power sector in india

FINANCIAL RATIO ANALYSIS 2010

‘Summer Training Project Report ‘ON

Financial Ratio Analysis At

TEHRI HYDRO DEVELOPMENT CORPORATION LTD

(RISHIKESH, UTTRAKHAND)

Submitted in partial fulfillment for the Award of Degree of

MASTER OF BUSINESS ADMINISTRATION

(2008-10)

SUBMITTED TO: SUBMITTED BY: NITIN MALLA College Of Management Studies MBA 4TH SEM ROLL NO: 520850077

CASE STUDY OF THDC LTD


PREFACEThe conceptual knowledge acquired by management student is best

manifested in the project and training they undergo. As a part of curriculum

of MBA, I have got a chance to undergo practical training at THDC LTD

RISHIKESH. The present project gives a perfect vent into my understanding

of financial management.

The project report entitled “FINACIAL RATIO ANALYSIS” is based on the

financial statements viz the income statement, the Balance sheet of the

company.

The report will provide all information regarding the FINANCIAL RATIO

ANALYSIS and their importance in TEHRI HYDRODEVLOPMENT

CORPORATION LTD RISHIKESH.

I hope this report will be beneficial for my next batches and for those who

are related to this topic.



DECLARATIONI, Nitin Malla, hereby declare that the project titled “FINANCIAL RATIO

ANALYSIS” of THDC LTD; RISHIKESH is submitted in partial fulfillment

to the requirement of my Master’s in Business Administration.

NITIN MALLA

MBA 4TH SEM



ACKNOWLEDGEMENTI express my sincere thanks to the management of THDC LTD

RISHIKESH, for giving me an opportunity to gain exposure on related to

project under the guidance of Mr. K.K. SRIVASTAVA (dy. Manager Finance).

I would also like to thank Mr. DILEEP Kr. DWIVEDI personnel officer

(HRD).

I am indebted to Mrs. Amrita Basu (project guide) to give me a wonderful

opportunity to widen the horizons of my knowledge. I would like to thank

her for her scholarly guidance, constant supervision and encouragement. It

is due to her personal interest and initiative that the project work is

published in the current form.



POWER SECTOR IN INDIA

The electricity sector in India is predominantly controlled by

the Government of India's public sector undertakings (PSUs). Major PSUs

involved in the generation of electricity include National Thermal Power

Corporation (NTPC), National Hydroelectric Power Corporation (NHPC)

and Nuclear Power Corporation of India (NPCI). Besides PSUs, several

state-level corporations, such as Maharashtra State Electricity

Board (MSEB), are also involved in the generation and intra-state

distribution of electricity. The Power Grid Corporation of India is

responsible for the inter-state transmission of electricity and the

development of national grid.


http://en.wikipedia.org/wiki/PowerGrid_Corporation_of_India

http://en.wikipedia.org/wiki/Maharashtra_State_Electricity_Board

http://en.wikipedia.org/wiki/Maharashtra_State_Electricity_Board

http://en.wikipedia.org/wiki/Nuclear_Power_Corporation_of_India

http://en.wikipedia.org/wiki/National_Hydroelectric_Power_Corporation

http://en.wikipedia.org/wiki/National_Thermal_Power_Corporation

http://en.wikipedia.org/wiki/National_Thermal_Power_Corporation

http://en.wikipedia.org/wiki/Public_sector_undertaking

http://en.wikipedia.org/wiki/Government_of_India


The Ministry of Power is the apex body responsible for the development of

electrical energy in India. This ministry started functioning independently

from 2 July 1992; earlier, it was known as The Ministry of Energy. The

Union Minister of Power at present is Sushil kumar Shinde of the Congress

Party, who took charge of the ministry on the 28th of May, 2009.

India is world's 6th largest energy consumer, accounting for 3.4% of global

energy consumption. Due to India's economic rise, 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 612 kWH.

The country's annual power production increased from about 190 billion

kWH in 1986 to more than 680 billion kWH in 2006. 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.

About 75% of the electricity consumed in India is generated by thermal

power plants, 21% by hydroelectric power plants and 4% by nuclear power

plants. More than 50% of India's commercial energy demand is met through

the country's vast coal reserves. The country has also invested heavily in

recent years on renewable sources of energy such as wind energy. As of

2008, India's installed wind power generation capacity stood at 9,655

MW. Additionally, India has committed massive amount of funds for the

construction of various nuclear reactors which would generate at least

30,000 MW. In July 2009, India unveiled a $19 billion plan to produce

20,000 MW of solar power by 2020.

Electricity losses in India during transmission and distribution are

extremely high and vary between 30 to 45%. In 2004-05, electricity demand

outstripped supply by 7-11%. Due to shortage of electricity, power cuts are

common throughout India and this has adversely effected the country's

economic growth. Theft of electricity, common in most parts of urban India,


http://en.wikipedia.org/wiki/Power_outage

http://en.wikipedia.org/wiki/Solar_power

http://en.wikipedia.org/wiki/Wind_energy

http://en.wikipedia.org/wiki/Coal

http://en.wikipedia.org/wiki/Nuclear_power_in_India

http://en.wikipedia.org/wiki/Nuclear_power_in_India

http://en.wikipedia.org/wiki/Hydroelectricity

http://en.wikipedia.org/wiki/Thermal_power

http://en.wikipedia.org/wiki/Thermal_power

http://en.wikipedia.org/wiki/KWH

http://en.wikipedia.org/wiki/Megawatts

http://en.wikipedia.org/wiki/Economy_of_India

http://en.wikipedia.org/wiki/Sushilkumar_Shinde


amounts to 1.5% of India's GDP. Despite an ambitious rural electrification

program, some 400 million Indians lose electricity access during

blackouts. While 80 percent of Indian villages have at least an electricity

line, just 44 percent of rural households have access to electricity.

