Ratio Analysis For NTPC LTD

INTRODUCTION
This report provides an analysis and evaluation of the current and past profitability,
liquidity and financial stability of NTPC Ltd. Method of analysis is ratio analysis
which includes ratios such as liquidity, solvency profitability and turnover ratios. Other
calculations include rates of return on Shareholders Equity and Total Assets and earnings
per share to name a few. All calculations can be found in the appendices.
NTPC Ltd is a global giant in power sector. It actually does not have tough competition
in India. While NTPCs generates around 39000 MW its competitors like Reliance Power
and Tata Powers generation is around 2500 MW. Clearly the capacity and performance
are not comparable. That is why this project does not include comparative financial
analysis of NTPC Ltd and its competitors.
Source of primary data was regular interaction with the officials at NTPC Ltd. Secondary
Data includes the information gathered from various Journals & periodicals, annual
reports and websites. The sampling procedure employed for this is judgmental sampling a
convenience sampling technique in which elements are based on the judgment of
researcher.
In financial analysis, a ratio is used as a benchmark for evaluation the financial position
and performance of a firm. The absolute accounting figures reported in the financial
statements do not provide a meaningful understanding of the performance and financial
position of a firm.
Liquidity ratios measure the firms ability to meet current obligations. Liquidity ratios,
by establishing a relationship between cash and other current assets to current
obligations, provide a quick measure of liquidity.
Solvency ratios show the proportions of debt and equity in financing the firms assets
there should be an appropriate mix of debt and owners equity in financing the firms
assets.
Turnover ratios reflect the firms efficiency in utilizing its assets. Activity ratios are
employed to evaluate the efficiency with which the firm manages and utilizes its assets.
Profitability ratios measure overall performance and effectiveness of the firm .The
profitability ratios are calculated to measure the operating efficiency of the company.
Results of data analyzed show that all ratios are competent and above industrys average.
Ratio analysis was done for past five financial years i.e. from March 2007-2011. Since
NTPC Ltd. belongs to power sector industry where gestation period for new projects is
always more than 3-5 years, therefore a part of capital gets blocked in such projects.
Thus, relationship cannot be established between that capital and sales (since it is not
generating any sales). That is the reason, such capital do not form part of capital
employed for the purpose of calculation in different financial statements. We have taken
the figures of capital employed exactly the way it is provided in Annual Report.
Detailed comparisons and analysis has been done and necessary conclusions have been
drawn.
NTPC Ltd as a company is in its growth stage. In order to achieve its ambitious capacity,
additional targets, the company has to build on its capabilities and leverage its expertise
in power project execution. Accordingly, NTPC Ltd. has revised its delegation of powers
and has empowered its regions and projects to enable faster decision making. The total
income of NTPC Ltd. For the year 2010-11 increased by 16.59% to Rs 57,399.49 crores
from Rs 49,233.88 crores during 2009-10
In order to strengthen its competitive advantage in power generation business, the

company is continuing to plan, to diversify its portfolio to emerge as an integrated power
major, with presence across entire energy value chain through backward and forward
integration into areas such as coal mining, manufacturing activities, power trading,
distribution etc. NTPC Ltd. has always discharged its social responsibility as a part of its
Corporate Governance Philosophy. It follows the global practice of addressing CSR
issues in an integrated multi stake holder approach covering the environment and social
aspects.
The company is well on its way to becoming an Integrated Power Major, having
entered Hydro Power, Coal Mining, Power Trading, Equipment Manufacturing and
Power Distribution. NTPC has made long strides in developing its Ash Utilization
business. In its pursuit of diversification, NTPC has also developed strategic alliances and
joint ventures with leading national and international companies.
THEORECTICAL BACKGROUND
Financial analysis is the process of identifying the financial strengths and weaknesses of
the firm and establishing relationship between the items of the balance sheet and profit &
loss account. Financial ratio analysis is a fascinating topic to study because it can teach us
so much about accounts and businesses. When we use ratio analysis we can work out
how profitable a business is, we can tell if it has enough money to pay its bills and we can
even tell whether its shareholders should be happy! Ratio analysis can also help us to
check whether a business is doing better this year than it was last year; and it can tell us if
our business is doing better or worse than other businesses doing and selling the same
things. In addition to ratio analysis being part of an accounting and business studies
syllabus, it is a very useful thing to know anyway! The overall layout of this section is as
follows: We will begin by asking the question, what do we want ratio analysis to tell us?
Then, what will we try to do with it? This is the most important question, funnily enough!
The answer to that question then means we need to make a list of all of the ratios we
might use: we will list them and give the formula for each of them. Once we have
discovered all of the ratios that we can use we need to know how to use them, who might
use them and what for and how will it help them to answer the question we asked at the
beginning? At this stage we will have an overall picture of what ratio analysis is, who
uses it and the ratios they need to be able to use it. All that's left to do then is to use the
ratios; and we will do that step- by-step, one by one
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the

indicated quotient of two mathematical expressions and the relationship between two
or more things. In financial analysis, a ratio is used as a benchmark for evaluation the
financial position and performance of a firm. The absolute accounting figures reported in
the financial statements do not provide a meaningful understanding of the performance
and financial position of a firm. An accounting figure conveys meaning when it is related
to some other relevant information. For example, an Rs.5 core net profit may look
impressive, but the firms performance can be said to be good or bad only when the net
profit figure is related to the firms Investment. Financial ratio analysis can reveal much
about a company and its operations. However, there are several points to keep in mind
about ratios. First, a ratio is a "flag" indicating areas of strength or weakness. One or even
several ratios might be misleading, but when combined with other knowledge of a
company's management and economic circumstances, financial analysis can tell much
about a corporation. Second, there is no single correct value for a ratio. The observation
that the value of a particular ratio is too high, too low, or just right depends on the
perspective of the analyst and on the company's competitive strategy. Third, financial
ratios are meaningful only when compared with some standard, such as an industry trend,
ratio trend, a trend for the specific company being analyzed, or a stated management
objective.
Use and significance of ratio analysis:-
The ratio is one of the most powerful tools of financial analysis. It is used as a device to
analyze and interpret the financial health of enterprise. Ratio analysis stands for the
process of determining and presenting the relationship of items and groups of items in the
financial statements. It is an important technique of the financial analysis. It is the way by
which financial stability and health of the concern can be judged. Thus ratios have wide
applications and are of immense use today.
Interpretation of Ratios:
The interpretation of ratios is an important factor. The inherent limitations of ratio

analysis should be kept in mind while interpreting them. The impact of factors such as
price level changes, change in accounting policies, window dressing etc., should also be
kept in mind when attempting to interpret ratios.
Key Ratios
Liquidity ratios - short-term financial strength, measures the firms ability

to meet current obligations
Current Ratio:
An indication of a company's ability to meet short-term debt obligations; the
higher the ratio,the more liquid the company is. Current ratio is equal to current
assets divided by current liabilities. If the current assets of a company are more
than twice the current liabilities, then that company is generally considered to
have good short-term financial strength. If current liabilities exceed current assets,
then the company may have problems meeting its short-term obligations. It
indicates the availability of current assets in rupees for every one rupee of current
liability. A ratio of greater than one means that the firm has more current assets
than current claims against them Current liabilities.
Cash Ratio :
The ratio of a company's total cash and cash equivalents to its current
liabilities. The cash ratio is most commonly used as a measure of company
liquidity. It can therefore determine if, and how quickly, the company can
repay its short-term debt. A strong cash ratio is useful to creditors when deciding
how much debt, if any, they would be willing to extend to the asking party.
Quick Ratio
Quick ratio also called Acid-test ratio, establishes a relationship between quick,
or liquid, assets and current liabilities. An asset is a liquid if it can be converted
into cash immediately or reasonably soon without a loss of value. Cash is the
most liquid asset. Other assets that are considered to be relatively liquid and
included in quick assets are debtors and bills receivables and marketable
securities (temporary quoted investments). Inventories are considered to be less
liquid. Inventories normally require some time for realizing into cash; their value
also has a tendency to fluctuate. The quick ratio is found out by dividing quick
assets by current liabilities.
Solvency ratios - long-term financial strength, shows the proportions of

debt and equity in financing the firms assets
Debt-Equity Ratio
A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and
debt the company is using to finance its assets. .The relationship describing the
lenders contribution for each rupee of the owners contribution is called debt-
equity (DE) ratio is directly computed by dividing total debt by net worth.
Proprietary ratio
Proprietary ratio refers to a ratio which helps the creditors of the company in
seeing that their capital or loans which the creditors have given to the company
are safe. Proprietary ratio highlights the financial position of the company and
therefore Proprietary ratio can be interpreted as good if it is high because a higher
proprietary ratio would imply that company has enough capital to repay its
creditors whenever any such demand is made by the creditors. A lower proprietary
ratio would imply that company is not in a position to pay all of its creditors and
therefore a low proprietary ratio is a cause of concern for the creditors of the
company.
Capital Gearing Ratio
A general term describing a financial ratio that compares some form of owner's equity
(or capital) to borrowed funds. Gearing is a measure of financial leverage,
demonstrating the degree to which a firm's activities are funded by owners funds
versus creditors funds. A company with high gearing (high leverage) is more
vulnerable to downturns in the business cycle because the company must continue to
service its debt regardless of how bad sales are. A greater proportion of equity
provides a cushion and is seen as a measure of financial strength.
Interest Coverage Ratio

