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CHAPTER - V

ANALYSIS OF FINANCIAL
STATEMENT OF NEEPCO
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Table 5.1

Profit & Loss Account of NEEPCO from 1998-99 to 2004-05

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Sales 79896.94 67030.59 41229.44 45323.37 39186.78 35738.72 25918.14

Add:-Other Income 8284.2 9797.88 8384.23 16128.05 13787.94 8321.18 6271.39

Total Revenue 88181.14 76828.47 49613.67 61451.42 52974.72 44059.9 32189.53

Less Expenses:- 60631.77 62374.99 68016.49 55289.32 50542.07 38871.73 25989.46

PBT 20597.17 20809.9 -40851.34 5756.26 11985.66 2792.99 5821.77

Less:-Prior Adjustment 6952.2 -6356.42 2997.95 -405.83 9953.01 -2395.18 -378.32

Less :Tax 978.62 1051.8 nil 471.4 206.17 nil nil

PAT 19618.55 19758.1 -40815.34 5284.86 11779.49 2792.99 5821.75

Less : Exceptional Item nil nil nil nil nil nil nil

PAT(Net Pofit) 19618.55 19758.1 -40815.34 5284.86 11779.49 2792.99 5821.75


Table 5.2

Comparative Profit & Loss Account of NEEPCO

Increase/Decrease over Previous Year (Absolute Value)

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

Sales 12866.35 25801.15 -4093.93 6136.59 3448.06 9820.58

Other Income -1513.68 1413.65 -7743.82 2340.11 5466.76 2049.79

Total Revenue 11352.67 27214.8 -11837.75 8476.7 8914.82 11870.37

Expenses:- -1743.22 -5641.5 12727.17 4747.25 11670.34 12882.27

PBT -212.73 61661.24 -46607.6 -6229.4 9192.67 -3028.78

Prior Adjustment 13308.62 -9354.37 3403.78 -10358.84 12348.19 -2016.86

Tax -73.18 265.23

PAT -139.55 60573.44 -46100.2 -6494.63 8986.5 -3028.76

Exceptional Item

PAT(Net Profit) -139.55 60573.44 -46100.2 -6494.63 8986.5 -3028.76

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Table 5.3

Comparative Profit & Loss Account of NEEPCO

Increase/Decrease (Percentage)

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00

Sales 19.19474 62.57943 -9.03271 15.65985 9.647967 37.89076

Other Income -15.4491 16.86082 -48.0146 16.97215 65.69693 32.68478

Total Revenue 14.77664 54.85343 -19.2636 16.00141 20.23341 36.87649

Expenses -2.79474 -8.29431 23.01922 9.39267 30.02269 49.56729

PBT -1.02225 -150.941 -809.685 -51.9738 329.1337 -52.0251

Prior Adjustment -209.373 -312.026 -838.721 -104.077 -515.543 533.1095

Tax -6.9576 128.6463

PAT -0.70629 -148.409 -872.307 -55.1351 321.752 -52.0249

Exceptional Item

PAT(Net Pofit) -0.70629 -148.409 -872.307 -55.1351 321.752 -52.0249

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Table 5.4

Vertical Analysis of Income Statement of NEEPCO

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99


Income:-

Sales: Energy 90.61 87.25 83.10 73.75 73.97 81.11 80.52


Other Income 9.39 12.75 16.90 26.25 26.03 18.89 19.48
Total Income 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Expenditure:

Purchase of Gas 15.06 16.35 18.81 17.67 20.26 18.98 16.28


Purchase of Power 0.33 0.08
Lubricants and Oils 0.02 0.07 0.08 0.13 0.16 0.16 0.15
Transportation Charges 1.21 1.31 1.91 1.53 1.73 1.92 2.54
Transmission Charges 0.22 1.66
Unscheduled Interchange Changes 0.10 0.36
Incentive on Power Bond 0.30
Electricity Duty 0.05 0.02 0.02 0.02 0.02 0.03 0.01
Employees Renumeration 4.63 5.69 8.34 5.46 6.08 4.73 4.97
Generation & Administration 10.62 14.36 16.58 9.69 10.05 9.76 9.17
Depreciation 16.70 18.41 40.62 27.54 28.61 23.29 23.20
Interests &Finance Charge 18.52 22.58 50.61 3.24 28.46 29.30 241.83
Deffered Revenue Expenditure w/o 1.00 0.30 0.12 0.04 0.04 0.05 0.04
Rebate to customer 0.00 0.00 0.76 0.25
Total Expenditure 68.76 81.19 137.09 89.97 95.41 88.22 80.74
Profit/(Loss) for the year 31.24 18.81 -37.09 10.03 4.59 11.78 19.26

