A Major Research Project Report On

A STUDY OF FINANCIAL ANALYSIS & INTERPRETATION ON BHEL INDUSTRIES

For the partial fulfillment of the requirement of degree of

Master of Business Administration Session- 2009-2011 Submitted to

DEVI AHILYA VISHWAVIDYALAYA, INDORE

GUIDED BYMiss. Ruchi Tiwari Asst. Prof. MDITM, Roll no- 09140189 SUBMITTED BYGagan Garg MBA [FT] 4 sem. Indore (m.p.) SpecializationFin/Mkt

Mathuradevi Institute of Technology and Management, Indore

DECLARATION

I, the undersigned, hereby declare that the Project Report entitled A Study of Financial Analysis

& Interpretation on BHEL Industries written & submitted by me to Devi Ahilya University of
Indore, in the partial fulfillment of the requirement for the award of degree of Master of Business Administration under the guidance of Miss Ruchi Tiwari is my original work and conclusions drawn therein are based on material collected by myself.

Place: Indore Date:

Gagan Garg

CERTIFICATE

This is to certify that the Project Report entitled A Study of Financial Analysis & Interpretation

on BHEL Industries which is being submitted herewith for the award of the degree of Master of
Business Administration of Devi Ahilya University, Indore, is original research work completed by Gagan Garg , a student of MBA IV Semester of Mathuradevi Institute of Technology & Management, Indore, under my supervision & guidance and to the best of my knowledge & belief. The work embodied in this project report is satisfactory & complete in all respects.

Place: Indore Date:

Miss Ruchi Tiwari

ACKNOWLEDGEMENT

Gratitude is not a thing of expression; it is more a matter of feeling. There is always a sense of gratitude which one express for others for their help and supervision in achieving the goals. I too express my deep gratitude to each and every one who has been helpful to me in completing the project report successfully. First, of all, I am highly thankful to Dr. G. S. Sharma, Principal, Mathuradevi Institute of Technology & Management, Indore for allowing me to pursue my Major Research Project on A Study of Financial Analysis & Interpretation on BHEL

Industries.
It gives me immense pleasure to express our deep regards and sincere sense of gratitude to Miss Ruchi Tiwari Asst. Prof. for her guidance for my project report. I would also like to thank other faculty members of college for their support which helped me for preparing project report. I feel self-short of words to thanks my parents and friends who had directly or indirectly instrumental in the completion of the project.

Gagan Garg

TABLE OF CONTENT Chapter

Chapter 1

Particular
Executive Summary

Page No.

Chapter 2

Conceptual Framework 1. Background 2. Literature Review 3. Rationale of the study 4. Objectives of the study Company Profile Research Methodology 1. The Study 2. Research Design 3. Sample Design 4. Tools for data collection 5. Tools for data analysis 6. Ratio Analysis Findings 1.Data Analysis & Interpretation Conclusion Recommendation Limitations Research Implications Bibliography

Chapter 3 Chapter 4

Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9

Chapter 1

Executive summary

Executive summary

This is the project about financial analysis and interpretation of BHEL The project involves the financial analysis of the BHEL Bhopal and BHEL Jhansi Plant. In this study we have gone through

Ratio Analysis and Break Even Analysis. So that we can know the financial performance of the company and financial stability of the company. BHEL has collaborated in the past with leading overseas manufacturers for high pressure boilers and accessories. Through these collaborations BHEL has now acquired complete know-how in the field of high pressure boilers and accessories. Many of the collaborations of BHEL have now expired and have not been renewed due to their acquiring the requisite know-how in the related fields and only selective collaborations in specific areas are being continued. ABL still has a collaboration with Babcock Power, UK and other reputed manufacturers for the manufacture of high pressure boilers and accessories.

Chapter 2

CONCEPTUAL FRAMEWORK

Background

Ratio analysis
Meaning of Ratio A ratio is an expression of the quantitative relationship between two numbers Wixon,kell& Beoford

Accounting ratio is used to describe significant relationship which exit between figures shown on a balance sheet, P&L a/c or in a budgetary control system. J. Batty Ratio analysis is a study of relationship among the various financial factors in a business. John.N.Myer A financial ratio is the relationship between two accounting figure expressed as a proportion. Ratio provides clues to the financial position of a concern. These are the pointers or indicators of financial strength, soundness, position or weakness of an enterprise. Ratio analysis is one of the methods of analyzing financial statements. It is an attempt to present the information of the financial statements in simplified, systematized and summarized form. It measures the profitability, efficiency and financial soundness of the business. Ratio analysis is therefore, a toll to present the figures of financial statements in simple, concise and intelligible form. There are a number of ratios, which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios from the same, keeping in mind the objectives of analysis. Calculation of ratios is comparatively simple, routine clerical in nature but interpretation of ratios is highly sophisticated and intricate phenomenon. The benefit of ratio analysis depends on a great deal upon the correct interpretation. It needs skill, intelligence, training, farsightedness and intuition of high order on the part of the analyst. Analysis of the financial statement is the systematic numerical calculation of the relationship between one fact with the other to profitability, operational efficiency, solvency and the growth potential o the business. The analysis serves the interests of shareholders, debentures holders, potential investors, creditors, bankers, legislators and economist. The analysis of the financial statement makes it simple, intelligible and meaningful for all the concerned parties to simplify, summaries and systematizes the monotonous figure. Financial analysis in this way is the purposeful and systematic presentation of financial statements. Various users for decision-making process use the information contained in financial statements. User can know better about the financial strengths and weakness of the firm if they properly analysis the information contained in the financial statements.

Interpretation means to put the meaning of a statement into simple terms for the benefit to the user or drawing conclusions to serve as a basis for decision and action. Analysis of statements consists in separating facts according to some definite plan, arranging them in-group according to certain characteristics and then presenting them in a convenient and easily understandable form. On the basis of objectives to be achieved, the analysis can be long term and short term.

Long-term analysis: It is made in order to study the long-term financial stability, solvency and liquidity as well as earning capacity of a business concern. The purpose is to know whether in the long run the concern will be able to earn a minimum amount, which will be sufficient to maintain a reasonable rate on the investment. It helps in long term financial planning, which is essential for the continued success of a business. Short-term analysis: This is made to determine the short-term solvency. Stability and liquidity as well as earning capacity of the business. This analysis is made with reference to items of current assets and current liabilities to have fairly sufficient knowledge about the companies current position, which may be helpful for short term financial planning and long term planning.

SIGNIFICANCE OF THE RATIO ANALYSIS Ratios as a tool of financial analysis provide symptoms with the help of which an analyst is in a position to diagnose the financial health of the unit. Financial analysis can be compared with biopsy conducted by the doctor on the patient in order to diagnose the cases of illness so that

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treatment may be prescribed to the patient to help in recover. As there are different groups of interested parties so significance to them are different.

Management Management needs information regarding the profitability, operational efficiency and financial soundness of the business, so that weakness of the business may be identified and effective business plans may be formulated. Ratio analysis helps the management in decision making, financial forecasting and planning. It helps in communicating the desired information to the relevant parties and facilitates coordination. Ratios provide actual basis, which can be compared with the standards, thus helps in effective control.