A ratio used to determine how easily a company can pay interest on outstanding debt.
The interest coverage ratio is calculated by dividing a company's earnings before
interest and taxes (EBIT) of one period by the company's interest expenses of the
same period
Profitability ratios - long term earning power, measures overall performance
and effectiveness of the firm
Gross Profit Ratio
Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a
percentage. It expresses the relationship between gross profit and sales. Gross
profit ratio may be indicated to what extent the selling prices of goods per unit
may be reduced without incurring losses on operations. It reflects efficiency with
which a firm produces its products. As the gross profit is found by deducting cost
of goods sold from net sales, higher the gross profit better it is. There is no
standard GP ratio for evaluation. It may vary from business to business. However,
the gross profit earned should be sufficient to recover all operating expenses and
to build up reserves after paying all fixed interest charges and dividends.
Net Profit Ratio
The net profit ratio is net profit expressed in as a percentage of total sales. Net
profit is taken before tax and other indirect costs. Essentially it tells you about
how the company profile relate to their net sales. Different industries have
fundamentally different net profit ratios. The net profit ratio can tell us about the
nature of the industry the company is operating in as well as serving to compare
past performances of company.
Return on total assets ratio
A ratio that measures a company's earnings before interest and taxes (EBIT)
against its total net assets. The ratio is considered an indicator of how effectively a
company is using its assets to generate earnings before contractual obligations
must be paid. The greater a company's earnings in proportion to its assets (and the
greater the coefficient from this calculation), the more effectively that company is
said to be using its assets. The Return on Total Assets is a useful way to measure
how well the company is actually able to make intelligent choices on how to
spend its money on new assets.
ROCE
Return on Capital Employed (ROCE) is used in finance as a measure of the

returns that a company is realizing from its capital employed. It is commonly used
as a measure for comparing the performance between businesses and for assessing
whether a business generates enough returns to pay for its cost of capital. The
main drawback of ROCE is that it measures return against the book value of
assets in the business. As these are depreciated the ROCE will increase even
though cash flow has remained the same. Thus, older businesses with depreciated
assets will tend to have higher ROCE than newer, possibly better businesses. In
addition, while cash flow is affected by inflation, the book value of assets is not.
Consequently revenues increase with inflation while capital employed generally
does not (as the book value of assets is not affected by inflation).
Earnings per Share (EPS)
The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serve as an indicator of a company's profitability. The
profitability of the shareholders investments can also be measured in many other
ways. One such measure is to calculate the earnings per share. The earnings per
share (EPS) are calculated by dividing the profit after taxes by the total number of
ordinary shares outstanding.
Dividends per Share (DPS)
The the sum of declared dividends for every ordinary share issued. Dividend per
share (DPS) is the total dividends paid out over an entire year (including interim
dividends but not including special dividends) divided by the number of
outstanding ordinary shares. The net profits after taxes belong to shareholders.
But the income, which they will receive, is the amount of earnings distributed as
cash dividends. Therefore, a large number of present and potential investors may
be interested in DPS, rather than EPS. DPS is the earnings distributed to ordinary
shareholders dividend by the number of ordinary shares outstanding.
Dividend Payout Ratio
The payout ratio provides an idea of how well earnings support the dividend
payments. More mature companies tend to have a higher payout ratio.

Turnover ratios - term of investment utilization, reflects the firms
efficiency in utilizing its assets
Fixed Asset Turnover Ratio
Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the
value of fixed assets (on the balance sheet). It indicates how well the business is
using its fixed assets to generate sales. A long-term, tangible asset is held for
business use and not expected to be converted to cash in the current or upcoming
fiscal year , such as manufacturing equipment, real estate, and furniture. A high
fixed asset turnover is preferred since it indicates a better efficiency in fixed assets
utilization. This ratio is often used as a measure in manufacturing industries,
where major purchases are made for PP&E to help increase output. When
companies make these large purchases, prudent investors watch this ratio in
following years to see how effective the investment in the fixed assets was.
Capital turnover ratio
A company's annual sales divided by its average stockholders'

equity. Capital turnover is used to calculate the rate of return on common equity,
and is a measure of how well a company uses its stockholders' equity to
generate revenue. The higher the ratio is, the more efficiently a company is using
its capital. A ratio of how effectively a publicly-traded company manages
the capital invested in it to produce revenues. It is calculated by taking the total of
the company's annual sales and dividing it by the average stockholder equity,
which is the average amount of money invested in the company. A high ratio
indicates that the company is using its capital well, while a low ratio indicates the
opposite. It is also called equity turnover.
Value added per employee

Value add per employee is defined by customer perception of service and then
measured using the customer's perception per employee. The data used in
measuring this is an automated survey sent out to customers after every query has
been set to solved by the employee, the customers fill these surveys (optional) and
give scores for their perception of the quality of service that was rendered
PREFERABLE RATIOS IN THE INDUSTRY
Though the value of debt to equity ratio depends on overall financial situation, goals,
employment security, risk aversion, tax implications, etc., the value of debt to equity ratio
in Indian power industry is 0.75 which shows that there is 75 paisa debt for every 1 rupee
of share holders funds which is not a very high value and firms are moderately strong to
meet the repayment requirements. According to Central Electricity Regulatory
Commission this debt equity ratio should be improved to 2.33 for the purpose of tariff
determination for a particular company in the power sector. The long term debt equity
ratio (0.73) is nearly equal to the debt- equity ratio which shows that the companies of
this sector are able to fulfill its long term repayment requirements as efficiently as other
liabilities and the business is not at high risk. In case of current ratio the rule of thumb
says that the current ratio should be at least 2, that is the
Current assets should meet current liabilities at least twice. In power industry the current
ratio of 1.59 shows that it is less than required value, thus it is seen that this industry
should increase current assets and should control the current liabilities. In the power
industry the value of inventory turnover ratio of 14.2 can also be said in the form of
365/14.2 = 25.7days. The ratio shows a relatively high stock turnover which would seem
to suggest that the business deals in the field which require fast moving of its product i.e.
electricity. Generally, the higher the firms total asset turnover, the more efficiently its
assets have been utilized. Always high fixed assets turnovers are preferred since they
indicate a better efficiency in fixed assets utilization. In case of Indian power industry a
very low value (0.47) of fixed asset turnover shows that the fixed assets of the industry
have not been utilized efficiently. The value of interest cover ratio is 2.96 is very
impressive in Indian power sector. It shows that the firms in the industry are strong
enough to pay the interest expenses timely. The value of Return on capital employed
(8.79) is not very good return but with the high value of interest cover ratio and slightly
lower value of debt to equity ratio in the industry the return on capital is in the
moderately good condition.
CH-2
LITERATURE
REVIEW
LITERATURE REVIEW
Timo Salmi and Teppo Martikainen presented A Review of the Theoretical and
Empirical Basis of Financial Ratio Analysis This paper provides a critical review
of the theoretical and empirical basis of four central areas of financial ratio analysis.
The research areas reviewed are the functional form of the financial ratios,
distributional characteristics of financial ratios, classification of financial ratios, and
the estimation of the internal rate of return from financial statements. It is observed
that it is typical of financial ratio analysis research that there are several unexpectedly
distinct lines with research traditions of their own. A common feature of all the areas
of financial ratio analysis research seems to be that while significant regularities can
be observed, they are not necessarily stable across the different ratios, industries, and
time periods. This leaves much space for the development of a more robust theoretical
basis and for further empirical research.