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Profit/(Loss) for the year 31.24 18.81 -37.09 10.03 4.59 11.78 19.26
Extraordinari Item -51.22
Prior Period Adjustment(Net) -7.88 8.27 6.04 -0.66 18.79 -5.44 -1.18
PBT 23.36 27.09 -82.34 9.37 22.63 6.34 18.09
Provision for tax 1.11 1.37 0.77 0.39
Profit after tax 22.25 25.72 -82.27 8.60 22.24 6.34 18.09
Balance of profit from last year 0.04 -7.60 0.08 0.03 0.06 0.00 1.99
Profit for the year available for
appropriation 22.29 18.12 -82.19 8.63 22.30 6.34 20.08
Transfer to BRD 3.58 11.34 5.48 2.21 2.36 15.77
Transfer to general reserve 14.74 5.99 2.93 19.63 3.63 2.94
Interim Dividend 1.70 0.26
Proposal Final Dividend 1.70 0.39 0.16 0.38 0.23 1.24
Dividend Tax 0.44 0.08 0.02 0.04 0.05 0.12
Adjustment against Gen Reserve 70.42 0.00
Balance carried forward to balance
sheet 0.13 0.05 -11.77 0.04 0.04 0.08 0.00

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Analysis of Comparative P/L Account:

A look at the income statement shows that the company’s performance is not consistent
in absolute terms and continuously reducing in relative terms. PAT fluctuates from year
to year. The reasons attributable to such fluctuation are basically prior period adjustments
and income other than sales. Since prior period items affect the company’s operating
performance the quality of earnings may not be considered as good.

Table 5.5
Statistical Analysis of Components of Income Statement

Mean Std Dev Coefficient of Variation

Sales 47760.57 18920.016 39.6143

Other Income 10139.27 3513.8351 34.65571

Expenses 51673.69 14718.329 28.48322

Prior Adjustment 1481.059 5589.8307 377.4213

The coefficients of variation indicate that fluctuation of sales and other income is more
than the expenses of NEEPCO which leads to an uneven distribution of profit. Further the
prior period items are highly inconsistence there by leading to a larger fluctuation. Prior
period items vary from 0.66 to 18.79% of revenue pointing out the bad quality of
earnings of the organization. But one positive aspect of the company’s revenue is that in
the recent years a major part of the revenue comes from its own operation so to say from
sale of energy and only 9% from other sources which was 26% in the year 2001-02.

Except the year 2002-03, which looks abnormal, the expenses of the company vary from
68.46 % of total revenue to 95.41%. It shows that the company has a plenty of scope for
cost control and reduction but necessary measures have not taken in earlier years to
reduce the total expenses. The year 2002-03 looks like an abnormal year where the
expenses became 137% of the revenue. The abnormality arises because of two basis
reasons; Underutilization of capacity and the second being the purchase of power by
some of NE states from organizations other than NEEPCO. In this particular year
depreciation and interest charges constitute 915 of the revenue. It goes with the common

50
saying that leverage is a double edged sword. In the years where revenue is more it
magnifies the return and it acts negatively in abnormal years like 2002-03.

51
Table 5.6
Balance Sheet of NEEPCO from 1998-99 to 2004-05

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99


LIABILITIES

Capital:-
Authorised 350000 350000 250000 250000 250000 250000 250000
209760.3 192699.3 190611.0 186483.04.0 186483.0 181439.0 155757.3
Issue,subscribed and paid-up 8 8 4 4 4 4 8
Share Application Money Pending
Allotment 501.16 2627.16 2589.5 5329.16 1201.16 5545.16 21957.82
Reserve and surplus:-
Capital Reserve 14.08 14.08 14.08 14.08 14.08 13.22 13.22
Bond Redemption Reserve 11392.29 12517.62 4414.09 4539.09 5112.32 6115 5075
Grant- in- Aid 2941.38 3076.46 3365.41 3398.6 2514.05 2027.08 2445.27
General Reseve 22491.68 5212.5 nil 34813 29073 16498 14839.5
Surplus as per profit 110.89 38.25 nil 27.38 19.49 33.58 59
Loan and Funds:-
213402.6 198587.6 157579.0
Secured Loan 3 1 3 88229.16 85354.17 87569.18 61518.57
Unsecured Loan-
143813.1 127844.6
Loan from govt. of India 69918.55 69918.55 99782.12 154707.98 3 7 96493.67
Interest accrued and due there
on nil 28947.52 36164.79 16121.05 3435.37 5912.18 2291.15
Short Term Loan from banks 7500 13500 nil nil nil nil nil
Interest there on 4.7 0.94 nil nil nil nil nil
Current Liabilities and
Provision:-
Current Liabilities 19066.97 19824.52 42119.31 42722.8 50799.58 35288.77 22650.2

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Provision 10534.69 4800.53 2805.59 2772.53 1915.14 1318.5 1284.58
551765.1 539444.9 509734.5 469604.3 384385.3
LiabilityTotal 567639.4 2 6 539157.9 3 8 8

