Working capital management is a significant fact of financial management due to the fact that it plays a pivotal role in keeping wheels of business enterprise running. Shortage of funds for working capital has caused many businesses to fail and in many cases, has recorded poor growth. Lack of efficient and effective utilization of working capital leads to earn low rate of return on capital employed or even compels to sustain losses. Working capital is the flow of ready funds necessary working of the enterprise. It consists of funds invested in current assets or those assets which in the ordinary course of business can be turned into cash within a brief period without undergoing diminution in value and without disruption of the organization. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. It refers to an assessment of the viability, stability and profitability of a business, sub-business or project. The future plans of the firm should be laid down in view of the firm’s financial strengths and weaknesses. Thus, financial analysis is the starting point for making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the future.



 To analyse factors that considers their (Tata Power) working capital requirement.

 To understand Working Capital Policies.

 To analyse Inventory management of Tata Power Company Limited

 To study the general problems faced in Supply Chain

 To analyse the financial statement of Tata Power

 To do analysis of company’s performance


R N Tata Electricity generation Electricity transmission Electricity distribution http://www. incorporated in the year 1919 at Mumbai. Tata Power Company Limited pioneered the generation of electricity in India nine decades ago.3 COMPANY PROFILE Company name Year of Establishment Chairman Industry Tata Power Company Ltd 1919 Mr.1. The other segment deals with electronic equipment. Tata Power Company Limited has signed a MoU with the Government of Chhattisgarh for the setting up of a 1000 MW coal fired mega power plant in the State.com 2300MW 14807 MUs Website Production Capacity Annual Generation Tata Power Company Limited (TPC). The Company operates in two business segments: Power and Other. In the year 2007. transmission and distribution of electricity. project consultancy. The core business of Tata Power Company is to generate. India's largest integrated Electric Power Utility in private sector with a reputation for reliability. The Power segment is engaged in generation. 4 .tatapower. transmit and distribute electricity.

for Rs 165 crore. As on February 2008. distribution and constant up gradation of its technology in every aspect. Tata Power Company Limited has signed an EPC contract for supply of five (5) 800 MW Steam Turbine Generators with Toshiba Corporation for the first 4000 MW Ultra Mega Power Project (UMPP) in India to be located at Mundra. The acquisition of Coastal Gujarat Power Ltd was med by the company and a Special Purpose Vehicle (SPV) formed for Mundra Ultra Mega Power Project (UMPP). lighting up lives through its activities from its inception. VISION 5 .4 per cent stake in Geodynamics Ltd. April of the year 2008. an Australian company specialising in geothermal energy. The challenge of fulfilling the ever growing needs of power has been met by Tata Power through efficient generation. Recognising the steady and stable performance in generating quality and reliable energy. transmission. it would acquire a 11.The company has roped in Korea-based Doosan Heavy Industries and Construction Ltd for supercritical boilers for its Mundra ultra mega power project. being set up in Dhanbad District of Jharkhand State. Tata Power completes the Signing of Financial Agreements for 4000 MW Ultra Mega Power Project.2 billion). the Central Electricity Authority has awarded Tata Power's Bhira Hydro generation facility with the Silver Shield award for the meritorious performance in March 2008. coming up at Mundra. The cost of the project is estimated at INR 17000 crores (USD 4. Gujarat in August 2007. Gujarat. Tata Power announced in September of the year 2008. Tata Power is surging ahead. The Tata Power Company Limited (Tata Power) and Damodar Valley Corporation (DVC) jointly completed its financing for the 1050 MW coal based thermal power project.

 Being an Employer of Choice and creating a culture of empowerment and high performance. MISSION We will become the most admired company delivering sustainable value by:  Being a Partner of Choice and exceeding stakeholder expectations.  Caring for the safety of the environment and well-being of customers. 6 . and expanding our presence in related businesses of interest.  Ensuring profitable growth and value to stakeholders.  Relentlessly pursuing opportunities. To be the most admired Integrated Power and Energy Company delivering sustainable value to all stakeholders. employees and communities.  Innovating and deploying cutting edge solutions based on eco-friendly technologies. capitalising on synergies in the power and energy value chain.

3.1 HIGHLIGHTS OF THE YEAR  Consolidated revenues from operations up by 61% at Rs. Karnataka and Maharashtra.  Consolidated PAT at Rs.  Annual Generation highest at 14807 MUs.  Commissioned additional 80.587.1. 7 .218.53 crores.6 MW wind power capacity in Gujarat.74 crores rose an increase of 16%.  Commissioned 90 MW in Haldia. 1. 17.  Commissioned 250 MW ‘Unit 8’ at the Trombay Thermal Power Station.

2% to Rs.51%. 869.50 per share. 1.93 crores from Rs.171.Financial Highlights  The Company’s revenues from operations increased 22. 811.   Dividend recommended at Rs.  Profit After Tax (PAT) stood at Rs.  Net Profit after Tax and Statutory Appropriations stood at Rs. 2.915.055.50 crores as against Rs.218.3% to Rs.20 crores as against Rs.74 crores as against Rs.63 crores from Rs. an increase of 19. 10. The Company’s consolidated revenues from operations increased 61. a rise of 15.587.  Powerlinks Transmission Limited (Powerlinks): The revenues of Powerlinks. the highest so far.65% 8 . a growth of 6%.12 crores in the previous year.890. 7.  The consolidated PAT for the year stood at Rs. 11. 236.07 crores for the previous year.  Tata Power Trading Company Limited (TPTCL): TPTCL’s revenues increased 146. 967. 5. PAT also increased to Rs. 922.86 crores in the previous year. 4.91 crores in the previous year.49% to Rs. 1.31 crores for the previous year.23 crores as compared to Rs.30 crores in the previous year. 17.25%.90 crores for the previous year. 882.53 crores as compared to Rs. 7. the highest ever so far. the first public-private joint venture in power transmission in India increased 3.

2. 58. 65. as against 1. 2.  The three hydro stations collectively generated 1.287.717 MUs in the previous year. a decrease of 22.489 MUs generated in the previous year. The generation was lower on account of the restriction imposed by Krishna Water Tribunal Award.182 crores in the previous year. 245.467. a decrease by 1.47 crores as compared to Rs.  The Trombay Thermal Power Station generated 9.41 crores in the previous year.002 MUs generated in the previous year.57%. PAT for the current year is lower  at Rs.90% to Rs. Operational Highlights of the Year  The Company generated 14.to Rs.845 MUs during the year as compared to 10.58 crores in the previous year primarily on account of an exceptional credit of Rs.151 MUs during the year.23 crores in the previous year.7%.34 crores from Rs. 9 . 281. The generation was lower on account of major overhaul of Unit 6 and Unit 7.  North Delhi Power Limited (NDPL): NDPL’s revenues increased 7. 171. 254.87 crores from Rs.49 crores from Rs.807 Million Units (MUs) of power from all its power plants during the year as compared to 14. PAT also increased to Rs.52 crores in the previous year.

366 new consumers and 34 new consumer sub stations were commissioned.000 MU mark for the first time while surpassing the previous record of 2.12%. Unit 8: The 250 MW Unit 8 imported coal based plant at Trombay was commissioned during the year and started commercial operations from end March 2009. an increase of 5. The power station achieved the highest ever generation.862 MUs in FY08. New Projects  250 MW expansion Project at Trombay.61% due to increased demand from Karnataka Power Transmission Corporation Ltd. The 30 MW Unit 3 is scheduled to be commissioned in Q1 of FY10. crossing the 3.  In a major expansion of distribution network. power supply has been made available to 2. an increase of 88. the Company commissioned Units 1 and 2 of 45 MW each.009 MUs during the year as compared to 2. 10 .862 MUs in the previous year.  The Belgaum Independent Power Plant (IPP) generated 447 MUs during the year as compared to 237 MUs in the previous year.  120 MW Power Project at Haldia: During the year. The Jojobera Thermal Power Station recorded a generation of 3.

Captive Power Projects for Tata Steel: Industrial E nergy Limited (IEL), a joint venture between Tata Power (74%) and Tata Steel (26%) is implementing the following projects: 120 MW Power House # 6 for Tata Steel Works, Jamshedpur: The 120 MW power plant being constructed at Tata Steel works, Jamshedpur for use by Tata Steel was inaugurated in May 2009. The Gas based Power House # 6, will be supplying the entire generated capacity to Tata Steel Limited thereby meeting the increasing demand for power for the Company’s Jamshedpur works. Unit 5 at Jojobera: A 120 MW power plant is being constructed at the Company’s existing site at Jojobera. IEL has placed orders for major equipment and construction work is in full swing. The project is expected to be commissioned in the third quarter of FY10.

4,000 MW, Mundra Ultra Mega Power Project on Fast Track

1,050 MW Maithon Joint Venture Project between the Company (74%) and Damodar Valley Corporation (DVC) (26%)

Wind Farm Projects: During the year, the Company commissioned additional 80.6 MW wind power capacity. This included 36 MW at Gadag (Karnataka), 29.6 MW at Samana (Gujarat) and 15 MW at Sadawaghapur (Maharashtra). The collective generation by these wind farms was 177 MUs during the year as against 127 MUs generated in the previous year.



Greentech Safety Award 2009 in Gold Category in Power Sector for Trombay Thermal Power Station.

Civic Award in the category social development instituted by Bombay Chambers for the Year 2007-08.

First prize in ash management from Jharkhand State Pollution Control Board for Jojobera Thermal Power Station.


Bhira and Bhira Pump Storage Scheme adjudged as second best performing station (Silver Shield) in the country for the year 2007-08. This is the second consecutive year Bhira division has won this award.

Power Deal of the Year by Power Finance International (PFI) in their year book 2009 for the 4,000 MW Ultra Mega Power Project (UMPP) at Mundra.

Power Deal of the Year by the Infrastructure Journal Awards 2008 for Mundra UMPP.

Green Governance Award from Bombay Natural History Society for CSR activities, for the year 2007-08.

ICAI Awards (Gold Shield) for Excellence in Financial Reporting for the Annual Report and Accounts of the organization for the year ended March 31, 2008 in the ‘Infrastructure & Construction Sector’.

National Par Excellence, Excellence and Distinguished awards won at NCQC, Vadodara by our 10 Quality Circle teams.


