Chapter V - Analysis of Financial Statement

8/7/2019 Chapter V - Analysis of Financial Statement

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CHAPTER - V

ANALYSIS OF FINANCIAL

STATEMENT OF NEEPCO


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Table 5.1

Profit & Loss Account of NEEPCO from 1998-99 to 2004-05

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Sales 79896.94 67030.59 41229.44 45323.37 39186.78 35738.72 25918.14

Add:-Other Income 8284.2 9797.88 8384.23 16128.05 13787.94 8321.18 6271.39

Total Revenue 88181.14 76828.47 49613.67 61451.42 52974.72 44059.9 32189.53

Less Expenses:- 60631.77 62374.99 68016.49 55289.32 50542.07 38871.73 25989.46

PBT 20597.17 20809.9 -40851.34 5756.26 11985.66 2792.99 5821.77

Less:-Prior Adjustment 6952.2 -6356.42 2997.95 -405.83 9953.01 -2395.18 -378.32

Less :Tax 978.62 1051.8 nil 471.4 206.17 nil nil

PAT 19618.55 19758.1 -40815.34 5284.86 11779.49 2792.99 5821.75

Less : Exceptional Item nil nil nil nil nil nil nil

PAT(Net Pofit) 19618.55 19758.1 -40815.34 5284.86 11779.49 2792.99 5821.75


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Table 5.2

Comparative Profit & Loss Account of NEEPCO

Increase/Decrease over Previous Year (Absolute Value)

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

Sales 12866.35 25801.15 -4093.93 6136.59 3448.06 9820.58

Other Income -1513.68 1413.65 -7743.82 2340.11 5466.76 2049.79

Total Revenue 11352.67 27214.8 -11837.75 8476.7 8914.82 11870.37

Expenses:- -1743.22 -5641.5 12727.17 4747.25 11670.34 12882.27

PBT -212.73 61661.24 -46607.6 -6229.4 9192.67 -3028.78

Prior Adjustment 13308.62 -9354.37 3403.78 -10358.84 12348.19 -2016.86

Tax -73.18 265.23

PAT -139.55 60573.44 -46100.2 -6494.63 8986.5 -3028.76

Exceptional Item

PAT(Net Profit) -139.55 60573.44 -46100.2 -6494.63 8986.5 -3028.76

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Table 5.3

Comparative Profit & Loss Account of NEEPCO

Increase/Decrease (Percentage)

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

Sales 19.19474 62.57943 -9.03271 15.65985 9.647967 37.89076

Other Income -15.4491 16.86082 -48.0146 16.97215 65.69693 32.68478

Total Revenue 14.77664 54.85343 -19.2636 16.00141 20.23341 36.87649

Expenses -2.79474 -8.29431 23.01922 9.39267 30.02269 49.56729

PBT -1.02225 -150.941 -809.685 -51.9738 329.1337 -52.0251

Prior Adjustment -209.373 -312.026 -838.721 -104.077 -515.543 533.1095

Tax -6.9576 128.6463

PAT -0.70629 -148.409 -872.307 -55.1351 321.752 -52.0249

Exceptional Item

PAT(Net Pofit) -0.70629 -148.409 -872.307 -55.1351 321.752 -52.0249

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Table 5.4

Vertical Analysis of Income Statement of NEEPCO

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99Income:-

Sales: Energy 90.61 87.25 83.10 73.75 73.97 81.11 80.52Other Income 9.39 12.75 16.90 26.25 26.03 18.89 19.48

Total Income 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Expenditure:

Purchase of Gas 15.06 16.35 18.81 17.67 20.26 18.98 16.28

Purchase of Power 0.33 0.08

Lubricants and Oils 0.02 0.07 0.08 0.13 0.16 0.16 0.15

Transportation Charges 1.21 1.31 1.91 1.53 1.73 1.92 2.54Transmission Charges 0.22 1.66

Unscheduled Interchange Changes 0.10 0.36

Incentive on Power Bond 0.30

Electricity Duty 0.05 0.02 0.02 0.02 0.02 0.03 0.01

Employees Renumeration 4.63 5.69 8.34 5.46 6.08 4.73 4.97Generation & Administration 10.62 14.36 16.58 9.69 10.05 9.76 9.17

Depreciation 16.70 18.41 40.62 27.54 28.61 23.29 23.20Interests &Finance Charge 18.52 22.58 50.61 3.24 28.46 29.30 241.83

Deffered Revenue Expenditure w/o 1.00 0.30 0.12 0.04 0.04 0.05 0.04

Rebate to customer 0.00 0.00 0.76 0.25

Total Expenditure 68.76 81.19 137.09 89.97 95.41 88.22 80.74

Profit/(Loss) for the year 31.24 18.81 -37.09 10.03 4.59 11.78 19.26

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Profit/(Loss) for the year 31.24 18.81 -37.09 10.03 4.59 11.78 19.26

