Meaning of Ratio ANALYSIS.docx

7/27/2019 Meaning of Ratio ANALYSIS.docx

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MEANING OF RATIO

A ratio is simple arithmetical expression of the relationship of one number to another. It may bedefined as the indicated quotient of two mathematical expressions.

According to Accountants Handbook by Wixom, Kelland Bedford, a ratio is an expression ofthe quantitative relationship between two numbers.

RATIO ANALYSIS:-

Ratio analysis is the process of determining and presenting the relationship of items and groupof items in the statements. According to Batty J. Management Accounting Ratio can assistmanagement in its basic functions of forecasting, planning coordination, control andcommunication.

It is helpful to know about the liquidity, solvency, capital structure and profitability of anorganization. It is helpful tool to aid in applying judgment, otherwise complex situations.

Ratio may be expressed in the following three ways:

1. Pure Ratio or Simple Ratio:-

It is expressed by the simple division of one number by another. For example, if the current

assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the ratio of Currentassets to current liabilities will be 2:1.

2. Rate or So Many Times:-

In this type , it is calculated how many times a figure is, in comparison to another figure. Forexample , if a firms credit sales during the year are Rs. 200000 and its debtors at the end of the

year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that thecredit sales are 5 times in comparison to debtors.

3. Percentage: -

In this type, the relation between two figures is expressed in hundredth. For example, if a firms

capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in term of percentage,is 200000/1000000*100 = 20%


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ADVANTAGE OF RATIO ANALYSIS:-

There are various groups of people who are interested in analysis of financial position of a

company. They use the ratio analysis to work out a particular financial characteristic of the

company in which they are interested. Ratio analysis helps the various groups in the following

manner:

1-To workout the profitability: Accounting ratio help to measure the profitability of the

business by calculating the various profitability ratios. It helps the management to know about

the earning capacity of the business concern. In this way profitability ratios show the actual

performance of the business.

2-To workout the solvency: With the help of solvency ratios, solvency of the company can be

measured. These ratios show the relationship between the liabilities and assets. In case external

liabilities are more than that of the assets of the company, it shows the unsound position of the

business. In this case the business has to make it possible to repay its loans.

3- Helpful in analysis of financial statement: Ratio analysis help the outsiders just like

creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of

the company to pay them interest and dividend etc.

4-Helpful in comparative analysis of the performance: With the help of ratio analysis a

company may have comparative study of its performance to the previous years. In this way

company comes to know about its weak point and be able to improve them.

5-To simplify the accounting information: Accounting ratios are very useful as they briefly

summarize the result of detailed and complicated computations.

6-To workout the operating efficiency: Ratio analysis helps to workout the operating

efficiency of the company with the help of various turnover ratios. All turnover ratios are worked

out to evaluate the performance of the business in utilizing the resources.


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7-To workout short-term financial position: Ratio analysis helps to workout the short-term

financial position of the company with the help of liquidity ratios. In case short-term financial

position is not healthy efforts are made to improve it.

8-Helpful for forecasting purposes: Accounting ratios indicate the trend of the business. The

trend is useful for estimating future. With the help ofprevious years ratios, estimates for future

can be made. In this way these ratios provide the basis for preparing budgets and also determine

future line of action.

Limitations of Ratio Analysis-

In spite of many advantages, there are certain limitations of the

ratio analysis techniques and they should be kept in mind while using them in interpreting

financial statements. The following are the main limitations of accounting ratios:

1-Limited Comparability: Different firms apply different accounting policies. Therefore the

ratio of one firm can not always be compared with the ratio of other firm. Some firms may value

the closing stock on LIFO basis while some other firms may value on FIFO basis. Similarly there

may be difference in providing depreciation of fixed assets or certain of provision for doubtful

debts etc.

2-False Results: Accounting ratios are based on data drawn from accounting records. In case

that data is correct, then only the ratios will be correct. For example, valuation of stock is based

on very high price, the profits of the concern will be inflated and it will indicate a wrong

financial position. The data therefore must be absolutely correct.

3-Effect of Price Level Changes: Price level changes often make the comparison of figures

difficult over a period of time. Changes in price affect the cost of production, sales and also the

value of assets. Therefore, it is necessary to make proper adjustment for price-level changes

before any comparison.


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4-Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and

thus, ignores qualitative factors, which may be important in decision making. For example,

average collection period may be equal to standard credit period, but some debtors may be in the

list of doubtful debts, which is not disclosed by ratio analysis.

