Tata Power & NTPC

A Project of Managerial Accounting

 Under the guidance of Dr. Sandeep Goel

By :---
Jasmeet Bhatia
Geeta Chopra
Vivek Balokhra
Varun Kukreja
Deepika Pundir
Samdarsh Nayyar
Mohit Goel
Profitability Ratios

TATA POWER NTPC

Profitability Ratios

TATA POWER NTPC

Profitability Ratios

NTPC
TATA POWER
Overall Profitability Ratios

TATA POWER
Capital Structure Ratios (or) Long Term Solvency
Ratios
a. Debt and Equity Ratio = Long-term Liabilities / Shareholder’s Funds

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
Long term
liabilities 946 1,354 2,331 3,932 4,105 57,327 68,229 73,147 89,696 90,799
Shareholder’s
funds 4,965 5,451 7,518 8,126 9,983 4,49,58 4,85,97 5,26,39 5,73,70 6,24,38
Debt & Equity
Ratio 0.191 0.248 0.310 0.484 0.411 0.128 0.140 0.139 0.156 0.145

Higher the ratio, larger the loan component. A debt equity ratio of 2:1 is
considered ideal. A firm with a debt equity ratio of 2 or less exposes its
creditors to relatively lesser risks. A firm with a high debt equity ratio exposes
its creditors to greater risk. It can be seen that both TATA & NTPC have D/E
less than 1, hence both the firms enjoy low debt and higher equity.
Capital Structure Ratios (or) Long Term Solvency
Ratios

b. Interest Coverage Ratio = PBIT / Fixed Interest Charges

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
PBIT 747.45 586.01 936.64 1,140.9 3,853.2 60224 89074 102549 93595 108855
Fixed Interest
Charges 148.46 182.54 141.86 327.76 781.82 4473 9520 11976 15442 13852
Interest
Coverage
Ratio 5.035 3.210 6.603 3.481 4.929 13.46 9.36 8.56 6.06 7.86

A debt service ratio of around 6 is normally considered as ideal. The higher the
ratio is, the better it is, as it indicates a greater margin of safety to the lenders of
long-term debt. TATA has Interest Coverage Ratio ranging from 3.2 to 6.6. The
company has been getting loans quite easily also because of the TATA brand.
NTPC on the other hand has excellent Interest Coverage Ratio ranging from
6.06 to 13.46. And also being a PSU, it can easily raise loans.
Liquidity Ratios (or) Short Term Solvency Ratios

a. Current Ratio = Current Assets / Current Liabilities

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10

Current Assets 2,973 4,042 3,876 4,681 5,954 1,57,245 2,21,827 2,55,488 3,09,253 3,08,157
Current
Liabilities 732 1,126 1,254 1,419 1,466 49,102 54,221 55,483 74,391 76,876
Current Ratio
4.063 3.590 3.091 3.298 4.062 3.20 4.09 4.60 4.16 4.01
A current Ratio of 2:1 is usually considered as ideal. If this ratio is less than 2 it
indicates that the business does not enjoy adequate liquidity. However, a high
current ratio of more than 3 indicates that the firm is having idle funds and has
not invested them properly. In both cases, the Current Ratio exceeds 3 and
hence there are idle funds which needs to be properly invested by both TATA &
NTPC.
Liquidity Ratios (or) Short Term Solvency Ratios

b. Quick Ratio = Quick Assets / Quick Liabilities

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
Current Assets 2,973 4,042 3,876 4,681 5,954
Liabilities
442.26 396.42 473.61 644.14 589.36
Quick Assets
2,531 3,645 3,402 4,037 5,365 133840 196725 228731 276819 274680
Quick
Liabilities 732 1,126 1,254 1,419 1,466 49,102 54,221 55,483 74,391 76,876
Quick Ratio
3.458 3.238 2.713 2.844 3.660 2.73 3.63 4.12 3.72 3.57

A quick ratio of 1 is usually considered as ideal. A quick ratio of less than 1 is

indicative of inadequate liquidity of the business. In both cases, quick ratio
exceeds 1 and hence both TATA & NTPC are liquid.

Note:
Quick Assets = Current Assets -(Inventory + Prepaid Expenses)
Quick Liabilities = Current Liabilities – Bank Overdraft
Efficiency in Assets Utilization

a. Inventory Turnover Ratio = COGS / Average Inventory

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
Sales 4532.2 4,668.5 5,870.1 7,193.22 7,039 260701 325344 369462 417913 461687
Closing
Inventory 442 396 474 644 589 23,405 25,102 26,757 32,434 33,477
Inventory
Turnover
Ratio 10.24 11.78 12.39 11.17 11.94 11.139 12.961 13.808 12.885 13.791

An Inventory Turnover ratio represents the number of times inventories are

turned over to generate sales. An Inventory Turnover Ratio of 8 is considered
ideal. A High stock turnover ratio indicates that the stocks are fast moving and
get converted into sales quickly. Both companies TATA & NTPC enjoy the
ratio over 8.
Efficiency in Assets Utilization

b. Debtors Turnover Ratio

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
Net Credit Sales 4532.2 4,668.4 5,870. 7,193.2 7,039 260701 325344 369462 417913 461687
Average Trade
Debtors 1,406 1,797 8,678 10,600 21,175 32,834 51,178
Debtors
Turnover
Ratio 3.22 2.60 30.04 30.69 17.45 12.73 9.02