Shareholders The shareholders, the virtual owners of business corporate units have an interest in the welfare and progress of business. They want to know about the profitability and future prospects of the enterprise. The requisite information is available from the analysis of financial statements.

Workers Employees of the business are interested in the profit of business. Workers in the business are paid bonus on the basis of productivity and profitability, so they have an interest in the financial analysis of the business. Creditors Creditors of the enterprise are interested in the short term and long term financial soundness of the business. They want to ensure themselves, whether their funds are safe and secure and the business is capable of making payment of interest regularly and also refund of funds as per agreements. Government Financial analysis helps government in determining tax liability. The government is also capable of ascertaining the economic development of the country through the financial analysis. The government requires the information for formulating effective economic plans and balanced growth of different sectors and region of the economy. Potential investor The potential investors of the business have an interest in the operational efficiency and profit earning capacity of the business unit. They would like to know how far their previous investment has been safe and how much the new investment will be safer and secured.

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Economist and researchers These parties are interested in the financial activities of the business, so that they may study the financial health of the economic structure of the business, study the rate of economic growth, compare it with other economies and suggest effective measure to accelerate the pace of growth.

CLASSIFICATION OF RATIOS

Classification of Ratios:-

On the basis of liquidity

On the basis of turnover

On the basis of solvency

On the basis of profitability

Current ratio

Inventory turnover ratio Debtors turnover ratio Creditor turnover ratio Working capital turnover ratio Fixed asset turnover ratio

Debt equity ratio Interest coverage ratio

Gross profit ratio

Quick ratio

Net profit ratio

Proprietar y ratio
Net worth to total assets ratio

Return on capital employed

Return on equity

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Earning per share

COMPARATIVE ANALYSIS OF RATIOS

LIQUIDITY RATIO
CURRENT RATIO QUICK RATIO

TURNOVER RATIO
STOCK TURNOVER RATIO DEBTOR TURNOVER RATIO CREDITOR TURNOVER RATIO WORKING CAPITAL TURNOVER RATIO FIXED ASSETS TURNOVER RATIO

.CONT

CONT
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CONT

C. SOLVENCY RATIO
DEBT EQUITY RATIO INTEREST COVERAGE RATIO PROPRIETARY RATIO NET WORTH TO TOTAL ASSETS RATIO

D. PROFITABILITY RATIO
GROSS PROFIT RATIO NET PROFIT RATIO RETURN ON CAPITAL EMPLOYED RETURN ON EQUITY EARNING PER SHARE

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A. LIQUIDITY RATIO The importance of adequate liquidity in the sense of the ability of a firm to meet current/short-term obligations when they become due for payment can hardly be overstressed. Liquidity implies, from the point of view of utilization of the funds of the firm, that funds are idle or they earn very little. A proper balance between the two contradictory requirements, that is, liquidity and profitability, is required for the efficient financial management. Liquidity ratios are calculated to measure the short term financial soundness of the business Liquidity is the basis of survival of any unit and the creditors are more interested in Liquidity of the business. The ratio assesses the capacity of the company to repay its short-term liability. Banks and other moneylenders for short period are interested in the current assets of the company i.e. shortterm financial position of the business. The ratio is also an effective source to ascertain whether the working capital has been effectively utilized. Liquidity in the ratio means ability to repay loans. Short-term financial position is calculated to adjudge, whether the current assets of the company are sufficient to meet its short-term liabilities.

(I) CURRENT RATIO

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The Current Ratio of a company shows the ability to pay Short Term creditors from Current Assets. It represents the margin of safety; higher the ratio higher is the margin of safety. But higher ratio show the unnecessarily blockage of funds in assets. Thus ratio of 2:1 is considered satisfactory. This ratio indicates the short-term financial position of the company. It judges whether current assets are sufficient to meet the current liabilities. The company must be able to meet its current obligation out of the current assets. It should not depend upon its long-term sources to pay its short-term liabilities. The ratio is calculated on the basis of the following formula:

This is expressed as the current assets divided by the current liabilities. Current assets are those assets, which are convertible into cash within a year. It includes cash in hand, cash at bank, bills receivables, sundry debtors, and inventory etc. The current liabilities are payable within a year. It includes creditors, bills payable, outstanding expenses, short-term loans and bank overdraft etc. The higher the current ratio the higher is the ability of the business to pay its current obligation but such higher current ratio indicates assets are kept and profitability of the company becomes low.

(II) QUICK RATIO

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Quick Ratio only involves only those current assets, which liquidate immediately. Ratio of 1:1 is ideal but 0.7 to 1 is considered satisfactory. This indicates the extent to which current liabilities can be paid without relying on the sale of inventory. Quick ratio is also known as acid test ratio or liquid ratio. Quick ratio is the ready means of assessing a firms liquidity position in the real sense. It shows very short-term liquidity or capacity of the business to meet its obligation at short notice. Liquid assets are current assets less stock and prepaid expenses. These assets are called liquid because they can be converted into cash very shortly. The ratio is calculated by the following formula

It is expressed as the liquid assets divided by the current liabilities. The ideal liquid ratio is 1:1 i.e. liquid assets should be equal to current liabilities. Quick ratio assess the ability of the business to meet the current liabilities without having wait for the manufacturing cycle to be completed and sale to take place for inflow of cash.

B. TURNOVER RATIO Turnover ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. They indicate the speed with which assets are converted into sales. A measure of the number of times a company's inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold/turnover divided by average inventory during the

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time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly. This ratio tells how often a business' inventory turns over during the course of the year. Because inventories are the least liquid form of asset, a high inventory turnover ratio is generally positive. On the other hand, an unusually high ratio compared to the average for your industry could mean a business is losing sales because of inadequate stock on hand.

When to use it: If your business has significant assets tied up in inventory, tracking your turnover is critical to successful financial planning. If inventory is turning too slowly, it could indicate that it may be hampering your cash flow. Because this ratio judges annual inventory turns, it is usually conducted once a year.

(I) INVENTORY TURNOVER RATIO The turnover shows the efficiency of the firm in selling the product. It indicates the speed with which the stock is rotated into sales or the number of times the stock is turn into sales during the year. The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business where stock turnover ratio is high, goods can be sold at a long margin of profit and even then the profitability may be quite high.

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This ratio indicates the efficiency of the firm in selling its product, i.e. it indicates the number of times the inventory has been given the shape of final sales during the year. It is calculated by dividing the cost of goods by the average inventory. (II) DEBTORS TURNOVER RATIO The Debtors Turnover measures the number of times Accounts Receivable was collected during the year. This is also a measure of how well the company collects sales on credit from its customers, just as Average Collection Period measures this in days. This ratio is calculated by dividing sales by average debtors.