5-Effect of window-dressing: In order to cover up their bad financial position some companies

resort to window dressing. They may record the accounting data according to the convenience to

show the financial position of the company in a better way.

6-Costly Technique: Ratio analysis is a costly technique and can be used by big business

houses. Small business units are not able to afford it.

7-Misleading Results: In the absence of absolute data, the result may be misleading. For

example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000

and sales are Rs. 20,000 and profit earned by the other one is Rs. 10, 00,000 and sales are Rs. 40,

00,000. Even the profitability of the two firms is same but the magnitude of their business is

quite different.

8-Absence of standard university accepted terminology: There are no standard ratios, which

are universally accepted for comparison purposes. As such, the significance of ratio analysis

technique is reduced.


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CLASSIFICATION OF RATIO

LIQUIDITY RATIOS

Liquidity Ratios are ratios that come off the Balance Sheet and hence measure the liquidity of the

company as on a particular day i.e. the day that the Balance Sheet was prepared. These ratios are

important in measuring the ability of a company to meet both its short term and long term

obligations.

1) Current Ratio:

This ratio is obtained by dividing the 'Total Current Assets' of a company by its 'Total CurrentLiabilities'. The ratio is regarded as a test of liquidity for a company. It expresses the 'working

capital' relationship of current assets available to meet the company's current obligations.

Formula:

Total Current Assets/ Total Current Liabilities

2) Quick Ratio:

This ratio is obtained by dividing the 'Total Quick Assets' of a company by its 'Total Current

Liabilities'. Sometimes a company could be carrying heavy inventory as part of its current assets,

which might be obsolete or slow moving. Thus eliminating inventory from current assets and

then doing the liquidity test is measured by this ratio. The ratio is regarded as an acid test of

liquidity for a company. It expresses the true 'working capital' relationship of its cash, accounts

receivables, prepaid and notes receivables available to meet the company's current obligations.

Formula:

Quick Ratio = Total Quick Assets/ Total Current Liabilities


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Quick Assets = Total Current Assets (minus) Inventory

3) Debt to Equity Ratio:

This ratio is obtained by dividing the 'Total Liability or Debt ' of a company by its 'OwnersEquity or Net Worth'. The ratio measures how the company is leveraging its debt against the

capital employed by its owners. If the liabilities exceed the net worth then in that case the

creditors have more stake than the shareowners.

Formula:

Total Liabilities / Owners Equity or Net Worth

PROFITABILITY RATIOS

Profitability Ratios show how successful a company is in terms of generating returns or profits

on the Investment that it has made in the business. If a business is liquid and efficient it should

also be Profitable.

1) Return on Sales or Profit Margin (%):

The Profit Margin of a company determines its ability to withstand competition and adverse

conditions like rising costs, falling prices or declining sales in the future. The ratio measures the

percentage of profits earned per dollar of sales and thus is a measure of efficiency of the

company.

Formula:- (Net Profit / Net Sales) x 100

2) Return on Assets:

The Return on Assets of a company determines its ability to utilize the Assets employed in the

company efficiently and effectively to earn a good return. The ratio measures the percentage of

profits earned per dollar of Asset and thus is a measure of efficiency of the company in

generating profits on its Assets.


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Formula: - (Net Profit / Total Assets) x 100

3) Return on Equity or Net Worth:

Return on equity (ROE) measures the rate of return on the ownership interest (shareholders'equity) of the common stock owners. It measures a firm's efficiency at generating profits from

every unit of shareholders'

equity (also known as net assets or assets minus liabilities). ROE shows how well a company

uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally

considered good.

Its calculated as:

ROE = Net Income (After Tax)/Shareholders Equity.

ROE is equal to a fiscal year's net income (after preferred stock dividends but before common

stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage.

As with many financial ratios, ROE is best used to compare companies in the same industry.

High ROE yields no immediate benefit. Since stock prices are most strongly determined by

earnings per share (EPS), you will be paying twice as much (in Price/Book terms) for a 20%

ROE Company as for a 10% ROE company.

The DuPont Formula

The DuPont formula, also known as the strategic profit model, is a common way to break down

ROE into three important components. Essentially, ROE will equal the net margin multiplied by


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asset turnover multiplied by financial leverage. Splitting return on equity into three parts makes

it easier to understand changes in ROE over time. For example, if the net margin increases, every

sale brings in more money, resulting in a higher overall ROE. Similarly, if the asset turnover

increases, the firm generates more sales for every unit of assets owned, again resulting in a

higher overall ROE. Finally, increasing financial leverage means that the firm uses more debt

financing relative to equity financing. Interest payments to creditors are tax deductible, but

dividend payments to shareholders are not. Thus, a higher proportion of debt in the firm's capital

structure leads to higher ROE. Financial leverage benefits diminish as the risk of defaulting on

interest payments increases. So if the firm takes on too much debt, the cost of debt rises as

creditors demand a higher risk premium, and ROE decreases. Increased debt will make a positive

contribution to a firm's ROE only if the matching Return on assets (ROA) of that debt exceeds

the interest rate on the debt.

