8/6/2019 charan - 1

1/54

INTRODUCTION

Accounting is the process of identifying, measuring and communication economic

information to present informed judgment and decision by users of the information. It

involves recording, classifying and summarizing various business transactions. The end

products of business transaction are the financial statements comprising primarily the

position statement or the balance sheet and outcome of the summarizing process of

accounting and are therefore the sources of information on the basis of which conclusions are

drawn about the profitability and the financial position of the concern.

Financial Statements are the basis of decision making by the management as well as the

outsiders who are interested in the affairs of the firm such investors, creditors, customers and

general public. The analysis and interpretation of financial statements depend upon the nature

and type of information available in these statements of the business enterprise.

The analysis of financial statements is a process of evaluating the relationship between

component parts of financial statements to obtain a better understanding of the firms position

and performance.

The big organization of NTPC to analysis the financial position of the organization in last

five years it in growth stage and improvement of financial position in year to year to taken

analysis to overall organization thats we using the financial statement analysis it give overall

position of company in last five years.

NEED FOR THE STUDY

Financial statements are the instruments to watch the performance of a business enterprise.

They highlight a managerial performance attesting managerial success or failure and the

flashing signals of impending difficulties. Ratio analysis as technique of analysing the

financial information contained in the balance sheet and profit and loss account for

meaningful understanding of the financial position and performance of firm.

In financial analysis a ratio is used as the index or yardstick for evaluating the financial

position and performance of a firm. The analysis is very useful for both the inside and outside

groups. They are interested in the results and relationships reported in the financialattachments.

1 | P a g e

8/6/2019 charan - 1

2/54

The analysis helps to make a qualitative judgement about the financial position and

performance. The ratio indicates a quantitative relationship, which can in turn be used to

make a qualitative judgement. It estimates the efficiency of enterprise and also compares an

enterprise with other similar undertakings. A comprehensive study of the performance of an

enterprise is possible through ratio. They help an analyst to find out liquidity, profitability,

leverage and efficiency. Since the photon energy systems limited is also expected to thrive on

its own performance, it is necessary to know with what efficiency it is working right now. So

that remedial measures can be suggested.

OBJECTIVES OF STUDY

The following are some of the obligations that are set for the study that was conducted on the

area of ratio analysis.

a. To find out the ability of firm to meet its current obligations.

b. To examine the solvency of the firm.

c. To assess the profitability position of the society.

d. The overall operating efficiency and performance of a firm.

e. To find out the financial position of the company through ratio analysis.

f. To evaluate the liquidity management through the ratios.

g. To see whether the firm has maintained adequate investment in current assets or not.

h. To analyse the financial position of the firm.

i. To compare the yearly performance of the various ratios.

j. To promote organizational benefits to a maximum standard.

SCOPE OF STUDY

As a tool of financial analysis, the ratios are of crucial significance. The importance of

ratio analysis lies in fact that it presents facts on a comparative basis. Ratios are used in

2 | P a g e

8/6/2019 charan - 1

3/54

credit analysis to judge the firms liquidity or debt paying ability, which is very useful to

creditors. In security analysis it is used to analyse the long-term profitability. The

financial analysis can be done through various techniques like ratios, funds flow and cost

volume profit relations; this study focuses only on the ratio analysis.

METHODOLOGY

The period selected for the study is five years from 2005-2006 to 2009-2010. The

Methodology adopted for this study includes both primary data and secondary data.

More than this, personal interviews are conducted with the finance manager and other

officials to elicit the necessary information. Interviews are very effective and they have

provided needed information particularly to complete this report discussions are held to

verify the data obtained from secondary sources.

PRIMARY DATA

Primary data will be through regular interaction with the officials of National Thermal

Power Corporation (Ramagundam Super Thermal Power Station). Ratio relationships will

be established basing on the theoretical available from the Finance Text Books.

SECONDARY DATA

A. Annual reports of the company from 2005-2006 to 2009-2010.

B. Financial statements of the company.

C. Collecting the relevant information for the standard textbooks and financial

magazines.

D. Required information is collected from lecturers, friends and internet.

LIMITATIONS OF THE STUDY

1. Change in price level from year to year.

3 | P a g e

8/6/2019 charan - 1

4/54

2. Working only with significant ratios.

3. The ratios are compared with the industry averages and only significant accounting

ratios are compared.

4. This study confined to five years which is from 2005-2006 to 2009-2010 only which

is related to quantitative information base.

5. The study is only for a period of two months; due to cost and time constraint this

study has been minimized to ratios management only.

The study is confined to changes in current assets and current liabilities only and is to be

compared with previous years to show the improvement in maintenance of current assets.

Overview of Organization

4 | P a g e

8/6/2019 charan - 1

5/54

Indias largest power company, NTPC was set up in 1975 to accelerate power development in

India. NTPC is emerging as a diversified power major with presence in the entire value chain

of the power generation business. Apart from power generation, which is the mainstay of the

company, NTPC has already ventured into consultancy, power trading, ash utilisation and

coal mining. NTPC ranked 341st in the 2010, Forbes Global 2000 ranking of the Worlds

biggest companies.NTPC became a Maharatna company in May, 2010, one of the only four

companies to be awarded this status.

The total installed capacity of the company is 34,194 MW (including JVs) with 15 coal based

and 7 gas based stations, located across the country. In addition under JVs, 5 stations are coal

based & another station uses naphtha/LNG as fuel. The company has set a target to have an

installed power generating capacity of 1, 28,000 MW by the year 2032. The capacity will

have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear and 17%

Renewable Energy Sources(RES) including hydro. By 2032, non fossil fuel based generation

capacity shall make up nearly 28% of NTPCs portfolio.

NTPC has been operating its plants at high efficiency levels. Although the company has

17.75% of the total national capacity, it contributes 27.40% of total power generation due to

its focus on high efficiency.

5 | P a g e

8/6/2019 charan - 1

6/54

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as

fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed

company in November 2004 with the Government holding 89.5% of the equity share capital.

In February 2010, the Shareholding of Government of India was reduced from 89.5% to

84.5% through Further Public Offer. The rest is held by Institutional Investors and the Public.

6 | P a g e

8/6/2019 charan - 1

7/54

At NTPC,People before Plant Load Factoris the mantra that guides all HR related policies.

NTPC has been awarded No.1, Best Workplace in India among large organisations and the

best PSU for the year 2010, by the Great Places to Work Institute, India Chapter in

collaboration with The Economic Times.

The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture.

Through its expansive CSR initiatives, NTPC strives to develop mutual trust with thecommunities that surround its power stations.

