Full & Final Report Pks Wcm.docx

BUNDELKHAND INSTITUTE OF ENGINEERING AND TECHNOLOGY JHANSI

SUMMER TRAINING PROJECT REPORT ON

“WORKING CAPITAL MANAGEMENT IN NTPC” Undertaken At NTPC

Submitted in fulfillment of the requirement for the award of degree of MASTER OF BUSINESS ADMINISTRATION DR. APJ ABDUL KALAM TECHNICAL UNIVERSITY

SUBMITTED TO:-

SUBMITTED BY:-

DR. SUMAN YADAV (CO-ORDINATOR, MBA)

PRASHANT KUMAR SINGH ROLL.NO ;( 1704370044)

PREFACE A professional course in (MASTER OF BUSINESS ADMINISTRATION) is incomplete unless the theoretical knowledge acquired in the class room is backed up by practical exposure, as theories alone do not give perfection to any discipline. The gap between theory and practiced is bridged by the Project training, which has been an integral part of the syllabus. This present Project report is an image of what I have done and observed during my research project in “National Thermal Power Corporation Limited”. I was assigned a project “WORKING CAPITAL MANEGEMENT”. This report is the result of the work done during the training period... I have tried my level best to be as a systematic as possible and to avoid any sort of biases.

DECLARATION

I hereby declare that the Project report titled “ANALYSIS OF WORKING CAPITAL MANAGEMENT” is my original work and has not been published or submitted for any degree, diploma or other similar titles elsewhere. This has been undertaken for the purpose of partial fulfillment of requirement for the award of the degree of Master of Business Administration (M.B.A).

Signature of the Student: Place: DELHI Date:

ACKNOWLEDGEMENT

A lot of effort has gone into this training report. My thanks are due to many people with whom I have been closely associated. I would like to thanks all those who have contributed in completing of this project. First of all, I would like to send my sincere thanks to Ms. for her helpful hand in the completion of my project. I would like to make special note of thanks to Mr. for providing me an opportunity for training in NTPC and enriching, enlighten me with his valuable insights, innovative ideas and nurturing guidance. I would like to thank my entire beloved family & friends for providing me monetary as well as non – monetary support, as and when required, without which this project would not have completed on time. Their trust and patience is now coming out in form of this thesis.

EXECUTIVE SUMMARY This report aims at providing an insight into finance related operations at NTPC Ltd which were studied in detail during the course of the internship. NTPC is India’s largest energy conglomerate. Established on 7th November, 1975, it became a Maharatna company (one of the four PSEs to be awarded this status) in 2010. NTPC is ranked 400th in the 2016 Forbes Global 2000 rankings of world’s biggest companies. Power generation and operation of power plants involves huge costs, bulk supply of materials, installation, commissioning and maintenance of plants and offices. For convenience and to ensure consistency, the company has a divided and listed the steps and procedures involved as its ‘Procurement and Works Policy’. This policy lays down the broad guidelines to be followed in acquisition of equipment, materials and services for the organisation. This policy permits centralised policy making, decentralised execution and administration with a view to achieving the organisational goals in the most efficient and effective manner. NTPC awards contracts through extensive tendering and bidding processes. This report aims at providing a description of the same. The report is basically concerned with the involvement of Finance Concurrence department in this procedure. The Finance Concurrence department validates cost estimates and provides necessary approvals. Any proposal with financial implication needs approval from the Finance Concurrence department. The departments’ area of work involves arithmetic error location, financial analysis, bids evaluation, vetting bid documents, cases on audit of contracts, preparation of monthly information statements and letter of awards. All activities undertaken are regulated by ‘Delegation of Power’ guidelines of the organisation which states the competent authority whose approval is required at various stages and at various scales of operations. The procurement process starts with the Indenting department, mother department, putting forth the proposal along with various relevant cost estimates. This proposal then reaches the Finance Concurrence department for approval. Once approved, procurement action is initiated. This process involves invitation of tenders. Tendering is the process of making an offer, bid or proposal or expressing interest in response to an invitation or request for tender. Organisation will select that offer or tender, that will meet their needs and provides the best value for money. Types of tenders, however, differ as per the requirement. The same have been discussed in the relevant sections.