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accounts payable days and cash conversion cycle. Tryfonidis Dimitrio’s (2004) analysis says that the relationship of corporate profitability and working capital management. The regression results show that high investment in inventories and receivables is associated with lower profitability. Moreover managers can create profits for their companies by 15 . The trend in working capital needs and profitability of firms are examined to identify the causes for any significant differences between the industries. Lazaridis Dr Ioannis.REVIEWS 1. The results of our research showed that there is statistical significance between profitability. Padachi Kesseven’s (2006) analysis says that a well designed and implemented working capital management is expected to contribute positively to the creation of a firm’s value The purpose of this paper is to examine the trends in working capital management and its impaction firms’ performance. measured through gross operating profit. using panel data analysis for the period 1998 –2003. A strong significant relationship between working capital management and profitability has been found in previous empirical work. 2. The key variables used in the analysis are inventories days. the cash conversion cycle and its components for listed firms in the ASE. We used a sample of 131 companies listed in the Athens Stock Exchange (ASE) for the period of 2001-2004. The findings also reveal an increasing trend in the short-term component of working capital financing. An analysis of the liquidity. The dependent variable. accounts receivables days. profitability and operational efficiency of the five industries shows significant changes and how best practices in the paper industry have contributed to performance. The purpose of this paper is to establish a relationship that is statistical significant between profitability. return on total assets is used as a measure of profitability and the relation between working capital management and corporate profitability is investigated for a sample of 58small manufacturing firms. and the cash conversion cycle.

Relatively aggressive working capital asset management seems balanced by relatively conservative working capital financial management. 3. 4. and that this increase will be a multiplicative relationship. Of critical importance is the degree of net working capital as a proportion of the overall financing required. the relative industry ranking of the aggressive/conservative asset policies exhibited remarkable stability over time. both institutions are scrutinizing the amount and quality of working capital more than ever. inventory) to an optimum level. The fewer resources that need to be invested in working capital. Shelton Fred (2002) studied that Working capital. has historically been a major benchmark of the surety and credit-granting institutions. even if output prices rise at the same rate as costs. Industry policies concerning relative aggressive/conservative liability management were also significantly different. it is evident there is a high and significant negative correlation between industry asset and liability policies. In addition. Additionally. In today’s environment. the higher the net working capital the greater being the impact of inflation on capital spending. the paper has shown that the capital budgeting process is not neutral with respect to inflation. an important liquidity indicator. Finally. after recognizing liquidity risk. Mills Geofrey (1996) analysis that the impact of inflation on the capital budgeting process. Weinraub Herbert. Visscher Sue (1998) studies that this study looked at ten diverse industry groups over an extended time period to examine the relative relationship between aggressive and conservative working capital practices.handling correctly the cash conversion cycle and keeping each different component (accounts receivables. accounts payables. it would 16 . 5. It has shown that it is reasonable to expect that the cost of capital will increase at the same rate as the rate of inflation on an ex ante basis. Interestingly. because of the tight bond and credit markets. the better. Results strongly show that the industries had significantly different current asset management policies.

will be one of the key determinants to future growth. provide updates to your customers. The NAILD is an organisation supporting lighting distributors in the US with publications.appear that corporate financial behavior is influenced by inflation. thus driving up short term rates relative to long term rates. The Indian government has worked steadily to liberalise the sector and initiated reforms that culminated in the Electricity Act 2003. 6. Schwartz (2008). encourage private participation and transform the state’s role from service provider to regulator. 7. The keys to taking advantage of the opportunities is to understand the market. A key component of the ENERGY STAR qualified light fixtures program is the Advanced Lighting Package (ALP). According to him. to attempt to reduce net working capital. Despite the potential offered by the India’s power sector. The Energy Independence and Security Act of 2007 add to the programs and efforts introduced in EPACT 2005. Indian power sector. The Act afforded consumers the ability to directly source their electricity from suppliers using existing networks and recognised trading as a separate line of business. with current electricity shortages of over 11% of peak and 7% of energy. investors have long been weary of the sector’s bureaucracy and regulatory complexity. and conferences. Kumar. Studies the business of NAILD distributor through this article. With a critical mass of progress in regulatory reforms and 17 . and turn information into active marketing and promotional efforts. know where to get more information. and to alter the debt/asset ratio using short term debt. recent changes and trends in the lighting market provide new opportunities. As market trends and legislation move purchasers away from inefficient technologies and towards energyefficient products. training. The Act brought together structural and regulatory reforms designed to foster competitive markets. Khetan & Thapa (2005) highlights that India has set itself an ambitious target of more than doubling per-capita electricity consumption by 2011. NAILD distributors that become ENERGY STAR Partners have an opportunity to increase sales and profits. Inflation will cause the firm to reduce its capital budget.

soaring economic growth. the Indian power sector is now primed for take off. How India deals with the remaining challenges of the restructuring process and emerging fuel shortages will dictate what happens in the years to come. 18 .

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Fuel Procurement) Data was collected from following SECONDARY SOURCES like 20 . Manager. formulating hypothesis or suggested solutions. organizing & evaluating data. In research design we decide about: • • • • Type of data From whom to get data How to analyze data How to make report DATA TYPE Data collected was both Primary and Secondary in nature RESEARCH DESIGN STEP 1 . M. STEP 4 – Comparison of Tata Power Company Limited with NTPC DATA COLLECTION The information is collected through the PRIMARY SOURCES like:  Interviewing the employees of the department. collecting.  Discussion with the head of the department Mr. STEP 2 – Data Analysis of working capital through Estimation of Working Capital.  Getting information from MIS department. Dharam (Sr. making deductions & reaching conclusions. A.RESEARCH METHODOLOGY Research comprises of defining & redefining problems.To study the Financial Statement of Tata Power Company. STEP 3 – Analysis of Inventory Management of Tata Power Company.

The training period of six weeks was too short to study the organization in detail.1. tables LIMITATIONS OF STUDY In the due course time. Pie Graphs. In some cases budgets are available but actual figures are not available for comparison. Accounting Department 3. MIS Department The collected information was edited & tabulated for the purpose of analysis. 21 . TOOLS USED FOR PROJECT While making the project file various tools were used. the main limitation was with searching the data. These tools helped in doing the work. Corporate department a) Fuel Procurement department b) Finance department 2. These are: Microsoft Excel  Microsoft Word  Various analysis tools like Bar Graphs. Tata Power Company Limited is a big unit so it was very difficult to study the whole budgeted data. The data was not completed in the main files of Tata Power Company Limited.

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what is required is the holding period of various types of inventories.48.4. the credit collection period and the credit payment period . They have a bearing on the cash operating cycle. Working capital also depends on the budgeted level of activity in terms of productivity / sales. The cash cost approach is comprehensive and superior to the operating cycle approach based on holding period of debtors and inventories and payment period of creditors.1 COMPUTATION OF WORKING CAPITAL The two components of working capital (WC) are current assets (CA) and current liabilities (CL).5 crores 23 . Trombay The investment in Coal = 2030000(MT) X 2907 (Rs /MT) X 30days 365 Days = Rs. In order to calculate working capital needs. The calculation of WC is based on the assumption that the productivity is carried on evenly throughout the year and all costs accrue similarly. Raw material inventory = Budgeted Production (in units ) X Cost of raw material(s) per unit X Average inventory holding period ( months/days ) 12 months / 365 days For 2008. As the working capital requirements are related to the cost excluding depreciation and not to the sale price. Estimation of Current Assets – Raw Material Inventory: The investment in raw materials inventory is estimated on the basis of. WC is computed with reference to cash cost.

88 crores Jojobera The investment in Coal = 1883771.35(MT) X 26594.27 crores = Rs.6.The investment in Oil = 1035000 (MT) X 25194 (Rs /MT) X 20days 365 Days The investment in Gas = 219000 (MT) X 4547 (Rs /MT) X 12days 365 Days = Rs.1 crores Debtors: The WC tied up in debtors should be estimated in relation to total cost price (excluding depreciation). symbolically Budgeted Credit sale ( in units ) X Cost of sales per unit excluding X depreciation 12 months / 365 days Average debt collection period ( months / days ) 24 .1 crores Belgaum The investment in Oil = 41485.142.75(MT) X 1422 (Rs /MT) X 30days 365 Days = Rs.69 (Rs /MT) X 20days 365 Days = Rs.22.3.

attitude of management toward risk .70 crores 25 . It is difficult to lay down the exact procedure of determining such an amount. 223 Crores (excluded) Railways. 5512 (Rs.For 2008. Ordinance Factory. For Tata Power Company Limited cash and bank balance is Rs. This would primarily based on the motives for holding cash balances of the business firm . BARC. firms also find it useful to have some minimum cash balances with them . Cash and Bank Balances: Apart from WC needs for financing inventories and debtors . HPCL. BMC Bhandup Complex.8* crores 365 * Tariff adjustment Rs. the access to the borrowing sources in times of need and past experience . and so on . RCF Ltd.1090. in crores) X 87Days = Rs.28. Mahindra & Mahindra and Mumbai Port Trust are debtors of the Tata Power. BPCL.

32.33 crores 365 Days For Oil = 1035000 (MT) X 25194 (Rs /MT) X 30days = Rs.214.27crores Jojobera 26 . trade creditors. in this context are. The important current liabilities (CL).32crores 365 Days For Gas = 219000 (MT) X 4547 (Rs /MT) X 12days 365 Days = Rs.3. Trombay For Coal = 2030000(MT) X 2907 (Rs /MT) X 20days = Rs. wages and overheads: Trade Creditors: Budgeted yearly Production ( in units ) X Raw material requirement per unit 12 months / 365 days X Credit period allowed by creditors ( months / days ) Note: proportional adjustment should be made to cash purchase of raw materials. For 2008.Estimation of Current Liabilities – The working capital needs of business firms are lower to that extent such needs are met through the current liabilities (other than bank credits) arising in the ordinary course of business.

14. and Gail are creditors of the Tata Power. Average credit period approximates to half-amonth. HPCL.99(Rs. paid on the 30th day of the month .48 crores 365 The average credit period for the payment of wages approximates to a half-a-month in the case of monthly wage payment: The first days’ wages are . Overheads (Other Than Depreciation and Amortization) 27 .1 crores Direct Wages: Budgeted yearly Production ( in units ) 12 months / 365 days X Direct Labour cost per unit X Average time-lag in payment of wages ( months / days ) = 180. BPCL. crores) X 3days = 1.35(MT) X 26594. IOC. again .75(MT) X 1422 (Rs /MT) X 20days 365 Days = Rs.The investment in Coal = 1883771.9.69 (Rs /MT) X 30days 365 Days PT Adaro Indonesia. Samtan Mines Indonesia.67 crores Belgaum The investment in Oil = 41485. = Rs. extending credit for 28 days and so in .

In case of selling overheads. the relevant item would be sales volume instead of production volume.Budgeted yearly Production ( in units ) X Overhead cost per unit X Average time lag in payment of overheads ( months / days ) 12 months / 365 days = 232.79(Rs. Determination of Working Capital 28 . crores) X 3 days = 2 crores 365 The amount of overheads may be separately calculated for different types of overheads.