Extraordinari Item -51.22

Prior Period Adjustment(Net) -7.88 8.27 6.04 -0.66 18.79 -5.44 -1.18PBT 23.36 27.09 -82.34 9.37 22.63 6.34 18.09

Provision for tax 1.11 1.37 0.77 0.39

Profit after tax 22.25 25.72 -82.27 8.60 22.24 6.34 18.09Balance of profit from last year 0.04 -7.60 0.08 0.03 0.06 0.00 1.99

Profit for the year available for

appropriation 22.29 18.12 -82.19 8.63 22.30 6.34 20.08

Transfer to BRD 3.58 11.34 5.48 2.21 2.36 15.77Transfer to general reserve 14.74 5.99 2.93 19.63 3.63 2.94

Interim Dividend 1.70 0.26

Proposal Final Dividend 1.70 0.39 0.16 0.38 0.23 1.24

Dividend Tax 0.44 0.08 0.02 0.04 0.05 0.12

Adjustment against Gen Reserve 70.42 0.00Balance carried forward to balance

sheet 0.13 0.05 -11.77 0.04 0.04 0.08 0.00

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Analysis of Comparative P/L Account:

A look at the income statement shows that the companys performance is not consistent

in absolute terms and continuously reducing in relative terms. PAT fluctuates from year

to year. The reasons attributable to such fluctuation are basically prior period adjustments

and income other than sales. Since prior period items affect the companys operating

performance the quality of earnings may not be considered as good.

Table 5.5

Statistical Analysis of Components of Income Statement

Mean Std Dev Coefficient of Variation

Sales 47760.57 18920.016 39.6143

Other Income 10139.27 3513.8351 34.65571

Expenses 51673.69 14718.329 28.48322

Prior Adjustment 1481.059 5589.8307 377.4213

The coefficients of variation indicate that fluctuation of sales and other income is more

than the expenses of NEEPCO which leads to an uneven distribution of profit. Further the

prior period items are highly inconsistence there by leading to a larger fluctuation. Prior

period items vary from 0.66 to 18.79% of revenue pointing out the bad quality of

earnings of the organization. But one positive aspect of the companys revenue is that in

the recent years a major part of the revenue comes from its own operation so to say from

sale of energy and only 9% from other sources which was 26% in the year 2001-02.

Except the year 2002-03, which looks abnormal, the expenses of the company vary from

68.46 % of total revenue to 95.41%. It shows that the company has a plenty of scope for

cost control and reduction but necessary measures have not taken in earlier years toreduce the total expenses. The year 2002-03 looks like an abnormal year where the

expenses became 137% of the revenue. The abnormality arises because of two basis

reasons; Underutilization of capacity and the second being the purchase of power by

some of NE states from organizations other than NEEPCO. In this particular year

depreciation and interest charges constitute 915 of the revenue. It goes with the common

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saying that leverage is a double edged sword. In the years where revenue is more it

magnifies the return and it acts negatively in abnormal years like 2002-03.

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Table 5.6

Balance Sheet of NEEPCO from 1998-99 to 2004-05

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

LIABILITIES

Capital:-

Authorised 350000 350000 250000 250000 250000 250000 250000

Issue,subscribed and paid-up

209760.3

8

192699.3

8

190611.0

4

186483.04.0

4

186483.0

4

181439.0

4

155757.3

8Share Application Money Pending

Allotment 501.16 2627.16 2589.5 5329.16 1201.16 5545.16 21957.82Reserve and surplus:-

Capital Reserve 14.08 14.08 14.08 14.08 14.08 13.22 13.22Bond Redemption Reserve 11392.29 12517.62 4414.09 4539.09 5112.32 6115 5075

Grant- in- Aid 2941.38 3076.46 3365.41 3398.6 2514.05 2027.08 2445.27

General Reseve 22491.68 5212.5 nil 34813 29073 16498 14839.5Surplus as per profit 110.89 38.25 nil 27.38 19.49 33.58 59

Loan and Funds:-

Secured Loan

213402.6

3

198587.6

1

157579.0

3 88229.16 85354.17 87569.18 61518.57

Unsecured Loan-

Loan from govt. of India 69918.55 69918.55 99782.12 154707.98

143813.1

3

127844.6

7 96493.67Interest accrued and due there

on nil 28947.52 36164.79 16121.05 3435.37 5912.18 2291.15Short Term Loan from banks 7500 13500 nil nil nil nil nil

Interest there on 4.7 0.94 nil nil nil nil nil

Current Liabilities and

Provision:-

Current Liabilities 19066.97 19824.52 42119.31 42722.8 50799.58 35288.77 22650.2

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Provision 10534.69 4800.53 2805.59 2772.53 1915.14 1318.5 1284.58