Diversified Growth

As per new corporate plan, NTPC plans to become a 75 GW company by the year 2017 and

envisages to have an installed capacity of 128 GW by the year 2032 with a well diversified

fuel mix comprising 56% coal, 16% gas, 11% nuclear energy, 9% renewable energy and 8%

hydro power based capacity.

As such, by the year 2032, 28% of NTPCs installed generating capacity will be based on

carbon free energy sources. Further, the coal based capacity will increasingly be based on

high-efficient-low-emission technologies such as Super-critical and Ultra-Super-critical.

Along with this growth, NTPC will utilize a strategic mix of options to ensure fuel security for

its fleet of power stations.

Looking at the opportunities coming its way, due to changes in the business environment,

NTPC made changes in its strategy and diversified in the business adjacencies along the

7 | P a g e

http://www.ntpc.co.in/index.php?view=article&catid=1:latest-news&id=69:diversified-growth&tmpl=component&print=1&layout=default&page=&option=com_content&Itemid=116&lang=en

8/6/2019 charan - 1

8/54

energy value chain. In its pursuit of diversification NTPC has developed strategic alliances

and joint ventures with leading national and international companies. NTPC has also made

long strides in developing its Ash Utilization business.

Hydro Power: In order to give impetus to hydro power growth in the country and to

have a balanced portfolio of power generation, NTPC entered hydro power business

with the 800 MW Koldam hydro projects in Himachal Pradesh. Two more projects

have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro

Ltd., is setting up hydro projects of capacities up to 250 MW.

Renewable Energy: In order to broad base its fuel mix NTPC has plan of capacity

addition of about 1,000 MW through renewable resources by 2017.

Nuclear Power: A Joint Venture Company "Anushakti Vidyut Nigam Ltd." has been

formed (with 51% stake of NPCIL and 49% stake of NTPC) for development of

nuclear power projects in the country.

Coal Mining: In a major backward integration move to create fuel security, NTPC has

ventured into coal mining business with an aim to meet about 20% of its coal

requirement from its captive mines by 2017. The Government of India has so far

allotted 7 coal blocks to NTPC, including 2 blocks to be developed through joint

venture route.

Power Trading: 'NTPC Vidyut Vyapar Nigam Ltd.' (NVVN), a wholly owned

subsidiary was created for trading power leading to optimal utilization of NTPCs

assets. It is the second largest power trading company in the country. In order to

facilitate power trading in the country, National Power Exchange Ltd., a JV of

NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange.

Ash Business: NTPC has focused on the utilization of ash generated by its powerstations to convert the challenge of ash disposal into an opportunity. Ash is being used

as a raw material input by cement companies and brick manufacturers. NVVN is

engaged in the business of Fly Ash export and sale to domestic customers. Joint

ventures with cement companies are being planned to set up cement grinding units in

the vicinity of NTPC stations.

Power Distribution: NTPC Electric Supply Company Ltd. (NESCL), a wholly

owned subsidiary of NTPC, was set up for distribution of power. NESCL is activelyengaged in Rajiv Gandhi Gramin Vidyutikaran Yojana programme for rural

8 | P a g e

8/6/2019 charan - 1

9/54

electrification.

Equipment Manufacturing: Enormous growth in power sector necessitates

augmentation of power equipment manufacturing capacity. NTPC has formed JVs

with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC

has also acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for

manufacturing and repair of transformers.

FUTURE CAPACITY ADDITIONS

NTPC has formulated a long term Corporate Plan up to 2017. In line with the Corporate Plan,

the capacity addition under implementation stage is presented below:

PROJECT STATE MW

Coal

1. NCTPP II ( 2 x 490) Uttar Pradesh98

0

2 Korba III ( 1 x 500) Chhattisgarh

50

0

3 Sipat I (3 x 660) Chhattisgarh198

0

4. Farakka III ( 1 x 500) West Bengal50

0

5.Indira Gandhi STPP- JV with IPGCL & HPGCL ( 3 x

500)

Haryana150

0

9 | P a g e

8/6/2019 charan - 1

10/54

6. Simhadri II ( 2 x 500)Andhra

Pradesh

100

0

7. Vallur I -JV with TNEB ( 2 x 500) Tamilnadu100

0

8. Vallur Stage-I Phase-II -JV with TNEB ( 1 x 500) Tamilnadu 500

9. Bongaigaon(3 x 250) Assam 750

10

.Mauda ( 2 x 500) Maharashtra

100

0

11

.Rihand III(2X500) Uttar Pradesh

100

0

12

.Vindhyachal-IV (2X500)

Madhya

Pradesh

100

0

13

.Nabinagar TPP-JV with Railways (4 x 250) Bihar

100

0

14

.Barh II (2 X 660) Bihar

132

0

15

.Barh I (3 X 660) Bihar

198

0

Hydro

1. Koldam HEPP ( 4 x 200)Himachal

Pradesh800

2. Loharinag Pala HEPP ( 4x 150) Uttarakhand 600

3.Tapovan Vishnu gad HEPP (4 x

130)Uttarakhand 520

Total1793

0

NTPC Electric Supply Company Ltd. (NESCL)

10 | P a g e

8/6/2019 charan - 1

11/54

The company was formed on August 21, 2002. It is a wholly owned subsidiary company of

NTPC with the objective of making a foray into the business of distribution and supply of

electrical energy, as a sequel to reforms initiated in the power sector.

NTPC Vidyut Vyapar Nigam Ltd. (NVVN)

The company was formed on November 1, 2002, as a wholly owned subsidiary company of

NTPC. The companys objective is to undertake sale and purchase of electric power, to

effectively utilize installed capacity and thus enable reduction in the cost of power. NVVN

NTPC Hydro Ltd. (NHL)

The company was formed on December 12, 2002, as a wholly owned subsidiary company of

NTPC with an objective to develop small and medium hydroelectric power projects of up to

250 MW.

Pipavav Power Development Co. Ltd. (PPDCL)

A memorandum of understanding was signed between NTPC, Gujarat Power Corporation

Limited (GPCL) and Gujarat Electricity Board (GEB) in 2004 for development of a 1000

MW thermal power project at Pipavav in Gujarat by forming a new joint venture company

between NTPC and GPCL with 50:50 equity participation. Pursuant to the decision of

Gujarat Government, NTPC Ltd. has dissociated itself from this company. PPDCL is under

winding up.

Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali Power Generating

Company Limited)

11 | P a g e

http://nvvn.co.in/http://nvvn.co.in/

8/6/2019 charan - 1

12/54

To take over Muzaffarpur Thermal Power Station (2*110MW), a subsidiary company named

Vaishali Power Generating Company Limited (VPGCL) was incorporated on September 6,

2006 with NTPC contributing 51% of equity and balance equity was contributed by Bihar

State Electricity Board. This company was formed to renovate the existing unit and run the

plant. The second unit has been successfully re-synchronized on October 17, 2007 after 4

years of being idle. Renovation and modernization of the first unit is under progress. The

company was rechristened as Kanti Bijlee Utpadan Nigam Limited on April 10, 2008.

Bharatiya Rail Bijlee Company Limited (BRBCL)

A subsidiary of NTPC under the name of Bharatiya Rail Bijlee Company Limited was

incorporated on November 22, 2007 with 74:26 equity contribution from NTPC and Ministryof Railways, Govt. of India respectively for setting up of four units of 250 MW each of coal

based power plant at Nabinagar, Bihar. Investment approval of the project was accorded in

January, 2008.

New Business Development

NTPC, with a rich experience of engineering, construction and operation of over 30,000 MW

of thermal generating capacity, is the largest and one of the most efficient power companiesin India, having operations that match the global standards.

Commensurate with our countrys growth challenges, NTPC has embarked upon an

ambitious plan to attain a total installed capacity of 75,000 MW by 2017. Towards this end,

NTPC has adopted a multi-pronged strategy such as Greenfield Projects, Brownfield Projects,

Joint Venture and Acquisition route. Apart from this, NTPC has also adopted the

Diversification Strategy in related business areas, such as, Services, Coal Mining, Power

Trading, Power Exchange, Manufacturing to ensure robustness and growth of the company.

RESEARCH METHODOLGY

The methodology section is the blue print for researcher activity and specifies how the

investigator intents to study the policies and procedures of the industry. In other words, the

methodology section make explicit the study desire and constitutes the How to do it phase.

12 | P a g e

8/6/2019 charan - 1

13/54

The project study has been conducted by taping both primary and secondary data is likely to

play an important role for collecting the available data. I have put my best efforts to do this

research and collect the necessary information to analyze about the topic thoroughly.

OBJECTIVE OF THE STUDY

First of all, it was necessary to define objective which becomes helpful to define boundaries

so that the project can be concluded and can be completed on time with required and

expected output. This objective can be divided or classified according to its size and subjects.

So I define objective of my project and divided it in various sub parts so that each part can be

completed subsequently and simultaneously as needed.

SCOPE OF THE STUDY

One can gain insight about what changes are desirable and needed. Evaluation of schedules

of service charges of various banks helped in comparative analysis in the project. Evaluation

process can help in formulating the financial policies and studies the different alternative

sources, as it reveals the reduction in cost to the company. Scope can define the expectations

and limit them in analysis. It helps to find out that what we want to do and what we can. In

overall, scope of the study helps to limit expectations and give the idea and ways where we

can move on the path.

SOURCES OF DATA

In the project we also had to decide the sources of data as every data is not as freely available

every time. We need to identify our requirements and find out the source where we can

acquire from at right time. For timely completion with accuracy we need right sources of

data. These sources can be primary or secondary. Sometimes secondary sources need

confirmation through primary for assurance. As the world is being dynamic so secondary data

is not much reliable as well as each one can have their own views, perception so primary data

is also not 100% accurate. We have to balance and find out our requirement on our own

decisions according to need.

13 | P a g e

8/6/2019 charan - 1

14/54

ASSUMPTIONS

During the project we have to make some assumptions because of many reasons such as all

data is not available, some measurements are not possible, dynamic environments, volatile

situations etc. We make some hypothesis and during the research and analysis, make some

assumption with some relations to complete the project with expected output.

LIMITATION OF THE STUDY

In the study whatever, we want, is not possible. Our project can have some limitations

because of reason like dependence of many variables. Such limitations sometimes restrict us

but scope of the project gives us the guidelines at the same time. These limitations help in

setting up boundaries for others in taking conclusion with some assumptions.

I started with defining objective of my project, keeping in mind the objective of my summer

internship given in the curriculum and my own learning experiences during the project. I

learned various things in this duration apart from the study like work culture, organizational

behaviour, management processes etc.

PROFILE OF RAMAGUNDAM SUPER THERMAL POWER STATION

Address P.O. Jyothinagar, Dist. Karimnagar, Pin: 505215, Andhra

Pradesh.

Approved Capacity 2600 MW

Installed Capacity Stage I : 3*200 MW

Stage II : 3*500 MW

Stage III : 1*500 MW

14 | P a g e

8/6/2019 charan - 1

15/54

Location Ramagundam, Karimnagar, Andhra Pradesh

Coal Source (i) South Godavari Coal Fields of Singareni Collieries for

stage I & II

(ii) Korba Coal Fields of SECL for stage III

Water Source Sri Ram Sager Dam on Godavari River, D-83 Canal from

Pochampadu Reservoir

Beneficiary States Pondicherry, Goa, Kerala, Karnataka, Tamilnadu, AP, PGCIL

(for HVDC)

Approved Investment Rs. 2059.22 cr Stage I & II

Rs. 1818.46 cr Stage III

Unit Sizes Stage I: 3*200 MW

Stage II: 3*500 MW

Units Commissioned Unit I 200 MW November 1983

Unit II 200 MW May 1984

Unit III 200 MW December 1984

Unit IV 500 MW June 1988

Unit V 500 MW March 1989

Unit VI 500 MW October 1989

15 | P a g e

8/6/2019 charan - 1

16/54

Units Commissioning

Schedule

Unit VII 500 MW August 2004

International Assistance IDA

IBRD Loan

OPEC

KFW

EXIM Bank, Japan

SFD

RAMAGUNDAM STATION HIGHLIGHTS

1. Record haulage of coal in single day of 78720 MT on 29 June, 1998 Asianrecord.

2. Station recorded highest loading factor of 99.4% of the year 1999-2000.

3. Continuous run of VI unit (500 MW) for 406 days, third best in the world.

4. Ramagundam 500 MW Unit-7 (stage III) has successfully completed one

year of commercial operation on 25.03.06 without any tube leakage. The unit

generated 3802.492 MUs due to backing down, the deemed, PLF is 93.59 %.

16 | P a g e

8/6/2019 charan - 1

17/54

The unit also has achieved a continuous run of 97 days without tripping in the

first year of operation itself.

5. Ramagundam Station achieved 47.94% (18.63 LMT) of Ash utilization during

the financial year against the target of 47% (18.20 LMT).

6. Ramagundam Station bagged Innovative Safety award for the year 2005

from Institution of Engineer.

7. Ramagundam Station bagged Best Management award from Govt. of AP for

the year 2004-05.

8. NTPC Ramagundam bagged Golden shield for the financial years 2000-01,

2001-02, 2002-03 & 2003-04 for outstanding performance in power

generation.