ROE = Net Income/Sales*Sales/Total Assets*Total Assets/Average Shareholders Equity

MANAGEMENT EFFICIENCY RATIOS -

Efficiency ratios are ratios that come off the Balance Sheet and the Income Statement and

therefore incorporate one dynamic statement, the income statement and one static statement, the

balance sheet. These ratios are important in measuring the efficiency of a company in either

turning their inventory, sales, assets, accounts receivables or payables. It also ties into the ability

of a company to meet both its short term and long term obligations. This is because if they do not

get paid on time how will you get paid on time. You may have perhaps heard the excuse 'I will

pay you when I get paid' or 'my customers have not paid me!'

1) DSO (Days Sales Outstanding):

The Days Sales Outstanding ratio shows both the average time it takes to turn the receivables

into cash and the age, in terms of days, of a company's accounts receivable. The ratio is regarded

as a test of Efficiency for a company. The effectiveness with which it converts its receivables

into cash. This ratio is of particular importance to credit and collection associates.


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Best Possible DSO yields insight into delinquencies since it uses only the current portion of

receivables. As a measurement, the closer the regular DSO is to the Best Possible DSO, the

closer the receivables are to the optimal level.

Best Possible DSO requires three pieces of information for calculation:

a) Current Receivables

b) Total credit sales for the period analyzed

c) The Number of days in the period analyzed

Formula:

Best Possible DSO = Current Receivables/Total Credit Sales X Number of Days

Regular DSO= (Total Accounts Receivables/Total Credit Sales) x Number of Days in the

period that is being analyzed

2) Inventory Turnover Ratio:

This ratio is obtained by dividing the 'Total Sales' of a company by its 'Total Inventory'. The ratio

is regarded as a test of Efficiency and indicates the rapidity with which the company is able tomove its merchandise.

Formula:

Inventory Turnover Ratio = Net Sales / Inventory

Inventory Turnover Ratio = Cost of Goods Sold / Inventory

3) Accounts Payable to Sales (%):

This ratio is obtained by dividing the 'Accounts Payables' of a company by its 'Annual Net Sales'.

This ratio gives you an indication as to how much of their suppliers money does this company

use in order to fund its Sales. Higher the ratio means that the company is using its suppliers as a


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source of cheap financing. The working capital of such companies could be funded by their

suppliers..

Formula:

Accounts Payables to Sales Ratio = [Accounts Payables / Net Sales] x 100

INVESTMENT VALUATION RATIO

1) Price/Book Value Ratio:

A valuation ratio used by investors which compares a stock's per-share price (market value) to its

book value (shareholders' equity). The price-to-book value ratio, expressed as a multiple (i.e.

how many times a company's stock is trading per share compared to the company's book value

per share), is an indication of how much shareholders are paying for the net assets of a company.

The book value of a company is the value of a company's assets expressed on the balance sheet.

It is the difference between the balance sheet assets and balance sheet liabilities and is an

estimation of the value if it were to be liquidated.

The price/book value ratio, often expressed simply as "price-to-book", provides investors a way

to compare the market value, or what they are paying for each share, to a conservative measure

of the value of the firm.

Formula:


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2) Price/Cash Flow Ratio:-

The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a

value standpoint, of a company's stock. This metric compares the stock's market price to the

amount of cash flow the company generates on a per-share basis.

This ratio is similar to the price/earnings ratio, except that the price/cash flow ratio (P/CF) is

seen by some as a more reliable basis than earnings per share to evaluate the acceptability, or

lack thereof, of a stock's current pricing. The argument for using cash flow over earnings is that

the former is not easily manipulated, while the same cannot be said for earnings, which, unlike

cash flow, are affected by depreciation and other non-cash factors.

Formula:

3) Price/Earnings Ratio:

The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E

ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by

investment professionals and the investing public. The financial reporting of both companies and

investment research services use a basic earnings per share (EPS) figure divided into the current

stock price to calculate the P/E multiple (i.e. how many times a stock is trading (its price) per

each dollar of EPS).

