FSACA ASSIGNMENT

SAHIL MITTAL
FA16015
SEC A

QUES1: What is Annual Report?

Ans: An annual report is a comprehensive report on a company's activities throughout the
preceding year. Annual reports are intended to give shareholders and other interested people
information about the company's activities and financial performance. They may be considered
as grey literature.

QUES2: What are the statutory and mandatory components of annual report?
Ans: The following components form an important part of Annual report:

QUES3: Also specify the sub headings, disclosures & the motives of the information given in
each of the above?
Ans: Content # 1. Chairmans Speech:
Chairmans speech highlights corporate activities, strategies, researches, labour relations, main
achievements, focuses on future goals, growth. In corporate annual report, the chairmans
speech may not always be found but may be provided to shareholders as a separate document.
Chairmans speech may concentrate on economic condition of the industry to which the
corporate unit belongs and the economy of the country.
Sometimes chairmans speech contains useful data on sales, foreign exchange earnings etc. for
different segments of the company. Speech may consist of generalizations and constructive
comments about industry and economy. This speech is actually delivered at the annual general
meeting of the shareholders. Investors should carefully read the future plans and strategies of
the company.

Content # 2. Directors Report:

Section 217 of the Company law makes it mandatory on the part of directors to make out and
attach to every balance sheet laid in an annual general meeting of the company, a report, known
as directors report. As per provisions of Section 217 of Company law, directors are to present
their report with respect to the state of companys affairs, the amount if any which they purposes
to earn, to any reserve and dividend, materials changes and commitments if any, conservation
of energy ; technology absorption and foreign exchange earnings. The boards report is generally
signed by the chairman if authorized, otherwise it is signed by the companys manager or
secretary if any, by not less than two directors of the company, one of whom shall be managing
director.

Content # 3. Auditors Report:

Section 227 of the Companies Act says that the auditors shall make a report to the members of
the company. It is the obligatory duty of the directors to get the accounts of company audited
every year by qualified auditors. An auditor is appointed by the shareholders of a company to
audit accounts and as such, auditor addresses the report to the shareholders of the company on
the accounts audited by him. It is the duty of the board of directors to attach the auditors report
to the balance sheet so as to provide a copy of auditors report to every member of company.
Following is the specimen of an auditors report for reference of the students.
1. We have audited the attached Balance Sheet of MRO-TEK LIMITED, as at 31st March 2008 and
also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date
annexed thereto. These financial statements are the responsibility of the companys
management. Our responsibility is to express an opinion on these Financial Statements based on
our audit.
2. We conducted our audit in accordance with Auditing Standards generally accepted in India.
Those Standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the Financial
Statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditors Report) Order, 2003, issued by the Central
Government of India, in terms of subs- section (4A) of Section 227 of the Companies Act, 1956,
we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the
said order.

4. Further to our comments in the Annexure referred to in Paragraph 3 above, we report that
(a) We have obtained all the information and explanations, which to the best of our knowledge
and belief were necessary for the purpose of our audit.

(b) In our opinion, proper books of accounts as required by Law have been kept by the company
as far as appears from our examination of such books.

(c) The balance sheet and profit and loss account and cash flow statement dealt with by this
report are in agreement with the books of account.

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt
with this report comply with the Accounting Standards referred to in Sub-section (3C) of Section
211 of the Companies Act, 1956.

(e) On the basis of written representations received from the Directors and taken on record by
the Board of Directors, we report that none of the Directors of the company are disqualified as
on 31.03.2008 from being appointed as Directors of the company under clause (g) of sub section
(1) of Section 274 of Companies Act, 1956. (j) In our opinion and to the best of our information
and according to the explanations given to us, the accounts together with the notes thereon give
the information required under the Companies Act, 1956 in the manner so required and give a
true and fair view in conformity with the Accounting Principles generally accepted in India:

(I) In the case of Balance Sheet, of the state of affairs of the company as at 31st March 2008;

(ii) In the case of profit and loss account, of the Profit for the year ended on that date; and

(iii) In the case of Cash Flow Statement of the Cash Flows for the year ended on that date.
Content # 4. Balance Sheet:
Balance sheet which is also known as position statement provides a birds eye view on companys
financial position as well as condition. This statement indicates whatever company has and
whatever company owes. The excess of assets over liabilities is known as owners
equity/shareholders funds.

Content # 5. Profit and Loss Account:

The profit and loss account which is also known as Income Statement indicates net profits earned
by company during current financial year. Income statement also indicates profits available for
distribution and appropriation after meeting tax liabilities. Profit and Loss Appropriation Account
or Retained Earnings Account is also submitted with profit and loss account which indicates
appropriations made during the period.

Content # 6. Schedules:
An average annual report generally contains some schedules forming part of balance sheet and
others forming part of profit and loss account. These schedules are attached with financial
statements for giving detailed information regarding items concerned.

Content # 7. Cash Flow Statement:

The accounting standard AS-3 (Revised) cash flow statements issued by ICAI in March 1997 has
made obligatory on the part of companies for reporting its cash flows as per the requirements of
the standard. Detailed discussion has been made in chapter 5 entitled cash flow statement
regarding preparation of cash flow statement as per provisions of AS-3.