Importance of Accounts Receivable Turnover: A high debtor turnover ratio indicates a tight credit policy. Showing the company is successfully executing its credit policies and quickly turning its Accounts Receivables into cash. A low or declining debtor turnover ratio indicates a collection problem, part of which may be due to bad debts A possible negative aspect to an increasing Accounts Receivable Turnover is the may be too strict in its credit Debt collection period The Average Collection Period measures the average number of days it takes for the company

company to collect revenue from its credit sales. Importance Of Average Collection Period

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This ratio reflects how easily the company can collect on its customers. It also can be used as a gauge of how loose or tight the company maintains its credit policies. A particular thing to watch out for is if the Average Collection Period is rising over time. This could be an indicator that the company's customers are in trouble, which could spell trouble ahead. This could also indicate the company has loosened its credit policies with customers, meaning that they may have been extending credit to companies where they normally would not have. This could temporarily boost sales, but could also result in an increase in sales revenue that cannot be recovered, as shown in the Allowance for Doubtful Accounts.

(III)

CREDITORS TURNOVER RATIO

This indicates the payment to the creditor by the company. The ideal value depends on the terms and credit period provided by the creditors. But the higher the ratio, the better it is, since it indicates that the creditors are being paid more quickly which increases the credit worthiness of the firm

Average Payment Period Ratio:

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The average payment period ratio represents the average number of days taken by the firm to pay its creditors.

Importance Of Average Payment Period This ratio reflects how easily the company can pay of its creditors. Lower the ratio, the better is the liquidity position of the company and higher the ratio, less liquid is the position of the firm. But higher payment period may also imply greater credit period enjoyed by the firm & consequently larger the benefit prepaid from credit supplies. Also a higher ratio may imply lesser discount facilities available or higher prices paid for the goods purchased on credit.

(IV) WORKING CAPITAL TURNOVER RATIO Company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. This ratio is helpful where current assets play a major role in generating sales. This ratio reveals how efficiently working capital has been utilized in making sales.

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A high or increasing Working Capital Turnover is usually a positive sign, showing the company is better able to generate sales from its Working Capital. Either the company has been able to gain more Net Sales with the same or smaller amount of Working Capital, or it has been able to reduce its Working Capital while being able to maintain its sales. Efforts to streamline the operations of the company will often show favorably in this ratio.

Net sales Fixed assets turnover ratio = ------------------------------Net fixed assets The Fixed Asset Turnover is similar to Total Asset Turnover, which both measure a company's effectiveness in generating Net Sales revenue from investments back into the company. However, the Fixed Asset Turnover ratio evaluates only the Net Property, Plant, and Equipment investments. Manufacturing and other industries requiring majorinvestments will often spend heavily on properties, manufacturing plants, and equipment to push themselves ahead of the competition. The higher the Fixed Asset Turnover ratio, the more effective the company's investments in Net Property, Plant, and Equipment have become. You may have to search for the explanation in the financial statements to find out what investments were made, as large capital investment purchases may not immediately yield higher sales. It may take a year or more for the company to fully utilize those investments. If you can clearly see the company invested in major improvements heavily one year, it would be wise to watch the Fixed Asset Turnover closely over the next year to see if those investments actually helped the company.

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C. SOLVENCY RATIO Solvency ratios are defined as financial ratios which throw light on the long-term solvency of a firm as reflected in its ability to assure the long-term creditors with regard to periodic payment of interest during the period of the loan repayment of principal on maturity or in predetermined installments at due dates.

(I) DEBT EQUITY RATIO The relationship between borrowed funds and owners capital is a popular measure of the long-term financial solvency of a firm. This relationship is shown by the debt-equity ratio. This ratio reflects the relative claims of creditors and shareholders against the assets of the firm. Alternatively, this ratio reflects the relative claim of creditors and shareholders against the assets of the firm. Debt Debt Equity ratio = ----------------Equity

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Where: Debt= long term liabilities Equity= equity share capital + reserves & surplus fictitious assets The higher the amount of Total Liabilities, the more risky this company becomes. If the company went bankrupt, the creditors would be paid before the stockholders. Plus the more equity the stockholder's provide, the better protected the creditors are and the more attractive the financial position of this company becom

(II) INTEREST COVERAGE RATIO

The interest coverage ratio is also referred to as the times interest earned ratio. It indicates the extent of which earnings are available to meet interest payments. The Interest Coverage Ratio measures how readily the company can pay its Interest Expense payments on its debt obligations.

Importance of Interest Coverage Ratio:

A lower interest coverage ratio means less earnings are available to meet interest payments and that the business is more vulnerable to increases in interest rates. A high or increasing Interest Coverage Ratio is usually a positive sign, showing the company is better able to pay its Interest Expense with its earnings. A ratio result of 1.0 is minimal, showing the company is barely able to meet its expense payments. Depending on the industry, a ratio value of 1.5 to 2.0 is desirable. EBIT Interest coverage ratio= ----------------------------

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INTEREST PAYABLE Where: EBIT = earning before interest and taxes

(III) PROPRIETARY RATIO The sound financial position of a business from long-term point of view is measured by this ratio. High ratio indicates that a large proportion of total assets are provided by equity and hence the firm is less dependent on external sources of finance. But a low ratio is a danger signal for long-term lenders as it indicates a lower margin of safety available to them. The higher this Proprietary ratio denotes that the shareholders have provided the funds to purchase the assets of the concern instead of relying on other sources of funds like bank borrowings, trade creditors and others. However, too high a proprietary ratio say 100% means that management has not effectively utilize cheaper sources of finance like trade and long term creditors. As these sources of funds are cheaper, the inability to make use of it might lead to lower earnings and hence a lower rate of dividend payout. This ratio is a test of credit strength as too low a proprietary ratio would mean that the enterprise is relying a lot more on its creditors to supply its working capital.

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(IV)NETWORTH TO TOTAL ASSETS RATIO Net worth to total assets ratio is corollary to the debt equity ratio. This ratio shows the shareholders interest that has been utilized for the total assets. This ratio is calculated by the following formula:-

Net worth Net worth to total assets = -----------------------Total assets

A higher ratio of net worth to total assets indicated the dependence of company on its own funds. Further, a higher ratio suggests a sound financial structure of the company because of greater margin of shareholders funds against the external sources of finance and margin of safety for the creditors. Net worth includes funds, share capital reserve and surplus and total assets include fixed and current assets. D. PROFITABILITY RATIO Profitability ratios measure the operating efficiency of the company. These ratios are calculated in relation to sales or investment.

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These ratios are designed to provide answers to questions such as Is the profit earned by the firm is adequate? What rate of return it represents? What is the rate of profit for various divisions and segments of the firm? What are the earnings per share? What was the amount paid in dividends? What is the rate of return to equity-holders and so on.

(I) GROSS PROFIT RATIO The Gross Profit to Net Sales ratio measures how well revenue generated from Net Sales can cover expenses while gaining a profit. Importance of Gross Profit to Net Sales: A decreasing Gross Profit to Net Sales ratio is a negative sign, indicating the company is becoming less profitable. The company may even have an increasing Net Sales, but the cost to the company to generate those extra sales may be degrading profits. This ratio varies wildly between companies and industries, so the best knowledge from this ratio can be gained by measuring it over several periods.