RATIO ANALYSIS

Ratio analysis is a powerful technique of financial analysis. To evaluate a firms financial

health, the financial analyst needs to evaluate various aspects of firms financial performance,

for this, tool which is frequently used is Ratio Analysis. It refers to the relationship expressed

in arithmetical terms between inter related figures. Accountants Handbook by Wixom,

Kellan Bedford defines, ratio is an expression of the quantitative relationship between two

17 | P a g e

8/6/2019 charan - 1

18/54

numbers. According to J. Batty, The term accounting ratios is used to describe significant

relationship between figures shown on a balance sheet, in a profit and loss account, in a

budgetary control system or in any other part of the accounting organization. Thus, it

expresses the relationship between two inter related figures in mathematical terms which

have a cause and effect relationship. Ratios are calculated because in this way we get a

comparison that may prove more useful than the raw numbers by themselves.

RATIOS CAN BE EXPRESSED IN THREE WAYS

(1) Proportion

In this, figures of the two items are used for computing the ratio as expressed in

common denominator. For example, the current asset of a business is Rs. 3, 60,000

and the current liabilities of a business are Rs. 1, 20,000, the ratio of current assets to

current liabilities is Rs.3, 60,000: Rs.1, 20,000 or simply 3: 1.

(2) Rate or Times

In this, ratio is expressed in the form of rate or times which is obtained by dividing

one item by another. For instance, in the above example, the current ratio can be

expressed as follows:

= Rs.3, 00,000 i.e., current assets are 3 times that of current liabilities.

Rs.1, 00,000

(3) Percentage

In this ratio is expressed in the form of percentage which is obtained by multiplying

the quotient by 100. For instance, in the above example, the current asset as a

percentage of the current liabilities is computed as follows:

= Rs.3, 00,000 * 100 = 300%

Rs.1, 00,000

The analysis and interpretation of financial statements with the help of ratios is called Ratio

Analysis. Ratio analysis, as a tool of financial analysis was suggested by Alexander Wall, an

e interpretation of financial statements.

The following are four steps involved in ratio analysis:

(a) Selection of the relevant data from the financial statements to suit the objective of the

analysis.(b) Calculation of appropriate ratios from the above data.

18 | P a g e

8/6/2019 charan - 1

19/54

(c) Comparison of the calculated ratios with the industry figures or industry norms or

ratios of the same firms in the past.

(d) Interpretation of the ratios.

INTERPRETATION OF RATIOS

The interpretation of the ratios is an important factor. It needs to be done properly. The

interpretation of ratios depends upon the scope of financial analysis and the available data

and ratios. The interpretation of the ratios can be done in the following ways:

(1) Single Absolute Ratio

A single ratio may convey some useful information about the company. For example,

ROI is very important ratio which conveys useful information about the profitability

of the company. However, one should avoid, making interpretation by considering

single ratio in isolation.

(2) Group of Ratios

A group of ratios is of much help to the analyst than a single ratio because the

interpretation of the group of ratios is more understandable and meaningful.

(3) Trend Ratios

In this case, a single ratio or group of inter related ratios are computed for a number

of years. The present ratios are computed with past ratio and used for interpretation.

When financial ratios are compared over a period of years, the analyst can study the

composition of change and determine whether there has been an improvement or

deterioration in firms financial condition and performance over time.

(4) Projected Ratios

Ratios calculated on actual financial data are used for comparison with the standard

ratios derived from the projected financial data to find out the variances. Such

variances are used for interpretation and taking corrective action in the future.

(5) Inter firm Comparison

Ratios of one firm can be used for comparing the performance of one firm with that of

another firm in the industry or with industry averages at the same point of time. Such

a conclusion gives insight into the relative financial condition and performance of the

firm. It also helps to identify any significant deviation from any applicable industry

average (or standard).

19 | P a g e

8/6/2019 charan - 1

20/54

How Ratios are useful in Business?

Help in decision-making:

The information provided in financial statements is not an end in itself and no meaningful

conclusion can be drawn from these statements alone. Ratio analysis helps in decision

making from the information provided in these financial statements.

Help in Financial Forecasting and Planning:

Ratio analysis is of much help in financial forecasting and planning. Planning is looking

ahead and the ratios calculated for a number of years work as a guide for the future.

Help in Communicating:

The financial strength and weakness of a firm are communicated in a more easy and

understandable manner by the use of ratios.

Help in Co-ordination:

Ratios even help in co-ordination, which is of utmost importance in effective business

management. Better communication of efficiency and weakness of an enterprise results in

better in co-ordination in the enterprise.

Help in Control:

Ratio analysis even helps in making effect control of the business. Standard ratios can be

based upon proforma financial statements and variances or deviations, if any, can be found by

comparing the actual with the standards so as to take corrective action at the right time

Utility to Creditors:

The creditors or suppliers extend short-term credit to the concern. They are interested to

know whether financial position of the concern warrants their payments at a specified time or

not. The concern pay short-term creditors out of its current assets are quite sufficient to meet

current liabilities then the creditors will not hesitate in extending credit facilities. Current and

acid test ratios will give an idea about the current financial position of the concern.

Other uses:

20 | P a g e

8/6/2019 charan - 1

21/54

It is an essential part of the budgetary control and standard costing. They have immense

importance in the analysis and interpretation of financial statements as they bring the strength

or weakness of a firm.

USES AND SIGNIFICANCE OF RATIO ANALYSIS

A) Managerial uses of ratio analyzes

1. Financial statements are prepared primarily for decision making, but the

information provided in financial statements is not an end itself and no meaningful

conclusion can be drawn from these statements alone. Ratio analysis helps in making

decisions from the information provided in these financial statements.

2. Ratio analysis is of much help in financial forecasting and planning. Planning is

looking ahead and the ratios calculated for a number of years work as a guide for the

future. Meaningful conclusions can be drawn for future from this ratio. Thus ratio

analysis helps in future forecasting and planning.

3. The financial strength and weakness of a firm are communicated in a more and

easy and understandable manner by the use of ratios. The information contained in the

financial statements is conveyed in meaningful manner to the one for whom its meant.

Thus ratios helps in communication and hence the value of the financial statements.

i. Ratio analysis even helps in co ordination which is of utmost

importance in effective business management. Better communication

of efficiency and weakness of an enterprise results in better co

ordination in the enterprise.

ii. Ratio analysis even helps in making effective control of the business.

Standard ratios can be based upon performance of financial statements

and variances or deviations, if any, can be found by comparing the

actual with the standards so as to take a corrective action at the right

time.