B} Net Working Capital Add margin for contingency Net Working Capital Required 273.69 1. Wages 6. Minimum desired cash and bank balances 2.2 WORKING CAPITAL FINANCE 29 . Debtors {A} Total Current Assets 28.518 1171. Inventories Raw Material 3.85 1090.35 Estimation of Current Liabilities 4. crores) 1. Creditors 5.17 1065.Estimation of Current Assets Amount (Rs. Overheads {B} Total Current Liabilities {A .698 4.48 2 277.70 222.18 106.8 1342.

A line of credit is designed to address cyclical working capital needs and not to finance long-term assets. A line of credit can be either unsecured. based on the line’s credit limit. The advantages of a line of credit are twofold. The lending terms for a line of credit include financial covenants or minimal financial standards that the borrower must meet. Typical financial covenants include a minimum current ratio. The standard term for a line of credit is 1 year with renewal subject to the lender’s annual review and approval. A second cost is the requirement for a borrower to maintain a compensating balance account with the bank. This arrangement allows a company flexibility to borrow funds when the need arises for the exact amount required.Line of Credit A line of credit is an open-ended loan with a borrowing limit that the business can draw against or repay at any time during the loan period. Second. In effect. Two other costs. However. If a firm normally maintains this balance in its cash accounts. which is paid whether or not the firm uses the line. are associated with borrowing through a line of credit. lenders usually require full repayment of the line of credit during the annual loan period and prior to its renewal. beyond interest payments. then it is incurring an additional cost. Lenders require a fee for providing the line of credit. The disadvantages of a line of credit include the potential for higher borrowing costs when a large compensating balance is required and its limitation to financing cyclical 30 . This repayment is sometimes referred to as the annual cleanup. it allows a company to minimize the principal borrowed and the resulting interest payments. a borrower must have a deposit account with a minimum balance equal to a percentage of the line of credit. if no specific collateral is pledged for repayment. First. then no additional costs are imposed by this requirement. a minimum net worth. particularly when it is unsecured. typically on a monthly basis. Interest is paid only on the amount borrowed. Under this arrangement. when a firm must increase its bank deposits to meet the compensating balance requirement. it is simpler to establish and entails fewer transaction and legal costs. perhaps 10% to 20%. and a maximum debt-to-equity ratio. or secured by specific assets such as accounts receivable or inventory. the compensating balance reduces the business’s net loan proceeds and increases its effective interest rate.

the firm must use customer payments on these receivables to reduce the loan balance. Accounts Receivable Financing Loans secured by accounts receivable are a common form of debt used to finance working capital. Factoring 31 . which is especially valuable to fast-growing firms. for which lenders may charge a higher interest rate or fees. With the loan limit tied to total accounts receivable. the lender will collect the receivables directly from the customer and apply it to loan payments. borrowing capacity grows automatically as sales grow. the maximum loan amount is tied to a percentage of the borrower’s accounts receivable.. One disadvantage of accounts receivable financing is the higher costs associated with managing the collateral. When accounts receivable increase. This automatic matching of credit increases to sales growth provides a ready means to finance expanded sales.working capital needs. The borrowing ratio depends on the credit quality of the firm’s customers and the age of the accounts receivable. With full repayment required each year and annual extensions subject to lender approval. Additionally. customers make payments directly to a bank-controlled account (a lock box). In some accounts receivable loans. Firms gain several benefits with accounts receivable financing. A firm with financially strong customers should be able to obtain a loan equal to 80% of its accounts receivable. when a firm does not repay the loan. 60 or 90 days) in the base used to calculate the loan limit. the allowable loan principal also rises.g. The bank receives a copy of all invoices along with an assignment that gives it the legal right to collect payment and apply it to the loan. Under accounts receivable debt. Since accounts receivable are pledged as collateral. However. a lender may exclude receivables beyond a certain age (e. a line of credit cannot finance medium-term or long-term working capital investments. Older receivables are considered indicative of a customer with financial problems and less likely to pay.

In addition to absorbing collection risk. factoring is a form of collection insurance that provides an enterprise with more predictable cash flow from sales. it saves the cost of establishing and administering its own collection system. Some inventory becomes obsolete and loses value quickly. and other types of inventory. which may affect overall customer relations. a factor can often collect accounts receivable at a lower cost than a small business. Third. Second. First. The customer pays the factor directly. typically 70% to 80%. In a factoring arrangement. The disadvantages of factoring are costs may be higher than a direct loan. the factor charges an interest rate on this advance and then deducts the advance amount from its final payment to the firm when an invoice is collected. Furthermore. it provides an invoice to the factor. especially when the firm’s customers have poor credit that lead the factor to charge a high fee. called the factor. As the company makes new sales to a customer.Factoring entails the sale of accounts receivable to another firm. especially when the factor’s collection practices differ from those of the company. In this case. Inventory Financing Inventory financing is a secured loan. like partially manufactured goods. less a slight discount that covers the factor’s collection costs and credit risk. Through factoring. due to economies of scale. and the factor then pays the company based on the agreed upon average collection period. Inventory financing is more difficult to secure since inventory is riskier collateral than accounts receivable. a business can shift the costs of collection and the risk of non-payment to a third party. who then collects payment from the customer. Loan amounts 32 . have little or no resale value. and transfer some of these savings to the company. a company and the factor work out a credit limit and average collection period for each customer. Factoring has several advantages for a firm over straight accounts receivable financing. providing the company with immediate cash flow from sales. in this case with inventory as collateral. the business loses control over this part of the customer relationship. a factor may advance payment for a large share of the invoice. once the collection function shifts to a third party.

A release of the assignment or return of the trust receipt is required before the collateral is delivered and ownership transferred to the buyer. Direct assignment by serial number is a simpler method to control inventory used for manufactured goods that are tagged with a unique serial number. Two primary methods are used to obtain this control: (1) warehouse storage. When the inventory is pledged. While inventory financing involves higher transaction and administrative costs than other loan instruments. and the goods are released only upon the instructions of the receipt-holder.also vary with the quality of the inventory pledged as collateral. The lender receives an assignment or trust receipt for the pledged inventory that lists all serial numbers for the collateral. can be established. Lenders need to control the inventory pledged as collateral to ensure that it is not sold before their loan is repaid. typically in 3 to 7 years. Since public warehouse storage is inconvenient for firms that need on-site access to their inventory. Under warehouse arrangement. usually ranging from 50% to 80%. the lender has control of the receipt and can prevent release of the goods until the loan is repaid. This release occurs with partial or full loan repayment. The company houses and controls its inventory and can arrange for product sales. it is an important financing tool for companies with large inventory assets. Here. A warehouse receipt is issued when the inventory is stored. This form of financing can be cost effective when inventory quality is high and yields a good loan-to-value ratio and interest rate. known as a field warehouse. an alternative arrangement. Term Loan A term loan is a form of medium-term debt in which principal is repaid over several years. Term loans have a fixed repayment schedule that can take 33 . the firm leases space to the warehouse operator rather than transferring goods to an off-site location. In effect. an independent public warehouse company assumes control over the pledged inventory at the firm’s site. pledged inventory is stored in a public warehouse and controlled by an independent party. and (2) direct assignment by product serial or identification numbers.

Level principal payments over the loan term are most common. minimum net working capital (or current ratio). the company pays the same principal amount each month plus interest on the outstanding loan balance. Typical financial covenants include minimum net worth. a term loan imposes considerable financial constraints on a business. As discussed at the beginning of the chapter. In this case. A second option is a level loan payment in which the total payment amount is the same every month but the share allocated to interest and principle varies with each payment. and inventory balances needed to create excess working capital. as with a 1-year line of credit. a business with a strong balance sheet and a good profit and cash flow history might obtain an unsecured term loan. Finally. which reduces the cash flow needed to service the debt. Finally. lenders include financial covenants in their loan agreements to guard against deterioration in the firm’s financial position over the loan term. these financial constraints are in place for several years and cannot be quickly reversed. a term loan is repaid over several years. Moreover. term loans expose firms to greater interest rate risk since the chances of a spike in interest rates increase for a longer repayment period. When provided with a floating interest rate. 34 . Term loans provide the medium-term financing to invest in the cash. Term loans can be either unsecured or secured. The disadvantages of term loans are that they come with higher interest rates and less financial flexibility. lenders often require the borrower to maintain a compensating balance account equal to 10% to 20% of the loan amount. and maximum debt-to-equity ratios.several forms. which lowers the pressure to meet all short-term obligations and reduces bankruptcy risk. businesses benefit from having a comfortable positive net working capital margin. since loan repayment extends over several years. Term loans carry a higher interest rate than short-term loans. Furthermore. They also are well suited to finance the expanded working capital needed for sales growth. some term loans are partially amortizing and have a balloon payment at maturity. Due to restrictive covenants and collateral requirements. Moreover. The major advantage of term loans is their ability to fund long-term working capital needs. accounts receivable. but many small firms will be required to pledge assets.

many companies still maintain bank lines of credit as a "backup". Since it is not backed by collateral.Commercial Paper In the global money market. Commercial paper is usually sold at a discount from face value. it would likely be in serious trouble and have difficulty repaying its liabilities. only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price. the higher the interest rate the issuing institution must pay.  They are unsecured debts of corporates and are issued in the form of promissory notes. primary dealers and satellite dealers were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations. commercial paper is an unsecured promissory note with a fixed maturity of one to 270 days. Commercial paper is a lower cost alternative to a line of credit with a bank. Interest rates fluctuate with market conditions. The longer the maturity on a note. but are typically lower than banks' rates. Commercial Paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations (for example. and carries shorter repayment dates than bonds. While these fees may seem like pure profit for banks. it is often cheaper to draw on a commercial paper than on a bank line of credit. redeemable at par to the holder at maturity. and builds a high credit rating. if the company ever actually needs to use the line of credit. as per RBI rules. payroll). and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Once a business becomes established.  Only corporates who get an investment grade rating can issue CPs.  It is issued at a discount to face value 35 . Subsequently. It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers/ to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Banks often charge fees for the amount of the line of the credit that does not have a balance. Nevertheless.

36 .5 lakh (face value).  Issued at discount to face value as may be determined by the issuer. Attracts issuance stamp duty in primary issue  Has to be mandatorily rated by one of the credit rating agencies  It is issued as per RBI guidelines  It is held in Demat form  CP can be issued in denominations of Rs.5 lakh or multiples thereof.  Can be issued for a maturity for a minimum of 15 days and a maximum upto one year from the date of issue.  Bank and FI’s are prohibited from issuance and underwriting of CP’s. Amount invested by a single investor should not be less than Rs.