53
Table 5.7
Balance Sheet from 1998-99 to 2004-05

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99


ASSETS
Fixed assets:-
335360.3 337345.1 343912.2 236197.2 184164.3 127283.5
Gross Block - Depreciation 3 3 5 339344.4 5 3 4
Advance toward land 885.37 1494.46 479.5 1062.57 1140.1 1138.94 705.82
156440.3 173621.6
Capital Work in progress 36530.45 34512.03 25419.38 30229.07 120702.6 7 3
Construction Stores in
Advance 21085.43 12714.04 12572.37 15349.78 30536.79 23749.45 23053.62
Current Assets:-
Inventories 8890.12 7217.6 5787.96 5311.64 3155.24 7541.67 7712.21
128641.5 131356.6 103948.4
Sundry and Debtor 32838.79 30627.93 9 6 7 79869.37 44306.42
Cash and Bank Balances 26189.04 18518.59 13824.48 10470.36 9563.02 13728.52 5131.53
Loan and Advances 8451.52 11848.21 2579.05 5087.69 3569.56 2050.35 1641.29
Investment:-
Investment in State govt. 95490.6 95490.6 nil nil nil nil nil
565721.6 549768.5 533216.5 538212.1 508813.0 383456.0
Total 5 9 8 7 3 468683 6
Miscellaneous:-
Expenditure not adjusted 1917.75 1996.53 388.62 945.7 921.5 921.38 929.39
P&L Balance nil nil 5839.76 nil nil nil nil

551765.1 539444.9 539157.8 509734.5 469604.3 384385.3


Assets Total 567639.4 2 6 7 3 8 8

54
Table 5.8
Comparative Balance Sheet

LIABILITIES INCREASE DECREASE (Absolute figures)


2004-05 2003-04 2002-03 2001-02 2000-01 1999-00
Shareholders' Funds & Liabilities
Issue,subscribed and paid-up 17061 2088.34 4128 0 5044 25681.66
Share Application Money Pending
Allotment -2126 37.66 -2739.66 4128 -4344 -16412.66
Resereve and surplus 16091.41 13065.33 -34998.57 6059.21 12046.06 2254.89
Secured Loan 14815.02 41008.58 69349.87 2874.99 -2215.01 26050.61
Unsecured Loan -34943.76 -23579.9 -34882.14 23580.58 13491.59 34972.06
Current Liabilities -757.55 -22294.79 -603.49 -8076.78 15510.81 12638.57
Provision 5734.16 1994.94 33.06 857.39 596.64 33.92
Total Funds 15874.28 12320.16 287.06 29423.4 40130.1 85219.02

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Comparative Balance Sheet

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00


ASSET
F/Assets 7795.92 3682.16 -3602.32 -2590.92 23083.65 40828.48
Investment in State govt. 0
Inventories 1672.52 1429.64 476.32 2156.4 -4386.43 -170.54
Sundry and Debtor 2210.86 -98013.66 -2715.07 27408.19 24079.1 35562.95
Cash and Bank Balances 7670.45 4694.11 3354.12 907.34 -4165.5 8596.99
Loan and Advances -3396.69 9269.16 -2508.64 1518.13 1519.21 409.06
Miscellaneous:- 0 0 0 0 0 0
Expenditure not adjusted -78.78 1607.91 -557.08 24.2 0.12 -8.01
P&L Balance
TOTAL ASSETS 15874.28 12320.16 287.09 29423.34 40130.15 85218.93

56
Table 5.9
Comparative Balance Sheet

LIABILITIES INCREASE DECREAS (PERCENTAGE)


2004-05 2003-04 2002-03 2001-02 2000-01 1999-00
Shareholders' Funds & Liabilities
2.779997
Issue,subscribed and paid-up 8.853687 1.095603 2.213606 0 1 16.488246
Share Application Money Pending
Allotment -80.9239 1.454335 -51.4089 343.6678 -78.33859 -74.74631
48.79539
Resereve and surplus 77.14406 167.6422 -81.7874 16.4953 3 10.052118
Secured Loan 7.460194 26.02414 78.60198 3.368306 -2.52944 42.345929
10.08665
Unsecured Loan -31.0979 -17.3449 -20.4193 16.01414 1 35.402261
43.95395
Current Liabilities -3.82128 -52.9325 -1.41257 -15.8993 5 55.798933
45.25142
Provision 119.4485 71.1059 1.192413 44.76905 2 2.6405518
8.545511
Total Funds 2.877 2.283859 0.053242 5.772299 9 22.170203

57
Comparative Balance Sheet

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00


ASSET
6.315755
F/Assets 2.019325 0.962949 -0.93328 -0.66677 5 12.575587
Investment in State govt. 0
Inventories 23.1728 24.70024 8.967475 68.34345 -58.16258 -2.211299
30.14810
Sundry and Debtor 7.218444 -76.1913 -2.06695 26.36709 3 80.265907
Cash and Bank Balances 41.42027 33.95506 32.03443 9.488007 -30.34195 167.53269
74.09515
Loan and Advances -28.6684 359.4021 -49.308 42.52989 4 24.923079
Miscellaneous:-
0.013023
Expenditure not adjusted -3.94585 413.7486 -58.9066 2.626153 9 -0.861856
P&L Balance
8.545522
TOTAL ASSETS 2.877 2.283859 0.053248 5.772287 9 22.170176