B) Utility to shareholders / Investors

21 | P a g e

8/6/2019 charan - 1

22/54

An investor in the company will like to access the financial position of the concern

where he is going to invest. His first interest will be the security of his investment and

then a return in the form of dividend or interest. For the first purpose he will try to

access the value of fixed assets and the loans raised against them. The investor will

feel satisfied only if the concern has sufficient amount of assets.

Profitability ratios will be useful to determine profitability position. Ratio analysis

will be useful to the investor in making up his mind whether present financial position

of the concern warrants further investment or not.

C) Utility to creditors

The creditors or suppliers to extend short term credit to the concern. They are

interested to know whether financial position of the concern warrants their payments

at a specified time or not. The concern pays short term creditors out of its current

assets. If the current assets are quite sufficient to meet current liabilities the creditor

will not hesitate in extending credit facilities. Current and acid test ratios will give an

idea about the current financial position of the concern.

D) Utility to Employees

22 | P a g e

8/6/2019 charan - 1

23/54

The employees are also interested in the financial position of the concern especially

profitability. Their wage increases and amount of the make use of information

available in the financial statements. Various profitability ratios relating to gross

profit, operation cost, and net profit enable employees to put forward their viewpoint

for the increase of wages and other benefits.

ADVANTAGES OF RATIO ANALYSIS

1) Ratio analysis simplifies the understanding of financial statements.

2) Ratios bring out the inter relationship among various financial figures and bring to

light their financial significance. Ratio analysis is a device to analyze and interpret the

financial health of the enterprise.

3) Ratios contribute significantly towards effective planning and forecasting. A study of

a trend in the past works as helpful guide for the future.

4) Ratios facilitate inter firm and intra firm comparisons, there by bringing out the

strength weakness, efficiency of their firms and their department.

5) Ratios serve as effective control tools. They also facilitate establishment of a standard

costing and budgeting control.

6) Ratios cater to the particular information need of a particular person depending upon

his interest in the business for which ratios are to be calculated. A creditor may be

interested in the liquidity ratios, while an investor may want to study profitability

ratios.

23 | P a g e

8/6/2019 charan - 1

24/54

LIMITATIONS OF RATIO ANALYSIS

1) Ratio may not prove to be the ideal tool for inter firm comparisons. The two

firms may adopt different accounting policies and hence the results might not be

comparable. Similarly a change in accounting policies by a firm will make intra

firm comparisons meaningless.

2) A study of ratios in isolation, without studying the actual figure, may lead to

wrong conclusions. Ratios are only supplementary to and not substitutes for

absolute figures.

3) Ratios can be as correct as the data on which they are based; if the original data is

not reliable then ratios will be misleading.

4) Ratio analysis suffers from each consistency. Ratios are defined differently by

various experts and hence are prone to manipulations.

5) In the absence of well accepted standards interpretation of ratios becomes

subjective.

6) Ratios fail to reflect the impact of price level changes, and hence can be

misleading.

7) Ratios are only tools of quantitative analysis and fail to take into account the

quantitative aspects of a business.

24 | P a g e

8/6/2019 charan - 1

25/54

TYPES OF RATIOS

Ratios classified into four categories:

Liquidity Ratios:

Current Ratio

Quick Ratio

Absolute Quick Ratio

Activity Ratios / Turnover Ratios:

Stock Turnover Ratio

Debtors Turnover Ratio

Creditors Turnover Ratio

Other Turnover Ratio

Leverage Ratios / Solvency Ratios:

Capital Gearing Ratio

Debt Equity Ratio

Proprietary Ratio

Fixed Assets Ratio

Total Liabilities to Total Assets Ratio

Fixed Assets to Long Term funds RatioGeneral Profitability Ratios:

25 | P a g e

8/6/2019 charan - 1

26/54

Net Profit Ratio

Gross Profit Ratio

Operating Ratio

Expenses Ratio

Overall Profitability Ratios:

Return on Capital Employed

Return on Net worth

Return on Equity Capital

Return on Assets Ratio

Equity Ratio

Value added by Employee Ratio

Earnings per Share Ratio

TYPES OF RATIOS CALCULATED FOR THE PRESENT STUDY

1.Balance sheet ratios 2.Profit and Loss Account

Ratios

3.Inter statement

(balance sheet and P & L

a/c)

1.Current Ratio

2.Quick Ratio

3.Proprietary Ratio

4.Debt Equity Ratio

5 Fixed Asset Ratio

1.Gross Profit Ratio

2.Net Profit Ratio

3.Inventory Turnover Ratio

4.Expense Ratio

5.Operating Ratio

1.Return on Assets Ratio

2.Fixed Assets Ratio

3.CreditorsTurnover Ratio

4.Debtors Turnover

Ratio

5.Working Capital Turn

Over Ratio

1. LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:-

These are the ratios which measure the short - term solvency or financial position of the firm.

These ratios are calculated to comment upon the short term paying capacity of a concern or

the firms ability to meet its current obligations, the various liquidity ratios are: Current ratio,

Quick ratio

26 | P a g e

8/6/2019 charan - 1

27/54

Current ratio or Working Capital Ratio:

Current ratio is the ratio of current assets and current liabilities

Current assets are the assets which can be converted into cash within one year and

include cash in hand and cash at bank, bills receivable, net sundry debtors, stock of

raw material, finished goods and work in progress, prepaid expenses, outstanding and

accrued incomes and short term or temporary investments.

Current liabilities are the liabilities which are to be paid within a period of one year

include bills payable, sundry creditors, bank overdraft, outstanding expenses, income

received in advance, proposed dividend, provision for taxation, unclaimed dividends

and short term loans and advances repayable within one year.

Current Ratio = Current Assets

Current Liabilities

Quick Ratio:

Quick ratio is the ratio of quick assets to current liabilities.

Quick assets are the assets which can be converted into cash very quickly

without much loss. All current assets, except stock and prepaid expenses are

also quick assets.

All current liabilities are liabilities which are to be repaid in one year.

Quick Ratio = Quick Assets

Quick Liabilities

2. LEVERAGED OR CAPITAL STRUCTURE RATIO OR LONG TERM TERM

SOLVENCY RATIOS:

Long term solvency ratios convey a firms ability to meet the interest costs and the

repayments schedules of its long term obligations e.g., debt equity and interest coverage

27 | P a g e

8/6/2019 charan - 1

28/54

ratio. Leverage shows the proportions of debt and equity in financing of the firm. These

ratios measure the contribution of financing as compared to financing by outsiders.

(a) Debt equity ratio:

It reflects the relative claims of creditors and share holders against the assets of the

business.

Debt usually refers to long term liabilities

Equity includes equity and preference share capital and reserves.

