MANAGEMENT IS MOST IMPORTANT ASPECT FOR THE WORLD

TODAY. FINANCE IS ONE OF THE MAJOR FUNCTIONAL ARE OF

MANAGEMENT. “FINANCE IS THE PROCESS OF ORGANIZING THE
FLOW OF FUNDS SO THAT BUSINESS CAN CARRY OUT ITS
OBJECTIVE IN THE MOST EFFICIENT MANNER AND MET ITS
OBLIGATION THE FALL DUE.”

THIS REPORT IS BASED ON FINANCIAL MANAGEMENT AND

FINANCIAL ACCOUNTS. THIS REPORT ALLOWED ME TO
PRACTICALLY STUDY A REAL BUSINESS WORLD ONLY THE
THEORETICAL KNOWLEDGE DOES NOT IMPARTED COMPLETE
EDUCATION IT MUST BE ACCOMPANIED WITH PRACTICAL
KNOWLEDGE IT ADD MEANING TO EDUCATIONS.

MY OBJECTIVE AND PURPOSE OF THE STUDY OF NTPC

LIMITED IS TO KNOW THE POSITION OF THE COMPANY FROM
INVESTORS, MANAGEMENT, MONEYLENDERS AND FINANCIERS,
GOVERNMENT AND SOCIETY AS A WHOLE. THE PROJECT IS ABLE
TO SEE THE LIGHT OF THE DAY BECAUSE OF DEEP STUDY, HARD
WORK AND PROPER GUIDANCE OF FACULTY MEMBERS.
 2

THE PREPARATION OF THE REPORT IN THIS FORM WOULD

HAVE NOT BEEN POSSIBLE WITHOUT THE GUIDANCE OF OUR
LEARNED PROFESSOR CHARMI SHAH AND PROFESSOR ASHWIN
DAVE

THIS REPORT IS AN IMPORTANT ASPECT TOWARDS

PRACTICAL EXPOSURE MY TROUBLE GRATITUDE TO THE
MANAGEMENT AT CPIMR WITH A SPECIAL MENTION THANKS TO
THE DIRECTOR OF THE INSTITUTE FOR IMPARTING VALUABLE
FACILITY AND CO-OPERATION

FURTHER MY SPECIAL THANKS AND ACKNOWLEDGEMENTS GO

TO THE LEADING MAGAZINES, WEBSITES, BOOKS AND
PERIODICALS WHICH HAVE HELPED ME A LOT IN MY
UNDERSTANDING THE COMPANY AND EXPRESS MYSELF IN THIS
PROJECT REPORT IN A BETTER WAY
2
INDEX

BACKGROUND OF THE INDUSTRY

COMPANY PROFILE:
1. Introduction of a company
2. Vision & mission
3. Details of company’s products & services
4. Competitors
5. Mergers & acquisitions & joint ventures
6. Financial highlights

REPORTS:
1. Directors report
2. Auditors report
3. Corporate governance report
4. Management discussion & analysis

STATEMENT OF P&L A/C

BALANCESHEET ANNALYSIS

ANALYSIS & INTERPRETATION OF RATIOS

ANALYSIS OF CASH FLOW STATEMENT (AS-3)

5
 Background of the Industry

Power Infrastructure in India:

The Power industry in India derives its funds and financing from the government, some
private players that have entered the market recently, World Bank, public issues and other
global funds. The Power Ministry India has set up Power Finance Corporation of India that
looks after the financing of the power sector in India. The Power Finance Corporation
Limited provides finance to major power projects in India for power generation and
conversion, distribution and supply of power in India.

Power Finance Corporation (PFC) Ltd India also looks after the installation of any new
power projects as well as renovation of an existing power project India. The PFC in
association with central electricity authority and the ministry of power facilitates the
development in infrastructure of the power sector India. They have taken up construction of
mega power projects that will answer to the power shortage in various states through power
transmission through regional and national power grids.

Power Supply Units India:

Power is derived from various sources in India. These include thermal power, hydropower
or hydroelectricity, solar power, biogas energy, wind power etc. the distribution of the power
generated is undertaken by Rural Electrification Corporation for electricity power supply to
the rural areas, North Eastern Electric Power Corporation for electricity supply to the North
East India regions and the Power Grid Corporation of India Limited for an all India supply of
electrical power in India.

 Thermal Power in India is mainly generated through coal, gas and oil.
India coal power forms a majority share of the source of power supply in India. The
electric power in India is generated at various thermal power stations in India. The
power generated at these thermal power plants is then distributed all over India
 33

through a network of powergrid at regional and national levels. The power ministry
organization responsible for the thermal power management in India is the NTPC.
 Hydropower is India is one of the mega power generators in India. Various
hydropower projects and hydro power plants have been set up by the ministry of
power for generation of hydro power in India. Various dams and reservoirs are
constructed on major rivers and the kinetic energy of the flowing water is utilized to
generate hydroelectricity. The power generator here is the running water. The
hydroelectric power plants and the hydro power generation companies are managed
by the National Hydro Electric Power Corporation (NHPC).
 Wind Power in India is available in plenty as India witnesses high intensity
winds in various regions due to the topographical diversity in India. Efforts have been
made to utilize this natural source of energy available free of cost for wind power
generation. Huge wind energy farms have been set up by the government for
tapping the wind energy by using gigantic windmills and them converting the kinetic
energy of the wind into electricity by the use of power converters. The wind power
advantages start with the very fact that a wind energy power plant does not require
much infrastructure input and the raw material i.e. wind itself is available free of cost.
 Solar Power in India is being utilized to generate electricity on smaller
scale by setting up massive solar panels and capturing the solar power. Solar power
India is also being utilized by the power companies in India to generate solar energy
for domestic and small industrial uses.
 Nuclear Power in India is generated at huge nuclear power plants and
nuclear power stations in India. A nuclear power plant generates the electricity using
nuclear energy. All the nuclear power plants in India are managed by the Nuclear
Power Corp of India Ltd (NPCL). The electricity from all India nuclear plants is
distributed by the NPCL as per the nuclear power project scheme.
 Biogas Production in India is still in its infancy stage. Also the number of
biogas plants in India is still very low. India being the largest domestic cattle
producer has plenty of biogas fuel and thus utilization of the fuel for mass biogas
production by setting up more biogas plants in India would solve the power shortage
problem to some extent.
33
 33

COMPANY PROFILE

NTPC, the largest power Company in India, was setup in 1975 to accelerate power
development in the country. It is among the world’s largest and most efficient power
generation companies. In Forbes list of World’s 2000 Largest Companies for the year 2007,
NTPC occupies 411th place. NTPC has installed capacity of 29,394 MW. It has 15 coal
based power stations (23,395 MW), 7 gas based power stations (3,955 MW) and 4 power
stations in Joint Ventures (1,794 MW). The company has power generating facilities in all
major regions of the country. It plans to be a 75,000 MW company by 2017.

Vision-A world class integrated power major, powering India's growth with increasing
global presence.