It's not surprising that estimated EPS figures are often very optimistic during bull markets, while

reflecting pessimism during bear markets. Also, as a matter of historical record, it's no secret that

the accuracy of stock analyst earnings estimates should be looked at skeptically by investors.

Nevertheless, analyst estimates and opinions based on forward-looking projections of a

company's earnings do play a role in Wall Street's stock-pricing considerations.


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Historically, the average P/E ratio for the broad market has been around 15, although it can

fluctuate significantly depending on economic and market conditions. The ratio will also vary

widely among different companies and

industries.

Formula:

4) Price/Earnings to Growth Ratio:

The price/earnings to growth ratio, commonly referred to as the PEG ratio, is obviously closely

related to the P/E ratio. The PEG ratio is a refinement of the P/E ratio and factors in a stock's

estimated earnings growth into its current valuation. By comparing a stock's P/E ratio with its

projected, or estimated, earnings per share (EPS) growth, investors are given insight into the

degree of overpricing or under pricing of a stock's current valuation, as indicated by the

traditional P/E ratio.

The general consensus is that if the PEG ratio indicates a value of 1, this means that the

market is correctly valuing (the current P/E ratio) a stock in accordance with the stock's current

estimated earnings per share growth. If the PEG ratio is less than 1, this means that EPS growth

is potentially able to surpass the market's current valuation. In other words, the stock's price is

being undervalued. On the other hand, stocks with high PEG ratios can indicate just the

opposite - that the stock is currently overvalued.

Formula:


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5) Price/Sales Ratio:

A stock's price/sales ratio (P/S ratio) is another stock valuation indicator similar to the P/E ratio.

The P/S ratio measures the price of a company's stock against its annual sales, instead of

earnings.

Like the P/E ratio, the P/S reflects how many times investors are paying for every dollar of a

company's sales. Since earnings are subject, to one degree or another, to accounting estimates

and management manipulation, many investors consider a company's sales (revenue) figure a

more reliable ratio component in calculating a stock's price multiple than the earnings figure.

Formula:

6) Dividend Yield:

A stock's dividend yield is expressed as an annual percentage and is calculated as the company's

annual cash dividend per share divided by the current price of the stock. The dividend yield is

found in the stock quotes of dividend-paying companies. Investors should note that stock quotes

record the per share dollar amount of a company's latest quarterly declared dividend. This

quarterly dollar amount is annualized and compared to the current stock price to generate the per

annum dividend yield, which represents an expected return.

Income investors value a dividend-paying stock, while growth investors have little interest in

dividends, preferring to capture large capital gains. Whatever your investing style, it is a matter

of historical record that dividend-paying stocks have performed better than non-paying-dividend

stocks over the long term.


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Formula:

7) Enterprise Value Multiple:

This valuation metric is calculated by dividing a company's "enterprise value" by its earnings

before interest expense, taxes, depreciation and amortization (EBITDA).

Overall, this measurement allows investors to assess a company on the same basis as that of an

acquirer. As a rough calculation, enterprise values multiple serves as a proxy for how long it

would take for an acquisition to earn enough to pay off its costs (assuming no change in

EBITDA).

Formula:

8) DEBT COVERAGE RATIO:

The Debt Coverage Ratio is also known as Debt Service Coverage Ratio or DSCR. The debt

coverage ratio or DCR is a widely used benchmark which measures an income producing

property's ability to cover the monthly mortgage payments. The DCR is calculated by dividing

the net operating income (NOI) by a property's annual debt service. Annual debt service equals

the annual total of all interest and principal paid for all loans on a property. A debt coverage

ratio of less than 1 indicates that the income generated by a property is insufficient to cover the

mortgage payments and operating expenses.


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For example, a DCR of .9 indicates a negative income. There is only enough

income available after paying operating expenses to pay 90% of the annual mortgage payments

or debt service. A property with a DCR of 1.25 generates 1.25 times as much annual income as

the annual debt service on the property. In this example, the property produces 25% more

income (NOI) than is required to pay the annual debt service and operating expenses.

Formula:

Net Operating Income / Annual Debt Service

CASH FLOW INDICATOR RATIO

Cash flow indicators, focus on the cash being generated in terms of how much is being generated

and the safety net that it provides to the company. These ratios can give users another look at the

financial health and performance of a company.The ratios in this section use cash flow

compared to other company metrics to determine how much cash they are generating from their

sales, the amount of cash they are generating free and clear, and the amount of cash they have to

cover obligations.