58
Table 5.10

VERTICAL ANALYSIS
2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99
LIABILITIES

Shareholders' Funds & Liabilities


Issued ,subscribed and paid-up 36.95 34.92 35.33 34.59 36.58 38.64 40.52
Share Application Money Pending
Allotment 0.09 0.48 0.48 0.99 0.24 1.18 5.71
Reserve and surplus 6.51 3.78 1.44 7.94 7.21 5.26 5.84
Secured Loan 37.59 35.99 29.21 16.36 16.74 18.65 16.00
Unsecured Loan 13.64 20.37 25.20 31.68 28.89 28.48 25.70
Current Liabilities 3.36 3.59 7.81 7.92 9.97 7.51 5.89
Provision 1.86 0.87 0.52 0.51 0.38 0.28 0.33
Total Funds 100.00 100.00 100.00 100.00 100.00 100.00 100.00

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ASSET 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

F/Assets 69.386 69.969 70.885 71.591 76.231 77.830 84.463


Investment in State govt. 16.822 17.306
Inventories 1.566 1.308 1.073 0.985 0.619 1.606 2.006
Sundry and Debtor 5.785 5.551 23.847 24.363 20.393 17.008 11.527
Cash and Bank Balances 4.614 3.356 2.563 1.942 1.876 2.923 1.335
Loan and Advances 1.489 2.147 0.478 0.944 0.700 0.437 0.427
Miscellaneous:- 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Expenditure not adjusted 0.338 0.362 0.072 0.175 0.181 0.196 0.242
P&L Balance 1.08
TOTAL ASSETS 100 100 100 100 100 100 100

60
ANALYSIS OF BALANCE SHEET

Business organizations have to assemble funds from numerous sources to satisfy their
varied financial needs. The financial need of every business may be:-

1) For its establishment and

2) To carry out it’s day to day operation.

Companies generally need large amount of finance for their set up, expansion,
diversification and modernization. Any of the above decisions are irreversible once they
are taken and implemented. As a result the company can resort to only those sources of
finance which need not be repaid in the short run and from which the finance is procured
for a long period are known as long term sources.

Funds are also needed by the firms to meet the day to day needs of the business like
purchase of raw material, payment of wages etc. These funds are known as working
capital, which refers to the part of the firm’s capital which is required for financing the
short term needs. These are sources from which finance is procured for a short term.

The total funds needed by an organization, whether for long term or for short term, are
raised either from its own source or from some outside source. The former one is known
as internal financing and the later one is known as external financing. The internal
financing refers to financing by internal resources which in term comprise earning
retained by the business in the form of depreciation or other reserves and income left over
after meeting all expenses and not distributed among owners of the enterprise. Internal
funds constitute a potent source of corporate financing for which the company does not
bother much. It gets substantial amount of funds at cheaper rate and without any
obligation to refund the same. Internal funds are available to a firm which has been
running its business successfully and has not out a portion of it’s earnings for future
purpose. With burgeoning resources in hand a company can absorb the socks of business
vicissitudes and resist adverse conditions boldly. A strong and stable company will
obviously enlist the support of investors as well as creditors that will help the company to
procure funds from external sources at a reasonable rate. Conventionally in any
organization too internal funds prove immensely useful to the company for preserving its

61
solvency position. In sum internal fund provides the best means of company’s future
growth. Against this the external sources are the outside sources from which the company
raises a considerable portion of it’s required fund at a higher rate and with the obligation
to refund the same.

Internal and External Source:

Internal and external source constitute the total source of financial requirements. The
extent and variability of external source depend on the availability of internal source. At
an early stage organizations plan their development programmes according to the
available resources, whereas in the advance level of development, the big organizations
have a built in capacity so that they can generate resources to finance their expansion
programmes. Size in terms total assets has an impact on the sources as increasing size
enhances the ability to generate sales and operate at a greater economy so that internal
surplus will increase. But in the intermediary stage the internal source fall short of
planned capital expenditure programmes, hence at this stage most of the companies have
to depend on external finance. At this stage the ability to increase the scale of operation
provides an incentive to raise funds from external sources. The internal and external
source of finance of NEEPCO is given in the Table 5.11.

The figures from the table indicate that on an average uses 56.54% of borrowed fund and
42.2% owned or internal fund. It points out that NEEPCO is in intermediary stage where
it depends more on external funds than internal. This may be because of the fact that the
organization under study is confident about its ability to increase the scale of its
operation. It is also found that except the year 2004-05 the borrowed fund is showing an
increasing trend, which confirms the above view. The standard deviation and coefficient
of variation indicate that the organization is very much consistent in regard to the use of
borrowed funds. But the excess use of borrowed fund increases the risk associated with
the organization in spite of its advantage as leverage. So NEEPCO has to draw a line for
its optimum borrowings. It is already discussed that the excess had a negative impact on
profit of the year 2002-03 where the capacity utilization was less.

