A Project Report On Financial Performance IN NTPC Ltd. Ramagundam

A
Project Report On
FINANCIAL PERFORMANCE
IN
NTPC Ltd. RAMAGUNDAM
PROJECT REPORT
Submitted to the Kakatiya University In the partial fulfillment for the
Awards of the degree of
“MASTER OF BUSINESS ADMINISTRATION”
Submitted by
MD MERAJ HUSSAIN
(H.T no: 13000C-1027)
DEPARTMENT OF COMMERCE & BUSINESS MANAGEMENT

KAKATIYA UNIVERSITY
WARANGAL.
(2012-2014)
DEPARTMENT OF COMMERCE
&BUSINESS MANAGEMENT
KAKATIYA UNIVERSITY WARANGAL.
CERTIFICATE
This to certify that the project work entitled “FINANCIAL

PERFORMANCE” is work done at NTPC Ltd.Ramagundam Unit
submitted by MD MERAJ HUSSAIN in partial fulfillment of the
requirement for the award of the degree of Master of Business
Administration. It is a bonafide work done by him under my
supervision.
PROJECT GUIDE
Mr.K.V.JANARDHAN
Faculty member
Department of commerce
& business management
Kakatiya University
Warangal
CERTIFICATE
This to certify that the project work entitled “FINANCIAL

PERFORMANCE” is work done at NTPC Ltd.Ramagundam Unit
submitted by MD MERAJ HUSSAIN in partial fulfillment of the
requirement for the award of the degree of Master of Business
Administration. It is a bonafide work done by him under my
supervision.
PROJECT EXTERNAL GUIDE

IN NTPC
Mr.J.JANARDHANA SETTY
Sr. FINANCE MANAGER
ACKNOWLEDGEMENTS
The successful completion of my project is indeed practically

incomplete without mentioning of all those encouraging people who
genuinely supported and encouraged me through out this project.
I would like to thank indebted to Mr.J.JANARDHANA

SETTY(Sr. MANAGER.FINANCE DEPT)
I express my profound gratitude to Sri. E. Nanda Kishore,

AGM (HR-EDC), Sri B.S.KUMAR (AGM), Sri.Ashwini
Rajakumar Engineer (HR-ED), Sri C.Keshavulu, and EDC Staff
of NTPC Ramagundam who have taken at most interest on guiding
me for preparing this project report. I thank every employee of
NTPC Ramagundam for their Co-operation and guidance in
completing my project work.
Finally, I thank one and all who have given their assistance
directly or indirectly.
MD MERAJ HUSSAIN
13000C-1027
DECLARATION
I, the under signed hereby declare that the project entitled “

FINANCIAL PERFORMANCE” is the authenticated work of mine
during the plant training at “NTPC Ltd” RAMAGUNDAM. I
declare that this project work is not submitted any where else for the
award of any degree or diploma.
MD MERAJ HUSSAIN
(13000C-1027)
CONTENTS
CHAPETER-I
INTRODUCTION
CHAPETER-II
ORGANIZATION PROFILE
CHAPTER-III
THEORITICAL FRAMEWORK OF
TECHNIQUES OF FINANCIAL ANALYSIS
CHAPETER-IV
ANALYSIS AND INTERPRETATION OF
FINANCIAL STATEMENTS
CHAPTER-V
CONCLUSIONS & SUGGESTIONS
CHAPETER-VI
BIBLIOGRAPHY
CHAPTER-I
INTRODUCTION
INTRODUCTION
Accounting is the process of identifying, measuring and

communication economic information to present informed judgment and
decision by users of the information. It involves recording, classifying and
summarizing various business transactions. The end products of the
business transaction are the financial statements comprising primarily the
position statement or the balance sheet and outcome of the summarizing
process of accounting and are therefore the sources of information on the
basis of which conclusions are drawn about the profitability and the financial
position of the concern.
Financial statements are the basis for decision making by the

management as well as all the outsiders who are interested in the affairs of
the firm such investors, creditors, customers and general public. The analysis
and the interpretation of financial statements depend upon the nature and
type of information available in these statements. The balance sheet and
income statements of the business enterprise.
The analysis of financial statements is a process of evaluating the

relationship between component parts of financial statements to obtain a
better understanding of the firm’s position and performance.
The big organization of NTPC to analysis the financial position of the
organization in last five years it in growth stage and improvement of financial
position in year to year to taken analysis to over all organization that’s we
using the financial statement analysis it give overall position of company in
last 5 years.
Meaning of Financial Statements:
Financial statements are the source of the information on the basis of
which conclusions are drawn about the profitability and liquidity position of a
business enterprise at the end of financial year. They are the major means
employed by firms to present their financial situation to owners, creditors and
the general public.
Financial statements are the end products of financial accounting,

prepared by the accountant that purport to reveal the financial position of the
enterprise, the result of its recent activities and an analysis of what has been
done with the earnings.
According to John. N.Myer “The financial Statements provide a

summary of the accounts of a business enterprise, the balance sheet
reflecting the assets, liabilities and capital as on a certain date and the
income statement showing the results of operation during a certain period”.
Financial statements are also called financial reports.
Nature of Financial Statements:

Financial statements are prepared for the purpose of presenting a
periodical review or report by the management and deal with the state of
investment in business and result achieved during the period under review.
According to the American institute of Certified public Accountants the
Financial Statements reflects, “A combination of recorded facts, accounting
conventions applied affects them materially”. This implies that data exhibited in
the Financial Statements are affected by recorded facts, accounting
conventions and personal judgment.
 Recorded Facts: The term-recorded fact means facts that have

been in the accounting books. Facts that have not been recorded
in the financial books are not depicted in the financial statements,
however material they might be.
 Accounting Convention: Accounting conventions imply certain

fundamental accounting principles, which have been sanctioned by
long usage. For example on account of the convention of
conversation provision is made for expected losses but the real
financial position of the business may be much better than what
has been shown by financial statements.
 Personal judgment: Personal judgment has also an important

bearing on the financial statement. For example, the choice of
selection method of depreciation lies on the accountant, similarly
the made of amortization of fictitious assets also depends on the
personal judgment of the accountant.
Importance of Financial Statements:
The financial statements are mirrors, which reflect the financial
position and operating strength (or) weakness of the concern (firm). These
statements are useful to management, investors, creditors, bankers, workers,
government and public at large. The following are importance.
a) As a report of Stewardship
b) As a basis for fiscal policy
c) To determine the legality at dividends
d) As guide to advice dividend action
e) As a basis for the granting of credit
f) As informative for prospective investors in an enterprise
g) As a guide to the value of investment already made
h) As an aid to government supervision
i) As a basis for price or rate regulation
Need for the Study:

The performance of any organization is evaluated through
their sales performance and their profitability during the existence
of the firm. Essentially my study, which is part of the requirements
to be fulfilled, aimed at, evaluation of the performance of
“National Thermal Power Corporation”. Is under take to find the gap
between the target and achieved results of the company. Its performance in
evaluated by taking the past six year’s financial reports the study is under
taken with the following objectives.
Objectives:
The present study entitled “Financial statements performance
evaluation is under taken with the following objectives.
 To study the composition of assets and liabilities of the NTPC

Limited.
 To evaluate financial performance of NTPC Limited.
 To study its overall position Industry.
 To draw conclusions and to suggest suitable measures, to over

come problems, if any to improve its performance.
Limitations:
The present study suffers from the following limitations.
1. The study is restricted to financial performance of the organization

with no attention given to production and marketing.
2. Financial Management covers topics like cost of capital, capital

budgeting, financial analysis, working capital, cash and inventory
management etc. The study dealt with the financial analysis of
NTPC Limited only..
3. Comparative statements are computed from historical accounting
records. So they possess those limitations and weakness as
accounting records posses.
4. Financial analysis and interpretation adopted technique of Ratio

Analysis has got its own Limitations. While making comparison of
rations no allowance for changes in general price level is made. A
change in price level can seriously effect the validity of comparison
of rations computed for different time periods. It is not always
possible to make future estimations on the basis of the past, as it
always does no come true.
Data Collections:
The data for present study is collected through secondary source the
data has been collected from the financial reports of the company for the last
six years. The data also collected from Industry reports. The collected data is
presented in one way and two ways tables. The stateside like averages,
percentages are used wherever me.
Objectives of the Study:

1. The objective of the present study is to obtain true insight into the
current position and financial department data of the Ramagundam
Super Thermal Power Station.
2. To study whether the contracts management is achieving the goal

of making available the required equipment/material,
workers/services of right quantity at the right price at the right time.
3. The performance of NTPC’s will be measured for the last 5 years

repots.
4. In this study help to the organization decision making
5. The study to given the information about company position.