Daniel J. Fonseca, Gary P. Moynihan and Vineet Jain presented paper An
expert system for financial ratio analysis According to them Financial analysis
interprets a company's past and present financial health and predicts its future
condition. Although company financial statements contain a wealth of information to
support this analysis, their interpretation may be complicated. Experts in this field are
limited. This research focuses on automating the current practice of financial ratio
analysis to identify the various features that need to be incorporated into the system.
This involves calculating the ratios, establishing the relationships between the ratios,
determining the technique for accurately forecasting the financial statements and/or
ratios, developing heuristics for analysing the ratios and providing a system for
recommendations. A prototype expert system was then developed. The system is
capable of performing five types of analysis: liquidity, leverage, turnover, profitability,
and past performance. The output of the system is a list of conclusions and
recommendations based on these analyses.
(c) Mirela monea presented Financial Ratios - Reveal How a Business
Is Doing?
The paper aims to present the main financial ratios which provide a picture about
companys profitability, its financial position, use of its assets efficiency, its long-term
debt financing. Discussion is focused on: profitability ratios, short-term financial
ratios, activity ratios, long-term debt ratios or dividend policy ratios. Also, will try to
answer at the following main questions: What financial ratios analysis tells us? What
the users of these needs to know?
(d) Dyson, R.G , Thanassoulis, E and Boussofiane, presented , A
comparison of data evelopment analysis and ratio analysis as
tools for performance This paper compares data envelopment analysis (DEA)
and ratio analysis as alternative tools for assessing the performance of
organisational units such as bank branches and schools. Such units typically use
one or more resources to secure one or more outputs, the inputs and/or outputs
being possibly incommensurate. The assessment of District Health Authorities in
England on the provision of perinatal care is used as a vehicle for comparing the
two methods. The comparison focuses on how well the two methods agree on the
performance of a unit relative to that of other units, and on the estimates of targets
each method provides for improving the performance of units. It is found that
provided the performance indicators capture all variables used in the DEA
assessment the two methods agree reasonably closely on the performance of the
units as a whole, though this depends on the way the performance indicators are
combined into a summary figure of performance. The two methods can disagree
substantially on the relative performance of individual units. Ratio analysis, unlike
DEA, is not found to be suitable for setting targets so that units can become more
efficient. This is mainly due to the fact that DEA takes simultaneous account of all
resources and outputs in assessing performance while ratio analysis relates only one
resource to one output at a time. However, the two methods can support each other
if used jointly. Ratios do provide useful information on the performance of a unit on
specific aspects and they can support the communication of DEA results to non-
specialists when the two methods agree on performance.

CH-3
INDUSTRY
PROFILE
INDUSTRY PROFILE
NTPC- A global giant in power sector
NTPC Limited (formerly National Thermal Power Corporation)

(BSE: 532555, NSE: NTPC) is the largest Indian state-owned electric utilities company
based in New Delhi, India. It is listed in Forbes Global 2000 for 2011 ranked it 348th in
the world. It is an Indian public sector company listed on the Bombay Stock Exchange in
which at present the Government of India holds 84.5% (after divestment the stake by
Indian government on 19th October, 2009) of its equity. With a current generating
capacity of 39,174 MW, NTPC has embarked on plans to become a 75,000 MW company
by 2017. It was founded on November 7, 1975.
Pursuant to a special resolution passed by the Shareholders at the Companys Annual

General Meeting on September 23, 2005 and the approval of the Central Government
under section 21 of the Companies Act, 1956, the name of the Company "National
Thermal Power Corporation Limited" has been changed to "NTPC Limited" with effect
from October 28, 2005. The primary reason for this is the company's foray into hydro and
nuclear based power generation along with backward integration by coal mining.
NTPC's core business is engineering, construction and operation of power generating

plants and providing consultancy to power utilities in India and abroad.
The total installed capacity of the company is 39,174 MW (including JVs) with 16 coal
based and 7 gas based stations, located across the country. In addition under JVs, 7
stations are coal based & another station uses naptha/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.
NTPC has been operating its plants at high efficiency levels. Although the company has
19% of the total national capacity it contributes 29% of total power generation due to its
focus on high efficiency. NTPCs share at 31 Mar 2001 of the total installed capacity of
the country was 24.51% and it generated 29.68% of the power of the country in 200809.
Every fourth home in India is lit by NTPC. As at 31 Mar 2011 NTPC's share of the
country's total installed capacity is 17.75% and it generated 27.4% of the power
generation of the country in 201011.
NTPC became a Maharatna company in May, 2010, one of the only four companies to be
awarded this status.
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.
At NTPC, People before Plant Load Factor is 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 the
communities that surround its power stations.
Future Goals
The company has also set a serious goal of having 50000 MW of installed capacity by
2012 and 75000 MW by 2017. The company has taken many steps like step-up its
recruitment, reviewing feasibilities of various sites for project implementations etc. and
has been quite successful till date. NTPC will invest about Rs 20,000 crore to set up a
3,900-megawatt (MW) coal-based power project in Madhya Pradesh. Company will also
start coal production from its captive mine in Jharkhand in 201112, for which the
company will be investing about 18 billion. ALSTOM would be a part of its 660-MW
supercritical projects for Solapur II and Mouda II in Maharashtra. ALSTOM would
execute turnkey station control and instrumentation (C&I) for this project.
Power Burden
India, as a developing country is characterised by increase in demand for electricity and
as of moment the power plants are able to meet only about 6075% of this demand on an
yearly average. The only way to meet the requirement completely is to achieve a rate of
power capacity addition (implementing power projects) higher than the rate of demand
addition. NTPC strives to achieve this and undoubtedly leads in sharing this burden on
the country.
As per new corporate plan, NTPC 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
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 project 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 Vidhyut 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 power
stations 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
actively engaged in Rajiv Gandhi Gramin Vidyutikaran Yojanaprogramme for
rural 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.
Subsidiaries
NTPC Electric Supply Company Ltd. (NESCL)

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.Company was
also mandated to take up consultancy and other assignments in the area of Electrical
Distribution Management System.
Maiden entry into Power distribution by forming 50:50 JV company KINESCO Power
and Utility Private Ltd. with Kerala Industrial Infrastructure Development Corporation
(KINFRA), already distributing power in KINFRA owned industrial theme parks.
With the objective of sectoral support in the area of distribution, NESCL has been
assigned the responsibility of implementing rural electrification works under Rajiv
Gandhi Gramin Vidyutikaran Yojana (RGGVY).
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 utilise installed capacity and thus enable reduction in the cost of
power.Company holds category I trading license from CERC and traded 5549.0 MUs in
2009-10. Company has been designated as the nodal agency for cross border trading with
Bhutan and Bangladesh. Company is also engaged in ash business and is exploring
potential business areas such as cross border trading, green power trading and emission
trading, captive power trading and long term power trading. 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. NHL is implementing Lata-Tapovan H.E. project (171 MW)
and Rammam stage III H.E. project (120MW). More>>
Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali Power
Generating Company Limited)
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. The company was rechristened as Kanti
Bijlee Utpadan Nigam Limited on April 10, 2008. Present equity holding is NTPC
64.57% & BSEB 35.43%. Company is Renovating and modernising the existing unit and
establishing new plant.
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
Ministry of 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. 90% power from this project is to be supplied to
Railways to meet the traction and non-traction power requirements.
NTPC, with a rich experience of engineering, construction and operation of around

35,000 MW of thermal generating capacity, is the largest and one of the most efficient
power companies in 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 128,000 MW by 2032. 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.
To broad-base the business and also to ensure growth, diversification in the areas related
to NTPC's core business of power generation such as Hydro power, Distribution, Trading,
Coal mining, LNG etc. have been identified as priority areas.
CH-4
COMPANY
PROFILE
COMPANY PROFILE
VISION AND MISSION
VISION
" To be the worlds largest and best power producer, powering Indias growth
MISION
"Develop and provide reliable power, related products and services at

competitive prices, integrating multiple energy sources with innovative
and eco friendly technologies and contribute to society"
CORE VALUES (BE COMMITTED)
Business Ethics
Environmentally and economically sustainable
Customer Focus
Organizational & professional Pride
Mutual Respect and Trust
Motivating self and others
Innovation and Speed

Total Quality for Excellence
Transparent and respected organization
Enterprising
Devoted
SWOT ANALYSIS
STRENGTHS:
Strong design and engineering support.
Power purchase agreements with customers like, North Delhi Power Ltd,
Himachal Pradesh State Electricity Board ,Punjab State Power Corporation etc
The company has kept with itself sufficient liquid funds to meet any kind of cash
requirement.
Efficient and timely completion of projects.