Commercial finance companies are important working capital lenders since. they can make higher risk loans. in some regions.Sources of Working Capital for Businesses Commercial banks are the largest financing source for external business debt. they are important small business and commercial real estate lenders. Venture capital firms also finance working capital. and they offer a large range of debt products. Business development corporations (BDCs) are a second alternative source for working capital loans. Government and non-profit revolving loan funds also supply working capital loans. especially permanent working capital to support rapid growth. as nonregulated financial institutions. Trade credit helps address short-term borrowing needs. including working capital loans. placing less emphasis on the firm’s overall balance sheet and financial ratios. Extending payment periods and increasing credit limits with major suppliers is a fast and cost-effective way to finance some working capital needs that can be part of a firm’s overall plan to manage seasonal borrowing needs. Asset-based lending in which a lender carefully evaluates and lends against asset collateral value. and. Savings banks and thrift lenders are increasingly providing small business loans. Commercial banks are multistate institutions that increasingly focus on lending to small business with large borrowing needs that pose limited risks. Trade credit extended by vendors is a fourth alternative for small firms. 37 .

Cash Credits are. ICICI. therefore. Generally Tata Power gets 75% of inventory value as loan amount. Tata Power takes working capital loan from SBI. payable on demand.2. Tata Power uses Cash-Credit facility and prefers it over short-term loan. counter part of demand deposits of the Bank.1 PRACTICES FOLLOWED IN TATA POWER Tata Power uses the Inventory loan option as its financial instrument for working capital loan. 38 . the advantage is that one may repay the entire loan any time as against a short-term loan where one has to pay a penalty for repaying the loan before the stipulated period. Cash-Credit Account is a primary method in which Banks lend money against the security of commodities and debt. in theory. The statutory requirement for using the Cash-Credit facility is that the user of the facility must use at least 60% of the allotted amount.4. IDBI and unsecured loan from HDFC. the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account. The interest rate on Cash-Credit facility is PLR+ where the amount above the PLR varies from bank to bank. Even though the interest rate on Cash-Credit facility is higher than that on short term loan. Tata Power also uses Commercial Paper for its working capital funding. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Under Cash-Credit facility the Bank giving the facility has an obligation to keep the committed amount with them. Kotak Mahindra and Standard Chartered Bank. Instead. These are.

There is likely variation in pressure and supply due to problems from the off-shore end. Tata Power imports all the coal required for generation of electricity from Indonesia. During summers each shipment carries 70000 MT of coal and in monsoon 50000 MT of coal. Overview of Inventory at Tata Power Coal: Coal is the cheapest fuel amongst the three raw materials. Tata Power imports 50% of the total oil requirement from Singapore. It is costliest fuel amongst the three raw materials. Contamination due to foreign elements is at minimum level. 5 days for unloading and 11 days for the vessel to return to Indonesia. particularly in the bottom-most part in the coal yard at the plant premises. oil. The major source for electricity generation is coal. Unit 5 and Unit 8 are coal fired generation plant. 11 days for transportation from Indonesia to India (Mumbai Port Trust). The trombay power plant is ranked 2nd for the safety and eco-friendly standards. Overview of Supply Chain of Raw Materials Supply cycle of coal: For 1 Shipment it takes 5 days for loading.4. The contamination due to foreign particles is likely to happen in coal. 39 .3 INVENTORY MANAGEMENT Major portion of the inventory is made-up by coal. It’s a backup fuel. Daily consumption of coal at Trombay is 9000 MT per day. One cycle takes 32 days. Gas: Gas is cleanest source but the availability is scarce. Oil: Oil is the most safest and stable alternate for coal. gas required for generation of electricity. Tata Power has a Power generation plant at Trombay. This is under ideal conditions.

Restrictions due to inadequate Infrastructure: Mumbai Port Trust has only 2 anchorages. Generally all over the globe the Electricity companies maintain 60 . 4. the raw material is lost. In case of war or other calamities or instability of the nation from where we source the raw material can throw our calculations out of the window. Likely threat of shipment being lost and piracy. 2. This is done by taking into account the safety. MERC guidelines also say to maintain inventory for 60 days. High Lead Time. Gas is utilized depending on the availability. Also during low tide the barge movement is restricted. the Trombay plant is ranked 2nd best in the world. Most of the big vessels keep waiting on the high seas. Indian coal has 35% to 40% ash. the eco-friendly quality coal in the entire world is found in Indonesia only.General problems faced in Supply Chain: 1. Coal inventory is hold for 30 days.90 days of inventory. This restricts the swift movement of loading and unloading. This causes delay in procuring the raw material. 5. Since Environmental norms are adhered strictly. 40 . Singapore government maintains 60 days of inventory. Oil for 20 days and since we can’t store Gas. 3. Political Instability of the source nation (Indonesia from where Tata Power sources coal has politically fragile environment). At Tata Power. Now if the freight market is tight there is likely unavailability of vessels. The reason being. The coal available there is low in sulphur (less than 0. In a way a big risk is being taken by Tata Power to source the entire requirement from only one place. security and reliability factors.2% of sulphur) and low on ash (less than 3% of ash). International Market: Companies enter into a contract with shipping companies fixing the freight charges for a particular route. JIT is automatically followed. Though the shipment is insured. Tata Power sources the entire requirement of coal from Indonesia.

Now when Tata Power is able to maintain the holding period of below 60 days it stands to gain. While calculating Tariff MERC takes into account the holding period of raw materials at 60 days. Thus it is difficult to implement the Economic Order Quantity (EOQ) method for inventory. For cost accounting purpose the average cost method is used which evens out the fluctuations in the coal prices in the international market. Likewise there is no average holding period for Work-In-Progress (WIP) because once the coal or oil is fired. This also acts as source for working capital. it takes 3 to 4 hours to generate steam and it is fed to the turbines and electricity is generated. Method to reduce working capital requirement General Formula Working Capital = [Raw Material Inventory + Work-In-Progress Inventory + Finished Goods Inventory + Debtors + Cash and Bank balance] – [Creditors + Wages + Overheads] Formula applicable for Power Industry Working Capital = [Raw Material Inventory + Debtors + Cash and Bank balance] – [Creditors + Wages + Overheads] 41 . The value of current assets reduces. As there is no holding period for Finished Goods and WIP. Factors Working in favour of Tata Power: As we can’t store Electricity. there is no average holding period for finished goods. The lead time is high.Oil contracts are closed in one month advanced.

Wages: Paying the wages at 15th of every month earns a credit period of 15 days. Tata Power needs to bring down this ratio to 30 days or 45 days. 2. 3. It is now planning to hold the coal inventory for 20 days and oil inventory for 15 days. Debtors: The Days Sales Outstanding (DSO) ratio for 2009 is 80 days. 4. Tata Power can also reduce the Cash and Bank balance to statutory minimum level. Ample amount of raw material will provide safety. Ideally Tata Power must look forward to reduce working capital but without compromising on the Raw material inventory. This will help to reduce the working capital. During winter the demand is lower as compared to summer.Possible ways to reduce the working capital. This means it takes 80 days to realise the sale into cash. Thus fewer units are generated and we save on the working capital. thus the company can ask for extension in credit period. Raw Material: Tata Power holds inventory to for 30 days. Tata Power gets 15 days credit period on coal. 1. security and reliability. 5. 42 . Overheads: The overhead expenses must be reduced by effective cost management. It is very crucial to maintain adequate inventory and follow the internationally followed practice. Working Capital in Tata Power varies according to demand. monsoon and winter may vary for the same inventory holding period. 6. Creditors: Currently Tata Power gets 30 credit period on Oil and 12 days on Gas. In monsoon we hold more inventory not because of demand but due to infrastructure problems associated with shipping industry which causes delay in procurement of raw material. Thus the actual quantity of raw material held in summer. Tata Power is certainly trading a risky path sacrificing safety and reliability. This will certainly reduce the current assets side but as discussed about the problems in supply chain and the generally followed practice over the world.

43 .

44 .

or as benchmarks for performance measurement. Financial ratios involve the comparison of various figures from the financial statements in order to gain information about a company's performance. Internally. that makes financial ratios a useful tool for business managers. and tracking their values over time. such as an increasing average collection period for outstanding receivables or a decline in the firm's liquidity status. managers use ratio analysis to monitor performance and pinpoint strengths and weaknesses from which specific goals. Another common usage of ratios is to make relative performance comparisons. and policy initiatives may be formed. leverage. or red flags regarding noteworthy relationships between variables used to measure the firm's performance in terms of profitability. 45 . or market valuation. For example. Firm’s performance is evaluated using trend analysis—calculating individual ratios on a per-period basis. ratios serve as red flags for troublesome issues. comparing a firm's profitability to that of a major competitor or observing how the firm stacks up versus industry averages enables the user to form judgments concerning key areas such as profitability or management effectiveness. liquidity.1 RATIO ANALYSIS – TATA POWER Financial ratios are one of the most common tools of managerial decision making. clues. Users of financial ratios include parties both internal and external to the firm. asset utilization. It is the interpretation. current and potential investors.5. and o To make comparative judgments regarding firm performance. rather than the calculation. This analysis can be used to spot trends that may be cause for concern. and other industry observers. There are basically two uses of financial ratio analysis: o To track individual firm performance over time. objectives. External users include security analysts. Ratios may serve as indicators. creditors. In this role. competitors.

higher the current ratio.03 693.61 1414. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations.1.e.1.55 18.36 1899. short-term loans.5.94 FY 07 396.97 45. short term notes payable. Generally. accrued income taxes and other accrued expenses (wages). 1 Current Ratio: The Current Ratio expresses the relationship between the firm’s current assets and its current liabilities. Current assets normally include cash. The stronger ratio reflects a numerical superiority of current assets over current liabilities. FY 05 297. greater is the "cushion" between current obligations and the firm's ability to pay them.03 770. If the ratio is too high then it indicates inefficient use of capital as current assets generally have the lowest return. the composition and quality of current assets is a critical factor in the analysis of a firm's liquidity.7 2 29.6 12.5 48.06 463. Failure to do this will result in the total failure of the business. Liquidity Ratio: Liquidity refers to the ability of a firm to meet its short- term financial obligations when and as they fall due. as it would be forced into liquidation. the day that the Balance Sheet was prepared. A current ratio of 2:1 or more is considered satisfactory. Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the liquidity of the company as on a particular day i.2 3 990.87 552.67 FY 06 442.21 979. Crore) Cash & Bank balances (Rs. Crore) Other Current Assets (Rs.14 1587. Crore) Sundry Debtors (Rs. current maturities of long term debt. However. Current liabilities consist of accounts payable.26 1058. accounts receivable and inventories. The number of times that short-term assets can cover short-term debts.42 1478. Crore) Loans & Advances 46 . This ratio is a rough indication of a firm's ability to serve its current obligations. marketable securities.2 2 1367.7 59.53 2355 Inventories (Rs.3 FY 09 644.5 2 28.4 FY 08 473.