According to a sample of 97,882 households in 2002, electricity was the

main source of lighting for 53% of rural households compared to 36% in

1993. Multi Commodity Exchange has sought permission to offer electricity

future markets.

HISTORICAL BACKGROUND

The Tehri Dam & Hydro Electric Project had initially been accorded

Investment Clearance by the Planning Commission in June, 1972 for

implementation by the Government of U.P., with an installed generating

capacity of 600 MW. The State Government commenced the construction of

the Project in 1978. Subsequently, in 1983, the proposed Installed Capacity

of the Project was increased by the State Government to 1000 MW.

In view of the shortage of funds for implementation of the Project in the

State sector, it was decided in Nov.,1986 to implement the Tehri project

as a Joint Venture of the Govt. of India and Govt. of U.P. through financial

and technical assistance from erstwhile USSR.

In Nov.,1986, an agreement on economic and technical co-operation

between the Govt. of India and Govt. of USSR was signed, which interallia

included execution of the 2400 MW Tehri Hydro Power Complex

comprising 1000 MW Tehri Dam & Hydro Power Plant, 400 MW

Koteshwar Dam & Hydro Power Plant and 1000 MW Tehri Pumped

Storage Plant. This agreement envisaged financing in the form of credit

amounting to 1000 million Rubles from USSR.

The Government had also approved seeking the technical and financial

assistance from the then USSR for implementing the Tehri Power Complex.


http://en.wikipedia.org/wiki/Multi_Commodity_Exchange


However, with the disintegration of USSR, the financial assistance

from USSR was not available.

ABOUT THE CORPORATION

THDC, a Joint Venture Corporation of the Govt. of India and Govt. of U.P.,

was incorporated as a Limited Company under the Companies Act, 1956, in

July’88, to develop, operate and maintain the Tehri Hydro Power Complex

and other Hydro Projects. The works were handed over to THDC in June

1989. The equity portion the Project is being shared by Govt. of India &

Govt. of U.P in the ratio of 75:25. The Corporation has an authorized share

capital of Rs.4000 cr.

The Government approved the implementation of Tehri Dam and HPP

Stage-I (1000 MW) in March, 1994, along with the essential works of

Pumped Storage Plant and committed works of Koteshwar HEP. Other

components of the Tehri Power Complex, viz., Koteshwar Project, and the

Pumped Storage Plant, were envisaged to be taken up at a later stage.

The Koteshwar HEP (400 MW) was approved for implementation by the

Government in April’2000. Investment approval has been accorded by the

Government in July’06 to the Tehri PSP(1000 MW), the first Pumped

Storage Scheme in the Central sector which would utilize the Tehri &

Koteshwar reservoirs as the requisite upstream & downstream reservoirs.

Govt. of India has accorded Investment Approval for execution of 444 MW

Vishnugad Pipalkoti Hydro Electric Project (VPHEP) on River Alaknanda

in Aug’ 2008.

Govt. of Uttarakhand has also entrusted Hydro Projects to THDC in

Bhagirathi, Alaknanda and Sarda Valleys in Uttarakhand, totaling to 760

MW.



Govt. of Uttarakhand has accorded In-principle approval to allot Kishau

Multi Purpose Project (600 MW) on river Tons, a tributary of Yamuna. Govt.

of India has given approval for updation of DPR of the Project by THDC.

THDC has entered into an MOU with Nuclear Power Corporation of India

Ltd. (NPCIL) to synergize strengths and competencies for development of

Hydro Power Projects including Pumped Storage Schemes in the country.

Govt. of Maharashtra has allotted 2 PSPs namely Malshej Ghat (600 MW) &

Humbarli (400MW) to the Joint Venture of THDC and NPCIL for updation of

DPR and subsequent implementation subject to commercial viability.

Under India-Bhutan Co-operation in hydro Sector development , MOP has

allotted two Projects namely Sankosh Multi Purpose Project (4060 MW) and

Bunakha HEP (180 MW) in Bhutan for updation of DPR, and subsequent

implementation on Intergovernmental Authority Model / JV with Bhutanese

PSUs. The work of updation of DPRs has been taken up.

THDC is also engaged in the engineering consultancy work for stabilization

of Varunavat Parvat in Uttarkashi entrusted by Government of Uttarakhand.

The work involves providing the complete engineering solution to the major

hill stabilization problem and also supervising the execution of works at

site.

The Corporation has commissioned Tehri Dam and HPP Stage-I (1000 MW)

during Xth plan. The Tehri Power Station is now fully operational.



Projects: location map

THEORETICAL ASPECTS

RATIO ANALYSIS



Meaning and Definition of Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the

systematic use of ratio to interpret the financial statements so that the

strength and weaknesses of a firm as well as its historical performance and

current financial condition can be determined. The term ratio refers to the

numerical or quantitative relationship between two variables.

Ratio analysis is a very powerful analytical tool for measuring

performance of an organization. The ratio analysis concentrates on the

inter – relationship among the figures appearing in the aforementioned

four financial statement s. the ratio analysis helps the management to

analyze the past performance of the firm . The ratio analysis allow

interested parties like shareholders, investors, creditors , government and

analysts to make an evaluation of certain aspects of a firm’s

performance.

Significance or Importance of Ratio Analysis

It helps in evaluating the firm’s performance. With the help of ratio

analysis conclusion can be drawn regarding several aspects such as

financial health, profitability and operational efficiency of the

undertaking. Ratio points out the operating efficiency of the firm i.e.

whether the management has utilized the firm's assets correctly, to

increase the investor's wealth. It ensures a fair return to its owners

and secures optimum utilization of firm’s assets.

It helps in inter-firm comparison. Ratio analysis helps in inter-firm

comparison by providing necessary data. An inter firm comparison

indicates relative position. It provides the relevant data for the

comparison of the performance of different departments. If

comparison shows a variance, the possible reasons of variations may



be identified and if results are negative, the action may be initiated

immediately to bring them in line.