LiabilityTotal 567639.4551765.1

2539444.9

6 539157.9509734.5

3469604.3

8384385.3

8

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Table 5.7

Balance Sheet from 1998-99 to 2004-05

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99ASSETS

Fixed assets:-

Gross Block - Depreciation335360.3

3337345.1

3343912.2

5 339344.4236197.2

5184164.3

3127283.5

4

Advance toward land 885.37 1494.46 479.5 1062.57 1140.1 1138.94 705.82

Capital Work in progress 36530.45 34512.03 25419.38 30229.07 120702.6

156440.3

7

173621.6

3Construction Stores in

Advance 21085.43 12714.04 12572.37 15349.78 30536.79 23749.45 23053.62

Current Assets:-

Inventories 8890.12 7217.6 5787.96 5311.64 3155.24 7541.67 7712.21

Sundry and Debtor 32838.79 30627.93128641.5

9131356.6

6103948.4

7 79869.37 44306.42

Cash and Bank Balances 26189.04 18518.59 13824.48 10470.36 9563.02 13728.52 5131.53Loan and Advances 8451.52 11848.21 2579.05 5087.69 3569.56 2050.35 1641.29

Investment:-

Investment in State govt. 95490.6 95490.6 nil nil nil nil nil

Total

565721.6

5

549768.5

9

533216.5

8

538212.1

7

508813.0

3 468683

383456.0

6Miscellaneous:-

Expenditure not adjusted 1917.75 1996.53 388.62 945.7 921.5 921.38 929.39P&L Balance nil nil 5839.76 nil nil nil nil

Assets Total 567639.4551765.1

2539444.9

6539157.8

7509734.5

3469604.3

8384385.3

8

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Table 5.8

Comparative Balance Sheet

LIABILITIES INCREASE DECREASE (Absolute figures)

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

Shareholders' Funds & LiabilitiesIssue,subscribed and paid-up 17061 2088.34 4128 0 5044 25681.66Share Application Money Pending

Allotment -2126 37.66 -2739.66 4128 -4344 -16412.66

Resereve and surplus 16091.41 13065.33 -34998.57 6059.21 12046.06 2254.89

Secured Loan 14815.02 41008.58 69349.87 2874.99 -2215.01 26050.61

Unsecured Loan -34943.76 -23579.9 -34882.14 23580.58 13491.59 34972.06

Current Liabilities -757.55 -22294.79 -603.49 -8076.78 15510.81 12638.57Provision 5734.16 1994.94 33.06 857.39 596.64 33.92

Total Funds 15874.28 12320.16 287.06 29423.4 40130.1 85219.02

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ASSET2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

F/Assets 7795.92 3682.16 -3602.32 -2590.92 23083.65 40828.48

Investment in State govt. 0

Inventories 1672.52 1429.64 476.32 2156.4 -4386.43 -170.54Sundry and Debtor 2210.86 -98013.66 -2715.07 27408.19 24079.1 35562.95Cash and Bank Balances 7670.45 4694.11 3354.12 907.34 -4165.5 8596.99

Loan and Advances -3396.69 9269.16 -2508.64 1518.13 1519.21 409.06

Miscellaneous:- 0 0 0 0 0 0

Expenditure not adjusted -78.78 1607.91 -557.08 24.2 0.12 -8.01

P&L Balance

TOTAL ASSETS 15874.28 12320.16 287.09 29423.34 40130.15 85218.93

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Table 5.9


LIABILITIES INCREASE DECREAS (PERCENTAGE)

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

Shareholders' Funds & Liabilities

Issue,subscribed and paid-up 8.853687 1.095603 2.213606 0

2.779997

1 16.488246Share Application Money Pending

Allotment -80.9239 1.454335 -51.4089 343.6678 -78.33859 -74.74631

Resereve and surplus 77.14406 167.6422 -81.7874 16.4953

48.79539

3 10.052118Secured Loan 7.460194 26.02414 78.60198 3.368306 -2.52944 42.345929

Unsecured Loan -31.0979 -17.3449 -20.4193 16.01414

10.08665

1 35.402261

Current Liabilities -3.82128 -52.9325 -1.41257 -15.8993

43.95395

5 55.798933

Provision 119.4485 71.1059 1.192413 44.76905

45.25142

2 2.6405518

Total Funds 2.877 2.283859 0.053242 5.772299

8.545511

9 22.170203

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ASSET2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