Content # 8. Accounts of Subsidiary:

Section 212 of the Companies Act 1956 requires companies to provide statement pursuant to
section 212 regarding informations about subsidiaries duly signed by directors and company
secretary on behalf of the board of directors along with detailed information regarding directors
of different subsidiaries along with secretary auditors and bankers. An information about the
addresses of registered offices is also to be attached.
Content # 9. Corporate Governance:
Corporate Governance focuses on a companys structure and processes to ensure transparent
and responsible corporate behavior corporate Governance is not a sati exercise rather it is a
dynamic process effective corporate Governance not only reduces the agency costs incurred due
to division of ownership but it helps in saving of time and resources of investors. On the other
hand poor corporate governance practices enhance the agency costs and reduce firm valuation.

Content # 10. Accounting Policies:

It has been observed that an average annual report in India use to contain a statement of
disclosure on accounting policies followed by the company while preparing financial statements.
It may be due to the mandatory compliance of AS-1 (Disclosure of accounting policies).
Accounting policies are the specific accounting principles and the methods of applying those
principles.

Accounting policies represent choices among different accounting methods that can be used
while preparation of financial statements. Every reporting entity use to disclose various
accounting policies followed while presenting various items of income statement as well as of
balance sheet for instance method followed for charging depreciation on Fixed Assets.
QUES4: Also analyze the non-statutory information given in the annual report?

Ans: What is a Non-Statutory report

Non-statutory reports are prepared in order to help the board of directors or top executives to take
a quality decision for the effective control and management of business organization but not
required under the provisions of any law. These reports are prepared whenever demanded by the
Secretary or by the Directors or their committees for submission to the shareholders, directors,
employers or committee or sub-committees.

Examples of Non-Statutory Report

1. Reports of Directors to Shareholders.
2. Reports of Committees of Directors appointed by the Board.
3. Reports of Individual Officers of the company i.e. Secretary, Auditor, and Manager etc.
1. Reports of Directors to Shareholders

The Board of Directors are preparing the report with regard to any specific problems or any new
projects and presented in the Annual General Meeting. Sometimes, the report is annexed with the
Profit and Loss Account and Balance Sheet of preceding accounting year.

Contents of the Directors Report

Generally, the directors report contains the following information.

1. The state of affairs of the company.

2. The declaration of dividend.

3. Amount proposed to be carried on to reserved capital.

4. Any major changes in the financial commitment of last accounting period.

2. Reports of Committees of Directors

The committees are formed by the Board of Directors in order to help them for able administration
of the company. Such committees are standing committees. Examples for standing committees are
Finance Committee, Project Committee, Share Allotment Committee, Share Transfer Committee
etc. These committees are reconstituted according to the need basis. These committees submit their
reports directly to the Board.

3. Reports of Individual officers of the Company

The term reports of individual officers of the company includes Company Secretary, Auditor,
General Manager, Special Officer Etc. Out of these persons, secretary is asked to prepare the report
frequently with regard to the following matters.

1. Selection of suitable site for new branch.

2. Complaints from branch offices.
3. Complaints of customers.
4. Complaints of suppliers.
5. Suspected irregularities in anyone or more departments.
6. Improvements in office organization.
7. General behavior of the employees.
8. Causes of discontent among the employees.
9. Valuation of stocks and their levels of stocks in terms of quantities.
10. Threatened strikes.
11. Prospects and position of a business which is going to be taken over
12. Proposed improvement in the working conditions of employees
QUES5: Compute the CAGR of sales, EBDIT, PBT AND PAT in the last 5 years?

Ans: Aggregated Growth Score

In GPRV, the aggregated Growth Score is the average of the growth indicators' scores.

Net Sales Growth Historical

This is a weighted average of the Historical Growth of Net Sales. This indicator focuses
on the ability of the company to grow its Net Sales year over year, historically. Up to five
years of Historical Net Sales Growth are taken into account.

Calculation: (using up to 5 years of historical data when available)

[Net Sales Growth year N*5 + Net Sales Growth year (N-1)*4 + Net Sales Growth year
(N-2)*3 + Net Sales Growth year (N-3)*2 + Net Sales Growth (N-4)] / 15

Net Income Growth Historical

This is a weighted average of the Historical Growth of Net Income. This indicator focuses
on the ability of the company to grow its Net Income, year over year, historically. Up to
five years of historical Net Income Growth are taken into account.

Calculation: (using up to 5 years of historical data when available)

Net Profit Growth year N*5 + Net Profit Growth year (N-1)*4 + Net Profit Growth year (N-
2)*3 + Net Profit Growth year (N-3)*2 + Net Profit Growth (N-4)]/15

Net Sales Growth Estimate

This is a Forecast CAGR (Compound Annual Growth Rate) of Net Sales Estimates.

Calculation: (using up to 3 years of forecast data when available)

(Net Sales year (N+2) Net Sales year N)(1/2)

EPS Growth Estimate

This is a Forecast CAGR (Compound Annual Growth Rate) of EPS estimates.