A minimum risk factor. NTPC Ltd has not included much of debt into its capital
structure thus minimizing the risk element.
Best-integrated project management systems. It is moving ahead with sound

strategies for capacity addition and fuel security.
Company with an excellent record and high profits. Disciplined capital
expenditure and prudent resource mobilization strategies have been abiding
features of management of finances.
An early starter-more than 30 years experience in power sector.
Excellent growth prospects with significant additions, modifications
and replacements. Environmental concern underpins the growth strategy for a
low carbon future
Employee-friendly personnel policies. NTPC is the only PSU ranked among best
employers in several prestigious surveys
Low project cost of NTPCs plants and efficient working capacity of plants.
WEAKNESSES:
Depleting raw materials.
Some of the Plant have become old and need investment in Renovation
&Modernization.
Lack of availability of skilled manpower.
Slow Environmental and forest clearances for projects and coal blocks.
Slow development of coal mines allocated to power Developers.
Projects like Hydro Projects are highly capital intensive and have long gestation
period.
OPPORTUNITIES:
Increasing demand for electricity.
Conducive regulatory framework for investment by private sector.
Ultra Mega Power Projects.
Upcoming hydro and nuclear sector

Huge opportunity in consultancy services.
Rising prices of raw materials
Huge competition from SEBs, Reliance Energy, Tata power and
other Private Development.
Huge capital requirement for expansion, diversification, horizontal and vertical
integration and R&M
THREATS:
Slow investment in Power sector. Although 100% FDI is permissible in power
sector yet share of FDI in power sector is hovering around 5%. The reason is lack
of politico-administrative support .
High AT&C / T&D Losses. These losses captures technical and commercial losses
and also losses due non-realization of billed amount. The main reason include
overloading of existing lines and substation equipments, poor repair and
maintenance ,theft and tampering etc.
Deteriorating Financials of state utilities. The book losses of SPUs have increased
significantly due to reasons like, inability to enhance operating efficiencies and
reduce AT&C losses adequately and increasing gap between cost and revenue as
tariff increase has not kept pace with cost increases.
Fuel constraint. About 65% of installed capacity as on 31.03.2011 uses fossil
fuel .The production of coal as well as gas has not kept pace with the demand.
Imports are done to meet shortfall.
Competition in many critical segments of the industry, especially in distribution
companies, is inadequate ,while state owned distribution companies continue to
underperform.
PESTLE ANALYSIS
POLITICAL FACTOR:
The Government of India has a mission of POWER FOR ALL BY 2012. This mission would require
that our installed generation capacity should be at least 2, 00,000 MW by 2012 from the present level of 1,
14,000 MW. The Indian government has set an ambitious target to add approximately 78,000 MW
of installed generation capacity by 2012. The total demand for electricity in India is expected to cross
950,000 MW by 2030.
ECONOMICAL FACTOR:
India is in the rising phase of its economy curve, the economy of the country was growing at 9 %before it is
affected by recession in 2008. The Indian economy has the resilience to withstand the challenges arising out
of the global slowdown and the domestic drought situation. This inorganic growth in economy calls for a
watching rate of growth in infrastructure facilities. Power sector is one of the major aspects of this
infrastructure building; the demand for energy has grown at an average of 3.6% per annum over the past 30
years. In March 2009, the installed power generation capacity of India stood at 147,000 MW while the per
capita power consumption stood at 680 KWH. The per capita consumption is expected to increase 1000
KWH. So, this provides huge opportunity for NTPC
SOCIAL FACTOR:
With a population of India increasing and the scenario of the country is changing from survival to
consumption mode, the demand for electricity continue to be on increase. As a result of which power
generation sector promises increasing returns to those who have already positioned themselves strongly in
this sector.
TECHNOLOGICAL FACTOR:
The operational efficiency of a thermal power plant is only 30% that is very poor and also high maintenance
cost when compared to hydro power plants (these two are prevalent in India). The advantages of thermal
power plant are low installation cost, less time for installation and generation, and constant supply. But with
advent of nuclear power (after nuclear deal) these advantages are disserted.
LEGAL FACTOR:
Legal factors that main hindrance to enter this industry primarily licenses, environment protections laws and
work safety laws. This is the reason why the most of private companies although ventured a decade ago still
they are thriving for success.
ENVIRONMENTAL FACTOR:
Thermal power plants produce co2, so2 and other gases which are hazardous to the environment.. After
COPENHAGEN Climate Conference it became more imperative for the govt. to reduce pollution.. This
might put pressure on NTPC to go for alternatives
CH-5
OBJECTIVE
S
OF STUDY
OBJECTIVE & SCOPE OF STUDY

The main objectives of this study aimed are:
To evaluate the performance of the company by using ratios as a yardstick to

measure the efficiency of the company and analyze various facts of the financial
performance of the company.
To understand the liquidity, profitability and efficiency positions of the company

during the study period.
To make comparisons between the ratios during different periods.
Ratio analysis is the process of establishing and interpreting various ratios for helping in
making certain decisions. There are a number of ratios which can be calculated from the
information given in the financial statements, but for the purpose of this particular study
we have selected only the appropriate data and calculated only a few appropriate ratios.
Scope of the Study:
The scope of my project on the topic Financial Analysis using Ratios is limited to 5
financial years i.e. March 2007-2011. All the information, figures and findings mentioned
in the project are based on the data as available in the annual report of past 5 years. The
study on the financial statements will help the interested parties to know about the overall
financial health of the company. The ratios are helpful to forecast the future of the
organization based on the past performance.
NTPC Ltd is a global giant in power sector. It actually do not have tough competition in
India. While NTPCs generates around 39000 MW its competitors like Reliance Power
and Tata Powers generation is around 2500 MW. Clearly the capacity and performance is
not comparable. That is why this project does not include comparative financial analysis
of NTPC Ltd and its competitors.
Following are the steps followed in the ratio analysis.
Selection of relevant data from the financial statements depending upon the objective of
the analysis.
Comparison of the calculated ratios with the ratios of the same firm in the past, or the
ratios developed from projected financial statements or the ratios of some other firms or
the comparison with ratios of the industry to which the firm belongs.
Standards of comparison:
The basis of ratio analysis is majorly of four types.
Past ratios, calculated from past financial statements of the firm.
Competitors ratio, of the some most progressive and successful competitor firm at the
same point of time.
Industry ratio, the industry ratios to which the firm belongs to
Projected ratios, ratios of the future developed from the projected or pro forma financial
statements
This project will include the first type i.e. Past ratios, calculated from past financial
statements of the firm.
In the view of functional classification following ratios have been calculated and studied
under this project.
Liquidity Ratios: This ratio explains the relationship between current assets and
current liabilities of a business.
Profitability Ratios: This throws light on the profitability of the organization. It
may be calculated with regard to gross profit of net profit.
Turnover Ratios: These ratios are calculated on the bases of cost of sales or
sales, therefore, this ratio is also called as Turnover Ratio. Turnover indicates
the speed or number of times the capital employed has been rotated in the process
of doing business. Higher turnover ratio indicates the better use of capital or
resources and in turn lead to higher profitability
Solvency Ratios: This ratio disclose the firms ability to meet the interest costs
regularly and Long term indebtedness at maturity
Limitations: The below mentioned are the constraints under which the study is carried
out.
The study is based on only secondary data.
The period of study was 2007-2011 financial years only.
Only the information available in public domain was used.
Time was an important limitation. Whole study was conducted in a period of just 45 days.
NTPC Ltd undertakes around 71 projects all over India. Individual balance sheets of each
project were not studied and only the aggregate figures as available in the annual report
were included.
CH-6
RESEARCH
METHODOLO
GY
RESEARCH METHODOLOGY
Research design: Research design helps in proper collection and analysis of the data. It
helps in further
Research approaches: The most appropriate research is descriptive. This is because the
goal of the study is clear research will help to understand to concept better.
Classification of data:
Primary data
Primary data will be through regular interaction with the officials of NTPC Ltd
Secondary data
This includes the information gathered from various Journals & periodicals, annual
reports and websites.
Sample Size
The sample size selected is of five years i.e. from 2007-2011.
Sampling technique
The sampling procedure employed for this is judgmental sampling a convenience

sampling technique in which elements are based on the judgment of researcher
Software tools used for the data analysis
The software tools used for data analysis in MS WORD & MS EXCEL.
The information is collected through secondary sources during the project. That
information was utilized for calculating performance evaluation and based on that,
interpretations were made.
CH-7
DATA
ANALYSIS
DATA ANALYSIS
(all figures
in Rs crore)
a) PROFITABILITY RATIOS
Gross profit ratio = Gross profit x 100