F/Assets 2.019325 0.962949 -0.93328 -0.66677

6.315755

5 12.575587

Investment in State govt. 0

Inventories 23.1728 24.70024 8.967475 68.34345 -58.16258 -2.211299

Sundry and Debtor 7.218444 -76.1913 -2.06695 26.36709

30.14810

3 80.265907

Cash and Bank Balances 41.42027 33.95506 32.03443 9.488007 -30.34195 167.53269

Loan and Advances -28.6684 359.4021 -49.308 42.52989

74.09515

4 24.923079

Miscellaneous:-

Expenditure not adjusted -3.94585 413.7486 -58.9066 2.626153

0.013023

9 -0.861856

P&L Balance

TOTAL ASSETS 2.877 2.283859 0.053248 5.772287

8.545522

9 22.170176

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Table 5.10

VERTICAL ANALYSIS

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99LIABILITIES

Shareholders' Funds & Liabilities

Issued ,subscribed and paid-up 36.95 34.92 35.33 34.59 36.58 38.64 40.52

Share Application Money Pending

Allotment 0.09 0.48 0.48 0.99 0.24 1.18 5.71

Reserve and surplus 6.51 3.78 1.44 7.94 7.21 5.26 5.84

Secured Loan 37.59 35.99 29.21 16.36 16.74 18.65 16.00Unsecured Loan 13.64 20.37 25.20 31.68 28.89 28.48 25.70

Current Liabilities 3.36 3.59 7.81 7.92 9.97 7.51 5.89Provision 1.86 0.87 0.52 0.51 0.38 0.28 0.33

Total Funds 100.00 100.00 100.00 100.00 100.00 100.00 100.00

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ASSET 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

F/Assets 69.386 69.969 70.885 71.591 76.231 77.830 84.463

Investment in State govt. 16.822 17.306Inventories 1.566 1.308 1.073 0.985 0.619 1.606 2.006

Sundry and Debtor 5.785 5.551 23.847 24.363 20.393 17.008 11.527

Cash and Bank Balances 4.614 3.356 2.563 1.942 1.876 2.923 1.335Loan and Advances 1.489 2.147 0.478 0.944 0.700 0.437 0.427

Miscellaneous:- 0.000 0.000 0.000 0.000 0.000 0.000 0.000Expenditure not adjusted 0.338 0.362 0.072 0.175 0.181 0.196 0.242

P&L Balance 1.08TOTAL ASSETS 100 100 100 100 100 100 100

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ANALYSIS OF BALANCE SHEET

Business organizations have to assemble funds from numerous sources to satisfy their

varied financial needs. The financial need of every business may be:-

1) For its establishment and

2) To carry out its day to day operation.

Companies generally need large amount of finance for their set up, expansion,

diversification and modernization. Any of the above decisions are irreversible once they

are taken and implemented. As a result the company can resort to only those sources of

finance which need not be repaid in the short run and from which the finance is procured

for a long period are known as long term sources.

Funds are also needed by the firms to meet the day to day needs of the business like

purchase of raw material, payment of wages etc. These funds are known as working

capital, which refers to the part of the firms capital which is required for financing the

short term needs. These are sources from which finance is procured for a short term.

The total funds needed by an organization, whether for long term or for short term, are

raised either from its own source or from some outside source. The former one is known

as internal financing and the later one is known as external financing. The internalfinancing refers to financing by internal resources which in term comprise earning

retained by the business in the form of depreciation or other reserves and income left over

after meeting all expenses and not distributed among owners of the enterprise. Internal

funds constitute a potent source of corporate financing for which the company does not

bother much. It gets substantial amount of funds at cheaper rate and without any

obligation to refund the same. Internal funds are available to a firm which has been

running its business successfully and has not out a portion of its earnings for future

purpose. With burgeoning resources in hand a company can absorb the socks of business

vicissitudes and resist adverse conditions boldly. A strong and stable company will

obviously enlist the support of investors as well as creditors that will help the company to

procure funds from external sources at a reasonable rate. Conventionally in any

organization too internal funds prove immensely useful to the company for preserving its

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solvency position. In sum internal fund provides the best means of companys future

growth. Against this the external sources are the outside sources from which the company

raises a considerable portion of its required fund at a higher rate and with the obligation

to refund the same.

Internal and External Source:

Internal and external source constitute the total source of financial requirements. The

extent and variability of external source depend on the availability of internal source. At

an early stage organizations plan their development programmes according to the

available resources, whereas in the advance level of development, the big organizations

have a built in capacity so that they can generate resources to finance their expansion

programmes. Size in terms total assets has an impact on the sources as increasing size

enhances the ability to generate sales and operate at a greater economy so that internal

surplus will increase. But in the intermediary stage the internal source fall short of

planned capital expenditure programmes, hence at this stage most of the companies have

to depend on external finance. At this stage the ability to increase the scale of operation

provides an incentive to raise funds from external sources. The internal and external

source of finance of NEEPCO is given in the Table 5.11.