59 2973. In 2007 Tata Power Company Limited shows increase in current liabilities by 53.09 4681.59 2 3875.81 4.3 8 706.09% b) Sundry deposits increased by126% in 2007 c) Advance and progress payment increased by 126% as compared to 2006 47 .83% because a) Increase in sundry creditors by 58.14 1419.0 4 731.87 3.5 1 1253.3 The formula: Current Ratio = Total Current Assets/ Total Current Liabilities Current ratio of Tata Power is well above the generally accepted thumb rule of 2:1 for all the Financial Years considered here.7 2 3. Crore) Current Ratio (times) 2535.06 4041.8 7 3. Crore) Total Current Assets (Rs.7 9 1125. The company is in strong position as far as liquidity is considered to meet its short term obligations. Crore) Total Current Liabilities (Rs.(Rs.33 3.

2 2 1367. prepaid and notes receivables available to meet the company's current obligations. Generally.97 45. any value of less than one to one implies a reciprocal dependency on inventory or other current assets to liquidate shortterm debt. The ratio is regarded as an acid test of liquidity for a company. The ratio expresses the degree to which a company's current liabilities are covered by the most liquid current assets. Thus eliminating inventory from current assets and then doing the liquidity test is measured by this ratio. The ratio will be lower than the current ratio. TATA POWER COMPANY LIMITED has blocked high part of funds (i.6 FY 06 1058. Sometimes a company could be carrying heavy inventory as part of its current assets. 2 Quick Ratio: This ratio is obtained by dividing the 'Total Quick Assets' of a company by its 'Total Current Liabilities'. 13% of sales) in sundry debtors because collection period of that company is longer. accounts receivables. Whereas in NTPC has less debtors because of they have good credit policy (their collection period is short). FY 05 693.5 2 28.7 FY 09 1587.d) In current assets the Term deposits with schedule banks as well as deposits under Escro agreement with credit Suisse became nil in 2008 e) Margin Money deposit with a scheduled bank also became nil in 2008. which might be obsolete or slow moving. In current assets.21 979.2 3 990.55 FY 07 1478.e. Crore) 48 .7 2 FY 08 1414. but the difference between the two (the gap) will indicate the extent to which current assets consist of stock. Crore) Cash & Bank balances (Rs. It expresses the true 'working capital' relationship of its cash.5 Sundry Debtors (Rs.

53 2355 2238.94 29.36 1899.81 3645.Other Current Assets(Rs.3 5 706.3 7 1125.84 The formula: Quick Ratio = Total Quick Assets/ Total Current Liabilities Quick Assets = Total Current Assets (minus) Inventory 49 .87 552.8 7 2.7 2 3401.46 3.71 4037 1419.03 770.87 2530.24 2.33 3.3 2 48.67 18.06 463. Crore) Total Current Liabilities (Rs. Crore) Loans & Advances (Rs.9 1253.4 59.16 3.7 8 731. Crore) Total Quick Assets(Rs. Crore) Quick Ratio (times) 12.

serving as warning signals or benchmarks from which meaningful conclusions may be reached on operational issues. The company is in strong position as far as liquidity is considered to meet its short term obligations.81% in 2007 because a) Increase in sundry creditors by 58. 1 Fixed Asset Turnover: The fixed assets turnover ratio measures the efficiency with which the firm has been using its fixed assets to generate sales.2.1.09%. these ratios can provide insight into the success of the firm's credit policy and inventory management. Asset Management Ratio: Asset Management Ratios attempt to measure the firm's success in managing its assets to generate sales. 5. Margin Money deposit with a scheduled bank also got became in 2008. Asset utilization ratios are especially important for internal monitoring concerning performance over multiple periods. b) Sundry deposits increased by 126% in 2007.Quick ratio of Tata Power is well above the generally accepted thumb rule of 1:1 for all the Financial Years considered here. 1) Tata Power Company Limited shows increase in quick liabilities by 53. d) In quick assets (under cash and bank balance) the Term deposits with schedule banks as well as deposits under Escro agreement with credit Suisse got became in 2008. For example. 50 . c) Advance and progress payment increased by 126% as compared to 2006. These ratios are also known as Activity or Turnover Ratios.

8 4 0. high fixed assets turnovers are preferred since they indicate a better efficiency in fixed assets utilisation.86 0.9 9 0.7 4 0.9 1 6481. Crore) Fixed Asset Turnover (times) 4 5465. In the situation we see here.72 FY 06 4562.91 FY 09 7236. it is growing 51 .76 FY 08 5915.81 The formula: Fixed Asset Turnover = Net Sales / Fixed Assets Fixed Asset Turnover ratio improved steadily from financial year 2005 to financial year 2008.Generally.23 8985. Crore) Fixed Assets (Rs. we will always find that whilst the business is growing.3 2 6229.7 1 0.77 FY 07 4715. But it declined in financial year 2009.4 Sales (Rs. FY 05 3930.7 9 5924.

X. Crore) Total Asset Turnover (times) 4 9307.4 Sales (Rs. In its simplest terms. the turnover is Rs.4 7 0.4 3 0. we are just saying that for every Rs. What this means is that whilst the business has invested heavily in new fixed assets. An increasing Total Asset Turnover would be an indication that the firm is using its assets more productively. 2 Total Asset Turnover: This ratio offers managers a measure of how well the firm is utilizing its assets in order to generate sales revenue.46 FY 09 7236.7 9 9631.47 FY 07 4715.32 11429. FY 05 3930.6 5 0.42 FY 06 4562. turnover has not increased enough to reflect the new investments.23 16076.31 0.in such a way that its ratios cannot stay constant.91 12994.41 FY 08 5915.6 7 0. 1 of assets. The asset turnover ratio simply compares the turnover with the assets that the business has used to generate that turnover. Crore) Total Assets (Rs.45 The formula: Total Asset Turnover = Net Sales / Total Assets 52 . Here we have a 22% increase in sales and a 39% increase in fixed assets which means that the fixed asset turnover will get worse.

In the financial year 2006 the turnover increased by 17% whereas Total assets grew by 3% which explains the steep rise. Inventory is an investment. The inventory turnover ratio is used to measure this aspect of performance. and it is important for the firm to strive to maximize its inventory turnover.In the financial year 2009 the turnover increased by 22% but the Total Assets grew by 24% thus the decline is seen. This ratio is obtained by dividing the 'Total Sales' of a company by its 'Total Inventory'. In financial year 2009 the company must have made major investments in its assets that have yet to generate their previous level of sales. In the financial year 2007 the turnover increased by 9% whereas the Total assets grew by 19% because of which there was a steep fall in the ratio. 3 Inventory Turnover: Inventory is an important economic variable for management to monitor since capital invested in inventory have not yet resulted in any return to the firm. The ratio is regarded as a test of Efficiency and indicates the rapidity with which the company is able to move its merchandise. Inventory turnover represents the average number of times per year that inventory "turns 53 .

89 FY 08 5915. bulk purchase to obtain a good price.23 The formula: Inventory Turnover = Net Sales / Inventories 54 . with goods being sold more quickly. Crore) Inventories (Rs.9 1 473.42 11.4 Sales (Rs. Slow inventory turnover may also result from planned seasonal build-ups or from making a large. Slow inventory turnover often coincides with liquidity problems.26 10.23 644.03 13. A higher.3 2 396. more rapid turnover is generally favourable.14 11. Rapid turnover may result from good inventory management. less rapid turnover may indicate overstocking or the presence of obsolescent goods. but it can be a symptom of an inventory shortage as well. Crore) Inventory Turnover (times) 4 297.23 FY 06 4562.over" or that all goods are sold from inventory.61 12.32 FY 07 4715.49 FY 09 7236.7 9 442. A lower. FY 05 3930. since working capital is tied up in inventory.

The shorter the average collection period.49. too low a collection period is not necessarily favourable. The reason for decline is that though sales grew by 22% the inventory increased by 36% thus the ratio reduced as compared to previous year. On the other hand.23 times. The best ratio was achieved in fiscal year 2008 and was 12. 4 Days Sales Outstanding: The average collection period measures the quality of debtors since it indicates the speed of their collection. In the financial year 2009 the company was able to rotate its inventory in sales 11. The average collection period should be compared against the firm’s credit terms and policy to judge its credit and collection efficiency. The delay in collection of cash impairs the firm’s liquidity. the better the quality of debtors. An excessively long collection period implies a very liberal and inefficient credit and collection performance. rather 55 .The inventory turnover ratio is nearly consistent over the years. as a short collection period implies the prompt payment by debtors.

9 1 87 FY 09 1587. Crore) DSO (Days) 693.21 3930. FY 05 Sundry Debtors (Rs.it may indicate a very restrictive credit and collection policy which may curtail sales and hence adversely affect profit.3 2 114 FY 08 1414.23 80 The formula: DSO = Sundry Debtors / (Sales/365) For the financial year 2009 the company takes approximately 80 days to convert its accounts receivables into cash.5 2 5915.4 4 64 FY 06 1058. 56 .97 7236.2 2 4715.2 3 4562.7 9 85 FY 07 1478. This is an improvement over the last 2 years where it was 114 days in fiscal year 2007 and 87 days in fiscal year 2008. Crore) Sales (Rs.

the use of debt financing increases the risk associated with the firm. 5. The commitment to service outstanding debt is a fixed cost to a firm. resulting in decreased flexibility and higher break-even production rates. These are extremely important for potential creditors. Debt Management Ratio: The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt. it can increase the shareholders' return on their investment and often there is tax advantages associated with borrowing. however. Because of this guideline the FAC charges for March will be recovered in May and thus for the financial year ending at March the FAC amount is booked in debtors account leading to rise in debtors account. who are concerned with the firm's ability to generate the cash flow necessary to make interest payments on outstanding debt. MERC while calculating tariff assumes some amount for cost of generation. It is also important for management to monitor the firm's use of debt financing. Therefore.1. Financial leverage is not always bad. Now if the actual amount of cost of generation exceeds the assumed amount then MERC allows Tata Power to recover the difference from customers only after 2 months. these ratios are used extensively by analysts outside the firm to make decisions concerning the provision of new credit or the extension of existing credit arrangements.3. they may also be unable to find new lenders in the future. Managers and creditors must constantly monitor the trade-off between the 57 . This causes the DSO to increase. Thus.The major factor contributing to increase in DSO is the Fuel Adjustment Charges (FAC).