Mission-Develop and provide reliable power related products and services at

competitive prices, integrating multiple energy resources with innovative & Eco-friendly
technologies and contribution to the society

Core Values - BCOMIT

 Business ethics
 Customer Focus
 Organizational & Professional Pride
 Mutual Respect & Trust
 Innovation & Speed
 Total Quality for Excellence

Corporate mission
“Develop and provide reliable power, related products and services at competitive prices,
integrating multiple energy sources with innovative and eco-friendly technologies and
contribute to society”

Products and services

1. Power generation- The Company has formulated a long term Corporate

Plan for 15 years up to 2017. The Corporate Plan seeks to integrate the Company's
vision, mission and strategies for growth with the national plans and to provide the
company the cutting edge in the emerging competitive environment. NTPC is
targeting to become a 75,000 MW Plus company by 2017.NTPC has also
demonstrated its ability in turning around sub-optimally performing stations. The
phenomenal improvement in the performance of Badarpur (705 MW), Unchahar (420
MW,) and Talcher (460 MW), by NTPC stand testimony to this.
 33

Installed Capacity Overview

No Of Plants Capacity MW
NTPC Owned
Coal 15 23,895
Gas/Liquid
7 3,955
Fuel
Total 22 27,850
Owned By JVs
Coal & Gas 4 2,044
Total 26 29,894

2. Consultancy-The Consultancy Wing of NTPC, with an ISO 9001:2000

accreditation, undertakes all the Consultancy and turnkey project contracts for
Domestic and International clients in the different phases of Power plants viz.
construction supervision, Project management, FQA, Inspection services, O&M,
RLA/R&M of various power utilities. With the string of achievements behind it, NTPC
has emerged as the acknowledged leader in engineering, construction, O&M,
RLA/R&M and management of poer projects. NTPC is registered as a consultant
with several leading international development and financial institutions such as The
World Bank, The Asian Development Bank, The African Development Bank and
UNDP.
3. Power Management Institute- NTPC has full fledged facilities at the Power
Management Institute, NOIDA for providing training in all aspects of power Plant
Management and Systems. It also has Full Scope Replica Training Simulators both
for Coal as well as Gas based Stations for training personnel in Operation and
Maintenance of power plants. Apart from our own employees, we have imparted
simulator training on operation and maintenance of power plants to operating
personnel from other power utilities from India and abroad.

Competitors-
Many government as well as private organizations have taken up the task of power
generation in India. The major Indian power companies playing prime are:

 Bhakra Beas Management Board

 Enercon Systems India
 Essar Group
 GMR Group
 Gujarat State Petroleum Corporation Ltd
 Jindal Steel & Power Limited
 33

 Reliance Energy Ltd.

 GE Power Controls India
 Green Power India

Acquisition
Business development through Acquisition serves both NTPC's own commercial interest as well as
the interest of the Indian economy Taking over being a part of the acquisition process, is also an
opportunity for NTPC to add to its power generation capacity through minimal investment and very
low gestation period. NTPC has, over the years, acquired the following three power stations
belonging to other utilities/SEBs and has turned around each of them using its corporate abilities.

POWER STATIONS TAKEN OVER YEAR ORIGINAL OWNER

2x210 MW FEROZE GANDHI UNCHAHAR UP RajyaVidyut Utpadan Nigam of

1991
THERMAL POWER STATION Uttar Pradesh

4x60 MW + 2x110 MW TALCHER THERMAL

1995Orissa State Electricity Board
POWER STATION

4x110 MW TANDA THERMAL POWER STATION 2000UP State Electricity Board

705MW Badarpur Thermal Power Station 2006Central Electricity Authority

Joint ventures:
• NTPC -ALSTOM POWER SERVICES PVT. LTD. (NASL)( EQUITY: 50:50)
(Incorporated in 1999 and formerly known as NTPC-ABB ALSTOM POWER
SERVICES PVT. LTD)
• UTILITY POWER TECH LTD (EQUITY: 50:50)
(Incorporated in 1996) This JV has been promoted with Reliance Energy Limited
(formerly BSES Limited) a private sector Indian power company.
• PTC(India) Ltd (Incorporated in 1998) ( EQUITY: 50:50)
• NTPC-SAIL POWER COMPANY (PVT) LTD (NSPCL) ( EQUITY: 50:50)
• NTPC TAMIL NADU ENERGY COMPANY LIMITED ( EQUITY: 50:50)
• Vaishali Power Generating Company LIMITED (Equity 51-74% : 49-26%)
• ARAVALI POWER COMPANY PRIVATE LTD (Equity: 50%IPGCL-25%, HPGCL-
25%)

FINANCIAL HIGHLIGHT
The total income of the company for the year increased by 13.10% to Rs.400,113 million
from Rs.353,766 million during the previous year. The profit after tax but before provisions
and prior period adjustments increased by 12.08% to Rs. 76,900 million from Rs 68611
million. Net profit after tax increased to Rs. 74,148 million from Rs 68,647 million registering
a growth of 8% over last year.
33
 33

DIRECTORS’ REPORT
The total income of the company for the year increased by 13.10% to Rs,
400,113 million from Rs, 353,766 million during the previous year. The profit
after tax but before provisions and prior period adjustment increased by 12.08%
to Rs. 76,900 million from Rs. 68,611 million. Net profit after tax increased to
Rs. 74,148 million from Rs. 68,647 million registering a growth of 8% over last
year.

In addition to interim dividend of Rs. 2.70 per share paid in February 2008, your
directors have recommended a final dividend of Rs. 0.80 per share for the year
2007-2008. The total dividend for the year is Rs. 3.50 per share as against Rs.
3.20 per share paid last year. The total dividend pay-out for the year amounting
to Rs. 28,859 million represents 38.92% of the profit after tax as against 38.43%
in the previous year. The total dividend payout including tax accounts for
45.54% of the profit after tax.

Your directors believe that growth of the company through capacity addition,
backward and forward integration and strategic diversification of its operation
would lead to increase in shareholders’ value.

AUDITORS REPORTS
We have audited the attached balance sheet of NTPC LIMITED as on 31 st march 2008, the
profit and loss account and also the cash flow statement for the year ended on that day
these financial statement are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India
those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatements. An audit
includes examining, on test basis, evidence supporting the amounts and disclosers in the
financial statements. An audit also includes assessing the accounting principles used
significant estimates made by the management, as well as evaluation the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our
opinion.

As require by the companies order,2003 issued by government of India in terms of sub

section (4A) of section 227 of the companies act 1956 we enclose in the annexure a
statement on the matters specified in paragraph 4 and 5 of the said order.
 33

CORPORATE GOVERNANCE REPORT

In our company, corporate governance philosophy stems from our belief that corporate
governance is a key element in improving efficiency and growth as well as enhancing
investor confidence and accordingly the corporate governance philosophy has been
scripted as under.

“As a good corporate citizen, the company is committed to sound corporate practices based
on conscience, openness fairness, professionalism and accountability in building
confidence of its various stakeholders in it thereby paving the way for its long term
success.”

We are therefore, making continuous efforts to adopt the best practices in corporate
governance and we believe that the practices we are putting into place for the company
shall go beyond adherence to regulatory framework. Our corporate structure, business and
discloser practices have been aligned to our corporate philosophy.

MANAGEMENT DISCUSSION & ANALYSIS

A management discussion and analysis report, highlighting the performance and
prospects of company’s energy and environment businesses, is attached and forms part of
this report.

The company’s equity strength &shares are listed on two stock exchange the national stock
exchange of India (NSE) and Bombay stock exchange limited (BSE).

In order to sustain a GDP growth rate of 8% plus per annum, the power sector also needs
to grow at appropriate pace in the medium to long term the growth of GDP vis-à-vis-growth
rate.