The figures from the table indicate that on an average uses 56.54% of borrowed fund and

42.2% owned or internal fund. It points out that NEEPCO is in intermediary stage where

it depends more on external funds than internal. This may be because of the fact that the

organization under study is confident about its ability to increase the scale of its

operation. It is also found that except the year 2004-05 the borrowed fund is showing an

increasing trend, which confirms the above view. The standard deviation and coefficient

of variation indicate that the organization is very much consistent in regard to the use of

borrowed funds. But the excess use of borrowed fund increases the risk associated with

the organization in spite of its advantage as leverage. So NEEPCO has to draw a line for

its optimum borrowings. It is already discussed that the excess had a negative impact on

profit of the year 2002-03 where the capacity utilization was less.

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Table 5.11

Owned and borrowed fund:

Year Owned Fund Percentage Borrowed

Fund

Percentage Total

1998-99 178189.37 46.36 206196.01 53.64 384385.381999-00 206125.92 43.89 263478.46 56.11 469604.38

2000-01 223215.98 43.79 286518.55 56.21 509734.53

2001-02 229275.19 42.52 309882.71 57.48 539157.9

2002-03 198404.62 36.78 341040.34 63.22 539444.96

2003-04 213558.29 38.70 338206.83 61.30 551765.12

2004-05 246710.7 43.46 320928.7 56.54 567639.4

Average 213640 42.2 295178.8 57.8 508818.8

Std Dev 22267.9 3.3 48013.5 3.3 63488.49

CV 7.9 5.7

Figure 5.1

Sources of Funds

0

50000

100000150000

200000

250000

300000

350000

400000

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

Year

AmountinLakh

Owned Fund

Borrowed Fund

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Long and short term Sources of Finance:

The present section divides the total sources into long and short term sources as the

principal components of the total source of NEEPCO over the period of seven years.

Table 5.12

Short and Long term source in Total source

Year Short Term

Source

Percentage Long Term

Source

Percentage Total

1998-99 48183.77 12.54 336201.61 87.46 384385.38

1999-00 48064.61 10.24 421539.77 89.76 469604.38

2000-01 57351.25 11.25 452383.28 88.75 509734.532001-02 66945.57 12.42 472212.33 87.58 539157.9

2002-03 83679.19 15.51 455765.77 84.49 539444.96

2003-04 69700.67 12.63 482064.45 87.37 551765.12

2004-05 37607.52 6.63 530031.88 93.37 567639.4

Average 58790.37 11.60 450028.44 88.40 508818.81

Std Dev 15723.24 2.73 60174.18 2.73 63488.79

CV 26.74 23.51 13.37 3.09 12.48

The average percentage of funds raised from short term sources is 11.6% and the highest

percentage of short term funds reached 15.51% in the year 2002-03 and then reduced

again. It shows that the short term source does not play a significant role in the total

source of financing of NEEPCO. On an average the long term source constituted 88.40%

of the total source for the period of seven years of reference. Though fluctuation

observed, still it can be said that long term source is showing an increasing trend. It

signifies the dominance of long term source over short term source. The coefficient of

variation shows a greater consistency and homogeneity in the use of long term sources

over the period of reference.

Figure 5.2

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Sources of Funds

0

100000

200000

300000

400000500000

600000

1998

-99

2000

-01

2002

-03

2004

-05

Year

AmountinLak

h

Short Term

Source

Long Term Source

Long and Short term Assets:

Like the total source of funds, total assets can be cracked into short and long term assets.

Consistent with the general trend, the long term assets in NEEPCO constitute a major

part of the total assets. On an average 20.5 % of the total asset is short term and 79.5% is

long term assets. The long term assets are showing a rising trend where as the short term

assets are showing the reverse trend. The coefficient of variation shows that the fixed

asset in the asset structure is very much consistent over years. Since the company is in the

process of expansion, its obvious on the part of company to invest in long term projects.

Probably thats the reason behind the increasing percentage of fixed assets in the total

assets of the company.

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Table 5.13

Short and Long term Assets in Total Assets

Year Short Term

Assets

Percentage Long Term

Assets

Percentage Total*

1998-99 58791.45 15.33 324664.61 84.67 383456.061999-00 103189.91 22.02 365493.09 77.98 468683

2000-01 120236.29 23.63 388576.74 76.37 508813.03

2001-02 152226.35 28.28 385985.82 71.72 538212.17

2002-03 150833.08 28.29 382383.5 71.71 533216.58

2003-04 68212.33 12.41 481556.26 87.59 549768.59

2004-05 76369.47 13.50 489352.18 86.50 565721.65

Average 104265.55 20.49 402573.17 79.51 506838.73

Std Dev 38451.08 6.76 60679.85 6.76 62813.61

CV 36.88 33.01 15.07 8.51 12.39

*Total Assets excludes fictitious assets

Figure 5.3

Composition of Assets

0

100000

200000

300000

400000

500000

600000

1998-99

2000-01

2002-03

2004-0

Year

AmountinLak

Short Term Assets

Long Term Assets

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Current Assets and Liabilities:

The position of current assets and liabilities designate the companys liquidity position

and short term solvency position of the company. A cursory look to the cash and bank

balance posits that cash hoarding is preferred by the managers of NEEPCO. Even the

cash and bank balance at the end of 2004-05 is much more than the total current liabilities

and it is more than 5 times of the cash balance in 1998-99.