Debt Equity Ratio = Long Term Liabilities

Shareholders fund

(b) Proprietary ratio:

It expresses the relationship between net worth and total assets.

Net Worth = Equity Share Capital + Preference Share Capital + Reserves

and Surplus Fictitious Assets

Total Assets = Fixed Assets + Current Assets (excluding Fictitious Assets)

Proprietary Ratio = Net Worth

Total Assets

(c) Fixed Assets Ratio:

This ratio indicates the mode of financing fixed assets. This the ratio of fixed assets to

capital employed.

Capital employed = Equity Share Capital + Preference Share Capital +

Reserves and Surplus + Long term Liabilities Fictitious Assets

Fixed Assets Ratio = Fixed Assets

Capital Employed

(d) Interest Coverage Ratio or Debt Service Ratio:

28 | P a g e

8/6/2019 charan - 1

29/54

This ratio indicates whether a business is earning sufficient profits to pay the interest

charges. It is calculated as follows:

Debt Service Ratio = PBIT

Fixed Interest Charges

PBIT = Profit before Interest and Taxes

3. ACTIVITY RATIOS OR TURNOVER RATIOS :

An activity ratio measures the efficiency or effectiveness with which a firm manages its

resources or assets. They calculated the speed with which various assets, in which funds

are blocked up, get converted into sales. The significant activity or turnover ratios are:

Inventory Turnover Ratio

Stock turnover ratio indicates the number of times the stock has turned over into sales in

In a year it is calculated as:

Inventory Turnover Ratio = Cost of Goods Sold or Sales

Average Stock

Cost of Goods Sold = Sales Gross Profit

Average Stock = (Opening Stock + Closing Stock) / 2

Debtors Turnover Ratio

It expresses the relationship between debtors and sales. It is calculated as:

Debtors Turnover Ratio = Net Credit Sales

Average Debtors

Creditors Turnover Ratio

29 | P a g e

8/6/2019 charan - 1

30/54

It expresses the relationship between creditors and purchases. It is calculated as:

Creditors Turnover Ratio = Net Credit Purchases

Average Creditors

Working Capital Turnover Ratio

This ratio is used to know the efficient utilization of fund. It is calculated as:

Working Capital Turnover Ratio = Cost of Goods Sold

Working Capital

4. PROFITABILTY RATIOS :

A profitability ratio measures the profitability of a concern. Generally they are calculated

either in relation to sales or in relation to investment.

General Profitability Ratios:

Gross Profit Ratio:

It reveals the result of trading operations of the business. It is calculated as:

Gross Profit Ratio = Gross Profit

Net Sales

Gross Profit = Net sales Cost of Goods Sold

Net Sales = Total Sales Sales Returns

Cost of Goods Sold = Opening Stock + Purchases + Manufacturing Expenses

Closing Stock

Net Profit Ratio:

It indicates the result of overall operations of the firm. While the Gross Profit ratio indicated

the extent of profitability of core operations, Net profit ratio tells us about overall

profitability. It is calculated as

30 | P a g e

8/6/2019 charan - 1

31/54

Net Profit Ratio = Net Profit after Tax

Net Sales

Operating Ratio:

It expresses the relationship between expenses incurred for running the business, and the

resultant net sales. It is calculated as

Operating Ratio = Operating Cost

Net Sales

Operating Cost = Cost of Goods Sold + Office and Administrative Expenses +

Selling Expenses + Distribution Expenses.

Operating Profit Ratio:

It establishes the relationship between operating profit and sales. It is calculated as:

Operating Profit Ratio = Operating Profit * 100

Net Sales

Overall Profitability Ratios:

Return on Capital Employed Ratio (ROCE) or Return on Investment:

This ratio reveals the earning capacity of the capital employed in the business. It is calculated

as

ROCE = PBIT

Capital Employed

PBIT = Profit before Interest and Tax

Capital Employed = Share Capital + Reserves and Surplus + Long Term Loan

Fictitious Assets

Return on Net Worth (RONW):

It indicates the return, which the shareholders are earning on their resources invested in the

business. It is calculated as

RONW = PAT

Net Worth

31 | P a g e

8/6/2019 charan - 1

32/54

Net Worth = Share Capital + Reserves and Surplus

Return on Assets Ratio (ROA):

Return on Assets reflects the return earned by the firm for the shareholders of the business on

the investment of all the financial resources committed to the business.

ROA = PAT

Total Assets

Total Assets do not include fictitious assets

Dividend Pay-Out Ratio or Pay-Out Ratio:

Dividend pay-out ratio is calculated to find the extent to which earnings per share have been

retained in the business. It is an important ratio because sloughing back profits enables a

company to grow and pay more dividends in future.

Dividend Pay-out Ratio = Dividend per Equity Share

Earnings per Share

Price-Earnings Ratio or Pie Ratio (Earnings Yield Ratio):

Price Earnings Ratio is the ratio between market price per equity share and earnings per

share. The ratio is calculated to make an estimate of appreciation in the value of a share of a

company and is widely used by investors to decide whether or not to buy shares in a

particular company. The ratio is calculated as:

Price Earnings Ratio = Market Price per Equity Share

Earnings per Share

Earnings Yield Ratio:

This ratio also shows a relationship between earnings per share and market value of shares. It

can be calculated as follows:

32 | P a g e

8/6/2019 charan - 1

33/54

Earnings Yield Ratio = Earnings per Share * 100

Market Price per Ratio

Earnings per Share:

Earnings per share are a small variation of return on equity capital and are calculated by

dividing the net profit after taxes and preference dividend by the total number of equity

shares. Thus,

E.P.S. = Net Profit after Tax Preference Dividend

No. of Equity Share

The earnings per share is a good measure of profitability and when compared with E.P.S of

similar other companies, it gives a view of the comparative earnings or not earning power

of the company has increased.

Return on Equity Capital:

In real sense, ordinary shareholders are the real owners of the company. Ordinary

shareholders are more interested in the profitability of a company and the performance of a

company should be judged on the basis of return on equity capital of the company. Return on

equity capital, which is the relationship between profits of a company and its equity capital

can be calculated as:

Return on Equity Capital = Net Profit after Tax Preference Dividend

Equity Share Capital (Paid-up)

A small variation of the above ratio is to calculate return on shareholders total equity, which

is equal to the paid-up equity share capital plus reserves and surplus plus

Share premium minus accumulated losses, if any.

Interpretation of the ratio is similar to the interpretation of return on shareholders investment

and higher the ratio, better it is.