It simplifies financial statement. Yet another dimension of usefulness

or ratio analysis, relevant from the View point of management is that

it throws light on the degree efficiency in the various activity ratios

measures this kind of operational efficiency.

Limitations

Ratios are calculated from the financial statements which are affected

by the financial bases and policies on such matters as depreciation

and the valuation of stock

.

Financial statements do not represent a complete picture of the

business, but merely a collection of fact which can be expressed in

monetary terms. These may not refer to both factors which affect

performance.

Over use of ratios as controls on managers could be dangerous, in

that management might concentrate more on simply improving the

ratio than on dealing with the significant issues.

A ratio is a comparison of two figures, a numerator and a

denominator. In comparing ratios it may be difficult to determine

whether differences are due to changes in the numerator, or in the

denominator or in both.

Ratios are inter-connected. They should not be treated in isolation.

The effective use of ratios, therefore, depends on being aware of all

these limitations and ensuring that, following comparative analysis,

they are used to trigger point for investigation and corrective action

rather than being treated as meaningful in them selves.

The analysis of ratios clarifies trends and weaknesses in performance

as a guide to action as long as proper comparisons are made and the



reasons for adverse trends or deviations from the norms are

investigated thoroughly.

Classification of Ratios

Different ratios are used for different purposes; these ratios can be grouped

into various classes according to the financial activity. Ratios are classified

into four broad categories:

Liquidity Ratio

Leverage Ratio

Profitability Ratio

Activity Ratio

Liquidity Ratio:

Liquidity ratio measures the firms ability to meet its current obligations i.e.

ability to pay its obligations and when they become due. Commonly used

ratios are:

(1) Current Ratio

(2) Acid Test Ratio or Quick Ratio

(1) Current Ratio:

Current ratio is the ratio, which express relationship between current asset

and current liabilities. Current asset are those which can be converted into

cash within a short period of time, normally not exceeding one year. The

current liabilities which are short- term and are maturing to be met.

Current Ratio = Current Asset ÷Current liabilities

(2) Acid Test Ratio or Quick Ratio:



The acid test ratio is a measure of liquidity designed to overcome the defect

of current ratio. It is often referred to as quick ratio because it is a

measurement of firm's ability to convert its current assets quickly into cash

in order to meet its current liabilities.

Acid Test Ratio = (Current Asset – Inventories) ÷ Current liabilities

Leverage or Capital Structure Ratio:

Leverage or capital structure ratios are the ratios which indicate the

relative interest of the owners and the creditors in an enterprise. These

ratios indicate the funds provided by the long-term creditors and owners. To

judge the long term financial position of the firm following ratios are

applied.

(1) Debt - Equity Ratio

(2) Total Debt Ratio

(1) Debt - Equity Ratio:

Debt-equity ratio which expresses the relationship between debt and equity.

This ratio explains how far owned funds are sufficient to pay outside

liabilities. It is calculated by following formula:

Debt Equity Ratio = (Long Term + Short Term Debts + Current

Liabilities) ÷ Net Worth

(2) Total Debt Ratio:

This ratio explains how far owned and borrowed funds are sufficient to pay

debt of a Firm.

Total Debt Ratio = (Long Term + Short Term Borrowing + Current

Liabilities) ÷ Capital employed



Profitability Ratios

Profitability ratio are the best indicators of overall efficiency of the business

concern, because they compare return of value over and above the value

put into business with sales or service carried on by the firm with the help

of assets employed. Profitability ratio can be determined on the basis of:

1. Sales

2. Investment

(i) Profitability Ratios Related to Sales:

(ii) Gross Profit to Sales Ratio

(iii) Net Profit to Sales Ratio or Net Profit of Margin.

(i) Gross Profit to Sales Ratio

The gross profit to sales ratio establishes relationship between gross profit

and sales to measure the relative operating efficiency of the firm to reflect

pricing policy.

Gross Profit to Sales Ratio = (Sales - Cost of Goods Sold) ÷ Sale

* 100

(iii) Net Profit Margin

The net margin indicates the management's ability to earn sufficient profit

on sales to earn sufficient profit on sales not only to cover all revenue

operating expenses of the business, the cost of borrowed funds and the cost

of goods or servicing, but also to have sufficient margin to pay reasonable

comparison to shareholders on their contributions to the firm.

Net Profit Margin = Net profit after tax and interest * 100

Sales



Profitability Ratios Related to Investments:

Return on Assets

Return on Capital Employed

Return on Assets:

The profitability ratio here measures the relationship between net profit and

assets.

Return on Assets = Net Profit after ÷ Tax Fixed Assets

Return on Capital Employed:

Return on Capital Employed = Net Profit after Taxes ÷ Total

Capital Employed

Activity Ratios or Efficiency Ratios:

Activity ratio are sometimes are called efficiency ratios. Activity ratios are

concerned with how efficiently the assets of the firm are managed. These

ratios express relationship between level of sales and the investment in

various assets inventories, receivables, fixed assets etc.

The important activity ratios are as follows:

(1) Inventory Turnover Ratio

(2) Debt Turnover Ratio

(3) Average Collection Period Ratio

(1) Inventory Turnover Ratio:

Inventory Turnover Ratio = Raw Materials Consumed ÷ Average

Stock of Raw Materials

(2) Debt Turnover Ratio:



This ratio shows how quickly the debtors are converted into cash

Debt Turnover Ratio = Total Sales ÷ Debtors

(3) Average Collection Period Ratio

This ratio indicates how quickly the inventory is converted into cash.

Average Collection Period Ratio = Days in a Year ÷ Debtors Turnover

Parties Interested In Ratio Analysis

Trade creditors

Trade creditors are interested in firm's ability to meet their claims over a

very short period of time. Their analysis will, there fore confine to the

evaluation of the firm's liquidity positions.

