identified Joint Ventures, strategic alliances as well as acquisitions & diversifications as viable and desired options for its business development. N TPC looks for opportunity to create such joint ventures & strategic alliances, i n the entire value chain of the power business. NTPC as a partner endows the Joi nt Venture Alliances with a winning edge. Acquisitions & Diversifications in the areas related to the core business not only ensure growth but also add to the r obustness of the company. Diversification is carried out either directly or thro ugh subsidiaries/JV I-BUSINESS INSTITUTE - 25 -

Name of the Joint S.No Venture Company Date of Incorporation 1. PTC India Limited 16.04.99 2. Utility Powertech Limited (UPL) 23.11.95 3. NTPC-SAIL Power Company Pvt. Ltd. 08.02.99 4. NTPC-Alstom Power Services Private Limited 20.09.99 5. NTPC Tamil Nadu Energy Company Ltd. 23.05.03 Promoters Equity Holding as on Area(s) of Operation 31.3.2008 Trading of power, i mport/export of NTPC 5.28% power and purchase NHPC 5.28% of power from PFC 5.28% identified private Power Grid 5.28% power projects and Corp selling it to ident ified SEBs/others. To take up assignments of NTPC 50% construction, erection and Reliance supervision in power Infrastructure 50% sector and other Ltd. sectors in India and abroad. To own and operate a capacity of 564 MW as captive power pl ants for SAILs steel manufacturing NTPC 50% facilities located at SAIL 50% Durgap ur, Rourkela and Bhilai. Another unit of 250 MW is expected to be commissioned s hortly. To take up NTPC 50% Renovation & Alstom Modernization Power 50% assignme nts of power Generation plants both in India AG and abroad. To set up a coalNTPC 50% based power station Tamil Nadu 50% of 1000MW capacity, Electricity at Vallu r , using I-BUSINESS INSTITUTE - 26 -

Board 6. Ratnagiri Gas and power Pvt. Limited 08.07.05 NTPC 28.33% 7. Aravali Power Company Private Ltd. 21.12.06 NTPC 50% Indraprastha Power 25% Generation Co. Ltd. Haryana Power 25% Generation Corp. Ltd. 8. NTPC-SCCL Global Venture Pvt. Ltd. 31.07.07 NTPC Singareni Collieries Company Ltd. 50% 50% Ennore port infrastructure facilities. The construction work at site is under pr ogress. To take over and operate gas based Dabhol Power Project alongwith LNG te rminal. NTPCs shareholding is to be revised to 32.88%. To set up coal based power Project of 1500 MW (3x500 MW),in Jhajjar District of Haryana. NTPC would also o perate and maintain the station on Management Contract basis for at least 25 yea rs. To jointly undertake the development and operation & maintenance of coal Blo cks and integrated coal based power projects in India and abroad. 9. Meja Urja Nigam Private Limited 02.04.08 NTPC 50% To set-up a power plant of 1320 MW Uttar (2X660 MW) at Meja Pradesh Teh sil or any other Rajya Vidyut 50% suitable site in Utpadan Allahabad district in Nigam the state of UP. Limited NTPC Bharat Heavy - 27 To carry out Engineering Procurement and 50% Construction (EPC) 50% 10. NTPC BHEL Power Projects Pvt Ltd. 28.04.08 I-BUSINESS INSTITUTE

Electrical Ltd activities in the power sector and to engage in manufacturing and supply of equi pment for power plants and other infrastructure projects in India and Abroad. To establish a facility to take up manufacturing of castings, forgings, fittings a nd high pressure piping required for power projects and other industries, Balanc e of Plant (BOP) equipment for the power sector To set-up a coal based power pro ject having capacity of 1980 MW (3X660 MW) and operation & maintenance thereof a t Nabinagar in district Aurangabad of State of Bihar. 11. BF-NTPC Energy Systems Limited 19.06.08 NTPC 49% Bharat Forge 51% Limited 12. Nabinagar Power Generating Company Private Limited 09.09.08 NTPC 50% NTPC Bihar State 50% Electricity Board 13. National Power Exchange Limited 11.12.08 NTPC NHPC PFC TCS 16.67% 16.67% To operate a Power Exchange at National 16.66% level. 50% Fig-4: List of Joint Ventures FUTURE CAPACITY ADDITIONS I-BUSINESS INSTITUTE - 28 -

NTPC has formulated a long term Corporate Plan upto 2017. In line with the Corpo rate Plan, the capacity addition under implementation stage is presented below: S.No 1. 2. 3. 4. 5. 6. 7. PROJECT STATE FUEL Kahalgaon-II (3X500) Bihar Coal Sipat I (3 x 660) Chhattisgar h Coal Barh I (3 x 660) Bihar Coal Korba III ( 1 x 500) Chhattisgarh Coal Farakk a III ( 1 x 500) West Bengal Coal NCTPP II ( 2 x 490) Uttar Pradesh Coal Simhadr i II ( 2 x 500) Andhra Pradesh Coal Indira Gandhi STPP- JV with IPGCL & 8. Harya na Coal HPGCL ( 3 x 500) 9. Vallur I -JV with TNEB ( 2 x 500) Tamilnadu Coal Nab inagar TPP-JV with Railways (4 x 10. Bihar Coal 250) 11. Bongaigaon(3 x 250) Ass am Coal Himachal 12. Koldam HEPP ( 4 x 200) Pradesh 13. Loharinag Pala HEPP ( 4x 150) Uttarakhand 14. Tapovan Vishnugad HEPP (4 x 130) Uttarakhand 15. Mauda ( 2 x 500) Maharashta Coal 16. Barh II (2 X 660) Bihar Coal 17. Vindhyachal-IV (2X5 00) Madhya Pradesh Coal 18. Rihand III(2X500) Uttar Pradesh Coal Total MW 500 1980 1980 500 500 980 1000 1500 1000 1000 750 800 600 520 1000 1320 1000 1000 17930 \ I-BUSINESS INSTITUTE - 29 -

Subsidiaries Subsidiaries of NTPC Competitors RELIANCE ENERGY LTD. TATA POWER LTD. NATIONAL HYDROELECTRIC POWER CORPORATION LTD. (NHPCL) POWER GRID OF INDIA LTD. (PGCIL) I-BUSINESS INSTITUTE - 30 -

Acquisition Business development through Acquisition serves both NTPCs own commercial inter est as well as the interest of the Indian economy. Taking over being a part of t he acquisition process, is also an opportunity for NTPC to add to its power gene ration capacity through minimal investment & very low gestation period. NTPC has , over the years, acquired the following three power stations belonging to other utilities/SEBs and has turned around each of them using its corporate abilities . POWER STATIONS TAKEN OVER 2x210 MW FEROZE GANDHI UNCHAHAR THERMAL POWER STATION 4x60 MW + 2x110 MW TALCHER THERMAL POWER STATION 4x110 MW TANDA THERMAL POWER STATION 705MW BADARPUR THERM AL POWER STATION YEAR ORIGINAL OWNER UP RajyaVidyut Utpadan Nigam of Uttar Pradesh Orissa State Electricity Board 1991 1995 2000 2006 UP State Electricity Board Central Electricity Authority I-BUSINESS INSTITUTE - 31 -

Diversified Growth NTPCs quest for diversification started about a decade back with its foray into H ydro Power. It has, since then, been moving towards becoming a highly diversifie d company through backward, forward and lateral integration. The company is well on its way to becoming an Integrated Power Major, having entered Hydro Power, Coa l Mining, Power Trading, Equipment Manufacturing and Power Distribution. NTPC ha s made long strides in developing its Ash Utilization business. In its pursuit o f diversification, NTPC has also developed strategic alliances and joint venture s with leading national and international companies. Hydro Power: In order to give impetus to hydro power growth in the country and to have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro projects in Himachal Pradesh. Two m ore projects have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW. Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint venture route. Coal Production is likely to I-BUSINESS INSTITUTE - 32 -

start in 2009-10. Power Trading: NTPC Vidyut Vyapar Nigam Ltd. (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPCs assets. It is the second largest power trading company. In order to facilitate p ower trading in the country, National Power Exchange Ltd., a JV between NTPC, NHPC , PFC and TCS has been formed for operating a Power Exchange. Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input for cement companies\ and brick manufactu rers. NVVN is engaged in the business of Fly Ash export and sale to domestic cus tomers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations. Power Distribution: NTPC Electric Supply Company Ltd. (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in Rajiv Gandhi Gramin Vidyutikaran Yojanaprogramme for rural ele ctrification and also working as Advisor cum Consultant for Ministry of Power for implementation of Accelerated Power Development and Reforms Programmed (APDR P) launched by Government of India. Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity. NTPC I-BUSINESS INSTITUTE - 33 -

has formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment manufac turing. NTPC has also acquired stake in Transformers and Electricals Kerela Ltd. (TELK) for manufacturing and repair of transformers Power Generation Presently, NTPC generates power from Coal and Gas. With an installed capacity of 30,144 MW, NTPC is the largest power generating major in the country . It has a lso diversified into hydro power, coal mining, power equipment manufacturing, oi l & gas exploration, power trading & distribution. With an increasing presence i n the power value chain, NTPC is well on its way to becoming an Integrated Power Major. Installed Capacity Be it the generating capacity or plant performance or operational efficiency, NT PCs Installed Capacity and performance depicts the companys outstanding performanc e across a number of parameters. NTPC Owned Coal Gas/Liquid Fuel Total Owned By JVs Coal & Gas Total 15 7 22 4 26 2,383 3,955 27,850 2,294 30,144 I-BUSINESS INSTITUTE - 34 -