1) Operating Cash Flow / Sales Ratio:

This ratio, which is expressed as a percentage, compares a company's operating cash flow to

its net sales or revenues, which gives investors an idea of the company's ability to turn sales into

cash.

It would be worrisome to see a company's sales grow without a parallel growth in operating cash

flow. Positive and negative changes in a company's terms of sale and/or the collection experience

of its accounts receivable will show up in this indicator.
http://www.investopedia.com/terms/o/operatingcashflow.asphttp://www.investopedia.com/terms/n/netsales.asphttp://www.investopedia.com/terms/n/netsales.asphttp://www.investopedia.com/terms/o/operatingcashflow.asp


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Formula:

2) Free Cash Flow/ Operating Cash Flow Ratio:

The free cash flow/operating cash flow ratio measures the relationship between free cash flow

and operating cash flow. Free cash flow is most often defined as operating cash flow minus

capital expenditures, which, in analytical terms, are considered to be an essential outflow of

funds to maintain a company's competitiveness and efficiency. The cash flow remaining after

this deduction is considered "free" cash flow, which becomes available to a company to use for

expansion, acquisitions, and/or financial stability to weather difficult market conditions. The

higher the percentage of free cash flow embedded in a company's operating cash flow, the

greater the financial strength of the company.

Formula:

3) Cash Flow Coverage Ratio:

This ratio measures the ability of the company's operating cash flow to meet its obligations -

including its liabilities or ongoing concern costs. The operating cash flow is simply the amount

of cash generated by the company from its main operations, which are used to keep the business

funded. The larger the operating cash flow coverage for these items, the greater the company's

ability to meet its obligations, along with giving the company more cash flow to expand its
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business, withstand hard times, and not be burdened by debt servicing and the restrictions

typically included in credit agreements.

Formulas:

4) Dividend Payout Ratio:

This ratio identifies the percentage of earnings (net income) per common share allocated to

paying cash dividend to shareholders. The dividend payout ratio is an indicator of how well

earnings support the dividend payment. Here's how dividends "start" and "end." During a fiscal

year quarter, a company's board of directors declares a dividend. This event triggers the posting

of a current liability for "dividends payable." At the end of the quarter, net income is credited to
http://www.investopedia.com/terms/d/dividendpayoutratio.asphttp://www.investopedia.com/terms/d/dividendpayoutratio.asp


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a company's retained earnings, and assuming there's sufficient cash on hand and/or from current

operating cash flow, the dividend is paid out. This reduces cash, and the dividends payable

liability is eliminated. The payment of a cash dividend is recorded in the statement of cash flows

under the "financing activities" section.

Formula:

Objective of Project Report

Main objective of the project report is to find ratio analysis of the different power sector

company and comparison between them and sub-objective of the company is-

-To gain the overall idea about the organization

-To have an effective exposure of the actual working situation of NTPC


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-To study the rules and practices implemented at NTPC, depending on the local environment and

circumstances

-To see the applicability and usability of theory which have been taught to us during the first

year of the course.

-To find out the financial performance of the organization

-To find out the importance of finance in business

-To find out the future requirements of finance in business

-To study the investment decisions based on the return which may beneficial to the organization

RESEARCH DESIGN & METHODOLOGY:

Research:

The research design of this project is exploratory. Though each research study has its

own specific purpose but the research design of this project on NTPC Ltd. is exploratory in

nature as the objective is the development of the hypothesis rather than their testing.


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The research design method financial analysis. Through of comparative balance sheet in

comparative statement, I am studying on balance sheet of NTPC Ltd. of year 2011.

Methodology:

Every project work is based on certain methodology, which is a way to systematically

solve the problem or attain its objectives. It is a very important guideline and lead to completion

of any project work through observation, data collection and data analysis.

-: INTRODUCTION OF ORGANIZATION:-

Type- State owner Enterprises

Traded as- BSE 53255

NSENTPC

BSE SENSEX Constituent

Industry- Electricity Utility


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Founded- 1975

Head Quarter- Delhi, India

Key People- Arup Roy Choudhury

Products- Electrical Power

Natural Gas

Services- Electricity Generation &Distribution

Revenue- Rs. 620.53billion (US$11.23 billion)

(2011-12)

Net Income- Rs. 92.23billion (US$1.67billion)

(2011-12)

Employee- 26,000 (2012)

Website- www.ntpc.co.in

National Thermal Power Corporation-

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

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

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

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

mining. NTPC ranked 341stin the 2010, Forbes Global 2000 ranking of the Worlds biggest

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

to be awarded this status.