Suppliers of long-term debt

Suppliers of long-term debt on the other hand are concerned with firm's

long-term solvency and survival. They analysis the firms profitability over

time, its ability to generate cash to be able to pay interest and repay

interest and repay principal and the relationship between various source of

funds. (Capital structure relationship).

Long-term creditors do analyses the historical financial statements but they

place more emphasis on the firm's projected financial statement to make

analysis about its future solvency and profitability.

Investors

Investors who have invested their money in the firms share are most

concerned about the firm steady growth in earning. As such, they



concentrate on the analysis of the firm's present and future profitability.

They are also interested in the firms financial structure of the extent it

influence the firms earning ability and risk.

Management

An organization would be interested in every aspect of the financial

analysis. It is their overall responsibility to see that the resources of the firm

are used most effectively and efficiently and that the firm's financial

condition is sound.

So thus management employee financial analysis for the purpose of internal

control and to better provide what capital supplier seeks in financial

condition and performance from the business and from an internal control

standpoint, management needs to take financial analysis in order to plan

and control effectively.

RATIO ANALYSIS

Financial ratios are useful indicators of a firm's performance and financial

situation. Financial ratios can be used to analyze trends and to compare the

firm's financials to those of other firms. Ratio analysis is the calculation and

comparison of ratios which are derived from the information in a company's

financial statements. Financial ratios are usually expressed as a percent or

as times per period. Ratio analysis is a widely used tool of financial analysis.

It is defined as the systematic use of ratio to interpret the financial

statements so that the strength and weaknesses of a firm as well as its

historical performance and current financial condition can be determined.

The term ratio refers to the numerical or quantitative relationship between

two variables. With the help of ratio analysis conclusion can be drawn



regarding several aspects such as financial health, profitability and

operational efficiency of the undertaking. Ratio points out the operating

efficiency of the firm i.e. whether the management has utilized the firm's

assets correctly, to increase the investor's wealth. It ensures a fair return to

its owners and secures optimum utilization of firm's assets. Ratio analysis

helps in inter-firm comparison by providing necessary data. An inter firm

comparison indicates relative position. It provides the relevant data for the

comparison of the performance of different departments. If comparison

shows a variance, the possible reasons of variations may be identified and if

results are negative, the action may be initiated immediately to bring them

in line. Yet another dimension of usefulness or ratio analysis, relevant from

the View point of management is that it throws light on the degree

efficiency in the various activity ratios measures this kind of operational

efficiency.

Liquidity Ratios Leverage Ratios

Profitability Ratios Activity Ratios

Market Ratios Statements of Cash Flow

Ratio Analysis

Liquidity Ratios:

Liquidity ratios measure a firm's ability to meet its current obligations.

These include:



Current Ratio:

Current Ratio = Current Assets / Current Liabilities

This ratio indicates the extent to which current liabilities are covered by

those assets expected to be converted to cash in the near future. Current

assets normally include cash, marketable securities, accounts receivables,

and inventories. Current liabilities consist of accounts payable, short-term

notes payable, current maturities of long-term debt, accrued taxes, and

other accrued expenses. Current assets are important to businesses

because they are the assets that are used to fund day-to-day operations and

pay ongoing expenses.

Year 2007 2008

Current asset 4707621 7581431

Current liability 3037283 3627890

Current ratio 1.55 2.09



CURRENT RATIO

0

0.5

1

1.5

2

2.5

2007

2008

1.55

2.09

20072008

Interpretation:

The current ratio for the year 2007 & 2008 is 1.55 & 2.09 respectively,

compared to standard ratio of

2:1 this ratio is lower which shows low short term liquidity efficiency at the

same time holding less than sufficient current assets means insufficient use

of resources.

Sales to Working Capital:

Sales to Working Capital = Sales / Working Capital

Sales to working capital give an indication of the turnover in working

capital per year. A low working capital indicates an unprofitable use of

working capital.

Year 2007 2008

Sales 4441588 10947074

Working Capital 1670338 3953541



Sales to Working 2.66 2.77

SALES TO WORKING CAPITAL

2.62.622.642.662.68

2.72.722.742.762.78

2007

20082.66

2.77

20072008

Interpretation:

This liquidity ratio for the years 2007 & 2008 is 2.66 & 2.77, compared to

standard ratio of 2:1.

Working Capital:

Working Capital = Current Assets ÷Current Liabilities

A measure of both a company's efficiency and its short-term financial

health. Positive working capital means that the company is able to pay off

its short-term liabilities. Negative working capital means that a company

currently is unable to meet its short-term liabilities with its current

assets (cash, accounts receivable and inventory).

Also known as "net working capital” or the "working capital ratio".



Year 2007 2008

Current asset 4707621 7581431

Current liability 3037283 3627890

Working capital 1670338 3953541

Interpretation:

WORKING CAPITAL

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

2007

20081670338

3953541

20072008

It is very clear from the above calculations that the working capital of THDC

is gradually increasing over d period of time, which shows good short term

liquidity.

Leverage Ratios:

By using a combination of assets, debt, equity, and interest payments,

leverage ratio's are used to understand a company's ability to meet it long

term financial obligations. Leverage ratios measure the degree of protection

of suppliers of long term funds. The level of leverage depends on a lot of

factors such as availability of collateral, strength of operating cash flow and



tax treatments. Thus, investors should be careful about comparing financial

leverage between companies from different industries. For example

companies in the banking industry naturally operates with a high leverage

as collateral their assets are easily collateralized. These include:

Time Interest Earned : TIE Ratio = EBIT / Interest Charges

The interest coverage ratio tells us how easily a company is able to pay

interest expenses associated to the debt they currently have. The ratio is



designed to understand the amount of interest due as a function of

company's earnings before interest and taxes (EBIT). This ratio measures

the extent to which operating income can decline before the firm is unable

to meet its annual interest cost.