Regional Spread of Generatin Facilities REGION COAL GAS TOTAL Nortern Western Southern Eastern JVs 7,035 6,360 3600 6,900 814 2,312 1,293 350 1,480 9,347 7,653 3,950 6,900 2,294 Total 24,709 5,435 30,144 Coal Based Power Stations With 15 coal based power stations, NTPC is the largest thermal power generating company in the country. The company has a coal based installed capacity of 23,89 5 MW. S.no COAL BASED (owned by N.T.P.C) STATE COMMISSIONED CAPACITY(MW) 1 2 3 4 5 Singru li Korba Ramag Farakka Vi\ndhyacha Uttar Pradesh Chhattisgarh Andhra Pradesh West Bengal Madhya Pradesh 2,000 2,100 2,600 1,600 3,260 I-BUSINESS INSTITUTE - 35 -

6 7 8 9 10 11 12 13 14 15 Rih and Kahalga Dadri Talcher Kaniha Unchahar Talcher Thermal Simh ad ri Tand Ba darpur Sipat- II Total Uttar Pradesh Bihar Uttar Pradesh Orissa Uttar Pradesh Orissa Andhra Pradesh 1 U ttar Pradesh Delhi Chhattisgarh 2,000 1,840 840 3,000 1,050 460 1,000 440 705 1,000 23,895 Coal Based Power Stations: Based Joint Ventures: S.NO COAL BASED (owned by N.T.P.C) STATE COMMISSIONED CAPACITY 1 2 3 Durgapur Rourkela Bhilai West Bengal Orissa Chhattisgarh 120 120 574 Total 814 I-BUSINESS INSTITUTE - 36 -

Gas/Liquid Fuel Based Power Stations With a combined gas based commissioned capacity of 3955 MW, NTPC caters to the p eeking demand for power. COAL BASED (owned by N.T.P.C) 1. 2. 3. 4. 5. 6. Anta Auraiya Kawas Dadri Jhanor-Gan dhar Rajiv Gandhi CC PP Ka yamkulam STATE COMMISSIONED CAPACITY(MW) Rajasthan Uttar Pradesh Gujarat Uttar Pradesh Gujarat Kerala 413 652 645 817 350 7. Faridabad Haryana 430 Total 3,955 Hydro Based Power Projects (Under Implementation) NTPC has increased thrust term sustainability. The nvestment in Koldam Hydro spur district of Himachal re Tapovan Vishnu gad and ivities are in full swing on hydro development for a balanced portfolio for long first step in this direction was taken by initiating i Electric Power Project located on Satluj river in Bila Pradesh. Two other hydro projects under construction a Loharinag Pala. On all these projects construction act I-BUSINESS INSTITUTE - 37 -

HYDRO BASED STATE APPROVED CAPACITY(MV) S.NO 1 Kold am (HE PP) 800 Himachal Pradesh 800 2 oharina g Pala (HEP P) Uttarakhand 600 3 Tapo van Vishnu gad (HE PP) Uttarakhand 520 Total 1,920 NTPC ANTA National Thermal Power Corporation Limited (NTPC) is the largest thermal power g enerating company of India. A public sector company wholly owned by Govt. of Ind ia, it was incorporated in the year 1975 to accelerate power development in the country. NTPC Anta project is located about 23 Km. from Baran district headquart er and close to Anta town of the district. Anta project is the first in the seri es of combined cycle power projects set up by NTPC in different parts of the cou ntry. The installed capacity of first stage is 413 MW comprising 3 gas turbines of 88 MW each and a steam turbine of 149 MW. All the units were synchronized ahe ad of schedule. The project has strength of 240 employees. I-BUSINESS INSTITUTE - 38 -

The District Industries Centre (DIC) programme was introduced for the first time in the state in July 1978 for providing the necessary support services under on e roof for industrial development in the district. Kota which is the major indus trial town of the state is just 72 km. from Baran where industrialization has ta ken roots in the early sixties. After the creation of Baran district, office of the district industry centre office was established at Baran in September 1992. Main industries in Baran district are agro based industries included soyabean an d mustard oil, pulse/rice mills, coriander &wheat grinding agriculture instrumen ts, mineral based units like stone crashers etc. National Thermal Power Corporat ion (NTPC), a government of India enterprise, is also situated in Anta which pro duces electricity based on the Gas. The district has a tremendous scope for the rapid industrialization, especially among agro based industries. The main forest produce of district is Tendu leave. So Bidi, Dona pattal units are beneficial in the district. The minerals produced in the district are Limestone, Sandstone, bu ilding stone etc. So the units based on the above stones are also beneficial. Ra jasthan Financial Corporation (RFC) is a leading financial institution of the st ate which caters to the industrial and financial requirements of the medium, sma ll scale and tiny industrial units. For setting up the industrial units in the d istrict, RIICO provide land and infrastructure facilities, technical consultancy and financial inputs. There are three industrial areas in the district. I-BUSINESS INSTITUTE - 39 -

Location & Origin With the findings of natural gas in Western Offshore fields of Bombay High, Cent ral Government decided to take this gas upto North India and accordingly laid th e HBJ Pipeline starting from Hazira. GOI directed to set up gas based CCPPs alon g with HBJ pipeline. Initially 3 such projects were conceived at Anta , Kawas, & Auraiya in States of Rajasthan, Gujarat & UP respectively. Anta project was set up to mitigate the power shortage in the Northen region which was estimated bet ween 13-16% of the peak demand during the VIIth plan period. Further, looking at the benefit of the low gestation, high efficiency, quick (Black) start and quic k loading capability with mix-fuel flexibility and low pollution impact, Anta pr oject was considered the most viable option to eminently fulfill the supply dema nd gap in Nothern Region. A brief profile of Project is exhibited in o-3. A Brief project profile of Anta Station : Combined cycle Gas based Power Station Gas Turbines: 3x88.71 MW Steam Turbine : 1x153.2 MW. Total Capcity: 419.33 MW Commercial operation started w.e. f 01.08.1990. Fig.0-3 Sole product of NTPC-Anta is electrical power generated by using gas or naphtha as main fuel. The generated power is transmitted through six 220 KV lines. Thus NTPCs role is limited upto the Switchyard, beyond which PGCIL network feeds to respective DISCOMs I-BUSINESS INSTITUTE - 40 -

. ANTA PROJECT PROFILE The Anta project profile is given in Table 1 Table 1 Approved Capacity Installed Capacity Location Gas Source Water Source Unit Size 419 MW 419 MW Anta, Distric t Baran, Rajasthan HBJ Pipeline South Basin Gas field Kota Right Main Canal 3*8G T + 1*149 ST Unit Commissioned Capacity Unit I Unit II Unit III Unit IV Beneficiary States 89 MW GT 89 MW GT 89 MW GT 15 2 MW ST U.P., J&K, Himachal Pradesh , Delhi, Chandigarh, Rajasthan, Punjab, Hary ana International Assistance IBRD & Japan Year January 1989 March 1989 May 1989 March 1990 ANTA has many unique features and achievements Unique Features and achievements of ANTA First Gas Power station of NTPC First station in India where 13D2 ABB ma chine was installed. I-BUSINESS INSTITUTE - 41 -

Anta is the first power station on HBJ gas pipe line. Having world benchmark for ABB Gas Turbine overhaul period 15.25 days. ANTAs journey towards excellence had started since inception. Today ANTA is one o f the best gas power plants in the country. For the financial year 2008-09, ANTA has been ranked first among all gas stations of NTPC under ABT regime. It has a chieved unique distinction of being the first power station of the country havin g zero forced outage. ANTA is certified under ISO 9001: 2000; ISO 14001: 2004; O HSAS 18001: 2007; SA 8000: 2001 and Five-S. Product and Market: The product of ANTA is Electricity at 220KV, which is supplied to its customers in northern grid. Allocation of Anta power to various states is shown in figure: 0-5. 1% 3% 4% 7% 6% 20% Rajasthan U.p Unallocated Punjab Delhi J&k 22% Uttaranchal Haryana H.p Chandigar th 10% 12% 15% I-BUSINESS INSTITUTE - 42 -