Data Methodology of Study:
The data of Ramagundam Thermal Power Station (NTPC) has been
collected mainly form secondary sources like:
1. The administrative officer of the RSTPS.
2. The annual report and other reports.
3. Discussion with senior manager/manager of finance, purchases

and stores.
4. The NTPC library.
For the study the data collected from primary and secondary sources
has been scrutinizes, edited and presented in the form of tables and
statements. The analysis of the data has been made with the help of certain
mathematical techniques like percentages, proportions etc., and ratio
analysis to draw conclusions.
The study of the project in NTPC Limited :
The presented study has been classified into five chapters as per
convenience and availability of data. They are as follows:
1. First chapter being introduction chapter covers general introduction

about the importance of Financial Statements Analysis, need for
the study, objectives of the study and limitations.
2. The second chapter titled as profile of the Industry covers the

entire information pertaining to the NTPC Limited. It includes
location history, organization structure etc.
3. The third chapter covers theoretical aspects of financial statements

analysis.
4. The fourth chapter is presented with the data and its interpretation.
It contains various ratios and comparative Balance sheets
prepared on the basis of the data gather from the records of NTPC
Ltd.
5. Last chapter is tilled as conclusions and suggestions covers the

functioning and performance of the host organization presented in
the form of observations followed by researchers humble
suggestions for improvement and overall growth of the NTPC
Limited.
METHODOLOGY
In keeping view the objectives of the study the following methodology has
been adapted:
(a) Sources of data:
To provide a better understanding of the topic by adding a practical dimension

to the same, practical illustration is very vital, such an exercise necessitates a
great deal of data.
The requisite data, which has been collected and used, thanks to the
co-operation of the management, has two sources.
(i) Primary data: Most of such information has been collected from
internal interviews and discussions with various officials in the finance
department of Sagar Cements Limited.
(ii) Secondary data: Much of the information has been collected from the
books available and the annual reports maintained by the company
facilitated the study.
(b) Tools and Techniques applied:

The present study is basically based on “Financial Statement analysis” and for
the purpose of analysis and interpretations, here in the
(i) Comparative & Common size statements : Balance Sheet & income
statement in which items are expressed in percentage rather than in
absolute rupees.
(ii) Trend analysis: Computation of the percentage relationship that each

statement bears to the same item in the base year.
(iii) Ratio analysis: Uses of financial ratios to evaluate performance such

as liquidity, solvency and profitability.
CHAPTER-II
ORGANIZATION PROFILE
PROFILE OF THE ORGANISATION
Energy is an important parameter in the over all economic development

activity of any country. It has become synonymous with progress in all fields of
activities. Energy is the source and control of all the things and actions of human
beings and it is also a measure of everything. It is the key of industry and
economic growth. Planned development exploitation and utilization of the energy
resources is a pre-requisite for a speedy and balanced growth of the national
economy. In general energy is one of the prime inputs for such important
branches of the national economy as industry, agriculture, transport, and also for
the domestic sector.
THE ORIGIN:
National Thermal Power Corporation Limited (NTPC Ltd) was incorporated
on 7th November 1975 in the central sector as a thermal power generating
company, with the objective of planning, promoting and organizing an integrated
development of thermal power in the country.
MISSION:
The Corporate mission of NTPC is to make available reliable and quality
power in increasingly large quantities. Towards this end, the company will
spearhead the process of accelerated development of the power sector by
planning and expeditiously implementing power projects and operating power
stations economically and efficiently. In doing so the company will also seek
opportunities for augmenting power generation through tie-ups with other
organization in the area of conventional energy sources and additionally through
non-conventional energy sources. The corporation will contribute to all round
sector improvement by sharing its experience and expertise with other
organizations. The company will participate in the execution of power projects
abroad, if necessary in collaboration with other reputed organizations.
NTPC LTD - A MAHARATNA POWER GIANT

NATIONAL THERMAL POWER CORPORATION LTD. was set up in 1975. It is
considered as the Maharatna power giant. It generates one-fourth of the total power in the
country. It is the sixth largest thermal power generating utility in the world. According to
the survey conducted by Data Monitor, U.K, it is the second efficient in capacity
utilization among the top ten thermal generating companies. The total generating capacity
is 34194 megawatts in 2011. It has 15 coal based power plants and 7 gas based power
plants. It has a record of 188.674 billion units of electricity during 2009-2010. It was the
top ranking public sector enterprise with a net turn over of Rs.287 billion during 2005-
2006. NTPC takes special interest in the Resettlement and Rehabilitation (R&R) of
project affected persons (PAPs). NTPC continues its thrust towards excellence in all
areas of performance during 2010-2011. The high standards of performance can be
gauged by the fact that with 20% of India's installed capacity, the company generated
28% of country's total electricity.
 Today, having crossed the silver jubilee milestone, NTPC is all set to forge ahead
with renewed vigour, blazing new trails, towards new horizons. Powered by a
dynamic & dedicated work force of over 23,500 with a dominant presence across
the country, it operates both coal-based and gas-based stations. Today, it stands
tall and proud recording a net profit of Rs.9102.59 crores during 2010-2011.
NTPC is firm in its commitment towards surging the nation ahead.
 NTPC today has become in house-expertise in designing, construction and

commissioning of 200/500 MW coal based thermal units and 150/250 MW gas
combined cycle power plants. Other technological advancements include HVDC
transmission lines, data acquisition system, microprocessor based
Distributed digital electronics, control and instrumentation systems, satellite
Communication and computer applications.
 NTPC's core business is engineering. construction and operation of power
generating plants and also provides consultancy to power utilities in India and
abroad. The Installed capacity of NTPC is 34194 MW through its 15 coal based
(24,905 MW), 7 gas based (3955 MW) and Joint Venture Projects. NTPC
acquired 50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL). This
JV company(3364MW) operates the captive power plants of Durgapur (120
1vIW), Rourkela (120 MW) and Bhilai (500 MW). NTPC is also managing
Badarpur thermal power station (705 MW) of Government Of India.
 NTPC's share on 31st March 2006 in the total installed capacity of the country
was 20% and it contributed 28% of the total power generation of the country
during 2005-06.
 NTPC has set new benchmarks for the power industry both in the area of power
plant construction and operations. It is providing power at the cheapest average
tariff in the country. With its experience and expertise in the power sector, NTPC
is extending consultancy services to various organizations in the power business.
NTPC has entered into a joint venture with Alstom, Germany for renovation and
modernization of power plants in India.
 NTPC is committed to the environment, generating power at minimal environmental cost

and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive a
forestation in the vicinity of its plants. Plantations have increased forest area and reduced
barren land. NTPC has also taken proactive steps for ash utilization. In 1991, it set up Ash
Utilization Division to manage efficient use of the ash produced at its coal station.
 A "Centre for Power Efficiency and Environment Protection (CENPEEP)" has
been established in NTPC with the assistance of United States Agency for
International Development. (USAID). Cenpeep is an efficiency oriented, eco-
friendly and encountering initiative - a symbol of NTPC's concern towards
environmental protection and continued commitment to sustainable power
development in India.
 As a responsible corporate citizen, NTPC is making constant efforts to improve

the socio-economic status of the people affected by its projects. Through it's
Rehabilitation and Resettlement programmes, the company endeavours to
improve the overall socio-economic status of Project Affected Persons.
 To realize this vision, NTPC has drawn up a detailed Corporate Plan for the
period 1997-2012 which represents the company's collective optimism and
enthusiasm, inspired by a glorious past, a vibrant present and a brilliant future.
The Plan has been prepared in-house in consultation with the committed,
competent and confident members of the NTPC family. The road map that has
been charted out was after a thorough scan of the strengths and weaknesses within
the organization as well as opportunities and threats in the environment.
 Considering multidimensional opportunities in the energy sector, NTPC will adopt

a multi-pronged growth strategy for capacity addition through Greenfield sites,
expansion of existing stations, takeovers and joint ventures.
 The capacity addition plans that the company has drawn up for the fifteen-year
period using all the above. strategies to enable the corporation to become a 40000
MW company by 2012 A.D.
POWERING INDIA'S GROWTH: THROUGH PEOPLE

NTPC believes in achieving organizational excellence through continuous development
of its human resources. Therefore, a comprehensive human resource strategy spanning
activities preceding the pre-employment of personnel to the activities following their
separation is in place.
ROCE AND RONW:

Return On Capital Employed (ROCE) and Return On Net Worth (RONW) were 14.30%
and 16.92% respectively for the year 2010-2011.
DIVIDEND:
A dividend of Rs.31332 millions has been paid for the financial year 2010-11as
Same of Rs.31332 millions paid last year.
MEMORANDUM OF UNDERSTANDING:
The company has surpassed all its MOU targets with Government of India for the year
2010-2011 and has achieved "Excellent" rating.
CAPITAL STRUCTURE AND BORROWINGS:
The authorised share capital of NTPC has been increased from Rs. 8000 crores to
Rs.10000 millions. The paid up capital of Rs.82455 millions as on March 2011 remains
unchanged and is entirely held by the Government of India.
DOMESTIC BORROWINGS:
NTPC has received funding proposals aggregating to over Rs. 8000 crores from various
banks and financial institutions for participating in the capacity addition programme of
NTPC. The aggregate amount of domestic loans tied-up is Rs. 6289 crores, out of which
Rs. 2705.95 crores have been drawn and utilized till 31.03. 06.
VISION:
“To be the world’s largest and best power producer, powering India’s growth.”
MISSION:
“Develop and provide reliable power, related products and services at competitive prices,
integrating multiple energy sources with innovative and eco-friendly technologies and
contribute to society.”
MAJOR HIGHLIGHTS
(2010-2011)
 Today India’s largest power utility with an installed capacity of 34194MW.
 Highest ever capacity utilization plant load factor of 90.81% in coal-based power
.plants.
 Net profit after tax of Rs.91025 million.
 Six coal stations achieved PLF of more than 95%.
 Highest ever interim dividend@38% amounted to Rs.2473.63 crore during the

year..2010-11
 It has also achieved the MAHARATHA status in the year 2010.
 NTPC has been identified as expert partner under the “Partnership in Excellence”
program taken up by ministry of power.
 The company continues to play an important role under the evaluated Power
Development & Reforms Program (APDRP) and “RAJIV GANDHI
VIDHYUTHIKARAN YOJNA”.
CORE VALUES: (B M E C O M I T E)
 Business ethics
 Motivating self and others
 Environmentally and economically sustainable
 Customer focus
 Organizational & professional pride
 Mutual respect & trust
 Innovation & speed
 Total quality for excellence
 Enterprising devoted
CORPORATE OBJECTIVES
To realize the vision and mission, eight key corporate objectives have been identified.
these objective would provide the link between the defined mission and the functional
strategies:
Business portfolio Growth:
 To diversify across the power value chain in India by considering backward and
forward integration into areas such as power trading , transmission ,distribution
,coal mining ,coal beneficiation ,etc.
 To develop a portfolio of generation assets in international markets.
Performance Leadership:
 To continuously improve on project execution time and cost in order to sustain

long run competitiveness in generation.
 To effectively leverage information technology to drive process efficiencies.
 To aim for performance excellence in the diversification businesses.
 To embed quality in all systems and processes.
Human Resource Development:

