Power Industry Analysis

7/29/2019 Power Industry Analysis

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POWER INDUSTRY: RATIO ANALYSIS

A. PROFITABILITY RATIOS:

The Profitability Ratios are calculated to measure the operating efficiency of the

company. Beside management of the company, creditors and owner are also interested in

the profitability of the firm. Creditors want to get interest and repayment of principal

regularly. Owner wants to get a required rate of return on their investment.

1. Gross Profit Margin

2011 2010 2009

GVK Powers 0.09591259 0.076747 0.151719

JP Powers 0 0 0

TATA Powers 0.05092671 0.046369 0.036356

The Gross Profit Margin (GPM) reflects the efficiency with which management

produces each unit of product. This ratio indicates the average spread between the

cost of goods sold and the sales revenue. A high GPM is a sign of good management,

it may be because of high sales or low cost of production.

In Power sector we can see that in 2009, 2010 and 2011 the GPM of GVK Powers

was highest which means that GVK Powers had higher sales than others and has

efficiently managed its production of product.

2. Net Profit Margin

2011 2010 2009

GVK Powers 0.015898384 0.010668 0.000603

JP Powers 0 0 0

TATA Powers 0.010208826 0.012334 0.005957

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2011 2010 2009

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Net Profit Margin (NPM) ratio establishes a relationship between net profit and sales

and indicates managements efficiency in manufacturing, administering and selling

the products. This ratio is overall measure of the firms ability to turn each rupee sales

into net profit. This ratio also indicates the firms ability to withstand adverse

economic conditions.

In Power Sector we can see that in 2009 and 2010 TATA Powers and in 2011 GVKPowers was having highest NPM among others and which mean that these firms were

in a good condition and could withstand the adverse economic conditions.

3. Operating Expense Ratio

2011 2010 2009

GVK Powers 0.28335056 0.278440 0.38476

JP Powers 0.599534747 0.337497 0.271486

TATA Powers 0.260051797 0.233789 0.217742

Operating Expense Ratio explains the changes in the profit margin (EBIT to sales)

ratio. This ratio is computed by dividing operating expenses, viz., cost of goods sold

plus selling expenses and general and administrative expenses (excluding interest) bysales. A higher operating expenses ratio is unfavourable since it will leave a small

amount of operating income to meet interest, dividends, etc.

In Power Sector we can see that in 2009, 2010 and 2011 JP Powers was having higher

Operating Expense Ratio, which is unfavourable because higher Operating Expense

ratio will leave a small amount of operating income to meet interest, dividends, etc.

0

0.005

0.01

0.015

0.02

2011 2010 2009

gvk power

jp power

tata

power

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2011 2010 2009

gvk power

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b. EARNINGS RATIO:

1. RETURN ON TOTAL ASSETS:

2011 2010 2009

gvk power 0.081964474 0.08128258 0.066203381

jp power 0.23 0.07 0.3

tata power 0.17 0.16 0.15

Graph:

2. RETURN ON NET ASSETS:

2011 2010 2009

gvk power 0.081964474 0.08128258 0.066203381

jp power 0.228589196 0.068530038 0.296727194

tata power 0.171223887 0.161815358 0.149529901

Graph:

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2011 2010 2009

gvk power

jp power

tata power

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2011 2010 2009

gvk power

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Analysis:

Here also ROTA and RONA are same which shows that the current liabilities are very less as compared to

the current assets and as a result the liquidity of the firm is high. Also the firm has low return on both

total assets and total liabilities.

3. RETURN ON EQUITY

2011 2010 2009

gvk power 0.020921831 0.03696129 0.030687699

jp power 9.29084E-05 0 0

tata power 0.155541409 0.173761568 0.138710525

Graph:

Analysis:

Return on equity for the power company shows that the return is very low for all the three

companies as the profits the company has made are negligible in comparison to the

shareholder's funds. For JP Power the profitability for this company is very low and as a result

their return on equity is zero.

4. EARNINGS PER SHARE

2011 2010 2009

gvk power 4.712512665 7.8045846 5.42893726

jp power 0.001828739 0 0

tata power 91.95119895 90.12769185 58.6598916

Graph:

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2011 2010 2009

gvk power

jp power

tata power

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2011 2010 2009

gvk power

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Analysis:

Since the net profit is very low for GVK power and JP power the earning per share is very low for

both these companies. Since the share capital for both JP and GVK is much higher as compared

to Tata power the earnings per share for Tata is higher as compared to the other two

companies.