Gross profit Gross Profit ratio = ----------------- *100 Net sales Where: Gross profit = sales cost of goods sold

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NET PROFIT RATIO

The Net Profit Margin measures the Net Earnings in relation to the Net Sales. After all the bills are paid and expenses covered, this ratio measures how much net profit remains out of total sales. This ratio is important to calculate, but you need to look at Gross Profit Margin and Operating Profit Margin as well as Net Profit Margin provides you with the big picture of how well the company is doing. It indicates management efficiency in manufacturing, administering and selling. It reflects the overhead expenses of a firm.

Net profit Net Profit ratio = -----------------* 100 Net sales

Importance of Net Profit Margin: As with the other margin ratios, the higher the Net Profit Margin, the better. Taxes, Interest, and expenses not associated with operations will lower this ratio compared to the other margin ratios.

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(III) RETURN ON CAPITAL EMPLOYED Return on Capital Employed (ROCE) is used in finance as a measure of the returns that a company is realizing from its capital employed. The ratio can also be seen as representing the efficiency with which capital is being utilized to generate revenue. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital. ROCE compares earnings with capital invested in the company. It is similar to Return on Assets, but takes into account sources of financing. In the denominator we have net assets or capital employed instead of total assets (which is the case of Return on Assets). In the numerator we have EBIT. It shows the profit earned on the capital invested. So, a company with high value of ratio earns higher returns on the capital employed. PBIT Return on Capital Employed = ----------------Capital employed

Where: PBIT = profit before interest and taxes

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(V) EARNING PER SHARE The Earnings Per Share compares Net Earnings to the Average Shares Outstanding, and is simply how much earnings has been generated per one share of stock during the period reported.

Importance of Earnings Per Share: As a company's earnings increase, Earnings per share will look better, but keep in mind other things can affect Earning Per Share: share buybacks the company may conduct (resulting in less shares), or the company releasing more shares, which increases the number of total shares further diluting the Net Earnings.

Profit after tax Earning per share = -------------------------------Number of equity shares

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(IV) RETURN ON EQUITY

Return on Equity measures the Net Earnings in relation to the Total Stockholder's Equity. Return on Equity describes how well contributions from stockholders generated earnings for the company.

It measures return exclusively on owners funds. High value of ratio shows effective use of resources by the firm.

Profit after tax Return on Shareholder fund = ---------------------Shareholder fund

Importance of Return on Equity: A company wants to maximize its use of stockholder's equity, as it is the stockholders the company must answer to on how they spent the stockholder's money. Return on Equity basically shows how any rupee of earnings were generated per rupee of equity the stockholder's provided

Review Literature
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The Bharat Heavy Electricals Ltd (BHEL), Bhopal which came into existence on 29th August 1956 is the mother plant of Bharat Heavy Electricals Limited, the largest engineering and manufacturing enterprise in India in the energy-related and infrastructure sector. BITS Plane since 1973 has made a pioneering contribution for the development of institutionalized linkages between university and industry. BHEL 2010 Annual Report the Memorandum of Understanding (MOU) between BITS and BHEL Bhopal was signed on 17 August 2010 with the objective of fostering collaboration between the two institutions to promote academic and research interactions. This include participation of BITS in the Human Resource Development needs in the thrust areas of BHEL Bhopal. BHEL is the largest engineering and manufacturing enterprise in India in the energy related/infrastructure sector today. Since its inception more than four decades ago, BHEL has been at the helm of indigenous Heavy Electrical Equipment industry in India with a sustained track record of earning profit since 1971-72. BHEL has grown in stature over the years with continued inflow of orders, manufacturing prowess, continued thrust on technology leading to a strong presence in domestic and international markets as a major supplier of power plant equipment besides establishing substantial inroads in select segment of products in Industrial sector and Railways. The company has realized the capability to deliver 15,000 MW p.a and the capacity expansion programmer is underway to reach 20,000 MW p.a by 2012. Currently, 74% of the total power generated in the country is through BHEL sets.

In 2007Delists equity shares from the Madras Stock Exchange Ltd (MSE) w.e.f. January 19,2007.Delists equity shares of the Company voluntary from The Stock Exchange,Ahmadabad (ASE) with effect from January 28, 2007.-BHEL, TCS jointly working onmarketing initiative `Power Pack`-Appoints

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Dr V. Gopalakrishnan as Chief of the BharatHeavy Electricals Ltd at Tiruchi Bhel`s Trichy, Bangalore plants win five National SafetyAwards In 2008,BHEL inks agreement with IIT Madras for new courses. Bechtel signs Dabhol agreement with BHEL In 2009,BHEL has raised its research & development spend to Rs 238 crore during fiscal 2009-10, up from Rs 152 crore last year. BHEL gets ICWAI national award for excellence incost management 2009. In Feb. BHEL pays all-time high 125% interim dividend forfiscal 2008-09. BHEL employees win maximum number of Prime Ministers ShramaBHEL achieved an all time high turnover of Rs.18739 crore in Comparison to last year ofRs 14525 crore Net profit has soared by 44% to Rs. 2415 crore in comparison to last yearof Rs. 1679.20 crore BHEL has announced 245 % of dividend on its original equity.Anissue of bonus share in the ratio of 1:1 has been declared by the company.

RATIONAL OF STUDY

For example, the best ratio for Capital Adequacy was found to be the ratio of total shareholders' fund to total risk weighted assets. The paper concluded that no one factor in CAMEL suffices to depict the overall performance of a bank. Among other recommendations, banks' regulators are called upon to revert to the best identified ratios in CAMEL when evaluating banks performance. Despite the continuous use of financial ratios analysis on banks performance evaluation by banks' regulators, opposition to it skill thrive with opponents coming up with new tools capable of flagging the over-all performance (efficiency) of a bank. This research paper was 33

carried out; to find the adequacy of CAMEL in capturing the overall performance of a bank; to find the relative weights importance in all the factors in CAMEL and; lastly to inform on the best ratios to always adopt by banks regulators in evaluating banks' efficiency. The findings revealed the inability of each factor in CAMEL to capture the holistic performance of a bank. Also revealed, was the relative weight of importance of the factors in CAMEL which resulted to a call for a change in the acronym of CAMEL to CLEAM. In addition, the best ratios in each of the factors in CAMEL were identified

Objective

Objectives are the end results to be achieved. The present study has been carried out to obtain the following objectives: -

To analysis the financial performance of the company. To find out the various ratio and interpret result there of.

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 To analysis the profit and loss account and balance sheet of the company.

Keeping above stated objectives in mind, we carried out our study by balance sheet of the BHEL.

