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Understanding Financial Statements of Power Grid. Dr Manoj Anand, MDI. Risk & Return Tradeoff. Investment Decisions Capital Structure Decisions Dividend Decisions Management of Working Capital. Financial Statements Objectives. Useful to present and potential investors & creditors - PowerPoint PPT Presentation
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Understanding Financial Statements of Power Grid
Dr Manoj Anand, MDI
Risk & Return Tradeoff
Investment Decisions
Capital Structure Decisions
Dividend Decisions
Management of Working Capital
Financial Statements Objectives
Useful to present and potential investors & creditors
• in making rational investment & credit decisions
Financial Statements Objectives
Comprehensible to those
• who have a reasonable understanding of business & economic activities &
• are willing to study the information with reasonable diligence
Financial Statements Objectives
About the
• economic resources of an enterprise,
• the claim to those resources, &
• effects of transactions & events that change resources & claim to those resources
Financial Statements Objectives
About an enterprise’s financial performance during a period
Balance Sheet Concepts
Money Measurement Concept
The Entity Concept
The Going Concern Concept
Balance Sheet Concepts
The Cost Concept
• Tangible Fixed Assets
• Intangible Assets
Balance Sheet Concepts
Rationale for Cost Concept
• Relevance
• Objectivity
• Feasibility
Dual Concept
Application of Funds
Fixed Assets
Investments
Current Assets, Loans & Advances
• Less: Current Liabilities & Provisions
Miscellaneous Expenditure
• (To the extent not written off)
Sources of Funds
Shareholders Funds
Loan Funds
Margins
Returns
Growth
Budget TargetsDividends
Earnings
Cash Flows
?
Compensation
Capital
Budgeting
Setting Goals
Strategic Planning
Measuring Performance
Corporate Tower of Babel
VALUE DRIVER ANALYSIS
AN EXAMPLE
VALUE DRIVERS
THREE LEVELSTHREE LEVELS
GENERIC
BUSINESS UNIT SPECIFIC
OPERATING
GENERIC VALUE DRIVERS
ROCEPOST TAX
1 -TAX RATE
ROCEPRE TAX
CAPITALTURNOVER
OPERATINGMARGIN
FIXEDASSETS
SALES
DEPRECIATION
SELLING & ADMNEXPENSES
COST OFGOODS SOLD
WORKINGCAPITAL
ROCE TREE
ROCEPOST TAX
9.23% (7.87%)
1 -TAX RATE91.41% (88.28%)
ROCEPRE TAX
10.10% (8.92%)
CAPITALTURNOVER0.20 (0.18)
OPERATINGMARGIN
49.56% (48.31%)
FIXEDASSETS
0.26 (0.23)
SALES100%
GENERAL EXPENSES3.47% (3.89%)
PERSONNELEXPENSES
11.28% (9.28%)
ELECTRIC POWER6.68% (8.98%)
WORKINGCAPITAL
2.18 (2.24 )
Power Grid
2001
Power Grid's ROE
9.99%
10.89%
9.50%
10.00%
10.50%
11.00%
1 2
Year
RO
E (%
)
OPERATING VALUE DRIVERS
ASSYSHOP
EXPENSES200
SHOPEXPENSES
183
ALLOCATEDOVERHEAD
17
LABOUR120
OVERHEAD63
CANTEEN12
TRANSPORT5
NO. OF WORKMEN 66
COST PER WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
VALUE DRIVER TREE
NO. OF WORKMEN 66
COST/ WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos
PROD-MIX
LAB.UTL 0.58
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 24
OTH 19
P.I. 0.70
C.F 0.96
ABSENT 0.86
NO.OF SUP 7
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL 11
Rs. Lakhs
NO. OF WORKMEN 58 ( 66 )