5. DIVIDEND PER SHARE

2011 2010 2009

gvk power 0 0 0

jp power 0 0 0

tata power 12.51295883 12.01272704 11.52935863

Graph:

6. P/E

2011 2010 2009

gvk power 5.506616501 5.74021582 4.301025943

jp power 23130.6975 N/A N/A

tata power 14.46800058 15.22950352 13.04639301

Graph:

Analysis:

P/E ratio shows the ratio of price to earnings per share. Ideally this ratio should reflect the true

picture of the shareholder earnings. For JP the P/E ratio is very large which in turn can be due to

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2011 2010 2009

gvk power

jp power

tata power

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2011 2010 2009

gvk

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two reasons namely, very high market price and very low EPS. Here this is caused due to very

low EPS which is not a good signal to the prospective shareholders.

LIQUIDITY RATIOS:1. CURRENT RATIO:

2011 2010 2009

GVK power 1.99784 2.18447457 3.15633

JP power 3.175469 10.17558511 2.7682

Tata power 1.231729 1.342734587 1.165151

In 2010 the ratio is very high for JP power. But again the value has fallen in 2011. It is due to themajor change in cash in hand. The decrease in 2011 is good because it is showing the use of

cash which was unutilized in 2010.

For GVK power the value was high in 2009 but has decreased during the subsequent years. For

Tata power it is least varied showing a constant ratio.

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2011 2010 2009

gvk power

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2. QUICK RATIO:

2011 2010 2009

GVK Power 1.88959 2.01086584 2.82626

JP Power 3.155321 10.11787234 2.736798

Tata Power 1.113769 1.2156618 1.017651

Since these are part of power industry where the inventory is very low the difference between

CR and QR is very low.

D. TURNOVER RATIOS:

1. DEBTOR TURNOVER:

2011 2010 2009gvkpower 27.9777891429824 27.1052112569218 7.9953314659197

jppower 4.16018243 4.317524884 2.503068502tatapower 4.429242868 5.465058467 5.972151848

the value is highest for the gvk power among the selected values. but in 2009 all the companies

had almost same value. the value has increased for the gvk power significantly from 2009 to

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2011 2010 2009

gvk power

jp power

tata power

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2011 showing the effecient management of credit. for jp and tata power it has increased

from2009 to 2010 but not significantly and it decreased from 2010 to 2011 - that was also not

very significant.

3. CREDITOR TURNOVER RATIOS:

2011 2010 2009gvkpower 0 0 0


for Tata power it has decreased, for JP power it is almost constant and for GVK it is 0 showing

that there are no credit purchases.

3) INVENTORY TURNOVER RATIO:

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2011 2010 2009

gvk power

jp power

tata power

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2011 2010 2009

gvk power

jp power

tata power

2011 2010 2009gvkpower 32.5560081466395 29.1985940246046 6.81783208870785



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for gvk it has been increasing over the years. for jp has decreased over the years, while for tata

it has remained constant. increase is good as the effeciency of managing the inventory is

increasing and vice versa for decrease.

4. ASSET TURNOVER RATIO:

In this case it is lower than 1 for all the companies. It has decreased for JP and Tata from 2009

to 2011 while for GVK power it has increased. As we already know that the power companies

are running in loses, the revenue generated is less and it is one of the major reasons for the low

asset turnover ratio. It was also the period just after the recession had started and in general all

the companies growth has slowed down. So the revenue for power will also decrease since

power is one of the main requirements in the industry. The value of the asset turnover isincreasing for the GVK. The value has initially decreased and then decreased for the JP power

and we also know that the jp power was making losses during 2009 and 2010. The ratio is

highest for Tata power consistently.

E. SOLVENCY RATIOS:

0

0.5

1

2011 2010 2009

gvk power

jp power

tata power

2011 2010 2009

gvkpower 0.42860980403569 0.40655072213133 0.28839256144999


2011 2010 2009

gvkpower 0.0434 0.056 0.04955

jp

power 0.000532 0 0tatapower 0.092004 0.116219 0.093007


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Also as we can see in the case of power industry the solvency ratios are well below their

accepted benchmark because the capital investment in power industry is very huge which in

turn results into higher long term liabilities. Also a lot of power and fuel is required where in the

short term liabilities are more and as a result the solvency ratio is less as compared to the

benchmark of 20%.

0

0.05

0.1

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2011 2010 2009

gvk power

jp power

tata power

Documents

Power Industry Analysis