Chapter 3

COMPANY PROFILE
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Introduction of BHEL
BHEL is the largest engineering and manufacturing enterprise in India in the energy related/infrastructure sector today. BHEL was established more than 40 years ago ushering in the indigenous heavy electrical industry in India, a dream that have been more than realized with a well recognized track record of performance. It has been earning profiles continuously since 1971-72 and paying dividends since 1976-77. BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian economy viz., power generation and transmission, industry, transport, telecommunication, renewable energy etc. The wide network of BHEL, 14 manufacturing divisions, four power sector reginiol centers over 100 project sites.it services its customers and provides them with suitable product, system and services efficiently and at competitive prices. THE QUALITY AND RELIABILITY OF ITS PRODUCTS DUE TO 36

EMPHASIS ON DESIGN, engineering and manufacturing to international standards by acquiring and adapting some of the best technologies from leading companies in the world, together with technologies developed in its own R& D centers. BHEL has acquired certification to quality management system ISO 9001:2000 environmental management system ISO 14001 and occupational health and safety management system OHSAS 18001 and has also adopted the concepts of total quality management.

BHEL hascaptive and industrial users. Supplied over 2, 25,000 MW transformer capacities and sustained equipment operating in transmission and distribution network up to 400 KC-AC and DC. Supplied over 25,000 motors with drive control system to power projects, petrochemicals, refiners, steel, aluminum fertilizer, cement plants etc. Supplied traction electrics and AC/DC locos to power over 12000 km railway network. Supplied over one million valves to power plants and other industries.

BHELS operations are organized around three business sectors, namely power

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industry including transmission, transportation, telecommunication and renewable energy and overseas business .this enables BHEL to have a strong customer orientation to be sensitive to his needs and respond quickly to the changes in the market. BHELS vision is to become a world class engineering enterprise, commited to enhance stakeholder value. The company is striving to give shape to its aspirations and fulfill the expectations as a Navratna company since more than 10 years. The greatest strength of BHEL is highly skilled and committed 44,000 employees. Every employee is given equal opportunity to develop himself and improve his position. Continuous training and retraining, career planning, a positive work culture and participative style of management have endeared development of a committed and motivated work force leading to enhanced productivity and higher levels of quality. BHEL manufactures a wide range of products and systems for thermal nuclear gas and hydro based power plant to meet the customers requirement for power generation, transmission and utilization. The products that BHEL manufacture are described below. THERMAL BHEL manufactures steam turbine generators and boilers with matching auxiliaries up to 500 MW. NUCLEAR In this field BHEL manufactures steam turbines and generators and shields and heat exchange for 235 MW projects. GAS BHEL is the only company to manufacture large sized gas based power plant equipment comprising turbines up to 200 MW. HYDRO BHEL engineers and manufactures has built francis, pelton and Kaplan type turbine, pump turbines and minor-micro hydro plants with matching generators for different head discharge combination. The maximum size of hydro equipment already built and installed is 265 MW.

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TRANSMISSION BHEL supply a wide range of transmission products and systems up to 400 KV. These include high voltage power and distribution transformers, instrument transformers, dry type transformers, SF 6 switching gears cape electric citers etc for economic transmission of bulk power over long distances. High voltage direct current (HVDC) technology is now available. R & D projects for the development of equipment for 800 KV class are progressing a pace resistance high alumina ceramic line material of power, steel cement and mining industries as well as a wide range of industrial ceramics

BHEL in Bhopal
Heavy Electrical Plant , Bhopal is the mother plant of Bharat Heavy Electricals Limited, the largest engineering and manufacturing enterprise in India in the energy-related and infrastructure sector, today. It is located at about 7 kms. from Bhopal Railway station, about 5 kms. from Habibganj Railway station and about 18 kms. From Raja Bhoj Airport. With technical assistance from Associated Electricals (India) Ltd., a UK based company, it came into existence on 29th of August, 1956. Pt. Jawaharlal Nehru, first Prime minister of India dedicated this plant to the nation on 6th of November, 1960. BHEL, Bhopal with state-of-the-art facilities, manufactures wide range of electrical equipments. Its product range includes Hydro, Steam, Marine & Nuclear Turbines, Heat Exchangers, Hydro & Turbo Generators, Transformers, Switchgears, Control gears, Transportation Equipment, Capacitors, Bushings, Electrical Motors, Rectifiers, Oil Drilling Rig Equipments and Diesel Generating sets. BHEL, Bhopal certified to ISO: 9001, ISO 14001 and OHSAS 18001, is moving towards excellence by adopting TQM as per EFQM / CII model of Business Excellence. Heat Exchanger Division is

39

accredited with ASME U Stamp. With the slogan of Kadam kadam milana hai, grahak safal banana hai, it is committed to the customers. BHEL Bhopal has its own Laboratories for material testing and instrument calibration which are accredited with ISO 17025 by NABL. The Hydro Laboratory, Ultra High Voltage laboratory and Centre for Electric Transportation are the only laboratories of its in this part of the world. BHEL Bhopal's strength is it's employees. The company continuously invests in Human Resources and pays utmost attention to their needs. The plant's Township, well known for its greenery is spread over an area of around 20 sq kms. and provides all facilities to the residents like, parks, community halls, library, shopping centers, banks, post offices etc. Besides, free health services is extended to all the employees through 350 bedded (inclusive of 50 floating beds) Kasturba Hospital and chain of dispensaries.

Products
Power Utilisation AC Motors & Alternators Power Generation Hydro Turbines Hydro Generators Heat Exchangers Excitation Control Equipment Steam Turbines Power Transmission Transformer Switchgear On-Load Tap Changer Large Current Rectifiers Control & Relay Panels

40

Transportation Transportation Equipment Miscellaneous Oil Rigs Fabrication Renovation & Maintenance Thermal Power Stations

BHEL in Jhansi
By the end of 5th five-year plan, it was envisaged by the planning commission that the demand for power transformer would rise in the coming years. Anticipating the countrys requirement BHEL decided to set up a new plant, which would manufacture power and other types of transformers in addition to the capacity available in BHEL Bhopal. The Bhopal plant was engaged in manufacturing transformers of large ratings and Jhansi unit would concentrate on power transformer upto 50 MVA, 132 KV class and other transformers like Instrument Transformers, Traction transformers for railway etc.

This unit of Jhansi was established around 14 km from the city on the N.H. No 26 on Jhansi Lalitpur road. It is called second-generation plant of BHEL set up in 1974 at an estimated cost of Rs 16.22 crores inclusive of Rs 2.1 crores for township. Its foundation was laid by late Mrs. Indira Gandhi the prime minister on 9th Jan. 1974. The commercial production of the unit began in 1976-77 with an output of Rs 53 lacs since then there has been no looking back for BHEL Jhansi. The plant of BHEL is equipped with most modern manufacturing processing and testing facilities for the manufacture of power, special transformer and instrument transformer, Diesel shunting locomotives and AC/DC locomotives. The layout of the plant is well streamlined to enable smooth material flow from the raw material stages to the finished goods. All the feeder bays have been laid perpendicular to the main assembly bay and in each feeder bay raw material smoothly gets converted

41

to

sub

assemblies,

which

after

inspection

are

sent

to

main

assembly

bay.

The raw material that are produced for manufacture are used only after thorough material testing in the testing lab and with strict quality checks at various stages of productions. This unit of BHEL is basically engaged in the production and manufacturing of various types of transformers and capacities. With the growing competition in the transformer section, in 1985-86 it under took the repowering of DESL. In 1987-88, BHEL progressed a step further in under taking the production of AC locomotives, and subsequently it started manufacturing AC/DC locomotives also.

