NTPC Ratio Analysis_Final

RATIO ANALYSIS

Group Members

•SAKET AMBEKAR

04•H

IMANSHU ANAND

05

•DEVENDRA BELANI

12

•RAVI JESWANI

37

•AKSHAYE KAPSE

40

•ROHAN KULKARNI

48

COMPANY PROFILE OF NTPC

India’s largest power company, NTPC was set up in 1975 to accelerate power development in India. NTPC is emerging as a diversified power major with presence in the entire value chain of the power generation business.

NTPC

Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilisation and coal mining. NTPC ranked 317th in the ‘2009, Forbes Global 2000’ ranking of the World’s biggest companies.

Growth

Market Capacity

Ratio Analysis

Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition and performance of a business concern. Simply, ratio means the comparison of one figure to other relevant figure or figures.

Ratio Analysis

According to Myers , "Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of trend of these factors as shown in a series of statements."

Profitability ratios

Gross profit ratio (GP ratio)

Gross profit ratio = Gross Profit *100 Net Sales

Gross Profit Ratio

• In 08-09 the G.P. Ratio has declined drastically (591bps) indicating sudden increase in cost of production.

• In 09-10 Co. has managed to control its cost which can be seen by increase in the gross margin (167 bps).

Company NTPC

F.Y. Gross Profit Net Sales Gp Ratio ( in %)

2007-08 11,540.90 37,050.10 31.15

2008-09 10,583.60 41,923.80 25.24

2009-10 12,466.10 46,322.60 26.912007-08 2008-09 2009-10

0

5

10

15

20

25

30

3531.15

25.24 26.91

GP Ratio ( in %)

GP Ratio ( in %)

Net Profit Ratio

Net profit ratio = Net Profit *100 Net Sales

Net Profit Ratio

Company   NTPC  

F.Y. Net Profit Net Sales Np Ratio ( in %)

2007-08 7414.8 37050.1 20.01

2008-09 8201.3 41923.8 19.56

2009-10 8728.1 46322.6 18.84

•NTPC is able to increase its net profit from 2007-08 to 2009-10 but is not increased proportionately as compared to increase in Net sales from 2007-08 to 2009-10 and thus Net profit ratio has a decreasing trend•Not able to control their expenses.

2007-08 2008-09 2009-1018.218.418.618.8

1919.219.419.619.8

2020.2 20.01

19.56

18.84

NP Ratio ( in %)

NP Ratio ( in %)

Operating Ratio

Operating ratio = Cost of good sold+ Operating expenses

*100 Net Sales

Operating RatioCompany   NTPC  

F.Y. Operating Cost

Net Sales Operating Ratio ( in

%)2007-08 25550.1 37050.1 68.962008-09 31391.6 41923.8 74.882009-10 33980.1 46322.6 73.36

•Increase in 08-09 (592 bps) and slight decrease in 09-10 (152 bps).

•NTPC is not able control their operational cost and thus their operational ratio is increasing from 07-08 to 09-10.

2007-08 2008-09 2009-106667686970717273747576

68.96

74.88

73.36

Operating Ratio ( in %)

Operating Ratio ( in %)

Return On Shareholder’s Investment Ratio

Return on

shareholder’s = Net profit after tax - Preference dividend *100

investment Share holder's fund

Return On Shareholder’s Investment Ratio

Company   NTPC  

F.Y. NPAT Shareholder'sFund Ratio ( in %)

2007-08 7414.8 54267.4 13.66

2008-09 8201.3 58994.9 13.9

2009-10 8728.1 62437.5 13.982007-08 2008-09 2009-10

13.5

13.6

13.7

13.8

13.9

14

14.1

13.66

13.9

13.98

Ratio ( in %)

Ratio ( in %)

•NPTC’s return on shareholder’s investment is more or less same for last 3 years.•Overall efficiency is increasing.

Return on Equity Capital (ROEC) Ratio

Net profit after tax - Preference dividend *100

Return on Equity Capital = Equity share capital

Return on Equity Capital (ROEC) Ratio

Company   NTPC  

F.Y. NPATEquity Share

Capital

ROEC Ratio (in %)

2007-08 7414.8 8245.5 89.93

2008-09 8201.3 8245.5 99.46

2009-10 8728.1 8245.5 105.85

2007-08 2008-09 2009-1080

85

90

95

100

105

110

89.93

99.46

105.85

ROEC Ratio (in %)

ROEC Ratio (in %)

•ROEC ratio has increasing trend in 08-09 (953 bps) and in 09-10 (639bps).•Investors are getting good returns suggest increase in the profitability.

Earnings per Share (EPS) Ratio

Earnings per Share= Net profit after tax - Preference dividend *100

No. of Equity share

Earnings per Share (EPS) Ratio

2007-08 2008-09 2009-1080

85

90

95

100

105

110

89.93

99.46

105.85

EPS Ratio (in %)

EPS Ratio (in %)

Company   NTPC  

F.Y. NPAT No. of Equity Shares

EPS Ratio (in %)

2007-08 7414.8 8245.5 89.93

2008-09 8201.3 8245.5 99.46

2009-10 8728.1 8245.5 105.85

•Increasing trend in 08-09 (953 bps) in 09-10 (639)•Suggests increase in the profitability

Price Earnings Ratio (PE Ratio)

Market price per equity share *100

Price Earnings Ratio = Earning per share

Price Earnings Ratio (PE Ratio)

Company   NTPC  

F.Y. Market Price Share EPS PE Ratio

(in %)

2007-08 181 8.99 20.132008-09 235.7 9.95 23.692009-10 203.47 10.59 19.21 2007-08 2008-09 2009-10

0

5

10

15

20

2520.13

23.69

19.21

PE Ratio (in %)

PE Ratio (in %)

• NTPC shares has potential increase in the market price

DUO POINT ANALYIS

Rate of Return of Investment

Net Profit as Percentage of

Sales

Net Profit Sales

Investment turnover

Sales Total assets

2007-08 2008-09 2009-100.08

0.082

0.084

0.086

0.088

0.09

Liquidity ratios

Current Ratio

Current Assets Current Ratio = Current Liability

Current Ratio

2007-08 2008-09 2009-102.6

2.7

2.8

2.9

3

3.1

3.2

3.33.22

2.89 2.86

Current Ratio

Current Ratio (In %)

Company   NTPC  

F.Y. Current Assets

Current Liabilities Current Ratio

2007-0825548.8 7929.9 3.22

2008-0930925.3 10688.6 2.89

2009-1030815.7 10758.1 2.86

•The NTPC has achieved the current ratio of 3.22, 2.89 & 2.86 during the years 07-08, 08-09, 09-10 respectively.•NTPC may have adapted aggressive working capital policy. The NTPC has high liquidity because of high value of current ratio and also can easily fulfill the short term liability.

Quick Ratio

Quick Assets

Liquidity Ratio = Current Liability

Quick Ratio

2007-08 2008-09 2009-101.9

2

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.16

2.592.5

Quick Ratio

Quick Ratio

Company NTPC

F.Y. Quick Ratio

2007-08 2.16

2008-09 2.59

2009-10 2.5

•NTPC’s quick ratio lies between 2 times to 3 times from 07-08 to 09-10 which means very high short term liquidity position.•The company can easily pay its liabilities

Leverage Ratios

Debt -to- Equity Ratio

Debt Debt to Equity Ratio = Equity

Debt -to- Equity Ratio

Company   NTPC  

F.Y. Debt Equity D/E Ratio

2007-0827190.6 54267.4 0.5

2008-0934567.8 58994.9 0.59

2009-1037797 62437.5 0.61 2007-08 2008-09 2009-10

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.5

0.590.61000000000

0001

D/E Ratio

D/E Ratio

•NTPC’s debt- equity ratio there is more or less no changes in the from 2007-08 to 2009-10 •More of owner’s funds are invested and the less funds ae borrowed.

Activity Ratios

Inventory Turnover Ratio

Cost Of Good Sold Inventory Turnover ratio = _____________________

Average inventory at cost

Inventory Turnover Ratio

Company NTPC

F.Y. Inventory Turnover Ratio

2007-08 33.59

2008-09 28.21

2009-10 13.99 2007-08 2008-09 2009-100

5

10

15

20

25

30

35

4033.59

28.21

13.99

Inventory Turnover Ratio

Inventory Turnover Ratio

•NTPC’s Inventory turnover ratio was very high in 2008 i.e. 33.59 and it has decreased to 13.99 in 2010.•Indicates inefficient management of inventory or investment in inventory is lowered.

Debtors Turnover Ratio

Net Credit Sales Debtors turnover Ratio = __________________

Average Trade Debtor

Debtors Turnover RatioCompany NTPC

F.Y. Debtors Turnover Ratio

2007-08 17.52

2008-09 12.78

2009-10 9.06

• NTPS’s debtors turnover ratio is more decrease from 17.52% in 2007-08 to 9.06% in 2009-10

• It shows that NTPC’s efficiency to convert its debtors into liquid is decreasing.

2007-08 2008-09 2009-1002468

101214161820

17.52

12.78

9.06

Debtors Turnover Ratio

Debtors Turnover Ratio

Working Capital Turnover Ratio

Cost Of Sales Working Capital turnover Ratio = _________________

Net Working Capital

Working Capital Turnover Ratio

Company   NTPC  

F.Y. Cost of Sales Net Wokring Capital Ratio

2007-08 37050.1 17618.9 2.1

2008-09 41923.8 20236.7 2.07

2009-10 46322.6 20057.6 2.312007-08 2008-09 2009-10

1.91.95

22.05

2.12.15

2.22.25

2.32.35

2.12.07

2.31

Ratio

Ratio

•Working capital turnover ratio of NTPC is more or less same for last 3 years between the range of 2.10 times to 2.31 from 2007-08 to 2009-10.

•Indicates the efficient utilization of working capital

Fixed Assets Turnover Ratio

Cost Of Sales

Fixed Assets turnover Ratio = ______________

Net Fixed Assets

Fixed Assets Turnover Ratio

2007-08 2008-09 2009-100.655

0.660.665

0.670.675

0.680.685

0.690.695

0.70.705 0.70000000000

0001

0.670000000000001

0.690000000000001

Ratio

Ratio

•NTPC’s ratio is more or less between 0.67 to 0.70 from 2008 to 2010.•Indicates Efficiency and the profit earning capacity is high.

Company NTPC

F.Y. Ratio

2007-08 0.7

2008-09 0.67

2009-10 0.69

Key Findings

• NTPC is a key organization in India as far as the supply of power is concerned.

• The financial health of NTPC is sound enough and it appears positive in accordance with its balance sheet and profit & loss A/c.

• Gross profit ratios and Net Profit ratios are decreasing from 2007 to 2010 due to more increase in operational cost as compared to Net Sales

• Ntpc’s current ratio is very good which shows highly liquidity available

• NTPC’s ability to convert the debtors in liquid has highly come down compare to last two years.

Suggestions

• firm should efficiently manage its operational activity so that operational cost is controlled or maintained with increase in Net Sales and thus will lead to increase in gross profit ratio and net profit ratio.

• NTPC’s more funds are blocked in current asset leading to high current asset ratio.Instead the funds to more used in operational activity to increase productivity

• NTPC should tighten the debt collection efforts and should reduce the amount tied up in debtors.

• NTPC is more traditionally financed with low debt and more of equity financing, so in future debt should be preferred for financing to bring the ratio close to the ideal ratio of 1:1.

Thank You