62
Table 5.11
Owned and borrowed fund:

Year Owned Fund Percentage Borrowed Percentage Total


Fund
1998-99 178189.37 46.36 206196.01 53.64 384385.38
1999-00 206125.92 43.89 263478.46 56.11 469604.38
2000-01 223215.98 43.79 286518.55 56.21 509734.53
2001-02 229275.19 42.52 309882.71 57.48 539157.9
2002-03 198404.62 36.78 341040.34 63.22 539444.96
2003-04 213558.29 38.70 338206.83 61.30 551765.12
2004-05 246710.7 43.46 320928.7 56.54 567639.4
Average 213640 42.2 295178.8 57.8 508818.8
Std Dev 22267.9 3.3 48013.5 3.3 63488.49
CV 7.9 5.7

Figure 5.1

Sources of Funds

400000
Amount in Lakhs

350000
300000
250000 Owned Fund
200000
150000 Borrowed Fund
100000
50000
0
1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

Year

63
Long and short term Sources of Finance:

The present section divides the total sources into long and short term sources as the
principal components of the total source of NEEPCO over the period of seven years.

Table 5.12
Short and Long term source in Total source

Year Short Term Percentage Long Term Percentage Total


Source Source
1998-99 48183.77 12.54 336201.61 87.46 384385.38
1999-00 48064.61 10.24 421539.77 89.76 469604.38
2000-01 57351.25 11.25 452383.28 88.75 509734.53
2001-02 66945.57 12.42 472212.33 87.58 539157.9
2002-03 83679.19 15.51 455765.77 84.49 539444.96
2003-04 69700.67 12.63 482064.45 87.37 551765.12
2004-05 37607.52 6.63 530031.88 93.37 567639.4
Average 58790.37 11.60 450028.44 88.40 508818.81
Std Dev 15723.24 2.73 60174.18 2.73 63488.79
CV 26.74 23.51 13.37 3.09 12.48

The average percentage of funds raised from short term sources is 11.6% and the highest
percentage of short term funds reached 15.51% in the year 2002-03 and then reduced
again. It shows that the short term source does not play a significant role in the total
source of financing of NEEPCO. On an average the long term source constituted 88.40%
of the total source for the period of seven years of reference. Though fluctuation
observed, still it can be said that long term source is showing an increasing trend. It
signifies the dominance of long term source over short term source. The coefficient of
variation shows a greater consistency and homogeneity in the use of long term sources
over the period of reference.

Figure 5.2

64
Sources of Funds

600000
Amount in Lakhs

500000
400000 Short Term
Source
300000
Long Term Source
200000
100000
0
9

5
-0
-9

-0

-0
98

00

02

04
19

20

20

20

Year

Long and Short term Assets:

Like the total source of funds, total assets can be cracked into short and long term assets.
Consistent with the general trend, the long term assets in NEEPCO constitute a major
part of the total assets. On an average 20.5 % of the total asset is short term and 79.5% is
long term assets. The long term assets are showing a rising trend where as the short term
assets are showing the reverse trend. The coefficient of variation shows that the fixed
asset in the asset structure is very much consistent over years. Since the company is in the
process of expansion, its obvious on the part of company to invest in long term projects.
Probably that’s the reason behind the increasing percentage of fixed assets in the total
assets of the company.

65
Table 5.13
Short and Long term Assets in Total Assets

Year Short Term Percentage Long Term Percentage Total*


Assets Assets
1998-99 58791.45 15.33 324664.61 84.67 383456.06
1999-00 103189.91 22.02 365493.09 77.98 468683
2000-01 120236.29 23.63 388576.74 76.37 508813.03
2001-02 152226.35 28.28 385985.82 71.72 538212.17
2002-03 150833.08 28.29 382383.5 71.71 533216.58
2003-04 68212.33 12.41 481556.26 87.59 549768.59
2004-05 76369.47 13.50 489352.18 86.50 565721.65
Average 104265.55 20.49 402573.17 79.51 506838.73
Std Dev 38451.08 6.76 60679.85 6.76 62813.61
CV 36.88 33.01 15.07 8.51 12.39
*Total Assets excludes fictitious assets

Figure 5.3

Composition of Assets

600000
Amount in Lakhs

500000
400000
Short Term Assets
300000
Long Term Assets
200000
100000
0
9

5
-9

-0

-0

-0
00

02
98

04
20

20
19

20

Year

66
Current Assets and Liabilities:

The position of current assets and liabilities designate the company’s liquidity position
and short term solvency position of the company. A cursory look to the cash and bank
balance posits that cash hoarding is preferred by the managers of NEEPCO. Even the
cash and bank balance at the end of 2004-05 is much more than the total current liabilities
and it is more than 5 times of the cash balance in 1998-99.