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

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

based & another station uses 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.


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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.


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

NTPC has been awarded No.1, Best Workplace in India among large organizations 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.

NTPC Sale of energy up by 13.90% and Profit up by 5.6 % The state-owned power utility NTPC

Ltd, formerly National Thermal Power Corp, posted a net profit after tax of Rs.8,201crore in

2008-09 against Rs.7,415 crore netted the last fiscal, an increase of Rs.786 crore. Total income

increased from Rs.40, 018 crore 2008-09 to Rs.45, 273 crore the previous fiscal, NTPC said in a

regulatory statement. Its net profit for the quarter ended March 31, 2009 was also up at Rs.2,

113.4 crore, as compared to the near Rs.1, 340 crore for the corresponding quarter the year

before.

VISION-

To be the worlds largest and best power producer, powering Indias growth.

MISSION-

Develop and provide reliable power related products and services at competitive prices,

integrating multiple energy sources with innovative & Eco-friendly technologies and contribute

to society.

CORE VALUESBE COMMITTED

B - Business Ethics.

E - Environmentally& Economically Sustainable.


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C - Customer Focus.

O - Organizational& Professional Pride.

M - Mutual Respect & Trust.

MMotivating Self & Others.

IInnovation & Speed.

T - Total Quality for Excellence.

TTransparent & Respected Organization.

EEnterprising.

DDevoted.

Recognitions & Awards

Scope meritorious award for best practices in Human Resources Management onoccasion of Public Sector Day(2010-2011)

Most Respected Company in the Power sector by Business world 2011 PSU Excellence award 2010in the Best Financial Performance Category by Chamber of

Commerce and Department of Public Enterprise.

Award for Best HR Strategy in line with Business and award for Talent Managementat the Asia Best Employer Brand held by Singapore in 2010.


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CII-EXIM Bank Excellence Award has conferred commendation for Anta and Kobrastations for Strong Commitment to Excel and commendation for Significant

Achievement for Dadri Station.

Achievements:

Sixth largest thermal power generator in the World and the Second most efficient utilityin terms of capacity utilization.

Contribution of NTPC in power generation: NTPC has contribution of 28% of totalpower generation capacity of India.

NTPCS CULTURE

Core values are both intensely and widely shared Climate of high behavioral control Low employee turnover High agreement among the employees, for what NTPC stands for.


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POWER STATION OF NTPC IN INDIA

Power Generation -


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Presently, NTPC generates power from Coal and Gas. With an installed capacity of 28840 MW,

NTPC is the largest power generating major in the country. It has also diversified into hydro

power, coal mining, power equipment manufacturing, oil & gas exploration, power trading &

distribution. With an increasing presence in the power value chain, NTPC is well on its way to

becoming an Integrated Power Major.

Total income for the quarter increased to Rs.12, 481.5 crore from Rs.11, 487.5 crore in the like

period the previous fiscal. The company said its board has recommended a final dividend at 8

percent of the paid-up equity capital in addition to the 28 percent interim dividend paid in

February. (IANS)

Business strengths of NTPC

In over 30 years of its existence, this huge power conglomerate has emerged as the world's mostefficient electricity generator. It's is this consistency in performance that made the government

look at NTPC for help turn around some other sick power companies, instead of going to somemanagement consultants or privatizing it.

NTPC did the government proud. One of these hopeless power plants was located in Unchahar inUttar Pradesh, which has actually emerged as the world's best. It has won the prestigious 'AsianPower plant of the Year' award in 2006.

It's truly teamwork that keeps an organization of 25,000 employees working in 25 plants acrossthe country, going from strength to strength.

Major Achievements of NTPC

Largest thermal power generating company of India.


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Sixth largest thermal power generator in the world. Second most efficient utility in terms of capacity utilization. One of the nine PSUs to be awarded the status of Navratna. Provides power at the cheapest average tariff in the country.

Business strengths-

24,375 highly trained employees Senior executives possess extensive experience of the industry Executive Turnover Rate 1.19% Planned interventions at various stages of career Systematic training ensures 7 man days training per employee per year Efficient and timely completion of projects Best-integrated project management systems Company with an excellent record and high profits An early starter-more than 30 years experience in power sector.

SWOT ANALYSIS OF

NATIONAL POWER THERMAL CORPORATION

STRENGTHS OF NTPC

The company has kept itself sufficient liquid funds to meet any kind of cashrequirements.

