Chapter - Ananthi

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CHAPTER-I

INTRODUCTION

INTRODUCTION

Finance is the life blood of a business. It is necessary to promote a business,

purchase fixed assets, buy raw materials, produce goods and market them. Every business

activity requires finance. Without finance, the business would come to a halt. Therefore,finance is the fundamental requirement for any business.

Every company should know the financial strength of its operations. It points out the

problems faced or likely to be faced by the companies. The financial information of a companyis available in the financial statements or accounting reports.

The financial statements of the companies are broadly classified into two types Vi.,

Trading & Profit and Loss Account and Balance sheet. The Trading account is the first part of

final account which is prepared to find out either gross profit or gross loss. The second part of

the final account is Profit and Loss Account which is prepared to know the net results of the

business. The net result may be net profit / net loss. The last part is called as Balance Sheet

which is prepared to know the financial position of the company as on the particular date.

These statement are generally prepared by all the companies which is useful for them and also

to outsiders like bankers, investors, Government etc. These statements show the static position

of the company. In order to know the changing position of the company, these statements are

to be analyzed. Moreover, the preparation of financial statements is not the end aim. Hence

these statements are to be analyzed and results are interpreted to know the financial strength of

the company.

Hence the proposed study entitled A STUDY ON ANALYSIS OF FINANCIAL

PERFORMANCE OF NLC LTD. NEYVELI is undertaken mainly to know its financial

strength and soundness for the past five years viz. 2005-06 to 2009-10.

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1.1 NEED OF THE STUDY

Finance statement is related with annual report are one of the source of

information for judging the operational and financial Position of a company.

To analyze the financial position of a company, the study of short term asset

management is also mandatory.

To identify the overall position of the company and the study helps to evaluate

the strength weakness and the firms financial Performance.

1.2. Statement of the Problem

The organization can survive and succeed only when it is financially sound. In the

present era, many firms face threat from MNCs and also severe crisis due to global recession

and meltdown. Under these circumstances, the PSUs in India are going smoothly. Hence the

effective functioning of public sector organization is a vital factor. It also results in betterment

of our economy and also the future of such organization depends on its efficient operation. In

this context, the present study is undertaken to analyze the financial health of a renowned

public sector undertaking viz., NLC Ltd., Neyveli.

1.3. COMPANY PROFILE

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Vision

To provide value added analytical services both by instrument and chemical methods

for consumer and industrial goods. To keep up the high standards established in the respective

disciplines and remain as referral centers at the national and international level.

Mission

Strive towards greater cost competitiveness and work towards continued financial

strength. Continually imbibe best practices from the best Indian and International

Organizations engaged in Power Generation and Mining. Be a preferred employer by offering

attractive avenues of career growth and excellent work environment and by developing human

resources to match international standards. Play an active role in society and be sensitive to

emerging environmental issues.

Neyveli the home of the Neyveli Lignite Corporation Ltd., is today Indias Energy

Bridge to the 21st century and a fulfillment of Pandit Nehrus Ltd., is celebrated the year (2006)

as the Golden Jubilee Year.

1.1.Production Units

1.1.1. Mine-I

Demarcated over an area of 16.69 sq. kms with a reserve of about 287 million tones, Mine-I is

situated on the northern part of the field adjacent to the Neyveli Township. The lignite seam

was first exposed in August 1961 and regular mining of lignite commenced in May 1962. The

continuous mining technology in open cast mining with German Bucket Wheel Excavators,

Conveyors and Spreaders were put to use for the first time in India. Mine-I with a capacity of

10.5 million tones lignite per annum feeds Thermal Power Station-I (600 MW).

Unique Features of the Neyveli Lignite Mines are:

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The Neyveli lignite mines have unique features. Some of them are listed below:

a) Lignite Deposit in Neyveli

b) Occurrence of Ground Water Aquifer below lignite bed

c) Hard over-burden strata

d) Cyclonic Area

1.1.2. Mine-II

In February 1978, the Govt. of India sanctioned the second Lignite mine with a

capacity of 4.7 million tones of Lignite per annum and in February 1983, it has sanctioned the

expansion of second mine to a capacity of 10.5 million tones. Mine-II had the problems in the

excavation of sticky clay soil during the initial stage. The method of mining and equipment

used is similar to Mine-I. Similarly the seam is the same as of Mine-I and is contiguous to it.

Mine-II is located at 5 kms south of Mine-I. It is spread over an area of 26 sq.kms with 398

million tones reserve. The lignite seam in Mine-II was exposed in September 1984 and lignite

excavation commenced in March 1985. The last overburden system (surface bench system)

under the expansion scheme was commissioned on 15.12.1991. The lignite excavated from

Mine-II meets the fuel requirements of Thermal Power Station-II.

1.1.3 Mine-I (Expansion)

In March 1992, the Government of India had sanctioned the expansion of Mine-I

from its present capacity of 6.5 million tones to 10.5 million tones per annum with a capital

cost of Rs.1,336.93 crores. The Govt. of India approved the revised cost estimate of this project

in Dec.2001 at a capital cost of Rs.1,658.38 crores. The project was commissioned on 24th

March 2003-one month ahead of Revised Cost Estimate schedule. The cumulative capital

expenditure incurred on this project up to 31.03.2003 was Rs.1,502.28 crores.

1.14. Mine-IA

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The Government of India had sanction mine I-A project on 26th February 1998 for

mining 3.0 million tones of lignite per annum at a total cost Rs.1,032.81 crores for catering to

the lignite requirement of private ector plant to be put up by M/s. ST-CMS and also to meets

additional requirements of lignite by the company. Fuel supplyareement has been signed with

M/s. ST-CMS Company on 29.4.1998. The Mine-IA project has been commissioned in the

month of March 2003 and the amount of capital expenditure incurred on this project up to

31.03.2003 was Rs.821.03 crores.

1.1.5. Lignite Production:

Neyveli Lignite Corporation limited has achieved a remarkable growth in Lignite

production. Table 1.1 shows Lignite production from 2005-06 to 2009-10.

Table1.1

Statement showing lignite production during the years

From 2005-06 to 2009-10

YearLignite Production

(Lakhs Tones)

2005-06 204.35

2006-07 210.14

2007-08 215.86

2008-09 213.07

2009-10 223.38

Source: Compiled from Annual Reports of NLC Ltd.

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1.1.6. Thermal Power Station I (TPS-)

The production capacity of TPS-I is 600 MW. This power station consists of six units

of 50 MW each and three units of 100 MW each. The first unit of 600 MW capacity TPS-I was

synchronized in May 1962 and the last unit in September 1970. Some of the special features of

this power station are:

First lignite fired power station in South East Asia.

First largest Thermal Power Station in South India.

First pit head Thermal Power Station in India.

1.1.7. Thermal Power Station II (TPS-II)

The production capacity of Thermal Power Station-II is 1470 MW. It consists of 7

units of 210 MW each. In February 1978, the Government of India sanctioned the second TPS

of 630 MW capacity (3x210 MW) and in February 1983, the Government of India sanctioned

the second TPS expansion from 630 MW to 1470 MW with an additional of units 210 MW

each. The first 210 MW unit was synchronized in March 1986 and the last unit was

synchronized in June 1993.