Net sales
(i) Gross Profit Ratio: It clearly establishes relationship of gross profit to

net sales of the firm.
Fuel expenses 35373 29462.74 271107 220202 198181

Other factory
expenses, e.g.
water charges,
power charges
etc 1966.1 1563.09 1336 1213.1 1105.9
Total (A) 37339.1 31025.83 28446.7 23233.3 20924
54874 46322.59 41923.8 37050.1 32595.2
Net Sales(B)
Gross profit
(A-B) 17534.9 15296.76 13477.1 13816.8 11671.2
Gross Profit
ratio 31.10 33.02 32.10 37.30 35.80
Notes:
For all 5 years apart from fuel charges following items were included as factory
expenses: Power charges, water charges, stores consumed, rent, repairs &
maintenance , Construction equipment, charges for building, plant and machinery,
power stations and other charges
The above mentioned items were selected from schedule 22 under the head
Generation, Administration & Other expenses
Net sales were calculated by deducting electricity duty from Gross sales
(X-axis: Years, Y-axis: GP Ratio)
Comments:
A high gross profit margin indicates that the company can make a reasonable
profit, as long as it keeps the overhead cost in control. A low margin indicates that
the business is unable to control its production cost.
As the gross profit is found by deducting cost of goods sold from net sales, higher
the gross profit better it is. There is no standard gross profit ratio.
Beginning from the year 2007 Gross Profit ratio has always been decently
maintained by the company
As it is very clear from the figures gross profit was highest in the year 2008
i.e.37.29%
After 2008 though the gross profit has declined, it is accompanied by huge
extension in operations as number of projects undertaken has also increased.
Gross profit was lowest last year i.e. 2011, 31.95% this indicates that overheads
cost has not been controlled as desired.
Majority of the projects undertaken by NTPC are in growth stage or their

respective lifecycle. This is one of the reason for its low profits in recent years.
(ii) Net profit ratio: It establishes the relationship between net profit and
sales. Helps to judge the overall profitability.
Net profit ratio = Net profit x 100

Net sales
Net profit
9102.59 8728.2 8201.3 7414.8 6864.47
Net Sales 54874 46322.59 41923.8 37050.1 32595.2

Net Profit ratio 16.60 18.80 19.60 20.01 21.
Notes:
Net Profit was calculated by deducting operating expenses , interest & finance
charges and tax from the total operating income
Total operating income includes income from sale of energy, consultancy and
other incomes.
Net sales were calculated by deducting electricity duty from Gross sales.
(X-axis: Years, Y-axis: NP Ratio)
Comments:
Net profit is the number that really matters, as this is the true indication of your
profitability. It will tell you if you are making enough money to make this all
worth your time and effort.
Net profit for NTPC has been highest in the year 2007 i.e. 21.05%
Thereafter it has continuously declined. It was lowest in the year 2011 i.e. 16.58%
Though net profits of NTPC have declined they are still decent as compared to its
counterparts in industry.
It also means that business has the capital to grow. If the business is making
money, then it will be able to purchase more inventories that will become best
sellers for it, which will give a higher net profit.
We can suggest that overheads cost should be controlled as to increase the overall
profitability

(iii) Return on total assets: It is a measure of the profitability of all

financial resources invested in firms assets.
Return on total assets = Net Profit x 100

Total assets
Net profit
9102.59 8728.2 8201.3 7414.8 6864.
Total assets
125248.2 112488.5 104251.4 89388.07 80764.
Return on total
assets ratio 7.30 7.80 7.90 8.30 8.50
Notes:
Total Assets as per the balance sheet of 2010-11 is Rs 112,634.46 crores . For our
calculations, we have included current assets, loans & advances instead of net
current assets ( i.e after deducting current liabilities & provisions)
Net Profit was calculated by deducting operating expenses , interest & finance
Total operating income includes income from sale of energy, consultancy and
other incomes
(X-axis: Years, Y-axis: Returns on total assets)
Comments:
The Return on Total Assets measures how well the company is actually able to
make intelligent choices on how to spend its money on its assets.
The greater a company's earnings in proportion to its assets, the more effectively
that company is said to be using its assets
Though the ratio is much better than its other counterparts in the industry.
Returns have been highest in the year 2007 i.e. 8.9% and the same have been
lowest in the year 2011 i.e. 7.26%
Here we will also have to take into consideration that the company has
undertaken many new projects who are still under construction or are not used up
to their full capacity.
(iv) Return on capital employed (ROCE): Compares earnings with

capital invested in the company.
ROCE = Profit Before Interest and Taxes x 100

Capital employed
PBIT 14198.68 12694.39 11356.69 12052.97 10766.81

Capital
Employed 99291.46853 90868.93343 79472.9881 85664.32125 77514.83081
Return on
Capital
Employed ratio 14.3 13.97 14.29 14.07 13.89
Notes:
Since NTPC Ltd. belongs to power sector industry where gestation period for new
projects is always more than 3-5 years , therefore a part of capital gets blocked in
such projects. Thus, relationship cannot be established between that capital and
sales (since it is not generating any sales). That is the reason , such capital do not
form part of capital employed for the purpose of calculation in different financial
statements.
In order to find the exact Return on Capital Employed we need to have data
regarding all projects undertaken, since the required data is not available we have
used information available in the annual report
PBIT was calculated by deducting operating expenses and depreciation from total
operating income.
(X-axis: Years, Y-axis: Returns on capital emoployed)
Comments:
The Return On Capital Employed (ROCE), is one of the most important operating
ratios that can be used to assess corporate profitability.
ROCE should always be higher than the rate at which the company borrows,
otherwise any increase in borrowing will reduce shareholders' earnings.
In case of NTPC Ltd the Return on capital employed have been more than 10%
during past 5 years, which is commendable as compared to its counterparts in
industry.
Returns were highest in the year 2011 i.e. 14.3%
(v) Earnings per share ratio (EPS): It attempts to measure the value of
share of stock by attributing to it a portion of the companys earnings.
EPS = Profit after interest, taxes and preference dividend

Total no. of equity shares
PAIT 91025900000 87282000000 82013000000 74148100000 68647200000

No. of equity
shares 8245464400 8245464400 8245464400 8245464400 8245464400
Earnings per
share 11.03 10.60 9.10 8.10 8.30
Notes:
Number of Equity shares remains constant for all 5 years and it comprises
of equity shares of Rs 10 each fully Paid- up.
PAIT was calculated by deducting operating expenses , interest & finance

Total operating income includes income from sale of energy, consultancy

and other incomes.
(X-axis: Years, Y-axis:EPS)
Comments:
Earnings per share are generally considered to be the single most important
variable in determining a share's price.
It simply represents the share of net profit after meeting all obligations that is
actually left for the shareholders. Thus representing earnings per share.
It is also a major component used to calculate the price-to-earnings valuation ratio
While it was least in 2007 i.e. Rs 8.32 per share, it was maximum last year i.e. in
2011 i.e ,Rs 11.03 per share
Growing trend of EPS is definitely good for health of its share value in the
market.
EPS = Distributed profit