Calculation: (using up to 3 years of forecast data when available)

(EPS year (N+2) EPS year N)(1/2)

Sales growth shows the increase in sales over a specific period of time. The CAGR
formula is the following:

(Current year's value / value 5 years ago) ^ (1/5) 1

REVENUE FROM OPERATIONS FY 16-17 FY 12-13

78273.44 66263.65

CAGR EQUALS

= (ENDING VALUE/BEGINNNING VALUE) ^1/NO OF YEARS -1

= (78273.44/66263.65)^1/5 -1

=.0338 that equals 3.38%

EBDIT equals FY16-17 FY 12-13

PB EXCEPTIONAL & EXTRAORDINARY TAX 13170.85 14894.52

+ FINANCE COST 3597.20 1924.36

+DEPRECIATION 5920.32 3396.76

22688.37 20215.64
EBDIT

CAGR FOR EBDIT

= (22688.37/20215.64)^1/5 -1

= 0.0232 that equals 2.32%

PBT

CAGR FOR PBT FY16-17 FY12-13

12387.90 16578.63
CAGR FOR PBT = (12387.90/16578.63)^1/5 -1

-.056 that equals -5.6%

PAT 9385.36 12619.39

= (9385.36/12619.39) ^1/5 -1

That equals -5.6% that means a decline of 5.6% over 5 years

QUES5: Compute the CAGR of asset growth Current and Non-Current??

ANS: FY16-17 FY12-13

NON CURRENT ASSETS 207654.76 119949.38

CURRENT ASSETS 28399.90 41167.68

CAGR OF NON CURRENT ASSETS = .115 OR 11.5%

CAGR OF CURRENT ASSETS = -.0717 OR -7.17%

QUES6: Prepare common size income statement and find out the critical
components affecting the probability?

Ans: Common size income statement

Common size Income Statement

2017 2016
Revenue from operations 79342.3 72009.16
LESS COGS:
cost of material
consumed 46589.65 42684.32
purchase of stock in
trade 780.56 694.65
change in stock -56.32 -45.87
employee benefit expense 4324.6 3581.65
COGS 51638.49 46914.75
Gross Profit 27703.81 25094.41
Other expenses 5092.38 5576.49
Cash operating expenses 828.44 -404.15
DEP & AMORT EXP. 5920.82 5172.34
Non-Operating Income 21782.99 19922.07
exceptional income 1068.86 1165.35
profit before FC 22353.13 19052.43
Non-operating expense
exceptional expense 6368.03 5160.25
finance cost 3597.2 3296.41
PBT 12387.9 10595.77
TAX EXPENSES 3002.64 -173.83
PAT 9385.26 10769.6

QUES7: Highlight the nature of contingent liability in short and its % to net worth?

ANS: Contingent liabilities are disclosed on the basis of

judgment of the management/independent experts. These are reviewed at
each balance sheet date and are adjusted to reflect the current
management estimate.
 0 2017 2016
TOTAL ASSETS 225147.1 204559.5
TOTAL DEBT 106840.21 93,127.24
CONTINGENT LIAB 27,954.72 20,880.35
NET WORTH 118306.89 111432.26

CL % NW 24% 19%

QUES8: Highlight the strength, weaknesses, opportunities and strength of the

company?

Ans: STRENGTHS:

1. Employee friendly work culture and personnel policies.

2. Efficient production process of plants.

3. Fully integrated project management system.

4. Decades of experience in the sector shows its credibility.

5. Backing of Central Government.

6. Efficient & timely completion of projects.

WEAKNESSES:

1: Depleting input materials sources.

2. Govt intervention can often cause disruptions in operations.

3. Prices are determined by India's Electricity Act.

OPPORTUNITIES:

1. Huge demand and supply gap.

2. Large opportunity in energy consultancy service.

3. New sources of power generations.

THREATS:

1. Rising cost of production.

2. Huge competition from growing private sector firms.

3. New and cleaner sources of power.

QUES9: Prepare common size balance sheet and find out the critical components
affecting the probability?

Common Size Balance Sheet

2017 2016
Fixed Assets
Tangible assets 99062.7 91499.36
intangible assets 293.02 273.89
capital WIP 80522.55 66205.59
Intangible assets under dev 214.54 217.61
Non-current investments 8838.88 7934.72
other non-current assets 16879.15 17636.8
Current Assets
inventories 6504.81 7010.37
trade receivables 8137.92 7732.22
cash & bank balances 157.12 1372.4
other current assets 4536.44 4676.55
Total 225147.1 204559.5
less : current liabilities
trade payables 13.17 8.37
other current liabilities 36177.32 31758.74
short term borrowings 6500.37 6730.79
capital employed 182456.3 166061.6
less non-current lab
long term borrowings 97339.28 85096.95
other long term liabilities 2247.13 2999.27
shareholders net worth 96231.23 91293.7
share capital 8245.46 8245.46
reserve & surplus 87985.77 83048.24
minority interest 803.26 793.3
Ques10: Comment on company dividend policy?

Ans: Objectives of the Policy

The Dividend Policy is aimed at increasing the Companys fundamental value

ensuring an annual dividend payout based on the amount of profit to be distributed among
shareholders of the company after balancing the requirement of deployment of internal
accruals for its sustenance and growth plans. The Company is committed to deliver
sustainable value to all its stakeholders. NTPC has been consistently paying dividends
and this trend is expected to continue in future as well unless the company is constrained
to declare dividend due to any of the factors listed ahead.