92 5259.08 8037.81 5136.18 3037. 1 Debt Equity Ratio: This ratio indicates the extent to which debt is covered by shareholders’ funds. Leverage ratios provide a means of such monitoring.additional risk that comes with borrowing money and the increased opportunities that the new capital provides.1 1 FY 08 2331.13 533.72 7237.61 48.94 2860. Crore) Share Capital (Rs. The ratio measures how the company is leveraging its debt against the capital employed by its owners.0 9 706.61 42.47 FY 06 946 1809 2755 197.5 1 533.45 533.01 197.0 6 3633.44 7888. If the liabilities exceed the net worth then in that case the creditors have more stake than the shareowners.16 6033. FY 05 Secured Loans (Rs.61 46.61 41. Crore) Unsecured Loans (Rs. Crore) Special Appropriation Towards Project Cost (Rs.49 5198.6 4 FY 07 1354.61 41.71 1266.07 1800. Crore) Reserves & Surplus (Rs.3 2279. Ratio is obtained by dividing the 'Total Liability or Debt ' of a company by its 'Owners Equity / Net Worth'.3 533.92 4782.86 8692.81 5555. Crore) 1059.9 2 FY 09 3931. Crore) Debt (Rs. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds.2 7 220.36 58 . Crore) Equity (Rs.3 6 197.2 221. Crore) Capital Contribution from Consumers (Rs.4 2 533.92 4363.

than the majority of the company's assets is financed using equity. the majority of the company's assets are financed using debt. If the ratio is greater than one. If the ratio is less than one. For financial year 2009 for every Rs. Supporting to it is the excellently maintained Current ratio. This will work in favour of company if it wishes to raise equity from market for its new projects by debt funding. 1 of shareholders equity the company had a debt of 60 paise. 59 . 2 Debt Asset Ratio: The debt/asset ratio shows how great a proportion of a company's assets are financed through debt.Debt Equity Ratio (%) 56 50 60 38 60 The formula: Debt to Equity Ratio = Total Liabilities / Owners Equity or Net Worth The company has very less debt.

36 11429.4 3 23 1266.0 7 1800.06 3633.0 1 9307. Crore) Debt (Rs.Highly leveraged companies have high debt/asset ratios and could be in danger if creditors start to demand increased payment on debt.4 7 32 706. Crore) Debt Asset Ratio (%) FY 05 1059. Secured Loans (Rs.3 FY 08 2331.6 7 30 FY 06 946 FY 07 1354.71 1809 2755 9631.9 4 2860. Crore) Total Assets (Rs.31 32 Debt Asset Ratio = Total Liabilities / Total Assets 60 .6 5 29 2279. The debt/asset ratio equals total liabilities divided by total assets.09 FY 09 3931.18 3037. Crore) Unsecured Loans (Rs.2 16076.49 5198.27 12994.

Crore) Interest (Rs. also known as the EBIT coverage ratio.6 FY 09 1140.76 3.48 61 .94 327. the more financially stable the firm and the greater the safety margin in the case of fluctuations in sales and operating expenses. 3 Times Interest Earned: The times-interest-earned (TIE) ratio.44 189.7 PBIT (Rs.4 4 4.05 FY 07 723.5 3. The formula: Times Interest Earned = EBIT / Interest Charges FY 05 952. This ratio is particularly important for lenders of short-term debt to the firm.For the past five years the debt asset ratio has been consistently below 1 which indicates that the majority of the company's assets are financed using equity.64 141.28 5.86 6. Crore) TIE (times) 2 191. provides a measure of the firm's ability to meet its interest expenses with operating profits. The higher this ratio. since short-term debt is usually paid out of current operating revenue.98 FY 06 835.46 165.81 FY 08 936.

The overall measure of success of a business is the profitability which results from the effective use of its resources. asset management (activity) and debt management (gearing) on operating results. Operating profit margin indicates how effective a 62 . 1 Operating Profit Margin: Operating profit for a certain period divided by revenues for that period. A company should earn profits to survive and grow over a long period of time. 5. The profitability ratios show the combined effects of liquidity. Profitability Ratio: Profitability Ratios show how successful a company is in terms of generating returns or profits on the Investment that it has made in the business.Indicates how many times a company can cover its interest charges on a pretax basis. Company has very sound TIE ratio over the five years considered.1. If a business is liquid and efficient it should also be Profitable.4.

3 2 15 FY 08 936.4 4 24 FY 06 835.8 FY 09 1140. Crore) Sales (Rs. A business that has a higher operating margin than its industry’s average tends to have lower fixed costs and a better gross margin.company is at controlling the costs and expenses associated with their normal business operations. This pricing flexibility provides an added measure of safety during tough economic times.72 3930.7 The formula: Operating Profit Margin = Operating Profit / Sales The operating profit margin over the years has been consistently between 20 % and 26 %. PBIT (Rs. Major portion of operating expenses is constituted by fuel and power purchase costs.94 7236.46 4562.23 15.64 5915. which gives management more flexibility in determining prices. Crore) Operating Profit Margin (%) FY 05 952. Operating profit of Tata Power Company Limited is 63 .44 4715.7 9 18 FY 07 723.9 1 15.

after taking account of the cost of sales. dividends and so on. the selling and distributions costs and all other costs.9 5915. Crore) Profit Margin (%) FY 05 551.1 of turnover a business has earned.8 4715. the administration costs.4 4 14 FY 06 610. Crore) Sales (Rs. PAT (Rs. That is. tax.7 9 13 FY 07 696. 2 Net Profit Margin: The net profit margin ratio tells us the amount of net profit per Rs.36 3930.2 7236. the net profit is the profit that is left.83 % of its sales (where sales are considered 100%) which suggests that operating expenses of Tata Power are high.54 4562.3 2 15 FY 08 869. out of which they will pay interest.9 1 15 FY 09 922.15.23 13 The formula: Net Profit Margin = PAT / Sales 64 .

6 7 6 FY 06 610. It matches operating profits with the assets available to earn a return. which indicates that. 3 Return on Assets: Return on assets (ROA) measures how effectively the firm's assets are used to generate profits net of expenses.9 12994. Crore) ROA (%) The formula: Return on Assets = PAT / Total Assets 65 . This ratio is the key indicator of profitability for a firm.6 5 6.36 9307.4 7 6 FY 08 869. The ratio measures the percentage of profits earned per Rupee of Asset and thus is a measure of efficiency of the company in generating profits on its assets.7 FY 09 922.7 PAT (Rs. This is an extremely useful measure of comparison among firms’ competitive performance.3 FY 07 696. the selling and distributions costs and all other costs to minimum. Return on assets comes from net profit after taxes divided by total assets. Companies efficiently using their assets will have a relatively high return while less well-run businesses will be relatively low.31 5.4 3 6. the company has managed to keep its cost of sales. for it is the job of managers to utilize the assets of the firm to produce profits.2 16076. Crore) Total Assets (Rs.Over the years the Profit Margin ratio has shown a consistent trend. FY 05 551. the administration costs.8 11429.54 9631.

Old and obsolete assets must be replaced with new assets.ROA must improve. 4 Return on Equity: Return on net worth (return on equity) is obtained by dividing net profit after tax by net worth. Regular maintenance of assets should be undertaken. This ratio is used to analyze the ability of the firm’s management to realize an adequate return on the capital 66 .

7 FY 06 610. Tendency is to look increasingly to this ratio as a final criterion of profitability.9 8037.1 1 11. Tata Power being a Generation company and is bound to MERC regulation.9 2 10.6 4 10. Generally.invested by the owners of the firm.36 10. a relationship of at least 10 percent is regarded as a desirable objective for providing dividends plus funds for future growth. Crore) ROE (%) FY 05 551.4 7 10.8 FY 09 922.36 5136.8 6033.6 The formula: Return on Equity = PAT / Equity In the past five financial years the company has obtained more than 10% returns on the capital invested.54 5555.5 FY 08 869. PAT (Rs.9 FY 07 696. 67 .2 8692. Crore) Equity (Rs. under MERC regulation the ROE is capped to 14%.

31 20994553 8 38. The figure is important because it allows analysts to value the stock based on the price to earnings ratio (or P/E ratio for short).02 FY 06 575.97 19812817 2 34. Earnings per share (EPS) tells an investor how much of the company's profit belongs to each share of stock.5 221427866 43. Market Value Ratio: Market Value Ratios relate an observable market value.) 555.09 198128172 28.03 FY 07 673.64 FY 09 967.5.25 198128172 29.69 68 .1. 1 Earnings per Share: Earnings Per Share is the Net Income (profit) of a company divided by the number of outstanding shares.02 FY 08 811. Crore) Average Outstanding Shares EPS (Rs. to book values obtained from the firm's financial statements. Earnings per Share are the single most popular variable in dictating a share's price.5. FY 05 PAT (Distributable) (Rs. EPS indicates the profitability of a company. the stock price.

69 .EPS has been steadily rising from 2005 to till date which indicates that the company is making fairly good amount of profits.

prices are determined by India's Electricity Act. Forbes Global 2000’ ranking of the World’s biggest companies. Today. NTPC ranked 317th in the ‘2009. distribute. and transmit electricity.5. which generates almost 29% of India's power supply.240 MW and feed distribution grids throughout India. NTPC's core business is engineering. 70 .5% of its equity. The Andhra Valley Power Supply Co and The Tata Hydro-Electric Power Co Ltd merged with Tata Power. NTPC has embarked on plans to become a 75. India's largest power company. It is an Indian public sector company listed on the Bombay Stock Exchange although at present the Government of India holds 89. The company's plants (including joint ventures) have a combined capacity of more than 30.644 MW. Tata Power’s core business is to generate. construction and operation of power generating plants and providing consultancy to power utilities in India and abroad. In 2000. it has emerged as an ‘Integrated Power Major’. With a current generating capacity of 30.2 COMPANY COMPARISON NTPC NTPC (Formerly National Thermal Power Corporation). Tata Power The Tata Power Company Ltd (Tata Power) was incorporated in 1919. State-run NTPC. was set up in 1975 to accelerate power development in India. with a significant presence in the entire value chain of power generation business.000 MW company by 2017. has 22 coal and gas-fired power plants and interests in four more through its SAIL Power Supply joint venture.