The gross income of the company comprises of the income from sale of electricity,
consultancy and other services, and interest earned on investments such as term deposits
and bonds issued under one time settlement scheme. The gross income of the company for
the fiscal 2008 was Rs. 400,113 Million against Rs. 353,766 Million in the previous year
registering an increase of 13%. This gross income excludes provisions written back.

Cash generated from operating activity During the year improved substantially to Rs,.
101,711 million compared to Rs. 80,653 million in the previous year.
33
 33

P & L A/C FOR THE YEAR ENDED 31ST MARCH 2008

Analysis

PROFIT AND LOSS ACCOUNT SHOWS THE INCOME AND EXPENDITURES MADE BY THE
COMPANY DURING THE FINANCIAL YEAR. BY THIS ACCOUNT STACK OWNERS CAN GET
THE IDEA IN WHICH WAY COMPANY SPEND THEIR MONEY

THE TOTAL INCOME OF THE COMPANY INCREASED BY 13.10% TO THE PREVIOUS YEAR
IN THE SAME WAY EXPENDITURES ALSO INCREASED BY 11.34% TO THE PREVIOUS
YEAR. THIS GROWTH RATE IS SLIGHTLY LOWER THEN THE INCOME GROWTH RATE
 33

PROFIT AFTER TAX WAS INCREASED BY 38.56%

33
 33

BALANCESHEET AS ON 31ST MARCH 2008

Analysis

BY COMPARING THE BALANCE SHEET OF THE COMPNY TO THE PREVIOUS YEAR WE CAN
GET THE IDEA OF WHAT TYPE OF MAJER CHANGES TAKEN PLACE DURING THE YEAR
WHICH ULTIMETELY AFFECTS THE MARKET VALUE OF THE COMPANY.

HERE THE SHAREHOLDERS’ FUND, INCRESDED BY 8.3% TO THE PREVIOUS YEAR.AND

LOAN FUNDS ALSO INCRESED BY 11.05% TO THE PREVIOUS YEAR

WHILE ON THE APPLICATION OF FUNDS SIDE FIXED ASSEST INCRESED BY 14.32%

INVESTMENTS INCRESED BY 15.17%
 33

BUT CURRENT LIABILITY AND PROVISION ARE INCRESE BY 12.87%

 33

COMMON SIZE STATEMENT

FINANCIAL STATEMENTS WHEN READ WITH ABSOLUTE

FIGURES ARE NOT EASILY UNDERSTANDABLE SOME TIMES

THEY EVEN MISLEAD THEREFORE IT IS NECESSARY THAT

FIGURES REPORTED IN THE STATEMENTS SHOULD BE

CONVERTED INTO PERCENTAGE SOME COMMON SIZE

BASE. IN THE PROFIT AND LOSS ACCOUNT NET SALES IS

ASSUMED TO BE EQUAL TO 100 AND OTHER FIGURE ARE

EXPECTED AS PERCENTAGE OF SALES. SIMILARLY IN THE

BALANCE SHEET THE TOTAL OF ASSETS OR LIABILITIES IS

TO BE TAKES AS 100 AND ALL OTHER FIGURES ARE

EXPECTED AS PERCENTAGE IS CALLED THE COMMON SIZE

STATEMENT. THERE ARE TWO TYPES OF COMMON SIZE

STATEMENT.

 COMMON SIZE PROFIT AND LOSS ACCOUNT

 COMMON SIZE BALANCE SHEET

 33

INCOME STATEMENT

Profit / Loss A/C 31-Mar-08(12) 31-Mar-07(12)

Rs million %OI Rs million %OI

Net Sales 378902.00 91.14 326317.00 91.20

Operating Income (OI) 415717.00 100.00 357793.00 100.00

OPBDIT 144922.00 34.86 127960.00 35.76

OPBDT 126622.00 30.46 109285.00 30.54

OPBT 105237.00 25.31 88531.00 24.74

Non-Operating Income 57.00 0.01 434.00 0.12

Extraordinary/Prior Period -2660.00 -0.64 109.00 0.03

Tax 28486.00 6.85 20427.00 5.71

Profit after tax(PAT) 74148.00 17.84 68647.00 19.19

Cash Profit 95533.00 22.98 89401.00 24.99

Dividend-Equity 28859.00 6.94 26385.00 7.37

BALANCESHEET STATEMENT
 33

Rs. In million
Liabilities 2006-2007 Percentage 2007-2008 Percentage

Equity share capital 82455 11.182 82455 10.122

Profit & loss A/c 899 0.122 211 0.026
Provision 17028 2.309 23816 2.924
Other liability 53235 7.219 55483 6.811
Secured loans 68229 9.253 73147 8.980
Unsecured loans 176615 23.952 198759 24.400
TOTAL OF BALANCESHEET 737380 100 814581 100

Assets

Investments 160943 21.826 152672 18.742

Inventories 25102 3.404 26757 3.285
Sundry Debtors 12523 1.698 29827 3.662
Cash & Bank Balances 133146 18.057 149332 18.332

Loans & Advances 40476 5.489 40354 4.954

TOTAL OF BALANCESHEET 737380 100 814581 100
 33

RATIO ANALYSIS:
 33

A RATIO IS COMPARISON OF TWO SPECIFIC VALUES FROM

THE COMPANIES P & L ACCOUNT AND BALANCE SHEET FOR
BETTER UNDERSTANDING OF FINANCIAL POSITION OF
COMPANY.

RATIO ANALYSIS IS A WIDLEY USED TOOL OF FINANICIAL ANALYSIS.

IT CAN BE USED TO COMPARE THE RISK AND RETURN
RELATIONSHIPS OF FIRMS OF DIFFERENT SIZES. IT IS DEFINED AS
THE SYSTEMATIC USE OF RATIO TO INTERPRET THE FINANICIAL
STATEMENTS SO THAT THE STRENGHTS AND WEAKNESSES OF A
FIRM AS WELL AS ITS HISTORICAL PERFOMANCE AND CURRENT
FINANICIAL CONDITION CAN BE DETERMINED. THE TERM RATIO
REFERS TO THE NUMERICAL OR QUANTITATIVE RELATIONSHIP
BETWEEN TWO VARIABLES/ITEMS.THIS RELATIONSHIP CAN BE
EXPRESSED AS

• PERCENTAGES SAY, NET PROFIT ARE 25% OF SALES.

• IN FRACTION NET PROFIT IS ONE FOURTH OF SALES.

• IN NO. OF TIME

THERE ARE CERTAIN TYPES OF RATIOS THAT WE USED FOR

REFLECTING THE RELATIONSHIP BETWEEN TWO VARIABLES.

A. LIQUIDITY RATIO.

B. CAPITAL STRUCTURE or LEVERAGE RATIOS.

C. PROFITABLITY RATIOS.

D. ACTIVITY RATIOS
33
 33

A: LIQUIDITY RATIO:
THE IMPORTANCE OF ADEQUATE LIQUIDITY IN THE SENSE
OF THE ABILITY OF A FIRM TO MEET CURRENT/SHORT TERM
OBLIGATIONS WHEN THEY BECOME DUE FOR THE PAYMENT
CAN HARDLY BE OVERSTRESSED. IN FACT, LIQUIDITY IS A
PREREQUISITE FOR THE VERY SURVIVAL OF A FIRM. THE
SHORT TERM CREDITORS OF THE FIRM ARE ALWAYS
INTRESTED IN LIQUIDITY OR SOLVENCY OF THE FIRM. THE
LIQUIDITY RATIOS MEASURE THE ABILITY OF A FIRM TO
MEET ITS SHORT TERM OBLIGATIONS AND REFLECT THE
SHORT TERM FINANICAIL STRENGTH / SOLVENCY OF A FIRM.
THE RATIOS WHICH INDICATE THE LIQUIDITY OF A FIRM ARE
(1) NET WORKING CAPITAL RATIOS

(2) CURRENT RATIO

(3) ACID TEST RATIO or QUICK RATIO

(4) SUPER QUICK RATIOS.