33 | P a g e

8/6/2019 charan - 1

34/54

Current Ratio:

Year Current

Assets

Current

Liabilities

Ratio

2005-06 157245 61402 2.56

2006-07 221827 70263 3.16

2007-08 255488 79299 3.22

2008-09 309253 106886 2.89

2009-10 308157 107581 2.86

INTERPRETATION:

34 | P a g e

8/6/2019 charan - 1

35/54

The current is used to find out the ability of the business to pay off its short-term obligations.

The current ratio of 2:1 is reckoned as an ideal ratio. It means it is desirable to have Rs.2

worth of current assets for every rs.1 of current liability. It is due to the fact that the current

liabilities are fixed in nature, which are too paid in full. But the current assets may lose value

due to the unexpected market conditions which may result in unforeseen fall in the market

value of securities, inventories, bad debts etc. It is therefore necessary to keep more current

assets so that the company can meet its current obligations even if realisation from current

assets is reduced to half.

The ratio should be neither too high nor too low. A very high current ratio is also not

desirable since it means inefficient use of working capital. It may be due to piling up of

obsolete inventory, excessive cash, large amount of debtors due to inefficient collection

policy, etc. On the other hand, a low ratio indicates inability of the company to meet

adequately its short-term obligations.

The ratio should be interpreted as a qualitative measure and not a quantitative measure. The

adequacy of the current ratio is highly dependent on the composition of current assets. If a

large portion of the current assets comprise of slow and non-moving inventories, debtors

outstanding for a long term, the company may not be able to meet its short term obligations

even if the current ratio is higher than 2. There is also possibility of manipulation of current

ratio by postponing certain urgent payments or purchase of inventories, showing less

provision for bad and doubtful debts than required, etc.

35 | P a g e

8/6/2019 charan - 1

36/54

SUPER QUICK RATIO:

Super quick ratio establishes the relationship between the cash and the current liabilities.

Super Quick Ratio = Cash / Current Liabilities

YEAR CASH CURRENT

LIABILITIES

RATIO

2005-06 11000

0

61402 1.791473

2006-07 12204

5

70263 1.736974

2007-08 13584

5

79299 1.713073

2008-09 16271

6

106886 1.522332

2009-10 14459

5

107581 1.344057

36 | P a g e

8/6/2019 charan - 1

37/54

INTERPRETATION:

The super Quick Ratio is an indication that the firm is liquid and has ability to meet its

current liabilities in time. The above clearly indicates that the firm is highly liquid, as the

quick ratio for all the five years 1:1. This also indicated that the most of the liquid assets are

idle, which can be invested or invested elsewhere.

QUICK ASSETS:

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

RATIO

2005-06 157245 61402 2.56091

2006-07 221827 70263 3.157095

2007-08 255488 79299 3.221831

2008-09 309253 106886 2.893298

2009-10 308157 107581 2.864418

37 | P a g e

8/6/2019 charan - 1

38/54

INTERPRETATION:

It helps to assess the ability of the company to meet its obligation without waiting for much

time to liquidate its assets.

Ideal Quick / Liquid Ratio is 1:1

Thus, an organisation must have quick assets equivalent to 100% of its current liabilities.

However, the result of quick ratio should be interpreted carefully keeping in view the

composition of liquid assets.

DEBT-EQUITY RATIO:

YEAR LONG TERM

LIABILITIES

SHARE HOLDER

FUNDS

RATIO

2005-06 201195 449587 0.4475112006-07 244516 485968 0.503152

2007-08 271776 526386 0.516306

2008-09 345664 573701 0.602516

2009-10 377836 624375 0.605143

38 | P a g e

8/6/2019 charan - 1

39/54

INTERPRETATION:

It is very important ratio for the evaluation of the capital structure of the firm. It indicates a

margin of safety to the creditors. If the debt-equity is 1:2, it means that for every one rupee of

external liability, there is Rs.2 of shareholders funds i.e., creditors have a safety margin of

50%. Creditors normally prefer a lower debt equity ratio because it provides them greater

safety against possible loss in the case of liquidation of the organization. On the other hand,

owners may prefer a higher debt equity ratio if there are conditions favouring trading on

equity. Too high debt equity ratio implies that creditors may interfere in the affairs of the

business or put certain restrictive conditions on the operations of the business. There is the

risk of insolvency too. It is therefore, necessary to have a balanced composition of both the

owners equity and the outsider equity which depends on situation to situation. The ratio of

debt to equity will vary according to the nature of the business and variability of cash flows.

An Electrical Utility, with valuable cash flow will have a higher debt to equity ratio than a

Machine Tools, industry whose cash flows are far less stable.

39 | P a g e

8/6/2019 charan - 1

40/54

PROPRIETARY RATIO:

YEAR NET

WORTH

TOTAL

ASSETS

RATIO

2005-06 449587 717371 0.626715

2006-07 485968 807643 0.601711

2007-08 526386 893880 0.588878

2008-09 573701 1042514 0.550305

2009-10 624375 1124884 0.555057

40 | P a g e

8/6/2019 charan - 1

41/54

INTERPRETATION:

This ratio is quite significant for the creditors of business. With the help of this ratio, it can be

ascertained in what proportion owners have provided funds for investment in assets of

business. The higher the ratio, the more profitable it is for the creditors and the lesser is the

dependence on external funds. If the ratio is low, the creditors can be suspicious about the

repayment of their debt which indicates greater risk to the creditors. The higher the ratio, the

better it is. A ratio below 50% may be quite alarming for the creditors. The greater the

percentage financing provided by shareholders equity, the larger is the cushion of protection

for the firms creditors.

FIXED ASSETS RATIO:

YEAR FIXED

ASSETS

CAPITAL

EMPLOYED

RATIO

2005-06 230895 449587 0.513571

2006-07 256481 485968 0.527773

2007-08 260937 526386 0.495714

2008-09 329377 573701 0.574127

2009-10 347613 624375 0.556738

41 | P a g e

8/6/2019 charan - 1

42/54

INTERPRETATION:

This ratio is quite significant for the creditors of business. With the help of this ratio, it can be

ascertained in what proportion owners have provided funds for investment in assets of

business. The higher the ratio, the more profitable it is for the creditors and the lesser is the

dependence on external funds. If the ratio is low, the creditors can be suspicious about the

repayment of their debt which indicates greater risk to the creditors. The higher the ratio, the

better it is. A ratio below 50% may be quite alarming for the creditors. The greater the

percentage financing provided by shareholders equity, the larger is the cushion of protection

for the firms creditors.

