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

    0

    0.05

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    0.15

    0.2

    2011 2010 2009

    gvk power

    jp power

    tata power

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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

    0

    0.2

    0.4

    0.6

    0.8

    2011 2010 2009

    gvk power

    jp power

    tata

    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:

    0

    0.1

    0.2

    0.3

    0.4

    2011 2010 2009

    gvk power

    jp power

    tata power

    0

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    2011 2010 2009

    gvk power

    jp power

    tata 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:

    0

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    0.1

    0.15

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    2011 2010 2009

    gvk power

    jp power

    tata power

    0

    20

    40

    60

    80

    100

    2011 2010 2009

    gvk power

    jp power

    tata 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

    0

    5

    10

    15

    2011 2010 2009

    gvk power

    jp power

    tata power

    0

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    2011 2010 2009

    gvk

    power

    tata

    power

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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.

    0

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    2011 2010 2009

    gvk power

    jp power

    tata 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

    02

    4

    6

    8

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    12

    2011 2010 2009

    gvk power

    jp power

    tata power

    0

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    30

    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

    jppower 0.0081522 0.0211458 0.0303184tatapower 1.338444475 1.693565215 2.019162765

    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:

    0

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    1

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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

    jppower 13.38851267 26.1556391 41.83265306tatapower 13.91828287 14.77192858 13.87156036

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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

    jppower 0.261196297 0.183098886 0.69873828tatapower 0.690610123 0.753298526 0.811663256

    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

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    0.15

    2011 2010 2009

    gvk power

    jp power

    tata power