 33

NET WORKING CAPITAL:

THE TERM NET WORKING CAPITAL REFERS THE EXCESS OF CURRENT
ASSETS OVER CURRENT LIABLITIES. CURRENT ASSETS REFERS TO
ASSETS WHICH IN THE NORMAL COURSE OF BUSSINESS GET
CONVERTED IN TO CASH WITHOUT DIMUNITION IN VALUE OVER A
SHORT PERIOD. CURRENT LIABLITIES ARE THOSE WHICH HAS TO BE
PAID IN THE SHORT PERIOD. ALTHOUGH NET WORKING CAPITAL IS
NOT THE RATIO, IT IS FREQUENTLY EMPLOYED AS A MEASURE OF
COMPANY’S LIQUDITY’S POSITION. THE COMPANY SHOULD HAVE
ENOUGH N.W.C. IN ORDER TO MEET THE CLAIMS OF THE CREDITORS
AND THE DAY TO DAY NEEDS OF THE COMPANY.

Formula:

Rs. million
PARTICULARS 2006-07 2007-08

TOTAL CURRENT ASSETS 2,21,827 2,55,488

TOTAL CURRENT LIABLITIES 70263 79299

NET WORKING CAPITAL 1,51,564 1,76,189

HERE WE CAN SEE THAT THE NET WORKING CAPITAL HAS

GONE UP FROM Rs.million 1,51,564 TO 1,76,189 SO WE CAN SAY
THAT NWC HAS BEEN INCRESED 6 TIMES FROM YEAR 2006-07 TO
2007-08. WE CAN SAY THAT THE NWC HAS BEEN INCRESED BY
NEARLY 16% AT THE YEAR 2007-08 FROM THE PREVIOUS YEAR.
 33

CURRENT RATIO

THE CURRENT RATIO IS THE RATO OF TOTAL CURRENT ASSETS TO

TOTAL CURRENT LIABLITIES. IT IS CALCULATED BY DIVIDING CURRENT
ASSETS BY CURRENT LIABLITIES.

Formula:

Calculation:

Rs. In million
2006-2007 2007-2008
Particulars
Total current assets 2,21,827 2,55,488
Total Current liability 70263 79299

CURRENT RATIO 3.157 3.222

Interpretation:

THE CURRENT RATIOS OF A FIRM MEASURES ITS SHORT-TERM

SOLVENCY, THAT IS ITS ABILITY TO MEET SHORT-TREM
OBLIGATIONS. AS A MEASURE OF SHORT-TREM/ CURRENT
FINANICIAL LIQUIDITY, IT INDICATES THE RUPEES OF CURRENT
ASSETS (CASH BALANCE AND ITS POTENTIAL SOURCE OF CASH)
AVAILABLE FOR EACH RUPEE OF CURRENT LIABLITY/ OBLIGATION
PAYABLE. THE HIGHER THE CURRENT RATIO, THE LARGER IS THE
AMOUNT OF RUPESS AVAILABLE PER RUPEE OF CURRENT LIABLITY,
THE MORE IS THE FIRM’S ABILITY TO MEET CURRENT OBLIGATIONS
AND THE GREATER IS THE SAFETY OF FUNDS TO SHORT TERM
CREDITORS.
 33

CONTI….

IN THIS COMPANY WE CAN SEE THAT THE CURRENT RATIOS FOR THE
COMPANY IS 3.15:1, 3.22:1, FOR THE YEAR RESPECTIVLY 2006-2007,
2007-2008

THE IDOL CURRENT RATIO IS 2:1(CURRENT ASSETS TWICE

CURRENT LIABLITIES). HERE IN THE YEAR 2006-2007 WE CAN SEE
THAT THE RATIO IS 3.15:1. SO IT IMPLIES THAT FOR EVERY ONE
RUPEE OF CURRENT LIABLITIES, CURRENT ASSESTS OF 3.15 RUPEES
ARE AVAILABLE TO MEET THEM. LATER ON THE RATIO INCRESED TO
3.22 OVER ALL WE CAN CONCLUDE THAT THE COMPANY IS HAVING
ENOUGH FUNDS TO MEET ITS DAY TO DAY REQUIREMENTS AND
PAYMENTS TO CREDITORS. IN 2006-2007 THE CURRENT RATIO IS
3.15:1. IT IMPLIES THE INDICATES THE SLACK MANAGEMENT
PRACTICES, AS IT SIGNAL EXCESSIVE INVENTORIES FOR THE
CURRENT REQUIREMENTS AND POOR CREDIT MANAGEMENT IN
TERMS OF OVEREXTENDED RECEIVABLE.
 33

QUICK RATIO OR ACID TEST RATIO OR LIQUID RATIO

THE ACID TEST RATIO IS THE RATIO BETWEEN QUICK CURRENT ASSETS
AND CURRENT LIABLITIES AND IS CALCULATED BY DIVIDING THE QUICK
ASSETS BY THE CURRRENT LIABLITIES.

Formula:

Calculation:

Year 2006-2007 Year 2007-2008

Total current assets =221,827 =255,488
Stock + prepaid Expanses = =

INTERPRETATION:-
IN THIS RATIO, IDEAL RATIO IS 0.5: 1. BUT COMPANY’S
RATIO OF LAST THREE YEAR IS LOW. CURRENT YEAR
RATIO 0.06: 1 IS NOT ABLE FOE THE COMPANY.
 33

(B) CAPITAL STRUCTURE/LEVERAGE RATIOS:

THE SECOND CATEGORY OF FINANICIAL RATIOS IS LEVERAGE
OR CAPITAL STRCTURE RATIOS. THE LONG-TERM
LENDERS/CREDITORS WOULD JUDGE THE SOUNDNESS OF A
FIRM ON THE BASIS OF THE LONGTERM FINANICIAL
STRENGTH MEASURED IN TERMS OF ITS ABILITY TO PAY
INTEREST REGULARLY AS WELLA STHE REPAYMENT OF THE
INSTALLMENT OF THE PRINCIPAL ON DUE DATES OR IN ONE
LUMP SUM AT THE TIME OF MATURITY. THE LONG TERM
SOLVENCY OF THE COMPANY CAN BE EXAMINED BY USING
LEVERAGE OR CAPITAL STRUCTURE RATIOS. THERE ARE
THREE TYPES OF LEVERAGE RATIOS.

DEBT EQUITY RATIO

EQYITY ASSETS RATIO.

LONG TERM FUNDS TO FIXED ASSETS.

 33

(1).DEBT EQUITY RATIO:

THE D/E RATIO IMPLIES THE RATIO OF TOTAL OUTSIDE LIABLITIES TO
OWNERS’ TOTAL FUNDS.

IN OTHER WORDS IT IS THE RATIO OF THE AMOUNT INVSTED BY

OUTSIDERS TO THE AMOUNT INVESTED BY THE OWNERS. THIS RATIO REFERS
TO THE SAFTY OF THE OUTSIDERS FOR THE MONEY THAT HAD INVESTED IN D
COMPANY BY THEM.