RETURN ON INVESTMENTS:

YEAR PBIT CAPITAL

EMPLOYED

RATIO

2005-06 83719 523572 12.46

2006-07 10766

8

564331 13.89

2007-08 12053

0

588868 14.07

2008-09 11355

7

641834 14.29

2009-10 126944

695725 13.97

42 | P a g e

8/6/2019 charan - 1

43/54

INTERPRETATION:

The above ratio indicates that the profit of the company is in increase trend and the capital

employed is also increasing which helps in increasing the return on capital employed.

RETURN ON NET-WORTH:

YEAR PAT NET

WORTH

RATIO

2005-06 58202 449587 12.94566

2006-07 68647 485968 14.12583

2007-08 74148 526386 14.08624

2008-09 82013 573701 14.29543

2009-10 87282 624375 13.9791

43 | P a g e

8/6/2019 charan - 1

44/54

INTERPRETATION:

The higher the ratio the better it is. It indicates the return which the shareholders are earning

on their invested in the businesses. The investors of the company are earning high level of

return which is increased though slightly decreased in 2009-10.

RETURN ON TOTAL EMPLOYED:

YEAR PAT TOTAL ASSETS RATIO

2005-06 58202 717371 0.081132

2006-07 68647 807643 0.084997

2007-08 74148 893880 0.082951

2008-09 82013 1042514 0.078668

2009-10 87282 1124884 0.077592

44 | P a g e

8/6/2019 charan - 1

45/54

INTERPRETATION:

With the help of the above ratio we can inter that the return on total employed is decreased

from year to year which is bad and its reflects that the resources are effectively utilized.

RETURN ON TOTAL ASSETS:

YEAR PAT TOTAL

ASSETS

RATIO

2005-06 58202 717371 8.1132

2006-07 68647 807643 8.4997

2007-08 74148 893880 8.2951

2008-09 82013 1042514 7.8668

2009-10 87282 1124884 7.7592

45 | P a g e

8/6/2019 charan - 1

46/54

8/6/2019 charan - 1

47/54

INTERPRETATION:

The higher the book value of a share, the more strong the business is assumed to be. The

book value should not be below the paid up value of one share.

EARNINGS PER SHARE:

YEAR PAT-PREFERENCE

DIVIDEND

NUMBER OF EQUITY

SHARES

EPS

2005-06 31877 8245464400 3.866

2006-07 38366 8245464400 4.653

2007-08 40384 8245464400 4.898

2008-09 47313 8245464400 5.738

2009-10 50674 8245464400 6.146

47 | P a g e

8/6/2019 charan - 1

48/54

INTERPRETATION:

The comparison of the EPS of the firm with that of the industry average and the earnings per

share of other firms helps in assessing the profitability of the firm on per share basis. It helps

in determining the market value of the share and the capacity of the company to pay dividend

to its equity shareholders.

WORKING CAPITAL TURNOVER RATIO:

YEAR CURRENTASSETS

CURRENTLIABILITIES

WORKINGCAPITAL

2005-06 157245 61402 95843

2006-07 221827 70263 151564

2007-08 255488 79299 176189

2008-09 309253 106886 202367

2009-10 308157 107581 200576

48 | P a g e

8/6/2019 charan - 1

49/54

INTERPRETATION:

The higher the Working Capital Ratio, the lower is the investment in the working capital and

greater is the contribution to sales. However, high working capital ratio also implies a risky

proportion for the firm and low net working in relation to the sales volume

RETURN ON EQUITY CAPITAL:

YEAR PAT-PREFERENCE

DIVIDEND

NUMBER OF EQUITY

SHARES

EPS

2005-06 31877 8245464400 3.866

2006-07 38366 8245464400 4.653

2007-08 40384 8245464400 4.898

2008-09 47313 8245464400 5.738

2009-10 50674 8245464400 6.146

49 | P a g e

8/6/2019 charan - 1

50/54

SWOT ANALYSIS OF NTPC

STRENGTHS:

NTPC is diversified company manufacturing electricity.

The company is having its own power plant, thus reducing dependence on RSEB.

Computerize plants having less dependence on work force.

Quality improvement program at anta plant improves the quality of product.

50 | P a g e

8/6/2019 charan - 1

51/54

WEAKNESSES:

Wet process of cement production consumes high power cost.

Budgetary control is not implicated properly. Actual performance is very far from

budgeted estimates.

The plant is not gas based, thus manufacturing costs are high.

NTPC have different joint ventures and having a plant in different part of the country.

NTPC produces power with hydel energy, coal energy, as well as gas power plant.

OPPORTUNITIES:

Govt. infrastructure efforts provide good fortune for power industry. .

NTPC is emerging power plant industry in country.

THREATS:

Number of growing competitors.

Overall growth of Indian economy is very less comparison to other developing

countries...

CONCLUSION

The present study entitled Techniques of Ratio Analysis in NTPC Ltd. Is taken up by me in

partial fulfilment of the award of Degree of Master of Business Administration. During my

study, based on the data collected and presented the earlier chapter the following observations

were made.

In past five years the company equity capital is 82455 million it is notchanged.

51 | P a g e

8/6/2019 charan - 1

52/54

In past five years current ratio has decreased. During 2005-06 it has 2.56, but

in 2007-08 it has increased to 3.22, during 2009-10 it has decreased to 2.86.

It is observed that the total assets are almost increased from year to year.

Over all the company current position is good.

In past year 2009-10 the return on capital employed is 13.97, but in past four

years it has increased twice.

SUGGESTIONS:

Company should maintain adequate liquidity.

To improve the liquidity position of the company it is suggested that the

company shall finance more in current assets or pay off pert of current

liabilities from long term funds.

Company should take the measure to promote its sales, which improves the

profit of the firm

It should concentrate on long term funds. If long term funds are utilized for

working capital problem will not raise in future.

52 | P a g e

8/6/2019 charan - 1

53/54

Company should maintain adequate reserves.

It should try to raise its owner equity to see that the interest burden (because of

debt capital) be reduced.

It should control the operating costs further and should also see that the cost of

production will be low.

A wise policy will be taken by the company to finance fixed assets by raising

long term funds.

Company should take some measure to increase the return on investment. It

should try to utilize the funds to the maximum extent.

Company should try to utilize its assets to the fullest extent.

BIBILOGRAPHY:

Khan. MY, and Jain. PK, Financial Management, Tata McGraw Hill.

Sharma. R.k, and Shashi K. Gupta, Management Accounting, Sultan Chand and Sons,

New Delhi.

Dr. Sakshi Vasudeva, Accounting for Business Managers, Himalaya Publishing

Limited, Mumbai.

Trivedi R.P and Manoj Trivedi, Management Accounting, Pankaj Publishing Limited,

Hyderabad.

53 | P a g e

8/6/2019 charan - 1

54/54

Pandey I.M, Financial Management, Vikas Publishing House, Mumbai.