First and tallest town type boiler in the country (92.7 m. height)

First software based burner management system

First Hydrogen/hydrogen cooled generator of this size

First boiler to be cleaned by hydrofluoric acid

Steel structures used for the power house building

124 Meters natural drou

1.1.8. Power Generation

NLC Ltd., has achieved a higher growth in power Generation. Table 1.2 shows

power generated from 2005-06 to 2009-10

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Table-1.2

Statement showing Power Generated during the years

From 2005-06 to 2009-10.

YearPower Generation

(million units)

2005-06 16242.42

2006-07 15786.58

2007-08 17456.89

2008-09 15767.98

2009-10 17656.04

Source: Compiled from Annual Reports of NLC Ltd.

1.1.9. Thermal Power Station-I Expansion

The Thermal Power Station-I was being expanded with an installation of two unitsof 210 MW each. The expansion was sanctioned by the Govt. of India in February 1996. Then

the Government of India revised the cot estimate of this in December 2001 at a capital cost of

Rs.1,420.27 crores. The first unit was synchronized on 21.10.2002. The second unit of the unit

was synchronized in July 2003. The cumulative capital expenditure incurred on these projects

up to 31.03.2003 was Rs.1,161.59 crores.

1.1.10. Financial Performance

NLC Ltd., has achieved a higher financial growth during the years 2005-06 to

2009-10. The overall performance of the Neyveli Lignite Corporation is good. So the company

does not have any risk. The companys current ratio and Quick ratio are good.

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1.1.11. Sales

NLC Ltd. Has recorded a higher sales Growth.Table 1.3 shows sales achieved

from 2005-06 to 2009-10.

Table-1.3

Statement showing Sales achieved during the years

From 2005-06 to 2009-10

YearSales

(Rs.In crores)

2005-06 2201.41

2006-07 2108.11

2007-08 2981.65

2008-09 3354.91

2009-10 4121.03

Source: Compiled and Computed from Annual Reports of NLC Ltd.

1.1.12. Profit after Tax

NLC Ltd., has achieved higher growth in profit after tax. Table 1.4 shows profit after

tax achieved during the years from 2005-06 to 2009-10.

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Table-1.4

Statement showing profit after tax achieved during the year

from 2005-06 to 2009-10.

YearProfit after tax

(Rs. In crores)

2005-06 702.35

2006-07 566.78

2007-08 1101.57

2008-09 821.09

2009-10 1247.46


1.1.13. Human Resource Development

NLC Ltd. Takes pride in its highly motivated and trained human resource, which

has contributed its best for the company to achieve new heights. The total manpower as on

31.03.2010.

Table-1.5

Statement showing human resource in NLC.

Executives 4,031

Non-Executives 7,899

Workmen 6,504

Total 18,434


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1.1.14. Service Units

The service unit consists of Central Workshop (CWS), Central Electrical Repair

Shop (CERS), Auto-yard, FC division and Bus section. The CWS and CERS are undertaking

the repair works and some fabrication works for other six production units. The Auto-yard and

FC divisions are maintaining the vehicles like, bus, lorry, van, jeep, etc., which belongs to the

company.

1.1.15. Service Centers

The following are the various service centres of NLC Limited. Unified Water

Supply, CMO- Mechanical Services, Central Workshop, Central Auto Shop, Printing Press,

General Electrical, Civil Service Unit, CMO-Repair Zone, CMO-Testing Zone.

1.1.16. Future Plans

The following projects mentioned in table 1.6 were identified to be implemented

during X plan period. The capacity and anticipated project cost are given in the Table 1.6.

Table-1.6

Statement showing future plans

(Rs. In crores)

SI.

No.Projects Capacity

Anticipated

Project Cost

1. Mine-II Expansion 10.5 MTPA 2161.28

2. TPS-II Expansion 2 x 250 MW 2030.78

3. Rajasthan Project Mine 2.1 MT of Lignite/ annum

1368.254. Rajasthan Project-TPS 2 x 125 MW

5. Power Plant at B $ C site 210 MW 700.00

6. Mine-III 8.0 MTPA

7500.00

7. TPS-III 2x500 MW

8. Power plant at Tuticorin

(JV with TNEB)

1000 MW 4000.00

Source: Compiled from the Annual Reports of NLC Ltd.

Of the above 8 projects, the following projects namely Mine-II Expansion, TPS-II

Expansion and Rajasthan Mine cum Power Plant have received the approval (Oct. 2005 & Dec.

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2005) from the Government of India. The funds required for the above projects will be met

from internal resources and market borrowing without any budgetary support from the

Government. Neyveli Lignite Corporation with its excellent performance, figures among the

top profit making public sector undertakings.

1.4. Industry Profile

Global coal industry profile provides top-line qualitative and quantitative summary

information including: market size (value and volume 2006-10 & forecast to 2015). The profile

also contains descriptions of the leading players including key financial metrics and analysis of

competitive pressures with in the market. Essential resource for top-line data and analysis

covering the global coal market. Includes market size data, textual and graphical analysis of

market growth trends, leading companies and macroeconomic information.

Highlights:

The coal market is defined as revenues due to the sale of coal for industry and power

generation. Market volumes given with in this profile are for both primary (anthracite,

bituminous, and lignite) and secondary (anthracite, bituminous, and lignite briquets but

excluding metallurgical coke) coal consumption. The market has been valued at annual

average mine mouth prices and does not include any transportation costs. Any currencyconversions used in the creation this report have been calculated using constant annual

average exchange rates.

The global coal market had total revenue of $467.6 billion in 2010, representing a

compound annual growth rate (CAGR) of 12.9 % for the period spanning 2006-2010.

Market consumption volumes increased with a CAGR of 5.4 % between 2006 & 2010,

to reach a total of 7.9 billion short tones in 2010.

The performance of the market is forecast to accelerates with an anticipated CAGR of

14.4 % for the five-year period. 2010-2015, which is expected to drive the market to a

value of $ 917.8 billion by the end of 2015.

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Features:

Save time carrying out entry level research by identifying the size, growth, and leading

players in the global coal market.

Use the Five Forces analysis to determine the competitive intensity and therefore

attractiveness of the global coal market.

Leading company profile reveal details of key coal market players global operations

and financial performance.

Add weight to presentations and pitches by understanding the future growth prospects

of the global coal market with five year forecasts by both value and volume.

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CHAPTER-II

STATEMENTS OF OBJECTIVES

STATEMENTS OF OBJECTIVES

This study is an effort to understand the Financial Performance of NLC Ltd. It is

possible to evaluate the performance of the company by analyzing the financial activities.

PRIMARY OBJECTIVES

To analyze the financial strength of NLC Ltd., for the period of 5 years from 2005-06 to 2009-10 and to find out the Credit Worthiness of NLC Ltd.

SECONDARY OBJECTIVES

Based on this main objective, the following are the secondary objectives of the

present study.

To study the efficiency and effectiveness of companys performance by use of

profitability ratios. To assess the actual position of functional performance in NLC Ltd., from the year

2005- 06 to 2009-10.

To analyze the reasons for the variation in profits for 5 year from 2005-06 to 2009-

10.

To offer suggestions and recommendations for improvement of financial position of

NLC Ltd.

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CHAPTER-III

RESEARCH METHODLOGY

The term Research refers to the systemic method consisting of enunciating the

problem, formulating a hypothesis, collecting the data, analyzing the facts and reaching certain

conclusions either in the form of solutions towards the concerned problem or in certain

generalized form of some theoretical formulation.