Year 2007 2008

EBIT 3304444 7665197

Interest charges 1995314 3930222

TIE Ratio 1.66 1.95

TIE RATIO

1.51.55

1.61.65

1.71.75

1.81.85

1.91.95

2007

20081.66

1.95

20072008

Interpretation:

As we can see from this ratio analysis that, tie ratio in 2007 is 1.66 as

compared to 1.95 in 2008 which means that the firm can easily meets its

interest burden even if EBIT and Tax suffer a considerable decline.



Debt Ratio:

Debt Ratio = Total Debt / Total Assets

The ratio of total debt to total assets, generally called the debt ratio,

measures the percentage of funds provided by the creditors. The proportion

of a firm's total assets that are being financed with borrowed funds. The

debt ratio is calculated by dividing total long-term and short-term liabilities

by total assets. The higher the ratio, the more leverage the company is

using and the more risk it is assuming. Assets and liabilities are found on a

company's balance sheet.

year 2007 2008

Total debt 43800338 43754589

Total asset 91147208 97596187

Debt ratio .481 .448

DEBT RATIO

0.43

0.44

0.45

0.46

0.47

0.48

0.49

2007

2008

0.481

0.44820072008

Interpretation:

Calculating the debt ratio, we came to know that company is mid leveraged

one.



Debt to Equity Ratio:

Debt to Equity Ratio = Total debt / Total Equity

The debt to equity ratio is the most popular leverage ratio and it provides

detail around the amount of leverage (liabilities assumed) that a company

has in relation to the monies provided by shareholders. As you can see

through the formula below, the lower the number, the less leverage that a

company is using. The debt to equity ratio gives the proportion of a

company (or person's) assets that are financed by debt versus equity. It is a

common measure of the long- term viability of a company's business and,

along with current ratio, a measure of its liquidity, or its ability to cover its

expenses. As a result, debt to equity calculations often only includes long-

term debt rather than a company's total liabilities. A high debt to equity

ratio implies that the company has been aggressively financing its activities

through debt and therefore must pay interest on this financing.

Year 2007 2008

Total debt 43800338 43754589

Total equity 44301952 50207563

Debt to equity ratio .998 .871



Interpretation:

DEBT TO EQUITY RATIO

0.80.820.840.860.88

0.90.920.940.960.98

1

2007

2008

0.998

0.871000000000001

20072008

We can see from the calculation that ratio has been declining.

Total Capitalization Ratio:

Total Capitalization Ratio = Long-term debt / long-term debt +

shareholders' equity

The capitalization ratio measures the debt component of a company's

capital structure, or capitalization (i.e., the sum of long-term debt liabilities

and shareholders' equity) to support a company's operations and growth.

Long-term debt is divided by the sum of long-term debt and shareholders'

equity. This ratio is considered to be one of the more meaningful of the

"debt" ratios - it delivers the key insight into a company's use of leverage.

Year 2007 2008

Long term debt 43800338 43754589

Long term debt+

equity

93962152 88102290



Total capitalization

ratio

.466 .497

TOTAL CAPITALIZATION RATIO

0.450.455

0.460.465

0.470.475

0.480.485

0.490.495

0.5

2007

20080.466

0.497000000000001

20072008

Interpretation:

As we can see from the calculation that there is gradual increase in the

ratio from .466 in 2007 to .497 in 2008.

Long term Assets versus Long term Debt:

Long term Assets versus Long term Debt = Long Term Assets / Long

Term Debts

year 2007 2008

Long term asset 86431952 90008611

Long term debt 43800338 43754589

LT assets/LT debts 1.97 2.06



LT ASSETS/LT DEBTS

1.92

1.94

1.96

1.98

2

2.02

2.04

2.06

2007

20081.97

2.06

20072008

Profitability Ratios:

Profitability is the net result of a number of policies and decisions. This

section of the discusses the different measures of corporate profitability and

financial performance. These ratios, much like the operational performance

ratios, give users a good understanding of how well the company utilized its

resources in generating profit and shareholder value. The long-term

profitability of a company is vital for both the survivability of the company

as well as the benefit received by shareholders. It is these ratios that can

give insight into the all important "profit".

Profitability ratios show the combined effects of liquidity, asset

management and debt on operating results. These ratios examine the profit

made by the firm and compare these figures with the size of the firm, the

assets employed by the firm or its level of sales. There are four important

profitability ratios that I am going to analyze:

Net Profit Margin:



Net Profit margin = Net Profit / Sales x 100

Net Profit Margin gives us the net profit that the business is earning per

dollar of sales.

This margin indicates the profit after all the costs have been incurred it

shows that what % of turnover is represented by the net profit. An increase

in the ratios indicates that a firm is producing higher net profit of sales than

before.

Year 2007 2008

Net profit 1174809 3269869

Sales 4441588 10947074

Net profit margin 26.45% 29.87%

NET PROFI MARGIN

24.00%

25.00%

26.00%

27.00%

28.00%

29.00%

30.00%

2007

200826.45%

29.87%

20072008

Interpretation:

Here we can see that net profit margin have increased from 26.45% In

2007 to 29.87% in 2008

Return on Equity (ROE):



Return on Total Equity = Profit after taxation/ Total Equity x 10

Return on Equity measures the amount of Net Income earned by utilizing

each dollar of Total common equity. It is the most important of the "Bottom

line" ratio. By this, we can find out how much the shareholders are going to

get for their shares. This ratio indicates how profitable a company is by

comparing its net income to its average shareholders' equity. The return on

equity ratio (ROE) measures how much the shareholders earned for their

investment in the company. The higher the ratio percentage, the more

efficient management is in utilizing its equity base and the better return is

to investors.