Table 5.14

Year Cash & Bank Current Assets Current Liabilities Net Current Assets
1998-99 5131.53 58791.45 22650.2 36141.25
1999-00 13728.52 103189.90 35288.8 67901.14
2000-01 9563.02 120236.30 50799.6 69436.71
2001-02 10470.36 152226.40 42722.8 109503.60
2002-03 13824.48 150833.10 42119.3 108713.80
2003-04 18518.59 68212.33 19824.5 48387.81
2004-05 26189.04 76369.47 19067 57302.50

But overall NEEPCO has a strong liquidity position. The net working capital is too high,
which may be at the cost of some better investments. It indicates the managers have to
revisit their working capital management policy.

67
Trend Analysis of Important Financial Variables:

Analysis of Sales -

A net sale is an item which forms a major part of revenue receipt of an entity. In case of
tangible product, a net sale is derived subtracting return inward from total goods
delivered. For intangibility, the net sale of NEEPCO is calculated after deduction of free
supply of energy from the total sales. The sales figures are indicating an overall upward
trend. On an average the growth rate of sales is 20.64%.

Line graph of net sales of NEEPCO shows an increasing trend excluding the year 2002-
03. A sale, in the year 1998-99 amounts to Rs259.18 crores and that amount was
increased by Rs98.82 crore at a rate of 38% growth totaling Rs358 crores in the year
1999-00. It was further gone up to Rs375 crores at the growth rate of 4.7% and to Rs453
crores at a rate of 78.23% during the year 2000-01 and 2001-02 respectively.
Remarkably, in the year 2002-03 company’s sales sloped downwards to the right
indicating Rs40.94crores lesser at the rate of 9.03% for previous year. However it could
gain its momentum of growth at the rate of 63% i.e. equals to Rs670.3 crores. Thus
Rs258.01crores increased in sales could be added in the year 2003-04. At last, for the
period of analysis, NEEPCO recorded the increased of Rs128.66 for the year 2004-05 at
19% growth rate. Thus the trend of net sales represents upward moving that is from
Rs259.18 crores in the year 1998-99 to Rs798.96 crores in the year 2004-05. Rs539.78
crores difference at the growth rate of 208% during these 7 years period. Corporation is
doing well in terms of sales and should work out possible means to reduce the cost of
good sold to gain more profit.

68
Figure 5.4

900

Figure 5.5

800

700
300
600
RES

69

200
Analysis of Net Profit:

The graphical representation of net profit of the corporation may be seen that there are
irregularities in the earnings. Only Rs56.22 crores has earned during the year 1998-99
and it was deteriorated by earning Rs27.93 crores only crippling the company’s position
in the year 1999-00. Net loss of Rs408.15 crores in the year 2002-03 borne by the
corporation is reflected a though time for NEEPCO. It could be recover in the next year
2003-04.Total amount of Rs208.09 crores at the growth rate of 54.85% have been
generated as a net profit during that period of 2003-04. The reason is that the sales
increased to Rs670.31 crores in comparison to previous year’s Rs412.29 crores. One
genuine reason of net loss incurred is due to reduction in demand for electricity in the
region. Some of the states import power from outside the region and that is why sales
reduced. Another reason is that they underutilized the capacity generation as mention in
the report. In the year 2004-05, sales, again slightly reduced from Rs208.09 crores to
Rs205.98 crores. That implies the performance need to be further improvised to enhance
the net profit which is the major sources for the company. As it was Rs56.23 crores in
1998-99 and Rs205.98 crores in 2004-05, Rs149.74 crores increase of net profit in 7
years signifies the growth and the development of the corporation.

70
Table 5.15
Trend Analysis:

2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Net Worth 138.454 119.849 111.345 128.669 125.269 115.678 100

Borrowed Fund 155.643 164.022 165.396 150.286 138.954 127.781 100

Short Term Sources 78.050 144.656 173.667 138.938 119.026 99.753 100

Long term Sources 157.653 143.386 135.563 140.455 134.557 125.383 100

71
Analysis of Net Worth:

72
Figure 5.6

Net Worth

160
140 138.45
125.27 128.67
Amount in Crores

120 115.68 119.85


111.35
100 100
80 Series1
60
40
20
0
1998- 1999- 2000- 2001- 2002- 2003- 2004-
99 00 01 02 03 04 05
Year

Figure 5.7

Borrowed Fund

180
160
140
120
Rs Crores

100
Borrowed Fund
80
60
40
20
0
1998- 1999- 2000- 2001- 2002- 2003- 2004-
99 00 01 02 03 04 05
Year

73
Figure 5.8
Short Term Source

200
180
160
140
Rs Crores

120
100 Short Term Source
80
60
40
20
0
19 19 20 20 20 20 20
98- 99- 00- 01- 02- 03- 04-
99 00 01 02 03 04 05
Year

Figure 5.9

Long Term Source

180
160
140
Rs Crores

120
100
Long Term Source
80
60
40
20
0
1998- 1999- 2000- 2001- 2002- 2003- 2004-
99 00 01 02 03 04 05
Year