Only Power station in country to achieve zero forced outage in a financial year (2005-06). Customers : Customers : Its customer consists of state distribution companies in member states of northe rn grid viz. Rajasthan, UP, Delhi, Punjab, Haryana, Himachal Pradesh, Uttarancha l, J&K and Chandigarh. The coordination for generation scheduling is done by ANT A with the NRLDC (Northern Region Load Dispatch Centre) of Power Grid located at New Delhi. SWOT Analysis Strengths: 1. Good corporate Image. 2. Complete range of product for transmissio n & distribution. 3. Established brand name with executive oriented program. 4. Strong & wide networks of manpower across India. 5. Considered to be having tech nology & design ability. Weakness: 1. The procurement process in the companies is cumbersome and subject to auditing. 2. Low exposure to the needs & dynamics of distribution business. I -BUSINESS INSTITUTE - 43 -

3. Role clarity on the requirement of being an equipment supplier or a solution provider. As there are very few supplier of equipment manufacturing plant. Opportunities: 1. Huge Investment leading to greater demand of goods and service s. 2. Demand leading to Industry operating at full & over capacity. 3. Better Pr ice realization. 4. Early birds to learn faster and thus achieve repeat orders. Policy to bid from ultra mega power plant. 5. Vertical integration for supply ch ain management of coal by acquiring coal blogs. Threats: 1. Purchases preference may be extended to distribution sector. 2. Incr ease in no. of small contractors leading to price war. 3. Emergence of competito rs in the market like Schneider, Reliance, Tata etc. 4. Change in government pol icies for open trade or stock trading or energy trading. 5. Reduce the time lag. I-BUSINESS INSTITUTE - 44 -

CHAPTER 3 RESEARCH METHODOLOGY I-BUSINESS INSTITUTE - 45 -

METHODOLOGY The information was collected from various source which are listed below: For the official document. From records and manuals of different departments of the organizations . From a close observation of the functioning of various depar tments of the organizations. Last but not least, knowledge, both negative and positive precipitated through i nformal discussions with the employees of different departments. RESEARCH METHODOLOGY Plan of study:I-BUSINESS INSTITUTE - 46 -

A proper and systematic approach is essential in any project work. Proper planni ng should be conducting the data collection, completion and presentation of the project. Each and every step must be so planned that it leads to the next step a utomatically. This systematic approach is a blend a planning and organization an d major emphasis is given to independences of various steps. The plan of this st udy is as follows. Research purpose The purpose of the research was to criteria on which investment of the company i s raised every year and a favorable rate of return is arrived at, increasing the net result of the company as per their budget. Research objective The main objective the research is: To know the investment decisions. To analyze the investment depending on internal rate of return. Research design Research design helps in proper collection and analysis of the d ata. It helps in further course of action. Research approaches I-BUSINESS INSTITUTE - 47 -

 The most appropriate research is descriptive. This is because the goal of the st udy is clear research will help to understand to concept better. Classification of data Primary data This includes the information collected main ly from the office. This has served as primary source of data for this study Secondary data This includes the information gathered from various website. Sample Size The sample size selected is of four years. Sampling technique The sampling procedure employed for this is judgmental sampli ng a convenience sampling technique in which elements are based on the judgment of researcher Sof tware tools used for the data analysis The software tools used for data analysis in MS WORD & MS EXCEL I-BUSINESS INSTITUTE - 48 -

CHAPTER 6 DATA ANALYSIS Ratio Meaning & Technique Advantages Uses of Ratio Analysis Limitations of Ratio Analysis Classification Of Ratios & interpretation I-BUSINESS INSTITUTE - 49 -

RATIO ANALYSIS INTRODUCTION Financial analysis is the process of identifying the financial strengths and wea knesses of the firm and establishing relationship between the items of the balan ce sheet and profit & loss account. Financial ratio analysis is a fascinating to pic to study because it can teach us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareh olders should be happy! Ratio analysis can also help us to check whether a busin ess is doing better this year than it was last year; and it can tell us if our b usiness is doing better or worse than other I-BUSINESS INSTITUTE - 50 -

businesses doing and selling the same things. In addition to ratio analysis bein g part of an accounting and business studies syllabus, it is a very useful thing to know anyway! The overall layout of this section is as follows: We will begin by asking the question, what do we want ratio analysis to tell us? Then, what w ill we try to do with it? This is the most important question, funnily enough! T he answer to that question then means we need to make a list of all of the ratio s we might use: we will list them and give the formula for each of them. Once we have discovered all of the ratios that we can use we need to know how to use th em, who might use them and what for and how will it help them to answer the ques tion we asked at the beginning? At this stage we will have an overall picture of what ratio analysis is, who uses it and the ratios they need to be able to use it. All thats left to do then is to use the ratios; and we will do that step- b y-step, one by one. Ratio analysis Ratio analysis is one of the techniques of financial analysis to evaluate the fi nancial condition and performance of a business concern. Simply, ratio means the comparison of one figure to other relevant figure or figures. According to Myer s , Ratio analysis of financial statements is a study of relationship among vario us financial factors in a business as disclosed by a single set of statements an d a study of trend of these factors as shown in a series of statements." Advantages and Uses of Ratio Analysis I-BUSINESS INSTITUTE - 51 -

There are various groups of people who are interested in analysis of financial p osition of a company. They use the ratio analysis to work out a particular finan cial characteristic of the company in which they are interested. Ratio analysis helps the various groups in the following manner: To workout the profitability: Accounting ratio help to measure the profitability of the business by calculating the various profitability ratios. It helps the m anagement to know about the earning capacity of the business concern. In this wa y profitability ratios show the actual performance of the business. To workout the solvency: With the help of solvency ratios, solvency of the compa ny can be measured. These ratios show the relationship between the liabilities a nd assets. In case external liabilities are more than that of the assets of the company, it shows the unsound position of the business. In this case the busines s has to make it possible to repay its loans. Helpful in analysis of financial statement: Ratio analysis help the outsiders ju st like creditors, shareholders, debenture-holders, bankers to know about the pr ofitability and ability of the company to pay them interest and dividend etc. Helpful in comparative analysis of the performance: With the help of ratio analy sis a company may have comparative study of its performance to the previous year s. In this way company comes to know about its weak point and be able to improve them. I-BUSINESS INSTITUTE - 52 -

 To simplify the ac counting information: Accounting ratios are very useful as th ey briefly summarize the result of detailed and complicated computations. Limitations of Ratio Analysis In spite of many advantages, there are certain limitations of the ratio analysis techniques and they should be kept in mind while using them in interpreting fin ancial statements. The following are the main limitations of accounting ratios: Limited Comparability: Different firms apply different accounting policies. Therefore the ratio of one firm cannot always be compared with the ratio of othe r firm. Some firms may value the closing stock on LIFO basis while some other fi rms may value on FIFO basis. Similarly there may be difference in providing depr eciation of fixed assets or certain of provision for doubtful debts etc. False Results: Accounting ratios are based on data drawn from accounting records . In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct. Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of assets. Therefore, it is necessary to ma ke proper adjustment for price-level changes before any comparison. I-BUSINESS I NSTITUTE - 53 -

Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decisi on making. For example, average collection period may be equal to standard credi t period, but some debtors may be in the list of doubtful debts, which is not di sclosed by ratio analysis. Effect of window-dressing : In order to cover up their bad financial position som e companies resort to window dressing. They may record the accounting data accordi ng to the convenience to show the financial position of the company in a better way. Procedure (Stages) For Ratio-analysis Classification Of Ratios Ratios may be classified in a number of ways to suit any particular purpose. Dif ferent kinds of ratios are selected for different types of situations. Mostly, t he purpose for which the ratios are used and the kind of data available determin e the nature of analysis. The various accounting ratios can be classified as fol lows: A. Profitability ratios : 1 2 3 4 5 Gross profit ratio Net profit ratio Op erating ratio Return on shareholders investment or net worth Return on equity cap ital I-BUSINESS INSTITUTE - 54 -

6 7 Earnings Per Share Ratio Price earnings ratio B. Liquidity ratios : 1 2 Current ratio Liquid /Acid test / Quick ratio C. Activity ratios : 1 2 3 4 Inventory/Stock turnover ratio Debtors/Receivables turnover ratio Workin g capital turnover ratio Fixed assets turnover ratio D. Leverage ratios or long term solvency ratios : 1 2 3 4 5 Debt equity ratio Proprietary or Equity ratio Ratio of fixed assets to shareholders funds Current Assets to Proprietors Fund Ratio Interest coverage or debt service ratio A .Profitability ratios : 1. Gross profit ratio (GP ratio ):Gross profit ratio is the ratio of gross profi t to net sales expressed as a percentage. It expresses the relationship between gross profit and sales. I-BUSINESS INSTITUTE - 55 -

Gross Profit Gross profit ratio = Net Sales *100 Significance: Gross profit ratio may be indicated to what extent the selling prices of goods p er unit may be reduced without incurring losses on operations. It reflects effic iency with which a firm produces its products. As the gross profit is found by d educting cost of goods sold from net sales, higher the gross profit better it is . There is no standard GP ratio for evaluation. It may vary from business to bus iness. However, the gross profit earned should be sufficient to recover all oper ating expenses and to build up reserves after paying all fixed interest charges and dividends. Hence, an analysis of gross profit margin should be carried out i n the light of the information relating to purchasing, mark-ups and markdowns, c redit and collections as well as merchandising policies. (in crore) GROSS PROFIT RATIO YEAR GROSS PROFIT - 56 NET SALES RATIO I-BUSINESS INSTITUTE