According to Redman and Mory, the term Research was a systematized Effort to Gain

New Knowledge.

3.1 . RESEARCH DESIGN

Research design is the blue print for doing the research. It is the arrangement of

conditions for collection and analysis of data in a manner that aims to combine relevance to the

research purpose with economy in procedure.

This is an empirical study based on the financial information contained in the annual

reports of NLC. The study adopts descriptive methodology for evaluating the financial

performance of the organization.

The study on financial performance of Neyveli lignite corporation helps to understand

the liquidity position, solvency position, profit and turn over of the company. Such analysis

guides the company for future development. The ratio analysis serves as the high house in the

competitive method.

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3.2. METHODS OF DATA COLLECTION

This Study is limited to Secondary data available from various records of Annual

Reports of Neyveli Lignite Corporation Limited.

SECONDARY DATA

This study is undertaken based on the data collected from the statement and books of

accounts maintained by NLC Ltd.

Secondary data is collected from companys Annual Reports for the years 2005-06.

Information collected from above sources helped the researcher to conduct the study

successfully. The present study covers a period of 5 years i.e., from 2005-2006 to 2009-2010.

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3.3. SCOPE OF THE STUDY

In this Study, an attempt has been made to know about the companys Financial

Performance. The study has been conducted with special reference to get a clear picture ofliquidity, Leverage, Activity and profitability to assess efficiency level.

This study helps to calculate the value of different ratios to be carried

out for Ratios Analysis and also to calculate the value of different Assets and

Liabilities to be carried out for Comparative and Common Size balance Sheets

of different years.

This Study helps to find out the resources for further development of

the company.

An attempt can be made during this study to understand the efficiency

of the company in other aspects of Financial Management.

This Study will be useful for the Comparison of Financial Position of

NLC Ltd., with any other Public Sector Organization.

This Study can be utilized to find out the Current Financial position of

NLC Ltd.

The study concentrates on all the ratios, which are related to the

assessment of Financial Aspects.

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3.3. LIMITATIONS OF THE STUDY

This Study is limited to Secondary data available from various records of

Annual Reports of Neyveli Lignite Corporation Limited.

The study discloses only monetary facts. In respect of internal information, the

outsiders cannot probe into the internal confidential matters of a company.

The study has been made only for five years from 2005-2006 to 2009-2010.

The study does not cover other areas of Financial Management such as

Capital Budgeting Inventory Control

The study is based on past Financial Statements, but exact forecast of future

could not be done on this study for want of time.

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CHAPTER-IV

FINANCIAL STATEMENTS - A CONCEPTUALANALYSIS

.

FINANCIAL STATEMENTS

Financial statements refer to formal and original statements prepared by a business

concern to disclose its financial information.

American Institute of certified Public Accountants (AICPA) says Financial

statements are prepared for the purpose of presenting a periodical review or report on the

progress by the management to deal with i) The status of investments in the useness and ii) The

results achieved during the period under review.

According to J.J Hampton, The statement disclosing status of investments is

known as balance sheet and the statement has been widely used to represent two statements

prepared by accountants at the end of specific period. They are:

i) Profit & Loss account (or) Income statement.

ii) Balance sheet (or) Statement of financial position.

Now a days the statement of retained earnings and schedules are also prepared to

supplement the data contained in the Income statement and the Balance sheet.

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NATURE OF FINANCIAL STATEMENTS

Financial statements are prepared for the purpose of presenting a periodical view

or report by the management and deals with the state of investment in the business and the

results achieved during the period under review. They reflect a combination of recorded facts,

accounting conversions and personal judgements.

From the above, one can deduce the characteristic features of financial

statements of business entities as described below:

i) Recorded facts

ii) Accounting conversions

iii) Personal judgements

1.) Recorded Facts

The financial statements are the summary of the transactions and facts recorded in

the books of accounts. The books of accounts record only those transactions which are

measured in terms of money (following the money measurement concept). Accordingly those

transactions which cannot be expressed in terms of money will not find a place in the books of

accounts and financial statements. However, such facts are very important to under stand the

financial position and the future prospects of the concern. Examples of no-monetary facts are

appointment of new managing director, signing a contract with labor union, or other businessagreements, etc.,

2.) Accounting conventions

Accounting is a dynamic science and accountants have developed over a period

of time, a number of conventions or methods on the basis of experience. While preparing the

financial statements, Some basic accounting conventions are used. For example, convention of

conservatism is used for ascertaining the value of stock. Accordingly, stock should be valued

either at cost price or market price whichever is less. Several accounting conventions have also

been developed for valuation of debtors and other assets. Therefore, data shown in the financial

statements are subject to the validity of conventions used in their preparation.

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3.) Personal judgements

Although conventions and concepts provide a good guideline to the accountant for

arriving at a decision to how much should be carried forward to the next year as unexpired

costs, the application of the conventions and concepts depend on the personal judgement of the

accountant.

For example, number of methods are available for calculation of annual deprecation.

The amount of depreciation varies from one method to another. Since only one method, from

out of several methods, is to be chosen, the opinion of the accountant influences the financial

statements.

Importance of Financial Statements

Financial statement are mirror which reflect the financial position and operating

strength or weakness of the concern. The importance of financial statements for each of the

parties is discussed below:

1.) For owners

Shareholders proprietors of the business are interested in the well-being of the

business. They would like to have information about the progress and financial condition of

the business in which they have invested their funds. Therefore, financial statements

provide information to proprietors and prospective proprietors too, as relating to earnings,

dividened, growth rates, past performance, etc. It acts as a guide to the value of investments

made.

2.) For potencial investors

The potencial investors depends heavily on the information disclosed in the

financial statements for the purpose of taking decisions regarding investments in the

securities of the company. It is due to this significance that the disclosure of the financial

data has been made mandatory for public companies while inviting deposits, subscription to

shares and debentures from public under the companies Act 1956.

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3.) For management

Management, whether or not it is the same as owners, relies upon financial

statements for appraising the operating performance of the business. Financial statements

provide a basis for appraising its performance in carrying on individual activities as well as

conducting the business as a whole. For, these statements can supply useful information

about undesirable tendencies that need to be corrected etc. The information furnished in the

financial statements will form a basis for future financial plans.

4.) For creditors

Creditors are interested in the continuing profitable performance of the business

to which they have provided financial resources. They are very much concerned with

receipt of interest and the repayment of credit given. The financial statements provide a

measure of degree of risk (creditworthiness) of lending operations to the bank and other

creditors.

4.) For Government

The government likes to have a copy of financial statements of every business

concern as a means of complying with taxation, labor and corporate laws. If needed, the

Government may direct the officials to examine the accounting records of business

concerns.

5.) For students and research scholars

Students and research scholars can utilize the information given in the financial

statements for their research studies relating to industry or economy in general.

Functions of Financial Statements

Financial statements provide meaningful, useful and valuable information

periodically regarding the financial position and future prospects of the business organization.

Such statements are not only useful to the management but also to outsiders like creditors,

bankers, moneylenders, investors, shareholders , stock exchange, trade associations and

Government.

These statements are useful to them to study the liquidity, profitability and solvency

position of the organization. They can also obtain the financial information as and when

required for decision-making and control.

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The effective utilization of capital employed, efficient use of assets and improvement in

financial position can be better analyzed and understood from the financial statements. The

outsiders can probe into information like earning capacity, growth potential, efficiency of the

operation etc, by analyzing such statements. Such statements are also useful to tax authorities

for bringing tax and for the Govt. authorities for analyzing the trend of the industry and to

formulate tax policies and prepare budget.