 To enhance organizational performance by institution a listing an objective and
open performance management system.
 To enhance commitment of employees by recognizing and rewarding high
performance.
Financial Soundness:
 To maintain and improve the financial soundness of NTPC by prudent
management of the financial resources.
 To develop appropriate commercial policies and processes which would ensure
remunerative tariffs and minimize receivables.
 To continuously strive for reduction in cost of power generations by improving
operating practices.
Customer Focus:
 To expand the future customer portfolio through profitable diversification into
downstream business, inter alia retail distribution and direct supply.
 To foster a collaborative style of working with customer, growing to be a
preferred brand for supply of quality power.
Agile Corporation:
 To effectively leverage information technology to ensure speedy decision making
across the organization. .
RAMAGUNDAM SUPER THERMAL POWER STATION
Address P.O. Jyothinagar,Dist. Karimnagar , Pin: 505
215,Andhra Pradesh
Approved Capacity 2600 MW
Installed Capacity Stage I : 3X200 MW
Stage II : 3X500 MW
Stage III : 1X500 MW
Location Ramagundam, Karimnagar, Andhra Pradesh
Coal Source (i) South Godavari Coal Fields of Singrani Collieries
for Stage I & II
(ii) Korba Coal Fields of SECL for Stage III
Water Source Sri Ram Sagar Dam on Godavari River, D-83 Canal
from pochampad Reservoir
Beneficiary States Pondicherry, Goa, Kerala, Karnataka, Tamil Nadu,
AP, PGCIL (for HVDC)
Approved Investment Rs. 2059.22 Cr Stage I & II
Rs. 1818.46 Cr Stage III
Unit Sizes Stage - I: 3x 200 MW
Stage -II: 3x 500 MW
Units Commissioned Unit -I 200 MW November 1983
Unit -II 200 MW May 1984
Unit -III 200 MW December 1984
Unit -IV 500 MW June 1988
Unit -V 500 MW March 1989
Unit -VI 500 MW October 1989
Units Commissioning Unit -VII 500 MW August 2004
Schedule
International Assistance IDA
IBRD loan
OPEC
KFW
EXIM Bank, Japan.
SFD
NTPC – RSTPS PROFILE
The project organization, headed by a General Manager, entrusted with

the total responsibility for implementation of all aspects of the project in
accordance with the master network schedule and the operation maintenance of
running units in a most cost effective manner.
PROJECT ORGANIZATION:
The two executive’s functions under this are “Civil construction” and “
Equipment Erection”. The civil construction takes care of all the activities starting
from survey and soil investigation, site leveling, infrastructure development,
township construction etc. The equipment erection wing carries out of the
mechanical and electrical and control and instrument activities concerning
erection and commission of plant and equipment.
OPERATION AND MAINTENANCE:

This department looks after the operation of commissioned units and the
short, long-term maintenance work. O & M includes main plant operation
mechanical maintenance, electrical maintenance and control instrumentation
maintenance, fuel handling ( O & M) chemistry and coal transport (MGR) groups.
MATERIAL MANAGEMENT, PERSONNEL & ADMINISTRATION:

The group under takes the control of bulk structure construction materials
like steel, cement, diesel and fuel oil apart from the procurements, storages and
control of consumables equipments and spare parts.
RAMAGUNDAM STATION HIGHLIGHTS:
 Record haulage of coal in single day of 78,720 MT on 29 June, 1998 Asian
record.
 Station recorded Highest Loading Factor of 99.4% for the Year 1999-2000.
 Continuous run of VI unit (500 MW) for 406 days, third best in the
WORLD.
 Ramagundam 500 MW Unit-7 (stage-III) has successfully completed one
year of commercial operation on 25.03.06 without any tube leakage. The
unit generated 3802.492 MUs @ a PLF of 86.81% considering the loss of
generation of 297 MUs due to backing down, the deemed, PLF is 93.59%.
The unit also has achieved a continuous run of 97 days without tripping in
the first year of operation itself.
 Ramagundam Station achieved 47.94% (18.63 LMT) of Ash utilization
during the financial year against the target of 47% (18.20 LMT).
 Ramagundam bagged “Innovative Safety Practices “award for the year
2005 from Institution of Engineer.
 Ramagundam Station bagged “Best Management” award from Govt. of AP
for the year 2004-05.

 NTPC – Ramagundam bagged Golden shied for the financial years 2000-
01, 2001-02, 2002-03 & 2003-04 for outstanding performance in power
generation.
THE POWER GENERATED BY NTPC RAMAGUNDAM IS BEING DISTRIBUTED TO THE
FOLLOWING BENEFICIARIES STATES:
Pondicherry : 3%
Andhra Pradesh : 29%
Karnataka : 12%
Tamilnadu : 24%
Kerala : 17%
Un-allocated : 15%
Coal Based Power Stations:

Sl. Coal Based Commissioned Capacity
State
No. Areas (MW)
1 Singrauli Uttar Pradesh 2000
2 Korba Chattisgarh 2100
3 Ramagundam Andhra Pradesh 2600
4 Farakka West Bengal 1600
5 Vindhyachal Madhya Pradesh 3260
6 Rihand Uttar Pradesh 2000
7 Kahalgaon Bihar 1840
8 NTCPP Uttar Pradesh 840
9 Talcher Kaniha Orissa 3000
10 Unchahar Uttar Pradesh 1050
11 Talchar Thermal Orissa 460
12 Simhadri Andhra Pradesh 1000
13 Tanda Uttar Pradesh 440
14 Badarpur Delhi 705
15 Sipat Chattisgarh 500
CHAPTER-III
THEORITICAL FRAMEWORK
OF TECHNIQUES OF
FINANCIAL ANALYSIS
Theoritical Framework of Financial Performance in NTPC:
Financial Performance:
Financial Performance refers to a firm’s efficiency in acquiring funds and
utilizing them in order to attain its goal of maximizing owner’s wealth. The
financial performance is measured in terms of liquidity, solvency, operating
efficiency and profitability.
Financial Analysis:
Financial Analysis involves identifying the reasons behind the results and
financial position of a business firm, which can controllable and uncontrollable
ones or temporary and permanent. Then the firm has to plan a corrective action
against the controllable reasons while the uncontrollable factors should be taken
into account while planning for the future.
Analysis of Financial Statements:

Analysis of Financial Statements can be defined as the process of
evaluating the relationship between component parts of a financial statement to
obtain a better understanding of a firm’s position and performance in a given
industry. In other words, Financial Statement Analysis is the process of
identifying the financial strengths and weaknesses of the firm by analyzing the
financial statements.
Importance of Financial Statements:
The information given in the Financial Statements is very useful to a number of
parties. These are the following:
1. Owners: The Owners provide funds for the operations of a business and
they want to know whether their funds are being properly utilized or not.
The financial statements prepared from time to time satisfy their curiosity.
2. Creditors: Creditors (i.e., Suppliers of goods and services on credit,

bankers and other lenders of money) want to know the financial position of
a concern before giving loans or granting credit, the Financial Statements
help them in judging such position.
3. Investors: Prospective investors, who want to invest money in firm, would

like to make an analysis of the financial statements of that firm to know
how safe proposed investment will be.
4. Employees: Employees are interested in the financial position of a concern

they serve, particularly when payment of bonus depends upon the size of
the profits earned. They would like to know the bonus being paid to them
is correct so they become interested in the preparation of correct profit and
loss account.
5. Government: Central and state governments are interested in the financial

statements because they reflects the earnings for a particular period for
purpose of taxation. Moreover, these financial statements are used for
compiling national accounts.
6. Research Scholars: The financial Statements, being a mirror of the