2004 2005 2006 2007 2008 7,912.00 8,036.60 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 41% 36% 31% 34% 33% 8,070.10 10,982. 80 12,393.40 GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 41 36 31 34 33 Ratio 2004 2005 2006 2007 2008 Interpretation: I-BUSINESS INSTITUTE - 57 -

The Gross profit of NTPC was 41% in 2003 2004 it had fallen up by 36%. in 200420 05. in 2005 2006 it had again fallen to 30.86% %. But in 2006-2007 had gone to 3 4% which shows company earned profit . in year 2007-08 it had fallen up to 33%. 2. Net profit ratio : Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage. Components of net profit ratio: The two basic components of the net profit ratio are the net profit and sales. T he net profits are obtained after deducting income-tax and, generally, non-opera ting expenses and incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on investments outside the business, prof it on sales of fixed assets and losses on sales of fixed assets, etc are exclude d. Formula: Net Profit Net profit ratio = Net Sales *100 Significance: NP ratio is used to measure the overall profitability and hence it is very usefu l proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. T his ratio also indicates the firms capacity to face adverse economic conditions such as price competition, low I-BUSINESS INSTITUTE - 58 -

demand, etc. Obviously, higher the ratio the better is the profitability. But wh ile interpreting the ratio it should be kept in minds that the performance of pr ofits also be seen in relation to investments or capital of the firm and not onl y in relation to sales. (in crore) NET PROFIT RATIO YEAR 2004 2005 2006 2007 2008 NET PROFIT NET SALES RATIO 28% 26% 22% 21% 20% 5286.00 5807.00 5820.00 6865.00 7415.00 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 GRAPHICAL REPRESENTATION I-BUSINESS INSTITUTE - 59 -

50 45 40 35 30 25 20 15 10 5 0 28 Ratio 26 22 21 22 2004 2005 2006 2007 2008 Interpretation: The net profit ratio of NTPC was 28% in 2003 2004 it had fallen up by 26%. in 20 042005. again in 2005 2006 it had fallen down to 22%. Further it had fallen to 2 1% in 2006-2007 and again in year 2007-08 it had fallen down up to 20% which sho ws the loss. 3. Operating ratio : Operating ratio is the ratio of cost of goods sold plus ope rating expenses to net sales. It is generally expressed in percentage. It measur es the cost of operations per dollar of sales. This is closely related to the ra tio of operating profit to net sales. Components: The two basic components for the calculation of operating ratio are operating co st (cost of goods sold plus operating expenses) and net sales. Operating expense s normally include (a) administrative and office expenses and (b) selling and di stribution expenses. I-BUSINESS INSTITUTE - 60 -

Financial charges such as interest, provision for taxation etc. are generally ex cluded from operating expenses. Formula of operating ratio: Cost of good sold+ Operating expenses Operating ratio = Net Sales Operating ratio shows the operational efficiency of the business. Lower operatin g ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing conce rns (in crore) *100 OPERATING RATIO YEAR 2004 2005 2006 2007 2008 COST OF GOOD SOLD NET SALES RATIO 72% 68% 71% 69% 69% 13,667.00 15,276.10 18,718.30 22,472.10 25,519.70 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 I-BUSINESS INSTITUTE - 61 -

GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 2004 2005 2006 2007 2008 Interpretation: In The graph Operating ratio of NTPC was 72% in 2003 2004 it had fallen up by 68 %. in 2004-2005. in 2005 2006 it had gone to 71%. Further it had fallen to 69% i n 20062007 and again in year 2007-08 it had fallen down up to 69% which shows co mpany earned maximum profit 4. Return on share holders investment:It is the ratio of net profit to share hold ers investment. It is the relationship between net profit (after interest and t ax) and share holders/proprietors fund. This ratio establishes the profitabili ty from the share holders point of view. The ratio is generally calculated in p ercentage. Components: I-BUSINESS INSTITUTE - 62 -

The two basic components of this ratio are net profits and shareholders funds. Shareholders funds include equity share capital, (preference share capital) and all reserves and surplus belonging to shareholders. Net profit means net income after payment of interest and income tax because those will be the only profits available for share holders. Formula of return on shareholders investment or n et worth Ratio: Net profit after tax - Preference dividend) Return on Shareholders investment = *100 Share holders fund Significance: This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to max imize its earnings, this ratio indicates the extent to which this primary object ive of businesses being achieved. This ratio is of great importance to the prese nt and prospective shareholders as well as the management of the company. I-BUSINESS INSTITUTE - 63 -

(in crore) RETURN ON SHAREHOLDERS INVESTEMENT NET PROFIT AFTER TAX YEAR 2004 SHAREHOLDERS FUND RATIO .15 5286.00 5807.00 5820.00 6865.00 7415.00 35,992.00 41,776.00 44,959.00 48,597.00 52,639.00 2005 2006 2007 2008 .14 .13 .14 .14 GRAPHICAL REPRESENTATION 50 40 30 20 10 0.15 0 0.14 0.14 0.14 13 Ratio 2004 2005 2006 2007 2008 Interpretation: The Return on Shareholders investment of NTPC was 15% in 2003 2004 it had fallen up by 14%. in 2004-2005. again in 2005 2006 it had fallen down to 13%. But in 20 06I-BUSINESS INSTITUTE - 64 -

2007 this ratio had fallen to 14% and again in year 2007-08 it had fallen down u p to 14% we can see by analysis of table sometimes ratio increase some time cons tant and some time decrease which shows company shareholders investment up and do wn. 5. Return on Equity Capital (ROEC) Ratio In real sense, ordinary shareholders are the real owners of the company. They as sume the highest risk in the company. (Preference share holders have a preferenc e over ordinary shareholders in the payment of dividend as well as capital. Pref erence share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more int erested in the profitability of a company and the performance of a company shoul d be judged on the basis of return on equity capital of the company. Return on e quity capital which is the relationship between profits of a company and its equ ity, can be calculated as follows: Formula of return on equity capital or common stock: Formula of return on equity capital ratio is: Net profit after tax - Preference dividend) Return on Equity Capital = Equity share capital *100 Components: I-BUSINESS INSTITUTE - 65 -

Equity share capital should be the total called-up value of equity shares. As th e profit used for the calculations are the final profits available to equity sha reholders as dividend, therefore the preference dividend and taxes are deducted in order to arrive at such profits. Significance: This ratio is more meaningful to the equity shareholders who are interested to k now profits earned by the company and those profits which can be made available to pay dividends to them. Interpretation of the ratio is similar to the interpre tation of return on shareholders investments and higher the ratio better is. (i n crore) RETURN ON EQUITY CAPITAL NET PROFIT AFTER TAX YEAR 2004 2005 2006 2007 2008 EQUITY SHARE CAPITAL RATIO .68 .70 .71 .83 .90 5286.00 5807.00 5820.00 6865.00 7415.00 7,812.50 8,245.50 8,245.50 8,245.50 8,245.50 I-BUSINESS INSTITUTE - 66 -

GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 0.68 2004 0.7 2005 0.71 2006 0.83 2007 0.9 2008 Interpretation: The Return on Equity capital of NTPC was .68 in 2003 2004 it had gone up by .70. in 2004-2005. again in 2005 2006 it had gone to .71. But in 2006-2007 this rati o had again gone to .83 and again in year 2007-08 it had gone up to .90 we can s ee by analysis of graph return on equity capital ratio was continuous increase w hich shows company in better position. 6. Earnings per Share (EPS) Ratio :- Definition: Earnings per share ratio (EPS Ratio) are a small variation of return on equity c apital ratio and are calculated by dividing the net profit after taxes and prefe rence dividend by the total number of equity shares. Formula of Earnings per Sha re Ratio: The formula of earnings per share is: I-BUSINESS INSTITUTE - 67 -

Net profit after tax - Preference dividend Earinings per Share = No. of Equity share Significance: The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earn ings or earnings power of the firm. EPS ratio calculated for a number of years i ndicates whether or not the earning power of the company has increased. (in cror e) RETURN ON EQUITY CAPITAL NET PROFIT AFTER TAX YEAR 2004 2005 2006 2007 2008 NO OF EQUITY SHARE RATIO 6.77 7.04 7.05 8.32 8.99 5286.00 5807.00 5820.00 6865.00 7415.00 781.00 825.00 825.00 825.00 825.00 I-BUSINESS INSTITUTE - 68 -

GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 6.77 7.04 7.05 8.32 8.39 2004 2005 2006 2007 2008 Interpretation: NTPC EPS was Rs. 6.77 in 2003-04 which has raises to Rs.7.04 in 2004 2005 further in the year 2005 2006 it has increased to Rs 7.05.. In 2006-20 07 the ratio gone to 8.32 and in 200-2008 gone upto 8.99 which shows A higher va lue of EPS in these years shows that the company is trying to maintain its net p rofit available to equity share holder of NTPC, which also assure efficient util ization of equity capital 7. Price Earnings Ratio (PE Ratio): Definition: Price earnings ratio (P/ E ratio) is the ratio between market price per equity s hare and earning per share. The ratio is calculated to make an estimate of appre ciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. Formula of Price Ea rnings Ratio: Following formula is used to calculate price earnings ratio: I-BUSINESS INSTITUTE - 69 -

Market price per equity share Price Earnings Ratio = Earning per share Significance of Price Earnings Ratio: Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price. Generally, higher the pric e earning ratio the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio. (in crore) PRICE EARNINGS RATIO MARKET PRICE PER EQUITY SHARE YEAR 2004 2005 2006 2007 2008 EARNINGS PER SHARES 676.54 704.26 705.86 832.54 899.25 RATIO .03 5.01 1.35 0.38 0.34 19.20 3,524.90 951.60 316.40 304.30 I-BUSINESS INSTITUTE - 70 -

GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 5.01 0.03 2004 2005 1.35 2006 0.38 2007 0.34 2008 Interpretation: The Price earning Ratio of NTPC was .03 in 2003 2004 .it had increased by 5.01 w hichs shows company in better position .in 2004-2005. again in 2005 2006 it had f allen down to 1.35. and in 2006-2007 this ratio had fallen to .38 and again in y ear 200708 it had fallen down up to .34 . B. Liquidity ratios : 1. Current Ratio: Definition: Current ratio may be defined as the relationship between current assets and curr ent liabilities. This ratio is also known as "working capita l ratio ". It is a measure of general liquidity and is most widely used to make the analysis for sh ort term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. Formula: F ollowing formula is used to calculate current ratio: I-BUSINESS INSTITUTE - 71 -

Current Assets Current Ratio = Current Liability Components: The two basic components of this ratio are current assets and curren t liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally, one year, such as marketable securities or readily realizable investments, bills receivables, sund ry debtors, (excluding bad debts or provisions), inventories, work in progress, etc. Prepaid expenses should also be included in current assets because they rep resent payments made in advance which will not have to be paid in near future. C urrent liabilities are those obligations which are payable within a short period of tie generally one year and include outstanding expenses, bills payable, sund ry creditors, bank overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc. However, sometimes a controversy arises that whe ther overdraft should be regarded as current liability or not. Often an arrangem ent with a bank may be regarded as permanent and therefore, it may be treated as long term liability. At the same time the fact remains that the overdraft facil ity may be cancelled at any time. Accordingly, because of this reason and the ne ed for conversion in interpreting a situation, it seems advisable to include ove rdrafts in current liabilities. Significance : This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion a vailable to the creditors. It is an index of the firms financial stability. It is also an index of technical solvency and an index of the strength of working cap ital. I-BUSINESS INSTITUTE - 72 -

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity po sition of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current rat io represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been deterioration in the liquid ity position of the firm. A ratio equal to or near 2:1 is considered as a standa rd or normal or satisfactory. The idea of having doubled the current assets as c ompared to current liabilities is to provide for the delays and losses in the re alization of current assets. However, the rule of 2:1 should not be blindly used while making interpretation of the ratio. Firms having less than 2 : 1 ratio ma y be having a better liquidity than even firms having more than 2 : 1 ratio. Thi s is because of the reason that current ratio measures the quantity of the curre nt assets and not the quality of the current assets. If a firms current assets include debtors which are not recoverable or stocks which are slow-moving or obs olete, the current ratio may be high but it does not represent a good liquidity position. Limitations of Current Ratio : This ratio is measure of liquidity and should be used very carefully because it suffers from many limitations. It is, therefore, suggested that it should not be used as the sole index of short term solvency. 1. It is crude ratio because it measures only the quantity and not the quality o f the current assets. I-BUSINESS INSTITUTE - 73 -

2. Even if the ratio is favorable, the firm may be in financial trouble, because of more stock and work in process which is not easily convertible into cash, an d, therefore firm may have less cash to pay off current liabilities. (in crore) CURRENT RATIO YEAR CURRENT ASSETS CURRENT LIABILITY RATIO 2004 2005 2006 2007 2008 14,642.40 14,721.80 18,234.80 25,858.80 30,527.80 9,189.80 8,561.30 8,650.60 10,702.50 13,164.40 1.32 1.72 2.11 2.42 2.32 GRAPHICAL REPRESENTATION I-BUSINESS INSTITUTE - 74 -

50 45 40 35 30 25 20 15 10 5 0 Ratio 1.32 2004 1.72 2005 2.11 2006 2.42 2007 2.32 2008 Interpretation: We can see that there is a clear rise in the current ratio in 20 03-04 and 2004-05. As a conventional rule a current ratio of 2:1 is considered s atisfactory. The company has achieved the current ratio of 2.32, 2.42 & 2.11 dur ing the years 2007-08,2006-07,2005-06 respectively. Company may have adapted agg ressive working capital policy. The company has high liquidity because of high v alue of current ratio. The company can easily fulfill the short term liability. 2. Liquid or Liquidity or Acid Test or Quick Ratio: - Definition: Liqu id ratio is also termed as "Liquidity Ratio , Acid Test Ratio " or "Quick Ratio ". It is th e ratio of liquid assets to current liabilities. The true liquidity refers to th e ability of a firm to pay its short term obligations as and when they become du e. Components: The two components of liquid ratio (acid test ratio or quick ratio) are liquid a ssets and liquid liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and marketable securities or temporary investments. In other words they are I-BUSINESS INSTITUTE - 75 -

current assets minus inventories (stock) and prepaid expenses. Inventories canno t be termed as liquid assets because it cannot be converted into cash immediatel y without a loss of value. In the same manner, prepaid expenses are also exclude d from the list of liquid assets because they are not expected to be converted i nto cash. Similarly, Liquid liabilities means current liabilities i.e., sundry c reditors, bills payable, outstanding expenses, short term advances, income tax p ayable, dividends payable, and bank overdraft (only if payable on demand). Some time bank overdraft is not included in current liabilities, on the argument that bank overdraft is generally permanent way of financing and is not subject to be called on demand. In such cases overdraft will be excluded from current liabili ties. Formula of Liquidity Ratio Quick Assets Liquidity Ratio = Current Liability Significance: The quick ratio/acid test ratio is very useful in measuring the li quidity position of a firm. It measures the firms capacity to pay off current o bligations immediately and is more rigorous test of liquidity than the current r atio. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inv entories and prepaid expenses as a part of current assets. Usually a high liquid ratio an indication that the firm is liquid and has the ability to meet its cur rent or liquid liabilities in time and on the other hand a low liquidity ratio r epresents that the f I-BUSINESS INSTITUTE - 76 -

irms liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory. Although liquidity ratio is more rigorous test of liquidity than the current ratio , yet it should be us ed cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all th e debtors cannot be realized and cash is needed immediately to meet the current obligations. In the same manner, a low liquid ratio does not necessarily mean a bad liquidity position as inventories are not absolutely non-liquid. Hence, a fi rm having a high liquidity ratio may not have a satisfactory liquidity position if it has slow-paying debtors. On the other hand, a firm having a low liquid rat io may have a good liquidity position if it has a fast moving inventory. Though this ratio is definitely an improvement over current ratio, the interpretation o f this ratio also suffers from the same limitations as of current ratio. (in cro re) LIQUIDITY RATIO YEAR CURRENT ASSETS CURRENT LIABILITY RATIO 2004 2005 2006 2007 2008 12904.40 12944.10 15894.30 23348.60 27852.00 9,189.80 8,561.30 8,650.60 10,702.50 13,164.40 1.40 1.50 1.84 2.18 2.12 I-BUSINESS INSTITUTE - 77 -

GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 1.4 2004 1.5 2005 1.84 2006 2.18 2007 2.12 2008 Interpretation: From the above graph we can easily point out that there is a clear rise in the q uick ratio in 2003-04 and 2004-05. As a conventional rule a quick ratio of 1:1 i s considered satisfactory. The company has achieved the current ratio satisfacto rily. The company has high liquidity because of high value of current ratio. Thu s NTPC has the capacity to pay off current obligations immediately the short ter m liability. C. Activity ratios : 1 .Inventory Turnover Ratio or Stock Turnover Ratio (ITR): Definition: Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time a nd the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio / Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage I-BUSINESS INSTITUTE - 78 -

its inventory. This ratio indicates whether investment in stock is within proper limit or not. Components of the Ratio: Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding t he stock in the beginning and at the end of the period and dividing it by two. I n case of monthly balances of stock, all the monthly balances are added and the total is divided by the number of months for which the average is calculated. Fo rmula of Stock Turnover/Inventory Turnover Ratio: Cost Of Good Sold Inventory Turnover ratio = Average inventory at cost Generally, the cost of goods sold may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may be calculate d by dividing net sales by average inventory at cost. If average inventory at co st is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure m ay be taken as the average inventory. Inventory Turnover Ratio = Net Sales/ Average Inventory at Cost Inventory Turnov er Ratio = Net Sales /Average inventory at Selling Price Inventory Turnover Rati o = Net Sales/Inventory I-BUSINESS INSTITUTE - 79 -