Types of Financial Statements:

The basic financial statements prepared for the purpose of external reporting to owners,

investors and creditors are:

i. The Balance Sheet or Statement of Financial Position

ii. Profit And Loss Account or Income Statement.

Balance Sheet

Balance Sheet is the most significant Financial Statement. Balance Sheet is a statement

containing the assets and liabilities of a business on particular date.

It indicates the financial condition or the state of affairs of a business at a particular

moment of time.

Profit and Loss Account

The Profit and Loss Account is a statement prepared to determine the operational position

of the concern. The established and other expenses are changes to the Profit and Loss Account.

Profit and Loss Account is a statement of revenue earned and the expenses incurred. If

there is excess of revenues over expenditure it will show Profit and if the expenditures are

more than the income then, there will be a Loss.

It helps the businessman to know the Net Profit Earned or Net Loss suffered by the

business during a particular period . The Profit shown by the Profit and Loss Account for a

particular period can be compared with that of the other period so that it helps to determine

whether the business is being run efficiently or not.

Thus Profit and Loss Account provides the overall Profit made or Loss suffered

by the business concern during a particular period.

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Limitations of Financial Statements:

Financial Statements provide useful information regarding the financial health of

the organization. The Financial Statements suffer from the limitations:

a) Financial Statements are Essentially Interim Reports:

The Financial Statements can be considered only as interim reports. They are not final

because the exact financial position can be known only when business is closed.

b) Influence of Personal Judgement:

Generally, most of the financial statements are based on personal judgements of the

account. (for ex, the period for writing off preliminary expenses, method of depreciation etc.,)

c) Accounting Concepts and Conventions:

Financial Statements are prepared on the basis of certain accounting concepts and

conventions. So any change in the method or procedure of accounting will restrict the utility of

financial statements.

d) Do not consider Price Level Changes:

Financial Statements do not consider the changes in price level. Hence their use is

limited during Inflationary periods.

e) Disclose only Monetary Facts:

Financial Statements do not depict those facts which cannot be expressed in terms of

money.

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CHAPTER-V

ANANLYSIS AND INTERPRETATIONS

The Analysis and Interpretation of Financial Statements provide a systemic

classification of the data given in the Financial Statements.

The financial statements show a static position of an organization. Hence they must be

rearranged and interpreted to study the sufficiency as well as the growth of a business.

FINANCIAL ANALYSIS

Financial Analysis is the process of identifying the financial strength and weaknesses

of the firm by properly establishing relationship between the items of the balance sheet and

profit and loss account.

The analysis provides an idea about the profitability and financial position of a

company, and the financial statements have to be analyzed and interpreted.

The term analysis means a critical examination of financial transactions effected

during definite period of time. The analysis and interpretation of financial statements is an

attempt to determine the significance and meaning of the financial statement data so that

forecast may be made of the prospects for future earnings, ability to pay interest and debt

maturities and probability of a sound dividend policy.

TYPES OF FINANCIAL ANALYSIS

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The analysis of financial statements can be made in various ways. The different

types of financial analysis are presented below:

According to Materials Used

a) External Analysis

When analysis of the financial statements of a business concern is done external

parties, it is termed as external analysis. Such parties may be shareholders, investors, lenders or

creditors. As there is no access to the books of accounts and the internal records of the concern,

the parties mainly depend on the data given in the financial statements and other supplements

in the annual reports for their analysis. This analysis, therefore, serves a very limited purpose

b.)Internal Analysis

Such an analysis is undertaken by the persons inside the business concern who have,

obviously, access to all the relevant books, records, statements and other information. The

analyst may be the executive, accountant or internal auditors. Sometimes, government agencies

assume powers to have access to the internal records of a company. As complete set of

information is available easily to the analyst, it is possible to carryout the analysis of the

performance of the business concern, clearly starting the reasons for improvement or

decreasing trends in various indicators of performance.

2.) According to Modus Operandi of Analysis

a) Horizontal Analysis

Under this types of analysis, the financial statements of a number of years or the

financial statements of different concerns are studied and analyzed. For effective interpretation,

a comparative study of the statements is undertaken. This type of analysis is also known as

Dynamic analysis as it is based on the data from year to year (i.e. for a certain number of

years) and measures the change of position or trend of the business over a number of years.

This analysis provides considerable insight into the levels and areas of strength and weakness

of a business concern.

b)Vertical Analysis

When only one year or the financial statements of only one business concern is

taken up for review or only one set of accounting data is being examined, it is a case of vertical

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analysis. In this type of analysis, the figures of the financial statements are analyzed vertically.

That is, a figure from a years financial statements is compared with a base figure selected

from the same financial statements. For example, the ratios of different items of costs on a

particular year may be compared with the sales of that year. This type of analysis also known

as static analysis or structural analyzis, is highly useful to have an understanding of the

performance of several companies in the same group or the many divisions or departments in

the same company.

It is clear from the above discussion that the use of both methods of analysis is

very much required for proper analysis. Each method provides specific type of information. In

fact, both methods constitute the backbone of financial analysis.

TOOLS OF FINANCIAL ANALYSIS

Following are the tools used for the Analysis Interpretation of Financial Statements.

i. Ratio Analysis

ii. Comparative Balance Sheet

iii. Common Size Balance Sheet

RATIO ANALYSIS:

Ratio Analysis is a powerful tool of Financial Analysis. Ratio Analysis of business

enterprises centres on efforts to drive quantitative measures or guides concerning the expected

capacity of the firm to meet its future financial obligations or expectations. The ratio analysis

facilities a firm to consider the time dimensions into account i.e., whether the financial position

of a firm is showing any improvement or deteriorating over years.

Ratio is known as one number expressed in terms of another, it is an expression of

relationship spelt out by dividing one figures into the other.

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TYPES OF RATIOS:

Ratios are classified in broad groups. They are as follows:

1. Liquidity Ratios.

2. Leverage Ratios.

3. Activity Ratios.

4. Profitability Ratios.

LIQUIDITY RATIO

Liquidity ratios derive a picture of the capacity of a firm to meet its short term

obligations out of its short term resources. These constitute ratio-analysis of the short-term

financial position. Liquidity ratios, by establishing a relationship between cash and other

current assets to current obligations, provide a quick measure of liquidity.

The most common ratios which indicate the liquidity are:

Current Ratio

Quick Ratio

Cash Ratio

CURRENT RATIO:

Current Ratio is the relationship between the total current assets and current

liabilities. It is the ratio of the current assets and current liabilities and is found out by dividing

the current assets by the current liabilities. As the ratio is connected with the working capital

[Current Assets- Current Liabilities] and it is also called working capital ratio. Current ratio is

the indicator of short term liquidity position of a firm.

Current Assets

Current Ratio =Current Liabilities

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Table-5.1

CURRENT RATIO

(Rs. In crores)

YearCurrent

Assets

Current

LiabilitiesRatio

2005-06 3616.40 721.91 5.01

2006-07 5398.09 1653.28 3.27

2007-08 5883.75 1834.04 3.21

2008-09 7557.07 2859.41 2.60

2009-10 7684.36 3169.67 2.42

Source: Companys Annual Report

Inference

The ideal current ratio is 2:1.The current ratio of the company was 2.42:1 in the year

2009-10. This ratio is more than the standard ratio in all the years taken for the study. Hence it

shows a satisfactory liquidity position for the period under review.