financial position of a firm are of immense value to research scholars who
wants to make a study into financial operation of a particular firm.
7. Consumers: Consumers are interested in the establishment of good
accounting control so that cost of production may be reduced with the
resultant reduction of the prices of goods they buy.
Limitations of Financial Statements:
The following are the limitations of the financial statements:-
1. In profit and loss account net profit is ascertained on the basis of historical
costs.
2. Profit arrived by the profit and loss accounts is of interim nature. Actual
profit can be ascertained only after the firm achieves its maximum
capacity.
3. The net income disclosed by the profit and loss account is not absolute but
relative.
4. The profit and loss account does not disclose factors like quality of
products, efficiency of the management etc;
5. The net income is the result of personal judgment and bias of accountants
cannot be removed in the matters of depreciation, stock valuation etc;
6. There are certain assets and liabilities, which are not disclosed by the
balance sheet. For example, the most tangible assets of the company is its
management force and dissatisfied labour force is their liability, which are
not disclosed by the balance sheet.
7. The book value of assets is shown as original cost less depreciation. But
in practice the value of the assets may differ depending upon the
technological and economic charges.
8. The assets are valued in a balance sheet on a going concern basis. Some
of the assets may not be realize their value on winding up.
TYPES OF FINANCIAL STATEMENTS:
Financial statements primarily compress two basic statements:
(I) The position statement or balance sheet.
(II) The income statement or profit & loss account.
(i)THE POSITION STATEMENT OR BALANCE SHEET:
The American Institute of certified public Accounts defines balance sheet

as, “a tabular statement of summary of balance (debits and credits) carried after
actual and constructive closing books of account and kept according to principles
of accounting”. The purpose of the balance is to show the resurgence that the
company has i.e., its assets and from where those resources come from i.e.; its
liabilities and investments by owners and outsiders.
The balance sheet is one of the important statements depicting the

financial strength of the concern. It shows on the one hand the properties that it
utilizes and on the other hand the owned by the concerned the liabilities and
claims it owns to owners and outsiders.
The balance sheet is prepared on a particular date. The right hand side
shows properties and assets. Normally there is no particular sequence for
showing various assets and liabilities. The Companies Act, 1956 has prescribed
a particular form for showing assets and liabilities in the balance for the
companies registered under this act. These companies are also required to give
figures for the previous year along with the current year’s figures.
(ii)INCOME STATEMENT OR PROFIT & LOSS ACCOUNT:
Income statement is prepared to determine the operational position of

the concern. It’s a statement of revenue earned and the expenses incurred for
carrying that revenue. If there is excess of revenue over expenditure it will show a
profit and if expenditure are more than the income then there will be a loss. The
income statement is prepared for a particular period, generally a year. When
income statement is prepared for the year ending on 31 st march 2007 then all the
revenues and expenditure falling due in the year will be taken into account
irrespective of payment.
Income statement may be prepared in form of a manufacturing account

to find out the cost of production, the form of trading account to determine the
gross profit and gross loss, in the form of a profit & loss account to determine the
net profit or net loss.
Analysis and Interpretation of financial statements:

Financial statements are indicators of two significant factors:-
1) profitability
2) financial soundness.
Analysis and interpretation of financial statements therefore refers to

such treatment of the information contained in the income statement and the
balance sheet so as to afford full diagnosis of the profitability and the financial
soundness of the business.
A distinction here can be made between the two terms and analysis and
interpretation. The term ‘analysis’ means methodical classification of the data
given in financial statements. The figure given in the financial statements will not
help unless they are put in a simplified form. For example all items ‘current
assets’ are put at one place while all items relating to the ‘current liabilities are
put at another place. The term ‘interpretation’ means explaining the meaning and
significance of the data so simplified. Analysis and interpretation of financial
statements involves a study of relationship among various financial factors and to
judge their meaning and significance. The financial analyst must understand the
plans and policies of management, determine the extent of analysis, reorganize
data available as per requirements, establish relationship among financial figures
and make interpretation.
According to Myers, Financial statements Analysis is largely a study of the

relationship among the various financial factors in a business as disclosed by a
single set of statement and a study of the trend of these factors as shown the
series of statements.
TYPES OF FINANCIAL ANALYSIS
According to the According to the objectives According to the
Material used of the analysis modus operandi
Vertical Horizontal Internal External Long term Short term

1. ACCORDING TO MATERIAL USED:
EXTERNAL ANALYSIS:
Outsiders who do not have access to the detailed internal accounting

records of the business firm do this analysis. These outsiders include investors,
potential creditors, potential sellers, government agencies, credit agencies, and
the general public.
For financial analysis these external parties to the firm depend almost
entirely on the published financial statements. External analysis thus services
only a limited purpose. However, the changes in the government regulations
requiring business firm to make available more detailed information to the public
through audited published accounts have considerably improved the position of
the external analysis.
INTERNAL ANALYSIS:
The analysis conducted by the persons who have access to the internal
accounting records of a business firm is known as internal analysis such an
analysis can therefore be performed by executives and employees of the
organization. As well as government agencies, which have statutory powers,
vested in them, financial analysis that can be effected depending upon the
purpose to be achieved.
II. ACCORDING TO THE OBJECTIVE OF THE ANALYSIS:
HORIZONTAL ANALYSIS:
Horizontal analysis refers to the comparisons of financial data of a
company for several years. The figures for this analysis are presented
horizontally over a number of columns.
This type of analysis is also called dynamic analysis as it is based on the

data from here to here rather than on data of any one year. The horizontal
analysis makes it possible to focus attention on the items that have changed
significantly during the period under review, Comparison of an item over several
periods with a base may show attend deviation. Comparative statements and
trend percentages are two tools employed in horizontal analysis.
VERTICAL ANALYSIS:
Vertical analysis refers to study of relationship of various in the financial

statements of one accounting period. In this type of analysis the figures from
financial statements of a year are compared with a base selected from the same
year’s statements and the financial ratios are the two tools employed in vertical
analysis.
III.ACCORDING TO THE MODUS OPERANDI OF ANALYSIS:

LONG-TERM ANALYSIS:
In the long-term analysis emphasis is given to stability and earning

potential of the company. Fixed assets, long-term debt structure and ownership
interests are fully analyzed in the long-term analysis. Long-term analysis is done
to determine the solvency, stability and profitability of the company.
SHORT-TERM ANALYSIS:
This type of analysis is used to determine the working capital requirement,

profitability etc; of the concern. In short run, an enterprise must have ample funds
to meet its requirements and sufficient borrowing capacity to meet its
contingencies. Hence, current assets and current liabilities are properly analyzed
and liquidity position of the company is determined.
LIMITATIONS OF FINANCIAL STATEMENTS ANALYSIS
1. The figures drawn from one-year statements have limited use and value.
Therefore, its dangerous to depend solely on them for the purpose of
decision making.
2. Analysis of financial statements is only a means and not an end in itself.

Other factor should be taken into account while making decisions
regarding the operations of the company.
3. Financial statements are historic in nature. Hence, entire dependence on

these statements for future planning may give misleading results.
4. The results of the financial statement analysis cannot form basis for the
efficiency or inefficiency of management. The ratios and other figures
indicate only the probable state of affairs of the company.
5. A variation in the accounting practices and policies followed over a period

of time makes the analysis difficult and inaccurate.
6. Sometimes, the financial statements are manipulated to conceal facts and

show better picture of the business, in such a case the limitations of the
financial statements will be reflected in the analysis as well.
7. The analysis of financial statements does not disclose factors like quality
of product, managerial efficiency etc;
8. Analysis generally ignores the difference in the nature of products,

accounting procedures, policies size and age of the firm etc; leading to
inaccurate results.
9. A change in the value of money over a period of time reduces the

importance and validity of such analysis.
TECHNIQUES OF FINANCIAL ANALYSIS:
Among the techniques of financial analysis, the important tools of financial
analysis are:
1. Comparative and Common-size financial statements
2. Trend Analysis
3. Ratio Analysis
4. Fund Flow Analysis
5. Cash Flow Analysis
COMMON-SIZE STATEMENT:
The common-size statement, balance sheet and income statement are
shown in analytical percentages. The figures are shown as percentages of total
assets, total liabilities and total sales. The total assets are taken as 100 and
different assets are expressed as a percentage of the total. Similarly, various
liabilities are taken as a part of total liabilities. These statements are also known
as component percentage or 100 percent statements because every individual
item is stated as a percentage of the total 100. The shortcomings in comparative
and trend percentages where changes in items could not be compared with the
totals have been covered up. The analyst is able to assess the figures in relation
to total values.
TREND ANALYSIS:
The financial statement may be analyzed by computing trends of series of
information this method determines the direction upwards or downwards and
involves the computation of the percentage relationship that each statement item
bears to the same item in base year. The figures of the base year are taken as
100 and trend ratios for other years are calculated on the basis of base year. The
analyst is able to see the trend of figures, whether upward or downward.
For example, if sales figures for 2006 to 2007 are to be studied, then sales
of 2006 will be taken as 100 and the percentage of sales for all other years will be
calculated in relation to the base year i.e., 2006.
It helps in understanding the nature and rate of movements in various

financial factors. However, conclusions should not be drawn on the basis of
single trend. Trends of related items should be carefully studied. Due weight age
should be extraneous factors such as government policy, economic conditions
etc., as they can affect the trend significantly.
Steps in Computation of Trend Values:
1) Select one of the period for which financial statements are available as the
base period.
2) The selected period should be a normal period.
3) Every item in the base period is taken as 100.
4) Trend value of each item for any other period:
Absolute value of the item for the period
= --------------------------------------------------------- *100
Absolute value of the item in the base period
Funds Flow Analysis:

“ A Statement of sources of application of funds is a technical device
designed to analyze the change in the financial condition of a business enterprise
between two dates “.
Cash Flow Analysis:

Cash plays very important role in the entire economic life of a business.
What blood is a human body, cash is to business enterprises. It is very essential
for a business to maintain an adequate balance of cash.
COMPARATIVE STATEMENT
The Comparative Financial Statements are statements of the financial
position at different periods of time. The elements of financial position are shown
in a comparative form so as to given an idea of financial position at two (or) more
periods. Two financial statements are prepared in comparative from for financial
analysis purpose. The comparative statement may show.
 Absolute figures (Rupee amounts)
 Change in absolute figures i.e. increase or decrease in absolute

figures.
 Absolute data in terms of percentages.
 Increase or decrease interms of percentages.
 The financial data will be comparative only when same accounting

principles are used in preparing this (i) Balance sheet and (ii) Income
Statement.
Comparative Balance Sheet:

The comparative balance sheet analysis is the study of the trend of the
same items, group of items and computed items in two or more balance sheets of
the same business enterprise on different dates. The changes in periodic balance
sheet items reflect the conduct of a business. The comparative balance sheet
has two columns. A third column is used to show increase in figures. The forth
column may be added for giving percentages of increase or decrease.
Interpretation of comparative Balance Sheet:
While interpreting comparative balance sheet the interprets is expected to

study the following aspects.
 Current financial position and liquidity position.
 Long term financial position.
 Profitability of the concern (firm)

Comparative Income Statements:
The income statements give the results of the operations of a business.
The comparative income statement gives an idea of the progress of a business
over period of time. The change in absolute data in money values and
percentages can be determined to analysis the profitability of the business.
Income statements also have four columns. First two columns give figures of
various items for two years. Third and fourth columns are used to show increase
or decrease in figures in absolute amounts and percentages respectively.
Interpretation of Income Statements:
The analysis and interpretation of income statement with involve the

following steps:
 The increase or decrease in sales should be compared with the

increase or decrease in cost of good sold. The amount of gross profit
should be studied in the first step.
 The second step of analysis should be the study of operational profits.
 The increase or decrease in net profit, which give an idea about the
overall profitability of the concern (firm).
 An opinion should be formed about profitability of the concern and it

should be given at the end. It should be mentioned whether the overall
profitability is good or not.
COMPARATIVE BALANCE SHEET ANALYSIS FOR THE
YEAR 2010-2011 TO 2011-2012
Change
Particulars 2010-11 2011-12 Percentage
Amount
SOURCES OF FUNDS SHARE
HOLDERS FUNDS
Capital 82455 82455 NIL NIL
Reserves and Surpluses 361132 403513 42381 11.7
443587 485968 42381 9.6
Deferred revenue on account
against depreciation 4408 6567 2159 49.0
LOAN FUNDS
Secured Loans 57327 68229 10902 19.0
Unsecured Loans 144646 176615 31969 22.1
206381 251411 45030 21.8
Deferred tax liability (NET) 53224 54427 1203 2.3
Less : Recoverable 53223 54426 1203 2.3
1 1 NIL
TOTAL 649968 737379 87411 13.4
APPLICATION OF FUNDS
FIXED ASSETS
Gross Block 460396 507273 46877 10.2
Less: Depreciation 299501 250792 -48709 -16.3
Net Block 160895 256481 95586 59.4
Capital work in progress 103999 128567 24568 23.6

Construction stores & advances 32341 39825 7484 23.1
297235 424873 127638 42.9
Investments 192891 160943 -31948 -16.6

Current assets loan & advances

Inventories 23405 25102 1697 7.3
Sundry Debtors 8679 12583 3904 45.0
Cash & Bank Balances 84714 133146 48432 57.2
Other Current Assets 10161 10580 419 4.1
Loans & Advances 30287 40476 10189 33.6
157246 221887 64641 41.1
Less: Current Liabilities and
Provisions
Liabilities 49102 54221 5119 10.4
Provisions 12300 16042 3742 30.4
61402 70263 8861 14.4
Net Current Assets 95844 151624 55780 58.2
Total : 649968 737379 87411 13.4
Interpretation:
1. The balance sheet of the company during the year 2011-12 reveals that
the current assets have increased by 64641 i.e. 41.1%.
2. There is increase in current assets we can say the short term solvency of
the company is good.
3. The current liabilities have increase by 8861 i.e. 14.4 %.
4. Fixed assets have increased by 127638 i.e. 42.9%.
5. There is increase in share holder funds of company that is why we can say
the long term solvency of the company is good satisfaction.
6. There is an increase in working capital of 55780 compared to the previous
year.
7. By overall conclusion we can say that the financial position of the company
is satisfactory.
YEAR 2009-10 TO 2010-11
Change
Particulars 2009-10 2010-11 Amount Percentage
HOLDERS FUNDS
Capital 78125 82455 4330 5.5
355501 417763 62262 17.5
LOAN FUNDS
Secured Loans 45844 44407 -1437 -3.1
Unsecured Loans 108684 26471 -82213 -75.6
156119 74252 -81867 -52.4
Deferred tax liability (NET) 52280 50570 -1710 -3.3
Less : Recoverable 82279 50569 -31710 -38.5
1 1 NIL NIL
TOTAL 511620 492015 -19605 -3.8
FIXED ASSETS
Gross Block 400281 431062 30781 7.7
Less: Depreciation 187736 207914 20178 10.7
Net Block 212545 223148 10603 5.0

287498 322433 34935 12.2
Investments 173380 207977 34597 20.0


Inventories 17380 17777 397 2.3
Sundry Debtors 4699 13747 9048 192.6
Other Current Assets 80023 9714 -70309 -87.9
Loans & Advances 27275 27052 -223 -0.8
135468 129073 -6395 -4.7
Provisions
Liabilities 65244 52306 12938 19.8
Provisions 15697 15161 536 3.4
80941 67467 -13474 -16.6
Total : 511620 492015 -19605 -3.8
Interpretation:
1. The balance sheet of the company during the year 2009-10 reveals that
the current assets have increased by -6395 i.e. 4.7%.
4. Fixed assets have Decreased by 34935 i.e. 12.15%.
5. There is an increase in capital that is 4330 i.e., 5.5%
the long term solvency of the company is good satisfaction.
7. There is an increase in working capital of 70.79 i.e. 13% compared to the
previous year.
8. By over conclusion, we can say that the current financial position is not
satisfactory because of decrease of current assets & increase of current
liabilities.
But long term financial position is good. Because increase in share holder in 2006
i.e. 5.54%
YEAR 2008-09 TO 2009-10
Change
Particulars 2008-09 2009-10 Amount Percentage
HOLDERS FUNDS
Capital 78125 78125 NIL NIL
315127 355501 40374 12.8
LOAN FUNDS
Secured Loans 41226 45844 4618 11.2
Unsecured Loans 90931 108684 17753 19.5
132428 156119 23691 17.9
Deferred tax liability (NET) 44379 52280 7901 17.8
Less : Recoverable 44378 82279 37901 85.4
1 1 NIL NIL
TOTAL 447555 511620 64065 14.3
FIXED ASSETS
Gross Block 366106 400281 34175 9.3
Less: Depreciation 167456 187736 20280 12.1
Net Block 198650 212545 13895 7.0

262513 287498 24985 9.5
Investments 36674 173380 136706 372.8


Inventories 17712 17380 -332 -1.9
Sundry Debtors 124349 4699 -119650 -96.2
Other Current Assets 25149 80023 54874 218.2
Loans & Advances 21475 27275 5800 27.0
194132 135468 -58664 -30.2
Provisions
Liabilities 32202 65244 -33042 -102.6
Provisions 11648 15697 -4049 -34.8
43850 80941 37091 84.6
Total : 447555 511620 64065 14.3
Interpretation:
1. The balance sheet of the company during the year 2008-09. reveals that
the current assets have increased by 58664 i.e. 30.2%.
4. Fixed assets have Decreased by 24985 i.e. 9.5%.
the long term solvency of the company is good .
6. There is an decrease in working capital is negative that the company
increase of liabilities & decrease of current asset. Its effect on working
capital.
7. By over conclusion, we can say that the current financial position is not
satisfactory because of decrease of current assets & increase of current
liabilities.
But long term financial position is good.

CHAPTER-IV
ANALYSIS &
INTERPRETATION OF
RATIO ANALYSIS:
A ratio analysis is a statistical yardstick or mathematical expression that

provides a measure of relationship between two figures or amounts. Ratio is
simply one number expressed in terms of another.
The ratio analysis is one of the most powerful tools of financial analysis. It
is the process of establishing and interpreting various ratios (quantitative
relationship between figures and groups of figures). It is with the help of ratios
that the financial statements can be analyzed more clearly and decisions made
from such analysis.
Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. However, ratio analysis is not an end in itself.
It is only means of better understanding of financial strength and weakness of a
firm. Calculation of mere ratios does not serve any purpose, unless several
appropriate ratios are analyzed and interpreted. There are a number of ratios
which can be calculate from the information given in the financial statements, but
the analyst has to select the appropriate from the same keeping in mind the
objective of analysis.
USES AND SIGNIFICANCE OF RATIO ANALYSIS
A) Managerial uses of ratio analysis:
1. Financial statements are prepared primarily for decision-making, but the

information provided in financial statements is not an end in itself and no
meaningful conclusion can be drawn from these statements alone. Ratio
analysis helps in making decisions from the information provided in these
financial statements.
2. Ratio analysis is of much help in financial forecasting and planning.