FORMULA:

Rs. MILLIONS
PARTICULARS 2006-2007 2007-2008

EQUITY SHARE CAPITAL 82455 82455

RESERVE N SURPLUS 403513 443931
Total= 485968 526386

LONG TERM DEBTS 68229 73141

DEBT - EQUITY RATIO 0.50 0.52

THE IDOL RATIO OF D/E IS 1:2 IT IMPLIES THAT FOR EVERY ONE RUPEE OF
LONG TERM LIABLITY THERE IS THE OWNERS’ CAPITAL OF TWO RUPEES. BUT IN
OUR COMPANY IT HAS BEEN GRADUALLY INCRESED. IN THE YEAR 2006-2007
THE RATIO IS 0.14:1. THIS RATIO IMPLIES THAT THE COMPANY IS HAVING MORE
OUTSIDERS FUND THAN IT’S OWN FUNDS. A HIGH RATIO IMPLIES LARGE SHARE
OF FINANICING BY THE CREDITORS OF THE COMPANY WHERE LOW RATIO
IMPLIES A SMALLER CLAIM OF CREDITORS. IN THE YEAR 2007-2008 COMPANY
HAS TRIED TO MAINTAIN THE SATISFACTORY RATIO. IN THE YEAR 2007-2008
COMPANY HAS MAINTAINED THE SATISFACTORY RATIO OF 1:2. (0.13:1)
 33

(2).PROPRIETARY RATIO:
RATIO IMPLICATES THE PROPORITION OF OWNER’S FUND TO TOTAL
ASSETS EMPLOYED IN THE BUSINESS.

THIS RATIO ESTABLISHED THE RELATIONSHIP BETWEEN

PROPRIETOR’S FUND AND TOTAL ASSET. IT IS TEST OF LONG TERM
CREDIT STRENGTH. IT MEASURES THE EXTENT OF PROTECTION
VALUABLE TO THE CREDITORS. HIGHER THE RATIO THE STRANGER
THE FINANCIAL POSITION OF THE ENTERPRISE

FORMULA:

X 100

Rs. in millions
PARTICULARS 2006-2007 2007-2008

EQUITY SHARE CAPITAL 82455 82455

RESERVE N SURPLUS 403513 443931
Total 485968 526386

TOTAL CURRENT ASSETS 221827 255488

FIXED ASSETS 424873 485720
TOTAL REAL ASSETS 646700 741208

PROPRIETARY RATIO 75.146 71.017

 33

THIS RATIO IMPLICATES THE PROPORITION OF OWNER’S FUND TO TOTAL

ASSETS EMPLOYED IN THE BUSINESS. THE HIGHER THE RATIO, THE STRONGER
THE FINANICIAL POSITION OF THE COMPANY, AS IT SINGNIFIES THAT THE
PROPRITORS HAVE PROVIDED LARGER FUNDS TO PURCHASE THE ASSETS. HERE
A VERY HIGH RATIO IS NOT DESIRABLE BECAUSE IT MEANS THAT INSUFFICENT
USE IS BEING MADE OF OUTSIDE FUNDS. ACCORDING TO ONE SURVEY BY
RESERVE BANK OF INDIA THE RATIO WAS 36 TO 38% IN MOST OF THE INDIAN
COMPANIES.

IN OUR COMPANY IN THE YEAR OF PREVIOUS YEAR THIS RATIO IS 75.146%.

IN THE YEAR 2007 IT HAS INCRESED TO 71.017%.
 33

(3). LONG TERM FUNDS TO FIXED ASSEST

THE FIXED ASSETS SHOULD ALWAYS BE REQUIRED OUT OF LONG-
TERM FUNDS MEANING THAT THIS RATIO SHOULD NOT BE LESS THAN
100 LONG TERM FUNDS INCLUDE SHARE CAPITAL RESERVE AND LONG-
TERM LIABILITIES.

FORMULA:

Rs. in million
PARTICULARS 2006-2007 2007-2008

EQUITY SHARE CAPITAL 82455 82455

RESERVE N SURPLUS 403513 443931
LONGTERM LIABILITY 68229 73147
TOTAL LONG TERM FUNDS 554197 599533

TOTAL LONG TERM FUNDS 554197 599533

FIXED ASSETS 424873 485720

RATIO 1.304 1.234

33
(C) PROFITABILITY RATIO
THE THIRD CATEGORY OF FINANICIAL RATIOS IS
PROFITABILITY RATIOS. THE LONG-TERM
LENDERS/CREDITORS WOULD JUDGE THE SOUNDNESS OF A
FIRM ON THE BASIS OF THE LONGTERM FINANICIAL
STRENGTH MEASURED IN TERMS OF ITS ABILITY TO PAY
INTEREST REGULARLY AS WELLA STHE REPAYMENT OF THE
INSTALLMENT OF THE PRINCIPAL ON DUE DATES OR IN ONE
LUMP SUM AT THE TIME OF MATURITY. THE LONG TERM
SOLVENCY OF THE COMPANY CAN BE EXAMINED BY USING
LEVERAGE OR CAPITAL STRUCTURE RATIOS. THERE ARE SIX
TYPES OF LEVERAGE RATIOS.
GROSS PROFIT RATIO

NET PROFIT RATIO

OPERATING PROFIT RATIO

RETURN ON CAPITAL EMPLOYED

RETURN ON SHAREHOLDER FUNDS RATIO

EARNING PER SHARE

PRICE EARNINGS RATIO OR P/E RATIO

BOOK VALUE PER SHARE:

 33

Gross Profit Ratio

THIS RATIO MEASURES THE RELATIONSHIP BETWEEN GROSS PROFIT
AND THE NET SALES. LOWER THE RATIO INDICATES LOWER
PROFITABILITY AND UNFAVORABLE MAKE-UP POLICY. THE OBJECTIVE
OF COMPUTING THIS RATIO IS TO DETERMINE THE EFFICIENCY THAT
WHICH THE PRODUCTION AND PURCHASE OPERATIONS ARE CARRIED
ON IT INDICATES THE PROFIT AVAILABLE FOR NON MANUFACTURING
OVERHEADS.

Formula:

Rs. MILLIONS
PARTICULARS 2006-2007 2007-2008

GROSS PROFIT 89074 102549

SALES 325952 370501

GROSS PROFIT RATIO 27.327% 27.678%

INTERPRETATION:-

THE G.P RATIO OF THE COMPANY IN THE YEAR 06-07 VERY

GOOD BUT IN THE YEAR 04-05 AND 03-04 IT RAISE A LITTLE BIT
WHICH SHOWS GOOD PROFITABILITY OF THE COMPANY
 33

NET PROFIT RATIO

THE RATIO IS CALCULATED FOR THE PURPOSE OF MEASURING
OVERALL PROFITABILITY OF THE BUSINESS AND SHOW THE
EFFICIENCY OF OPERATING THE BUSINESS. HIGHER THE RATIO
INDICATES HIGHER PROFITABILITY.