Karnataka and a wind farm at Ahmednagar. Jharkhand. Karnataka.Tata Power is engaged in generation. Maharashtra. Bhivpuri. Mumbai and Jojobera. It has an independent power plant at Belgaum. distribution. It has three hydro power plants at Bhira. and Jharkhand. and transmission of power. operating in Maharashtra. and Khopoli in Maharahstra. 71 . The company has a thermal power station at Trombay.

09 4.6 Both the companies have a very healthy current ratio and they are in a financially sound position to meet their short term obligations.59 4.59 FY 07 3.COMPANY COMPARISON 5.17 FY 08 3.47 FY 06 4. 72 .06 3. Liquidity Ratios: 1 Current Ratio: Company Name Tata Power NTPC FY 05 3.

2) At the same time in 2007 Tata Power Company Limited shows increase in current liabilities by 53. 13% of sales) in sundry debtors because collection period of that company is longer.09% b) Sundry deposits increased by126% in 2007 c) Advance and progress payment increased by 126% as compared to 2006 d) In current assets the Term deposits with schedule banks as well as deposits under Escro agreement with credit Suisse became nil in 2008 e) Margin Money deposit with a scheduled bank also became nil in 2008.07%.54% Short term solvency of NTPC is good. It means NTPC is good in meeting their short term debts. h) But loans and advances decreased by 86.51% as well as increase in current account by 453%.1) The current ratio of NTPC shows improvement because current assets are increased in 2007 by 41. NTPC has adequate working capital.83% because a) Increase in sundry creditors by 58. because f) sundry debtors increased by 44. 73 .e.31% g) cash and bank balance increased by 51. But this is also signifies the NTPC has blocked a high part of funds in Working Capital.17% due to increase in Term Deposit by 51. Whereas in NTPC has less debtors because of they have good credit policy (their collection period is short). 3) In current assets of Tata Power Company Limited has blocked high part of funds (i.

46 2.16 2. 74 .2 Quick Ratio: Company Name Tata Power NTPC FY 05 3.13 FY 06 3.24 3.12 Both the companies have a very healthy quick ratio and they are in a financially sound position to meet their short term obligations.01 FY 08 2.73 FY 07 3.71 4.

2) The quick ratio of NTPC shows improvement because quick assets is increased in 2008 by 42. c) But loans and advances decreased by 890% in 2008 3) at the same time Tata Power Company Limited shows increase in quick liabilities by 53.51% as well as increase in current account by 453%. 75 .17% in 2007 due to increase in Term Deposit by 51.09% b) Sundry deposits increased by 126% in 2007 c) Advance and progress payment increased by 126% as compared to 2006 d) In quick assets (under cash and bank balance) the Term deposits with schedule banks as well as deposits under Escro agreement with credit Suisse got became in 2008 e) Margin Money deposit with a scheduled bank also got became in 2008.67% because a) sundry debtors increased by 138% b) cash and bank balance increased by 51.81% in 2007 because a) increase in sundry creditors by 58.

2.5.2. Asset Management Ratios: 1 Inventory Turnover Ratio: 76 .

Company Name Tata Power NTPC

FY 05 13.23 13.01

FY 06 10.32 11.17

FY 07 11.89 13

FY 08 12.49 13.86

1. NTPC leads Tata Power in Inventory Turnover ratio which means that NTPC’s

inventory turns over more times than that of Tata Power.
2. It indicates that 13 times NTPC can replace its inventory or NTPC has 13 times

cycling of inventory during the 2008. It means NTPC are more efficient in inventory management.
3. But it also signifies that NTPC has lower level of inventory (3% of sales) as

compare to TCS which invites problems of frequency stock outs and loss of sales and customer goodwill. At the same time Tata Power Company Limited has good volume of inventory.



Days Sales Outstanding:

Company Name Tata Power (days) NTPC (days)

FY 05 64 22

FY 06 85 12

FY 07 114 14

FY 08 87 29

1) Days sales outstanding of NTPC is much better than Tata Power which indicates that they have an effective credit policy as compared to the credit policy of Tata Power. 2) The debtors’ collection period is 29 days for NTPC while it is 87 days for Tata Power Company this shows NTPC has good credit policy which helps to have a low working capital. It means Receivable cycle of Tata Power is longer. 3) The longer period of Tata Power indicates leniency of the credit policy or slackness of collection machinery.



Major portion of operating expenses is constituted by fuel and power purchase costs. Operating profit of Tata Power Company Limited is 15.3.14% of its respective sales (where sales is considered 100%) 80 .1 High operating profit margin of NTPC indicates profitability of entire business after meeting all operating costs including direct and indirect costs of administrative and distribution expenses.8 FY 06 18. Profitability Ratios: 1 Operating Profit Margin: Company Name Tata Power (%) NTPC (%) FY 05 24.2. The low operating profit margin of Tata Power indicates higher operating costs.9 FY 08 15.8 31.83 % of its sales (where sales is considered 100%) and that of NTPC is 31.5.3 28.7 FY 07 15.2 31.3 30.

Net Profit margin will always be lower than Operating profit margin.7 20 NTPC clearly leads Tata Power here but the trend is a declining one as compared to Tata Powers which is consistent straight line with slight increase. 2 Net Profit Margin: Company Name Tata Power (%) NTPC (%) FY 05 14 25 FY 06 13.4 22 FY 07 14.which suggests that operating expenses of Tata Power Company Limited are higher than that of NTPC.7 21 FY 08 14. 81 .

3 Return on Assets: Company Name Tata Power (%) NTPC (%) FY 05 6 8.5 FY 08 6.1 FY 07 6 8.8 FY 06 6.7 8 NTPC has higher ROA than Tata Power which means it generating profits on its assets more efficiently than Tata Power.3 8. 82 .

4 Return on Equity: Company Name Tata Power (%) FY 05 10.7 FY 06 10.9 FY 07 11.8 83 .5 FY 08 10.

000 Crore and the Issued. ROE is regulated by MERC and for Generation Company it is capped to 14%.4.2.245. 529 Crore and the Issued. Subscribed and Paid-up capital was Rs. 8.72 Crore. 10.NTPC (%) 13. Debt Management: 1 Debt Equity Ratio: 84 . 220. For the year 2008 the authorised capital of NTPC was Rs. 5. For Tata Power Company Limited the authorised capital for the same period was Rs.9 14. Subscribed and Paid-up capital was Rs.9 12.1 14.1 NTPC leads Tata Power in ROE but both the companies are having ROE well above the generally accepted rule of having at least 10% ROE.5 Crore.

2 Times Interest Earned: 85 .Company Name Tata Power (%) NTPC (%) FY 05 56 41 FY 06 50 45 FY 07 60 50 FY 08 38 52 Both Tata Power and NTPC have Debt Equity ratio below 1. thus Tata Power Company Limited can fund their projects by way of debt financing. Both companies have current ratio above the generally accepted norm. The ideal debt equity ratio is 2:1. Thus both the companies are having good financial status and can easily raise capital via debt funding.

35 FY 06 5.60 6. thus they can easily make the interest payments and the lender need not worry of defaulting. For financial year 2008 both the companies have nearly 6 times the interest amount.98 4.81 5.05 4.43 FY 08 6. 86 .Company Name Tata Power NTPC FY 05 4.26 FY 07 3.43 Amount available to cover the interest payment as and when they are due is Times Interest Earned.

87 .3 Debt Asset Ratio: Company Name Tata Power (%) NTPC (%) FY 05 31 26 FY 06 29 28 FY 07 32 30 FY 08 23 30 For both the companies the ratio is less than 1 which indicates that in both the companies the assets are equity funded.

LIMITATIONS Working capital and Analysis of Financial Statements is powerful tool of determining company’s strength and weakness.  As working capital is prepared on the basis of going concern. But the analysis is based on the information available in the financial statements. it does not give extract position.  Working capital study is only based upon monetary information and nonmonetary factors are ignored. 88 .  Due to non availability of annual report of 2009 we could not compare NTPC and Tata Power. Different people may interpret the same analysis in different ways.  It does not consider change in price level.  Analysis is only a mean and not an end in itself. which are as follows:  It is only a study of interim report. Thus accounting concept and conventions causes a serious limitation to financial analysis.

89 .

As stipulated by MERC the ROE for generation is 14%. This might help to control the operating expenses. • Efforts are needed to be taken to increase the operating profit and the net profit by reducing operating expenses.RECOMMENDATIONS AND SUGGESTIONS • Tata Power Company Limited can match the gigantic NTPC if it undertakes certain measures to utilize the resources in an optimum manner. • With a healthy current ratio and quick ratio. for Transmission is 14% and for Distribution is 16%. replacing the old obsolete assets with new assets will facilitate optimum utilization. Thus Tata Power is bound to this rule. Considering the Liquidity part. the debt equity ratio can be raised up to the generally accepted norms and all the upcoming projects can be debt funded. A large part of its working capital is blocked by debtors. • Efforts must be taken to use the assets in optimum way to get better returns. • Efforts must be taken to improve ROE. Regular maintenance. both the companies have the current and the quick ratios well above the generally accepted norm. 90 . Also the funding of assets can be done by debt financing. • • Under Asset Management. But ROE is regulated by MERC. Tata Power needs to revise its credit policy and improve its collection mechanism. Tata Power needs to improve the day’s sales outstanding ratio. Hedging can be tried as an option against rising fuel price. Both are financially stable to meet the short term obligations.

91 .

Amit Kundu Head of Accounts Department. 92 .CONCLUSION Summarizing the overall project work done during these 2 months. I learned how to interpret working capital and ratio analysis with the help of guidance given by Mr. I got an opportunity to communicate with entire staff of Finance department as well as MIS department. it can be said that the project was a good learning experience. There were lot of difficulties in the beginning of the project but slowly it got the grip on the road towards future. I also got the opportunity to learn about inventory management at the same time problems faced by the Tata Power Company. Through it. The entire staff of finance department was very cooperative and they helped me in all the phases of my project. These two months has given me an opportunity to conceptualize and implement a new initiative.

93 .

indexmundi.asp http://www.moneycontrol.com www.capitalmarket.com/india/stockpricequote/powergenerationdistribution /tatapowercompany/15/05/balancesheet/marketprice/TPC http://www.pdf • • ARTICLES & MAGAZINES • • http://www.php?entry=entry090108-234052 http://www.in www.ch/htmlgb/blog/index.org.topnews.investopedia.energywatch.in WEB PAGES: • • • • • • http://www.sebi.html http://www.com www.com/accounting-reporting/reports-statementscash/391085-1.allbusiness.in/business-news/power-sector.com www.org/Attachment/Investment%20opportunities%20in%20Power %20Sector.tatapower.gov.com www.com/India/electricity_production.ntpc.investopedia.ibef.com/investor-relations/pdf/Financial-statistics-2008-09.com/terms/b/balancesheet.com www.pdf http://www.allbusiness.indexmundi.html http://www.in/dp/ntpc.html http://www.excelsia.moneycontrol.pdf Annual Report of Tata power Company 94 .BIBLIOGRAPHY WEBSITES: • • • • • • • www.co.

