1

CHAPTER-I INTRODUCTION

INTRODUCTION
Finance is the life blood of a business. It is necessary to promote a business, purchase fixed assets, buy raw materials, produce goods and market them. Every business activity requires finance. Without finance, the business would come to a halt. finance is the fundamental requirement for any business. Every company should know the financial strength of its operations. It points out the problems faced or likely to be faced by the companies. The financial information of a company is available in the financial statements or accounting reports. The financial statements of the companies are broadly classified into two types Vi., Trading & Profit and Loss Account and Balance sheet. The Trading account is the first part of final account which is prepared to find out either gross profit or gross loss. The second part of the final account is Profit and Loss Account which is prepared to know the net results of the business. The net result may be net profit / net loss. The last part is called as Balance Sheet which is prepared to know the financial position of the company as on the particular date. These statement are generally prepared by all the companies which is useful for them and also to outsiders like bankers, investors, Government etc. These statements show the static position of the company. In order to know the changing position of the company, these statements are to be analyzed. Moreover, the preparation of financial statements is not the end aim. Hence these statements are to be analyzed and results are interpreted to know the financial strength of the company. Hence the proposed study entitled A STUDY ON ANALYSIS OF FINANCIAL PERFORMANCE OF NLC LTD. NEYVELI is undertaken mainly to know its financial strength and soundness for the past five years viz. 2005-06 to 2009-10. Therefore,

2 1.1 NEED OF THE STUDY Finance statement is related with annual report are one of the source of information for judging the operational and financial Position of a company. To analyze the financial position of a company, the study of short term asset management is also mandatory. To identify the overall position of the company and the study helps to evaluate the strength weakness and the firms financial Performance.

1.2. Statement of the Problem

The organization can survive and succeed only when it is financially sound. In the present era, many firms face threat from MNCs and also severe crisis due to global recession and meltdown. Under these circumstances, the PSUs in India are going smoothly. Hence the effective functioning of public sector organization is a vital factor. It also results in betterment of our economy and also the future of such organization depends on its efficient operation. In this context, the present study is undertaken to analyze the financial health of a renowned public sector undertaking viz., NLC Ltd., Neyveli.

1.3. COMPANY PROFILE

Vision To provide value added analytical services both by instrument and chemical methods for consumer and industrial goods. To keep up the high standards established in the respective disciplines and remain as referral centers at the national and international level. Mission Strive towards greater cost competitiveness and work towards continued financial strength. Continually imbibe best practices from the best Indian and International Organizations engaged in Power Generation and Mining. Be a preferred employer by offering attractive avenues of career growth and excellent work environment and by developing human resources to match international standards. Play an active role in society and be sensitive to emerging environmental issues. Neyveli the home of the Neyveli Lignite Corporation Ltd., is today Indias Energy Bridge to the 21st century and a fulfillment of Pandit Nehrus Ltd., is celebrated the year (2006) as the Golden Jubilee Year. 1.1.Production Units 1.1.1. Mine-I Demarcated over an area of 16.69 sq. kms with a reserve of about 287 million tones, Mine-I is situated on the northern part of the field adjacent to the Neyveli Township. The lignite seam was first exposed in August 1961 and regular mining of lignite commenced in May 1962. The continuous mining technology in open cast mining with German Bucket Wheel Excavators, Conveyors and Spreaders were put to use for the first time in India. Mine-I with a capacity of 10.5 million tones lignite per annum feeds Thermal Power Station-I (600 MW).

Unique Features of the Neyveli Lignite Mines are:

4 The Neyveli lignite mines have unique features. Some of them are listed below: a) Lignite Deposit in Neyveli b) Occurrence of Ground Water Aquifer below lignite bed c) Hard over-burden strata d) Cyclonic Area 1.1.2. Mine-II In February 1978, the Govt. of India sanctioned the second Lignite mine with a capacity of 4.7 million tones of Lignite per annum and in February 1983, it has sanctioned the expansion of second mine to a capacity of 10.5 million tones. Mine-II had the problems in the excavation of sticky clay soil during the initial stage. The method of mining and equipment used is similar to Mine-I. Similarly the seam is the same as of Mine-I and is contiguous to it. Mine-II is located at 5 kms south of Mine-I. It is spread over an area of 26 sq.kms with 398 million tones reserve. The lignite seam in Mine-II was exposed in September 1984 and lignite excavation commenced in March 1985. The last overburden system (surface bench system) under the expansion scheme was commissioned on 15.12.1991. The lignite excavated from Mine-II meets the fuel requirements of Thermal Power Station-II. 1.1.3 Mine-I (Expansion) In March 1992, the Government of India had sanctioned the expansion of Mine-I from its present capacity of 6.5 million tones to 10.5 million tones per annum with a capital cost of Rs.1,336.93 crores. The Govt. of India approved the revised cost estimate of this project in Dec.2001 at a capital cost of Rs.1,658.38 crores. The project was commissioned on 24th March 2003-one month ahead of Revised Cost Estimate schedule. The cumulative capital expenditure incurred on this project up to 31.03.2003 was Rs.1,502.28 crores.

1.14. Mine-IA

5 The Government of India had sanction mine I-A project on 26th February 1998 for mining 3.0 million tones of lignite per annum at a total cost Rs.1,032.81 crores for catering to the lignite requirement of private ector plant to be put up by M/s. ST-CMS and also to meets additional requirements of lignite by the company. Fuel supplyareement has been signed with M/s. ST-CMS Company on 29.4.1998. The Mine-IA project has been commissioned in the month of March 2003 and the amount of capital expenditure incurred on this project up to 31.03.2003 was Rs.821.03 crores. 1.1.5. Lignite Production: Neyveli Lignite Corporation limited has achieved a remarkable growth in Lignite production. Table 1.1 shows Lignite production from 2005-06 to 2009-10. Table1.1 Statement showing lignite production during the years From 2005-06 to 2009-10

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Lignite Production (Lakhs Tones) 204.35 210.14 215.86 213.07 223.38

Source: Compiled from Annual Reports of NLC Ltd.

6 1.1.6. Thermal Power Station I (TPS-) The production capacity of TPS-I is 600 MW. This power station consists of six units of 50 MW each and three units of 100 MW each. The first unit of 600 MW capacity TPS-I was synchronized in May 1962 and the last unit in September 1970. Some of the special features of this power station are: First lignite fired power station in South East Asia. First largest Thermal Power Station in South India. First pit head Thermal Power Station in India. 1.1.7. Thermal Power Station II (TPS-II) The production capacity of Thermal Power Station-II is 1470 MW. It consists of 7 units of 210 MW each. In February 1978, the Government of India sanctioned the second TPS of 630 MW capacity (3x210 MW) and in February 1983, the Government of India sanctioned the second TPS expansion from 630 MW to 1470 MW with an additional of units 210 MW each. The first 210 MW unit was synchronized in March 1986 and the last unit was synchronized in June 1993. First and tallest town type boiler in the country (92.7 m. height) First software based burner management system First Hydrogen/hydrogen cooled generator of this size First boiler to be cleaned by hydrofluoric acid Steel structures used for the power house building 124 Meters natural drou 1.1.8. Power Generation NLC Ltd., has achieved a higher growth in power Generation. Table 1.2 shows power generated from 2005-06 to 2009-10

Table-1.2 Statement showing Power Generated during the years From 2005-06 to 2009-10.

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Power Generation (million units) 16242.42 15786.58 17456.89 15767.98 17656.04

Source: Compiled from Annual Reports of NLC Ltd. 1.1.9. Thermal Power Station-I Expansion The Thermal Power Station-I was being expanded with an installation of two units of 210 MW each. The expansion was sanctioned by the Govt. of India in February 1996. Then the Government of India revised the cot estimate of this in December 2001 at a capital cost of Rs.1,420.27 crores. The first unit was synchronized on 21.10.2002. The second unit of the unit was synchronized in July 2003. The cumulative capital expenditure incurred on these projects up to 31.03.2003 was Rs.1,161.59 crores. 1.1.10. Financial Performance NLC Ltd., has achieved a higher financial growth during the years 2005-06 to 2009-10. The overall performance of the Neyveli Lignite Corporation is good. So the company does not have any risk. The companys current ratio and Quick ratio are good.

8 1.1.11. Sales NLC Ltd. Has recorded a higher sales Growth.Table 1.3 shows sales achieved from 2005-06 to 2009-10. Table-1.3 Statement showing Sales achieved during the years From 2005-06 to 2009-10

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Sales (Rs.In crores) 2201.41 2108.11 2981.65 3354.91 4121.03

Source: Compiled and Computed from Annual Reports of NLC Ltd. 1.1.12. Profit after Tax NLC Ltd., has achieved higher growth in profit after tax. Table 1.4 shows profit after tax achieved during the years from 2005-06 to 2009-10.

9 Table-1.4 Statement showing profit after tax achieved during the year from 2005-06 to 2009-10.

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Profit after tax (Rs. In crores) 702.35 566.78 1101.57 821.09 1247.46

Source: Compiled and Computed from Annual Reports of NLC Ltd. 1.1.13. Human Resource Development NLC Ltd. Takes pride in its highly motivated and trained human resource, which has contributed its best for the company to achieve new heights. The total manpower as on 31.03.2010. Table-1.5 Statement showing human resource in NLC.

Executives Non-Executives Workmen Total

4,031 7,899 6,504 18,434

Source: Compiled and Computed from Annual Reports of NLC Ltd.

10 1.1.14. Service Units The service unit consists of Central Workshop (CWS), Central Electrical Repair Shop (CERS), Auto-yard, FC division and Bus section. The CWS and CERS are undertaking the repair works and some fabrication works for other six production units. The Auto-yard and FC divisions are maintaining the vehicles like, bus, lorry, van, jeep, etc., which belongs to the company. 1.1.15. Service Centers The following are the various service centres of NLC Limited. Unified Water Supply, CMO- Mechanical Services, Central Workshop, Central Auto Shop, Printing Press, General Electrical, Civil Service Unit, CMO-Repair Zone, CMO-Testing Zone. 1.1.16. Future Plans The following projects mentioned in table 1.6 were identified to be implemented during X plan period. The capacity and anticipated project cost are given in the Table 1.6. Table-1.6 Statement showing future plans (Rs. In crores) SI. No. 1. 2. 3. 4. 5. 6. 7. 8. Projects Mine-II Expansion TPS-II Expansion Rajasthan Project Mine Rajasthan Project-TPS Power Plant at B $ C site Mine-III TPS-III Power plant at Tuticorin Capacity 10.5 MTPA 2 x 250 MW 2.1 MT of Lignite/ annum 2 x 125 MW 210 MW 8.0 MTPA 2x500 MW 1000 MW Anticipated Project Cost 2161.28 2030.78 1368.25 700.00 7500.00 4000.00

(JV with TNEB) Source: Compiled from the Annual Reports of NLC Ltd. Of the above 8 projects, the following projects namely Mine-II Expansion, TPS-II Expansion and Rajasthan Mine cum Power Plant have received the approval (Oct. 2005 & Dec.

11 2005) from the Government of India. The funds required for the above projects will be met from internal resources and market borrowing without any budgetary support from the Government. Neyveli Lignite Corporation with its excellent performance, figures among the top profit making public sector undertakings. 1.4. Industry Profile Global coal industry profile provides top-line qualitative and quantitative summary information including: market size (value and volume 2006-10 & forecast to 2015). The profile also contains descriptions of the leading players including key financial metrics and analysis of competitive pressures with in the market. Essential resource for top-line data and analysis covering the global coal market. Includes market size data, textual and graphical analysis of market growth trends, leading companies and macroeconomic information. Highlights: The coal market is defined as revenues due to the sale of coal for industry and power generation. Market volumes given with in this profile are for both primary (anthracite, bituminous, and lignite) and secondary (anthracite, bituminous, and lignite briquets but excluding metallurgical coke) coal consumption. The market has been valued at annual average mine mouth prices and does not include any transportation costs. Any currency conversions used in the creation this report have been calculated using constant annual average exchange rates. The global coal market had total revenue of $467.6 billion in 2010, representing a compound annual growth rate (CAGR) of 12.9 % for the period spanning 2006-2010. Market consumption volumes increased with a CAGR of 5.4 % between 2006 & 2010, to reach a total of 7.9 billion short tones in 2010. The performance of the market is forecast to accelerates with an anticipated CAGR of 14.4 % for the five-year period. 2010-2015, which is expected to drive the market to a value of $ 917.8 billion by the end of 2015.

12 Features: Save time carrying out entry level research by identifying the size, growth, and leading players in the global coal market. Use the Five Forces analysis to determine the competitive intensity and therefore attractiveness of the global coal market. Leading company profile reveal details of key coal market players global operations and financial performance. Add weight to presentations and pitches by understanding the future growth prospects of the global coal market with five year forecasts by both value and volume.

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CHAPTER-II STATEMENTS OF OBJECTIVES

STATEMENTS OF OBJECTIVES
This study is an effort to understand the Financial Performance of NLC Ltd. It is possible to evaluate the performance of the company by analyzing the financial activities.

PRIMARY OBJECTIVES
To analyze the financial strength of NLC Ltd., for the period of 5 years from 06 to 2009-10 and to find out the Credit Worthiness of NLC Ltd. 2005-

SECONDARY OBJECTIVES
Based on this main objective, the following are the secondary objectives of the present study. To study the efficiency and effectiveness of companys performance by use of profitability ratios. To assess the actual position of functional performance in NLC Ltd., from the year 2005- 06 to 2009-10. To analyze the reasons for the variation in profits for 5 year from 2005-06 to 10. To offer suggestions and recommendations for improvement of financial position of NLC Ltd. 2009-

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CHAPTER-III RESEARCH METHODLOGY

The term Research refers to the systemic method consisting of enunciating the problem, formulating a hypothesis, collecting the data, analyzing the facts and reaching certain conclusions either in the form of solutions towards the concerned problem or in certain generalized form of some theoretical formulation. According to Redman and Mory, the term Research was a systematized Effort to Gain New Knowledge.

3.1 . RESEARCH DESIGN Research design is the blue print for doing the research. It is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. This is an empirical study based on the financial information contained in the annual reports of NLC. The study adopts descriptive methodology for evaluating the financial performance of the organization. The study on financial performance of Neyveli lignite corporation helps to understand the liquidity position, solvency position, profit and turn over of the company. Such analysis guides the company for future development. The ratio analysis serves as the high house in the competitive method.

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3.2. METHODS OF DATA COLLECTION

This Study is limited to Secondary data available from various records of Annual Reports of Neyveli Lignite Corporation Limited. SECONDARY DATA This study is undertaken based on the data collected from the statement and books of accounts maintained by NLC Ltd. Secondary data is collected from companys Annual Reports for the years 2005-06. Information collected from above sources helped the researcher to conduct the study successfully. The present study covers a period of 5 years i.e., from 2005-2006 to 2009-2010.

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3.3. SCOPE OF THE STUDY

In this Study, an attempt has been made to know about the companys Financial Performance. The study has been conducted with special reference to get a clear picture of liquidity, Leverage, Activity and profitability to assess efficiency level. This study helps to calculate the value of different ratios to be carried

out for Ratios Analysis and also to calculate the value of different Assets and Liabilities to be carried out for Comparative and Common Size balance Sheets of different years. This Study helps to find out the resources for further development of

the company. An attempt can be made during this study to understand the efficiency

of the company in other aspects of Financial Management.

This Study will be useful for the Comparison of Financial Position of

NLC Ltd., with any other Public Sector Organization.

This Study can be utilized to find out the Current Financial position of

NLC Ltd.

The study concentrates on all the ratios, which are related to the

assessment of Financial Aspects.

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3.3. LIMITATIONS OF THE STUDY

This Study is limited to Secondary data available from various records of Annual Reports of Neyveli Lignite Corporation Limited. The study discloses only monetary facts. In respect of internal information, the outsiders cannot probe into the internal confidential matters of a company.

The study has been made only for five years from 2005-2006 to 2009-2010. The study does not cover other areas of Financial Management such as Capital Budgeting Inventory Control The study is based on past Financial Statements, but exact forecast of future could not be done on this study for want of time.

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CHAPTER-IV FINANCIAL STATEMENTS - A CONCEPTUAL ANALYSIS

.

FINANCIAL STATEMENTS
Financial statements refer to formal and original statements prepared by a business concern to disclose its financial information. American Institute of certified Public Accountants (AICPA) says Financial statements are prepared for the purpose of presenting a periodical review or report on the progress by the management to deal with i) The status of investments in the useness and ii) The results achieved during the period under review. According to J.J Hampton, The statement disclosing status of investments is known as balance sheet and the statement has been widely used to represent two statements prepared by accountants at the end of specific period. They are: i) ii) Profit & Loss account (or) Income statement. Balance sheet (or) Statement of financial position.

Now a days the statement of retained earnings and schedules are also prepared to supplement the data contained in the Income statement and the Balance sheet.

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NATURE OF FINANCIAL STATEMENTS

Financial statements are prepared for the purpose of presenting a periodical view or report by the management and deals with the state of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting conversions and personal judgements. From the above, one can deduce the characteristic features of financial statements of business entities as described below: i) ii) iii) Recorded facts Accounting conversions Personal judgements

1.) Recorded Facts The financial statements are the summary of the transactions and facts recorded in the books of accounts. The books of accounts record only those transactions which are measured in terms of money (following the money measurement concept). Accordingly those transactions which cannot be expressed in terms of money will not find a place in the books of accounts and financial statements. However, such facts are very important to under stand the financial position and the future prospects of the concern. Examples of no-monetary facts are appointment of new managing director, signing a contract with labor union, or other business agreements, etc., 2.) Accounting conventions Accounting is a dynamic science and accountants have developed over a period of time, a number of conventions or methods on the basis of experience. While preparing the financial statements, Some basic accounting conventions are used. For example, convention of conservatism is used for ascertaining the value of stock. Accordingly, stock should be valued either at cost price or market price whichever is less. Several accounting conventions have also been developed for valuation of debtors and other assets. Therefore, data shown in the financial statements are subject to the validity of conventions used in their preparation.

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3.) Personal judgements Although conventions and concepts provide a good guideline to the accountant for arriving at a decision to how much should be carried forward to the next year as unexpired costs, the application of the conventions and concepts depend on the personal judgement of the accountant. For example, number of methods are available for calculation of annual deprecation. The amount of depreciation varies from one method to another. Since only one method, from out of several methods, is to be chosen, the opinion of the accountant influences the financial statements.

Importance of Financial Statements

Financial statement are mirror which reflect the financial position and operating strength or weakness of the concern. The importance of financial statements for each of the parties is discussed below: 1.) For owners Shareholders proprietors of the business are interested in the well-being of the business. They would like to have information about the progress and financial condition of the business in which they have invested their funds. Therefore, financial statements provide information to proprietors and prospective proprietors too, as relating to earnings, dividened, growth rates, past performance, etc. It acts as a guide to the value of investments made. 2.) For potencial investors The potencial investors depends heavily on the information disclosed in the financial statements for the purpose of taking decisions regarding investments in the securities of the company. It is due to this significance that the disclosure of the financial data has been made mandatory for public companies while inviting deposits, subscription to shares and debentures from public under the companies Act 1956.

21 3.) For management Management, whether or not it is the same as owners, relies upon financial statements for appraising the operating performance of the business. Financial statements provide a basis for appraising its performance in carrying on individual activities as well as conducting the business as a whole. For, these statements can supply useful information about undesirable tendencies that need to be corrected etc. The information furnished in the financial statements will form a basis for future financial plans. 4.) For creditors Creditors are interested in the continuing profitable performance of the business to which they have provided financial resources. They are very much concerned with receipt of interest and the repayment of credit given. The financial statements provide a measure of degree of risk (creditworthiness) of lending operations to the bank and other creditors. 4.) For Government The government likes to have a copy of financial statements of every business concern as a means of complying with taxation, labor and corporate laws. If needed, the Government may direct the officials to examine the accounting records of business concerns. 5.) For students and research scholars Students and research scholars can utilize the information given in the financial statements for their research studies relating to industry or economy in general.

Functions of Financial Statements

Financial statements provide meaningful, useful and valuable information periodically regarding the financial position and future prospects of the business organization. Such statements are not only useful to the management but also to outsiders like creditors, bankers, moneylenders, investors, shareholders , stock exchange, trade associations and Government. These statements are useful to them to study the liquidity, profitability and solvency position of the organization. They can also obtain the financial information as and when required for decision-making and control.

22 The effective utilization of capital employed, efficient use of assets and improvement in financial position can be better analyzed and understood from the financial statements. The outsiders can probe into information like earning capacity, growth potential, efficiency of the operation etc, by analyzing such statements. Such statements are also useful to tax authorities for bringing tax and for the Govt. authorities for analyzing the trend of the industry and to formulate tax policies and prepare budget.

Types of Financial Statements:

The basic financial statements prepared for the purpose of external reporting to owners, investors and creditors are: i. ii. Balance Sheet Balance Sheet is the most significant Financial Statement. Balance Sheet is a statement containing the assets and liabilities of a business on particular date. It indicates the financial condition or the state of affairs of a business at a particular moment of time. Profit and Loss Account The Profit and Loss Account is a statement prepared to determine the operational position of the concern. The established and other expenses are changes to the Profit and Loss Account. Profit and Loss Account is a statement of revenue earned and the expenses incurred. If there is excess of revenues over expenditure it will show Profit and if the expenditures are more than the income then, there will be a Loss. It helps the businessman to know the Net Profit Earned or Net Loss suffered by the business during a particular period . The Profit shown by the Profit and Loss Account for a particular period can be compared with that of the other period so that it helps to determine whether the business is being run efficiently or not. Thus Profit and Loss Account provides the overall Profit made or Loss suffered by the business concern during a particular period. The Balance Sheet or Statement of Financial Position Profit And Loss Account or Income Statement.

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Limitations of Financial Statements:

Financial Statements provide useful information regarding the financial health of the organization. The Financial Statements suffer from the limitations: a) Financial Statements are Essentially Interim Reports: The Financial Statements can be considered only as interim reports. They are not final because the exact financial position can be known only when business is closed. b) Influence of Personal Judgement: Generally, most of the financial statements are based on personal judgements of the account. (for ex, the period for writing off preliminary expenses, method of depreciation etc.,) c) Accounting Concepts and Conventions: Financial Statements are prepared on the basis of certain accounting concepts and conventions. So any change in the method or procedure of accounting will restrict the utility of financial statements. d) Do not consider Price Level Changes: Financial Statements do not consider the changes in price level. Hence their use is limited during Inflationary periods. e) Disclose only Monetary Facts: Financial Statements do not depict those facts which cannot be expressed in terms of money.

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CHAPTER-V ANANLYSIS AND INTERPRETATIONS

The Analysis and Interpretation of Financial Statements provide a systemic classification of the data given in the Financial Statements. The financial statements show a static position of an organization. Hence they must be rearranged and interpreted to study the sufficiency as well as the growth of a business.

FINANCIAL ANALYSIS
Financial Analysis is the process of identifying the financial strength and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and profit and loss account. The analysis provides an idea about the profitability and financial position of a company, and the financial statements have to be analyzed and interpreted. The term analysis means a critical examination of financial transactions effected during definite period of time. The analysis and interpretation of financial statements is an attempt to determine the significance and meaning of the financial statement data so that forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities and probability of a sound dividend policy.

TYPES OF FINANCIAL ANALYSIS

25 The analysis of financial statements can be made in various ways. The different types of financial analysis are presented below: According to Materials Used a) External Analysis When analysis of the financial statements of a business concern is done external parties, it is termed as external analysis. Such parties may be shareholders, investors, lenders or creditors. As there is no access to the books of accounts and the internal records of the concern, the parties mainly depend on the data given in the financial statements and other supplements in the annual reports for their analysis. This analysis, therefore, serves a very limited purpose b.) Internal Analysis Such an analysis is undertaken by the persons inside the business concern who have, obviously, access to all the relevant books, records, statements and other information. The analyst may be the executive, accountant or internal auditors. Sometimes, government agencies assume powers to have access to the internal records of a company. As complete set of information is available easily to the analyst, it is possible to carryout the analysis of the performance of the business concern, clearly starting the reasons for improvement or decreasing trends in various indicators of performance. 2.) According to Modus Operandi of Analysis a) Horizontal Analysis Under this types of analysis, the financial statements of a number of years or the financial statements of different concerns are studied and analyzed. For effective interpretation, a comparative study of the statements is undertaken. This type of analysis is also known as Dynamic analysis as it is based on the data from year to year (i.e. for a certain number of years) and measures the change of position or trend of the business over a number of years. This analysis provides considerable insight into the levels and areas of strength and weakness of a business concern.

b)Vertical Analysis When only one year or the financial statements of only one business concern is taken up for review or only one set of accounting data is being examined, it is a case of vertical

26 analysis. In this type of analysis, the figures of the financial statements are analyzed vertically. That is, a figure from a years financial statements is compared with a base figure selected from the same financial statements. For example, the ratios of different items of costs on a particular year may be compared with the sales of that year. This type of analysis also known as static analysis or structural analyzis, is highly useful to have an understanding of the performance of several companies in the same group or the many divisions or departments in the same company. It is clear from the above discussion that the use of both methods of analysis is very much required for proper analysis. Each method provides specific type of information. In fact, both methods constitute the backbone of financial analysis.

TOOLS OF FINANCIAL ANALYSIS

Following are the tools used for the Analysis Interpretation of Financial Statements. i. ii. iii. Ratio Analysis Comparative Balance Sheet Common Size Balance Sheet

RATIO ANALYSIS:
Ratio Analysis is a powerful tool of Financial Analysis. Ratio Analysis of business enterprises centres on efforts to drive quantitative measures or guides concerning the expected capacity of the firm to meet its future financial obligations or expectations. The ratio analysis facilities a firm to consider the time dimensions into account i.e., whether the financial position of a firm is showing any improvement or deteriorating over years. Ratio is known as one number expressed in terms of another, it is an expression of relationship spelt out by dividing one figures into the other.

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TYPES OF RATIOS:
Ratios are classified in broad groups. They are as follows: 1. Liquidity Ratios. 2. 3. 4. Leverage Ratios. Activity Ratios. Profitability Ratios.

LIQUIDITY RATIO
Liquidity ratios derive a picture of the capacity of a firm to meet its short term obligations out of its short term resources. These constitute ratio-analysis of the short-term financial position. Liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. The most common ratios which indicate the liquidity are: Current Ratio Quick Ratio Cash Ratio

CURRENT RATIO:
Current Ratio is the relationship between the total current assets and current liabilities. It is the ratio of the current assets and current liabilities and is found out by dividing the current assets by the current liabilities. As the ratio is connected with the working capital [Current Assets- Current Liabilities] and it is also called working capital ratio. Current ratio is the indicator of short term liquidity position of a firm. Current Assets Current Ratio = Current Liabilities

28 Table-5.1 CURRENT RATIO (Rs. In crores)

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Current Assets 3616.40 5398.09 5883.75 7557.07 7684.36

Current Liabilities 721.91 1653.28 1834.04 2859.41 3169.67

Ratio 5.01 3.27 3.21 2.60 2.42

Source: Companys Annual Report Inference The ideal current ratio is 2:1.The current ratio of the company was 2.42:1 in the year 2009-10. This ratio is more than the standard ratio in all the years taken for the study. Hence it shows a satisfactory liquidity position for the period under review.

29 CHART NO - 1 CURRENT RATIO

6 5 4 3 2 1 0

5.01

3.27

3.21 2.6 2.42

2005-06

2006-07

2007-08

2008-09

2009-10

QUICK RATIO:
It is also a tool of testing the liquidity of an organization. This ratio is also called as liquid Ratio (or) Acid test ratio. Acid Test Ratio or Liquid Ratio is concerned with the relationship between Liquid Assets and Current Liabilities. Quick Ratio is an Indicator of Short term solvency of the company.

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Liquid Assets Quick Ratio = Current Liabilities

Table - 5.2 QUICK RATIO (Rs. In crores)

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Quick Assets 3257.95 4942.60 5435.70 7021.22 7176.39

Current Liabilities 721.91 1653.28 1834.04 2859.41 3169.67

Ratio 4.51 2.99 2.96 2.4 2.26

Source: Companys Annual Report Inference The standard quick ratio is 1:1. The above table shown that the quick ratio of the company is more than the ideal ratio in all the years under review.

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CHART NO - 2 QUICK RATIO

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.51

2.99

2.96 2.4 2.26

2005-06

2006-07

2007-08

2008-09

2009-10

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CASH POSITION RATIO:

Cash Ratio measure the relationship between cash and near cash items on one hand and immediately maturing obligations on the other. This test is rigorous measure of a firms liquidity position. It is also called as absolute liquid ratio. Cash + Marketable Securities Cash position ratio = . Current Liabilities

Table - 5.3 CASH POSITION RATIO (Rs. In crores) Cash+ Marketable Security 5140.54 5182.47 5575.78 5452.20 4823.63 Source: Companys Annual Report Inference

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Current Liabilities 721.91 1653.28 1834.04 2859.41 3169.67

Ratio 7.12 3.13 3.04 1.91 1.52

33 Generally, ideal absolute liquid ratio of 0.5:1 is said to be satisfactory. The above table shows that this ratio is more than the standard in all the years. It is vivid from the above analysis that the NLC Ltd., has sufficient funds to meet its current obligations.

CHART NO - 3 CASH POSITION RATIO

8 7 6 5 4 3

7.12

3.13

3.04 1.91 1.52

2 1 0 2005-06 2006-07 2007-08 2008-09

2009-10

34

LEVERAGE RATIOS: Leverage Ratios measure the contribution of financing by owners compared with financing provided by the outsiders. Leverage Ratios also provide some measure of the risk of dept finance by the calculation of the coverage of fixed charges. Leverage has a much more important bearing on profitability than does Liquidity. The most common Ratios used are: Debt Equity Ratio Interest Coverage Ratio Proprietory Ratio

DEBT EQUITY RATIOS: Debt Equity Ratio is determined to ascertain the soundness of the long term financial position of the company. The investor may take Debt- Equity Ratio as Satisfactory if shareholders Funds are equal to Outsiders Funds. This ratio indicates the extent to which the firm depends upon outsiders for its existence. Outsiders Fund Debt Equity Ratio = Shareholders Fund Table - 5.4 DEBT EQUITY RATIO (Rs. In crores)

Year

Outsiders Fund

Shareholders Fund

Ratio

35

2005-06 2006-07 2007-08 2008-09 2009-10

1286.71 1505.70 2790.68 4057.70 4077.36 Source: Companys Annual Report

7990.38 8309.29 9008.79 9469.23 10324.67

0.16 0.18 0.31 0.42 0.39

Inference The debt-equity position of NLC Ltd., is shown in the above table as the organization has more shareholders fund, this shows that the net worth position is satisfactory.

36 CHART NO - 4 DEBT EQUITY RATIO

0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 0.16 0.18 0.31

0.42

0.39

2008-09

2009-10

37 INTEREST COVERAGE RATIO: Interest Coverage Ratio is also known as Fixed charges cover. This ratio established the relationship between EBIT and fixed interest charges. Interest coverage ratio measures the ability of the company to meet interest communications. It also highlights the ability of the firm to raise additional funds in future. Higher the ratio, better is the position of long-term creditors and the companys risk is lesser. Earnings before Depreciation, Interest and Tax Interest Coverage Ratio = Interest Table- 5.5 INTEREST COVERAGE RATIO (Rs. In crores)

Year 2005-06 2006-07 2007-08 2008-09 2009-10

EBIT 1265.10 1360.39 1887.24 1486.37 1889.16 Source: Companys Annual Report

Interest 54.28 43.28 8.80 8.15 35.58

Ratio 23.31 31.43 214.46 182.37 56.25

Inference The above table shows that the NLC Ltd., was able to meet its fixed interest charges as the earnings of the company is good.

38 CHART NO - 5 INTEREST COVERAGE RATIO

250 214.46 200 182.37

150

100 56.25 50 23.31 31.43

0 2005-06 2006-07 2007-08 2008-09 2009-10

39 PROPRIETORY RATIO: This ratio relates the shareholders funds to total assets. It throws light on the general financial strength of the company. It is of greater importance to the creditors since it enables to find out the proportion of shareholders funds in the total assets of the business. A high Proprietary Ratio indicates relatively secure position to the creditors in the event of liquidation. A low proprietary ratio will include greater risk to the creditors. Shareholders Fund Proprietary Ratio = -----------------------------Total Assets

Table 5.6 PROPRIETORY RATIO (Rs. in crores) Shareholders Fund 7990.38 8309.29 9008.79 9469.23 10324.67

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Total Assets 10247.91 10177.93 10453.64 12871.40 13968.10

Ratio 0.78 0.82 0.86 0.73 0.74

Source: Companys Annual Report Inference The Proprietary ratio shows an increasing trend. This ratio shows the relationship between shareholders fund and total assets. It indicates that there is safety to the creditors of the company.

40 CHART NO 6 PROPRIETORY RATIO

0.9 0.86 0.85 0.82 0.78 0.74

0.8

0.75

0.73

0.7

0.65 2005-06 2006-07 2007-08 2008-09 2009-10

ACTIVITY RATIOS: An activity ratio measures the effectiveness of the employment of resources. These ratios not only analyze the use of the total resources of the firm but also the use of the components of the total assets. Activity Ratios involve a relationship between assets and sales. Several Activity Ratios can be calculated to judge the effectiveness of asset utilization. Some of these ratios are:

Debtors turnover ratio. Debt collection period. Fixed assets turnover ratio. Working capital turnover ratio. Capital turnover ratio. Inventory turnover ratio

41 DEBTORS TURNOVER RATIO Debtors constitute an important constituent of current assets and therefore the quality of debtors to a great extent determines a firms liquidity. This ratio indicates the efficiency of the staff entrusted with the collection of book debts. The higher the ratio, the better it is. Net Sales -----------------Debtors Table 5.7 DEBTORS TURNOVER RATIO (Rs. in Crores)

Debtors Turnover Ratio =

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Net Sales 2201.41 2108.11 2981.65 3354.91 4121.03

Debtors 168.34 89.41 218.83 781.44 1611.62

Ratio 13.08 23.58 13.63 4.29 2.56

Source: Companys Annual Report Inference Debtors turnover ratio was high during the year 2006-07. It indicates that the debtors who are mostly Government subscribers and the management have to take more efforts to collect the dues.

42 CHART NO-7 DEBTORS TURNOVER RATIO

25

23.58

20 13.63

15

13.08

10 4.29 2.56

0 2005-06 2006-07 2007-08 2008-09 2009-10

DEBT COLLECTION PERIOD This ratio indicates the extent to which the debts have been collected in time. It gives the average debt collection period. This ratio measures the quality of debtors since it measures the rapidity or slowness with which the money is collected from them. A shorter collection period implies prompt payment by debtors. It reduces the chances of Bad Debts. Debtors Debt Collection Period = --------------- X 360 Sales

43

Table 5.8 DEBT COLLECTION PERIOD (Rs. in crores) Ratio (Days) 27.53 15.27 26.42 83.85 140.78

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Debtors 168.34 89.41 218.83 781.44 1611.62

Sales 2201.41 2108.11 2981.65 3354.91 4121.03

Source: Companys Annual Report Inference Debt collection period was high during the year 2009-10 but it was decreased during the year 2006-07 and gradually increased . It seems that the corporation has announced some

44 rebates for early settlement of dues by the Electricity board. It further indicates that the better liquidity of debtors.

45 CHART NO-8 DEBT COLLECTION PERIOD

160 140 120 100 80 60 40 20 0 2005-06 2006-07 2007-08 2008-09 27.53 15.27 26.42 83.85

140.78

2009-10

FIXED ASSET TURNOVER RATIO Fixed Asset Turnover Ratio indicates the extent to which the investment in fixed assets contributes towards sales. A highest ratio is an indication of greater efficiency in the utilization of fixed assets. Fixed asset of the company are land and building, Plant and machinery etc. Cost of Goods Sold --------------------------Fixed Assets

Fixed Asset Turnover Ratio =

Table 5.9

46 FIXED ASSETS TURNOVER RATIO (Rs. in crores) Cost of Goods Sold 936.31 747.72 1094.41 2623.34 2231.87

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Fixed Assets 4040.09 3850.43 3743.67 4503.04 5238.80

Ratio 0.23 0.19 0.29 0.58 0.45

Source: Companys Annual Report Inference Fixed Assets Turnover ratio in the year 2008-09 was higher than the other four years and there were wide fluctuations in this ratio.

47 CHART NO-9 FIXED ASSETS TURNOVER RATIO

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005-06 2006-07 2007-08 2008-09 2009-10 0.29 0.23 0.19 0.58 0.45

WORKING CAPITAL TURNOVER RATIO The ratio of cost of goods sold to Net working capital is determined in order to test the efficiency with which net working capital is utilized. It indicates whether the business is being operated on a small or large amount of Net working capital in relation to sales. A high working capital turnover may be the result of favourable turnover of inventories and receivables whereas; a low turnover of net working capital results in slow turnover of inventories and receivables. Cost of Goods Sold Working Capital Turnover Ratio = --------------------------Working Capital

48 Table 5.10 WORKING CAPITAL TURNOVER RATIO (Rs. in crores) Cost of Goods Sold 936.31 747.72 1094.41 2623.34 2231.87 Working Capital 2894.49 3744.81 4049.71 4705.51 4681.17

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Ratio 0.32 0.20 0.27 0.55 0.48

Source: Companys Annual Report Inference The working capital turnover ratio shows a fluctuating trend. The ratio was high in the year 2008-09 compared to other 4 years, but during 2006-07 the ratio was low as compared to other 4 years.

49 CHART NO-10 WORKING CAPITAL TURNOVER RATIO

0.6 0.5 0.4 0.3 0.2 0.2 0.1 0 2005-06 2006-07 2007-08

0.55 0.48

0.32 0.27

2008-09

2009-10

CAPITAL TURNOVER RATIO Capital Turnover Ratio indicates the extent to which capital employed contributes towards sales. High ratio signifies that there exists efficient utilization of the capital employed by the firm. Cost of Goods Sold -----------------------------Capital Employed

Capital Turnover Ratio =

50 Table 5.11 CAPITAL TURNOVER RATIO (Rs. in crores) Cost of Goods Sold 936.31 747.72 1094.41 2623.34 2231.87 Capital Employed 9526.00 8524.65 8619.60 9303.62 11166.88

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Ratio 0.10 0.09 0.13 0.28 0.20

Source: Companys Annual Report Inference The Capital turnover ratio shows a decreasing trend in the first three years and increased slightly in the later years.

51 CHART NO-11 CAPITAL TURNOVER RATIO

0.3 0.25

0.28

0.2 0.2 0.15 0.1 0.1 0.05 0 2005-06 2006-07 2007-08 2008-09 2009-10 0.09 0.13

PROFITABILITY RATIOS: Profitability ratios are calculated to measure the operating efficiency of the company. Profitability Ratios are designed to highlight the end-result of business activities. Profitability ratios can be determined on the basis of Sales or Investment. Profitability Ratios indicates the profitability i.e., the ability of the firm to earn profit. The important ratios are: a) Net profit ratio. b) Return on net worth. c) Return on capital employed. d) Gross profit ratio. e) Earnings per equity share. f) Dividend payout ratio.

52 NET PROFIT RATIO: Net Profit Ratio is the ratio of Net Income or Profit after Taxes to Net sales. It indicates with portion of sales is left to the proprietors after all costs, charges and expenses; have been deducted. It is extremely useful to the firm being an indication of cost control and sales promotion. Net profit Ratio is a guide as to the efficiency or otherwise of operating the firm. Net profit ratio is widely used as a measure of over-all profitability and is very useful to the proprietors. Higher the ratio better is the operational efficiency of the company. Net Profit Net Profit Ratio = -------------Sales Table 5.12 NET PROFIT RATIO (Rs. in crores) Y 2005 06 2006 07 2007 08 2008 09 2009 10 702.35 566.78 1101.57 821.09 1247.46 N 2201.41 2108.11 2981.65 3354.91 4121.03 S 0.32 0.27 0.37 0.24 0.30 R

Source: Companys Annual Report Inference The net profit ratio of the company shows a decreasing trend in the first four years period.

53 CHART NO-12 NET PROFIT RATIO

0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-06 2006-07 0.32 0.27

0.37 0.3 0.24

2007-08

2008-09

2009-10

RETURN ON NETWORTH Return on net worth is desired to work out the profitability of the company from the shareholders point of view, because the shareholders are interested in total income after tax including net Non-operating Income. Profit after tax ------------------Net worth

Return on Networth =

54

Table 5.13 RETURN ON NETWORTH (Rs. in crores) Profit after tax 702.35 566.78 1101.57 821.09 1247.46

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Networth 7990.38 8309.29 9008.79 9412.78 10225.60

Ratio 0.08 0.07 0.12 0.08 0.12

Source: Companys Annual Report Inference This ratio was high in the year 2005-06 but it decreased slowly in the next four years.

55 CHART NO-13 RETURN ON NETWORTH

0.14 0.12 0.12 0.1 0.08 0.08 0.06 0.04 0.02 0 2005-06 2006-07 2007-08 2008-09 0.07 0.08

0.12

2009-10

RETURN ON CAPITAL EMPLOYED Return on Capital Employed Ratio shows the overall efficiency of the firm. This ratio is the indicator of profitability of a firm. The profit being the net result of all operations, the return on capital employed expresses all efficiency the Inefficiency of a business collectivity and thus it is a dependable basis for judging its overall efficiency or inefficiency. Profit after Tax ----------------------Capital Employed

Return on Capital Employed =

56 Table 5.14 RETURN ON CAPITAL EMPLOYED (Rs. in crores) Profit after tax 702.35 566.78 1101.57 821.09 1247.46

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Capital employed 9526.00 8309.29 9008.79 9303.62 11166.88

Ratio 0.07 0.06 0.12 0.08 0.11

Source: Companys Annual Report Inference The business can survive only when the Return on capital employed is more than the cost of capital employed in the business. Thus, the Return on Capital Employed level of NLC Ltd. is satisfactory

57 CHART NO-14. RETURN ON CAPITAL EMPLOYED

0.14 0.12 0.12 0.1 0.08 0.08 0.06 0.04 0.02 0 2005-06 2006-07 2007-08 2008-09 2009-10 0.07 0.06 0.11

GROSS PROFIT RATIO: Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage representing the percentage of gross profits earned on sales. An increase in gross profit ratio may reflect an increase in the sale price of goods sold without any corresponding increase in costs, a decrease in cost without its impact on the sale price of goods. Low gross profit ratio may indicate unfavourable purchasing and mark-up policies. Gross Profit ------------------Sales

Gross Profit Ratio =

58

Table 5.15 GROSS PROFIT RATIO (Rs. in crores)

Year

Gross Profit 1265.10 1360.39 1887.24 1486.37 1889.16

Sales 2201.41 2108.11 2981.65 3354.91 4121.03

Ratio 0.57 0.65 0.63 0.49 0.46

2005 06 2006 07 2007 08 2008 09 2009 10

Source: Companys Annual Report Inference The Gross profit ratio was less in the year 2009-10 when compared to other four years.

59 CHART NO-15 GROSS PROFIT RATIO

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005-06 0.57

0.65

0.63 0.49

0.46

2006-07

2007-08

2008-09

2009-10

EARNINGS PER EQUITY SHARE It is an indicator of profitability of investment from the point of view of shareholders. This ratio helps in determining the market price of the equity shares of the company. It also helps in estimating the companys capacity to pay dividend to its equity shareholders. Earnings pershare are considered to be one of the important tools in financing decisions. The higher the earnings per share, the more profitable is the financing plan and vice versa. Profit after Tax ----------------------------------Number of Outstanding Shares

Earnings per Equity Share Ratio =

60 Table 5.16 EARNINGS PER EQUITY SHARE RATIO (Rs. in crores) Profit After tax 702.35 566.78 1101.57 821.09 1247.46 No. of Equity Shares 1677.71 1677.71 1677.71 1677.71 1677.71

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Ratio 0.42 0.34 0.66 0.48 0.74

Source: Companys Annual Report Inference This ratio shows an decreasing trend in the year 2005-06 to 2006-07 and increase in the year 2009-10 due to reduced profit as there was a increase in sales but the year 2008-09 was decreased.

61 CHART NO-16 EARNINGS PER EQUITY SHARE RATIO

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005-06 2006-07 2007-08 2008-09 0.48 0.42 0.34 0.66

0.74

2009-10

DIVIDEND PAYOUT RATIO Dividend payout ratio is the ratio between dividend per ordinary share to equity shareholders and earnings per share of the firm. If the firm is paying low dividends it is resorting to high retentions to take care of growth factor. Low dividends may affect the price of the shares of the firm. On the other hand, a high payout ratio may lead to a raise in the market price of the shares but it will affect the future financing programme from internal sources. Dividend per ordinary share ----------------------------------------Earnings per share

Dividend Payout Ratio =

Table 5.17

62 DIVIDEND PAYOUT RATIO (Rs. in crores)

Year 2005 06 2006 07 2007 08 2008 09 2009 10

Dividend 335.54 201.33 335.54 335.54 333.54

EPS 4.27 3.88 6.01 4.89 7.44

Ratio 78.58 51.89 55.83 68.62 45.10

Source: Companys Annual Report Inference The dividend payout ratio was high which is also same during the year 2005-06. And it was low during the year 2009-10. This ratio shows fluctuating trend.

63 CHART NO - 17 DIVIDED PAYOUT RATIO

90 80 70 60 50 40 30 20 10 0

78.58 68.62 55.83 45.1

51.89

2005-06

2006-07

2007-08

2008-09

2009-10

64

COMPARATIVE BALANCE SHEET: Comparative Financial Statements are statements of the financial position of business so designed as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements, figures for two or more periods are placed side by side to facilitate comparison. Increases and Decreases in various assets and Liabilities as well as in proprietors equity or capital brought about by the conduct of a business, can be observed by a comparison of the Balance sheets at the beginning and end of the period. Such observation often provides considerable information which is of value in forming an opinion regarding the progress of the enterprise and in order to facilitate comparison, a simple device known as Comparative Balance Sheet may be used. The Comparative Balance sheet shows not only the balances of Accounts as on different dates but also the extent of their Increases or Decrease between these dates. The comparative balance sheet contains not only the data of single balance sheet but also those which may be used in studying the trends in an enterprise. The Form of Comparative Balance Sheet consists of two columns for the date of the original balance sheet and a third column for increase and decrease in various items. A fourth column containing the percentage of increase and decrease.

65 Table 5.18 Comparative Balance Sheet as on 31st March 2005 06

Particulars

31st March 05 (Rs in Crores)

31st March 06 (Rs in Crores)

Increase/ Decrease

Percentage

Current Assets Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loans & Advances Misc. Expenses Total (A) Fixed Assets Investment Net Blocks Capital Work-In-Progress Advance for Capital Items Total (B) Total (A+B) Current Liabilities Liabilities Provisions Total (C) Long Term Liabilities Share Capital Reserves & Surplus Secured Loans Unsecured Loans Deferred Tax Liability Total(D) Total (C+D)

355.06 705.65 1968.69 285.99 206.69 6.12 3528.20 2590.77 4260.07 146.67 64.66 7062.17 10590.37 510.55 394.37 904.92 1677.71 6001.47 400.00 829.69 785.58 9694.45 10599.37

358.45 168.34 2549.12 202.85 337.64 8.41 3624.81 2591.42 4040.09 168.45 358.96 7158.92 10783.73 593.82 128.09 721.91 1677.71 6321.08 600.00 686.71 776.32 10061.82 10783.73

3.39 -537.31 580.43 -83.14 130.95 2.29 96.61 0.65 -219.98 21.78 294.30 96.75 193.36 83.27 -266.28 -183.01 319.61 200.00 -142.98 -9.26 367.37 184.36

0.95 -76.14 29.48 -29.07 63.35 37.41 2.73 0.02 -5.16 14.85 455.15 1.37 1.83 16.31 -67.52 -20.22 5.32 50.00 -17.23 -1.17 3.78 1.74

66 Inference: Assets: o Fixed Assets increased from 7062.17 to 7158.92 crores i.e., there is a increase of 1.37%. o Current Assets, loan and advances shows an increase of about 2.73% o Capital Work-in-Progress shows an increase of 14.85%. o Investments show an increase of 0.02%. o Miscellaneous Expenditure shows a increase of 37.41%. Liabilities: o There is no change in share capital for the year 2004.-05 to 2006-07. o Reserves and Surplus shows an increase from 6001.47 to 6321.08 crores with an increase of 5.32%. o Secured Loans increase from 400 to 600 crores with an increase of 50%. o Unsecured Loans decreased from 829.69 to 686.71 crores o Deferred Tax Liabilities shows a decreased of 1.17%. o Current Liabilities shows a decrease of 20.22%. This is especially due to decrease in sundry creditors and accrued expenses, Capital work-in-progress.

67 Table 5.19 Comparative Balance Sheet as on 31st March 2006 - 07 Particulars 31st March 06 (Rs in Crores) 358.45 168.34 2549.12 202.85 337.64 8.41 3624.81 2591.42 4040.09 186.69 358.96 7177.16 10801.97 593.82 146.33 740.15 1677.71 6321.08 600.00 686.71 776.32 10061.82 10801.97 31st March 07 (Rs in Crores) 455.49 89.41 4253.06 232.52 367.61 21.22 5419.31 929.41 3850.43 1618.43 357.19 6755.46 12174.77 1236.66 416.62 1653.28 1677.71 6652.80 678.15 827.55 685.28 10521.49 12174.77 Increase/ Decrease 97.04 -78.93 1703.94 29.67 29.97 12.81 1794.50 -1622.01 -189.66 1431.74 -1.77 -421.70 1372.80 642.84 270.29 913.13 331.72 78.15 140.84 -91.04 459.67 1372.80 Percentage

Current Assets Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loans & Advances Misc. Expenses Total (A) Fixed Assets Investment Net Blocks Capital Work-In-Progress Advance for Capital Items Total (B) Total (A+B) Current Liabilities Liabilities Provisions Total (C) Long Term Liabilities Share Capital Reserves & Surplus Secured Loans Unsecured Loans Deferred Tax Liability Total(D) Total (C+D)

27.07 -46.88 66.84 14.62 8.87 152.31 49.50 -64.13 -4.69 769.70 -0.49 -5.87 12.70 108.25 184.71 123.37 5.25 13.03 20.51 -11.72 4.56 12.70

68 Inference: Assets: o Fixed Assets decreased from 7177.16 to 6755.46 crores i.e. there is a decrease of 5.62%. o Current Assets, loan and advances shows an increase of about 49.50% o Capital Work-in-Progress shows an increase of 769.70%. o Investment shows a decrease of 64.13%. o Miscellaneous Expenditure shows a decrease of 152.31%. Liabilities: o There is no change in share capital for the year 2006-07 to 2007-08. o Reserves and Surplus shows an increase from 6321.08 to 6652.80 crores with an increase of 5.25%. o Secured Loans increase from 60000.00 to 67815.00 lakhs with an increase of 13.03%. o Unsecured Loans decreased from 68671.00 to 82755.00 lakhs o Deferred Tax Liabilities shows a decrease of 11.72%. o Current Liabilities shows an increase of 123.37%. This is especially due to decrease in sundry creditors and accrued expenses, Capital work-in-progress.

69 Table 5.20 Comparative Balance Sheet as on 31st March 2007 - 08 Particulars 31st March 07 (Rs in Crores) 31st March 08 (Rs in Crores) Increase/ Decrease Percentage

Current Assets Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loans & Advances Misc. Expenses Total (A) Fixed Assets Investment Net Blocks Capital Work-In-Progress Advance for Capital Items Total (B) Total (A+B) Current Liabilities Liabilities Provisions Total (C) Long Term Liabilities Share Capital Reserves & Surplus Secured Loans Unsecured Loans Deferred Tax Liability Total(D) Total (C+D)

455.49 89.41 4253.06 232.52 367.61 21.22 5419.31 929.41 3850.43 1618.43 357.19 6755.46 12174.77 1236.66 416.62 1653.28 1677.71 6652.80 678.15 827.55 685.28 10521.49 12174.77

448.05 218.83 4749.56 159.67 307.63 31.49 5915.23 826.22 3743.67 3505.41 280.35 8355.65 14270.88 1465.96 368.08 1834.04 1677.71 7362.57 1874.85 915.83 605.89 12436.85 14270.89

-7.44 129.42 496.50 -72.85 -59.98 10.27 495.92 -103.19 -106.76 1886.98 -76.84 1600.19 2096.11 229.30 -48.54 180.76 709.77 1196.70 88.28 -79.39 1915.36 2096.12

-1.63 144.74 11.67 -31.33 -16.31 48.39 9.15 -11.10 -2.77 116.59 -21.51 23.68 17.21 18.54 -11.65 10.93 10.66 176.46 10.66 -11.58 18.20 17.21

70

Inference: Assets: o Fixed Assets increased from 6755.46 to 8355.65 crores i.e. there is a increase of 23.68%. o Current Assets, loan and advances shows an increase of about 9.15% o Capital Work-in-Progress shows an increase of 116.59%. o Investment shows a decrease of 11.10%. o Miscellaneous Expenditure shows a increase of 48.39% Liabilities: o There is no change in share capital for the year 2007-08 to 2008-09. o Reserves and Surplus shows an increase from 6652.80 to 7362.57 crores with an increase of 10.66%. o Secured Loans increase from 67815.00 to 187485.00 lakhs with an increase of 176.47%. o Unsecured Loans increased from 82755.00 to 91583.00 lakhs o Deferred Tax Liabilities shows a decrease of 11.58%. o Current Liabilities shows an increase of 10.93%. This is especially due to decrease in sundry creditors and accrued expenses, Capital work-in-progress.

71 Table 5.21 Comparative Balance Sheet as on 31st March 2008 - 09 Particulars 31st March 08 (Rs in Crores) 31stMarch09 (Rs in Crores) Increase/ Decrease Percentage

Current Assets Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loans & Advances Misc. Expenses Total (A) Fixed Assets Investment Net Blocks Capital Work-In-Progress Advance for Capital Items Total (B) Total (A+B) Current Liabilities Liabilities Provisions Total (C) Long Term Liabilities Share Capital Reserves & Surplus Secured Loans Unsecured Loans Deferred Tax Liability Total(D) Total (C+D)

448.05 218.83 4749.56 159.67 307.63 31.49 5915.23 826.22 3743.67 3505.41 280.35 8355.65 14270.88 1465.96 368.08 1834.04 1677.71 7362.57 1874.85 915.83 605.89 12436.85 14270.89

535.85 781.44 5482.19 189.48 597.22 56.46 7642.78 722.37 4503.06 4030.67 320.03 9576.13 17218.91 2066.75 792.66 2859.41 1677.71 7791.52 3252.65 957.70 671.44 14351.02 17210.43

87.80 562.61 732.77 29.80 289.60 24.97 1727.55 -103.85 759.29 525.26 39.68 1220.48 2948.03 600.79 424.58 1025.37 428.95 1377.80 41.87 65.55 1914.17 2939.54

19.59 257.09 15.43 18.66 94.14 79.29 29.20 12.56 20.28 14.98 14.15 14.60 20.66 40.98 115.34 55.90 5.82 73.49 4.57 10.81 15.39 20.59

72 Inference: Assets: o Fixed Assets increased from 8355.65 to 9576.13 crores i.e. there is a increase of 14.60% o Current Assets, loan and advances shows an increase of about 29.20% o Capital Work-in-Progress shows an increase of 14.98%. o Investment shows a decrease of 12.56%. o Miscellaneous Expenditure shows a increase of 79.29%. Liabilities: o There is no change in share capital for the year 2007-08to 2009-10. o Reserves and Surplus shows an increase from 7362.57 to 7791.52 crores with an increase of 5.82%. o Secured Loans increase from 1874.85 to 3252.65 crores with an increase of 73.49%. o Unsecured Loans increased from 915.83 to 957.70 crores o Deferred Tax Liabilities shows a increase of 10.81%. o Current Liabilities shows an increase of 55.90%.

73 Table 5.22 Comparative Balance Sheet as on 31st March 2009 - 10 Particulars 31st March 09 (Rs in Crores) 31st March 10 (Rs in Crores) Increase/ Decrease Percentage

Current Assets Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loans & Advances Misc. Expense Total (A) Fixed Assets Investment Net Blocks Capital Work-In-Progress Advance for Capital Items Total (B) Total (A+B) Current Liabilities Liabilities Provisions Total (C) Long Term Liabilities Share Capital Reserves & Surplus Secured Loans Unsecured Loans Deferred Tax Liability Total(D) Total (C+D)

535.85 781.44 5482.33 189.47 597.23 56.46 7642.78 722.37 4503.06 4030.67 320.03 9576.13 17218.91 2066.75 792.66 2859.41 1677.71 7791.52 3252.65 957.70 671.44 14351.02 17210.43

502.96 1611.62 4826.61 164.56 627.99 99.17 7832.91 619.17 5239.27 4374.57 378.57 10611.58 18444.49 2556.39 613.28 3169.67 1677.71 8646.96 3509.42 839.86 570.43 15244.38 18414.05

-32.89 830.18 -655.72 -24.91 30.76 42.71 190.13 -103.2 736.21 343.09 58.54 1035.45 1225.58 489.64 -179.38 310.26 855.44 256.77 -117.84 -101.01 893.36 1203.62

-6.14 106.24 -11.96 -13.15 5.15 75.65 2.48 -14.28 16.35 8.53 18.29 10.81 7.12 23.69 -22.63 36.10 10.97 7.89 -12.30 -15.04 6.23 6.99

74

Inference: Assets:Fixed Assets increased from 9576.13 to 10611.58 crores 7.42%. o Current Assets, loan and advances show an increase of about 2.48% o Capital Work-in-Progress shows an decrease of 8.53%. o Investments show an decrease of about 14.28% o Miscellaneous Expenditure shows a increase of 75.65%. Liabilities: o There is no change in share capital for the year 2008.-09 to 2009-10. o Reserves and Surplus shows an increase from 7791.52 to 8646.96 crores with an increase of 10.97%. o Secured Loans .shows an increase from 3252.65 to 3509.42 crores with an increase of 7.89%. o Unsecured Loans decreased from 957.70 to 839.86 crores. o Deferred Tax Liabilities shows an decrease of 15.04%. o Current Liabilities shows a increase of 36.10%. i.e. there is a increase of

75 COMMON SIZE BALANCE SHEET: Common sizes balance sheets are those in which figures are converted in to percentages to some common base. The Common-size balance sheet percentages show the relation of each asset items to total assets and each liability and capital item to total liabilities and capital. As these percentages show relationship to balance sheet totals, variations from year to year do not necessarily indicate changes in money amounts. In fact, the common-size balance sheet may reflect a change in the individual item, a change in the total or a change in both. In the common size balance sheet, the total of assets and liabilities is taken as 100 and all the figures are expressed as a percentage of this total. Common-size balance sheet can be useful only if it could be established in any particular business that a certain item should normally be a certain percentage of the relevant total but it is very difficult, if not impossible, to establish such norms and this facts detracts from the usefulness of common-size balance sheet.

76 Table 5.23 Common Size Balance sheet of NLC from 2005-06 to 2009-10 (Figures in %) Particulars ASSETS Fixed Assets Current Assets, loans & Advances Capital work in progress Investments Misc. Expenses Total LIABILITIES Share capital Reserves &surplus Secured loans Unsecured loans Current liabilities Deferred tax liability Total 15.56 58.62 5.56 6.38 6.86 7.19 100 13.78 54.64 5.57 6.80 13.58 0.01 100 11.75 51.58 13.14 6.42 12.85 0.02 100 9.83 45.69 18.18 5.67 16.70 3.93 100 9.66 49.80 18.65 4.84 13.76 3.29 100 37.46 33.53 4.90 24.03 0.08 100 31.62 47.28 13.29 7.63 0.17 100 26.23 43.20 24.56 5.79 0.22 100 26.67 44.76 23.44 4.80 0.33 100 29.27 42.93 21.41 5.84 0.55 100 2005-06 2006-07 2007-08 2008-09 2009-10

77 Inference Assets:
Fixed assets decreased from 37.46% to 29.27% from the year 2005-06 to 2009-10. Current assets increased from 33.53% to 42.93% from 2005-06 to 2009-10. Capital Work-in-progress increased from 4.90% to 21.41% from 2005-06 to 2009-

10.
Miscellaneous Expenditure is highly increased from 0.08% to0.55 % from 2005-06

to 2009 to2010. Liabilities:

There is no change in share capital from 2005-06 to 2009-10, but its % ranges from

15.56% to 9.66%.
Reserve and Surplus decrease from 58.62% to 49.80% from the year 2005-06 to 2009-

10.
Secured Loans increased from 5.56% to 18.65% from 2005-06 to 2009-10. Unsecured Loans have been decreased from 6.38% to 4.84%. Deferred tax Liability decreasing from 7.19% to 3.29% 2005-06 to 2009-10.

Current Liabilities increased from 6.86

78 CHAPTER VI FINDINGS, SUGGESTIONS AND CONCLUSIONS

The study reveals that share capital of company is constant. Equity share capital

of NLC Ltd., have been effectively utilised. The profitability of company on share holder point of view is appreciable. Reserves and surplus increased through out the year continuously due to profit The net worth of the company shows an increasing trend. Cash position of NLC Ltd., is favourable. Lenders position is safe regarding long term credit and NLC Ltd., has a good made by the company.

opportunity of raising additional funds in future. At present NLC Ltd., has signed loan agreements to the tune of Rs. 7500 Crore with Power Finance Corporation, Rural Electrification Corporation & Consortium of Banks led by Canara Bank (Rs. 2500 Crore from each Organisation) for executing its ongoing projects. The Liquidity position of the concern is positive. The current ratio are 5.01, 3.27, 3.21,2.6, 2.42 which is above the required ratio of 2:1 and quick ratio is also beyond the expected level of 1:1. NLC Ltd., maintained a well debt equity position. The companys (NLC Ltd.,) Investment in fixed assets contributes to sales. NLC Ltd., effectively utilized its working capital. NLC Ltd., can well survive due to safe Return on Investment. Operating expenses of NLC Ltd., is high and it tries to reduce further in forth NLC Ltd., is trying to improve its business condition through Expansion and

Thus its investment is judicious.

coming years. New Projects.

79

SUGGESTIONS AND RECOMMENDATIONS Company may take immediate steps to reduce the inventory holding

so that it may improve the profit position. The Net Profit position of the company is low during 2008-09 and it

is high during 2009-10. Hence, the company must pay attention to reduce expenses in order to increase the over all profitability of the organisation.

burden.

Bank borrowings have to be reduced in order to reduce the interest

Operating expenses of NLC Ltd., have to be reduced by replacing

old machineries, spares and through proper maintenance to avoid, frequent break-downs.

NLC Ltd.

Disposal of un- utilised assets and spares may be a desired one for

NLC Ltd., have to maintain existing assets properly by keeping the

schedule of overhaul properly.

80

CONCLUSION It may be concluded that the organization overall financial performance is good. The liquidity position of the concern is positive. The company has maintained the current assets and current liabilities position effectively which means the current ratio is above the required ratio of 2 : 1. The liquid ratio and cash ratio of Neyveli Lignite Corporation Limited are favourable and the organisation can very well meet its current obligation. The profitability of the company was found to be comfortable, which means that the company is making more profit, which is the basic requirement for any business and also the working capital assessment in Neyveli Lignite Corporation Limited has been effectively and properly maintained. The long-term credit position of NLC Ltd., is safe and hence, has a great opportunity of raising additional funds in future. Hence, the companys financial position is good and expansion of the business and diversification can be done with its experienced staff and Executives.

81

CHAPTER VII BIBLIOGRAPHY

1. Annual Reports (2005-06 to 2009-10) collected from the library of Neyveli Lignite Corporation Limited., Neyveli. 2. T.S. Reddy & Y. Hari Prasad Ready Financial and Management Accounting Margham publishers, Chennai.

3. C.R.Kothari Second Edition, Reprinted (2004), RESEARCH METHODOLOGY -New Age International (P) Limited Publications, New Delhi-110 002, PP. 1-4, 31. 4. Man Mohan and Shiv. N. Goyal Six Edition (1995), PRINCIPLES OF MANAGEMENT ACCOUNTING Sahitya Bhawan Publications, Agra-282 003, PP. 388-415, 416-507. 5. A. Murthy & S. Gurusamy Management Accounting Tata MCGrew Hill Publication, New Delhi. 6. Referral Website: www.nlcindia.com www.wikipedia.com