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Liquid AssetsQuick Ratio =

Current Liabilities

Table - 5.2

QUICK RATIO

(Rs. In crores)


Inference

The standard quick ratio is 1:1. The above table shown that the quick ratio of the

company is more than the ideal ratio in all the years under review.

YearQuick

Assets

Current

Liabilities Ratio

2005-06 3257.95 721.91 4.51

2006-07 4942.60 1653.28 2.99

2007-08 5435.70 1834.04 2.96

2008-09 7021.22 2859.41 2.4

2009-10 7176.39 3169.67 2.26

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CHART NO - 2

QUICK RATIO

4.51

2.992.96

2.4

2.26

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2005-06 2006-07 2007-08 2008-09 2009-10

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CASH POSITION RATIO:

Cash Ratio measure the relationship between cash and near cash items on one handand immediately maturing obligations on the other. This test is rigorous measure of a firms

liquidity position. It is also called as absolute liquid ratio.

Cash + Marketable Securities Cash position ratio = .

Current Liabilities

Table - 5.3

CASH POSITION RATIO

(Rs. In crores)

YearCash+

Marketable SecurityCurrent Liabilities Ratio

2005-06 5140.54 721.91 7.12

2006-07 5182.47 1653.28 3.13

2007-08 5575.78 1834.04 3.04

2008-09 5452.20 2859.41 1.91

2009-10 4823.63 3169.67 1.52


Inference

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35/81

2005-06 1286.71 7990.38 0.16

2006-07 1505.70 8309.29 0.18

2007-08 2790.68 9008.79 0.31

2008-09 4057.70 9469.23 0.42

2009-10 4077.36 10324.67 0.39


Inference

The debt-equity position of NLC Ltd., is shown in the above table as the organization

has more shareholders fund, this shows that the net worth position is satisfactory.

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CHART NO - 4

DEBT EQUITY RATIO

0.390.42

0.31

0.180.16

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2005-06 2006-07 2007-08 2008-09 2009-10

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INTEREST COVERAGE RATIO:

Interest Coverage Ratio is also known as Fixed charges cover. This ratio established

the relationship between EBIT and fixed interest charges. Interest coverage ratio measures the

ability of the company to meet interest communications.

It also highlights the ability of the firm to raise additional funds in future. Higher the

ratio, better is the position of long-term creditors and the companys risk is lesser.

Earnings before Depreciation, Interest and TaxInterest Coverage Ratio =

Interest

Table- 5.5

INTEREST COVERAGE RATIO(Rs. In crores)

Year EBIT Interest Ratio

2005-06 1265.10 54.28 23.31

2006-07 1360.39 43.28 31.43

2007-08 1887.24 8.80 214.46

2008-09 1486.37 8.15 182.37

2009-10 1889.16 35.58 56.25


Inference

The above table shows that the NLC Ltd., was able to meet its fixed interest charges as

the earnings of the company is good.

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CHART NO - 5

INTEREST COVERAGE RATIO

56.25

182.37

214.46

31.4323.31

0

50

100

150

200

250

2005-06 2006-07 2007-08 2008-09 2009-10

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CHART NO 6

PROPRIETORY RATIO

0.740.73

0.86

0.82

0.78

0.65

0.7

0.75

0.8

0.85

0.9

2005-06 2006-07 2007-08 2008-09 2009-10

ACTIVITY RATIOS:

An activity ratio measures the effectiveness of the employment of resources. These

ratios not only analyze the use of the total resources of the firm but also the use of the

components of the total assets. Activity Ratios involve a relationship between assets and sales.

Several Activity Ratios can be calculated to judge the effectiveness of asset utilization.

Some of these ratios are:

Debtors turnover ratio. Debt collection period.

Fixed assets turnover ratio.

Working capital turnover ratio.

Capital turnover ratio.

Inventory turnover ratio

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DEBTORS TURNOVER RATIO

Debtors constitute an important constituent of current assets and therefore the quality of

debtors to a great extent determines a firms liquidity.

This ratio indicates the efficiency of the staff entrusted with the collection of book

debts. The higher the ratio, the better it is.

Net SalesDebtors Turnover Ratio = ------------------

Debtors

Table 5.7

DEBTORS TURNOVER RATIO

(Rs. in Crores)

Year Net Sales Debtors Ratio

2005 06 2201.41 168.34 13.08

2006 07 2108.11 89.41 23.58

2007 08 2981.65 218.83 13.63

2008 09 3354.91 781.44 4.29

2009 10 4121.03 1611.62 2.56


Inference

Debtors turnover ratio was high during the year 2006-07. It indicates that the debtors

who are mostly Government subscribers and the management have to take more efforts to

collect the dues.

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Table 5.8

DEBT COLLECTION PERIOD

(Rs. in crores)

Source: Companys Annual ReportInference

Debt collection period was high during the year 2009-10 but it was decreased during

the year 2006-07 and gradually increased . It seems that the corporation has announced some

Year Debtors SalesRatio

(Days)

2005 06 168.34 2201.41 27.53

2006 07 89.41 2108.11 15.27

2007 08 218.83 2981.65 26.42

2008 09 781.44 3354.91 83.85

2009 10 1611.62 4121.03 140.78

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rebates for early settlement of dues by the Electricity board. It further indicates that the better

liquidity of debtors.

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CHART NO-8

DEBT COLLECTION PERIOD

140.78

83.85

26.42

15.27

27.53

0

20

40

60

80

100

120

140

160

2005-06 2006-07 2007-08 2008-09 2009-10

FIXED ASSET TURNOVER RATIO

Fixed Asset Turnover Ratio indicates the extent to which the investment in fixed assets

contributes towards sales. A highest ratio is an indication of greater efficiency in the utilization

of fixed assets. Fixed asset of the company are land and building, Plant and machinery etc.

Cost of Goods SoldFixed Asset Turnover Ratio = ---------------------------

Fixed Assets

Table 5.9

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FIXED ASSETS TURNOVER RATIO

(Rs. in crores)

YearCost of

Goods SoldFixed Assets Ratio

2005 06 936.31 4040.09 0.23

2006 07 747.72 3850.43 0.19

2007 08 1094.41 3743.67 0.29

2008 09 2623.34 4503.04 0.58

2009 10 2231.87 5238.80 0.45


Inference

Fixed Assets Turnover ratio in the year 2008-09 was higher than the other four years

and there were wide fluctuations in this ratio.

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CHART NO-9

FIXED ASSETS TURNOVER RATIO

0.45

0.58

0.29

0.19

0.23

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2005-06 2006-07 2007-08 2008-09 2009-10

WORKING CAPITAL TURNOVER RATIO

The ratio of cost of goods sold to Net working capital is determined in order to test the

efficiency with which net working capital is utilized. It indicates whether the business is being

operated on a small or large amount of Net working capital in relation to sales.

A high working capital turnover may be the result of favourable turnover of inventories

and receivables whereas; a low turnover of net working capital results in slow turnover of

inventories and receivables.