TABLE OF CONTENTS

Serial

Subject

.no 1

Introduction

2

Company profile

3

Research objective

4

Research methodology

5

Data analysis &Interpretation

6

Finding and Conclusion

7

Limitation & Recommendation

8

bibliography

Page no.

Introduction

INTRODUCTION The project undertaken is on “WORKING CAPITAL MANAGEMENT IN NTPC”. It describes about how the company manages its working capital and the various steps that are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). The aim of working capital management is to manage the firm’s current assets and current liability in such a way that maintained a satisfactory level of working capital. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable level of safety. The interaction between Current Assets and Current Liabilities, and its use in best and possible way is the main theme of the theory of working capital management.

Working capital refers to the cash a business requires for day-to-day operations or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength. The working capital is an important yardstick to measure the company’s operational and financial efficiency. Any company should have a right amount of cash and lines of credit for its business needs at all times.

This project describes how the management of working capital takes place at NTPC.

COMPANY PROFILE

Company Profile CORE VALUES: Core Values – BE COMMITTED 

B - Business Ethics



E - Environmentally & Economically Sustainable



C - Customer Focus



O - Organizational & Professional Pride



M - Mutual Respect & Trust



M - Motivating Self & others



I - Innovation & Speed



T - Total Quality for Excellence



T - Transparent & Respected Organization



E - Enterprising



D - Devoted

NTPC VISION: “To be one of the world’s largest and best power utilities, powering India’s growth”

NTPC MISSION: “Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco – friendly technologies and contribute to society”.

COMPANY OVERVIEW:

NTPC Ltd is the largest power generating company in India both in terms of installed capacity and generated output. The company is engaged in the business of generation and sale of bulk power. The company has two segments: generation and other business. Their other business includes providing consultancy, project management and supervision, oil and gas exploration, and coal mining. The company contributed 28.6% of the total power generation of India. They were ranked 317th in the 2009, Forbes Global 2000 ranking of the World’s biggest companies.

The company operates their stations at a level of efficiency that exceeds the average in India, based upon availability factor and average plant load factor (PLF). They have developed a long term technology roadmap for the induction of high efficiency equipment, including supercritical and ultra-supercritical machines at their new plants.

NTPC Ltd was incorporated on November 7, 1975 as a private limited company with the name National Thermal Power Corporation Pvt Ltd. In September 30, 1976, the word Private was deleted in the company’s name consequent upon the notification issued by the GoI exempting government companies from the use of word private in their name. In September 1977, the company acquired the first patch at Singrauli.

During the year 2010-11, the company added capacity of 2,490 MW (including 500 MW through JV) which is the highest ever in a year since its inception. After commissioning of one unit of 660 MW at Sipat in June 2011, the company became a 34,854 MW company (including 3,364 MW through JV). During the year, the company signed power purchase agreements (PPAs) for 49,000 MW capacity. NTPC has set new benchmarks for the power industry both in the area of power plant construction and operations. It is providing power at the cheapest average tariff in the country. With its experience and expertise in the power sector, NTPC is extending consultancy services to various organizations in the power business. NTPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive afforestation

in the vicinity of its plants. Plantations have increased forest area and reduced barren land. As a responsible corporate citizen, NTPC is making constant efforts to improve the socio-economic status of the people affected by the projects. Through its Rehabilitation and Resettlement programs, the company endeavors to improve the overall socio-economic status of Project Affected Persons.

NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under the 'Excellent category' (the best category) every year since the MOU system became operative. Recognizing its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector ‘Navratnas’- a potential global giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realize its vision of being “A world class integrated power major, powering India’s growth, with increasing global presence”.

Growth of NTPC installed capacity and generation

The total installed capacity of the company is 47,178 MW (including JVs) with 18 coal based, 7 gas based stations and 1 Hydro based station. 9 Joint Venture stations are coal based and 9 renewable energy projects. The capacity will have a diversified fuel mix and by 2032, non-fossil fuel based generation capacity shall make up nearly 28% of NTPC’s portfolio. NTPC has been operating its plants at high efficiency levels. Although the company has 17.73% of the total national capacity, it contributes 24% of total power generation due to its focus on high efficiency.

