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FINANCIAL REPORT ANALYSIS OF

BHARAT HEAVY ELECTRICALS


LIMITED
SUBMITTED BY:SEC. A
GROUP NO. 2
ACHINTHYO DAS (2012016)
AMEY MAIRAL (2012035)
PGDM 2012-14

Bharat Heavy Electricals Limited is an integrated power plant equipment manufacturer and
one of the largest engineering and manufacturing companies in India in terms of turnover. It
is engaged in the design, engineering, manufacture, construction, testing, commissioning and
servicing of a wide range of products and services for the core sectors of the economy, viz.
Power, Transmission, Industry, Transportation, Renewable Energy, Oil & Gas and Defence. It
has 15 manufacturing divisions, two repair units, four regional offices, eight service centres,
eight overseas offices and 15 regional centres and currently operates at more than 150 project
sites across India and abroad.
It is the 12th largest power equipment manufacturer in the world. In the year 2011, it was
ranked ninth most innovative company in the world by US business magazine Forbes.

Q. What are the main Revenue Generating Activities (Main Business) of the company?
A. BHEL is engaged in the design, engineering, manufacture, construction, testing,
commissioning and servicing of a wide range of products and services for the core sectors of
the economy

Power,
Transmission,
Industry,
Transportation,
Renewable Energy,
Oil & Gas
Defence.

Q. What are the major Growth Drivers for the products of the Company?
A. BHEL has registered 29% growth in revenue to Rs 13944.65 crore and at net-profit level it
was even better with a growth rate of 42% to Rs 1909.58 crore. The company that has
concluded the wage settlement during the fourth quarter ended March 2010 has incurred an
additional cost of Rs 338.16 crore over and above the provision for arrears pending wage
settlement due to short fall. Similarly the company has also provided Rs 453.10 crore towards
pending approval of pension scheme as per new wage settlement. Strong bottom-line growth
despite
incremental expense towards wage settlement etc was largely on account of strong growth in
revenues, savings in input costs and lower tax incidence.
Q. What are the areas which are being covered by the Company in its Accounting Policies?
A. Basis of preparation of Financial Statements
The financial statements have been prepared as
of a going concern on historical cost convention and on accrual method of accounting in
accordance with the generally accepted accounting principles and the provisions of the
Companies Act, 1956

Fixed Assets
Fixed assets are carried at the cost of acquisition or construction or book value less
accumulated depreciation.
Intangible Assets
A) Intangible assets are capitalised at cost if
B) Expenditure during the research phase of Research & Development Projects
c) Fixed assets acquired for purposes of research and development are capitalised.
Borrowing Costs
Borrowing costs that are attributable to the manufacture, acquisition or construction of
qualifying assets, are included as part of the cost of such assets.
Depreciation
Depreciation on fixed assets is charged up to the total cost of the assets on straight-line
method
Investments
Longterm investments are carried at cost.
Current investments are carried at cost or quoted/fair value whichever is lower
Accounting for Foreign Currency
Transactions
Transactions in foreign currencies are recorded at the exchange rates prevailing on the date of
the transaction. Foreign currency monetary assets and liabilities are translated at year end
exchange rates
Revenue Recognition
Sales are recorded based on significant risks and rewards of ownership being transferred in
favour of the customer. Sales include goods dispatched to customers by partial shipment.
Employee Benefits
Provident Fund and Employees Family Pension
Scheme contributions are accounted for on accrual basis. Liability for Earned Leave, Half
Pay Leave, Gratuity, Travel claims on retirement and Post Retirement Medical Benefits are
accounted for in accordance with actuarial valuation.
Government Grants
Government Grants are accounted when there is reasonable certainty of their realisation.
Grants related to fixed depreciable assets are adjusted against the gross cost of the relevant
assets while those related to non-depreciable assets are credited to capital reserve. Grants
related to revenue, unless received as compensation for expenses/losses, are recognised as
revenue over the period to which these are related on the principle of matching costs to
revenue.
COMMENTS ON CASH FLOW
Operating activities: Company has showed tremendous growth its profit before tax have
increased 103% for the period 2007-2011. There has been no fluctuations in the profit i.e.
company has steady growth in the period Company has distributed the good amount to their
shareholders from their profit, which shows the investor friendly and reliability of the