A. Circumstances under which the shareholders of the Company may Or May not
expect dividend. Dividend is declared at the Annual General Meeting of the
shareholders based on the recommendation by the Board. The Board may
recommend dividend, at its discretion, to be paid to our members. The Board may
also declare interim dividend. Generally, the factors that may be considered by
the Board before making any recommendations for the dividend include, but
are not limited to, future capital expenditure plans, profits earned during the
financial year, cost of raising funds from alternate sources, cash flow position and
applicable taxes including tax on dividend, subject to the guidelines issued by
Government. The decision regarding dividend payout is a crucial decision as
it balances the amount of profit to be distributed among shareholders of the
company with the requirement of deployment of internal accruals for its sustenance
and growth plans.

QUES11: Try to find out the % holding of FI, Mutual fund and insurance companies
in the share holding pattern.

Ans: The Shareholding Pattern page of NTPC Ltd. presents the Promoter's holding, FII's
holding, DII's Holding, and Shareholding by general public etc. Shareholding Pattern -
NTPC Ltd.

Holder's Name No of Shares % Share Holding

Promoters 5750759170 69.74%

Financial Institutions 1147901271 13.92%

Foreign Institutions 860353722 10.43%

N Banks Mutual Funds 254773132 3.09%

General Public 144184714 1.75%

Others 87492391 1.06%

QUES12: Give major business segments and their %age contribution to total
income and profits?

Ans: Business area of the company:

Power Generation
Consultancy services
Power trading
Ash utilization
Coal mining

Business divisions:

Hydro Power: In order to give impetus to hydro power growth in the country and to have a
balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW
Kollam hydro project in Himachal Pradesh. Two more projects have also been taken up in Uttara
hand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities
up to 250 MW.

Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured
into coal mining business with an aim to meet about 20% of its coal requirement from its captive
mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2
blocks to be developed through joint venture route. Coal Production is likely to start in 200910.

Power Trading: 'NTPC Vilyui Vaper Nigam Ltd.' (NVVN), a wholly owned subsidiary was
created for trading power leading to optimal utilization of NTPCs assets. It is the second largest
power trading company in the country. In order to facilitate power trading in the country,
National Power Exchange Ltd., a JV between NTPC, NHPC, PFC and TCS has been formed
for operating a Power Exchange.

Ash Business: NTPC has focused on the utilization of ash generated by its power stations to
convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material
input for cement companies and brick manufacturers. NVVN is engaged in the business of Fly
Ash export and sale to domestic customers. Joint ventures with cement companies are being
planned to set up cement grinding units in the vicinity of NTPC stations.

Power Distribution: NTPC Electric Supply Company Ltd. (NESCL), a wholly owned
subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in Rajiv
Gandhi Garmin Vidyutikaran Yojanaprogramme for rural electrification and also working as
'Advisor cum Consultant' for Ministry of Power for implementation of Accelerated Power
Development and Reforms Programme (APDRP) launched by Government of India.

Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of

power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge
Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformers
and Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers.

Subsidiaries of the company:

1. NTPC Hydro Ltd

2. 'NTPC Vilyui Vaper Nigam Ltd
3. NTPC Electric Supply Company Ltd
4.
5. Kant Bijlee Utahan Nigam Limited
6. Bharatiya Rail Bijlee Company Limited

Apart from this the company is having 13 different Joint ventures as well.

1. PTC India Limited

2. Utility Powertech Limited (UPL)
3. NTPCSAIL Power Company Pvt. Ltd.
4. NTPCAlstom Power Services Private Limited
5. NTPC Tamil Nadu Energy Company Ltd.
6. Ratnagiri Gas and power Pvt. Limited
7. Aravali Power Company Private Ltd.
8. NTPCSCCL Global Venture Pvt. Ltd.
9. Meja Urja Nigam Private Limited
10. NTPC BHEL Power Projects Pvt Ltd.
11. BFNTPC Energy Systems Limited
12. Nabinagar Power Generating Company Private Limited
13. National Power Exchange Limited

QUES13: Any joint venture, buybacks, bonuses, strategic alliances declared by co. in last
financial year?

Ans: BADEN, SWITZERLANDJanuary 05, 2017The countrys largest utility NTPC

Limited (NTPC) has issued Notice of Award on December 14, 2016 through international
competitive bidding to NTPC GE Joint Venture (NASL) and GEs Power Services business to
upgrade three steam turbines at the Ramagundam Super Thermal Power Plant in the state of
Telangana. The total contract value of $64.51M also includes the value $29.22M for GEPIL (GE
Power India Limited).

As part of the contract, the NASL and GE will perform shaftline retrofits of three, 200-MW
Ansaldo steam turbines in Stage 1 of the Ramagundam station. More than 30-years-old, the three
units were originally installed between 1982 and 1983. Once complete, the plant is expected to
increase their output by approximately 10 megawatts and the thermal heat rate of each turbine by
14 percent. In addition, the turbine controls will be modernized to increase operation flexibility.
The scope also includes supply of other associated equipment, including generator auxiliaries.
Coal-fired power generation provides electricity for about 40% of the world, said Paul
McElhinney, President and CEO of GEs Power Services. It also accounts for nearly 75% of the
electricity sectors carbon emissions because many of the plants are older and inefficient,
particularly in countries such as India and China. Our recent study shows CO2 emissions could
be cut by 10 percent, or 1.1 billion tonnes a year, if technology to boost the efficiency of coal and
gas-fired power plants were installed in every existing plant around the world.