Planning is looking ahead and the ratios calculated for a number of years
work as a guide for the future. Meaningful conclusions can be drawn for
future from these ratios. Thus ratio analysis helps in future forecasting and
planning.
3. The financial strength and weakness of a firm are communicated in a more

and easy and understandable manner by the use of ratios. The information
contained in the financial statements is conveyed in a meaningful manner
to the one for whom it’s meant. Thus ratios help in communication and
hence the value of the financial statements.
4. Ratio analysis even helps in co-ordination which is of utmost importance in

effective business management. Better communication of efficiency and
weakness of an enterprise results in better co-ordination in the enterprise.
5. Ratio analysis even helps in making effective control of the business.

Standard ratios can be based upon performance of financial statements
and variances or deviations, if any, can be found by comparing the actual
with the standards so as to take a corrective action at the right time.
B) UTILITY TO SHAREHOLDERS/INVESTORS:
An investor in the company will like to access the financial position of the concern
where he is going to invest. His first interest will be the security of his investment
and then a return in the form of dividend or interest. For the first purpose he will
try to access the value of fixed assets and the loans raised against them. The
investor will feel satisfied only if the concern has sufficient amount of assets.
Profitability ratios will be useful to determine profitability position. Ratio analysis

will be useful to the investor in making up his mind whether present financial
position of the concern warrants further investment or not.
C) UTILITY TO CREDITORS:
The creditors or suppliers extend short-term credit to the concern. They are
interested to know whether financial position of the concern warrants their
payments at a specified time or not. The concern pays short-term creditors out of
its current assets. If the current assets are quite sufficient to meet current
liabilities then the creditor will not hesitate in extending credit facilities. Current
and acid test ratios will give an idea about the current financial position of the
concern.
D) UTILITY TO EMPLOYEES:
The employees are also interested in the financial position of the concern
especially profitability. Their wage increases and amount of the make use of
information available in the financial statements. Various profitability ratios
relating to gross profit, operation cost, and net profit enable employees to put
forward their viewpoint for the increase of wages and other benefits.
ADVANTAGES OF RATIO ANALYSIS
1. Ratio analysis simplifies the understanding of financial statements.
2. Ratios bring out the inter-relationship among various financial figures and
bring to light their financial significance. Ratio analysis is a device to
analyze and interpret the financial health of the enterprise.
3. Ratios contribute significantly towards effective planning and forecasting.

A study of a trend in the past works as a helpful guide for the future.
4. Ratios facilitate inter-firm and intra-firm comparisons, thereby bringing out

the strength weakness, efficiency of their firms and their department.
5. Ratios serve as effective control tools. They also facilitate establishment of

a standard costing and budgeting control.
6. Ratios cater to the particular information need of a particular person

depending upon his interest in the business for which ratios are to be
calculated. A creditor may be interested in the liquidity ratios, while an
investor may want to study profitability ratios.
LIMITATIONS OF RATIO ANALYSIS
1) Ratio may not prove to be the ideal tool for inter-firm comparisons. The
two firms may adopt different accounting policies and hence the results
might not be comparable. Similarly a change in accounting policies by a
firm will make intra-firm comparisons meaningless
2) A study of ratios in isolation, without studying the actual figure, may lead to
wrong conclusions. Ratios are only supplementary to and not substitutes
for absolute figures.
3) Ratios can be as correct as the data on which they are based, if the
original data is not reliable then ratios will be misleading.
4) Ratio analysis suffers from each consistency. Ratios are defined differently
by various experts and hence are prone to manipulations.
5) In the absence of well accepted standards interpretation of ratio becomes

subjective.
6) Rations fail to reflect the impact of price level changes, and hence can be
misleading.
7) Ratios are only tools of quantitative analysis and fail to take into account
the quantitative aspects of a business.
TYPES OF RATIOS:
Ratios Classified into four categories:
LIQUIDITY RATIOS:
Current Ratio
Quick Ratio
Absolute Quick Ratio
SOLVENCY RATIOS:
Debt and Equity Ratio
Proprietary Ratio
Fixed Assets Ratio
Total Liabilities to Total Assets Ratio
Fixed Assets to long term funds Ratio
TURNOVER RATIOS:
Capital employed Turnover Ratio
Fixed Assets Turnover Ratio
OVERALL PROFITABILITY RATIOS:
Return on capital employed Ratio
Return on Net worth
Return on Equity capital
Return on assets Ratio
Equity Ratio
Value added by Employee Ratio
Earning per share Ratio
GENERAL PROFITABILITY RATIOS:
Gross Profit Ratio
Net Profit Ratio
Operating Ratio
Expenses Ratio
TYPES OF RATIOS CALCULATED FOR THE PRESENT STUDY
(a)Balance sheet ratios (b) Profit & Loss (c) inter statement
account ratios (balance sheet
and P&L a/c)

1. Current ratio 1.Gross profit ratio 1. Return on assets
2. Quick ratio 2.Net profit ratio ratio.
3. Proprietary ratio 3. Inventory turn over 2. Fixed assets ratio.
4. Debt-equity ratio ratio. 3. Creditors turn over
5. Fixed asset ratio 4. Expense ratio. ratio.
5. Operating ratio. 4. Debtors turnover
ratio.
5. Working capital turns
over ratio.
I. LIQUIDITY OR SHORT-TERM SOLVENCY RATIOS:-
These are the ratios which measure the short-term solvency or financial
position of the firm. These ratios are calculated to comment upon the short-term
paying capacity of a concern or the firm’s ability to meet its current obligations,
the various liquidity ratios are: Current ratio, Quick ratio.
(A)Current ratio or Working capital ratio: Current ratio is the ratio of current
assets and current liabilities.
 Current assets are the assets which can be converted into cash
within one year and include cash in hand and cash at bank, bills
receivables, net sundry debtors, stock or raw material, finished
goods and work in progress, prepaid expenses, outstanding and
accrued incomes and short-term or temporary investments.
 Current liabilities are the liabilities which are to be paid within a

period of one year and include bills payable, sundry creditors, bank
overdraft, outstanding expenses, incomes received in advance,
proposed dividend, provision for taxation, unclaimed dividends and
short term loan and advances repayable within one year.
Current Assets
Current Ratio = -------------------------
Current Liabilities
(B)Quick Ratio: Quick ratio is the ratio of quick assets to current liabilities.
 Quick assets are the assets which can be converted into cash very quickly
without much loss. All current assets except stock and prepaid expenses
are quick assets.
 All current liabilities are liabilities which are to be repaid with in one year.
Quick Assets
Quick Ratio = ---------------------
Quick liabilities
II. LEVERAGED OR CAPITAL STRUCTURE RATIO OR LONG-
TERM SOLVENCY RATIOS:
Long-term solvency ratios convey a firms ability to meet the interest costs
and repayments schedules of its long-term obligations e.g., debt equity and
interest coverage ratio. Leverage ratios show the proportions of debt and equity
in financing of the firm. These ratios measure the contribution of financing as
compared to financing by outsiders.
(a) Debt equity ratio: It reflects the relative claims of creditors and shareholders
against the assets of the business.
 Debt usually refers to long-term liabilities.
 Equity includes equity and preference share capital and reserves.
Long-term Liabilities
Debt-Equity ratio = --------------------------
Shareholders fund
(b) Proprietary ratio: It expresses the relationship between net worth and
total assets.
 Net worth = Equity share capital + Preference share capital + reserves and
surplus Fictitious Assets.
 Total Assets = Fixed assets + Current assets (excluding Fictitious Assets)
Net Worth
Proprietary Ratio = --------------------
Total Assets
(c) Fixed Assets Ratio: This ratio indicates the mode of financing fixed assets.
This is the ratio of fixed assets to capital employed.
 Capital employed = Equity share capital +preference share capital +

Reserves and surplus + Long-term liabilities-Fictitious assets
Fixed Assets
Fixed Assets Ratio = -------------------------
Capital Employed
(d) Interest coverage ratio or debt Service ratio: This ratio indicates
whether a business is earning sufficient profits to pay the interest
charges.
It is calculated as follows:
PBIT
Debt Service Ratio = ------------------------
Fixed Interest charges
 PBIT = Profit before Interest and taxes.
III. ACTIVITY RATIOS OR TURNOVER RATIOS:

An activity ratio measures the efficiency or effectiveness with which a firm
manages its resources or assets. They calculated the speed with which various
assets, in which funds are blocked up, get converted into sales. The significant
activity or turnover ratios are:
(a) Inventory Turnover ratio: Stock turnover ratio indicates the number of times
the stock has turned over into sales in a year. It is calculated as:
Cost of goods sold or sales

Inventory Turnover Ratio = --------------------------------------------
Average Stock
 Cost of goods sold = sales - gross Profit
 Average Stock = (Opening stock + Closing Stock)/2

(b) Debtors Turnover ratio: It expresses the relationship between debtors and
sales. It is calculated as:
Net credit sales