Table 5.14

Year Cash & Bank Current Assets Current Liabilities Net Current Assets

1998-99 5131.53 58791.45 22650.2 36141.25

1999-00 13728.52 103189.90 35288.8 67901.14

2000-01 9563.02 120236.30 50799.6 69436.71

2001-02 10470.36 152226.40 42722.8 109503.602002-03 13824.48 150833.10 42119.3 108713.80

2003-04 18518.59 68212.33 19824.5 48387.81

2004-05 26189.04 76369.47 19067 57302.50

But overall NEEPCO has a strong liquidity position. The net working capital is too high,

which may be at the cost of some better investments. It indicates the managers have to

revisit their working capital management policy.

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Trend Analysis of Important Financial Variables:

Analysis of Sales -

A net sale is an item which forms a major part of revenue receipt of an entity. In case of

tangible product, a net sale is derived subtracting return inward from total goods

delivered. For intangibility, the net sale of NEEPCO is calculated after deduction of free

supply of energy from the total sales. The sales figures are indicating an overall upward

trend. On an average the growth rate of sales is 20.64%.

Line graph of net sales of NEEPCO shows an increasing trend excluding the year 2002-

03. A sale, in the year 1998-99 amounts to Rs259.18 crores and that amount was

increased by Rs98.82 crore at a rate of 38% growth totaling Rs358 crores in the year

1999-00. It was further gone up to Rs375 crores at the growth rate of 4.7% and to Rs453

crores at a rate of 78.23% during the year 2000-01 and 2001-02 respectively.

Remarkably, in the year 2002-03 companys sales sloped downwards to the right

indicating Rs40.94crores lesser at the rate of 9.03% for previous year. However it could

gain its momentum of growth at the rate of 63% i.e. equals to Rs670.3 crores. Thus

Rs258.01crores increased in sales could be added in the year 2003-04. At last, for the

period of analysis, NEEPCO recorded the increased of Rs128.66 for the year 2004-05 at19% growth rate. Thus the trend of net sales represents upward moving that is from

Rs259.18 crores in the year 1998-99 to Rs798.96 crores in the year 2004-05. Rs539.78

crores difference at the growth rate of 208% during these 7 years period. Corporation is

doing well in terms of sales and should work out possible means to reduce the cost of

good sold to gain more profit.

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Figure 5.4

900

R

ES

Figure 5.5

300

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Analysis of Net Profit:

The graphical representation of net profit of the corporation may be seen that there are

irregularities in the earnings. Only Rs56.22 crores has earned during the year 1998-99and it was deteriorated by earning Rs27.93 crores only crippling the companys position

in the year 1999-00. Net loss of Rs408.15 crores in the year 2002-03 borne by the

corporation is reflected a though time for NEEPCO. It could be recover in the next year

2003-04.Total amount of Rs208.09 crores at the growth rate of 54.85% have been

generated as a net profit during that period of 2003-04. The reason is that the sales

increased to Rs670.31 crores in comparison to previous years Rs412.29 crores. One

genuine reason of net loss incurred is due to reduction in demand for electricity in the

region. Some of the states import power from outside the region and that is why sales

reduced. Another reason is that they underutilized the capacity generation as mention in

the report. In the year 2004-05, sales, again slightly reduced from Rs208.09 crores to

Rs205.98 crores. That implies the performance need to be further improvised to enhance

the net profit which is the major sources for the company. As it was Rs56.23 crores in

1998-99 and Rs205.98 crores in 2004-05, Rs149.74 crores increase of net profit in 7

years signifies the growth and the development of the corporation.

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Table 5.15

Trend Analysis:

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Net Worth 138.454 119.849 111.345 128.669 125.269 115.678 100

Borrowed Fund 155.643 164.022 165.396 150.286 138.954 127.781 100

Short Term Sources 78.050 144.656 173.667 138.938 119.026 99.753 100

Long term Sources 157.653 143.386 135.563 140.455 134.557 125.383 100

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Analysis of Net Worth:

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Figure 5.6

Net Worth

100

115.68125.27 128.67

111.35119.85

138.45

0

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AmountinCrores

Series1

Figure 5.7

Borrowed Fund

0

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Borrowed Fund

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Figure 5.8

Short Term Source

0

20

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120140

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200

19

98-

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Short Term Source

Figure 5.9

Long Term Source

0

20

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140160

180

1998-

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Long Term Source

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Ratio Analysis:

Profitability Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

G.P Ratio 46.22 56.92 23.54 50.17 69.05 43.93 52.72

Operating Ratio 76.64 72.91 - 90.63 77.37 93.66 81.91

Operating Profit Ratio 23.36 27.09 - 9.37 22.63 6.34 18.09

NP Ratio 24.55 29.48

(98.98) 11.66 7.13 7.82 22.46

NP:N Worth 8.4 9.72

(21.92) 2.55 5.55 1.38 3.04

ROI 4.45 4.6

(10.39) 1.07 2.58 0.65 1.62

ROEC 9.35 10.25

(21.41) 2.83 6.32 1.54 3.74

ROTA 4.87 5.02

(10.51) 1.35 3.0 0.75 1.75

EPS 93.52 102.53 - 28.34 63.17 15.39 37.38

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GROSS PROFIT RATIO

The Gross Profit ratio of the corporation for the past 7 (seven) years i.e., 1999 05 shows

a fluctuating result. The year 2004-05 shows a favorable trend. In the year 2001 the Gross

Profit considerably reduces to Rs.49.35 crore. The Gross Profit trend has shown

increasing except in the year 2001. The reason of the Gross Profit might be due to

underutilization of capacity. There is no standard norm for Gross Profit and it may vary

from business to business. The low Gross Profit also generally indicates high cost of

goods sold due to unfavorable purchasing policies, lesser sales, lower selling prices, etc.

NEEPCO achieved nearly 100% during the year 1999. Financial analysis of the

corporation shows favorable increase from the year 2002-03 to 2004-05. But it is obvious

that the corporation maintain the efficiency with which it produces its product. The

significant changes in the ratio should be thoroughly investigated because increase in the

Gross Profit ratio occurs not only by a change in economic factors like increase in selling

price without any corresponding proportionate increase in cost or decrease in cost without

any decrease in selling price but also due to certain misleading factors like overvaluation

of closing stock or under valuation of opening s tock.

NET PROFIT RATIO

A high net profit margin would ensure adequate return to the owners as well as enable a

firm to withstand adverse economic condition when selling price is declining, cost of

production is rising and demand for the product is falling. Net profit to net sale of

NEEPCO fluctuates as shown in the statement analysis. Highest net profit ratio has been

recorded as Rs.29.48 cr. during the year 2003-04. NEEPCO incurred huge loss during the

year 2002-03. The loss amount was accounted for Rs.98.99 cr. This due to under-

utilization of capacity and the demand for the electricity reduces. Because some theNorth-Eastern States import electricity from other parts of India, NEEPCO has to suffer

that huge loss during that particular year.

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OPERATING RATIO

This ratio establishes the relationship between cost of goods sold and other operating

expenses on the one hand and the sales on the other hand. In other words, it measures the

cost of operations per rupee of sales. Operating ratio of NEEPCO shows that 31.9% ofthe sales have been consumed by operating cost i.e. cost of good sold and operating

expenses and 68.1% is left to cover interest charge, income tax payment, dividend and

the retention of profits as reserved during the year 2004-05. The highest amount of

operating ratio is recorded during the year 2000-01 at the rate of 61.1%. But in the year

1998-99 the lowest percentage occurred at the rate of 19.3% which implies 80.7% as

operating profit. The analysis reveals the fluctuation in operating ratio but from the year

2002-03 to 2004-05 trend started to improve which is considerably reduced from 51.75%

to 31.9%.

RETURN ON EQUITY CAPITAL

This ratio in more meaningful to the equity share holders who are interested to know

profits earn by the company and those profit which can be made available to pay

dividend to them. This ratio is somewhat similar to the return on share holders

investments and higher the ratio better it is NEEPCO accounts for Rs.10.25 cr of returnon equity capital during the year 2003-04. As it was incurred loss in the year 2002-03

negative figure is reflected in that particular year at Rs.21.41 cr. During the year 1999-00

the return on equity capital of NEEPCO amounts to Rs.1.54 cr. which is substantially

very low. The implication of trend analysis of return on equity capital of NEEPCO

fluctuates from year to year.

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Performance /Activity Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Capital Turnover Ratio 18.13 15.6 10.49 9.2 8.59 8.27 7.21

Working Capital Turnover Ratio 170.84 153.78 392.36 41.47 58.03 53.68 74.36

Fixed Assets Turnover Ratio .204 0.167 0.27 0.172 0.171 0.234 0.221

Inventory Turnover Ratio 8.39 8.61 16.29 13.16 7.7 5.4 4.96

Debtor Turnover Ratio 2.26 2.20 0.32 0.39 0.43 0.58 0.76

Average Collection Period (Days)148 164 1123 1043 955 805 615

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INVENTORY TURNOVER RATIO

This ratio shows the number of times on a companys inventory is turn into sales.