Products
TransformersPower transformer up to 220 KV/250 MVA - Special Transformers up to 180 KA 33 KV - Dry type transformer up to 6300 KVA, 33 KV - Instrument transformer (current transformer/voltage transformer up to 220KV) 400 KV under supply. - HVR transformer up to 95 KVP, 1400 MA - Traction transformer for railway application up to 21.6 MVA - 220 KV class. - ACEMU transformer for railway. CTs are

42

LocomotivesDiesel locomotive AC/DC locomotive Special purpose wagons. Rail cum road Vehicle.

43

Chapter 4

RESEARCH METHODOLOGY

44

THE STUDY
Meaning of Research
Research is an academic activity and as such the term should be used in a technical sense. According to The Advanced Learners Dictionary of Current English A Careful investigation or inquiry specially through search for new facts in any branch of knowledge. Research can also define as a scientific and systematic search for pertinent information on a specific topic. The purpose of Research is to discover answers to questions through the application of scientific procedures. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet.

Types of Research
(i) Descriptive vs. Analytical: Descriptive research includes surveys and fact-finding enquiries of different kinds. The researcher has no control over the variables; he can only report what has happened or what is happening. In Analytical research, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material. (ii) Applied vs. Fundamental: Applied research aims at finding a solution for an immediate problem facing a society or an industrial/business organization. Fundamental research is mainly concerned with generalization and with the formulation of a theory. Research concerning some natural phenomenon or relating to pure mathematics are examples of fundamental research. (iii) Quantitative vs. Qualitative: Quantitative research is based on the measurement of quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity. Qualitative research is concerned with qualitative phenomenon, i.e., phenomena relating to or involving quality or kind. When we are interested in investigating the reasons for human behavior 45

(i.e., why people think or do certain things), we quiet often talk of motivation, an important type of qualitative research. (iv) Conceptual vs. Empirical: Conceptual research is that related to some abstract idea(s) or theory. It is generally used by philosophers and thinkers to develop new concepts or to reinterpret existing ones. Empirical research is data based research, coming up with conclusions which are capable of being verified by observation or experiment. In such a research, the researcher must first provide himself with a working hypothesis or guess as to the probable results. (v) Some Other Types: All other types of research are variations of one or more of the above stated approaches, based on either the purpose of research, or the time required to accomplish research, on the environment in which research is done, or on the basis of some other similar factor. Research can be field-setting research or laboratory research or simulation research, depending upon the environment in which it is to be carried out. Research can as well be understood as clinical or diagnostic research. Research either as one-time research or longitudinal research. The analytical research is done by me because in Analytical research, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material.

Research Design
A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which research is conducted; it constitutes the blueprint for the collection, measurement and analysis of data.

46

Different Research Designs:

Different research design can be categorize as: 1. Research design in case of exploratory research studies; 2. Research design in case of descriptive and diagnostic research studies; 3. Research design in case of hypothesis-testing research studies; We take up each category separately. 1. Research design in case of exploratory research studies:- Exploratory research studies are also termed as formulative research studies. The main purpose of such studies is that of formulating a problem for more precise investigation or of developing the working hypothesis from an operational point of view. Generally, the following three methods in the context of research design are talked about: The survey of concerning literature happens to be most simple and fruitful method of formulating precisely the research problem or developing hypothesis. Experience survey means the survey of people who had practical experience with the problem to be studied. For such a survey people who are component and can contribute new ideas may be carefully selected as respondents to ensure a representation of different types of experience. Analysis of Insight-stimulating examples is also a fruitful method for suggesting hypothesis for research. For this purpose the existing records, if any, may be examined, the unstructured interviewing may takes place, or some other approach may be adopted. 2. Research design in case of descriptive and diagnostic research studies:- Descriptive research studies are those studies which are concerned with describing the characteristics of a particular individual, or of a group, whereas diagnostic research studies determine the frequency with which something occurs or its association with something else. Most of the social research comes under this category. The design in such studies must be rigid and not flexible and must focus attention on the following: (a) Formulating the objectives of the study (what the study is about and why is it being made?) (b) Designing the methods of data collection (what techniques of gathering data will be adopted?) (c) Selecting the sample (how much material will be needed?)

47

(d) Collecting the data (where can the required data be found and with what time period should the data be related?) (e) Processing and analysis the data. (f) Reporting the findings. 3. Research design in case of hypothesis-testing research studies: Hypothesis-testing research studies (generally known as experimental studies) are those where the researcher tests the hypothesis of casual relationship between variables. Usually experiments meet this requirement. Hence, when we talk of research design in such studies, we often mean the design of experiments

Area of The Study:- Bhopal and Jhansi region. Tool for Data Collection:- By Internet , BHEL Bhopal & Jhansi plant Tool for Data Analysis:- By financial ratio analysis method.

48

Chapter 5

FINDING
ANALYSIS AND INTERPRETATION OF RATIO

Current ratio

Current assets Current ratio = ----------------Current liabilities

49

(In millions) YEARS 2009 2008 2007 CURRENT ASSETS 1,63,308 1,33,430 1,04,247 CURRENT LIABILITIES 1,03,200 84,459 63,369 RATIOS 1.58:1 1.58:1 1.65:1

50

180000 160000 140000 120000 (in Millions) 100000 80000 60000 40000 20000 0 2009 2008 Years 2007

Interpretation: As stated before the ideal current ratio is 2:1 .If we see the last 3 year figures we would notice that in the year 2007 the current ratio was 1.65:1 as compared to 2008 (1.58:1) and 2009 (1.58:1).If we compare 2007 with 2008 we would see that the there is a declining trend which is against the health of the company .But the good thing to notice is that the company is able to tame the declining trend and is able to maintain the current ratio at 1.58:1 which is still far from the desired state.

Quick ratio

51

: Liquid assets Quick ratio = ----------------Current liabilities

(In million) YEARS 2009 2008 2007 QUICK ASSETS 1,19,060 97,197 67,973 CURRENT LIABILITIES 1,03,200 84,459 63,369 RATIOS 1.15 1.15 1.07 S

52

140000 120000 100000 (in Millions) 80000 60000 40000 20000 0 2009 2008 Years 2007

Interpretation: This ratio basically aims at to meet its current obligations. The ideal quick ratio is considered to be 1:1. From the above data table we could see that in the year 2006-07 the quick ratio was 1.07:1 as compared to 1.15:1 in 2007-08 and 1.15:1 in 2008-09 . The same scenario is seen here too as in case of current ratio. It depicts that the companys liquidity position has deterioted as compared to the financial year 2007. The company needs to revise its policies so as to reach the desired state of 1:1.