Formula:

Rs. MILLIONS
PARTICULARS 2006-2007 2007-2008

NET PROFIT 68647 74148

SALES 325952 370501

NET PROFIT RATIO 21.060% 20.013%

INTERPRETATION :-

THIS RATIO INDICATES PROPORTION OF SALES

REVENUE LEFT TO THE COMPANY AFTER ALL OPERATING EXPENSES
ARE MET. HIGHER THE RATIO BETTER WILL BE THE PROFITABILITY.
IN THE YEAR 2006-’07, THE RATIO IS HIGHER, BUT IN 2007-’08, IT
HAS DECREASED.
 33

OPERATING RATIO
THIS RATIO MEASURES THE RELATIONSHIP BETWEEN THE OPERATING
EXPENSE AND THE NET SALES. THE OPERATING EXPENSE RATIO
GUIDES THE MANAGEMENT ABOUT OVERALL INCREASE OR DECREASE
IN OPERATING EXPENSE. A STUDY OF THIS RATIO REVEALS WHETHER
THESE COSTS ARE HIGHLY LOWER OR COMPARABLE TO OTHER FIRMS.
OPERATING EXPENSE INCLUDES ADMINISTRATING SELLING AND
FINANCIAL EXPENSES.

FORMULA:

Rs. MILLIONS
PARTICULARS 2006-2007 2007-2008

COST OF SALES(sales less G.P) 236878 267952

OPERATING EXPANCES 264842 294883
SALES 325952 370501

OPERATING RATIO 153.925 151.912

INTERPRETATION:-

IT IS A RATIO SHOWING RELATIONSHIP BETWEEN

COST OF GOODS SOLD PLUS OPERATING EXP. AND NET SALES. IT
SHOWS EFFICIENCY OF MANAGEMENT LOWER THE RATIO IS BETTER
FOR THE COMPANY.

FROM THE LAST TWO YEARS RATIO, CURRENT YEAR RATIO IS

LOWER. SO COMPANY TRIED TO DECREASE OPERATING RATIO.
 33

RETURN ON CAPITAL EMPLOYED

IT MEASURE RELATIONSHIP BETWEEN THE NET PROFIT EARNED AND
THE CAPITAL EMPLOYED TO EARN IT. RETURN ON CAPITAL EMPLOYED
IS THE BASIC PROFITABILITY RATIO. THEREFORE HIGHER THE RATIO
BETTERS THE SITUATION. THE SUCCESS OF THE ENTERPRISE IS JUDGE
WITH THE HELP OF THIS RATIO. THE OBJECTIVE OF COMPUTING THIS
RATIO IS TO FIND OUT HOW EFFICIENTLY THE LONG TERM FUNDS
SUPPLIED BY THE CREDITORS AND SHAREHOLDERS HAVE BEEN USED.

FORMULA:

Rs. In million
PARTICULARS 2006-2007 2007-2008

EQUITY SHARE CAPITAL 82455 82455

RESERVE N SURPLUS 403513 443931
LONGTERM LIABILITY 68229 73147
TOTAL CAPITAL EMPLOYED 564331 588868

TOTAL CAPITAL EMPLOYED 564331 588868

PROFIT BEFORE TAX AND
ADJUSTMENT* 78385 82854

RETURN ON CAPITAL EMPLOYED 13.890 14.070

WE CAN SEE THAT FOR ALL THE YEAR THE COMPANY HAS
MAINTAINED THE STAISFACTORY RATIOS. IT HAS BEEN GRADULY
INCRESED FROM 2006-‘07 TO 2007-‘08. THIS SHOWS THAT THE
COMPANY IS USING THE FUNDS MORE PROPERLY AND IN THE
BETTER WAY.
 33

RETURN ON SHAREHOLDER FUNDS RATIO

THIS RATIO MEASURES THE RELATIONSHIP BETWEEN NET PROFIT
AFTER INTEREST AND TAX AND SHAREHOLDER FUND. IT IS FOUND IN
ORDER TO JUDGE THE EFFICIENCY WITH WHICH PROPRIETORS FUNDS
ARE EMPLOYED IN BUSINESS.

FORMULA:

100

Rs. In
million
2006- 2007-
PARTICULARS 2007 2008

PAT 68647 74148

SH. FUNDS OR NET
WORTH 526386 485968
RATIO 13.041 15.258

INTERPRETATION

IN ORDER TO JUDGE THE EFFICIENCY WITH WHICH THE

PROPRIETOR FUNDS ARE EMPLOYED IN BUSINESS THIS RATIO IS
ASCERTAINED. IN THE PREVIOUS YEAR IT COMES TO 13.041%. IN
THE CURRENT YEAR IT COMES TO 15.258 THESE HIGH FIGURES
ATTRACTED THE SHAREHOLDER TO INVEST IN THE COMPANY.
 33

EARNING PER SHARE

EPS MEASURES THE PROFIT AVAILABLE TO EQUOTY SHARE HOLDESRS
ON A PER SHARE BASIS THAT IS THE AMOUNT THEY CAN GET ON
EVERY SHARE THAT THEY HELD. THIS PROFIT IS CALCULATED BY
DEDUCTING THE TAXES AND PREF. SHARE DIVIDEND FROM THE NET
PROFIT OF THE COMPANY.

FORMULA

Rs. In million
PARTICULARS 2006-2007 2007-2008

PROFIT AFTER TAX 68647 74148

PREFERANCE SHARE NILL NILL
DIVIDENT
NUMBER OF EQUITY SHARE 8245464400 8245464400
EARNING PER SHARE 8.3254 8.9926

HERE THERE HAS BEEN A VERY DRASTIC CHANGE FROM THE YEAR
2006-2007 TO 2007-2008. THIS CHANGE HAS BEEN OCURED
BECAUSE OF INCREASING IN THE PROFIT. WE CAN SEE THAT
THERE IS MORE THAN EIGHT TIMES OF PROFIT FROM THE YEAR
2006-2007 TO 2007-2008. SO THAT SHOWS THE COMPANY HAS
PERFOMED REALLY WELL IN THE YEAR 2007-2008.
 33

PRICE EARNINGS RATIO OR P/E RATIO:

THE P/E RATIO REFLECTS THE PRICE CURRENTLY BEING PAID BY THE
MARKET FOR EACH RUPEE OF CURRENTLY REPOTED E.P.S. IN OTHER
WORDS THIS RATIO MEASURES INVESTORS’ EXPACATION AND THE
MARKET APPRAISAL OF THE PERFOMANCE OF THE FIRMS.

PARTICULARS 2006-2007 2007-2008

MARKET PRICE OF SHARE 155.5 196.6

E.P.S. 8.3254 8.9926

P/E RATIO 18.67778125 21.86242021

WE CAN SEE THAT THE COMPANY HAD GOT THE

VARIATIONS IN THE P/E RATIO. IN 2004-05 IT WAS 41.08
AND THAN IT WAS RAISED TO 103.66 AND THAN
SUDDENLY DECRESSED TO 15.85. THE REASON IS THAT IN
2006-07 THE PROFIT OF THE COMPANY WAS RAISED. SO
THAT BASIC E.P.S. HAS ALSO RAISED. AND THE MARKET
PRICE HAS ALSO NOT INCRESED AS COMPARED TO THE
PREVIOUS YEAR.
 33

BOOK VALUE PER SHARE:

THIS RATIO IS SOMETIMES USED AS A BENCHMARK FOR COMPARISION
WITH THE MARKET PRICE PER SHARE. HOWEVER THE BOOK VALUE PER
SHARE HAS A SERIOUS LIMITATION AS VALUATION TOOL AS IT BASED
ON THE HISTORICAL COSTS OF THE ASSETS OF A FIRM. THERE MAY BE
SIGNIFICANT DIFFERNCE BETWEEN THE MARKET VALUE OF ASSETS
AND BOOK VALUE OF ASSESTS.
FORMULA:

Rs. In millions
PARTICULARS 2006-2007 2007-2008
EQUITY SHARE CAPITAL 82455 82455
RESERVE N SURPLUS 403513 443931
NET WORTH 485968 526386

NO. OF EQUITY SHARE 82455 82455

HOLDERS

BOOK VALUE PER SHARE 58.93 63.83

HERE WE CAN COMAPRE THE BOOK VALUE PER SHARE TO THE

MARKET VALUE OF SHARE. THE BOOK VALUE OF SHARE IN THE
YEAR 2006-2007 IS 5.893 WHILE THE MARKET PRICE OF SHARE IS
155.5 IN THE YEAR 2007-2008 THE BOOK VALUE IS 6.383 WHILE
THE MARKET VALUE IS 196.5. SO AGAIN WE FIND A BIG
DIFFERNCE BETWEEN THE MARKET PRICE AND BOOK PRICE OF
SHARE.
33
 33

ACTIVITY RATIOS
ACTIVITY RATIOS ARE CONCERNED WITH MEASURING THE
EFFICIENCY IN ASSET MANAGEMENT. THESE RATIOS ARE
CALLED EFFICIENCY RATIOS OR ASSET UTILLISATION
RATIOS. THE EFFICENCY WITH WHICH THE ASSETS ARE USED
WOULD BE REFLECTED IN THE SPPED AND RAPIDLY WITH
WHICH ASSETS ARE CONVERTED IN TO SALES.THE GREATER
THE RATIO SHOWS THE BETTER UTILISATION OF THE
ASSETS. THERE ARE VARIOUS TYPES OF ACTIVITY RATIOS.
INVENTORY RATIO

DEBTORS TURNOVER RATIO

CREDITORS TURNOVER RATIO

FIXED ASSEST TURNOVER

TOTAL ASSEST TURNOVER

 33

INVENTORY TURNOVER RATIO

THE RATIO SHOWS THE RELATIONSHIP BETWEEN COSTS OF GOODS
SOLD AND AVERAGE STOCK. THE PURPOSES OF THIS RATIO ARE TO
CHECK UP WHETHER ONLY THE REQUIRED MINIMUM AMOUNT HAS
BEEN INVESTED IN STOCK. A PROPER STOCK TURNOVER ENABLES THE
BUSINESS TO EARN A REASONABLE MARGIN OF PROFITS.

FORMULA:

THIS RATIO CAN BE CALCULATED BY FINDING THE COST OF

GOODS SOLD AND AVG. INVENTORY. THE COST OG GOODS SOLD
IS CALCULATED BY DEDUCTING THE GROSS PROFIT FROM THE
SALES. AND AVG. INVENTORY IS CALCULATED BY GETTING THE
AVG. OF OPENING AND CLOSING INVENTORY.

COST OF SALES=SALES - GROSS PROFIT

AVERAGE STOCK= (OPEING STOCK +CLOSING STOCK) /2

INVENTORIES FOR YEAR 2005-2006 IS RS. 23405 million

INVENTORIES FOR YEAR 2006-2007 IS RS. 25102 million

INVENTORIES FOR YEAR 2007-2008 IS RS. 26757 million

Rs. In million
PARTICULARS 2006-2007 2007-2008

COST OF SALES 236878 267952

AVERAGE STOCK 24253.5 25929.5

STOCK TURN OVER RATIO 9.767 10.334

 33

WE CAN SEE THAT THE INVENTORY RATIO IS ALMOST SAME

FOR TWO YEARS. IN CURRENT YEAR IT IS ALMOST 11 TIMES WHILE
IN PREVIOUS YEAR OF 10 TIMES THIS SHOWS THE COMPANY HAS
MAINTAINED THE SAME RATE OF TRANSFARING THE INVENTORY
INTO THE SALES FOR BOTH YEARS. IT SHOWS THE EFFICENT
MANGEMENT SYSTEM OF THE COMPANY. SO THE AVG. INVENTORY
IS CONVERTED ALMOST 10 TIMES INTO SALES IN A YEAR.
 33

DEBTORS TURNOVER RATIO

THIS RATIO ESTABLISHES THE RELATIONSHIP BETWEEN NET CREDIT
SALES AND AVERAGE DEBTORS OF THE YEAR. AVERAGE DEBTORS ARE
CALCULATED BY DIVIDING THE SUM OF DEBTORS IN THE BEGINNING
AND AT THE END. A DEBTOR TURNOVER MEASURES THE AMOUNT OF
RESOURCES TIED UP IN DEBTORS IS REASONABLE AND WHETHER THE
COMPANY HAS BEEN EFFICIENT IN COLLECTING DEBTOR’S CASH.

Formula:

Rs. In millions
PARTICULARS 2006-2007 2007-2008
SALES 325952 370501

DEBTORS 12523 29827

DEBTORS TURNOVER RATIO 26.028 12.422

THIS RATIO SHOWS AFTER HOW MANY DAYS WE ARE

GETTING MONEY. SO THE LESS NO. OF DAYS OR MORE NO. OF
TIMES IS BETTER FOR THE COMPANY.

HERE THE COMPANY HAS MAINTED THE RATIO TO ARROUND

26 TO 27 TIMES. THIS SHOWS THAT AVERAGE DEBTORS ARE
CONVERTED 26 TO 27 TIMES IN TO THE CASH OR LIQUDITY.

AVG. COLLECTION PERIOD:

THIS SHOWS THE AVG. COLLECTION PERIOD OF DEBTORS.

THE LOW THE PERIOD THE BETTER THE COLLECTION MANAGMENT
FOR THE COMPANY.
 33

FORMULA:

Rs. MILLIONS
PARTICULARS 2006-2007 2007-2008
DAYS IN A YEAR 365 365

DEBTORS TURNOVER RATIO 26.028 12.422

AVG. COLLECTION PERIOD(IN DAYS) 14.02 29.38

WE CAN SAY THAT FROM THE ABOVE INFORMATION THAT IN THE

PREVIOUS YEAR DEBTORS PAY THEIR PAYMENT IN 14 TO 15 DAYS.
BUT IN THE YEAR 2007-2008 DEBTORS PAY THEIR PAYMENT IN 29
TO 30 DAYS. WHICH SHOWS LIBERAL COLLECTION POLICY
 33

CREDITORS TURNOVER RATIO

THIS RATIO SHOWS THE RELATIONSHIP BETWEEN CREDITORS AND
CREDIT PURCHASE. THE NUMBER OF DAYS WITHIN WHICH WE MAKE
PAYMENT TO OUR CREDITORS FOR CREDIT PURCHASE IS OBTAINED
FORM CREDITOR’S VELOCITY.

Formula:

Rs. In millions
PARTICULARS Year 2006-2007 Year 2007-2008

Total Credit purchase 198181 220202

Average Creditors 15639 16338

RATIO 12.672 13.478

INTERPRETATION: -

IN THIS RATIO MORE THE NO. OF DAYS OR LESS

NO. OF TIMES IS GOOD FOR COMPANY.

HERE, IN THE YEAR 2006-’07 THE RATIO IS 13 TIMES ,2007-’08 (14

TIMES). IT IS GOOD FOR THE COMPANY.