Ques14: Compute last 5 years ROA, ROI, ROCE??

ANS: ROA

Mar '16 Mar '15 Mar '14 Mar '13 Mar '12

Return on Assets Excluding Revaluations

107.67 99.03 104.08 97.49 88.89
Return on Assets Including Revaluations
107.67 99.03 104.08 97.49 88.89

ROI:

Debt to
Market Cap P/E P/B EV / EBITDA Royce Dividend Yield
Equity
(Rest. in Cr.) (x) (x) (x) (%) (%)
Ratio(D / E)
NTPC LTD 1,39,348.35 13.02 1.43 11.30 8.07 1.54 1.07

QUES16: Analyze the last 5 years cash flow statements?

Ans:
 MAR'17 MAR'16 MAR'15 MAR'14 MAR'13
Parameters
( Cr.) ( Cr.) ( Cr.) ( Cr.) ( Cr.)

Net Profit Before Taxes 12,387.90 10,595.77 10,546.65 13,904.65 16,578.63

Adjustments for Expenses

10,405.09 8,649.30 6,374.52 4,675.71 2,409.25
& Provisions

Adjustments for Liabilities

93.26 6,078.03 -766.54 -291.92 -597.13
& Assets

Cash Flow from operating

20,301.37 23,987.38 14,234.70 15,732.18 15,495.17
activities

Cash Flow from investing

-24,718.82 -18,346.09 -14,562.60 -13,979.71 -14,016.89
activities

Cash Flow from financing

3,202.23 -4,549.62 -1,878.08 -3,308.99 -752.41
activities

Effect of exchange
fluctuation on translation 0 0 0 0 0
reserve

Net increase/(decrease) in
-1,215.22 1,091.67 -2,205.98 -1,556.52 725.87
cash and cash equivalents
QUES17: Compute the operating cycle of the Co.?

Ans: Net working capital 2016-17 2012-13

1824360.3 166061.6

QUES18: Explain Michael Porter 5 forces structural analysis for the Co.??

Ans: The article explains the Porter's five forces of Indian power sector. The Indian Power
sector registered 9.2 per cent growth in power generation in April-December 2011 as against 4.6
per cent growth in the same period in 2010.

The threat of the entry of new competitors

Highly capital-intensive industry and hence demands huge investment

Power producers Behemoth like NTPC, SEBs contributing around 85 % of total
power produced
Ditto for Power Grid Corp. of India in Transmission and Distribution Segment
Major plans by big companies like Reliance power, Adani power, Lanco etc. to make an
entry into power sector after market opened up for private sector through Electricity Act
2003 and subsequent reforms
However obtaining regulatory approvals, fuel linkages, land etc. still remain the major
bottlenecks.
Hence the threat of new entrant appears to be low

The threat of substitute products or services

Power does not have substitute but it can be generated from different sources of energy.
Currently thermal power is dominant in India, coal being the major raw material.
Coal availability is limited and therefore power from nuclear, hydro and other
renewable sources could be used as substitute for thermal power in future.
 Agreements with various countries for nuclear collaboration will give major impetus to
Nuclear power plants
Although demand for power outstrips its supply, going forward, thermal power plant
companies have threat from non-thermal power generators.
Hence the threat of substitute products is medium

The bargaining power of customers (buyers)

Industrial consumers have huge demand for power

Their bargaining power is low in India as the number of power companies to buy from
is limited in number. Hence power companies are in better position.
Retail customers -Government regulates the power sector to ensure supply of power at
reasonable prices but this regulation is limited.
Peak shortage is much more in every region and it is about 12 % on all India basis which
allow suppliers to dictate terms with the buyers.
Overall, the bargaining power of buyers is Medium.

The bargaining power of suppliers

Coal is majorly used as a feed for generating power.

The supply of coal in India is limited and hence coal players are in dominant position.
Power companies are required to import coal if the domestic supply is not sufficient,
which proves to be an expensive affair.
 With companies like Lanco, Adani Power buying coal mines in Indonesia, Australia etc.
to import better grade coal than available in India, market dominance of Govt.
Companies like Coal India will subside gradually.
However looking at the present situation, the power of suppliers is high.

The intensity of competitive rivalry within the Industry

Power producing companies No competitive rivalry as demand for power is way

above its supply and all the power generated is used up.
However, with government encouragement, private participation is expected to increase
in the coming years to take advantage of huge demand for power
Power equipment market - Market leader like BHEL is facing tough competition from
L&T, Alstom, Doosan and most importantly Chinese suppliers.
Major orders of Boiler, Turbine and Generator grabbed by Chinese suppliers from most
of the private sector clients.
So overall the intensity of competitive rivalry is medium.

QUES19: Compute the following ratios of the Co.??