Cost of Goods SoldWorking Capital Turnover Ratio = ---------------------------

Working Capital

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CHART NO-10

WORKING CAPITAL TURNOVER RATIO

0.48

0.55

0.27

0.2

0.32

0

0.1

0.2

0.3

0.4

0.5

0.6

2005-06 2006-07 2007-08 2008-09 2009-10

CAPITAL TURNOVER RATIO

Capital Turnover Ratio indicates the extent to which capital employed contributes

towards sales. High ratio signifies that there exists efficient utilization of the capital employed

by the firm.

Cost of Goods Sold

Capital Turnover Ratio = ------------------------------Capital Employed

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Table 5.11


(Rs. in crores)

YearCost of Goods

Sold

Capital

EmployedRatio

2005 06 936.31 9526.00 0.10

2006 07 747.72 8524.65 0.09

2007 08 1094.41 8619.60 0.13

2008 09 2623.34 9303.62 0.28

2009 10 2231.87 11166.88 0.20


Inference

The Capital turnover ratio shows a decreasing trend in the first three years and

increased slightly in the later years.

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CHART NO-11


0.2

0.28

0.13

0.09

0.1

0

0.05

0.1

0.15

0.2

0.25

0.3

2005-06 2006-07 2007-08 2008-09 2009-10

PROFITABILITY RATIOS:

Profitability ratios are calculated to measure the operating efficiency of the company.

Profitability Ratios are designed to highlight the end-result of business activities. Profitability

ratios can be determined on the basis of Sales or Investment. Profitability Ratios indicates the

profitability i.e., the ability of the firm to earn profit.

The important ratios are:

a) Net profit ratio.

b) Return on net worth.

c) Return on capital employed.

d) Gross profit ratio.

e) Earnings per equity share.

f) Dividend payout ratio.

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CHART NO-12

NET PROFIT RATIO

0.3

0.24

0.37

0.27

0.32

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2005-06 2006-07 2007-08 2008-09 2009-10

RETURN ON NETWORTH

Return on net worth is desired to work out the profitability of the company from the

shareholders point of view, because the shareholders are interested in total income after tax

including net Non-operating Income.

Profit after tax

Return on Networth = -------------------Net worth

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Table 5.13

RETURN ON NETWORTH

(Rs. in crores)

YearProfit

after taxNetworth Ratio

2005 06 702.35 7990.38 0.08

2006 07 566.78 8309.29 0.07

2007 08 1101.57 9008.79 0.12

2008 09 821.09 9412.78 0.08

2009 10 1247.46 10225.60 0.12


Inference

This ratio was high in the year 2005-06 but it decreased slowly in the next four years.

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CHART NO-13

RETURN ON NETWORTH

0.12

0.08

0.12

0.07

0.08

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

2005-06 2006-07 2007-08 2008-09 2009-10

RETURN ON CAPITAL EMPLOYED

Return on Capital Employed Ratio shows the overall efficiency of the firm. This ratio is

the indicator of profitability of a firm. The profit being the net result of all operations, the

return on capital employed expresses all efficiency the Inefficiency of a business collectivity

and thus it is a dependable basis for judging its overall efficiency or inefficiency.

Profit after TaxReturn on Capital Employed = -----------------------

Capital Employed

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Table 5.14


(Rs. in crores)

YearProfit

after taxCapital employed Ratio

2005 06 702.35 9526.00 0.07

2006 07 566.78 8309.29 0.06

2007 08 1101.57 9008.79 0.12

2008 09 821.09 9303.62 0.08

2009 10 1247.46 11166.88 0.11


Inference

The business can survive only when the Return on capital employed is more than the

cost of capital employed in the business. Thus, the Return on Capital Employed level of NLC

Ltd. is satisfactory

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CHART NO-14.


0.11

0.08

0.12

0.06

0.07

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

2005-06 2006-07 2007-08 2008-09 2009-10

GROSS PROFIT RATIO:

Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage

representing the percentage of gross profits earned on sales. An increase in gross profit ratio

may reflect an increase in the sale price of goods sold without any corresponding increase in

costs, a decrease in cost without its impact on the sale price of goods. Low gross profit ratio

may indicate unfavourable purchasing and mark-up policies.

Gross ProfitGross Profit Ratio = -------------------

Sales

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Table 5.15

GROSS PROFIT RATIO

(Rs. in crores)

Year Gross Profit Sales Ratio

2005 061265.10 2201.41 0.57

2006 071360.39 2108.11 0.65

2007 08 1887.24 2981.65 0.63

2008 091486.37 3354.91 0.49

2009 101889.16 4121.03 0.46


Inference

The Gross profit ratio was less in the year 2009-10 when compared to other four years.

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CHART NO-15

GROSS PROFIT RATIO

0.460.49

0.630.65

0.57

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2005-06 2006-07 2007-08 2008-09 2009-10

EARNINGS PER EQUITY SHARE

It is an indicator of profitability of investment from the point of view of shareholders.

This ratio helps in determining the market price of the equity shares of the company. It also

helps in estimating the companys capacity to pay dividend to its equity shareholders. Earnings

pershare are considered to be one of the important tools in financing decisions. The higher the

earnings per share, the more profitable is the financing plan and vice versa.

Profit after TaxEarnings per Equity Share Ratio = -----------------------------------

Number of Outstanding Shares

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Table 5.16

EARNINGS PER EQUITY SHARE RATIO

(Rs. in crores)

YearProfit

After tax

No. of Equity

SharesRatio

2005 06 702.35 1677.71 0.42

2006 07 566.78 1677.71 0.34

2007 08 1101.57 1677.71 0.66

2008 09 821.09 1677.71 0.48

2009 10 1247.46 1677.71 0.74


Inference

This ratio shows an decreasing trend in the year 2005-06 to 2006-07 and increase in theyear 2009-10 due to reduced profit as there was a increase in sales but the year 2008-09 was

decreased.

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CHART NO-16

EARNINGS PER EQUITY SHARE RATIO

0.74

0.48

0.66

0.34

0.42

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2005-06 2006-07 2007-08 2008-09 2009-10

DIVIDEND PAYOUT RATIO

Dividend payout ratio is the ratio between dividend per ordinary share to equity

shareholders and earnings per share of the firm. If the firm is paying low dividends it is

resorting to high retentions to take care of growth factor. Low dividends may affect the price of

the shares of the firm. On the other hand, a high payout ratio may lead to a raise in the market

price of the shares but it will affect the future financing programme from internal sources.

Dividend per ordinary shareDividend Payout Ratio = -----------------------------------------

Earnings per share

Table 5.17

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DIVIDEND PAYOUT RATIO

(Rs. in crores)

Year Dividend EPS Ratio

2005 06 335.54 4.27 78.58

2006 07 201.33 3.88 51.89

2007 08 335.54 6.01 55.83

2008 09 335.54 4.89 68.62

2009 10 333.54 7.44 45.10


Inference

The dividend payout ratio was high which is also same during the year 2005-06. And it

was low during the year 2009-10. This ratio shows fluctuating trend.

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CHART NO - 17

DIVIDED PAYOUT RATIO

45.1

68.62

55.83

51.89

78.58

0

10

20

30

40

50

60

70

80

90

2005-06 2006-07 2007-08 2008-09 2009-10

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COMPARATIVE BALANCE SHEET:

Comparative Financial Statements are statements of the financial position of business

so designed as to provide time perspective to the consideration of various elements of financial

position embodied in such statements. In these statements, figures for two or more periods are

placed side by side to facilitate comparison.