company towards their investors. Company has fluctuating Acid test ratio, which means they
are not handling their current inventories properly.
Investing Activities: In the given period, Company has purchased the fixed asset which
shows that they are working in order to increase their production level so as to fulfil the
market demand. Time to time increase in the dividend and interest shows that company has
invested the public funds or money rather in a good place so that they are able to return the
money with a handsome profit.
Financing Activities: By observation, we conclude that, that there is decrease in the working
capital borrowings which deduce that the company has paid back all the borrowing which
they have borrowed for raising the financial activities. Company has also paid the interest
time to time to their borrowers. Their dividend is also increasing which helps in inference that
company is announcing and distributing their profits in the form of dividend to their
investors.
MANUFACTURING AND OTHER EXPENSES: Under this head there are several items
but major items which has really caused the expenses of the company to move up are:
Expenses
2010-11
2009-10
2008-09
2007-08
(Rs. in crore)
(Rs. In crore)
(Rs. in crore)
(Rs. in crore)
Consumption of
11820.87
17620.05
20672.32
23109.07
Material &
Engineering
Expenses
Payment to
2607.69
2983.68
6449.17
5396.71
Employee
Other Expense of 1644.23
1835.77
2155.02
2535.88
Manufacture
Admin, S & D
778.25
1280.97
934.15
2715.12
Provisions
Interest & other
35.42
30.71
33.50
54.73
borrowing costs
Depreciation &
297.21
334.27
458.01
544.12
Amortization
These five input These six inputs the major key drivers for the expenses of the
company but we cant ignore others factors as well.
INVENTORY ADJUSTMENTS: This covers all the inventories which the company
requires for its operations. Under this expense head it includes the cost of purchased items as
well as the excise duty paid on the items which are imported for the operation or for the
finished goods as well.
INTEREST & OTHER FINANCIAL CHARGES: Interest on loans, other interest for
which the company has raised the capital like purchase of mutual funds, bonds, debentures,
etc. and other financial expenses like for the repayment of loans, etc.

Calculation & Analysis of Ratios Ratios


Return on Assets

2010-11
10.71%

2009-10
9.39%

2008-09
8.09%

2007-08
9.55%

Return on Invested Capital

29.80%

27.29%

24.18%

26.53%

Return on Net Worth

29.93%

27.67%

24.33%

26.53%

Total Asset Turnover Ratio

0.81
times

0.73 times

0.71 times

0.49
times

Invested Capital Turnover Ratio

2.141
times

2.134
times

2.142
times

1.968
times

Average Collection Period

240.23
days

224.03
days

209.23
days

204.23
days

Net Worth Turnover Ratio

2.19
times

2.18 times

2.19 times

1.99
times

Inventory Turnover Ratio

4.11

3.77

3.7

3.88

Working Capital Turnover Ratio

2.16
times

2.39 times

2.17 times

1.89
times

Days Inventory

80.81

96.82

98.65

94.07

Current Ratio

1.319

1.328

1.302

1.396

Acid Test Ratio

1.06

1.055

1.029

0.785

Debt Equity Ratio

0.01

0.01

0.01

0.01

Debt to Total Invested Capital

0.0080

0.0079

0.011

0.0087

Interest Coverage Ratio

167.21

200

158.91

89.3

Earning Per Share

122.8

88.34

65.13

58.47

Dividend Payout Ratio

0.253

0.2648

0.2651

0.2619

Goss Profit Ratio

20.91

19.41

17.46

20.91

Net Profit Ratio

13.9

12.79

11.37

13.23

Operating Profit Ratio

20.3

18.04

15.71

19.17

Companys operating profit margin has gone up from 14.84% to 19.77% over the previous
years. The net profit margin has also gone up in the three years. This implies that the
company is doing well. Increased earnings are good, but an increase does not mean profit
margins are improving. If costs have increased at greater rate than sales, it leads to lower
profit margin. From 2007-08 the return on net worth has not changed substantially. This is not
favorable for investors as they favor higher return on equity. In 2011 RONW has however
gone up showing that the company is now doing well.
Capital Market Ratios
Earnings per share have increased consistently over the years indicating good share price. In
2008 the company issued bonus shares. Dividend payout ratio has remained constant over the
years which imply that the company is focused on retaining its earnings rather than paying
out more dividends. However dividends per share have shown an increasing trend which
indicates shareholders share of profit is increasing over the years. Thus BHEL has succeeded
in sustaining shareholders confidence. As bonus shares were issued in 2008, dividends per
share of 2008 cannot be compared with those of 2010.
CURRENT RATIO :- It has decreased from 1.4 to 1.32 in 4 years which reflect that has
improved its Operating cycle slightly & can turn its product/services into cash.
ACID TEST RATIO :- It has increased from 0.8 to 1.04 that reflects that company has
increased its short term assets to cover its immediate liability without selling inventory.
DEBT EQUITY RATIO :- It remains constant at 0.01 which reflects that the company is not
aggressive in financing its growth with debt.
INTEREST COVERAGE RATIO :- It has increased from 86.9 to 163.8 that reflects that
the company has an extremely high margin of safety
EARNINGS PER SHARE :- It has remained constant.
DIVIDEND PAYOUT RATIO :- It has decreased slightly from 0.261 to 0.253 thats a bit
concern for the company.
GROSS PROFIT RATIO:- It remains same at 20.9 with up & downs in the mid years.

NET PROFIT RATIO :- It has increased from 13.4 to 13.9 with up-down in mid years. The
increase in the value shows that the net profit is sufficient; the firm shall be able to achieve a
satisfactory return on its investment.
Thus, BHEL has continued to generate good profits in spite of uncertain market conditions
and financial turmoil. Profitability ratios indicate the firm has high operating efficiency
backed by a strong management.

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