It represents the number of times average dues from customers are realised. A
high debtors turnover ratio is always better. NTPC enjoys a very high Debtors
Turnover Ratio and hence there is good collection of funds. TATA on the other
hand has lower Debtors Turnover Ratio and hence poor fund collection ie their
funds remain invested for a longer time.
Efficiency in Assets Utilization

c. Creditors Turnover Ratio

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
Purchases 4114 103101 86207 100087 245301 112915 103101 86207 100087 245301
Creditors
549 1,030 641 835 776 51,152 60,789 62,155 87,191 97,579
Creditors
Turnover
Ratio 7.50 100.11 134.58 119.82 316.1 2.21 1.70 1.39 1.15 2.51

It represents number of times average dues to suppliers are settled. A very less
turn over ratio is always better. TATA has a very large Turnover Ratio whereas
NTPC has very less so TATA has less funds available for investment compared to
NTPC.
Efficiency in Assets Utilization

d. Working Capital Turnover Ratio = COGS / Working Capital

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
Net Sales 4532.2 4,668.4 5,870.1 7,193.22 7,039 260701 325344 369462 417913 461687
Working
Capital 1652.3 2,284.5 2,036.2 2,609.8 3,785 95843 151564 200005 234862 231281
Working
Capital
Turnover
Ratio 2.74 2.04 2.88 2.76 1.86 2.720 2.147 1.847 1.779 1.996

It reflects the efficiency of the working capital management – how many times
the working capital is revolved to generate sales. It is always better to operate
with minimum net working capital requirement. Both TATA & NTPC have
ensured progressive reduction in Working Capital Turnover Ratio.
 Efficiency in Assets Utilization

e. Fixed Assets Turnover Ratio = Net sales / Net Fixed Assets

TATA NTPC
‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10 ‘05-06 ‘06-07 ‘07-08 ‘08-09 ‘09-10
46168
Net Sales 4532.2 4,668.5 5,870.1 7,193.22 7,039     369462 417913 7
Fixed Assets
3,215 3,811 4,687 5,952 6,229 230895 256841 2,60,937 3,29,377 3,47,613
Fixed Assets
Turnover
Ratio 1.410 1.225 1.252 1.209 1.130 1.416 1.269 1.328

It shows the productivity of fixed assets. It measures sales revenue per rupee of
fixed assets. Both TATA & NTPC have fixed assets hovering around 1.2 to 1.4 ie a
rupee of fixed asset has generated sales of Rs. 1.2 to Rs. 1.4.
Method of Inventory valuation
TATA POWER
Same Throughout 5 years.
The inventory of the
Company has been
physically verified during
the year by the
management under a
perpetual inventory
system, except for fuel
which was verified during
the year and / or at the
end of the year. In respect
of materials lying with
third parties, these have
substantially been
physically verified or
confirmed by third parties.
In our opinion the
frequency of verification is
reasonable.
NTPC
Same Throughout 5 years.
The inventory of the
Company has been
physically verified during
the year by the
management under a
perpetual inventory
system, except for fuel
which was verified during
the year and / or at the
end of the year. In respect
of materials lying with
third parties, these have
substantially been
physically verified or
confirmed by third parties.
In our opinion the
frequency of verification is
reasonable.
Method of Depreciation

NTPC

 Depreciation rates used for various classes of assets are:

 Hydraulic Works – 1.95% to 3.40%
 Buildings – 3.02% to 33.40%
 Railway Sidings, Roads, Crossings, etc. – 3.02% to 5.00%
 Plant and Machinery – 1.80% to 45.00%
 Transmission Lines, Cable Network, etc. – 3.02% to 13.91%
 Furniture, Fixtures and Office Equipment – 12.77% to 18.10%
 Motor Vehicles, Launches, Barges, etc. – 25.89% to 33.40%
 Helicopters – 33.40%.
 Depreciation so provided has been determined as being not less than
the depreciation which would have been recognized in the Profi t and
Loss Account had the rates and the manner prescribed under
Schedule XIV to the Companies Act, 1956, been applied.
Method of Depreciation

TATA POWER

 Depreciation rates used for various classes of assets are:

 Hydraulic Works – 1.95% to 3.40%
 Buildings – 3.02% to 33.40%
 Railway Sidings, Roads, Crossings, etc. – 3.02% to 5.00%
 Plant and Machinery – 1.80% to 45.00%
 Transmission Lines, Cable Network, etc. – 3.02% to 13.91%
 Furniture, Fixtures and Office Equipment – 12.77% to 18.10%
 Motor Vehicles, Launches, Barges, etc. – 25.89% to 33.40%
 Helicopters – 33.40%.
 Depreciation so provided has been determined as being not less than
the depreciation which would have been recognized in the Profi t and
Loss Account had the rates and the manner prescribed under
Schedule XIV to the Companies Act, 1956, been applied.