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

Creditors turnover Ratio = -----------------------------------
Average Creditors
(d) Working capital turnover ratio: This ratio is used to know the efficient
utilization of fund. It is calculated as:
Cost of goods sold

Working Capital Turnover Ratio = --------------------------
Working Capital
IV. PROFITABILITY RATIOS:

A profitability ratio measures the profitability of a concern. Generally they
are calculated either in relation to sales or in relation to investment.
(A) General Profitability Ratios:
(a) Gross Profit Ratio: It reveals the results of trading operations of the
business. It is calculated as:
Gross Profit
Gross Profit Ratio = -----------------
Net Sales
 Gross Profit = Net sales – Cost of Goods Sold
 Net Sales = Total sales – Sales Returns
 Cost Of Goods Sold = opening Stock + Purchases + manufacturing

Expenses – Closing Stock
(b) Net Profit Ratio: It expresses the relationship between expenses
incurred for running the resultant net sales. It is calculated as:
Operation cost
Operating Ratio = ------------------------
Net sales
 Operating Cost = Cost of Goods Sold + Office & administrative Expenses
+ selling Expenses + Distribution Expenses.
(B) Overall Profitability Ratios:
1. Return On Assets Ratio = It is calculated as:
PAT
RETURN ON ASSETS RATION = -------------------------
TOTAL ASSETS
 Total assets do not include fictitious assets.
2. Return On Capital Employed: It is calculated as:
PBIT
ROCE = -----------------
Capital Employed
 PBIT = Profit before interest and tax.
 Capital Employed = Share Capital + Reserves & surplus + Long Term loan
– Fictitious Assets
3. Return on net worth : It is calculated as:
PAT
RNOW = ----------------
Net worth
 Net Worth = Share Capital + Reserves And Surplus
I. LIQUIDITY RATIOS
CURRENT RATIO:
Year Current Assets Current Liabilities Ratio

2007-08 160756 67324 2.39
2008-09 167799 48146 3.49
2009-10 194132 45850 4.23
2010-11
900000 135468 80941 1.67
2011-12 159073 67467 2.36
800000
700000 2011-12
600000
2010-11
500000
2009-10
400000
300000 2008-09
200000 2007-08
100000
0
Current Current Ratio
Assets Liabilities
Interpretations:
The above table shows that the liquidity position of the firm is very good.
The current assets increased on the whole from 2008-09 to 2009-10. This is
because of continues increases in sundry debtors and decreases in loans and
advances. Though inventory and bank balance fluctuated during these 5 years
and the other current assets increasing by 2008. It also implies a large part of the
current assets is idle.
QUICK RATIO:
Year Quick Assets Quick Liabilities Ratio
2007-08 142400 67320 2.12
2008-09 147655 48140 3.07
2009-10 176420 45850 3.85
2010-11 118080 80946 1.46
2011-12 145650 67467 2.16
180000
160000
140000
120000 2007-08
100000 2008-09
80000 2009-10
60000 2010-11
40000 2011-12
20000
0
Quick Assets Quick Liabilities Ratio
Interpretations:
The above table shows that the liquidity position of the firm is very good.
The Quick assets increased on the whole from 2008-09 to 2009-10. The
company should make sure that it should not increase its ratio more than 1 it’s
not advisable the present position companies ratio indicates normal liquidity
position in the business.
II. LEVERAGED OR CAPITAL STRUCTURE RATIOS

DEBT & EQUITY RATIO:
Year Long term liabilities Shareholders fund Ratio

2007-08 98047 258117 0.38
2008-09 115812 286453 0.40
2009-10 132157 315040 0.42
2010-11 138263 335501 0.41
2011-12 160878 417763 0.39
450000
400000
350000
300000 2007-08
250000 2008-09
200000 2009-10
150000 2010-11
100000
2011-12
50000
0
Long term liabilities Shareholders fund Ratio
Interpretations:
From the above it is clear that shareholders fund is more than that of the
long term debt. So, we can infer that the firm assets are financed more by the
internal funds rather than the external funds by which it is using its resources
more effectively.
PROPRIETARY RATIO:
Year Net Worth Total Assets Ratio
2007-08 258117 423489 0.61
2008-09 280453 450411 0.62
2009-10 315040 493319 0.64
2010-11 355501 596346 0.60
2011-12 417763 659483 0.63
700000
600000
500000
2007-08
400000
2008-09
300000 2009-10
200000 2010-11
2011-12
100000
0
Net Worth Total Assets Ratio
Interpretations:
As the total debt ratio represents relationship of the owner’s funds to total
assts, higher the ratio the better the solvency position of the firm. The above ratio
shows that the 5 years ratios more then 50%. So we consider that the long-term
solvency of the firm is satisfaction.
FIXED ASSETS RATIO:

Year Fixed Assets Capital Employed Ratio
2007-08 184450 174657 1.06
2008-09 177697 176781 1.01
2009-10 190019 198650 0.96
2010-11 188178 212545 0.89
2011-12 225069 223148 1.01
250000
200000
2007-08
150000
2008-09
100000 2009-10
2010-11
50000
2011-12
0
Fixed Assets Capital Ratio
Employed
Interpretations:
This ratio indicates the mode of financing the fixed assets. A financially
well managed company will have its fixed assets financed by long term funds.
Therefore the fixed assets ratio should never be more than one. The ratio of 0.89
is considered ideal. Here the companies ratio is ideal in 2010-11 and then it
increased in 2011-12, which indicates that the company reduced financing the
fixed assets by along term funds.
INTEREST COVERAGE/DEBT SERVICE RATIO:

Year EBIT Fixed Interest Ratio
2007-08 51656 10918 4.73
2008-09 46201 8680 5.32
2009-10 47456 9916 4.79
2010-11 92594 33697 2.75
2011-12 77837 16958 4.59
100000
80000
2007-08
60000
2008-09
2009-10
40000
2010-11
20000 2011-12
0
EBIT Fixed Interest Ratio
Interpretation
The above ratio indicates that the firm covers a good deal of interest
liability with the operating profit of the firm. The ratio of the company is increasing
every year. This indicates the company is earning sufficient profits to pay the
interest charges of the investors.
III.ACTIVITY OR TURN OVER RATIOS
INVENTORY TURNOVER RATIO:

Year Cost of Goods Sold Average Inventory Ratio
2007-08 14103 1975 7.14
2008-09 13830 1962 7.05
2009-10 15024 2096 7.17
2010-11 11250 1605 7.01
2011-12 10525 1512 6.96
16000
14000
12000
10000 2007-08
8000 2008-09
6000 2009-10
4000 2010-11
2000 2011-12
0
Cost of Average Ratio
Goods Sold Inventory
Interpretations:
The ratio indicates the efficiency of the firm is selling its products or
services. A high ratio indicates efficient management of inventory. In the above
ratio it indicated that the inventory is getting converted into cash in the five years.
This implies that the management of inventory is satisfied.
DEBT TURNOVER RATIO:

Year Cost of Credit Sales Average Debtors Ratio
2007-08 18256 2186 8.35
2008-09 17952 2170 8.27
2009-10 17236 2109 8.17
2010-11 17025 2052 8.30
2011-12 16986 2053 8.27
20000
15000
2007-08
10000 2008-09
2009-10
5000 2010-11
2011-12
0
Cost of Average Ratio
Credit Sales Debtors
Interpretations:
The debtor’s turn over ratio of 10-12 is considered to be ideal. A high ratio
is indicative of a sound credit management policy; this ratio has been fluctuating
due to increase in sales and debtors .The ratio as decreased in 2010-2011 but
again increased towards the ideal ratio.
CREDITORS TURN OVER RATIO:

Year Credit Purchase Average Creditors Ratio
2007-08 18256 5256 3.47
2008-09 17952 4896 3.67
2009-10 17236 4860 3.55
2010-11 17025 5012 3.40
2011-12 16986 4806 3.53
20000
15000
2007-08
10000 2008-09
2009-10
5000 2010-11
2011-12
0
Credit Average Ratio
Purchase Creditors
Interpretations:
The creditors turn over ratio is more indicates the firm is not able to get the
best terms of credit. A low creditor’s turn over ratio indicates the companies’
inability in meeting its obligations in time. The company’s ratio is fluctuating and
low but satisfactory in meeting its obligations in time
WORKING CAPITAL TURN OVER RATIO:

Year Sales Working Capital Ratio
2007-08 189450 93427 2.03
2008-09 177697 119651 1.49
2009-10 190019 148282 1.28
2010-11 188178 54527 3.45
2011-12 225069 61606 3.65
250000
200000
150000 2007-08
2008-09
100000 2009-10
2010-11
50000
2011-12
0
Sales Working Ratio
Capital
Interpretations:
From the above ratio it indicate that utilization of the working capital is not ,
so efficient but is satisfactory, as it is turned over at least once in all the five years
i.e. in the year 2010-11, it turned to 3.45 which is satisfactory. In the year 2011-
12 it is 3.65.
FIXED ASSETS TURN OVER RATIO:
Year Sales Fixed Assets Ratio