Increases and Decreases in various assets and Liabilities as well as in proprietors

equity or capital brought about by the conduct of a business, can be observed by a comparison

of the Balance sheets at the beginning and end of the period. Such observation often provides

considerable information which is of value in forming an opinion regarding the progress of the

enterprise and in order to facilitate comparison, a simple device known as Comparative

Balance Sheet may be used. The Comparative Balance sheet shows not only the balances of

Accounts as on different dates but also the extent of their Increases or Decrease between these

dates. The comparative balance sheet contains not only the data of single balance sheet but also

those which may be used in studying the trends in an enterprise.

The Form of Comparative Balance Sheet consists of two columns for the date of the

original balance sheet and a third column for increase and decrease in various items. A fourth

column containing the percentage of increase and decrease.

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Table 5.18

Comparative Balance Sheet as on 31st March 2005 06

Particulars 31st March 05(Rs in Crores)

31st March 06(Rs in Crores)

Increase/Decrease

Percentage

Current Assets InventoriesSundry DebtorsCash & Bank BalanceOther Current AssetsLoans & AdvancesMisc. Expenses

355.06705.65

1968.69285.99206.69

6.12

358.45168.34

2549.12202.85337.64

8.41

3.39-537.31580.43-83.14130.95

2.29

0.95-76.1429.48

-29.0763.3537.41

Total (A) 3528.20 3624.81 96.61 2.73

Fixed Assets

InvestmentNet BlocksCapital Work-In-ProgressAdvance for Capital Items

2590.774260.07146.6764.66

2591.424040.09168.45358.96

0.65-219.98

21.78294.30

0.02-5.1614.85

455.15

Total (B) 7062.17 7158.92 96.75 1.37

Total (A+B) 10590.37 10783.73 193.36 1.83

Current Liabilities

LiabilitiesProvisions

510.55394.37

593.82128.09

83.27-266.28

16.31-67.52

Total (C) 904.92 721.91 -183.01 -20.22

Long Term Liabilities

Share CapitalReserves & SurplusSecured LoansUnsecured Loans

Deferred Tax Liability

1677.716001.47400.00829.69

785.58

1677.716321.08600.00686.71

776.32

-319.61200.00

-142.98

-9.26

-5.32

50.00-17.23

-1.17

Total(D) 9694.45 10061.82 367.37 3.78

Total (C+D) 10599.37 10783.73 184.36 1.74

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Inference:

Assets:

o Fixed Assets increased from 7062.17 to 7158.92 crores i.e., there is a increase of

1.37%.

o Current Assets, loan and advances shows an increase of about 2.73%

o Capital Work-in-Progress shows an increase of 14.85%.

o Investments show an increase of 0.02%.

o Miscellaneous Expenditure shows a increase of 37.41%.

Liabilities:

o There is no change in share capital for the year 2004.-05 to 2006-07.

o Reserves and Surplus shows an increase from 6001.47 to 6321.08 crores with an

increase of 5.32%.

o Secured Loans increase from 400 to 600 crores with an increase of 50%.

o Unsecured Loans decreased from 829.69 to 686.71 crores

o Deferred Tax Liabilities shows a decreased of 1.17%.

o Current Liabilities shows a decrease of 20.22%. This is especially due to decrease in

sundry creditors and accrued expenses, Capital work-in-progress.

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Table 5.19

Comparative Balance Sheet as on 31st March 2006 - 07

Particulars 31st March 06

(Rs in Crores)

31st March 07

(Rs in Crores)

Increase/

Decrease

Percentage


358.45168.34

2549.12202.85337.64

8.41

455.4989.41

4253.06232.52367.6121.22

97.04-78.93

1703.9429.6729.9712.81

27.07-46.8866.8414.628.87

152.31

Total (A) 3624.81 5419.31 1794.50 49.50

Fixed AssetsInvestmentNet BlocksCapital Work-In-ProgressAdvance for Capital Items

2591.424040.09186.69358.96

929.413850.431618.43357.19

-1622.01-189.661431.74

-1.77

-64.13-4.69

769.70-0.49

Total (B) 7177.16 6755.46 -421.70 -5.87

Total (A+B) 10801.97 12174.77 1372.80 12.70

Current Liabilities

LiabilitiesProvisions

593.82146.33

1236.66416.62

642.84270.29

108.25184.71

Total (C) 740.15 1653.28 913.13 123.37


Share CapitalReserves & SurplusSecured LoansUnsecured LoansDeferred Tax Liability

1677.716321.08600.00686.71776.32

1677.716652.80678.15827.55685.28

-331.7278.15

140.84-91.04

-5.25

13.0320.51

-11.72

Total(D) 10061.82 10521.49 459.67 4.56

Total (C+D) 10801.97 12174.77 1372.80 12.70

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Table 5.20



(Rs in Crores)

31st March 08

(Rs in Crores)

Increase/

Decrease

Percentage


455.4989.41

4253.06232.52367.6121.22

448.05218.83

4749.56159.67307.6331.49

-7.44129.42496.50-72.85-59.9810.27

-1.63144.7411.67

-31.33-16.3148.39

Total (A) 5419.31 5915.23 495.92 9.15

Fixed Assets


929.413850.431618.43357.19

826.223743.673505.41280.35

-103.19-106.761886.98

-76.84

-11.10-2.77

116.59-21.51

Total (B) 6755.46 8355.65 1600.19 23.68

Total (A+B) 12174.77 14270.88 2096.11 17.21

Current LiabilitiesLiabilitiesProvisions

1236.66416.62

1465.96368.08

229.30-48.54

18.54-11.65

Total (C) 1653.28 1834.04 180.76 10.93




1677.716652.80678.15827.55

685.28

1677.717362.571874.85915.83

605.89

-709.77

1196.7088.28

-79.39

-10.66

176.4610.66

-11.58

Total(D) 10521.49 12436.85 1915.36 18.20

Total (C+D) 12174.77 14270.89 2096.12 17.21

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Inference:

Assets:

o Fixed Assets increased from 6755.46 to 8355.65 crores i.e. there is a increase of

23.68%.



o Investment shows a decrease of 11.10%.

o Miscellaneous Expenditure shows a increase of 48.39%

Liabilities:

o There is no change in share capital for the year 2007-08 to 2008-09.


increase of 10.66%.

o Secured Loans increase from 67815.00 to 187485.00 lakhs with an increase of

176.47%.

o Unsecured Loans increased from 82755.00 to 91583.00 lakhs

o Deferred Tax Liabilities shows a decrease of 11.58%.

o Current Liabilities shows an increase of 10.93%. This is especially due to decrease in

sundry creditors and accrued expenses, Capital work-in-progress.

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Table 5.21



(Rs in Crores)

31stMarch09

(Rs in Crores)

Increase/

Decrease

Percentage


448.05218.83

4749.56159.67307.6331.49

535.85781.44

5482.19189.48597.2256.46

87.80562.61732.7729.80

289.6024.97

19.59257.0915.4318.6694.1479.29

Total (A) 5915.23 7642.78 1727.55 29.20

Fixed Assets


826.223743.673505.41280.35

722.374503.064030.67320.03

-103.85759.29525.2639.68

12.5620.2814.9814.15

Total (B) 8355.65 9576.13 1220.48 14.60

Total (A+B) 14270.88 17218.91 2948.03 20.66


1465.96368.08

2066.75792.66

600.79424.58

40.98115.34

Total (C) 1834.04 2859.41 1025.37 55.90




1677.717362.571874.85915.83

605.89

1677.717791.523252.65957.70

671.44

-428.95

1377.8041.87

65.55

-5.82

73.494.57

10.81

Total(D) 12436.85 14351.02 1914.17 15.39

Total (C+D) 14270.89 17210.43 2939.54 20.59

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Inference:

Assets:

o Fixed Assets increased from 8355.65 to 9576.13 crores i.e. there is a increase of

14.60%



o Investment shows a decrease of 12.56%.

o Miscellaneous Expenditure shows a increase of 79.29%.