Significance of ITR : Inventory turnover ratio measures the velocity of conversion of stock into sales . Usually a high inventory turnover/stock velocity indicates efficient managemen t of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. A low inventory turnover ratio indi cates an inefficient management of inventory. A low inventory turnover implies o ver-investment in inventories, dull business, poor quality of goods, stock accum ulation, accumulation of obsolete and slow moving goods and low profits as compa red to total investment. The inventory turnover ratio is also an index of profit ability, where a high ratio signifies more profit; a low ratio signifies low pro fit. Sometimes, a high inventory turnover ratio may not be accompanied by relati vely a high profit. Similarly a high turnover ratio may be due to underinvestmen t in inventories. It may also be mentioned here that there are no rule of thumb or standard for interpreting the inventory turnover ratio. The norms may be diff erent for different firms depending upon the nature of industry and business con ditions. However the study of the comparative or trend analysis of inventory tur nover is still useful for financial analysis I-BUSINESS INSTITUTE - 80 -

(in crore) INVENTORY TURNOVER RATIO AVERAGE INVENTORY AT COST YEAR NET CREDIT SALES RATIO 2004 2005 2006 2007 2008 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 1,738.00 1,777.00 2,340.00 2,510.00 2,675.00 11 13 11 13 14 GRAPHICAL REPRESENTATION \ 50 45 40 35 30 25 20 15 10 5 0 Ratio 13 13 14 11 11 2004 2005 2006 2007 2008 Interpretation: We can see in graph in 2003-04 inventory was 11 times and in 200 4-05 the ratio had gone to 13 times which shows more profit earn by company in 2 005-06 this ratio I-BUSINESS INSTITUTE - 81 -

decrease by 11 times in 2006-07 the ratio increased by 13 times. And in 2007-08 the ratio had gone 14 times which shows full utilizatation of stock 2. Debtors Turnover Ratio or Receivables Turnover Ratio: A concern may sell goods on cash as well as on credit. Credit is one of the impo rtant elements of sales promotion. The volume of sales can be increased by follo wing a liberal credit policy. The effect of a liberal credit policy may result i n tying up substantial funds of a firm in the form of trade debtors (or receivab les). Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of co ncern to pay its short term obligations in time depends upon the quality of its trade debtors. Definition: Debtors turnover ratio indicates the velocity of debt collection of a firm. In s imple words it indicates the number of times average debtors (receivable) are tu rned over during a year. Formula of Debtors Turn over Ratio : Net Credit Sales Debtors turnover Ratio = Average Trade Debtor The two basic components of the ratio are net credit annual sales and average tr ade debtors. The trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills Receivables. The average receivables are found by addin g the opening receivables and closing balance of receivables and dividing the to tal by two. It should be noted that provision for bad and doubtful debts should not be deducted since this may I-BUSINESS INSTITUTE - 82 -

give an impression that some amount of receivables has been collected. But when the information about opening and closing balances of trade debtors and credit s ales is not available, then the debtors turnover ratio can be calculated by divi ding the total sales by the balance of debtors (inclusive of bills receivables) given. and formula can be written as follows. Net Sales Debtor Turnover Ratio = Debtor Significance of the Ratio: This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of deb tors or more liquid the debtors are. Similarly, low debtors turnover ratio impli es inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb wh ich may be used as a norm to interpret the ratio as it may be different from fir m to firm. I-BUSINESS INSTITUTE - 83 -

(in crore) DEBTOR TURNOVER RATIO YEAR NET CREDIT SALES AVERAGE DEBTOR AT COST RATIO 2004 2005 2006 2007 2008 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 469.00 1,374.70 867.8 1,252.30 2,982.70 40 16 30.12 26 12 GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 40 30.12 26 16 12 Ratio 2004 2005 2006 2007 2008 Interpretation: I-BUSINESS INSTITUTE - 84 -

The debtors turnover ratio of credit. But in year 2004 ear 2005 2006 it had gone .e. 26 times and 2007-08 it

in 2003 2004 40 times which show efficient management 2005 it has fallen down to 16 times further in the y to 30.12 times and it again fallen down in next year i has fallen up to 12 times .

3. Working Capital Turnover Ratio: Definition: Working capital turnover ratio indicates the velocity of the utiliza tion of net working capital. This ratio represents the number of times the worki ng capital is turned over in the course of year and is calculated as follows: Fo rmula of Working Capital Turnover Ratio: Following formula is used to calculate working capital turnover ratio Cost Of Sales Working Capital turnover Ratio = Net Working Capital The two components of the ratio are cost of sales and the net working capital. I f the information about cost of sales is not available the figure of sales may b e taken as the numerator. Net working capital is found by deduction from the tot al of the current assets the total of the current liabilities. Significance: The working capital turnover ratio measures the efficiency with which the working c apital is being used by a firm. A high ratio indicates efficient utilization of working I-BUSINESS INSTITUTE - 85 -

capital and a low ratio indicates otherwise. But a very high working capital tur nover ratio may also mean lack of sufficient working capital which is not a good situation. (in crore) WORKING CAPITAL TURNOVER RATIO YEAR COST OF SALES NET WORKING CAPITAL RATIO 2004 2005 2006 2007 2008 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 5,452.60 6,160.50 9,584.20 15,156.30 17,363.4 3.46 3.66 2.73 26 12 GRAPHICAL REPRESENTATION I-BUSINESS INSTITUTE - 86 -

50 40 30 20 10 0 3.46 3.66 2.73 26 12 Ratio 2004 2005 2006 2007 2008 Interpretation In case of NTPC the ratio was 3.46 times in 2003-2004 it has been increased to 3 .66 times in 2004 2005 to 2.73 in 2005 2006. Further in 2006 2007 it had fallen to 2.15and in the year 2007-08 it has again fallen up to 2.13 times this shows c ompany has not utilized owners and long-term borrowed funds efficiently. 4. Fixed Assets Turnover Ratio: Definition: Fixed assets turnover ratio is also known as sales to fixed assets ratio. This r atio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio mea ns under-utilization of fixed assets. The ratio is calculated by using following formula: Formula of Fixed Assets Turnover Ratio: Fixed assets turnover ratio turnover ratio is calculated by the following formul a: I-BUSINESS INSTITUTE - 87 -

Cost Of Sales Fixed Assets turnover Ratio = Net Fixed Assets (in crore) FIXED ASSETS TURNOVER RATIO YEAR COST OF SALES NET FIXED ASSETS RATIO 2004 2005 2006 2007 2008 18,871.20 22,565.00 26,142.90 32,631.70 37,050.10 21,160.10 22,204.70 22,967.50 25,525.00 39,933.70 .89 1.02 1.14 1.28 .93 GRAPHICAL REPRESENTATION 50 40 30 Ratio 20 10 0 0.89 1.02 1.14 1.28 0.93 2004 2005 2006 2007 2008 I-BUSINESS INSTITUTE - 88 -

Interpretation A high ratio indicates efficient utilization of fixed assets in generating sales . In case of NTPC the ratio was .89 in the year 2003-2004,which had gone to 1.02 in 2004-2005.in the year 2005-2006 the ratio had again increased to 1.14 and in 2006-2007 it is 1.28 and same is in case of 2007-08 the ratio had fallen .93 .i ts Cleary that in previous year full utilization of fixed assets but in 2007-08 this ratio decrease . D. Leverage ratios or long term solvency ratios : 1. Debt to- Equity Ratio: Definition: Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also kno wn as external internal equity ratio . It is determined to ascertain soundness of the long term financia l policies of the company. Formula of Debt to Equity Ratio: Following formula is used to calcu late debt to equity ratio External equities Debt Equity Ratio = Internal equities Outsider funds Debt Equities Ratio = Shareholders fund As a long term financial ratio it may be calculated as follows: I-BUSINESS INSTITUTE - 89 -