COST/ WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.66 ( 0.58 )
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 24
OTH 19
P.I. 0.80 ( 0.70 )
C.F 0.96
ABSENT 0.86
NO.OF SUP 7
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL 11
Rs.lakhs
IF PI ISRAISEDTO 0.80
ASSYSHOP
EXPENSES183 (200 )
SHOPEXPENSES168 ( 183 )
ALLOCATEDOVERHEAD
15 (17)
LABOUR105 ( 120 )
OVERHEAD63
CANTEEN11 (12)
TRANSPORT4 (5)
NO. OF WORKMEN58 ( 66 )
COST PER WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
NO. OF WORKMEN 66
COST/ WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.58
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 21 (24)
OTH 19
P.I. 0.70
C.F 0.96
ABSENT 0.86
NO.OF SUP 6 (7)
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL(SOC)
12 (11)
Rs.lakhs
IF SOC ISRAISEDTO 12
ASSYSHOP
EXPENSES197 (200)
SHOPEXPENSES180 (183)
ALLOCATEDOVERHEAD
17
LABOUR120
OVERHEAD60 (63)
CANTEEN12
TRANSPORT5
NO. OF WORKMEN 66
COST PER WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
NO. OF WORKMEN 58 (66)
COST/ WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.66 (0.58)
STD.TIME0.3 HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 21 (24)
OTH 19
P.I. 0.80 (0.70)
C.F 0.96
ABSENT 0.86
NO.OF SUP 6 (7)
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OF CONTROL (SOC)
12 (11)
Rs.lakhs
COMBINEDEFFECT OF
PI & SOC
ASSYSHOP
EXPENSES180 (200)
SHOPEXPENSES165 (183)
ALLOCATEDOVERHEAD
15 (17)
LABOUR105 (120)
OVERHEAD60 (63)
CANTEEN11 (12)
TRANSPORT4 (5)
NO. OF WORKMEN 58 (66)
COST PER WORKMAN 1.82
INDIRECT LABOUR 40 (43)
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
10 % Reductionin Expenses
NO. OF WORKMEN 59 ( 66 )
COST/ WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLR SP. CHARGES 5
INT 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
VOLUME2.4 L Nos.
PROD-MIX
LAB.UTL 0.58
STD.TIME0.27 (0.3) HRS
HOUR RATE
BENEFITS
OT RATE
SUP. 24
OTH 19
P.I. 0.70
C.F 0.96
ABSENT 0.86
NO.OF SUP 7
COST / SUP3.43
SETTINGTIME
IDLETIME
REWORK /REJECTION
NON-STDOPERATIONS
JOB W / OSTANDARDS
OTHERS
SPAN OFCONTROL 11
Rs.lakhs
IF STD TIME IS REDUCEDTO 0.27 HRS
ASSYSHOP
EXPENSES185 (200 )
SHOPEXPENSES170 ( 183 )
ALLOCATEDOVERHEAD
15 (17)
LABOUR107 ( 120 )
OVERHEAD63
CANTEEN11 (12)
TRANSPORT4 (5)
NO. OF WORKMEN59 ( 66 )
COST PER WORKMAN 1.82
INDIRECT LABOUR 43
DEPRECIATION 1
FLOOR SPACE CHARGES 5
INTEREST 1(FA) + 4(WC)
REPAIRS & MAINT. 3
POWER 3
T&C 3
Rs.lakhs
FOUR KEY STRATEGIES TO INCREASE VALUE
EVA = {NOPAT/CAPITAL -COST OF CAPITAL} x CAPITAL
Operate: Improve the return earned on existing capital
Build: Invest as long as returns exceed the cost of capital
Harvest: Divest capital when returns fails to achieve cost of capital
Optimize: Reduce cost of capital by optimizing capital structure
Strategic
Financial
Corporate Governance
VALUE
VALUE BASED MANAGEMENT FRAMEWORK
DETERMINANTS OF VALUE
Return
Growth
Capital
Risk
Cash Flow
Cost of Capital
Company Value
ShareholderValue Culture
Better Decisions
Better Morale Better Results
Better Pay
Virtuous Circle for Competitive Advantage
VBM
Compensation
Capital
Allocation
Setting Goals
Strategic Planning
Measuring Performance
Uniform Standards, Goals & Terminology