Liabilities:

o There is no change in share capital for the year 2007-08to 2009-10.


increase of 5.82%.

o Secured Loans increase from 1874.85 to 3252.65 crores with an increase of 73.49%.

o Unsecured Loans increased from 915.83 to 957.70 crores

o Deferred Tax Liabilities shows a increase of 10.81%.

o Current Liabilities shows an increase of 55.90%.

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Table 5.22



(Rs in Crores)

31st March 10

(Rs in Crores)

Increase/

Decrease

Percentage

Current Assets InventoriesSundry DebtorsCash & Bank BalanceOther Current AssetsLoans & AdvancesMisc. Expense

535.85781.44

5482.33189.47597.2356.46

502.961611.624826.61164.56627.9999.17

-32.89830.18

-655.72-24.9130.7642.71

-6.14106.24-11.96-13.15

5.1575.65

Total (A) 7642.78 7832.91 190.13 2.48

Fixed Assets


722.374503.064030.67320.03

619.175239.274374.57378.57

-103.2736.21343.0958.54

-14.2816.358.53

18.29

Total (B) 9576.13 10611.58 1035.45 10.81

Total (A+B) 17218.91 18444.49 1225.58 7.12


2066.75792.66

2556.39613.28

489.64-179.38

23.69-22.63

Total (C) 2859.41 3169.67 310.26 36.10


Share CapitalReserves & SurplusSecured LoansUnsecured LoansDeferred Tax Liability

1677.717791.523252.65957.70671.44

1677.718646.963509.42839.86570.43

-855.44256.77

-117.84-101.01

-10.977.89

-12.30-15.04

Total(D) 14351.02 15244.38 893.36 6.23

Total (C+D) 17210.43 18414.05 1203.62 6.99

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COMMON SIZE BALANCE SHEET:

Common sizes balance sheets are those in which figures are converted in to percentages

to some common base.

The Common-size balance sheet percentages show the relation of each asset items to

total assets and each liability and capital item to total liabilities and capital. As these

percentages show relationship to balance sheet totals, variations from year to year do not

necessarily indicate changes in money amounts. In fact, the common-size balance sheet may

reflect a change in the individual item, a change in the total or a change in both. In the common

size balance sheet, the total of assets and liabilities is taken as 100 and all the figures are

expressed as a percentage of this total.

Common-size balance sheet can be useful only if it could be established in any

particular business that a certain item should normally be a certain percentage of the relevant

total but it is very difficult, if not impossible, to establish such norms and this facts detracts

from the usefulness of common-size balance sheet.

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Table 5.23

Common Size Balance sheet of NLC from 2005-06 to 2009-10

(Figures in %)

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10

ASSETS

Fixed Assets 37.46 31.62 26.23 26.67 29.27

Current Assets, loans &

Advances33.53 47.28 43.20 44.76 42.93

Capital work in progress 4.90 13.29 24.56 23.44 21.41

Investments 24.03 7.63 5.79 4.80 5.84

Misc. Expenses 0.08 0.17 0.22 0.33 0.55

Total 100 100 100 100 100

LIABILITIES

Share capital 15.56 13.78 11.75 9.83 9.66

Reserves &surplus 58.62 54.64 51.58 45.69 49.80

Secured loans 5.56 5.57 13.14 18.18 18.65

Unsecured loans 6.38 6.80 6.42 5.67 4.84

Current liabilities 6.86 13.58 12.85 16.70 13.76

Deferred tax liability 7.19 0.01 0.02 3.93 3.29

Total 100 100 100 100 100

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Inference

Assets:

Fixed assets decreased from 37.46% to 29.27% from the year 2005-06 to 2009-10.

Current assets increased from 33.53% to 42.93% from 2005-06 to 2009-10.

Capital Work-in-progress increased from 4.90% to 21.41% from 2005-06 to 2009-

10.

Miscellaneous Expenditure is highly increased from 0.08% to0.55 % from 2005-06

to 2009 to2010.

Liabilities:

There is no change in share capital from 2005-06 to 2009-10, but its % ranges from

15.56% to 9.66%.

Reserve and Surplus decrease from 58.62% to 49.80% from the year 2005-06 to 2009-

10.

Secured Loans increased from 5.56% to 18.65% from 2005-06 to 2009-10.

Unsecured Loans have been decreased from 6.38% to 4.84%.

Deferred tax Liability decreasing from 7.19% to 3.29% 2005-06 to 2009-10.

Current Liabilities increased from 6.86

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SUGGESTIONS AND RECOMMENDATIONS

Company may take immediate steps to reduce the inventory holding

so that it may improve the profit position.

The Net Profit position of the company is low during 2008-09 and it

is high during 2009-10. Hence, the company must pay attention to reduce expenses in

order to increase the over all profitability of the organisation.

Bank borrowings have to be reduced in order to reduce the interest

burden.

Operating expenses of NLC Ltd., have to be reduced by replacing

old machineries, spares and through proper maintenance to avoid, frequent break-downs.

Disposal of un- utilised assets and spares may be a desired one for

NLC Ltd.

NLC Ltd., have to maintain existing assets properly by keeping the

schedule of overhaul properly.

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CONCLUSION

It may be concluded that the organization overall financial performance is good. The

liquidity position of the concern is positive. The company has maintained the current assets and

current liabilities position effectively which means the current ratio is above the required ratio

of 2 : 1. The liquid ratio and cash ratio of Neyveli Lignite Corporation Limited are favourable

and the organisation can very well meet its current obligation.

The profitability of the company was found to be comfortable, which means that the

company is making more profit, which is the basic requirement for any business and also the

working capital assessment in Neyveli Lignite Corporation Limited has been effectively and

properly maintained.

The long-term credit position of NLC Ltd., is safe and hence, has a great opportunity of

raising additional funds in future.

Hence, the companys financial position is good and expansion of the business and

diversification can be done with its experienced staff and Executives.

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CHAPTER VII

BIBLIOGRAPHY

1. Annual Reports (2005-06 to 2009-10) collected from the library of Neyveli Lignite

Corporation Limited., Neyveli.

2. T.S. Reddy & Y. Hari Prasad Ready Financial and Management Accounting

Margham publishers, Chennai.

3. C.R.Kothari Second Edition, Reprinted (2004), RESEARCH METHODOLOGY

-New Age International (P) Limited Publications, New Delhi-110 002, PP. 1-4, 31.

4. Man Mohan and Shiv. N. Goyal Six Edition (1995), PRINCIPLES OF

MANAGEMENT ACCOUNTING Sahitya Bhawan Publications, Agra-282 003,

PP. 388-415, 416-507.

5. A. Murthy & S. Gurusamy Management Accounting Tata MCGrew Hill

Publication, New Delhi.

6. Referral Website: www.nlcindia.com

www.wikipedia.com

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Chapter - Ananthi