53

Inventory turn over ratio

Net sales Inventory turn over ratio = --------------------Average inventory

(Rs. In million) YEARS 2009 2008 2007 NET SALES 1,45,255 1,03,364 86,625 INVENTORY 33,303 25,100 20,525 RATIO 4.36 4.18 4.22

54

180000 160000 140000 120000 100000 80000 60000 40000 20000 0 2009 145255

33303 25100 20525 103364 s

86625

2008 YEARS

2007

NET SALES
INTERPRETATION:

INVENTORY

This ratio indicates as to how fast the stock is consumed or sold. Generally higher ratio is preferred because lower ratio indicates the blockage of money and that the lead time in the sale of goods is large. From the above chart we could see that in the year 2006-07 the inventory turnover ratio was 4.22 which declined to 4.18 in the year 2007-08.But the company was able to overcome the short coming to a limit and has reached the all time high of the past three years with 4.36 in the year 200809. So the company is on the positive pace which is expected to be maintained in future also.

55

Debtors turn over ratio

Credit sales Debtors turn over ratio = --------------------------------Average debtors + bills receivable

(In million) YEARS 2009 2008 2007 CREDIT SALES 1,45,255 1,03,364 86,625 AVG.DEBTORS + B/R 65,701.1 52,903.1 43,421.3 RATIO 2.20 1.95 2.00

56

160000 140000 120000 100000 80000 60000 40000 20000 0 2009 2008 YEARS 2007 65701 145255 103364 52903 86625 43421

CREDIT SALES

AVG (DEBTORS +B/R)

INTERPRETATION: The quality of debtors to a great extent determines a firms liquidity. Generally the higher the value of debtor turnover the more efficient is the management of the debtors or more liquid are the debtors .In the above scenario we could analyze that in the year 2006-07 the ratio was 2.00 which declined to 1.95 in the year 2007-08 but again raised to the level of 2.20 in the year 2008-09 .The reason is the change that took place in average debtors and sales in the period between 2006-07 and 200708 ,wherein the percentage increase in average debtors was 21% as compared to sales 19%. While the situation during the period 2007-08 and 2008-09 the increase percentage in sales was 40% as compared to that of debtors i.e. 24%.

57

Average Collection Period

Average Collection Period =

360 Debtors Turnover Ratio

YEARS 2009 2008 2007

Days in a year 360 360 360

Debtor turnover ratio 2.20 1.95 2.00

Average collection period 163 185 180

58

Creditor turnover ratio =

Net credit purchase Average creditor + Bills payable

YEARS 2009 2008 2007

CREDIT PURCHASE 70,994 50,977 36,347

(in million) AVG. CREDITORS + B/P 24,905 19,474 16,708

RATIO 2.85 2.62 2.17

INTERPRETATION: This ratio has basically the aim to present the scenario as to with which frequency the creditors are being settled. in the above chart we could see that there has been constant improvement in the ratio and the speed with which the payment to creditors is being made has increased which is good for the company ,as the image of the company is highly effected by the fulfillment of the commitments made by the company to the outsiders . So the company should try to be IN TIME PAYERS so as to increase its goodwill in the eyes of the creditors which brings several new opportunities to the company due its good status.

59

Average Payment Period

360 Accounts Payable Turnover Ratio

YEARS 2009 2008 2007

Days in a year 360 360 360

creditors turnover ratio 2.85 2.62 2.17

Average payment period 126 137 166

Net sales Working capital turnover ratio = ------------------------------Working capital

( In million) YEARS 2009 2008 2007 Sales 1,45,255 1,03,364 86,625 Working capital 60,108 48,971 40,878 ratio 2.42 2.11 2.11

60

160000 140000 120000 100000 80000 60000 40000 20000 0

145255

103364 86625 60108 40878 8971

2009

2008 YEAR

2007

SALES

W ORKING CAPIT AL

INTERPRETATION: This is calculated to see how efficiently the working capital is being used to improve the turnover. The higher the working capital turnover, the better the position of company. In the above chart we could see that the scenario was much better in 2008-09 with 2.42:1 as compared to that of 2007-08 and 2006-07 with 2.11:1 each. along with this we could see that in the time period of 2003-04 and 2007-08 the rise in working capital was 19% and the proportionate increase was found in a sales too. But in case of the period between 2007-08 and 2008-09 the 22 % increase in working capital brought about 40% increase in sales. This shows that the working capital has been used in the most optimized way which is expected to be continued in future too.

(In million) 61

YEARS 2009 2008 2007

sales 1,45,255 1,03,364 86,625

Fixed assets 9,823 10,442 10,941

ratio 14.78 9.90 7.92

160000 140000 120000 100000 80000 60000 40000 20000 0

145255

103364 86625

sssssss

9823

10442

10941

2009

2008 YEAR

2007

SALES
INTERPRETATION:

FIXED ASSETS

As already stated before we know that this ratio talks about how efficiently fixed assets has been utilized in production and making sales. Higher ratio is recommended here too .From the situation before us we could see that the ratio has inclined by approximately 5 % in 2008-09 from 2007-08 and reached to its all time high. The ratio in the past two years viz. 2006-07 (7.92) and 2007-08 (9.90) has also seen an inclining tend. This shows that the policies of the company in relation to fixed assets are proving to be successful. Further a thing to be noticed here is that even when the fixed assets are decreasing but still the sales are increasing at a very high pace. This shows the strong muscles of the company in this field (In million) YEARS DEBT 62 EQUITY RATIOS

2009 2008 2007

5,582 5,370 5,400

73,014 60,269 52,960

.08 .09 .10

73014 60269 52960

5582 2009

5370 2008 YEARS

5400 2007

DEBT
INTERPRETATION:

EQUITY

It is the relationship describing the lenders contribution for each rupee of the owners contribution is given by debt equity ratio. Here we see that the ratio between the debt and the equity is .10 in the year 2006-07 which has fallen to 0.8 in the year 2008-09, which shows that the company is going for equity raising of fund inspite of debt.

(In million) YEARS EBIT INTEREST PAYABLE ratio

63

2009 2008 2007

28,690 18,819 12,729

587 814 601

48.87 23.11 21.18

28690 30000 25000 20000 15000 10000 5000 0 2009 2008 YEAR 2007 587 814 601 18819 12729

EBIT

INTEREST PAYABLE

INTERPRETATION: The interest coverage ratio is used to test the firms debt servicing capacity. We can determine through this ratio how many times the interest payment can be covered by the available funds. Here we could see that in the year 2006-07 it was 21.18 times which increased by a small percent in the year 2007-08 but the situation has improved considerably in the year 2008-09 to an all time high in the past three years that is 48.87:1 . So the company is improving its competence in this field too.

Proprietary ratio

64

Equity Proprietary ratio= ---------------------------Total assets

(In million) YEARS 2009 2008 2007 EQUITY 73,014 60,269 52,960 Total assets 1,75,060 1,44,915 1,16,564 RATIOS 0.42 0.42 0.45

65

180000 160000 140000 120000 100000 80000 60000 40000 20000 0 2009 73014

175060 144915 116564

60269

52960

2008 YEARS

2007

EQUITY

TOTAL ASSETS

INTERPRETATION: This ratio basically aims at to see that what portion of total assets have been funded by equity and debt. It is considered that if the portion of equity in total assets is higher then the amount of risk involved will be less but the cost for raising the Amount will be high whereas in the case of portion of debt in total assets is higher then the amount of risk involved will be more but the cost involved will be less. So it depends on company to company as to what ratio is desirable by it.