Total Long Term Debts Debt Equities Ratio = Total Long Term Fund Total Long Term debt Debt Equities Ratio = Shareholders fund Components: The two basic components of debt to equity ratio are outsiders funds i.e. external equities and share holders funds, i.e., internal equities. The outs iders funds include all debts / liabilities to outsiders, whether long term or sh ort term or whether in the form of debentures, bonds, mortgages or bills. The sh areholders funds consist of equity share capital, preference share capital, capi tal reserves, revenue reserves, and reserves representing accumulated profits an d surpluses like reserves for contingencies, sinking funds, etc. The accumulated losses and deferred expenses, if any, should be deducted from the total to find out shareholders funds Some writers are of the view that current liabilities d o not reflect long term commitments and they should be excluded from outsiders funds. There are some other writers who suggest that current liabilities should also be included in the outsiders funds to calculate debt equity ratio for the reason that like long term borrowings, current liabilities also represents firm s obligations to outsiders and they are an important determinant of risk. Howeve r, we advise that to calculate debt equity ratio current liabilities should be i ncluded in outsiders funds. The ratio calculated on the basis outsiders funds excluding liabilities may be termed as ratio I-BUSINESS INSTITUTE - 90 -

of long-term debt to share holders funds. It means that for every four dollars w orth of the creditors investment the shareholders have invested six dollars. That is ext ernal debts are equal to 0.66% of shareholders funds. Significance of Debt to Eq uity Ratio: Debt to equity ratio indicates the proportionate claims of owners an d the outsiders against the firms assets. The purpose is to get an idea of the c ushion available to outsiders on the liquidation of the firm. However, the inter pretation of the ratio depends upon the financial and business policy of the com pany. The owners want to do the business with maximum of outsiders funds in ord er to take lesser risk of their investment and to increase their earnings (per s hare) by paying a lower fixed rate of interest to outsiders. The outsiders credit ors) on the other hand, want that shareholders (owners) should invest and risk t heir share of proportionate investments. A ratio of 1:1 is usually considered to be satisfactory ratio although there cannot be rule of thumb or standard norm f or all types of businesses. Theoretically if the owners interests are greater tha n that of creditors, the financial position is highly solvent. In analysis of th e long-term financial position it enjoys the same importance as the current rati o in the analysis of the short-term financial position. I-BUSINESS INSTITUTE - 91 -

(in crore) DEBT EQUITIES RATIO YEAR LONG TERM DEBT SHAREHOLDERS FUND RATIO 2004 2005 2006 2007 2008 15,612.00 17,425.00 20,638.00 25,141.00 28,564.0 35,992.00 41,776.00 44,959.00 48,597.00 52,639.00 .43 .42 .46 .52 .54 GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 0.43 2004 0.42 2005 0.46 2006 0.52 2007 0.54 2008 Interpretation: I-BUSINESS INSTITUTE - 92 -

we can easily point out that there is a sharp rise in the debt-equity ratio from 2004-05 to 2007- 08. From the above data we conclude that the company has less debt it can also pay off the current obligations very easily. 2. Proprietary or Equity Ratio: Definition: This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholders funds t o total assets. Proprietary / Equity ratio indicates the long-term or future sol vency position of the business. Formula of Proprietary/ Equity Ratio: Shareholders funds Proprietary ratio = Total assets Components: Shareholders funds include equity share capital plus all reserves a nd surpluses items. Total assets include all assets, including Goodwill. Some au thors exclude goodwill from total assets. In that case the total shareholders f unds are to be divided by total tangible assets. As the total assets are always equal to total liabilities, the total liabilities, may also be used as the denom inator in the above formula. Significance: This ratio throws light on the genera l financial strength of the company. It is also regarded as a test of the soundn ess of the capital structure. Higher the ratio or the share of shareholders in t he total capital of the company better is the long-term solvency position of the company. A low proprietary ratio will include greater risk to the creditors. I-BUSINESS INSTITUTE - 93 -

(in crore) PROPRIETARY RATIO YEAR SHAREHOLDERS FUND TOTAL ASSETS RATIO 2004 2005 2006 2007 2008 35,992.00 41,776.00 44,959.00 48,597.00 52,639.00 51,540.40 59,201.50 65,596.80 73,737.90 81,202.60 .70 .71 .69 .66 .65 GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 0.7 2004 0.71 2005 0.69 2006 0.66 2007 0.65 2008 Interpretation We can see by graph in 2003-04 the ratio was .70 and in 2004-05 ratio had increa sed .71 which shows company soundness and capital structure was good. in 2005-06 the proportions had fallen up to .69 and continued had fallen up to 2008 which shows general risk to the creditor included. I-BUSINESS INSTITUTE - 94 -

3. Fixed Assets to Proprietors Fund Ratio: Definition: Fixed assets to proprietors fund ratio establish the relationship between fixed a ssets and shareholders funds. The purpose of this ratio is to indicate the percen tage of the owners funds invested in fixed assets. Formula: Shareholders funds fixed Assets to Proprietors = Proprietors Fund The fixed assets are considered at their book value and the proprietors funds c onsist of the same items as internal equities in the case of debt equity ratio. Significance: The ratio of fixed assets to net worth indicates the extent to which shareholder s funds are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by shareholders equity including reserves, surpluses and re tained earnings. If the ratio is less than 100%, it implies that owners funds are more than fixed assets and a part of the working capital is provided by the sha reholders. When the ratio is more than the 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outs iders to finance the fixed assets. There is no rule of thumb to interpret this r atio by 60 to 65 percent is considered to be a satisfactory ratio in case of ind ustrial undertakings. I-BUSINESS INSTITUTE - 95 -

(in crore) FIXED ASSETS TO PROPRIETORS Year FIXED ASSETS PROPRIETORS FUND Proprietors Fund Ratio 2004 2005 2006 2007 2008 21,160.10 22,204.70 22,967.50 25,525.00 39,933.70 35,992.00 41,776.00 44,959.00 48,597.00 52,639.00 .56 .53 .51 .52 .76 GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 0.56 0.53 0.51 0.52 0.76 2004 2005 2006 2007 2008 Interpretation In the year 2003-2004 the ratio was 0.56. In 2004-2005 the ratio had decreased t o .53. But in 2005-2006 the ratio had again falled to 0.51. Further it had incre ased to .52 in I-BUSINESS INSTITUTE - 96 -

2006-2007 but in 2007-08 the ratio is 0.76 which is very close to the ideal rati o. From the analysis it is found out that since last four years company is inves ting average more than 70% of its long-term fund in fixed assets. There is more investment in fixed assets so if that excess fund can be utilized effectively at some other place that should be done. 4. Current Assets to Proprietors Fund Ratio: Current Assets to Proprietors Fund Ratio establishes the relationship between cur rent assets and shareholders funds. The purpose of this ratio is to calculate the pe rcentage of shareholders funds invested in current assets. Formula: Shareholders funds Current Assets to Proprietors fund = Proprietors Fund Significance: Different industries have different norms and therefore, this rati o should be studied carefully taking the history of industrial concern into cons ideration before relying too much on this ratio. I-BUSINESS INSTITUTE - 97 -

(in crore) UCURRENT ASSETS TO PROPRITORS FUND PROPRIETORS FUND Proprietors Fund Year CURRENT ASSETS Ratio 2004 2005 2006 2007 2008 14,642.40 14,721.80 18,234.80 25,858.80 30,527.80 35,992.00 41,776.00 44,959.00 48,597.00 52,639.00 .41 .35 .41 .53 .58 GRAPHICAL REPRESENTATION 50 45 40 35 30 25 20 15 10 5 0 Ratio 0.41 2004 0.35 2005 0.41 2006 0.53 2007 0.58 2008 I-BUSINESS INSTITUTE - 98 -

Interpretation In the year 2003-2004 the ratio was 0.41. In 2004-2005 the ratio had decreased t o .35. But in 2005-2006 the ratio had again increased to 0.41. Further it had in creased to .53 in 2006-2007 but in 2007-08 the ratio is increased. 5. Debt Service Ratio or Interest Coverage Ratio: Definition: Interest coverage ratio is also known as debt service ratio or debt service cove rage ratio . This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. It is calculated by using the followi ng formula. Formula: Net profit before interest and tax Interest Coverage ratio = Fixed interest charge Significance of debt service ratio: The interest coverage ratio is very importan t from the lenders point of view. It indicates the number of times interest is covered by the profits available to pay interest charges. It is an index of the financial strength of an enterprise. A high debt service ratio or interest cover age ratio assures the lenders a regular and periodical interest income. But the weakness of the ratio may create some problems to the financial manager in raisi ng funds from debt sources. I-BUSINESS INSTITUTE - 99 -

(in crore) INTEREST COVERAGE RATIO NET PROFIT BEFORE INTEREST AND TAX 10317.00 7092.00 6981 .00 10767.00 12053.00 t FIXED INTEREST CHARGES 3,372.70 1,014.20 958.50 1,859.40 1,798.10 Year 2004 2005 2006 2007 2008 Ratio 3 7 7.28 6 7 GRAPHICAL REPRESENTATION 50 40 30 20 10 0 7 3 7.28 6 7 Ratio 2004 2005 2006 2007 2008 Interpretation This ratio suggests that whether company manages to earn sufficie nt income to cover its expenses. The ratio of the company indicates that company depends much on borrowed I-BUSINESS INSTITUTE - 100 -

funds. In 2008 company interest coverage ratio was 7 which shows high ratio comp are to previous year The high interest ratio means that company depends more on debt funds. I-BUSINESS INSTITUTE - 101 -