Investment in an inventory represents idle case. Lesser the inventory, greater the cash

available for meeting operating needs. During the year 1998-99 inventory turnover ratio

recorded 6.5 times but in the financial analysis shows that the lowest inventory turnover

has been occurred during that year 1999-00 i.e. 1.7 times. From the year 2002-03 to

2004-05 it touches below 3.5. High inventory turnover is indicative of efficient inventory

management. This implies that NEEPCO has come across during the year 1999. But

amount has considerably reduced from that 6.5 to 2.64 in the year 2004-05.

AVERAGE COLLECTION PERIOD

This analysis shows how efficient the organization is in collecting the debts. Collection of

cash from debtor is one of the important activities of any business organization. In case of

NEEPCO 142 days was recorded as the maximum debtor collection period in the year

2004-05. But the lowest collection period has been observed in the year 2003-04, i.e. 43

days. The organization should keep in mind that sound collection policy enable them to

its outstanding bill and minimize the risk of bad debt. Finding from the report shows that

NEEPCO has followed proper collection policy. It can also be seen that the debtor

collection period trend gradually increases from 1998-99 to 2004-05 except i.e. from 47

days to142 except in the year 2003-04 which is lowest that is 43 days. Normally

maximum 2 to 3 months should be allowed to the debtors beyond which affect the flow

of fund in the business.

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Liquidity/Short Term Solvency Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Working Capital Ratio (%) 46.63 36.41 13.74 12.43 6.21 21.37 34.05

Current ratio 4 3.4 3.6 3.6 2.4 2.9 2.6

Liquidity Ratio 3.5 3.01 3.42 3.42 2.29 2.69 2.23

Long Term Solvency Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Debt Equity Ratio 1.18 1.44 1.46 1.1 1.04 1.05 0.80

Liability to Equity Ratio 1.25 1.50 1.67 1.28 1.26 1.21 0.83

Proprietary Ratio 0.52 0.49 0.49 0.64 0.48 0.49 0.49

Interest Coverage Ratio 2.26 2.20 0.39 1.33 1.60 1.23 1.74

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CURRENT RATIO

A current ratio of a firm measures its short term solvency i.e. its ability to meet short term

obligation. As a measure of short term current financial liquidity, it indicates the rupee of

current asset available for each rupee of current obligation. The need for safety margin

arises from the inevitable unevenness in the flow of fund through the current asset and

liability account. Generally 2:1 is considered to be an ideal current ratio. From the

analysis we find that NEEPCO keep current asset to meets obligation which is very

satisfactory. In the year 2004-05 current asset is four times higher than current liabilities

whereas the corporation could manage the optimum current ratio i.e. around 2 to 2.5 for

three consecutive years that is 1998-99 to 2000-01. Gradual increase is observed during

the year 2001-02 to 2004-05. Every year current ratio shows increasing trend except in

the year 2000-01 which recorded at the lowest ratio 2.4:1. It is to be reminded as keeping

high amount of current assets reduces the profitability as the fund remains idle in the

business. The decreases in current ratio may be due to decreases in current assets or

increases in current liabilities. Excessive increase in current assets may affect the

profitability of the concern by blocking the flow of fund. Current ratio must be in the

position that is the trade-off between liquidity and profitability. The analysis reflects that

NEEPCO has sound liquidity position. But remarkably the proportion of current asset to

current liability of this company is 4:1 in the year 2004-05.

QUICK RATIO

This ratio reflects the readily available (easily convertible into cash without diminishing

its value) to meet current obligations than a rupee of, say, inventory. This impairs the

usefulness of current ratio. The acid test ratio is a measure of liquidity design to

overcome this defect of the current ratio. NEEPCO maintain the good record of readilyavailable liquid assets. During 1999 liquid ratio of the corporation is 2.23:1 and that was

increased to 3.5:1 in the year 2005. Excessive liquid ratio blocks the flow of fund.

Normally 2.5:1 is the most appropriate ratio. But in the year 1998-99 and 2000-01,

NEEPCO could not satisfy this norm recording 2.23 and 2.29 respectively for those

particular years.

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LONG TERM SOLVENCY RATIO

The long term solvency of this corporation is quite an unsatisfactory. For debt-equity

ratio, generally accepted norm is 1:1. The corporation recorded highest debt-equity ratio

at 1.67 which implies debt ratio is higher than equity capital in the year 2002-03 and the

lowest ratio occurred in the year 1998-99 as the ratio was 1.03 debt to 1 equity. If the

external equities exceed internal equity than it implies out side the fund is greater than

shareholders fund. Moreover, the proprietary ratio also support this view as the

percentage of shareholders fund over the total assets (being in dismal on Re 1) which

implies that the company relying on the outsider fund for financing its affairs. In the year

1998-99 it occurs to be .49 of Re 1. Even in the year 2004-05 only 43% have been

credited to proprietary internal source out of Re. 1. Lowest proprietary ratio has figure

out at the rate of 33% out of Re 1 during the year 2001-02.

Documents

Chapter V - Analysis of Financial Statement