66

(In million) YEARS 2009 2008 2007 Net worth 73,014 60,269 52,781 Total assets 1,75,060 1,44,915 1,16,564 RATIOS 0.417 0.415 0.452

67

200000 150000 100000 50000 0

175060

144915

116564 total assets net worth 2007

73014 2009 2008 Years

69269

52781

net worth

total assets

INTERPRETATION: It is the relationship describing the lenders contribution for each rupee of the owners contribution. Here we see that the ratio between the net worth and the total equity is .452 in the year 2006-07 which has fallen to 0.417 in the year 2008-09 which shows that there has been a decrease in the use of equity in raising the fixed assets which could be either due to comparative decrease in the purchase of fixed assets or due to focus on some other form for raising fixed assets.

68

(In million) YEARS 2009 2008 2007 Gross profit 26,231 16,630 10,749 Net sales 1,45,255 1,03,364 86,625 RATIOS 18.06% 16.09% 12.40%

86625 2007 10,749 103364

2008 16,630 145255

2009 26231 0 50000 100000 150000 200000

GROSS PROFIT

NET SALES

INTERPRETATION: It should be adequate to cover the operating costs and to provide for fixed charges, dividends and accumulation of reserves. A low GP shows high COGS (cost of goods sold) due to unfavorable purchasing policy, lesser sales, less selling price. Here we could see that the ratio has shown an upward trend from 2006-07 i.e. 12.40% to 18.06% in the year 2008-09, which shows the increase in the profitability in the performance of the company.

(In million)

69

YEARS 2009 2008 2007

Net profit 16,792 6,534 6,582

Net sales 1,45,255 1,03,364 86,625

RATIOS 11.56% 9.22% 7.60%

180000 160000 140000 120000 100000 80000 60000 40000 20000 0

145255 103364 86625

16792 2009

6534 2008 YEARS

6582 2007

NET PROFIT

NET SALES

INTERPRETATION: This ratio indicates the firms capacity to face adverse economic conditions such as price competition, low demand etc. a constant rise in above ratio year after year is a definite sign of improving condition of the business . From the above chart we could see that the ratio has increased considerably from 7.60% in 2006-07 to 11.56% in the year 2008-09. Although the increase percentage is not too appreciable but still an improvement is seen and the company should try to bring some major changes to increase this ratio. (In million) YEARS PBIT 70 CAPITAL EMPLOYED RATIOS

2009 2008 2007

28,690 18,819 12,729

55,174 45,574 37,063

.52 .41 .34

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

55174

45574

37063

28690

18819

12729 2007

2009

2008 YEARS

PBIT

CAPITAL EMPLOYED

INTERPRETATION: It measures productivity as well as profitability. It shows whether the company borrowing policy was economically wise and whether capital has been employed fruitfully or not. Company should maintain its ratio to show the satisfactory and progressive position . in the light of this ratio we could see that the company has maintained a steady growth rate which is considered to be good for its financial health which is visible by the figures that in the year 2006-07 it was .34 and which raised to .52 in the year 2008-09. In million) YEARS PAT EQUITY FUND RATIOS

71

2009 2008 2007

16,792 9,534 6,582

73,014 60,269 52,960

.23 .16 .12

100% 80% 60% 40% 20% 0% 16792 2009 2008 YEARS 9534 2007 6582 73014 60269 52960

PAT

EQUITY FUND

INTERPRETATION: In this ratio it is deemed that higher the ratio better the results. In the case of BHEL in the year 2006-07 the ratio was 0.12 which increased a meager percent in the year 2007-08 to 0.16. But almost doubled in the year 2008-09 to 0.23 as compared to 2006-07. This shows that there is an increase in the per rupee earnings when compared to per rupee equity provided by the stock holders. (In million)

72

YEARS 2009 2008 2007

Profit after tax 16,792 9,534 6,582

No. of EQUITY Shares 244.76 244.76 244.76

Earning per share 68.60 38.95 26.89

18000 16000 14000 12000 10000 8000 6000 4000 2000 0

16792

9534 6582

244.76 2009 2008 YEAR

244.76

244.76 2007

PAT

NO. OF EQUITY SHARES

INTERPRETATION: Obviously higher EPS is welcomed by the stock holders but the point is the source of income and their nature as to what has been the cause of raise in the earning per share. Here we could see that the EPS in the year 2006-07 and 2007-08 was 26.89 and 38.95 respectively. But in the year 2008-09 it increased almost double fold and reached to 68.60. The thing to be seen here is the cause for such increase if the earning increase has been due to improvement in the working of the company then the raise is commendable but if the cause has been Buy Back or something like that then it has to be studied.

73

Chapter 6

CONCLUSION

74

Conclusion

BHEL is a financially sound and rich company . Its profitability increasing continuously over previous year as it is rich in getting big orders . BHEL is investing huge amount on purchasing fixed assets to cater the increasing demand .

75

Chapter 7

Recommendation

76

Suggestion

1. For increasing market share they will have to increase the operational fund . 2. Improve current ratio from 1.58 to 2 by increasing the current assets and decreasing the current liability . 3. Company indirect expenses are very high which make a difference between net profit and gross profit company should decreasing indirect expenses . 4. Retain energetic and young working force . 5. It is still rich in grabbing big orders but it must work to fulfill its orders on time

77

Chapter 8

LIMITATION

78

Limitation
BHEL is a financial rich and sound company. Its ratio result are positive and company should recruit young work force and improve the working progress of in the company .

1. Time factor is more important in any research and time available for my research was not enough . 2. The study is limited to Jhansi and Bhopal city only . 3. The study has been done only for BHEL Bhopal and Jhansi so exact financial position of the BHEL could not easily identified . 4. The study has been done without meeting the defaulter due to constant of time .

79

Chapter 9

RESEARCH IMPLICATION

80

Implication
This research could be further used by other research scholars . It will be helpful for the organization to analyze the financial Of BHEL . This research will help in getting new knowledge that we do not already It will let us know the main problems in the research . The main objective of the study is to come up with reliable data Know . position

regarding the company .

81

BIBLIOGRAPHY

WEBSITES: http://www.spireframe.com http://en.wikipedia.org/wiki/Return_on_capital_employed http://en.wikipedia.org/wiki/Solvency www.bhel.com

ANNUAL REPORTS OF BHEL: Report 2006-07 Report 2007-08 Report 2008-09

Khan M.Y. (2009) Financial Services, 5th edition TMH Bharti pathak pearson (2010) Indian Financial System 2/ edition Gurusamy , (2008) Financial Market & Institutions , Macmillan publisher Timothy Koch & MacDonald , Managing Indian Bank IIB Bank Financial Management, 5th edition 2010 Macmillan publisher Chary Venture capital (2008) , Concept and application , Macmillan publisher

82

83