CHAPTER 7 Findings I-BUSINESS INSTITUTE - 102 -

FINDINGS There is a huge crisis over energy in the world especially in the field of elect ricity. India is also victim of the same condition. In spite of several efforts taken by the governments in this regard, there is enormous possibility exists. N TPC is a key organization in India as far as the supply of power is concerned. A fter successfully conducting this project work, it can be said that the financia l health of NTPC is sound enough and it appears positive in accordance with its balance sheet and profit & loss A/c which are available to me. Some other findin g there are 1. We can easily found that company net profit ratio in 2007-2008 wa s 20 this ratio fallen compare to previous year means company profit decrease. 2 . in Return on equity capital ratio compare to previous year ratio .90 which sho ws the company regularly dividend paid 3. company earning per ratio increase yea r by year 4. company current ratio is very good which shows highly liquidity ava ilable 5. company stock turnover ratio 14 which shows full utilization of stock I-BUSINESS INSTITUTE - 103 -

CHAPTER 6 CONCLUSION I-BUSINESS INSTITUTE - 104 -

CONCLUSION The electricity supply has been in the public domain in most of the developing c ountries. Under public ownership, the sector has not been able to catch up with the growing demand for electricity. The operational inefficiency and financial l osses often lead to poor quality of supply and underinvestment. A wave of reform s has swept through a number of developing countries. These reforms were primari ly targeted to improve the performance of the state owned companies and to provi de a conducive atmosphere for private investment in the sector. The erstwhile ve rtically integrated SEBs in India has been riddled with inefficiencies due to a lack of accountability and administrative bottlenecks. Reforms in the Indian pow er sector were initiated to restructure the SEBs and to set up independent regul atory institutions. The Electricity Act 2003 led to deepening of the reform proc ess by enabling competition in the wholesale electricity market and retail elect ricity supply, in phases. Thirteen SEBs have I-BUSINESS INSTITUTE - 105 -

so far unbundled into separate generation, transmission and distribution compani es. Beginning with the establishment of an independent regulatory commission in Orissa in 1996, the SERCs have been set up in all states. Some of the smaller st ates in the North East have established a Joint Electricity Regulatory Commissio n. The process of tariff determination has become more transparent and limited t ariff rationalization has been undertaken against consumer opposition and politi cal meddling. The emerging competition in the bulk power market and phased direc t access to large consumers is aimed at reducing the risks associated with sales to financially weak state utilities. The policy and regulatory developments are promising, but more needs to be done to improve the performance of distribution utilities. Amongst other factors, the autonomy to manage these utilities in a c ommercial manner remains a key issue. In the long-run, the states objectives are best served by nurturing a financially sustainable sector that can improve acces s for poor and rural consumers. This research undertook a review of the policy a nd regulatory developments in the Indian power sector. A review of the literatur e and a comparative policy analysis helped us to unravel some of the lessons to be learned for the process of reform in developing countries in general. The ini tial phase of power sector reform in India allowed commercially-oriented IPPs to sell power to financially weak SEBs, which do not rely on sound commercial prin ciples. This marriage of convenience is not sustainable. The initial phase of re forms in developing countries should be aimed to restructure the sector and to s et up an independent regulator. As private participation grows, it would be suit able to introduce competition in the sector. This would not only help lower the cost of power purchase, it would also provide greater incentive for performance improvement. The experience of private sector investment in Latin American count ries relied on the introduction of commercial interest in the bulk power market by inviting IPPs as well I-BUSINESS INSTITUTE - 106 -

as introducing commercial principles at the end of buyer utilities through their divestiture. The experience in East Asia and Latin America suggests that macroe conomic stability remains a key to attracting sustainable and increased investme nt in the infrastructure sectors. India continues to demonstrate macroeconomic s tability along with prudent currency management. Future growth prospects in the power sector hold substantial potential for private investment. However, the fin ancial performance of the state owned distribution utilities remains a key conce rn for investors. A positive outcome of existing distribution privatization prog rams would guide such future plans, which remain politically sensitive. The regu latory challenge is to provide incentives for improvement in technical efficienc y and financial performance. The unavailability of sovereign guarantees can be a dequately addressed if state utilities become viable through greater commerciali zation, if not privatization. Inability of the domestic capital market to provid e long-term debt for the power sector needs to be adequately addressed by encour aging contractual saving through life insurance and pension funds, and channel z ing these for the power sector. Securitization of project loans after the constr uction period and development of secondary bond market would help garner funds f or investment in the sector. The long-term interest of the consumers can only be served if reasonably priced electricity is available over the long-run. Politic al interests would best be served by depoliticizing tariffs, which would be bene ficial to consumers in the long-term through improved quality and reliability of supply. Given the objective to electrify all villages by 2010 and to double the generating capacity in the country by 2012, the need to improve the policy envi ronment and strengthen the regulatory framework cannot be ignored. I-BUSINESS INSTITUTE - 107 -

CHAPTER 7 SUGGESTION & RECOMMENDATIONS I-BUSINESS INSTITUTE - 108 -

SUGGESTION Regulatory commission should work properly. They should try to minimize the cost , so that general customer should meet the cost easily. Company should try to get ultra mega power plant project. They should try to imp rove the operational efficiency and financial performance of state utilities. Company has sound data system from where they can start the cost cut methods at different measures to improve their performance. The human resource can be optimizing to a certain extent for increasing profitab ility. I-BUSINESS INSTITUTE - 109 -

CHAPTER 8 LIMITATION OF STUDY I-BUSINESS INSTITUTE - 110 -

LIMITATION OF THE STUDY The limitations faced during the summer course are: First-it was not possible to study various aspect of the organization in detail.\ Employees were apprehensive of secrecy data therefore hesitated in disclosing all the data regarding some of the points concerning to this study. As this is a general study, hypothesis could not be drawn. Some executives could not afford time because of their busy schedule The time was a big constraint as the two months was a short span of time. As the respondents are no high designations, reaching them was hectic task. The respondents were to be reached through emails and by personals and the time were not enough get the response about the quarries and doubts raised. I-BUSINESS INSTITUTE - 111 -

BIBLIOGRAPHY Reference Books Financial management Management Accounting management accountancy : I.M Pandey : Sharma & Gupta : Pillai & bagavati Websites: www.ntpc.co.in www. moneycontrol.com www.myiris.com www.indiabudget.nic.in Search Engine: www.google.com www.wikipedia.com I-BUSINESS INSTITUTE - 112 -

ANNEXURE PARTICULARS FINANCIAL 2008 2007 STATISTICS OF NTPC 2006 2005 2004 (IN CRORE) Long Term Loans Long Term Debt Ordinary Equity Shareholders Equity General Rese rve Shareholders Fund Capital Employed Fixed Asset Current Asset Total Asset Ca sh & Cash Equivalent Inventory Quick Asset Cash Sales 19,875.90 17,661.50 14,464.60 12,647.10 10,868.40 28,564.00 25,141.00 20,638.00 17,425.00 15,612.00 8,245.50 8,245.50 8,245.50 8,245.50 8,245.50 8,245.50 8,245. 50 8,245.50 7,812.50 7,812.50 44,393.10 40,351.30 36,713.20 33,530.80 28,116.00 52,639.00 48,597.00 44,959.00 41,776.00 35,992.00 64,269.00 58,013.00 51,178.00 46,178.00 29,574.00 39,933.70 25,525 22,967.50 22,204.70 21,160.10 30,527.80 25,858.80 18,234.80 14,721.80 14,642.40 81,202.60 73,737.90 65,596.80 59,201.50 51,540.40 473.00 2,675.70 27852.00 750.10 2,510.20 23348.60 176.80 2,3 40.50 15894.30 367.30 1,777.70 12944.10 602.50 1,738.00 12904.40 Total Sales I-BUSINESS INSTITUTE 37,050.10 32,631.70 26,142.90 22,565.00 18,871.20 - 113 Cost Of Goods Sold 25,519.70 22,472.10 18,718.30 15,276.10 13,667.00

Gross Profit Operating Cost Debtors Creditors Operating Profit Current Liability Long Term liability Total Liability Net working Capital PBIT Interest PBT Tax P ayment PAT Total No. Of shares IN million EPS Dividend Paid/share Market Price i n Rs Book Value 12,393.40 10,982.80 8,070.10 8,036.60 7,912.90 2,982.70 1,252.30 867.80 1,374.70 469.90 11,585.10 10,170.10 13,164.40 10,702.50 19876.00 33040.00 17363.00 12053.00 1,79 8.10 10,254.90 2,840.10 7415.00 825.00 899.25 3.50 304.30 6384.00 17662.00 28364 .00 15156.00 10767.00 1,859.40 8,907.40 2,042.70 6865.00 825.00 832.54 3.20 316. 40 5894.00 7,434.20 8,650.60 14465.00 23115.00 9584.00 6981.00 958.50 6,022.40 202.20 5820. 00 825.00 705.86 2.80 951.60 5453.00 7,313.10 8,561.30 12647.00 21208.00 6161.00 7092.00 1,014.20 6,078.20 271.20 580 7.00 825.00 704.26 2.40 3,524.90 5067.00 5,226.10 9,189.80 1458.00 10648.00 5453.00 10317.00 3,372.70 6,943.80 1,658.30 5 286.00 781.00 676.54 1.39 19.20 4599.00 I-BUSINESS INSTITUTE - 114 -

I-BUSINESS INSTITUTE - 115 -