Total no. of equity shares
(vi) Dividend per share: It represents to what extent the profit belongs to the
owners of a company.
Particulars March 2011 March 2010 March 2009 March 2008 March 2007
Distributed
Profit
31332700000 31332700000 29683600000 28859100000 26385500000
No. of equity
Shares 8245464400 8245464400 8245464400 8245464400 8245464400
Dividend per
share 3.80 3.80 3.60 3.50 3.20
Notes:
Number of Equity shares remains constant for all 5 years and it comprises of
equity shares of Rs 10 each fully Paid- up.
Comments:
The amount of dividend that a stockholder will receive for

each share of stock held.
DPS is the part of earning that is actually distributed among the shareholders
after retaining a part of earning for the purpose of reinvestment.
It is quite evident from the figures that the DPS is continuously rising which will
of course positively affect the share value in the market for NTPC Ltd.
DPS has been highest in the year 2011 i.e. Rs 3.77 per share.
As compared to the industry the return seems to quite satisfactory from

shareholders point of view
We suggest that such continuous improvement must be maintained in the coming

financial years.
DPR = Dividend per share
Earnings per shares
(vii) Dividend payout ratio: The payout ratio provides an idea of how well
earnings support the dividend payments. More mature companies tend to have a
higher payout ratio.
Dividend per
share 3.80 3.80 3.60 3.50 3.20
Earnings per
share 11.03 10.60 9.10 8.10 8.30
Dividend
payout ratio 0.344515 0.358491 0.395604 0.432099 0.385542
Notes:
Number of Equity shares remains constant for all 5 years as it comprises of equity
shares of Rs 10 each fully Paid- up.
Distributed profits includes interim dividend and recommended final dividend for
all 5 years
Number of Equity shares remains constant for all 5 years as it comprises of equity
shares of Rs 10 each fully Paid- up.
(X-axis: Years, Y-axis: DPS)
Comments:
The payout ratio provides an idea of how well earnings support the dividend
payments. More mature companies tend to have a higher payout ratio.
It represents the percentage of earnings paid to shareholders in dividends.
Investors seeking capital growth may prefer lower payout ratio because capital
gains are taxed at a lower rate.
Investors seeking high current income and limited capital growth prefer
companies with high Dividend payout ratio.
b) LIQUIDITY RATIO :
Current ratio: It relates current assets to the current liabilities

and helps the analyst in determining a firms ability to pay its current
liabilities from its current assets.
Current Assets:
Inventories 3639.12 3347.71 3243.4 2675.7 2510.2
Sundry
debtors 7924.31 6651.46 3584.2 2982.7 1252.3
cash & bank
balances 16185.26 14459.58 16271.6 14933.2 13314.6
Other Current
Assets 1046.97 844.04 979.4 921.8 1058.0
Loans &
Advances 6601.13 5513.11 6846.7 4035.4 4047.6
Total 35396.79 30815.8 30925.3 25548.8 22182.7
Current Liabilities:
Current
liabilities 10320.48 7687.58 7439.1 5548.3 5323.5
Provisions 2752.43 3070.58 3249.5 2381.6 1702.8
Total 13072.91 10758.16 10688.6 7929.9 7026.3
Current ratio= Current assets

Current Liabilities
Current ratio 2.70 2.86 2.89 3.22 3.15
Adjustment
Figures of Current Assets and current Liabilities were derived as shown in the
above tables
(X-axis: Years, Y-axis: Current Ratio)
Comments:
If the current ratio is greater than 2, then that company is generally considered to
have good short-term financial strength. If current liabilities exceed current assets,
then the company may have problems meeting its short-term obligations
However in the initial years i.e. during 2008 and 2007 current ratio has clearly
exceeded the ideal ratio i.e. 2:1. In 2008 it was 3.22:1 while in the year 2007 it
was 3.11:1.
Significant improvement has been shown in proceeding years and the ratio has
been best in the year 2011 as compared to other four years, as during this it was
2.70:1 that is quite close to the ideal ratio.
Thus we can say that considerable improvement has been shown by the company
and same should be continued further.
(ii) Quick ratio: This ratio is more rigorous test of a firms ability to pay its
obligations. It takes into account the fact that some accounts classified as current
assets are less liquid than others.
Quick Ratio: Quick assets

Quick Liabilities
Quick assets
Sundry debtors 7924.31 6651.46 3584.2 2982.7 1252
cash & bank
balances 16185.26 14459.58 16271.6 14933.2 13314
Other Current
Assets 1046.97 844.04 979.4 921.8 1058
Loans &
advances 6601.13 5513.11 6846.7 4035.4 4047
Total 31757.67 27468.19 27681.9 22873.1 19672
Current liabilities
Current
liabilities 10320.48 7687.58 7439.1 5548.3 5323.5
Provisions 2752.43 3070.58 3249.5 2381.6 1702.8
Total 13072.91 10758.16 10688.6 7929.9 7026.3
Quick ratio 2.40 2.60 2.60 2.90 2.80
Notes:
Here Quick assets were calculated by deducting stock from current assets
Instead of quick liabilities, current liabilities can be used as it is for quick ratio.
(X-axis: Years, Y-axis: Quick Ratio)
Comments:
An asset is a liquid if it can be converted into cash immediately or reasonably

soon without a loss of value. Cash is the most liquid asset.
Quick ratio as 1:1 is considered as ideal. However it also depends on the kind of
industry.
All current assets may not be quickly converted into cash, also their value may
differ, thats why we have to consider quick assets
As shown by the graph Quick ratio was highest in 2008 i.e. 2.88:1. This simply
means that assets forming part of quick assets were far more than the required.
Though by 2011 remarkable improvement has been shown and pile of unutilized
quick assets has been significantly reduced.
(iii) Cash Ratio/ absolute liquidity Ratios: It can therefore determine if,
and how quickly, the company can repay its short-term debt.
Cash Ratio: Cash + Marketable securities

Current Liabilities
Cash & Marketable Securities

Cash 0.36 2.52 1.5 9.6 3.5
Bank balance 30.80 30.80 30.80 30.8 30.8
with RBI
Other Current 295.18 600.64 239.5 439.2 722.8
Accounts
Balance
Term Deposit 15858.92 13820.55 15999.8 14453.6 12557.8
Accounts
Total 16185.26 14459.5 16271.6 14933.2 13314.9
Current Liabilities
Current
liabilities 10320.48 7687.58 7439.1 5548.3 5323.5
Provisions 2752.43 3070.58 3249.5 2381.6 1702.8
Total 13072.91 10758.16 10688.6 7929.9 7026.3
Cash Ratio 1.20 1.30 1.50 1.90 1.90
Adjustment
Figures of Current Assets and current Liabilities were derived as shown in the
above tables
(X-axis: Years, Y-axis: Cash Ratio)
Comments:
Marketable securities refer to short term investments.
Marketable securities are very liquid as they tend to have maturities of less than
one year. Furthermore, the rate at which these securities can be bought or sold has
little effect on their prices.
The cash ratio is generally a more conservative look at a company's ability

to cover its liabilities than many other liquidity ratios.
This ratio should not be used in determining companys value, but simply as one
factor in determining liquidity.
For NTPC Ltd it was highest in the year 2007-2008 i.e 1.41 times.
NTPC Ltd has quite ambitious plans regarding diversification ,accordingly it opts
to keep majority of its current assets in the form or cash and bank balances which
includes term deposits earning interests
c) Turnover ratios
(i) Fixed assets turnover ratio:
Fixed assets Turnover Ratio = Net Sales

Net Fixed Assets
Net Fixed
Assets
39235.96 34761.29 32937.7 26093.7 25648.1
Net Sales
54874 46322.59 41923.8 37050.1 32595.2
Fixed assets
Turnover
Ratio 1.40 1.30 1.30 1.40 1.30
Notes:
Gross Fixed Assets include tangible assets such as Land, building, Railway siding,
construction equipment etc and intangible assets which includes Right of Use and
Software.
(X-axis: Years, Y-axis: Fixed Assets Turnover Ratio)
Comments:
The higher the ratio, the better, because a high ratio indicates the business has less
money tied up in fixed assets for each unit of currency of sales revenue.
A declining ratio may indicate that the business is over-invested in plant,

equipment, or other fixed assets.
For NTPC Ltd this ratio was highest in the year 2008, i.e. 1.41 times .A high fixed
asset turnover is preferred since it indicates a better efficiency in fixed assets
utilization.
It was quite low in the year 2007 & 2009 i.e. 1.27 times. That shows that
company had more money stuck in fixed assets for each unit of sales revenue.
However after 2009 we can see continuous growth that will definitely affect
companys business positively and shows efficient management of funds
(ii) Capital Turnover Ratio
Capital Turnover Ratio = Net sales