Efficient working capacity of the plants Efficient & timely completion of projects A minimum risk factor Best integrated project management system Company with excellent records & high profits An early starter more than 30 years experience in power sector One among the 9 jewels of India called as NAVRATANS Highly motivated & dedicated workers & officers.

Excellent growth prospects with significant additions, modifications & replacements Employee friendly personnel policies Low project cost of NTPCs plants. one of the listed company on Bombay stock exchange

WEAKNESS OF NTPC


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Depleting raw materials. Some of the plants of NTPC have become old and need investments for replacements

or modifications.

OPPORTUNITIES FOR NTPC:

Demand & supply Gap. Upcoming hydro & nuclear sector Huge opportunity in the consultancy services both abroad as well as in India. Growth in power sector.

THREATS TO NTPC

Rising prices of raw materials makes working costly. Huge competition from SEBs, Reliance Energy, Tata Power & other private players

in power industry.

Coming up of other sources of power generation & consumption. Huge capital requirement for expansion, diversification, horizontal & vertical

integration.


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Balance Sheet of NTPC

(Rs crore)

Balance sheet

Mar ' 11

Equity share capital 8,245.46

Share application money -

Preference share capital -

Reserves & surplus 60,138.66

Secured loans 9,910.68

Unsecured loans 33,277.56

Total 1,11,572.36

Gross block 72,583.94

Less : revaluation reserve -

Less : accumulated depreciation 33,519.19

Net block 39,064.75

Capital work-in-progress 38,441.84

Investments 12,344.84

Current assets, loans & advances 35,396.79

Less : current liabilities & provisions 13,675.86

Total net current assets 21,720.93

Miscellaneous expenses not written -

Total 1,11,572.36

Book value of unquoted investments 12,332.84

Market value of quoted investments 100.92


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Mar ' 11

Contingent liabilities 33,227.29

Number of equity shares outstanding(Lacs) 82454.64

Key Financial Ratios of NTPC

Mar '11

Investment Valuation Ratios

Face Value 10.00

Dividend Per Share 3.80

Operating Profit Per Share (Rs) 15.34

Net Operating Profit Per Share(Rs)