2007-08 189450 184657 1.03
2008-09 177697 176781 1.01
2009-10 190019 198650 0.96
2010-11 188178 212545 0.89
2011-12 225069 223385 1.01
250000
200000
2007-08
150000 2008-09
2009-10
100000
2010-11
50000 2011-12
0
Sales Fixed Assets Ratio
Interpretations:
The above ratios indicate that the fixed asset Turnover Ratios are in the
increasing trend, which is satisfactory. It shows that there is a scope for
increasing in production and sales with effective use of fixed assets. But 2010-
011 year the ratio is deceased to 0.89.
IV. PROFITABILITY RATIOS
GROSS PROFIT RATIO:

Year Gross Profit Sales Ratio
2007-08 51655 189450 0.27
2008-09 45700 179697 0.25
2009-10 38343 190019 0.20
2010-11 59080 188128 0.31
2011-12 60680 229052 0.26
250000
200000
2007-08
150000 2008-09
2009-10
100000
2010-11
50000 2011-12
0
Gross Profit Sales Ratio
Interpretations:
This ratio indicates the extent to which selling prices of goods per unit way
decline without resulting losses in operating of a firm. The higher the ratio the
better the results. It lies that the profitability of the firm is satisfactory and it is
covering various operating expenses without incurring losses.
NET PROFIT RATIO:
Year Net Profit Sales Ratio

2007-08 37338 189450 0.20
2008-09 35396 177697 0.20
2009-10 36078 190019 0.19
2010-11 52608 188178 0.28
2011-12 58070 225069 0.26
250000
200000
2007-08
150000 2008-09
2009-10
100000
2010-11
50000 2011-12
0
Net Profit Sales Ratio
Interpretations:
The above ratio shows that the firm’s earning the constant returns over its
sales. The above table shows that the firm is earning profit over its Net sales,
which is good for any manufacturing concern.
OPERATING RATIO:
Year Operating profit Sales Ratio

2007-08 51656 189450 0.27
2008-09 46201 177697 0.26
2009-10 47456 190019 0.25
2010-11 92594 188178 0.49
2011-12 77758 225069 0.35
250000
200000
2007-08
150000
2008-09
100000 2009-10
50000 2010-11
2011-12
0
Operating Sales Ratio
profit
Interpretations:
From the above table we can inter that more than 80% of the sale has been
consumed by the operating profit, only less than 20% is left to cover interest
charges, income tax payments, dividend and the retention of profits as a reserve.
OVERALL PROFITABILITY RATIOS
RETURN ON TOTAL ASSETS RATIO:

Average Total
Year Profit After Tax Ratio
Assets
2007-08 37338 211745 0.18
2008-09 35396 225205 0.16
2009-10 36075 246660 0.15
2010-11 52608 298173 0.18
2011-12 58070 329742 0.18
350000
300000
250000
200000 2007-08
150000 2008-09
100000 2009-10
50000 2010-11
0 2011-12
Profit After Average Ratio
Tax Total
Assets
Interpretations:
With the help of above ratio we can inter that the return on assets is
increasing from year to year which is very good and its reflects that the resources
are effectively utilized.
RETURN ON CAPITAL EMPLOYED RATIO:
Year EBIT Capital Employed Ratio

2007-08 51656 174657 0.30
2008-09 46201 176781 0.26
2009-10 47456 198650 0.24
2010-11 92594 212545 0.44
2011-12 77837 223148 0.35
250000
200000
2007-08
150000
2008-09
100000 2009-10
50000 2010-11
2011-12
0
EBIT Capital Ratio
Employed
Interpretations:
The above ratio indicate that the profit of the company is in increasing
trend and the capital employed is also increasing which helps in increasing the
return on capital employed.
RETURN ON NET WORTH RATIO:
Year PAT Net Worth Ratio

2007-08 37338 258117 0.14
2008-09 35396 280453 0.13
2009-10 36075 315040 0.11
2010-11 52608 355501 0.15
2011-12 58070 417763 0.14
450000
400000
350000
300000 2007-08
250000 2008-09
200000 2009-10
150000 2010-11
100000 2011-12
50000
0
PAT Net Worth Ratio
Interpretations:
The higher the ratio the better it is. It indicates the return which the
shareholders are earning on their resources invested in the businesses. The
investors of the company are earning high level of returns which are increasing
though slightly decreased in 2011-2012.
CHAPTER-V
CONCLUSIONS &
SUGGESTIONS
CONCLUSIONS
The present study entitled “Techniques of Financial Analysis” in

National Thermal Power Corporation Ltd. Is taken up by me in partial fulfillment of
the award of Degree of Master of Business Administration. During my study,
based on the data collected and presented the earlier chapter the following
observations were made.
1. The sales to assets ratio is reveals that except in 2011-12, in all the
years it is more than I indicating good sales position of the firm in the
market.
2. During the study period the working capital position is found to be
satisfactory. In last 2 years of study current assets are more than
double to that of current liabilities.
3. The net profit is more in the last year i.e. 63.7% because of the
reduced operating expenses.
4. It is observed that the total assets are almost same during the same
period with a sight variation of 1% to 3%.
5. Over all the company current position is good but years 2005-06 &
2005-04 the company current position not good.
6. The company paid to the dividend to shareholders in last year 2007-08
it is the more than the last 4 years company debt position is good.
7. The company equity capital in year 2010-11 is 78125 million’s but last
3 years capital is 82455 million’s is increase of 5.5%.
SUGGESTIONS:
1. Company should maintain adequate liquidity.

2. To improve the liquidity position of the company it is suggested that
the company shall finance more in current assets or pay off part of
current liabilities from long term funds.
3. Company should take the measure to promote its sales, which
improves the profit of the firm.
4. It should concentrate on long term funds. If long term funds are
utilized for working capital problem will not arise in future.
5. Company should maintain adequate reserves.
6. It should try to raise it’s owner equity to see that the interest burden
(because of debt capital) be reduced.
7. It should control the operating costs further and should also see that
the cost of production will be low.
8. A wise policy will be taken by the company to finance fixed assets
by raising long term funds.
9. Company should take some measure to increase the return on
investment. It should try to utilize the funds to the maximum extent.
10. Company should try to utilize its assets to the fullest extent.
BIBILIOGRAPHY
BOOKS:
 Foster G, Financial Statements Analysis, Prentice-Hall, Englewood Cliff,

1986.
 Helfert. EH Techniques for Financial Analysis, Irwin, Homewood, 1997.
 Khan. MY, and Jain. PK, Financial Management, Tata McGraw-Hill.
 Sharma. R.K, and Shashi K. Gupta, Management Accounting, Sultan

Chand & Sons, New Delhi.
Web site:
 www.ntpc.co.in

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A

“MASTER OF BUSINESS ADMINISTRATION”

DEPARTMENT OF COMMERCE & BUSINESS MANAGEMENT

This to certify that the project work entitled “FINANCIAL

This to certify that the project work entitled “FINANCIAL

PROJECT EXTERNAL GUIDE

The successful completion of my project is indeed practically

I would like to thank indebted to Mr.J.JANARDHANA

I express my profound gratitude to Sri. E. Nanda Kishore,

I, the under signed hereby declare that the project entitled “

Accounting is the process of identifying, measuring and

Financial statements are the basis for decision making by the

The analysis of financial statements is a process of evaluating the

Financial statements are the end products of financial accounting,

According to John. N.Myer “The financial Statements provide a

Financial statements are also called financial reports.

Nature of Financial Statements:

 Recorded Facts: The term-recorded fact means facts that have

 Accounting Convention: Accounting conventions imply certain

 Personal judgment: Personal judgment has also an important

b) As a basis for fiscal policy

c) To determine the legality at dividends

d) As guide to advice dividend action

e) As a basis for the granting of credit

f) As informative for prospective investors in an enterprise

g) As a guide to the value of investment already made

h) As an aid to government supervision

i) As a basis for price or rate regulation

Need for the Study:

 To study the composition of assets and liabilities of the NTPC

 To evaluate financial performance of NTPC Limited.

 To study its overall position Industry.

 To draw conclusions and to suggest suitable measures, to over

1. The study is restricted to financial performance of the organization

2. Financial Management covers topics like cost of capital, capital

4. Financial analysis and interpretation adopted technique of Ratio

Objectives of the Study:

2. To study whether the contracts management is achieving the goal

3. The performance of NTPC’s will be measured for the last 5 years

4. In this study help to the organization decision making

5. The study to given the information about company position.

1. The administrative officer of the RSTPS.

2. The annual report and other reports.

3. Discussion with senior manager/manager of finance, purchases

4. The NTPC library.

The study of the project in NTPC Limited :

1. First chapter being introduction chapter covers general introduction

2. The second chapter titled as profile of the Industry covers the

3. The third chapter covers theoretical aspects of financial statements

5. Last chapter is tilled as conclusions and suggestions covers the

(a) Sources of data:

To provide a better understanding of the topic by adding a practical dimension

(b) Tools and Techniques applied:

(ii) Trend analysis: Computation of the percentage relationship that each

(iii) Ratio analysis: Uses of financial ratios to evaluate performance such

Energy is an important parameter in the over all economic development

NTPC LTD - A MAHARATNA POWER GIANT

 NTPC today has become in house-expertise in designing, construction and

 NTPC is committed to the environment, generating power at minimal environmental cost

 As a responsible corporate citizen, NTPC is making constant efforts to improve

 Considering multidimensional opportunities in the energy sector, NTPC will adopt

POWERING INDIA'S GROWTH: THROUGH PEOPLE

ROCE AND RONW: