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CHAPTER - 1

INTRODUCTION

Analysis means establishing a meaningful relationship between


various items of the two financial statements with each other in such a way that
a conclusion is being drawn. By financial statements by means of two
statements

 Profit and loss account or Income Statement

 Balance Sheet or Position Statement

These are prepared at the end of a given period of time. They are
the indicators of profitability and financial soundness of the business concern.
The term financial analysis is also known as analysis and interpretation of
financial statements. It refers to the establishing meaningful relationship
between various items of the two financial statements i.e. Income statement and
Position statement. It determines financial strength and weakness of the firm.
Analysis of financial statements is an attempt to assess the efficiency and
performance of an enterprise. Thus, the analysis and interpretation of financial
statements is very essential to measure the efficiency, profitability , financial
soundness and future prospects of the business units. Financial analysis serves
the following purposes.
Measuring the Profitability

The main objective of a business is to earn a satisfactory return on


the funds invested in it. Financial analysis helps in ascertaining whether
adequate profits are being earned on the capital invested in the business or not.
It also helps in knowing the capacity to pay the interest.

Indicating the trend of achievements

Financial statements of the previous years can be compared and


the trend regarding various expenses, purchases, sales, gross profits and net
profit etc can be ascertained. Value of assets and liabilities can be compared and
the future prospects of the business can be envisaged.

Assessing the growth potential of the business

The trend and other analysis of the business provides information


indicating the growth potential of the business.

Comparative position in relation to other firms

The purpose of financial statements analysis is to help the


management to make a comparative study of the profitability of various firms,
engaged in similar businesses. Such comparison also helps the management to
study the position of their firm in respect of sales expenses, profitability and
utilising capital, etc.
Assess overall financial strength

The purpose of financial analysis is to assess the financial


strength of the business. Analysis also helps in taking decisions, whether funds
required for the purchase of the new machines and equipments are provided
from internal sources of the business or not if yes, how much? And also to
assess how much funds have been received from external sources.
Objectives of the study

 To calculate the important financial ratio of the organisation as


a part of the ratio analysis thereby to understand the changes
the needs and trends in the firm’s financial position.

 To assess the performance of B.H.E.L on the basis of earnings


and also to evaluate the solvency position of the company.

 To identify the financial strengths and weaknesses of the


organization.

 To give the appropriate suggestions to the investors. To help


them to make more informed decisions.
Need and importance of study

Financial performance of an enterprise will affect other types of


performance and also the productivity of finances is good, the productivity of
men and material would be good.

Moreover the study of non-economic and qualitative performance, which


studies the non economic factors like customer satisfaction, citizen satisfaction
etc.
Source of data

The data is collected from the following sources.

 Three year annual report of BHEL from 2007-2010

 Interaction with the related finance department.

RESEARCH METHODOLOGY

The study carried with the cooperation of the management who


permitted to carry on the study and provided the requisite data collected from
the following sources.

 Primary data

 Secondary data

PRIMARY DATA

The information collected directly without any reference is primary


data. In the study it is mainly through conversation with concerned officers or
staff members either individually or collectively. The data includes:

1. Conducting personal interview with the officers of the company.

2. Individual observation and inferences.

3. From the people who are directly involved with the transaction of
the firm.
Secondary data

Study has been taken from secondary sources i.e. published annual
reports of the company editing, classifying and tabulation of the financial data.
For this purpose performance data of BHEL for the years 2007-2008 to 2009-
2010 has been used.
Scope of study

The scope and period of the study is being restricted to the following.

1. The scope is limited to the operations of the BHEL.

2. The information is obtained from the primary and secondary data was
limited to the BHEL.

3. The profit and loss, the balance sheet was on the last six years.

4. Comparison analysis was done by comparison of sister units.


Limitations of study

1. The study is confined to a period of last 4 years.

2. As most of the data is from the secondary sources, hence the accuracy is
limited.
CHAPTER – 2

BHARAT HEAVY ELECTRICALS LIMITED

The vital role played by the BHEL today in the country is the mark of
it continuous efforts to improve the service in the nation by consultancy,
manufacturing and offering services in power sector.

This success story of BHEL however goes back to 1956 when its first
plant was set up in BHOPAL. Three more major plants followed in
HARIDWAR, HYDERABAD and THIRUCHIRAPALLI flowed this. These
plants have been the core of BHEL’S efforts to grow and diversify and become
one of the most integrated power and industrial equipment manufacturers in the
world. The company now has 14 manufacturing units,8 service centres and 4
power sector regional centres, besides project sites spread all over India and
abroad.

BHEL manufactures over 180 products under 30 major product groups


and meets the needs of core sector like power, industry, transmission, defence,
telecommunications, oil business etc. Its products have established an enviable
reputation for high quality and reliability. This is due to the emphasis placed all
along on design, engineering and manufacturing to international standards by
acquiring and adopting some of the best technologies developed in its own
R&D centres. BHEL has acquired ISO 9000 certification for environments.
BHEL caters to the needs of different sectors by designing and manufacturing
according to the need of its client in power sector.
COMPANY VISION,MISSION and OBJECTIVE

 VISION:

A world class, innovation, competitive and profitable


engineering enterprise providing total business solutions.

 MISSION:

To be the leading engineering enterprise providing quality


products system and services in the field of energy, transportation,
industry, infrastructure and other potential areas.

 VALUES:

1. Meeting commitments made to external and internal


customers.

2. Faster learning, creativity and speed of response.

3. Respect for dignity and potential of individuals.

4. Loyalty and pride of the company.

5. Team playing.

6. Zeal to excel.

7. Integrity and fairness in all matters.


OBJECTIVES

GROWTH:

To ensure a steady growth by enhancing the competitive edge of


BHEL in exiting business, new areas and international operation so as to fulfil
national expectations from BHEL.

PROFITABILITY:

To provide a reasonable and adequate return on capital employed,


primarily through improvements in operational efficiency, capacity utilization
and productivity and generate adequate internal resources to finance the
company growth. Confidence in providing increased value for this money
through international standards of product, quality, performance and superior
customer services.

TECHNOLOGY:

To achieve technology excellence in operations by development of


indigenous technologies to and efficient absorption and adaptation of imported
technologies to suit business needs and priorities and provide a competitive
advantage of the company.

IMAGE:

To fulfil the expectation which stock holders like government as


own employees, customers and the country at large have from BHEL.
SWOT ANALYSIS OF BHEL

The strength, weakness, opportunities and threats which are


being experienced by BHEL as a growing concern have been summarized up in
the following lines.

 STRENGTH’S

1. Vast pool of trained man power.

2. Excellent state of art facilities.

3. Good working atmosphere

4. Rapport between management and union.

5. Product manufactured international quality

6. Low labour cost and low manufacturing cost.

 WEAKNESS

1. Excess man power

2. Slippage in delivery commitments

3. System implementation adequate

4. No financial package

5. Inadequate compensation package to employees.


 OPPORTUNITIES

1. Growing power sector machinery

2. Liberalization has opened up the market

3. Navratna company status

4. Dominant player in domestic market.

 THREATS

1. Liberalization–entry of MNC’S or private sector-more competition.

2. MNC’S taking away good employees with attractive packages.

3. Government taxation policy-against manufacturing sector.

4. Poor infrastructure.
PRODUCTS OF BHEL

BHEL manufactures a wide range of power plant equipments and also caters
to the industry sector.

1. Gas turbines

2. Steam turbines

3. Compressors

4. Turbo generators.

5. Pumps

6. Pulverizes

7. Switchgears

8. Oil rigs

9. Electrics for urban transportation system

10.Telecommunication.
CHAPTER - 3

THEORITICAL FRAMEWORK OF FINANCIAL


STATEMENT ANALYSIS

INTRODUCTION TO FINANCE:

Financial statement is that managerial activity which is


concerned with the planning and controlling of the firm financial resources.
Though it was a branch of economic till 1890 as a separate activity or discipline
it is of recent origin. Still, as no unique body knowledge of its own, and draws
heavily on economics for its theoretical concepts even today.

The subject of financial management is of immense interest both


academicians and practising manager. It is of great interest to academicians
because the subject is still developing. And there are still certain areas where
controversies exist for which no unanimous solutions have been reached as yet.
Practicing manager are interested in this subject because among the most
crucial decision of the firm are those which relate to finance and an
understanding of the theory of financial management provides them with
conceptual and analytical insight to make those decision skilfully.
SCOPE:

Firms create manufacturing capacities for production of good, some


provide services to customers. They sell their goods or services to earn profit.
They fund to acquire manufacturing and other facilities. Thus the three most
important activities of a business firm are:

 PRODUCTION

 MARKETING

 FINANCE

FUNCTION:

The finance function form production, marketing and other


functions. Yet the function themselves can be readily identified. The function of
raising funds, inverting them in assets and distributing returns earned from
assets to shareholder respectively. The finance functions are:

 Investment or long term asset mix decision

 Financing or capital mix decision

 Dividend or profit allocation decision

 Liquidity or short term asset mix decision.


OBJECTIVES OF THE STUDY:

1. To calculate the important financial ratio of the organization as a part of


the ratio analysis thereby to understand the change and treads in the firm
financial position.

2. To access the performance of the BHEL on the basis of earnings and also
to evaluate the solvency position of the company.

3. To identify the financial strengths and weaknesses of the organization.

4. To give appropriate suggestion to the investors. To help them to make


over,

5. Informed decision.
SCOPE OF THE STUDY:

The scope and period of the study is restricted to the following.

1. The scope is limited to the operation in the BHEL.

2. The information obtained from the primary and secondary data was
limited to the BHEL

3. The key information performance indicated is taken from 2007-2010.

4. The profit and loss, the balance sheet was on the last 3 years.

5. Comparison analysis was done in comparison of the sister units.


LIMITATIONS OF STUDY:

1. The study is confined to a period of last 3 years.

2. As most of the data is from secondary sources, hence the accuracy is


limited.

METHODOLOGY:

The study basically depends on:

1. PRIMARY DATA

2. SECONDARY DATA

PRIMARY DATA COLLECTION:

The information collected directly without any reference is primary data. In


the study it is mainly through conservation without concerned officers or staff
member either individually or collectively. The data includes.

1. Conducting personal interview with officers of the company.

2. Individual observation and inferences.

3. From the people who are directly involved with the transaction of the
firm.

SECONDARY DATA COLLECTION

Study has been taken from secondary sources i.e. published annual
report of the company. Editing. Classifying and tabulation of the
financial data for this purpose performance data of BHEL or the
yeary2007-2008 to 2009-2010 have been used.
CHAPTER - 4

INDEPTH ANALYSIS OF FINANCIAL ANALYSIS

(A)DEFINITIONS:

The term “financial analysis” is also known as “analysis


and interpretation of financial statements”. It refers to the process of
determining financial strengths and weaknesses of the firm by establishing
strategic relationships between the items of the balance sheet, profit and loss
account and other operative data.

ACCORDING TO Mr. HARRY GUTTMANN:

“The first and most important functions of financial statements


are of course to those who control and direct the business to the end of security
the profits and maintaining sound financial conditions.”

(B)NATURE OF FINANCIAL STATEMENTS:

The term “financial statements” refers to the balance sheet


reflection the financial position of the assets, liabilities a capital of a particular
company during a certain period and profit and loss account showing the
operational results of the company during a certain period. Financial statements
are plain statements of informed opinion uncompromising in their truthfulness.
It is meant that with in the limits of accepted accounting principles and the very
human abilities of the persons preparing them they have to rely on judgements
and estimated divorced of prejudice.
(C)CONVENTIONS:

According to the American institute of certified public


accounts, financial statements reflect , “a combination of recorded facts
accounts conventions and personal judgements and the judgements and the
conventions applied affect them materially”, this implies that the exhibited in
the financial statements are affected by recorded facts, accounting conventions
personal judgements.

(D) USES AND IMPORTANCE OF FINANCIAL STATEMENTS:

The financial statements are mirrors which reflect the financial position and
operating strength’s or weaknesses of the concern. These statements are useful
to management, investors, creditors, bankers, workers, government and public
at large. George O May points of the following measure used of financial
statements:

 As a basis for taxation.

 As a basis for price or rate regulation

 As a guide to the value of investment already made

 As a basis for granting credit.


(E)LIMITATIONS OF FINANCIAL STATEMENTS:

 Financial statements are essentially interim reports and hence


cannot be final because the actual gain or loss of a business can
be determined only efface it has put down its shutters.

 They tend to give an appearance if finality and accuracy,


because they are expressed in exact money amount. Any value
to the amounts presented in the statement depends on the value
standards of the person dealing with them.

 The balance sheet loses its functions as an index of current


economic realities due to the fact the financial statements are
compiled on the basis of historical costs while there is a market
decline in the value of the monitoring unit and the resultant rise
in prices. The problem has become more important especially
during the war and the post war period.

 They do not give effort to many factors, which have a hearing


on financial conditions and operating results because they
cannot be stated in terms of money and are qualitative in nature.
Such factors are reputation and prestige of the business with the
public its credit rating the efficiency and loyalty of its
employees and integrity of the management.

 Due to these limitations it is said that financial statements don’t


show the financial conditions of the business rather they show,
the position of financial accounting for a business.
(F)PARTIES INTERESTED IN FINANCIAL STATEMENTS:

Now a days the ownership of capital of many public companies


has become truly board based due to dispersal of shareholding, hence, the public
in general evinces interest in the financial statements. Apart from the
shareholders there are other persons and bodies who are also interested in
financial results disclosed by the annual reports of the companies. As already
mentioned, such persons and bodies include:

1. Potential investors

2. Creditors, potential suppliers or other doing business with the company.

3. Debenture holders

4. Credit institutions like bankers.

5. Employee customers who wish to make along standing contact with the
company.

6. Economic and investment analysis

7. Members.
(G)ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS:

Analysis and interpretation of financial statements are and attempt


to determine the significance and meaning of the financial statement data as so
that a forecast can be made of the prospects for future earnings ability to pay
interest, debt and maturities (current and long term) and profitability of a sound
dividend policy.

Financial analysis main function is pinpointing of the strength’s


and weaknesses of a business concerns by regrouping and analysis of figure
contained in financial statements by making comparison’s of various
component and by examine their content. The financial manager uses this as the
basis to plan future financial requirements by means of forecasting and
budgeting procedures.

The analysis of and interpretation of financial statements represents


the lost of the four measure steps of accounting viz.

 Analysis of each transaction to determine the accounts to debited and


credited and the measurements and the valuation of each transactions to
determine the amounts involved.

 Recording of the information in the journals. Summarization in largest


and preparation of work sheet.

 Preparation of financial statements.

 Analysis and interpretation of financial statements results in the


presentation of information that assets business managers, creditors and
investors. This requires a clear understanding of monitoring item of the
items.
The analysis must group that represents sound and unsound
relationships reflected by the financial statements. Those, the data is more
maintain full and it is placed in better perspective when it is provision and by
means of measurement, it’s relationship with others is established in terms of if
relative significance and it is ranked in terms of its relative significance. One
can achieve this by comparisons made between related items in the statements
series of years.

(H)TYPES OF FINANCIAL STATEMENTS:

Financial statements primarily comprise two basic statements:

1. The position statements of the balance sheet.

2. The income statements or the profit and loss account.

Accounting principles specify that a complete set of financial statements must


include:

1. A balance sheet

2. An income statement

3. A statement of change in owners accounts.

4. A statement of changes in financial position.


BALANCE SHEET:

The balance sheet is one of the important statements


depicting the financial strength of concern. It shows the properties that are
owned on one hand and on the other hand the sources of the assets owned by the
concern and all the liabilities and claims it owes to owners and outsiders. The
balance sheet is prepared on a particular date. The right hand shows properties
and assets and the left hand shows liabilities.

INCOME STATEMENT OR PROFIT AND LOSS ACCOUNT:

Income statement is prepared to determine the operation position of the


concern. It is a statement of revenues. The income statement may be prepared in
the form of manufacturing account to find out the cost of the production in the
form of trading accounts to determine gross profit or loss, in the form of profit
and loss account to determine net profit or net loss.

STATEMENT OF CHANGES IN OWNERS EQUITY:

The term owners equity refers in the claims of the owners of the
business against the assets of the firm. It consist of two elements.

1. Paid up share capital i.e. the initial amount of funds invested by the
shareholders.

2. Retained earnings/reserves and surplus representing undistributed profits.


The statement of changes in owners equity simply shows
the beginning balance of each owners equity account, the reasons of
increases and decreases in each, and its ending balance. However, in most
cases the owners equity account changes significantly in retain earnings
and hence the statement of changes in owners equity becomes merely a
statement of retained earnings.

STATEMENT OF CHANGES IN FINANCIAL POSITION:

The basic financial statement i.e. the balance sheet and profit and loss
account and income statement of a business reveals the net effect of various
transactions on the operational position of the company. But there are many
transactions that do not operate through profit and loss account. Those for a
better understanding another statement of changes in financial position has to be
prepared to show the changes in assets and liabilities from the end of another
point of time. The statement of changes in financial position may take any of
the two forms. They are:

 Funds statements

 Cash flow statements


TOOLS OF FINANCIAL ANALYSIS USED IN THE STUDY:

MEANING OF COMPARATIVE STATEMENT:

The comparative financial statements are the statements of the


financial position of different periods; the elements of financial positions are
then in a comparative form to give idea of financial position of two or more
periods. The comparative statement may show:

 Absolute figures

 Changes in absolute figures i.e. increase or decrease in absolute figures.

 Absolute data in terms of percentage.

 Increase or decrease in terms of percentage.

COMPARATIVE BALACE SHEET:

It is a statement of financial position of a business at a specific


movement of time. It represents all assets owned by the business at a particular
movement of time and the claims of the owners and outsiders against those
assets at the time. It is a way they shape the financial condition of the business
at that time.

The important distinction between an income statement and


balance sheet is that the income statement is for a period where as balance sheet
is on a particular date.
COMPARATIVE INCOME STATEMENT:

The comparative income statement gives the results of the


operation of a business. The comparative income statement gives an idea of the
program of a business over a period of time. The changes in absolute data in
money values and percentages can be determined to analyze the profitability of
the business.

GUIDELINES FOR INTERPRETATION OF INCOME STATEMENT:

The analysis and interpretation of income statement will involve


the following steps:

1. The increase or decrease in sales should be compared with the


increase or decrease in cost of goods sold. An increase in sales will
not always mean an increase in profit. The profitability will
improve if increase in sales promotion and the control of operating
expenses.

2. The second step of analysis should be the study of operation profit.


The operating expenses such as office and administrative expenses.
Selling and distribution expenses should be deducted from gross
profit to find out operating profit which will result from the
increase in sales position and control of operating expenses.

3. The increase or decrease in net profit give an idea about overall


profitability of the concern, non-operating expenses such as interest
paid, loss from sale of assets, writing off to deferred expenses or
deducted from operational profit we get the figure of operating
profit.
4. An opinion should be formed about profitability of the concern and
it should be given at the end. This should be mentioned whether the
overall profitability is good or not.

COMMON SIZE STATEMENTS:

The common size statement, balance sheet and income statement


are shown in analytical percentages. The figures are shown as percentages of
total assets, total liabilities and total sales. The total assets are taken as of and
different assets are expressed as a percentage of the total.

1. Common size balance sheet: A statement in which balance sheet items


are expressed as the ration of each asset to total assets and the ratio of
each liability is expressed as a ratio of total liabilities is called common
sized balance sheet.

2. Common size income statement: The items in income statement can be


shown as percentage of sales to show the relation of each item to sales. A
significant relationship can be established between item of income
statement and value of the sales. The increase in sales will certainly
increase selling expenses and not administrative are financial expenses.
TREND ANALYSIS:

Trend percentages:

The method of trend percentages in useful analytical device


for the management since y substitution of percentage for large amounts, the
clarity and readability are achieved.

Trend percentages are immensely helpful in making


comparative study of the final statements for several years. The method of
calculating trend percentages involves the calculation of percentage relationship
that each item bears to the same item in the base year. The earliest year may be
taken as base year. Each item of the base year is taken as 100 and on the basis
the percentage for each of the item of each year is calculated.

Least Square Method:

This method is widely used in practised. It is a mathematical


method and with the help of a trend line fitted to the data in such a manner by
using the actual figures of the study period, we have to calculate the trend
values for these periods. Based on this value we can easily forecast the values of
the future period. The method of least square may be used either to fit a straight
line trend or a parabolic trend. The straight line is represented by the equation
Y(C)=A+B(X).
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT:

An attempt has been made to analyze and interpret the


financial statements of BHEL for the period of 2007-2010. These statements
were prepared on the basis of the data in the balance sheets and profit and loss
accounts of the BHEL for the above period.

RATIO ANALYSIS:

A ratio is a simple mathematical expression. It is a number


expressed in terms of another number, expressing the quantitative relationship
between the two, ratio analysis is the technique of interpretation of financial
statements with the help of various meaningful ratios. Ratios do not add to any
information that is already available, but they show the relationship between
two items in a more meaningful way.

Ratio analysis is a very important tool of financial analysis.


It is the process of establishing a significant relationship between the items of
financial statements to provide a meaningful understanding of the performance
and financial position of the firm. They help us to draw certain conclusions.
Comparison with related facts is the basis of ratio analysis. Ratios may be used
for comparison in any of the following ways.

1. Comparison of a firm with its own performance in the past.

2. Comparison of one firm with its own performance in the past.

3. Comparison of one firm with another firm in the industry.

4. Comparison of one firm with the industry as a whole.

5. Comparison of an achieved performance with pre-determined standards.

6. Comparison of one department of a concern with other departments.


TYPES OF RATIOS

 Liquidity ratio

 Capital structure/leverage ratio

 Profitability ratio

 Activity ratio.

 LIQUIDITY RATIOS: it measures the short-term solvency of the


firm. In a short period of a firm should be able to meet all its short-
term obligation i.e. current liabilities and provisions. It is current
assets that yield funds in the short period. Current assets are those,
which the firm can convert it into cash within one year or short
run. Current assets should not only yield sufficient funds to meet
current liabilities as they fall due but also to enable the firm to
carry on its day-to-day activities.

The following are the important liquidity ratios:

1. Current ratio

2. Acid test/quick ratio.

3. Cash ratio

4. Net working capital ratio


1.Current ratio: Current ratio is the ratio of current assets to current liabilities.
Current assets are the assets that are expected to be realized in cash or sold or
consumed during the normal operating cycle of the business or with in one year,
which ever is longer, they include cash in hand and bank, bills receivable, net
sundry debtors, stock of raw materials, finished goods and working in progress,
prepaid expenses, outstanding incomes, assured incomes and short term or
temporary investments. Current liabilities are the liabilities that are to be repaid
within a period of one year. They include bills payable, sundry creditors, bank
overdrafts, outstanding expenses, income receivable in advance, proposed
dividend, provision for taxation, unclaimed dividends and short term loans and
advanced repayable within one year. Any instalment of long-term liability
payable within the next 12 months is also current liability.

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITIES

Generally 2 : 1 ratio is considered ideal for the company.

2. ACID TEST/QUICK RATIO: the acid test ratio is the ratio between quick
current assets and current liabilities and calculated by dividing the quick assets
by current liabilities. Quick assets mean those which can be converted into cash
immediately by exclusion of inventory and prepaid expenses from current
assets.

Acid test Ratio=Quick assets/Current liabilities.

Generally 1: 1 ratio is considered to be ideal for the company.


3. CASH RATIO: The cash ratio is the ratio of cash and bank balance, it is
calculated dividing cash and bank balance by current liabilities.

CASH RATIO= Cash and Bank balances/Current liabilities.

Generally 1 : 2 ratio is considered to be ideal for a company.

4. NET WORKING CAPITAL RATIO: Working capital ratio refers to


comparing current assets to current liabilities and serve as the liquidity reserve
avail. To satisfy contingencies and uncertainties. It is calculated by dividing net
working capital by capital employed.

Net Working Capital Ratio = net working capital/capital employed.

Generally higher ratio is considered ideal for a company.

 CAPITAL STRUCTURE/LEVERAGE RATIO: These ratios indicate


the relative interests of owners and creditors in a business by showing
long term financial solvency and measure the enterprise’s ability to pay
the interest regularly and to repay the principal on maturity or in pre-
determined instalments at due dates.

The significant leverage ratios are:

1. Debt Equity Ratio

2. Proprietary Ratio

3. Capital Gearing Ratio.

4. Fixed assets Ratio

5. Interest coverage Ratio

6. Dividend Coverage Ratio

7. Debt Service coverage Ratio.


1.Debt Equity Ratio : It reflects the relative claim of creditors and shareholders
against the assets of the business. Debt usually refers to long-term liability.
Equity includes equity and preference share capital and reserves.

Debt Equity Ratio=long term liabilities/share holders funds.

Ideal debt equity ratio is 2 : 1

2.Propreitary ratio: It expresses the relationship between the net worth and
total assets. A high proprietary ratio is indicative of strong financial position of
business.

Proprietary ratio = Net worth/ Total Assets

Net worth = Equity share capital + fictitious Assets

Total assets= fixed assets + Current Assets

Generally higher the ratio the ideal it is.

3. Capital Gearing Ratio: A company is said to be highly geared if it has a


high capital gearing ratio and lowly geared if the capital gearing ratio is low.
The extent of gearing determined the future financial structure of the business.
A company that is highly geared will have to raise funds by issuing fresh equity
shares, whereas a lowly geared company would find it attractive to raise funds
by way of term loans and debentures.

Capital Gearing Ratio = funds bearing fixed interest and fixed dividend/equity
. share holder’s funds

Funds bearing fixed interest and capital=Debentures + term loans +preference .


. share capital.

Equity share holder funds=Equity share capital +reserves-fictitious funds.


4.Fixed Assets Ratio: This ratio indicates the mode of financial the fixed
assets. It is calculated as

Fixed assets Ratio= Fixed assets/capital employed

Capital employed= equity share capital + preference share capital +reserves +


long term Liabilities – Fictitious Assets.

Generally a ratio of 0.67 : 1 is considered ideal for a company.

5.Interest Coverage Ratio: This ratio is called as “debt service ratio”. This
ratio indicates whether a business is earning sufficient profits to pay the interest
charges. It is calculated as

Interest coverage ratio=PBIT/Fixed interest charges

PBIT=Profit before interest and taxes=PAT + Interest + Tax

Generally a ratio of around 6 is normally considered as ideal for a company.

6.Dividend coverage ratio: It indicates the ability of a business to pay and


maintain the fixed preference dividend to preference shareholders.

Dividend coverage ratio=PAT/Fixed preference dividend.

PAT= Profit After Taxes

7.Debt service coverage Ratio: It indicates whether the business is earning


sufficient profits to pay not only the interest charges, but also the instalments
due to the principal amount. It is calculated as

Debt service Coverage Ratio =(PBIT/Interest + Periodic Loan


Installation)/(1- Rate of income Tax)

Generally greater the ratio, the better is the servicing ability of company.
 PROFITABILITY RATIO: Profitability ratios measure the profitability
of a company. Generally they are calculated either in relation to sales or
in relation to investments. The various profitability ratios are discussed
under the following heads.

(A) GENERAL PROFITABILITY RATIO’S:

1.Gross Profit Ratio: Gross profit is one of the most commonly used ratios. It
reveals the result of trading operations of the business. In other words, it
indicates to us the profitability of the business. It is calculated as

Gross Profit Ratio=(Gross Profit/Net sales)*100

Gross Profit=net sales-cost of goods sold.

Net Sales=Total Sales- Sales Returns

Cost of Goods Sold=Opening Stock + Purchases + Manufacturing expenses-


closing Stock.

Generally the higher the ratio, the better will be the performance of the
company.

2.NET PROFIT RATIO: It indicates the results of overall operations of the


firm. While the gross profit ratio indicates the extent of profitability of core
operations. Net profit ratio tells us about overall profitability. It is called as

Net Profit Ratio=(Net Profit after Tax/Net Sales)*100

Generally higher the ratio, the more profitable to the company.


3.OPERATING RATIO: It expresses the relationship between expenses
incurred for running the business, and the resultant net sales. It is calculated as

Operating Ratio=cost of goods sold + Office and Administrative expenses +


selling and distribution Expenses.

Generally lower the ratio, the better it is to the company.

4.OPERATING PROFIT RATIO: It establishes the relationship between


operating profit and sales. It is calculated as

Operating Profit Ratio=(Operating Profit/Net Sales)*100

Generally higher the ratio, the better it is to the company.

5.EXPENSES RATIO: Expenses ratios are the ratios that supplement the
information given by the operating ratio. Each of the expense rations highlights
the relationship given by the particular expense and net sales. For example,
factory expenses ratio is of factory expenses to net sales any expenditure can be
shown as a ratio to sales. All such ratios fall under the broad head of expenses
ratios.

(B) OVERALL PROFITABILITY RATIOS:

1.RETURN ON CAPITAL EMPLOYED RATIO(ROCE) OR RETURN


ON INVESTMENT RATIO(ROD):

This ratio reveals the earning capacity of the capital employed in


the business. In other words, capital employed is permanent capital invested in
the business. It is also called capital and hence, the ratio is also known as return
on invested capital

ROCE= (Profit before interest and taxes/capital employed) *100


2. RETURN ON NET WORTH(RONW): It indicates the return, which the
shareholders are earning on their resources invested in the business. It is
calculated as

RONW=(Profit after Tax/Net Worth)*100

Generally higher the ratio, the better it is to the shareholders.

3.RETURN ON EQUITY CAPITAL: It expresses the return earned by the


owners of the business, after adjusting for debt and preference capital. It is
calculated as

RETURN ON EQUITY= PAT- Preference dividend/equity shareholders


funds.

Generally higher the ratio, the better it is to the company.

4.RETURN ON ASSETS RATIO(ROA): Return on assets reflects the return


earned by the firm for the company for the shareholders of the business on the
investment of all the financial resources committed to the business. It is
calculated as

ROA=PAT/TOTAL SALES

Generally higher the ratio, the better it is to the shareholders.

5.EARNINGS PER SHARE(EPS): It is the earning accruing to the equity


shareholders on every share held by them. It is calculated as

EPS= PAT-Preference dividend/number of equity shares.

Generally the ratio, the better is the performance of the company.


6.Dividends per share (DPS): It is the amount of dividend payable to the
holder of one equity share. It is calculated as

DPS=Dividend on equity share capital/number of equity shares

Generally from investors point of view, the higher the ratio, the happier the
investor.

7.DIVIDEND PAY OUT RATIO: It is the ratio of dividend per share to


earning per share. It is calculated as

Dividend Pay Out Ratio=DPS/EPS

8.PRICE EARNING RATIO(P/E Ratio): It expresses the relationship


between market price of one share of a company and earnings per share of that
company.

P/E Ratio=Market Price of Equity share/EPS

There is no ideal P/E ratio.

9.DIVIDEND YIELD RATIO: It expresses the relationship between dividend


earned per share and the market price per share. In other words, it expresses the
return on investment by purchasing a share in the stock market , without
accounting for any capital appreciation. It is calculated as

DIVIDEND YIELD RATIO- Dividend per share/Market price of share.

10.BOOK VALUE: It is the fraction of the net worth of the business as


depicted in the balance sheet, which is attributable to one equity share of the
business . it is calculated as

BOOK VALUE=Equity share holders funds/number of equity shares.

Generally higher the book value of the share, the more strong the business is
assumed to be.
 ACTIVITY RATIO: Activity ratios measures the efficiency or
effectiveness with which a firm managers its resources or assets. They
calculate the speed with which various assets, in which funds are blocked
up, get converted into sales. The significant activity or turnover ratios are

1.INVENTORY TURN OVER RATIO OR STOCK TURN OVER RATIO:


Stock turnover ratio indicates the number of items the stock has turned over into
sales in a year. It indicates to us the extent of stock required to be held in order
to achieve a desired level of sales.

Inventory Turn Over Ratio = Cost of Goods Sold/Average Stock

Cost of Goods Sold=Sales-Gross Profit.

Average Stock=(Opening Stock + Closing Stock)/2

Generally 8 is considered ideal ratio of the company.

2.DEBTORS TURN OVER RATIO: Debtors Turn Over Ratio expresses the
relationship between debtors and net credit sales. It is calculated as

Debtors Turn Over ratio= Net Credit Sales/Average Debtors.

Generally the ratio between 10-12 an ideal value for the company.

3.CREDITORS TURN OVER RATIO: Creditors turn over ratio expresses the
relationship between creditors and net credit purchases. It is calculated as

Creditors Turn Over Ratio= Net Credit Purchases/Average Creditors.

Generally the ratio 12 is an ideal for the company.


4.WORKING CAPITAL TURN OVER RATIO: This ratio is defined as
Working Capital Turn Over Ratio= Cost of Goods Sold/Working Capital

Working Capital=Current Assets- Current Liabilities.

Generally higher ratio indicates efficient utilization of firm’s funds.

5.Fixed Assets Turn Over Ratio: It is Defined as ratio of Net Sales to the
Fixed Assets.

Generally the ratio of around 5 is considered ideal for the company.

6.TOTAL ASSETS TURN OVER RATIO: It is defined as ratio of Net Sales


to the Total Sales.

Generally higher the ratio, the greater is the ability of the firm to utilize the
investments in the business.
CHAPTER – 5
DATA ANALYSIS AND INTERPRETATION

TABLE – 1

Current Asset Liability Ratio


year current assets current liability Ratios
2004-05 155792 73129 2.13
2005-06 166669 74427 2.23
2006-07 155652 84990 1.83
2007-08 192697 116644 1.65
2008-09 235062 143200 1.64
2009-10 276062 208869 1.32
2010-11 310002 243220 1.27
2011-12 453597 376332 1.2
2012-13 580804 397574 1.46
2013-14 771519 502024 1.54

Interpretation –

The ideal ratio for the concern is 2:1 i.e. current assets doubled
for the current liabilities considered to be satisfactory. The current ratio of
BHEL is less than ! .Thus it has to maintain its efficient current assets.
CHART – 1

800000

700000

600000

500000

400000 current assets


current liability
300000

200000

100000

0
TABLE – 2

Acid Test Ratio

Year Liquid assets Liquid liabilities Ratio


2004-05
898 73129 0.012
2005-06
1281 74427 0.017
2006-07
472 84990 0.005
2007-08
2094 116644 0.018
2008-09
4643 143200 0.032
2009-10
12 208869 0.00005
2010-11
14 243220 0.00003
2011-12
15 376332 0.00003986
2012-13
1475 397574 0.00371
2013-14
1415 502024 0.002818

Acid Test Ratio – Current Assets – Inventory / Current Liabilities

Interpretation -

The ideal quick ratio is 1:1 which is considered satisfactory for the
concern. The company is maintaining the ratio above the standard norm , thus
the management of BHEL is label to meet its current obligations.
CHART – 2

600000

500000

400000

300000 Liquid assets


Liquid liabilities
200000

100000

0
Table -3

Net working capital


Capital
year Net working capital employed Ratios
2004-05 82663 90522 0.9131
2005-06 92242 99337 0.93
2006-07 70662 79114 0.8931
2007-08 76053 85026 0.894
2008-09 91862 102462 0.89
2009-10 67193 79459 0.84
2010-11 96410 107986 0.89
2011-12 77265 96894 0.797
2012-13 183230 207051 0.884
2013-14 269495 305907 0.881

NET WORKING CAPITAL = NET WORKING CAPITAL / CAPITAL


EMPLOYED

Interpretation -

A higher networking capital ratio indicates efficient utilization of


working capital . Therefore the company should concentrate more on working
capital management
Chart – 3

350000

300000

250000

200000
Net working capital
150000
Capital employed
100000

50000

0
table - 4

Debt equity ratio


year Total debt Equity Ratios
2004-05 497 3252 0.15
2005-06 573 3252 0.17
2006-07 386 3252 0.11
2007-08 513 3252 0.15
2008-09 1053 3252 0.32
2009-10 607 3252 0.18
2010-11 587 3252 0.18
2011-12 2566 3252 0.789
2012-13 2034 3252 0.62
2013-14 2265 3252 0.70

Debt Equity Ratio :

The debt equity ratio has been increasing over the years and it
has been maintained at a level of .62 for the financial year 2009-10
Chart – 4

3500

3000

2500

2000
Total debt
1500
Equity
1000

500

0
Table - 5

Fixed assets ratio


year Fixed Assets Capital employed Ratios
2004-05 7859 90522 0.07
2005-06 7095 99337 0.08
2006-07 8360 79114 0.07
2007-08 8896 85026 0.1
2008-09 10600 102462 0.1
2009-10 12347 79459 0.15
2010-11 9909 107986 0.09
2011-12 17699 96894 0.18
2012-13 22595 207051 0.11
2013-14 31830 305907 0.10

Fixed Assets Ratio = Fixed Assets / Capital Employed

Interpretation -

Generally financially well managed company will have its fixed assets financed
by long term funds. There fore , the fixed assets ratio should never be more than
!.A ratio of .67 is considered ideal. The results for BHEL is much less at 0.11
Chart – 5

350000

300000

250000

200000
Fixed Assets
150000
Capital employed
100000

50000

0
Table - 6

Interest coverage ratio


year PBIT Interest Ratios
2004-05 13500 3054 4.42
2005-06 13420 258 52.01
2006-07 15821 48 329.6
2007-08 33122 1105 29.97
2008-09 60867 682 89.24
2009-10 63290 2300 27.51
2010-11 68916 5870 11.74
2011-12 68478 6826 10.03
2012-13 86438 7101 12.17
2013-14 130330 8583 15.18

Interpretation -

Interest Coverage Ratio.= PBIT/INTREST

Interest coverage ration of BHEL is not constant , from 2008-09


the ratio is10 as in 2009 -10 the ratio is 12.17, There is a random fluctuation in
the ratio
Chart – 6

100%
90%
80%
70%
60%
50%
Interest
40%
PBIT
30%
20%
10%
0%
Table – 7

Gross profit
year Gross profit Net sales Ratios
2004-05 13500 153205 0.088
2005-06 13420 137838 0.097
2006-07 15821 174490 0.07
2007-08 33122 174668 0.189
2008-09 60867 267217 0.227
2009-10 63290 289241 0.218
2010-11 68916 310235 0.2224
2011-12 68478 414816 0.165
2012-13 86483 500342 0.172
2013-14 130330 665323 0.196

Interpretation -

Gross Profit = Gross /net sales

Generally the higher gross profit ratio , the better for the
performance of the concern .In BHEL , the company has started to increase
from the year on year which is a very good sign for the company.
Chart – 7

700000

600000

500000

400000
Gross profit
300000
Net sales
200000

100000

0
Table – 8

Operating ratio
year Operating cost Net sales Ratios
2004-05 131006 153205 0.85
2005-06 116708 137838 0.84
2006-07 149823 174490 0.85
2007-08 136630 174668 0.78
2008-09 201962 267217 0.75
2009-10 221227 289491 0.76
2010-11 234677 310235 0.76
2011-12 338382 414816 0.81
2012-13 404647 500342 0.8
2013-14 524531 665323 0.79

Interpretation -

Operating Ratio : Operating Cost / Net Sales

Generally the lower the Operating Cost , the better for the concern. The ratio
should be below1 which is satisfactory for the concern.
Chart – 8

700000

600000

500000

400000
Operating cost
300000
Net sales
200000

100000

0
Table – 9

Return on capital employed


Capital
year PBIT employed Ratios
2004-05 13500 90522 0.149
2005-06 13420 99337 0.135
2006-07 15821 79114 0.199
2007-08 33122 85026 0.389
2008-09 60867 102462 0.594
2009-10 63290 79459 0.796
2010-11 68916 107986 0.638
2011-12 68478 96894 0.706
2012-13 86438 207051 0.417
2013-14 130330 305907 0.426

Interpretation -

Return on Capital Employed = PBIT/Capital Employed

The higher the ROCE ratio , the better for the concern. The company
has been keeping up the good performance is increasing at the rapid phase
which in turn is a good sign for the company.
Chart – 9

350000

300000

250000

200000
PBIT
150000
Capital employed
100000

50000

0
Table - 10

Debtors turnover ratio


Average
year Net credit sales debtors Ratios
2004-05 153205 85001 1.8
2005-06 137838 81237 1.69
2006-07 174490 82829 2.1
2007-08 174668 112238 1.55
2008-09 267217 135322 1.97
2009-10 289491 177301 1.63
2010-11 310235 215291 1.44
2011-12 414816 287414 1.44
2012-13 500342 328201 1.53
2013-14 665323 537364 1.24

Interpretation -

Debtors Turnover Ratio = Net Credit Sales / Average Debtors

The BHEL`s debtor turnover ratio was below 2 .Its has bee increasing since
2008-09 from 1.44 to 1.53 in 2009-10, the increasing trend Implies the efficient
management of Debtor and credit sales.
Chart - 10

700000

600000

500000

400000
Net credit sales
300000
Average debtors
200000

100000

0
Table - 11

Creditors turnover ratio


Net credit Average
year purchases creditors Ratios
2004-05 12060 29738 0.4
2005-06 16646 27610 0.6
2006-07 16350 20467 0.79
2007-08 16727 24225 0.81
2008-09 19656 39495 0.49
2009-10 21772 46452 0.48
2010-11 25459 54586 0.4664
2011-12 31900 58078 0.54926
2012-13 60293 88228 0.68
2013-14 65700 103305 0.64

Interpretation -

Creditors Turnover Ratio : Net Credit Purchases /Average Creditors

Interpretation : The BHEL`s creditors Turn Over Ratio is at 0.68 , it has been on
the increasing trend since past two financial years. The management should try
to reduce this by adopting proper payment policies.
Chart – 11

120000

100000

80000

60000 Net credit purchases


Average creditors
40000

20000

0
Table - 12

Fixed asset turnover ratio


year Net sales Fixed assets Ratios
2004-05 153205 7859 19.49
2005-06 137838 7095 19.42
2006-07 174490 8360 20.87
2007-08 174668 8896 19.63
2008-09 267217 10600 25.2
2009-10 289491 12247 23.63
2010-11 310235 9909 31.3
2011-12 414816 17699 23.43
2012-13 500342 22595 22.14
2013-14 665323 31830 20.90

Interpretation -

Fixed Assets Turnover Ratio. = Net Sales / Fixed Assets

At high fixed assets turnover ratio indicates better utilization of the firms fixed
assets. A ratio around 5 is considered ideal for the concern .In BHEL it is more
than 22.This is a very good sigh for the company.
Chart -12

700000

600000

500000

400000
Net sales
300000
Fixed assets
200000

100000

0
Table -13

Total asset turnover ratio


year Total debt Equity Ratios
2004-05 497 3252 0.15
2005-06 573 3252 0.17
2006-07 386 3252 0.11
2007-08 513 3252 0.15
2008-09 1054 3252 0.32
2009-10 607 3252 0.18
2010-11 587 3252 0.18
2011-12 2566 3252 0.78
2012-13 2034 3252 0.62
2013-14 2265 3252 0.70

Interpretation -

Total Assets Turnover Ratio : Net Sales / Total Assets

The Total Assets turnover ratio of the BHEL is below 1 . This shows greater
ability of the firm to utilize the investment in the business
Chart – 13

3500

3000

2500

2000
Total debt
1500
Equity
1000

500

0
Comparative income statement 2009-2010 and 2010-11

DESCRIPTION
2009-10 2010-11 increase/decrease increase/decrease

TURNOVER- BHEL 1106 400 -706 -63.83%


- NON-BHEL 499236 664923 165687 33.19%
TOTAL TURNOVER 500342 665323 164981 32.97%
CHANGES IN WIP 49447 -25439 -74886 -151.45%
CHANGES IN FG -9622 -9622
EXPORT INCENTIVES 690 669 -422 -21.00%
GROSS TURNOVER 540857 640553 99696 18.43%
EXCISE DUTY 16859 33288 16429 97.44%
GTO LESS ED 523998 607265 83267 15.89%
DIRECT MATERIALS 340315 342167 1852 0.544%
SUB-CONTRACT
1356 1682
PAYMENT 378 24.04%
POWER AND FUEL 1746 1693 -53 -3.04%
TRANSFER IN
806 681
SERVICE -125 -15.51%
TOTAL OF `C' 344223 346223 2000 0.58%
VALUE ADDED 179775 261042 81267 42.20%
PERSONNEL
62236 69941
PAYMENTS 7795 12.38%
INDIRECT MATERIALS 3902 5861 2059 52.76%
OTHER EXPENSES -
7101 8583
BHEL 1482 20.87%
OTHER EXPENSES -
26301 27410
NON BHEL 1109 4.22%
PROVISIONS -226 38565 %
PROV.EXCH.VAR. 894 -1523 %
LESS:MISC.INCOME 11522 23356 11834 102.71%
TOTAL OF `E' 88686 125481 36795 41.49%
GROSS MARGIN
91089 135561
(PBIDT) 44472 48.82%
DEPRECIATION 4606 5231 625 13.57%
DRE ON VRS 0
GROSS PROFIT (PBIT) 86483 130330 43847 50.70%
INTEREST -7101 -2905 -10006 -140.91%
PROFIT BEFORE TAX 93584 133235 39651 42.37%
GTO LESS ED 523998 607265 83267 15.90%
0
OPERATING COST 404647 524531 119884
Comparative income statement 2008-09 & 2009-10

DESCRIPTION
2008-09 2009-10 Increase/Decrease Increase/Decrease%

TURNOVER- BHEL 779 1106 327 41.98%


- NON-BHEL 414037 499236 85199 20.58%
TOTAL TURNOVER 414816 500342 85526 20.62%
CHANGES IN WIP 10637 49447 38810 364.86%
CHANGES IN FG 4938 -9622 %
EXPORT INCENTIVES 1112 690 -422 -37.95%
GROSS TURNOVER 431503 540857 109354 25.34%
EXCISE DUTY 24537 16859 -7678 -31.29%
GTO LESS ED 406966 523998 117032 28.76%
DIRECT MATERIALS 259592 340315 86723 33.41%
SUB-CONTRACT
978 1356
PAYMENT 378 38.65%
POWER AND FUEL 1925 1746 -169 -8.78%
TRANSFER IN
1347 806
SERVICE -541 -40.16%
TOTAL OF `C' 263842 344223 80381 30.46%
VALUE ADDED 143124 179775 36651 25.61%
PERSONNEL
58365 62236
PAYMENTS 3871 6.63%
INDIRECT
4560 3902
MATERIALS -658 -14.43%
OTHER EXPENSES –
6436 7101
BHEL 665 10.33%
OTHER EXPENSES -
15402 26301
NON BHEL 10899 70.76%
PROVISIONS 142 -226
PROV.EXCH.VAR. -324 894
LESS:MISC.INCOME 13913 11522 -2391 -17.18%
TOTAL OF `E' 70668 88686 18018 25.50%
GROSS MARGIN
72456 91089
(PBIDT) 18633 25.72%
DEPRECIATION 3978 4606 628 15.79%
DRE ON VRS 0
GROSS PROFIT (PBIT) 68478 86483 18005 26.29%
INTEREST -6826 -7101
PROFIT BEFORE TAX 75304 93584 18280 24.27%
GTO LESS ED 406966 523998 117032 28.76%
0
OPERATING COST 338382 404647 66265
Comparative income statement 2007-2008 and 2008-09

comparative income statement


DESCRIPTION
Increase / Increase /
2007-08 2008-09
Decrease decrease %

TURNOVER- BHEL 667 779 112 16.79%


- NON-BHEL 309568 414037 104469 33.74%
TOTAL TURNOVER 310235 414816 104581 33.71%
CHANGES IN WIP 17781 10637 -7108 -39.97%
CHANGES IN FG 4591 4938 347 7.56%
EXPORT INCENTIVES 2283 1112 -1171 -51.29%
GROSS TURNOVER 334890 431503 96613 28.85%
EXCISE DUTY 27236 24537 -2699 -9.91%
GTO LESS ED 307654 406966 99312 32.28%
DIRECT MATERIALS 183845 259592 75747 41.20%
SUB-CONTRACT
790 978
PAYMENT 188 23.80%
POWER AND FUEL 1840 1925 85 4.62%
TRANSFER IN SERVICE 1394 1347 -47 -11.93%
TOTAL OF `C' 187869 263842 75973 40.44%
VALUE ADDED 119785 143124 23339 19.48%
PERSONNEL PAYMENTS 36001 58365 22364 62.12%
INDIRECT MATERIALS 4039 4560 521 12.90%
OTHER EXPENSES -BHEL 6125 6436 311 5.08%
OTHER EXPENSES - NON
12848 15402
BHEL 2554 19.88%
PROVISIONS 1805 142 -1663 -92.13%
PROV.EXCH.VAR. -1524 -324 %
LESS:MISC.INCOME 11746 13913 2227 18.96%
TOTAL OF `E' 47548 70668 23120 48.63%
GROSS MARGIN (PBIDT) 72237 72456 219 0.303%
DEPRECIATION 3321 3978 657 19.78%
DRE ON VRS 0
GROSS PROFIT (PBIT) 68916 68478 -438 -0.64%
INTEREST -5870 -6826 %
PROFIT BEFORE TAX 74786 75304 518 0.69%
GTO LESS ED 307654 406966 99312 32.28%
0
OPERATING COST 234677 338382 103705 44.19%
Chapgter - 5

FINDINGS AND SUGGESTIONS

1. The net working capital was Rs 91021 lac’s in 2000-2001. This decreased
to Rs 82663 lac’s in the year 2001-2002. In the year 2006-2007 the net
working capital is Rs 67193 lac’s.

2. The current ratio of BHEL was 2.41 in the year 2000-2001. There was
decrease in the ratio up to the year 2007-2008. The ratio is decreasing
year by year. But the BHEL is maintaining current ratio more than the
standard norms of 2.

3. The organization is able to maintain both current ratio and quick ratio
above the standard norms. i.e. the ideal current ratio for the concern is 2:1
and the quick ratio is 1:1 but the cash ratio is fluctuating.

4. The quick ratio of the organization is in decreasing trend year by year.

5. Investment in current assets has been increasing from Rs 155302 lacs in


2000-2001 to Rs 310002 in 2007-2008.

6. The inventory turnover ratio of BHEL is fluctuating i.e., showing


decreasing trend during the years 2000-2001 to 2003-2004. But there
onwards it has slowly increased till the financial year.

7. The debtors turnover ratio has decreased from the year 2001-2002 to
2002-2003. It was 2.10 in the year 2003-2004. There was decrease in
debtors turnover ratio till the financial year.
CONCLUSIONS:

1. The current ratio of BHEL is decreasing year by year . In the year 2004-
2005 it was 2.41 and during the year 2010-2011 it has gone down to 1.2
later in the next financial year 2011-2012 it has gone up to 1.46, so the
company should concentrate effectively on the management of Current
Assets and Current Liabilities.

2. The Net Working Capital of BHEL is good for almost in range for each
and every year. It is always in the ideal ratio for every organization.

3. The BHEL is using the moving average method in valuation of stock.

4. The debtors constitute nearly 50% of the Total Current Assets. For the
Company it is difficult to manage the accounts receivables. The company
should collect debts as quickly as possible.

5. The company has to exercise cost of control and cost of reduction


techniques to increase its profitability.

6. The debtors turn over ratio in 2005-2006 is 1.97. the ratio has increased
than previous years except for 2003-2004, which had 2.10. the decreasing
ratio shows the inefficient management. They should concentrate more on
the collection of the debts.

7. The return on investment ratio of the BHEL is 59.40 in 2005-2006. It has


increased when compared to previous year’s ratios. It is beneficial to
investors who are interested to know the profits earned by the company.

8. The investment in loans and advances should be minimized to possible


extent.

9. Effective internal control system should be established. So that it can


have control over all aspects of the company.
BIBILOGRAPHY:

 http://www.bhel.com/financial_information/index.php

 http://www.studyfinance.com/lessons/workcap

 www.bizsearchpapers.com

 http://www.antiessays.com/free-essays/9076.html
 http://www.bhelhyderabad.com/bhel_hyderabad_unit.htm

 http://en.wikipedia.org/wiki/Bharat_Heavy_Electricals_Limited

 Financial Management –I M Pandey.

 Accounting for Managers-Jelsy Joseph Kuppapally.


 Financial statement analysis - Gokul Sinha.