Ans 19:

2016 2015 2014 2013 2012

investment Valuation Ratios
Face Value 10 10 10 10 10
Dividend Per Share 3.35 2.5 5.75 5.75 4

Operating Profit Per Share (Rest) 20.91 18.86 21.48 20.63 16.52

Net Operating Profit Per Share (Rest) 85.51 88.83 87.34 79.65 75.26

Free Reserves Per Share (Rest) -- -- -- -- --

Bonus in Equity Capital -- -- -- -- --

Profitability Ratios

Operating Profit Margin (%) 24.45 21.22 24.59 25.89 21.95

Profit Before Interest And Tax Margin (%) 16.46 14.07 18.15 19.77 16.67

Gross Profit Margin (%) 16.76 14.52 18.84 20.72 17.45

Cash Profit Margin (%) 21.54 19.67 20.23 20.77 18.01
Adjusted Cash Margin (%) 21.54 19.67 20.23 20.77 18.01
Net Profit Margin (%) 14.52 14.04 15.23 19.21 14.86

Adjusted Net Profit Margin (%) 14.27 13.61 14.67 18.32 14.2
 Return On Capital Employed (%) 7.46 8.08 11.01 12.56 11.51

Return On Net Worth (%) 11.53 12.6 12.78 15.69 12.58

Adjusted Return on Net Worth (%) 11.3 12.19 12.8 13.56 12.15

Return on Assets Excluding Revaluations 107.67 99.03 104.08 97.49 88.89

Return on Assets Including Revaluations 107.67 99.03 104.08 97.49 88.89

Return on Long Term Funds (%) 7.52 8.08 11.01 12.56 11.51

Liquidity And Solvency Ratios

Current Ratio 1.18 1.43 1.69 1.83 1.97
Quick Ratio 1.04 1.23 1.51 1.68 1.8
Debt Equity Ratio 0.97 0.96 0.73 0.66 0.63

Long Term Debt Equity Ratio 0.96 0.96 0.73 0.66 0.63

Debt Coverage Ratios

Interest Cover 4.05 4.72 6.78 8.72 8.02

Total Debt to Owners Fund 0.97 0.96 0.73 0.66 0.63

Financial Charges Coverage Ratio 5.73 6.51 8.5 10.49 9.65

Financial Charges Coverage Ratio Post

5.85 6.54 7.28 9.32 8.02
Tax
Management Efficiency Ratios
Inventory Turnover Ratio 9.9 9.92 13.52 16.32 16.87
Debtors Turnover Ratio 9.13 11.42 13.61 11.73 17.08

Investments Turnover Ratio 9.9 9.92 13.52 16.32 16.87

Fixed Assets Turnover Ratio 0.48 0.57 0.62 0.64 0.76

Total Assets Turnover Ratio 0.4 0.46 0.49 0.49 0.52

Asset Turnover Ratio 0.42 0.47 0.51 0.52 0.55

Analysis of Ratios

Profitability ratios

Gross profit ratio of NTPC has been in fluctuating trend during the study period. GPR was
highest in the year 2007-08 (46.11%) and it was lowest in the year 2009-10 (37.01%). Operating
profit ratio reveals declining operating efficiency of the company during the study period. In the
year 2007-08, it was 18.94% and it decreased to 7.68% in 2015-16. Besides, Net Profit Ratio of
the company has been in decreasing trend during study period and reveals declining
managements efficiency of the company in operating the business successfully during study
period. However, ROE showed a decreasing trend from 37.05% in the year 2007-08 to 5.11% in
the year 2015-16. It is an indication of very low return on shareholders equity. Return on assets
(ROA) of the company indicates that the company has not utilized the assets efficiently during
the study period. In the year 2007-08, it was maximum and reduced to in 2015-16. Moreover,
ROCE has been in decreasing trend from 36.15% in 2006-07 to 6.68% in the year 2015-16
indicating decreasing profitability of the company except the year 2008 in which it was 42.01%
(Table 2).

Liquidity ratios

Table 3 shows the liquidity ratios of NTPC. The standard current ratio is 2:1 but NTPC has a
lower current ratio in the study period except from 2008-2011. The mean value of current ratio
of NTPC was 1.57 times during the study period which indicates that the short-term liquidity
position of the company was not satisfactory from 2007- 2016. The liquid ratio of NTPC was
better from 2007 to 2012 but it starts decreasing in later years. However, mean value of liquid
ratio is satisfactory (1.01 times) but the company should revise the liquidity position. So, far cash
ratio is concerned; it was 1.09 times in 2008-09 and reduced to 0.09 times only in 2015-16. It has
also shown decreasing trend over the period of study except in the year 2010-11 when it was
1.24 times.

Solvency ratio

Table 4 shows the solvency ratios of NTPC. Debt-Equity ratio of NTPC has been more than 1:1
during the study period except for the years 2008-09 and 2011-12. It indicates that total liabilities
were higher than owners equity. The average Debt-Equity ratio was 1.18 times indicating that
the company has been financially leveraged during study period. Moreover, interest coverage
ratio of the company was highly satisfactory in the initial years. It was 13.05 times in the year
2006-07 and increased to 46.11 times in the year 2008-09. Thereafter, it starts decreasing and
reached to 2.89 in 2015-16. It indicates decreasing earning capacity and excessive use of debt
during these years. It is a warning signal for the company that NTPC may not have the ability to
offer assured payment of interest to the lenders in the future.