74
75
Ratio Analysis:
Profitability Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

G.P Ratio 46.22 56.92 23.54 50.17 69.05 43.93 52.72

Operating Ratio 76.64 72.91 - 90.63 77.37 93.66 81.91

Operating Profit Ratio 23.36 27.09 - 9.37 22.63 6.34 18.09

NP Ratio 24.55 29.48 (98.98) 11.66 7.13 7.82 22.46

NP:N Worth 8.4 9.72 (21.92) 2.55 5.55 1.38 3.04

ROI 4.45 4.6 (10.39) 1.07 2.58 0.65 1.62

ROEC 9.35 10.25 (21.41) 2.83 6.32 1.54 3.74

ROTA 4.87 5.02 (10.51) 1.35 3.0 0.75 1.75

EPS 93.52 102.53 - 28.34 63.17 15.39 37.38

76
GROSS PROFIT RATIO

The Gross Profit ratio of the corporation for the past 7 (seven) years i.e., 1999 – 05 shows
a fluctuating result. The year 2004-05 shows a favorable trend. In the year 2001 the Gross
Profit considerably reduces to Rs.49.35 crore. The Gross Profit trend has shown
increasing except in the year 2001. The reason of the Gross Profit might be due to
underutilization of capacity. There is no standard norm for Gross Profit and it may vary
from business to business. The low Gross Profit also generally indicates high cost of
goods sold due to unfavorable purchasing policies, lesser sales, lower selling prices, etc.
NEEPCO achieved nearly 100% during the year 1999. Financial analysis of the
corporation shows favorable increase from the year 2002-03 to 2004-05. But it is obvious
that the corporation maintain the efficiency with which it produces its product. The
significant changes in the ratio should be thoroughly investigated because increase in the
Gross Profit ratio occurs not only by a change in economic factors like increase in selling
price without any corresponding proportionate increase in cost or decrease in cost without
any decrease in selling price but also due to certain misleading factors like overvaluation
of closing stock or under valuation of opening s tock.

NET PROFIT RATIO

A high net profit margin would ensure adequate return to the owners as well as enable a
firm to withstand adverse economic condition when selling price is declining, cost of
production is rising and demand for the product is falling. Net profit to net sale of
NEEPCO fluctuates as shown in the statement analysis. Highest net profit ratio has been
recorded as Rs.29.48 cr. during the year 2003-04. NEEPCO incurred huge loss during the
year 2002-03. The loss amount was accounted for Rs.98.99 cr. This due to under-
utilization of capacity and the demand for the electricity reduces. Because some the
North-Eastern States import electricity from other parts of India, NEEPCO has to suffer
that huge loss during that particular year.

77
OPERATING RATIO

This ratio establishes the relationship between cost of goods sold and other operating
expenses on the one hand and the sales on the other hand. In other words, it measures the
cost of operations per rupee of sales. Operating ratio of NEEPCO shows that 31.9% of
the sales have been consumed by operating cost i.e. cost of good sold and operating
expenses and 68.1% is left to cover interest charge, income tax payment, dividend and
the retention of profits as reserved during the year 2004-05. The highest amount of
operating ratio is recorded during the year 2000-01 at the rate of 61.1%. But in the year
1998-99 the lowest percentage occurred at the rate of 19.3% which implies 80.7% as
operating profit. The analysis reveals the fluctuation in operating ratio but from the year
2002-03 to 2004-05 trend started to improve which is considerably reduced from 51.75%
to 31.9%.

RETURN ON EQUITY CAPITAL

This ratio in more meaningful to the equity share holders who are interested to know
profits earn by the company and those profit which can be made available to pay
dividend to them. This ratio is somewhat similar to the return on share holders’
investments and higher the ratio better it is NEEPCO accounts for Rs.10.25 cr of return
on equity capital during the year 2003-04. As it was incurred loss in the year 2002-03
negative figure is reflected in that particular year at Rs.21.41 cr. During the year 1999-00
the return on equity capital of NEEPCO amounts to Rs.1.54 cr. which is substantially
very low. The implication of trend analysis of return on equity capital of NEEPCO
fluctuates from year to year.

78
Performance /Activity Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99


Capital Turnover Ratio 18.13 15.6 10.49 9.2 8.59 8.27 7.21

Working Capital Turnover Ratio 170.84 153.78 392.36 41.47 58.03 53.68 74.36

Fixed Assets Turnover Ratio .204 0.167 0.27 0.172 0.171 0.234 0.221

Inventory Turnover Ratio 8.39 8.61 16.29 13.16 7.7 5.4 4.96

Debtor Turnover Ratio 2.26 2.20 0.32 0.39 0.43 0.58 0.76

Average Collection Period (Days)


148 164 1123 1043 955 805 615

79
INVENTORY TURNOVER RATIO

This ratio shows the number of times on a company’s inventory is turn into sales.
Investment in an inventory represents idle case. Lesser the inventory, greater the cash
available for meeting operating needs. During the year 1998-99 inventory turnover ratio
recorded 6.5 times but in the financial analysis shows that the lowest inventory turnover
has been occurred during that year 1999-00 i.e. 1.7 times. From the year 2002-03 to
2004-05 it touches below 3.5. High inventory turnover is indicative of efficient inventory
management. This implies that NEEPCO has come across during the year 1999. But
amount has considerably reduced from that 6.5 to 2.64 in the year 2004-05.