Capital Employed
Net Sales
54874 46322.59 41923.8 37050.1 32595.2
Capital Employed 99291.46853 90868.93343 79472.9881 85664.32125 77514.8308
Capital
Turnover
Ratio 0.55 0.50 0.52 0.43 0.4
Notes:
Since NTPC Ltd. belongs to power sector industry where gestation period for new
projects is always more than 3-5 years, therefore a part of capital gets blocked in
such projects. Thus, relationship cannot be established between that capital and
sales (since it is not generating any sales). That is the reason , such capital do not
form part of capital employed for the purpose of calculation in different financial
statements.
In order to find the exact Return on Capital Employed we need to have data
regarding all projects undertaken, since the required data is not available we have
used information available in the annual report.
(X-axis: Years, Y-axis: Capital Turnover Ratio)
Comments:
Capital turnover establishes relationship between the net sales and capital
employed.
The higher the ratio is, the more efficiently a company is using its capital.
In the case on NTPC Ltd trends show that capital turnover is continuously rising
from 2007-2011.
This definitely shows sign of efficient management of capital by the top

management.
Capital turnover was highest during the year 2011 i.e. 0.55 this indicates the
relationship between the capital employed and sales generated.
(iii) Value added per employee
Value added per employee = Operating profit +salaries +wages + payroll expenses
Average no. of Employees
Operating profit ,
employees
remuneration and
other expenses 19037.6 17332.39 13947.01 12783.96 11092.
Average no. of
employees 23797 23743 23639 23674 236
Value added per
employee 0.8 0.73 0.59 0.54 0.4
Notes:
Average number of employees is the figures as available in the

annual report.
Average number of employees excludes employees in JVs and

subsidiaries.
(X-axis: Years, Y-axis: Value Added Per Employee Ratio)
Comments:
Value added per employee is defined by customer perception of service and then
measured using the customer's perception per employee.
In context to NTPC Ltd trends show the increasing value added per employee, it
shows that even this aspect is now been given due attention.
d) SOLVENCY RATIOS
Proprietary Ratio = Shareholders Funds

Total assets
(i) Proprietary Ratio

Shareholders
Funds 67892.25 62437.5 57370.07 52638.6 48596.8
Total Assets
125248.22 112488.49 104251.41 89388.07 80764.33
Proprietary
Ratio 54:46 55:45 55:45 58:42 60:40
Notes:
Shareholders funds for all 5 years includes the amount of share capital i.e Rs
8,245.46 crores (constant for all 5 years) and Reserves & Surplus.
Reserves & Surplus includes capital reserves , bonds redemption reserves,

General Reserve & surplus in P& L account.
Total Assets as per the balance sheet of 2010-11 is Rs 112,634.46 crores . For our
calculations, we have included current assets, loans & advances instead of net
current assets ( i.e after deducting current liabilities & provisions)
Therefore, Total assets include Net Block, Capital Work- in- Progress ,
Construction Stores & advances, Investments, Current Assets , Loans &
Advances.
(X-axis: Years, Y-axis: Proprietary Ratio)

Comments:
A higher proprietary ratio would imply that company has enough capital to repay
its creditors whenever any such demand is made by the creditors.
A lower proprietary ratio would imply that company is not in a position to pay all
of its creditors and therefore a low proprietary ratio is a cause of concern for the
creditors of the company.
For NTPC Ltd as per the trend of last 5 years this ratio is continuously declining.
It was least in last year i.e. in 2011, 0.542. Still company is always in a position to
repay its creditors comfortably.
This ratio for NTPC Ltd is good as compared to its counterparts in the industry.
This helps the creditors of the company in seeing that their capital or loans which
the creditors have given to the company are safe.
Debt- Equity Ratio = Total long Term Debt :Shareholders Funds

(ii) Debt-Equity Ratio: This describes the relationship between the lenders
contribution for each rupee of the owners contribution.
Shareholders
Funds 67892.25 62437.5 57370.07 52638.6 48596.8
Total long
term debt
43174.98 37783.63 34566.33 27177.67 24451.65
Debt-Equity
Ratio 63:37 60:40 60:40 51:49 50:50
Notes:
Total Long term loan as per the Balance Sheet 2010-11 was Rs 43,188.24 crores .
However, for our calculation we have deducted the amount of working capital
loan in the form of fixed deposits(due for payment within 1 year) i.e Rs 13.26
crores. Therefore, the figure for total long term debt comes out to be Rs 43174.98
crores. Same has been done for previous 4 years as well.
Shareholders funds for all 5 years includes the amount of share capital i.e Rs
8,245.46 crores (constant for all 5 years) and Reserves & Surplus.
Reserves & Surplus includes capital reserves , bonds redemption reserves,

General Reserve & surplus in P& L account.
(X-axis: Years, Y-axis: Debt Equity Ratio)
Comments:
A high debt/equity ratio generally means that a company has been aggressive in
financing its growth with debt.
This can result in volatile earnings as a result of the additional interest expense.
The cost of this debt financing may outweigh the return that the
company generates on the debt through investment and business activities and
become too much for the company to handle. This can lead to bankruptcy, which
would leave shareholders with nothing.
However if a lot of debt is used to finance increased operations (high debt to

equity), the company could potentially generate more earnings than it would have
without this outside financing.
Regarding NTPC Ltd this ratio is continuously increasing for last 5 years.
It would have been considered ideal if the company would have maintained ratio
nearly 70:30.
It was highest during last year i.e. 2011, 0.64. So the Company has ample scope
to introduce more debt in its structure. For a matter of fact it should intro
duce more debt than it is currently using.
Therefore we can say that the ratios in past 5 years are suitable for NTPC Ltd and
it must continue to increase the debt proportion in its structure till it reaches
70:30.
(iii) Capital Gearing Ratio
Capital Gearing Ratio = Equity share capital : Fixed Income Securities
Equity share
capital 8245.46 8245.46 8245.46 8245.46 8245.46
Total long
term debt
43174.98 37783.63 34566.33 27177.67 24451.65
Capital
Gearing Ratio 19:81 21:79 23:77 30:70 33:67
Notes:
Here Fixed Income Securities means: Total Long Term Debt + Preference Share
Capital
Since Preference share capital is nil amount remains same as Total Long Term
Debt.
Equity share Capital comprises of 8245464400 equity share of Rs 10 each (fully

paid up).
Total Long term loan as per the Balance Sheet 2010-11 was Rs 43,188.24 crores .
However, for our calculation we have deducted the amount of working capital
loan in the form of fixed deposits(due for payment within 1 year) i.e Rs 13.26
cores. Therefore, the figure for total long term debt comes out to be Rs 43174.98
cores. Same has been done for previous 4 years as well.
(X-axis: Years, Y-axis: Capital Gearing Ratio)
Comments:
The higher a company's degree of leverage, the more the company is considered
risky.
It is the proportion between the fixed interest or dividend bearing funds and non
fixed interest or dividend bearing funds.
It must be carefully planned as it affects the company's capacity to maintain a

uniform dividend policy during difficult trading periods..
For NTPC Ltd the ratio is continuously declining from the year 2007. This is
good as it shows reducing risk. It reveals the suitability of company's
capitalization
It was highest in the year 2007 i.e. 0.33 and gradually declined to just 0.19 by
2011.
(iv) Interest Coverage Ratio
Interest coverage Ratio = EBIT