Year 2007 2008

Profit after tax 1174809 3235761

Total equity 31296204 33003604

Return on total

equity

3.75% 9.80%

RETURN ON TOTAL EQUITY

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%

2007

20083.75%

9.80%

20072008

Interpretation:



The return on equity was 3.75 in 2007 and 9.80 in 2008.

Return on total assets: Net profit after tax/ Total Assets

This ratio is computed to know the ‘Productivity of the Total Assets’.

Year 2007 2008

PAT 1174809 3235761

Total assets 91147208 97596187

Return on total

assets

1.29% 3.32%

RETURN ON TOTAL ASSETS

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2007

20081.29%

3.32%

20072008



Return on net worth: Profit after tax / Net worth

The ratio expresses the net profit in term of the equity share holders fund.

The ratio is an important yardstick of performance for equity shareholders

since it indicates the return on the funds employed by them.

Year 2007 2008

PAT 1174809 3235761

Net worth 44301952 50207563

Return on net

worth

.027 .064

RETURN ON NET WORTH

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2007

20082.70%

6.40%

20072008



DuPont Return on Assets:

DuPont Return on Assets = Profit after taxation x 100

Total Assets

Year 2007 2008


Total assets 91147208 97596187

DuPont ROA 1.29% 3.32%

DU PONT ROA

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2007

20081.29%

3.32%

20072008



Operating Assets Turnover:

Operating Assets Turnover = Operating Assets x 100

Net Sales

Year 2007 2008

Operating assets 75719410 79107857

Net sales 4441588 10947074

Operating assets

turnover

1704.78% 722.64%

Return on Operating Assets:

Return on Operating Assets = Profit after Taxation x 100

Operating assets

Year 2007 2008


Operating assets 75719410 79107857

Return on

operating assets

1.55% 4.09%



RETURN ON OPERATIN ASSETS

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%

2007

20081.55%

4.09%

20072008

Operating assets= Cash & Bank Balance + prepaid expense + Fixed

Assets

2008:

1052476 + 22653 + 78032728 = 79107857

2007:

388281 + 66656 + 75264473 = 75719410

Sales to Fixed Assets:

This ratio is indicates that how much sales are contributed by investment in

fixed Assets.

Sales to Fixed Assets = Net Sales / Fixed Assets

Year 2007 2008

Net sales 4441588 10947074

Fixed assets 75264473 78032728

Sales to fix asset .059 TIMES .141 TIMES



SALES TO FIXED ASSETS

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

2007

2008

0.0590000000000001

0.141

20072008

Activity Ratios:

Activity ratio are sometimes are called efficiency ratios. Activity ratios are

concerned with how efficiency the assets of the firm are managed. These

ratios express relationship between level of sales and the investment in

various assets inventories, receivables, fixed assets etc.

Total Asset Turnover:

Total Asset Turnover = Total Sales / Total Assets

The amount of sales generated for every dollar's worth of assets. It is

calculated by dividing sales in dollars by assets in dollars. Asset turnover

measures a firm's efficiency at using its assets in generating sales or

revenue - the higher the number the better. It also indicates pricing

strategy: companies with low profit margins tend to have high asset

turnover, while those with high profit margins have low asset turnover.

Year 2007 2008



Total sales 4441588 10947074

Total assets 91147208 97596187

Total asset turnover .049 .112

TOTAL ASSETS TURNOVER

0

0.02

0.04

0.06

0.08

0.1

0.12

2007

2008

0.0490000000000001

0.112

20072008

Interpretation:

The return on equity was .049 in 2007 and has increased to .112 in

2008 due to issue of long term debt.

Debtors turn over ratio: Net credit sales/ debtors

The ratio shows how many times sundry debtors turn over during the year.

Year 2007 2008

Net credit sales 4441588 10947074

Debtors 2492617 4652777

Debtor turnover

ratio

1.78 2.35



DEBTOR TURNOVER RATIO

0

0.5

1

1.5

2

2.5

2007

2008

1.78

2.35

20072008

Interpretation:

As we can see that higher the debtor turn over ratio the greater is the

efficiency of credit management.

Average collection period: 365/ Debtors turnover

The average collection period represents the num of days worth of credit

sales that is locked in sundry debtors.

Year 2007 2008

No of days 365 365

Debtors turn over 1.78 2.35

AVG collection period 205 days 156 days



AVG COLLECTION PERIOD

0

50

100

150

200

250

2007

2008

205

156

20072008

Interpretation:

As we can see from the above calculation that the collection period in 2007

was 205 days which has reduced to 156 days in 2008



Market Ratio:

Market Value Ratios relate an observable market value, the stock price, to

book values obtained from the firm's financial statements.

Dividend per Share - DPS:

Dividend per Share = Total amount of Dividend

Number of outstanding shares

Per share capital = 1000 per share

Or

No. of shares outstanding = share capital / 1000

Year 2007 2008

Total amount of

dividend

975000

Number of shares 32396

Dividend per shares 30.09

DIVIDEND PER SHARES

0

5

10

15

20

25

30

35

2007

2008

30.09

20072008

Interpretation:

There is no dividend paid in 2007.



Earning Per Share- EPS:

Earning Per Share = Profit after Taxation / Number of Shares

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. Earnings per share are generally considered to be the single

most important variable in determining a share's price. It is also a major

component used to calculate the price-to-earnings valuation ratio.

Year 2007 2008


Number of shares 31296 32396

Earning per share 37.5 99.88

EARNING PER SHARE

0102030405060708090

100

2007

200837.5

99.88

20072008



Interpretation:

The EPS in 2008 is 99.88 as compared to 38.05 in 2007.

Price / Earning Ratio:

Price / Earning Ratio = Stock Price per Share

Earning Per Shares

The Price-Earnings Ratio is calculated by dividing the current market price

per share of the stock by earnings per share (EPS). (Earnings per share are

calculated by dividing net income by the number of shares outstanding.)