AVERAGE COLLECTION PERIOD

This analysis shows how efficient the organization is in collecting the debts. Collection of
cash from debtor is one of the important activities of any business organization. In case of
NEEPCO 142 days was recorded as the maximum debtor collection period in the year
2004-05. But the lowest collection period has been observed in the year 2003-04, i.e. 43
days. The organization should keep in mind that sound collection policy enable them to
its outstanding bill and minimize the risk of bad debt. Finding from the report shows that
NEEPCO has followed proper collection policy. It can also be seen that the debtor
collection period trend gradually increases from 1998-99 to 2004-05 except i.e. from 47
days to142 except in the year 2003-04 which is lowest that is 43 days. Normally
maximum 2 to 3 months should be allowed to the debtors beyond which affect the flow
of fund in the business.

80
Liquidity/Short Term Solvency Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Working Capital Ratio (%) 46.63 36.41 13.74 12.43 6.21 21.37 34.05

Current ratio 4 3.4 3.6 3.6 2.4 2.9 2.6

Liquidity Ratio 3.5 3.01 3.42 3.42 2.29 2.69 2.23

Long Term Solvency Ratios

Ratios 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Debt Equity Ratio 1.18 1.44 1.46 1.1 1.04 1.05 0.80

Liability to Equity Ratio 1.25 1.50 1.67 1.28 1.26 1.21 0.83

Proprietary Ratio 0.52 0.49 0.49 0.64 0.48 0.49 0.49

Interest Coverage Ratio 2.26 2.20 0.39 1.33 1.60 1.23 1.74

81
CURRENT RATIO

A current ratio of a firm measures its short term solvency i.e. its ability to meet short term
obligation. As a measure of short term current financial liquidity, it indicates the rupee of
current asset available for each rupee of current obligation. The need for safety margin
arises from the inevitable unevenness in the flow of fund through the current asset and
liability account. Generally 2:1 is considered to be an ideal current ratio. From the
analysis we find that NEEPCO keep current asset to meets obligation which is very
satisfactory. In the year 2004-05 current asset is four times higher than current liabilities
whereas the corporation could manage the optimum current ratio i.e. around 2 to 2.5 for
three consecutive years that is 1998-99 to 2000-01. Gradual increase is observed during
the year 2001-02 to 2004-05. Every year current ratio shows increasing trend except in
the year 2000-01 which recorded at the lowest ratio 2.4:1. It is to be reminded as keeping
high amount of current assets reduces the profitability as the fund remains idle in the
business. The decreases in current ratio may be due to decreases in current assets or
increases in current liabilities. Excessive increase in current assets may affect the
profitability of the concern by blocking the flow of fund. Current ratio must be in the
position that is the trade-off between liquidity and profitability. The analysis reflects that
NEEPCO has sound liquidity position. But remarkably the proportion of current asset to
current liability of this company is 4:1 in the year 2004-05.

QUICK RATIO

This ratio reflects the readily available (easily convertible into cash without diminishing
its value) to meet current obligations than a rupee of, say, inventory. This impairs the
usefulness of current ratio. The acid test ratio is a measure of liquidity design to
overcome this defect of the current ratio. NEEPCO maintain the good record of readily
available liquid assets. During 1999 liquid ratio of the corporation is 2.23:1 and that was
increased to 3.5:1 in the year 2005. Excessive liquid ratio blocks the flow of fund.
Normally 2.5:1 is the most appropriate ratio. But in the year 1998-99 and 2000-01,
NEEPCO could not satisfy this norm recording 2.23 and 2.29 respectively for those
particular years.

82
LONG TERM SOLVENCY RATIO

The long term solvency of this corporation is quite an unsatisfactory. For debt-equity
ratio, generally accepted norm is 1:1. The corporation recorded highest debt-equity ratio
at 1.67 which implies debt ratio is higher than equity capital in the year 2002-03 and the
lowest ratio occurred in the year 1998-99 as the ratio was 1.03 debt to 1 equity. If the
external equities exceed internal equity than it implies out side the fund is greater than
shareholders’ fund. Moreover, the proprietary ratio also support this view as the
percentage of shareholders’ fund over the total assets (being in dismal on Re 1) which
implies that the company relying on the outsider fund for financing its affairs. In the year
1998-99 it occurs to be .49 of Re 1. Even in the year 2004-05 only 43% have been
credited to proprietary internal source out of Re. 1. Lowest proprietary ratio has figure
out at the rate of 33% out of Re 1 during the year 2001-02.

82