66.63

Free Reserves Per Share (Rs) 69.08

Bonus in Equity Capital --

Profitability Ratios

Operating Profit Margin (%) 23.01

Profit Before Interest And TaxMargin (%) 17.69

Gross Profit Margin (%) 18.49

Cash Profit Margin (%) 18.22

Adjusted Cash Margin (%) 18.22

Net Profit Margin (%) 15.85

Adjusted Net Profit Margin (%) 15.85

Return On Capital Employed (%) 11.32

Return On Net Worth (%) 13.31

Adjusted Return on Net Worth (%) 11.66Return on Assets ExcludingRevaluations

82.94

Return on Assets IncludingRevaluations

82.94

Return on Long Term Funds (%) 11.32

Liquidity And Solvency Ratios


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Current Ratio 2.59

Quick Ratio 2.32

Debt Equity Ratio 0.63

Long Term Debt Equity Ratio 0.63

Debt Coverage Ratios

Interest Cover 10.65

Total Debt to Owners Fund 0.63

Financial Charges Coverage Ratio 7.46

Financial Charges Coverage RatioPost Tax

6.72

Management Efficiency Ratios

Inventory Turnover Ratio 29.18

Debtors Turnover Ratio 7.54

Investments Turnover Ratio 29.18

Fixed Assets Turnover Ratio 0.76

Total Assets Turnover Ratio 0.49

Asset Turnover Ratio 0.76

Average Raw Material Holding --

Average Finished Goods Held --

Number of Days In WorkingCapital

142.33

Profit & Loss Account RatiosMaterial Cost Composition 0.05

Imported Composition of RawMaterials Consumed

--

Selling Distribution CostComposition

0.31

Expenses as Composition of TotalSales

--

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 40.07

Dividend Payout Ratio Cash Profit 31.46

Earning Retention Ratio 54.26

Cash Earning Retention Ratio 65.14

Adjusted Cash Flow Times 4.13

Mar '11


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Earnings Per Share 11.04

Book Value 82.94

NAME OF THERATIOS

NTPC

Profitability Ratios

Operating Profit Margin (%) 23.01

Profit Before Interest And Tax Margin (%) 17.69

Gross Profit Margin (%) 18.49

Cash Profit Margin (%) 18.22

Adjusted Cash Margin (%) 18.22

Net Profit Margin (%) 15.85

Adjusted Net Profit Margin (%) 15.85

Return On Capital Employed (%) 11.32

Return On Net Worth (%) 13.31

Adjusted Return on Net Worth (%) 11.66

Return on Assets Excluding Revaluations 82.94

Return on Assets Including Revaluations 82.94

Return on Long Term Funds (%) 11.32

Liquidity And Solvency Ratios


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Current Ratio 2.59

Quick Ratio 2.32

Debt Equity Ratio 0.63

Long Term Debt Equity Ratio 0.63

Debt Coverage Ratios

Interest Cover 10.65

Total Debt to Owners Fund 0.63

Financial Charges Coverage Ratio 7.46

Financial Charges Coverage Ratio Post Tax 6.72

Management Efficiency Ratios

Inventory Turnover Ratio 29.18

Debtors Turnover Ratio 7.54

Investments Turnover Ratio 29.18

Fixed Assets Turnover Ratio 0.76

Total Assets Turnover Ratio 0.49

Asset Turnover Ratio 0.76

Average Raw Material Holding --


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Average Finished Goods Held --

Number of Days In Working Capital 142.33

Profit & Loss Account Ratios

Material Cost Composition 0.05

Imported Composition of Raw Materials Consumed --

Selling Distribution Cost

Composition0.31

Expenses as Composition ofTotal Sales --

Cash Flow Indicator

Ratios

Dividend Payout Ratio NetProfit

40.07

Dividend Payout Ratio CashProfit

31.46

Earning Retention Ratio 54.26

Cash Earning RetentionRatio

65.14

Adjusted Cash Flow Times 4.13

Earnings Per Share 11.04

Book Value 82.94


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Findings:-

The Current ratio of NTPC on 2010-11 is 2.59. It indicates that NTPC has less current liabilities

as compared to current assets.

The quality of sundry debtors is good at N.T.P.C. NTPC has 7.53 debtors turnover ratio

NTPCs Debtors Turnover ratio IS 7.54

This ratio indicates the speed with which the amount is collected from debtors. The higher the

ratio, the better it is, since it indicates that amount from debtors is being collected more quickly.

The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the

expenses of collection and increase in the liquidity of the firm.

Inventory turnover ratio shows the movement of inventory. Thus, NTPCs inventory ratio is

29.18

This ratio shows the number of times a companys inventory is turned into sales. Investment ininventory represents idle cash. The lesser the inventory, the greater the cash available formeeting operating needs. Besides, lean, fast-moving inventory runs a lower risk of obsolescenceand reduces interest, insurance and storage charges. High inventory turnover is a sign of efficientinventory management.

Gross Profit margin ratio measures the margin of profit available on sales. NTPC has 18.49%

gross profit margin.

The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the

gross profit ratio should be adequate enough not only to cover the operating expenses but also toprovide for depreciation, interest on loans, dividends and creation of reserves.

The same is with Net Profit Margin ratio i.e. the higher the ratio the better it is. NTPC has 15.85

%

The Profit Margin of a company determines its ability to withstand competition and adverse

conditions like rising costs, falling prices or declining sales in the future. The ratio measures the


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percentage of profits earned per dollar of sales and thus is a measure of efficiency of the

company

NTPC are managing their assets efficiently .Asset Turnover Ratio of NTPC is 0.76

The higher the Asset Turnover Ratio indicates that the enterprise is managing its assetsefficiently while a low asset turnover implies the presence of more assets than a business needs

for its operations.

Earnings Per Share ratio of NTPC is 0.76

Earnings Per Share ratio is particular importance in manufacturing concerns where the

investment in fixed asset is quite high. Compared with the previous year, if there is increase in

this ratio, it will indicate that there is better utilization of fixed assets. If there is a fall in this

ratio, it will show that fixed assets have not been used as efficiently, as they had been used in the

previous year.

CONCLUSION-

Ratio Analysis is the basic tool of financial analysis and financial analysis is itself an important

part of any business planning process as SWOT, being basic tool of the strategic analysis plays a

vital role in a business planning process and no SWOT analysis would be complete without an

analysis of companys financial position. In this way ratio analysis is very important part of

whole business strategic planning. As companies dispatch their long annual report once a year,

the financial ratio helps us to profile a company easily.

There is a huge crisis over energy in the world especially in the field of electricity. India is also

victim of the same condition. In spite of several efforts taken by the governments in this regard,

there is enormous possibility exists. NTPC is a key organization in India as far as the supply of

power is concerned. After successfully conducting this project work, it can be said that the

financial health of NTPC is sound good and it appears positive in accordance with its balance

sheet and profit & loss A/c.

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