The P/E Ratio indicates how much investors are willing to pay per dollar of

current earnings. As such, high P/E Ratios are associated with growth

stocks. (Investors who are willing to pay a high price for a dollar of current

earnings obviously expect high earnings in the future.) In this manner, the

P/E Ratio also indicates how expensive a particular stock is. This ratio is not

meaningful, however, if the firm has very little or negative earnings. The

Price-Earnings Ratio is calculated by dividing the current market price per

share of the stock by earnings per share (EPS). (Earnings per share are

calculated by dividing net income by the number of shares outstanding.)

The P/E Ratio indicates how much investors are willing to pay per dollar of

current earnings. As such, high P/E Ratios are associated with growth

stocks. (Investors who are willing to pay a high price for a dollar of current

earnings obviously expect high earnings in the future.)

In this manner, the P/E Ratio also indicates how expensive a particular

stock is. This ratio is not meaningful, however, if the firm has very little or

negative earnings.

Year 2007 2008

Stock price per 1000 1000



share

EPS 37.5 99.88

Price / Earning

Ratio

26.67 10.01

PRICE/ EARNING RATIO

0

5

10

15

20

25

30

2007

2008

26.6710.01

20072008

Interpretation:

The P/E ratio in 2007 was 26.66time n it has decreased to 10.01 in 2008

that’s alarming for the investors.



Dividend Payout Ratio:

Dividend Payout Ratio = Dividend per Share / Earning per Share:

The percentage of earnings paid to shareholders in dividends. The payout

ratio provides an idea of how well earnings support the dividend payments.

More mature companies tend to have a higher payout ratio. This ratio

identifies the percentage of earnings (net income) per common share

allocated to paying cash dividends to shareholders. The dividend payout

ratio is an indicator of how well earnings support the dividend payment.

Year 2007 2008

Dividend per share 30.09

EPS 99.88

Dividend payout

ratio

.301



DIVIDEND PAYOUT RATIO

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

2007

2008

0.301

20072008

Dividend Yield:

Dividend Yield = Dividend per Share / Share Price

Financial ratio that shows how much a company pays out in dividends each

year relative to its share price. In the absence of any capital gains, the

dividend yield is the return on investment for a stock. 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.

Year 2007 2008

DPS 0 30.09

Share price 1000

Dividend yield .0301

DIVIDEND YEILD

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

2007

2008

0.301

20072008

Book Value per Share:

Book Value per Share = Shareholders' Equity

Share Capital

This is defined as the Common Shareholder's Equity divided by the Shares

Outstanding at the end of the most recent fiscal quarter. It is the Indication

of the net worth of the corporation. Somewhat similar to the earnings per

share, but it relates the stockholder's equity to the number of shares

outstanding, giving the shares a raw value. Comparing the market value to



the book value can indicate whether or not the stock in overvalued or

undervalued

Year 2007 2008

Shareholder’s equity 44301952 50207563

Share capital 31296204 32396204

Book value P/E share 1.42 1.55

BOOK VALUE PER SHARE

1.35

1.4

1.45

1.5

1.55

2007

20081.42

1.55

20072008

Statement of Cash Flow:

Cash flow ratios indicate liquidity, borrowing capacity or profitability. This

section of the financial ratio looks at cash flow indicators, which 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.

Operating Cash Flow to Total Debt:

Operating Cash Flow to Total Debt = Operating Cash Flow/Total Debt

This coverage ratio compares a company's operating cash flow to its total

debt, which, for purposes of this ratio, is defined as the sum of short-term

borrowings, the current portion of long- term debt and long-term debt. This

ratio provides an indication of a company's ability to cover total debt with

its yearly cash flow from operations. The higher the percentage ratio, the

better the company's ability

To carry its total debt.

Year 2007 2008

Operating cash flow 3170123 7216396

Total debt 43800338 43754589

Operating cash flow

to total debt

.072 .165

OPERATING CASH TO TOTAL DEBT

00.020.040.060.08

0.10.120.140.160.18

2007

20080.072

0.165

20072008



Operating Cash Flow per Share:

Operating Cash Flow per Share = Operating cash flow / Total Shares

Year 2007 2008

Operating cash flow 3170123 7216396

Total shares 31296 32396

Operating cash flow

to total shares

101.30 222.76

OPERATING CASH TO TOTAL SHARES

0

50

100

150

200

250

2007

2008101.3

222.76

20072008



Trend Analysis:

A firm's present ratio is compared with its past and expected future ratios

to determine whether the company's financial condition is improving or

deteriorating over time. Trend analysis studies the financial history of a firm

for comparison. By looking at the trend of a particular ratio, one sees

whether the ratio is falling, rising, or remaining relatively constant. This

helps to detect problems or observe good management.

TREND ANALYSIS OF THDC LTD FOR THE YEAR 2007 & 2008

Performance 2007 2008 trend

A)liquidity ratio

Current ratio 1.55 2.09 Higher liquidity

in 2008

Sales to

Working capital

2.66 2.77 Increase in

2008

Working capital 1670338 3953541 Higher liquidity

in 2008

B)leverage

ratio

Time interest

earned

1.66 1.95 Higher in 2008

Debt ratio .481 .448 Minimum



difference in

leverage

Debt to equity

ratio

.998 .871 There is a

slight drop in

leverage

Total

capitalization

ratio

.466 .497 Higher in 2008

LT/ Long term

debt

1.97 2.06 Increase in

leverage

C) Profitability

ratio

Net profit

margin

26.45% 29.87% Profitability

increased in

2008

Return on

equity(ROE)