Thapa (2005).cs. http://www. Vol – 37 (1).“Indian Power Sector – Emerging Challenges to Growth”. pp: 173-181. A.edu/~achal/IndianPowerSector. Elsevier . R (2004).utexas.com/Markets/Energy/doc_files/indian-power-sector. pp: 1-5. • http://www.• Annual Report of NTPC LITERATURE REFERENCE: • • • • • Brigam and Houston – Financial management Prasanna Chandra – Financial Management Augustine . “Modeling Indian Power Sector”.Article in Press.pdf Banerjee. www.org/Policy/COP/India/Banerejee_Energy%20Policy%20(in %20press). 6th June. “Comparison of options for distributed generation in India”.icfi.pdf • Kumar. pp: 1-11.pdf • 95 . Journal of Energy Policy. Khetan & B.A(2007). 2004. S.whrc. Reprinted from World Power.

96 .

Excel Sheet Calculations for Company Comparison Liquidity Ratios Current Ratio TPC Inventories Sundry Debtors Cash & Bank balances Other Current Assets Loans & Advances Total Current Assets Total Current Liabilities Current Ratio NTPC Inventories Sundry Debtors Cash & Bank balances Other Current Assets Loans & Advances Total Current Assets Total Current Liabilities Current Ratio FY 05 (Rs.1 3028.8 4035.8 8471.51 1253. crores) 473.87 552. crores) 2675.03 770.87 3.22 1367.59 FY 05 (Rs. crores) 396.2 3.4 4041.5 867.7 5323.6 12.79 1125.59 FY 07 (Rs.4 1016.55 18.2 921.8 5548.7 2982.2 1252.9 1374.7 15724.6 5230.72 29.5 4910.81 4.09 FY 08 (Rs. crores) 442.3 976.42 1478.7 59.67 2535.7 6078.06 463.61 1414. crores) 1781.52 28.47 FY 06 (Rs.5 4.4 2699.21 979.3 4.26 1058.6 2.38 706.94 2973.23 990.87 3.6 22182.03 693.3 12910.6 1058.72 3. crores) 2340.36 1899.17 FY 08 (Rs.04 731. crores) 297.3 13314.4 25548.06 FY 06 (Rs.0 4047.2 FY 07 (Rs.7 14933.6 Quick Ratio 97 . crores) 2510.32 3875.

55 18.32 3401.72 29.52 28.94 2530.3 4.2 921.23 990.9 1253.22 1367.TPC Sundry Debtors Cash & Bank balances Other Current Assets Loans & Advances Total Quick Assets Total Current Liabilities Quick Ratio NTPC Sundry Debtors Cash & Bank balances Other Current Assets Loans & Advances Total Quick Assets Total Current Liabilities Quick Ratio FY 05 (Rs.37 1125.2 2.03 770.46 FY 06 (Rs.3 13314.21 979.35 706.36 1899.3 11128. crores) 1252.16 FY 05 (Rs.87 3.6 19672. crores) 1374.12 Asset Management Ratios Inventory Turnover 98 .4 22873. crores) 2982.6 2.06 463.4 1016.81 3.3 976. crores) 1414. crores) 1478. crores) 867.67 2238.7 14933.1 5548.7 13384 4910.7 6078.87 2.87 552.8 8471.73 FY 07 (Rs.4 3645.1 3028.6 12.7 59.71 FY 08 (Rs.24 FY 07 (Rs.0 4047.4 2699.72 3.01 FY 08 (Rs. crores) 693.5 5323. crores) 1058.78 731.7 5230.6 1058.13 FY 06 (Rs.8 4035.5 3.

49 FY 08 (Rs. crores) 1414.5 1781.8 2510.2 12 FY 07 (Rs.26 10. crores) 3930.91 87 FY 08 (Rs.3 32635.79 442. crores) 5915.79 85 FY 06 (Rs.42 11. crores) 2982.5 11. crores) 23188. crores) 1478. crores) 1252.21 3930. crores) 4715.61 12.44 64 FY 05 (Rs.91 473.TPC Sales Inventories Inventory Turnover NTPC Sales Inventories Inventory Turnover Days Sales Outstanding TPC Sundry Debtors Sales DSO (Days) NTPC Sundry Debtors Sales DSO (Days) FY 05 (Rs.01 FY 06 (Rs.7 23188. crores) 37097.44 297. crores) 32635.32 114 FY 07 (Rs. crores) 693.32 FY 06 (Rs.4 29 Profitability Ratios Operating Profit Margin 99 .9 13. crores) 4562.8 14 FY 08 (Rs.32 396.8 26145.86 FY 05 (Rs.52 5915.89 FY 07 (Rs.4 2675.23 4562. crores) 26145.7 37097.5 22 FY 06 (Rs. crores) 867. crores) 1058.03 13.2 2340.2 13 FY 08 (Rs.23 FY 05 (Rs. crores) 1374.17 FY 07 (Rs.7 13.22 4715.

crores) 7376.2 22 FY 07 (Rs.TPC PBIT Sales Operating Profit Margin (%) NTPC PBIT Sales Operating Profit Margin (%) Net Profit Margin TPC PAT Sales Profit Margin (%) NTPC PAT Sales Profit Margin (%) FY 05 (Rs.8 21 FY 08 (Rs.8 37097. crores) 5807 23188.5 31.8 4715. crores) 869.1 FY 05 (Rs.91 15. crores) 7510 26145. crores) 10097.5 25 FY 06 (Rs.9 FY 08 (Rs. crores) 952.44 24 FY 05 (Rs.2 26145.64 5915. crores) 936.44 14 FY 05 (Rs.32 15 FY 07 (Rs.79 13 FY 06 (Rs.8 FY 08 (Rs.8 32635.91 15 FY 08 (Rs. crores) 7414.7 32635.79 18 FY 06 (Rs.5 23188.9 5915.54 4562.72 3930.46 4562.7 FY 07 (Rs.8 FY 06 (Rs.36 3930.8 30.8 37097. crores) 6864. crores) 610. crores) 551. crores) FY 07 (Rs. crores) FY 06 (Rs. crores) 11552. crores) 5820. crores) 835. crores) FY 08 (Rs. crores) 723. crores) 696.4 20 Return on Assets TPC FY 05 (Rs.2 28.44 4715. crores) 100 .4 31.32 15 FY 07 (Rs.

7 12.8 11429.1 8.54 5555.43 6.65 6.9 12994. crores) 696. crores) 7414. crores) 5807 41776.2 44958.64 10.47 6 FY 07 (Rs.1 FY 08 (Rs. crores) 6864.7 48596.92 10. crores) 610. crores) 5807 65948. crores) 5820. crores) 869.67 6 FY 05 (Rs.8 6033.7 FY 05 (Rs. crores) 5820.8 14.36 5136. crores) 551.7 80768.1 Debt Management Ratios Debt Equity Ratio TPC FY 05 FY 06 FY 07 FY 08 101 . crores) 6864.36 9307.5 FY 07 (Rs.2 71737.0 8 FY 05 (Rs.9 FY 06 (Rs.1 696.1 13.11 11.7 FY 08 (Rs.8 89388.47 10.8 FY 08 (Rs.3 FY 06 (Rs.9 FY 06 (Rs.PAT Total Assets ROA (%) NTPC PAT Total Assets ROA (%) Return on Equity TPC PAT Equity ROE (%) NTPC PAT Equity ROE (%) 551.9 FY 07 (Rs.5 869. crores) 7414.54 9631.8 610.9 8037.8 52638.6 14.3 8.8 8.

6 8245.51 533.61 42.7 45 (Rs.72 191.47 56 FY 05 (Rs.8 41776.28 5.9 17661.7 14464.36 197.4 8245.44 189.3 8245.92 5259.72 7237.81 5136.06 3633.8 1859.2 44958.8 1798.94 2860.05 FY 06 (Rs.5 36713.5 4. crores) 5732.43 Debt Asset Ratio TPC Secured Loans Unsecured Loans FY 05 (Rs. crores) 4440.4 5. crores) 11552. crores) 1354.5 1695.5 40351. crores) 1059.86 6.42 533.Secured Loans Unsecured Loans Debt Share Capital Reserves & Surplus Special Appropriation Towards Project Cost Capital Contribution from Consumers Equity Debt Equity Ratio (%) NTPC Secured Loans Unsecured Loans Debt Share Capital Reserves & Surplus Equity Debt Equity Ratio (%) Times Interest Earned TPC PBIT Interest TIE NTPC PBIT Interest TIE FY 05 (Rs.3 533.92 4363.7 19875.1 17087. crores) 1354.07 1800.6 FY 08 (Rs.01 197.61 41.5 44393. crores) 1059.9 27190.94 FY 06 (Rs.64 141.92 38 FY 08 (Rs.6 20197.44 4.26 FY 07 (Rs. crores) 7314.3 2279. crores) 7376.07 1800.8 50 (Rs. crores) 2331.46 165.3 48596. crores) 2331.64 50 FY 06 (Rs.3 2279.61 46. crores) 946 1809 2755 197.81 FY 07 (Rs. crores) 723.6 52 FY 06 (Rs.06 FY 08 (Rs. crores) 952.18 102 .1 52638. crores) 946 1809 FY 07 (Rs.11 60 FY 07 (Rs. crores) 936.13 533.7 12647.18 3037.8 8245.27 220.61 41. crores) 6822.09 706.43 FY 08 (Rs.98 FY 05 (Rs.5 3. crores) 7510 1763.92 4782.16 6033.3 41 (Rs.1 6.5 33530.35 (Rs.2 4.81 5555.08 8037.5 24484.09 706. crores) 835. crores) 10097.

4 80768.28 3633.26 2755 9631.9 27190. crores) 5732.65 0.29 FY 06 (Rs.01 9307.32 FY 07 (Rs.3 0. crores) 4440.Debt Total Assets Debt Asset Ratio (%) NTPC Secured Loans Unsecured Loans Debt Total Assets Debt Asset Ratio (%) 2860.43 0.8 0.5 24484.7 14464.67 0.6 89388. crores) 6822.30 3037.6 20197.3 71737.27 12994.36 11429.9 17661.23 FY 08 (Rs.1 17087.8 65948.3 FY 05 (Rs. crores) 7314.30 103 .7 19875.47 0.1 0.0 0.7 12647.

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