AVG. PAYMENT PERIOD:

AVG. PAYMENT PERIOD SHOWS THE PAYMENT PAID TO CREDTIORS
IN THE DAYS. IT IS CALCULATED BY DAYS IN A YEAR TO THE
CREDITORS TURNOVER RATIO.
 33

Formula:

Rs. In million
PARTICULARS 2006-07 2007-08
DAYS IN A YEAR 365 365

CREDITORS TURNOVER 12.672 13.478

CREDITORS RATIO (IN DAYS) 28.804 27.081

THIS AGAIN SHOWS THE POOR CREDIT MANAGEMENT OF THE

COMPANY. THE PAYMNET PERIOD NEARLY 27 DAYS IN BOTH YEAR
THE COMPANY SHOULD DECIDE IN ADVANCE THE PAYMENT PERIOD
FOR THEIR CREDITORS.
 33

FIXED ASSEST TURNOVER

TO ASCERTAIN THE EFFICIENCY & PROFITABILITY OF THE BUSINESS,
THE TOTAL FIXED ASSETS ARE COMPARED TO SALES.

FORMULA:

Rs. in millions
PARTICULARS 2006-2007 2007-2008

SALES 325952 370501

FIXED ASSEST 256481 260937

FIXED ASSEST TURN OVER RATIO 1.271 1.420

INTERPRETATION: -

MORE THE SALES, THE MORE EFFICIENT USE OF

FIXED ASSETS. THE LAST TWO YEARS RATIO HAS INCREASED,
WHICH IS GOOD FOR THE COMPANY.
 33

TOTAL ASSEST TURNOVER

THE EFFICIENCY OF THE BUSINESS HOUSE IN UTILIZING ITS TOTAL
ASSETS.

THIS SHOWS THAT WHAT AMOUNTS OF THE TOTAL ASSETS ARE

EMPLOYED. THIS RATIO SHOWS THE EFFICIENCY OF THE
BUSINESS HOUSE IN UTILIZING ITS TOTAL ASSETS. THE
OBJECTIVE OF COMPUTING THIS RATIO IS TO DETERMINE THE
EFFICIENCY WITH WHICH THE TOTAL ASSETS ARE UTILIZED. IF
THERE IS INCREASE IN THE RATIO IT WILL INDICATE THAT THERE
IS IMPROVEMENT IN THE UTILIZATION OF TOTAL ASSETS.

FORMULA:

Rs. MILLIONS
PARTICULARS 2006-2007 2007-2008

SALES 325952 370501

TOTAL ASSEST 807643 893880

TOTAL ASSEST TURN OVER RATIO 0.404 0.414

HIGHER THE RATIO IS BETTER FOR THE

COMPANY. HERE FROM ABOVE TWO RATIOS, WE CAN SEE THAT, IT
 33

IS INCREASED IN CURRENT YEAR COMPARE TO THE PREVIOUS

YEAR WHICH IS GOOD FOR COMPANY.
 33

CAPITAL BUDGETING IS CONCERNED WITH INVESTMENT

DECISION WHICH YIELD RETURN OVER A PERIOD OF THE
TIME IN FUTURE. THE FOREMOST REQUIREMENT FOR
EVALUATION OF ANY CAPITAL INVESTMENT PROPOSAL IS
TO ESTIMATES THE FUTURE BENEFITS ACCRUING FROM
THE INVESTMENT PROPOSAL. THEORETICALLY TWO
ALTERNATIVES CRITERIA AVAILABLE TO QUANTITY OF THE
BENEFITS ARE

1)ACCOUNTING PROFITS
2)CASH FLOWS

THE CASH FLOW APPROACH MEASURING BENEFITS OF

PROJECTS IS SUPERIOR TO THE ACCOUNTING APPROACH
AS CASH FLOW ARE THEORETICALLY BETTER MEASURES
OF THE NET ECONOMIC BENEFITS OF COST ASSOCIATED
WITH THE PROPOSED PROJECTS. WHILE CONSIDERING AN
INVESTMENT PROPOSAL A FIRM IS INTERESTED IN
ESTIMATING ITS ECONOMIC VALUE. THIS ECONOMIC
VALUE IS DETERMINED BY THE ECONOMIES OUTFLOWS
 33

AND INFLOWS RELATED WITH THE INVESTMENT

PROJECTS.

ONLY CASH FLOW REPRESENTS THE CASH

TRANSACTION THE FIRM MUST PAY FOR THE PURCHASE OF
ASSETS WITH CASH. THE CASH OUTLAY REPRESENTS A
FOREGONE AN OPPORTUNITY TO USE CASH IN SOME
OTHER PRODUCTIVE. CONSEQUENTLY THE FIRM SHOULD
LASER’S FUTURE NET BENEFITS IN CASH TERMS.

ONLY CASH FLOWS REFLECT THE ACTUAL

TRANSACTIONS ASSOCIATED WITH THE PROJECT. SINCE
INVESTMENT ANALYSIS IS CONCERNED WITH FINING OUT
WHETHER FUTURE ECONOMIES INFLOW ARE SUFFICIENTLY
LARGE OF WARRANT THE INITIAL INVESTMENT, ONLY THE
CASH FLOW METHODS IS APPROPRIATED FOR
INVESTMENT DECISION ANALYSIS. IT IS ONLY CASH FLOW
APPROACH THAT TAKES COGNIZANCE OF THE TIME VALUE
OF MONEY.
33
 33

Analysis
Cash flow statement shows cash inflow as well as out flow of the company

Here in current year cash flow from operation activity is Rs. 101,711 in million against
Rs. 80,653 in million which shows net increase of 26.11% while from investing activity
in current year is Rs. 62,038 in million against Rs. 31,458 in million fo previous year
which shows net increase of 97.20%

And cash flow from financing activity in current year is Rs. 23,487 in million against
previous year of Rs. 763 in million Which shows Net increase of 2978.25%

Closing cash balance of previous year is Rs. 149,332 in million against previous year of
Rs. Rs. 133,146 in million Which shows Net increase of 12.15%
 33

AT LAST I WOULD TO CONCLUDE THAT THE FUTURE OF

“NTPC LTD” IS VERY BRIGHT. ITS PROGRESS AT A
VARIOUS STAGE HAS MADE THE FINANCIAL POSITION OF
THE COUNTRY MORE THAN THE HEALTHY AND BETTER.
ONE OF THE SILENT FEATURES OF “NTPC LIMITED” IS
THAT THE ENTIRE MANAGEMENT FUNCTION IS CARRIED
OUT WITH FULL CO-OPERATION AND UNITY.

AS QUALITY OF THE PRODUCT IS VERY GOOD, NTPC IS

ABLE TO ATTRACT VARIOUS FOREIGN AND
MULTINATIONAL COMPNIES.

Particulars 2006-2007 2007-2008

EARNING PER SHARE 8.33 8.99
BOOK VALUE PER SHARE 58.94 63.84
Net Profit Ratio 8.38% 6.04%
Return On Capital Employed 13.89% 14.07%
Current Ratio 3.16 3.22
Debt Equity Ratio 0.5 0.52
33
 33

BIBLIOGRAPHY

REPORT:

32ND ANNUAL REPORT OF NTPC LIMITED

LIST OF REFERENCE BOOKS FOR PREPARATION OF PROJECT

REPORT:

1. ACCOUNTING FOR MANAGEMENT : D.R. PATEL

2. COST & MANAGEMENT ACCOUNTING : RAVI M. KISHORE
( REFER IT FOR POINTS 4 & 5)
3. COST & MANAGEMENT ACCOUNTING : S. N.
MAHESHWARI