3.75% 9.80% Increase in

2008

Return on asset 1.29% 3.32% Higher ROA in

2008

Return on net

worth

.027 .064 Higher in 2008

DuPont return

on assets

1.29% 3.32% Higher in 2008

Operating

assets turnover

1704.78% 722.64% Lower

efficiency in

2008

Return on

operating

assets

1.55% 4.09% Higher

efficiency in

2008



Sales to fix

asset

.059times .141times Slight change

in 2008

D)Activity ratio

Total asset

turnover

.049 .112 Higher

efficiency in

2008

Debtor turnover

ratio

1.78 2.35 Increased in

2008

Average

collection

period

205 days 156 days Collection

period

decreased in

2008

E ) Market ratio

DPS 30.09 No dividend

paid in 2007

EPS 37.5 99.88 Increase in EPS

in 2008

PE Ratio 26.67 10.01 Decreased in

2008

Dividend

payout ratio

.301 No DP ratio in

2007

Dividend yield .301

Book value per

share

1.42 1.55 Good market

perception

Operating cash

flow to Total

debt

.072 .165 Increased in

2008

Operating cash 101.30 222.76 Increased in



flow to Total

shares

2008

SUMMARY

Financial Statement Analysis is a method used by interested parties such as

investors, creditors, and management to evaluate the past, current, and

projected conditions and performance of the firm. This report mainly deals

with the insight information of the two mentioned companies. In the current

picture where financial volatility is endemic and financial intuitions are

becoming popular, when it comes to investing, the sound analysis of

financial statements is one of the most important elements in the

fundamental analysis process. At the same time, the massive amount of

numbers in a company's financial statements can be bewildering and

intimidating to many investors. However, through financial ratio analysis, I

tried to work with these numbers in an organized fashion and presented

them in a summarizing form easily understandable to both the management

and interested investors.

It is required by law that all private and public limited companies must

prepare the financial statements like, income statement, balance sheet and

cash flow statement of the particular accounting period. The management

and financial analyst of the company analyze the financial statements for

making any further financial and administrative decisions for the

betterment of the company. Therefore, I select this topic, so that I have

done some solid financial analysis that will certainly help the management

of review their performance and also assist the interested people like

investors and creditors. As a financial analyst it is important that a financial

decision be made by analyzing the financial statements of the company. It is

the primary responsibility of the financial managers or financial analyst to

manage the financial matters of the company, by evaluating the financial



statements. I am also providing some important suggestions and opinions

about the financial matters of the business.

CONCLUSION AND RECOMMENDATION

Conclusion and Findings

I analyzed the financial statement of TEHRI HYDRO DEVELOPMENT

CORPORATION LTD. The analysis is as follows:

The liquidity position of the company is not up to the standard, is below

the industrial average in 2007, but it has improved a little in 2008 and is

near the industrial average.

There is a considerable rise in the working capital of the company from

2007 to 2008 which

shows good liquidity position of the company.

Leverage ratio indicates the high risk associated with the company.

Leverage ratio helps in helps in assessing the risk arising from the use of

debt capital. As we can see that in both the years debt to equity ratio is

slightly below the industrial average.

Profitability ratio is good as the earnings have increased for its share

holders from 26% to almost 30%. The profitability ratio is high because of

the low financial charge.

Activity ratio of the company is not that efficient, as we can see that the

debtor turnover ratio has increased but is not as much as company would

have expected. The average collection period is also late.

Company did not pay any dividend in 2007. EPS has also jumped from a

mere Rs37 to almost Rs 100.

Book value per share is the indication of the net worth of the corporation.

It is somehow similar to the earning per share, but it relates to



stockholder’s equity to the number of shares outstanding, so we can say

net worth of the company is good.

The operating cash flow of the company is also good.

RECOMMENDATIONS

As I have realized that the Tehri Hydro Development Corporation LTD is

doing well since its inception. It is quite difficult to give any suggestion to

such a corporation but still no one is perfect,

There is always a room for improvement so I will recommend the following

suggestions for THDC LTD:

Employee training must be introduced on continuous basis so that the

employees have the understanding of the latest development

especially with its customers.

As observed the company has an Internal Audit system wherein

external Chartered Accountant Firms appointed to carry out periodic

audits of the different units of the Corporation. In my opinion, the

scope and coverage of internal Audit needs to be enhanced in order to

make it proportionate with the size of the business.

As seen from the physical verification there is a great deal of

mismanagement of resources and it must be avoided, as it decreases

the profit.

Company should hire fresh graduates. As the combination of

experienced and fresh talent can produce better results and will

improve the efficiency of the management.

As the company is not a listed company. The company has

implemented DPE guidelines. The company has to make continuous



efforts to maintain transparency, disclosures and fairness in dealing

with stakeholders.

Aggressive publicity campaign must be introduced by the company

about there new project, as there is little awareness about there new

projects.

The vigilance department of the corporation has to improve the level

of transparency for implementing the proper system of E- tendering.

GLOSSARY

Acid test ratioAlso called the quick ratio. The ratio of current asset minus inventories, accrual and prepaid item to current liability.

Analytical This is auditor-speak for finding the percentage difference from the current year revenue balance to the prior year balance. Ignore the awkward phrase. It’s a great exercise as it can help you find large swing from one year to next year.

Balance sheetA statement of financial position of business at a specified moment of time.

Balance sheet ratio Ratio calculated on the basis of figures of balance sheet only.

Composite ratioRatio based on figures of profit and loss account as well as balance sheet. They are also known as inter- statement ratio.

Financial ratioCritical evaluation of data given in the financial statements.

Financial ratioRatio disclosing the financial position or solvency of the firm. They are also known as solvency ratios.

Accounting ratioIt is the relationship expressed in mathematical terms between two accounting figures related with each other.



Financial statementAn organized collection of data according to logical and consistent accounting procedures conveying an understanding of some financial aspects of business firm.

InterpretationExplaining the meaning and significance of the financial data.

Profitability ratio Ratio which reflects the final results of the financial data.

Turnover ratioRatio measuring the efficiency with which the assets are employed by a firm. They are also known as Activity ratio or Efficiency ratios.


power sector in india

Documents