Interest charges on long term borrowing
EBIT 14198.68 12694.39 11356.69 12052.97 10766.81
Interest
charges on
long term
borrowing
2149.08 1808.93 1996.22 1798.04 1859.38
Interest
Coverage
Ratio 6.60 7.01 5.70 6.70 5.80
(X-axis: Years, Y-axis: Interest Coverage Ratio)
Comments:
The lower the ratio, the more the company is burdened by debt expense. When a
company's interest coverage ratio is 1.5 or lower, its ability to meet interest
expenses may be questionable.
The interest coverage ratio is considered to be a financial leverage ratio in that it

analyzes one aspect of a company's financial viability regarding its debt.
For NTPC Ltd data shows that company is not under much of debt expense.
It was highest in the year 2010 i.e 7.01 times and lowest in the year 2009 i.e 5.68
times
CH-8
FINDINGS
Findings
The total income of NTPC Ltd. For the year 2010-11 increased by 16.59% to Rs.
57399.49 crores from Rs. 49233.88 crores during 2009-2010
The net profit after tax increased from Rs 9102.59 crores from Rs 8728.20 crores
registering a growth of 5.29 % over last year.
Employees remuneration and benefits have increased by 15% from Rs 2,412.36

crores in financial year 2009-10 to Rs 2,789.71 crores in the year 2010-11 of
which Rs 69.48 crores is due to additional commercial capacity.
During the year 2010-11, company realized 100% payment for current bills raised
for sale of power for the 8th successive year.
It was observed that a major portion of current assets comprised of Cash and Bank
balances.
The company has established a State- of-the-art IT enabled Project Monitoring

Centres (PMC) for facilitating fast track project implementation.
The supply of power improved during the year 2010-11 owing to increase in
capacity in coal as well as gas based plants.
NTPC Ltd. has always discharged its social responsibility as a part of its
Corporate Governance Philosophy. It follows the global practice of addressing
CSR issues in an integrated multi stake holder approach covering the environment
and social aspects.
CH-9
SUGGESTIO
NS
&
CONCLUSIO
N
Suggestions & Conclusion
Gross Profit ratios have continuously gone under various fluctuations in the last
five years. However the ratios are more than the industry standard. Gross profit
ratio was lowest last year i.e. 2011, 31.95% this indicates that overheads cost has
not been controlled as required. Such low margin indicates that the business is
unable to control its production cost.
Majority of the projects undertaken by NTPC are in growth stage or their

respective lifecycle. This is one of the reasons for its low profits in recent years.
Net profit is the number that really matters, as this is the true indication of
profitability. The total income of NTPC Ltd. For the year 2010-11 increased by
16.59% to Rs 57,399.49 crores from Rs 49,233.88 crores during 2009-10
Net profit ratio for NTPC has been highest in the year 2007 i.e. 21.05%.
Thereafter it has continuously declined. It was lowest in the year 2011 i.e. 16.58%
Though net profits ratio of NTPC have declined they are still decent as
compared to its counterparts in industry.
In the initial years i.e. during 2008 and 2007 current ratio has clearly exceeded
the ideal ratio i.e. 2:1. In 2008 it was 3.22:1 while in the year 2007 it was 3.11:1.
Significant improvement has been shown in proceeding years and the ratio has
been best in the year 2011 as compared to other four years, as during this it was
2.70:1 that is quite close to the ideal ratio.
In case of NTPC Ltd this returns on total assets ratio is continuously declining
which shows that return as compared to the assets is declining.
NTPC Ltd. belongs to power sector industry where gestation period for new
projects is always more than 3-5 years, therefore a part of capital gets blocked in
such projects.
In last financial year debt has registered a growth of 14% which seems to be
matching with companys rate of diversification.
The debt-equity ratio at the end of financial year 2010-11 increased to 0.64 from
0.61 at the end of previous financial year.
The amount raised through term loans, bonds and foreign currency borrowings
was used for capital expenditure and re-financing while amount raised through
deposits have been used for working capital purposes.
Looking at the profitability, size and promising future prospects , we can say that
for NTPC Ltd. there is still a room for including more of debt into its capital
structure as debt is a cheaper source of finance so thereby it would lead to more of
profitability
For NTPC Ltd the Fixed assets turnover ratio was highest in the year2008 i.e.
1.41. Company should put in efforts to increase it further as a higher fixed asset
turnover indicates better efficiency in fixed assets utilization.
Trends show the increasing value added per employee, it shows that even this
aspect is now been given due attention
More earnings can be retained for fast-track implementation of new projects with
ultimate of increasing net worth.During all five years more than 60% of net
earnings after tax is retained with an aim efficient reinvestment which will fetch
better returns.
The growth of company through capacity addition and strategic diversification of

its operations would lead to increase in shareholders value.
CH-10
BIBLIOGRAPHY
Bibliography
Published sources
Grewal, T.S. ,2007,Double-entry Book Keeping(Revised Edition), Delhi,Sultan

Chand and Sons Pvt Ltd, New Delhi, Pg. no. 107-134
Goel, D.K. ,2007, D.K. Goels Accountancy, Arya Publications, New Delhi, Pg.
no. 84-102
Whittington, G. (1980), "Some basic properties of accounting ratios", Journal of

Business Finance and Accounting 7/2, Pg. no. 219-232.
Ittelson, Thomas,2008, Financial Statements, Bostan, ch-13 pg num 193-198
Internet sources,
Introduction to Ratio analysis ,Retrieved June 20,2012 from

http://www.investopedia.com/terms/r/ratioanalysis.asp
Types of Ratios, Retrieved june 21,2012 from
http://www.googobits.com/articles/p2-596-reading-financial-statements-with-an-
analytical-eye.html
Timo Salmi and Teppo Martikainen
http://lipas.uwasa.fi/~ts/ejre/ejre.html
Dyson, R.G , Thanassoulis, E and Boussofiane, Retrieved June 23,2012
http://ideas.repec.org/a/eee/jomega/v24y1996i3p229-244.html
Daniel J. Fonseca, Gary P. Moynihan and Vineet Jain, Retrieved June 24,2012
http://ideas.repec.org/a/ids/ijfsmg/v1y2006i2p141-154.html
Mirela monea, Retrieved June 24,2012
http://ideas.repec.org/a/pet/annals/v9i2y2009p137-144.html
About Returns on capital employed, Retrieved June 24,2012
http://en.wikipedia.org/wiki/Return_on_capital_employed
Glossary
T&D Losses Transmission and Distribution Losses
AT&C Losses Aggregate technical and commercial Losses
PLF Plant load Factor
SPU State Public Utilities
ANNEXURE

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INTRODUCTION

In order to strengthen its competitive advantage in power generation business, the

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the

Use and significance of ratio analysis:-

The interpretation of ratios is an important factor. The inherent limitations of ratio

Liquidity ratios - short-term financial strength, measures the firms ability

Solvency ratios - long-term financial strength, shows the proportions of

A measure of a company's financial leverage calculated by dividing its total

Capital Gearing Ratio

Interest Coverage Ratio

Gross Profit Ratio

Net Profit Ratio

Return on total assets ratio

Return on Capital Employed (ROCE) is used in finance as a measure of the

Earnings per Share (EPS)

The portion of a company's profit allocated to each outstanding share of common

Dividends per Share (DPS)

Dividend Payout Ratio

Fixed Asset Turnover Ratio

Capital turnover ratio

A company's annual sales divided by its average stockholders'

Value added per employee

NTPC- A global giant in power sector

NTPC Limited (formerly National Thermal Power Corporation)

Pursuant to a special resolution passed by the Shareholders at the Companys Annual

NTPC's core business is engineering, construction and operation of power generating

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

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

Equipment Manufacturing: Enormous growth in power sector necessitates

NTPC Electric Supply Company Ltd. (NESCL)

NTPC, with a rich experience of engineering, construction and operation of around

VISION AND MISSION

"Develop and provide reliable power, related products and services at

CORE VALUES (BE COMMITTED)

Environmentally and economically sustainable

Organizational & professional Pride

Mutual Respect and Trust

Motivating self and others

Innovation and Speed

Transparent and respected organization

Strong design and engineering support.

Efficient and timely completion of projects.

Best-integrated project management systems. It is moving ahead with sound

Increasing demand for electricity.

Conducive regulatory framework for investment by private sector.

Ultra Mega Power Projects.

Upcoming hydro and nuclear sector

OBJECTIVE & SCOPE OF STUDY

To evaluate the performance of the company by using ratios as a yardstick to

To understand the liquidity, profitability and efficiency positions of the company

To make comparisons between the ratios during different periods.

Scope of the Study:

Following are the steps followed in the ratio analysis.

The basis of ratio analysis is majorly of four types.

Past ratios, calculated from past financial statements of the firm.

Industry ratio, the industry ratios to which the firm belongs to

The study is based on only secondary data.

The period of study was 2007-2011 financial years only.

Only the information available in public domain was used.

The sample size selected is of five years i.e. from 2007-2011.

The sampling procedure employed for this is judgmental sampling a convenience

Software tools used for the data analysis