Management efficiency ratios

Table 5 exhibits the management efficiency ratios of NTPC from 2005-06 to 2014-15. Working
capital turnover ratio has been in fluctuating trend during the study period. It was 7.05 times in
2006- 07 and declined to 2.26 in the year 2010-11. But, WTR again starts increasing in coming
years since it was 5.82 times in 2015-16. It indicates a very low maintenance of working capital
during last years of the study. Besides, total assets turnover ratio was 1.01 in 2007-08 and
reduced to 0.49 times in 2015-16. It indicates that the management efficiency has decreased
during the study period and NTPC has not been able to increase the sale with increase in the
assets. Notwithstanding, inventory turnover ratio has been in decreasing trend from 6.04 times
(2008-09) to 2.82 times in 2015-16. It documents that the company has not been able to use the
increase in inventory stock efficiently over the study period.

Market valuation ratios

Table 6 shows the market Valuation Ratios of NTPC from 2006- 07 to 2015-16. Earnings per
share of the Company was Rest 15.85 in 2007-08 and reduced to Rest 5.75 in 2015-16. It was
higher in the initial years of the study but lower in subsequent years. It is an indication of low
return per share of the company. A lower ratio is the indication of the lower capacity of the
concern to pay dividend to its equity shareholders. Moreover, Price-Earnings ratio of NTPC has
been in decreasing trend from 2010-11 (13.98 times) to 2013-14 (11.12 times) indicating
negative future expectations of investors during this period. The market value to book value ratio
was higher during the initial years of the study indicating that the investors were ready to pay
more than book value per share. However, MBR has been less than one from the year 2014-15 to
2015-16 (0.64 times) indicating that investors were willing to pay less than book value per share.

Hypothesis Testing

Table 7 highlights the correlation matrix. It shows correlation coefficients of dependent and
independent variables. ROCE is positively and highly correlated with ROE and ROA since they
are the measures of profitability. Furthermore, ROCE is highly correlated with current ratio,
inventory turnover ratio. However, ROCE is not significant correlated with debtors turnover
ratio. Besides, ROE is again significantly correlated with current ratio, inventory turnover ratio
but not with debtors turnover ratio. So, far correlation of ROA is concerned; it is also highly
correlated with current ratio, inventory turnover ratio but not with debtors turnover ratio.

Table 8 exhibits the value of adjusted R square, Durbin Watson, and results of ANOVA. The
value of adjusted R square is 0.904 which means 90.4 percent variation in ROCE is explained by
current ratio, debt equity ratio, inventory turnover ratio and rest of the variation (1-R2) is an
unexplained variation due to variables that has not been considered in this model. Besides,
ANOVA shows the model fitness. The F value is 289.451 and p value is 0.006 (P<0.05). It
means that the overall regression model is accurate and validated.

Table 9 shows the results of multiple linear regression analysis. ROCE is dependent variable
whereas current ratio, debt equity ratio, inventory turnover ratio are independent variables.
Firstly, current ratio has positive impact on ROCE since the unstandardized beta coefficient is
0.098064. It indicates that for everyone unit change in current ratio, there will be 0.098 unit
change in ROCE. However, its regression coefficient is statistically insignificant at 5% level of
significance (P>0.05). Therefore, H01.1 is accepted. Secondly, the unstandardized beta coefficient
of debt equity ratio is 0.317638 which indicates that one unit change in debt equity ratio will
bring 0.31-unit change in ROCE. Further, its regression coefficient is statistically significant at
5% level of significance (P<0.05). Therefore, H02.1 is rejected. Thirdly, inventory turnover ratio
(ITR) has significant positive relationship with return on capital employed at 5% level of
significance. The unstandardized beta coefficient value of inventory turnover ratio is 0.068968
which highlights that for one unit change in ITR, there is 0.07 unit change in ROCE. The
regression coefficient of ITR is statistically insignificant at 5% level of significance (P>0.05)
meaning thereby H03.1 is accepted. Hence, it can be said that there is no significant impact of
current ratio and inventory turnover ratio on Return on Capital Employed. On the contrary, debt
to equity ratio has significant impact on Return on Capital Employed.

Table 10 exhibits the value of adjusted R square, Durbin Watson, and results of ANOVA. The
value of adjusted R square is 0.805 which means 80.5 percent variation in ROA is explained by
current ratio, debt equity ratio, inventory turnover ratio and rest of the variation (1-R2) is an
unexplained variation due to variables that has not been considered in this model. Besides,
ANOVA shows the model fitness. The F value is 377.465 and p value is 0.000 (P<0.05). It
means that the overall regression model is accurate and validated.

Table 11 shows the results of multiple linear regression analysis. ROA is dependent variable
whereas current ratio, debt equity ratio, inventory turnover ratio are independent variables.
Firstly, current ratio has positive impact on ROA since the unstandardized beta coefficient is
0.028337. It indicates that for everyone unit change in current ratio, there will be 0.028 unit
change in ROA. However, its regression coefficient is statistically insignificant at 5% level of
significance (P>0.05). Therefore, H01.2 is accepted. Secondly, the unstandardized beta coefficient
of debt equity ratio is 0.185508 which indicates that one unit change in debt equity ratio will
bring 0.18 unit change in ROA. Further, its regression coefficient is statistically significant at 5%
level of significance (P<0.05). Therefore, H02.2 is rejected. Thirdly, inventory turnover ratio
(ITR) has significant positive relationship with return on assets at 5% level of significance. The
unstandardized beta coefficient value of inventory turnover ratio is 0.089548 which highlights
that for one unit change in ITR, there is 0.08 unit change in ROA. The regression coefficient of
ITR is statistically insignificant at 5% level of significance (P>0.05) meaning thereby H03.2 is
accepted. Hence, it can be said that there is no significant impact of current ratio and inventory
turnover ratio on Return on assets. On the contrary, debt to equity ratio has significant impact on
Return on assets.

Table 12 exhibits the value of adjusted R square, Durbin Watson, and results of ANOVA. The
value of adjusted R square is 0.833 which means 83.3 percent variation in ROE is explained by
current ratio, debt equity ratio, inventory turnover ratio and rest of the variation (1-R2) is an
unexplained variation due to variables that has not been considered in this model. Besides,
ANOVA shows the model fitness. The F value is 559.472 and p value is 0.004 (P<0.05). It
means that the overall regression model is accurate and validated.

Table 13 shows the results of multiple linear regression analysis. ROE is dependent variable
whereas current ratio, debt equity ratio, inventory turnover ratio are independent variables.
Firstly, current ratio has positive impact on ROE since the unstandardized beta coefficient is
0.081437. It indicates that for everyone unit change in current ratio, there will be 0.081 unit
change in ROE. However, its regression coefficient is statistically insignificant at 5% level of
significance (P>0.05). Therefore, H01.3 is accepted. Secondly, the unstandardized beta coefficient
of debt equity ratio is 0.251081 which indicates that one unit change in debt equity ratio will
bring 0.251 unit change in ROE.

Further, its regression coefficient is statistically significant at 5% level of significance (P<0.05).

Therefore, H02.3 is rejected. Thirdly, inventory turnover ratio (ITR) has significant positive
relationship with return on equity at 5% level of significance. The unstandardized beta
coefficient value of inventory turnover ratio is 0.040148 which highlights that for one unit
change in ITR, there is 0.04 unit change in ROE. The regression coefficient of ITR is statistically
insignificant at 5% level of significance (P>0.05) meaning thereby H03.3 is accepted. Hence, it
can be said that there is no significant impact of current ratio and inventory turnover ratio on
Return on equity. On the contrary, debt to equity ratio has significant impact on Return on
equity.

Conclusion, Suggestions, and Limitations of the Study

Conclusion

The profitability ratios show that overall profitability of NTPC has been positive during the study
period. However, the profitability of NTPC has declined over the period of study. The gross
profit margin of NTPC has been in fluctuating trend while the operating profit margin is much
lower than the gross profit margin which shows increase in operating expenses during the study
period. Besides, the short-term solvency position or liquidity position of NTPC was not good as
current ratio and quick ratio were lower than standard norms. Negative working capital in last
year of study indicates more current liabilities than current assets. Therefore, it can be concluded
that liquidity position of NTPC deteriorated during the study period. Nevertheless, Long term
solvency position of NTPC has been satisfactory from 2007- 16. The overall debt equity ratio
indicates that company has more debt capital than equity capital indicating that NTPC is
exploring the trading on equity advantages but because of declining profit and increase in interest
charges, interest coverage of NTPC has decline. Although, NTPC is earning enough profit to
cover its financial charges but proper attention is required in this area. The management
efficiency of NTPC has declined over the study period. Asset turnover ratio of NTPC has
declined indicating that NTPC has not been able to utilize the resources effectively. Decline in
inventory turnover ratio indicates that increased stock could not be used to increase the sale.
Decline in account receivable turnover ratio brought the conclusion that debtors management of
NTPC has weaken over the study period. Market valuation of NTPC has decline over the period
of study. Findings of the study brought the conclusion that overall financial performance of
NTPC was satisfactory during initial years of the study but deteriorated in later years [12].

Suggestions

On the basis of the findings of study, following suggestions are offered to improve the financial
performance of NTPC.

1. Current ratio of NTPC indicates poor liquidity position the company and it is suggested that
the company must reduce the amount of current liabilities and/or increase the amount of current
assets up to a reasonable level.

2. The debt to equity position of the company has been satisfactory. It is suggested that NTPC
should reduce debt burden in order to avoid financial distress.
3. NTPC has not been able to efficiently use the increase in inventory stock over the period of
the study. It is suggested that the level of inventory should be fixed up scientifically in order to
avoid the problem of under-stocking and over-stocking.

4. The operating expense ratio of NTPC indicated decline in the operational efficiency of
management and rise in the operational expenses over the period of study. It is advised that
NTPC should reduce its operating expenses by focusing on cost management and improving
operational efficiency.

5. The operating profit margin and net profit margin of NTPC have been much lesser than gross
profit margin indicating higher operating cost. It is suggested to reduce operating expenses to
improve the profitability.

Limitations of the study

The study is based on annual financial reports and therefore the results and findings are subject
to all limitations inherent in the published financial reports. Besides, the study is limited to a
period of ten years only. The study covered only one company and therefore the findings may
not be applicable to other companies as a whole.