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25% as offer for sale by the Government of India. NTPC thus became a listed company in November 2004 with the Government holding 89.5% of the equity share capital. In February 2010, the Shareholding of Government of India was reduced from 89.5% to 84.5% through a further public offer. Government of India has further divested 9.5% shares through OFS route in February 2013. With this, GOI's holding in NTPC has reduced from 84.5% to 75%. The rest is held by Institutional Investors, banks and Public.

NTPC is not only the foremost power generator; it is also among the great places to work. The company is guided by the “People before Plant Load Factor” mantra which is the template for all its human resource related policies. NTPC has been ranked as “6th Best Company to work for in India” among the Public Sector Undertakings and Large Enterprises for the year 2014, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times.

Research Objective

OBJECTIVES OF THE STUDY The objectives of this project were mainly to study the inventory, cash and receivable at NTPC Ltd., but there are some more and they are – The main purpose of our study is to render a better understanding of the following: 

To understand the planning and management of working capital at NTPC Ltd.



To measure the financial soundness of the company by analyzing various ratios.



To suggest ways for better management and control of working capital at the concern.

Research Methodology

Research Methodology

The project required a detailed study of NTPC’s ‘working capital management’. The work was aimed at, primarily, understanding the procedure for procurement, and an analysis of the same to list findings and suggestions (if any). Research methodology basically consisted of analysis of secondary data. Secondary data was collected from relevant manuals, company websites, records and bidding documents of previous projects. Details regarding the same have been provided in the ‘List of References’ section. The intern also witnessed the bid opening process for a project tendered, which added a practical aspect to the policy being analyzed. The whole process of working capital management is comprehensive and complex. Study of the same required familiarization with norms and classifications of contracts, items and procedures. The system was mainly analyzed on its efficiency in meeting the targeted objectives of acquiring the best possible quality of items at the lowest possible cost. The project was undertaken in consultation with the employees of the Finance Concurrence department and their inputs have also been taken into consideration.

Data Analyze & Interpretation

DATA COLLECTION

The following sources have been sought for the preparation of this report: 

Primary sources such as business magazines, current annual reports, book on Financial Management by various authors and internet websites the imp amongst them being: www.NTPC.com, www.indiainfoline.com, www.studyfinance.com.



Secondary sources like previous year's annual reports, reports on working capital for research, analysis and comparison of the data gathered.



While doing this project, the data relating to working capital, cash management, receivables management, inventory management and short term financing was required.



This data was gathered through the company’s websites, its corporate intranet, and NTPC’s annual reports of the last three years.



A detailed study on the actual working processes of the company is also done through direct interaction with the employees and by timely studying the happenings at the company.

DATA SAMPLING

There are following steps in my sampling design:

1. Type of universe: The first step in developing any sample design is to clearly define the set of objects, technically called the universe, to be studied. The universe of the study is the power sector.

2. Sampling unit decision has to be taken concerning a sampling unit before selecting sample. Sampling unit is following:

Financial Department, Township Administration, Finance & Account, Civil/ Electrical Maintenance Department, Control & Instrumentation, Fuel Management, Human Resources and Electrical Office.

Above are all the sampling units that are used by me for study.

RESEARCH INSTRUMENTS

While doing the research on working capital management, I use some documents that are given below:

1- NTPC Financial Reports. 2- News Magazine of NTPC. 3- Journals of NTPC (SSTPS). 4- Shakti Sandesh Magazine. 5- NTPC annual Reports -

39th Edition

-

38th Edition

Theoretical basis of Working Capital Management (Title) Working capital is the amount of funds necessary to cover the cost of operating the enterprise. It also refers to some total of all current assets employed in the business process, which is known as Gross Working capital concept. Gross concepts of working capital are useful in making correct estimate of working capital needs of the firms. Net working capital is the portion of current assets(C.A) which cannot be financed by current liabilities(C.L). W.C.= C.A. – C.L.

Constituents of Working capital:

1) CURRENT ASSETS: It refers to the assets which are used for day to day business operations of the firm. It mainly constitutes of the following:

a) Inventories: It represents all the raw materials and components of work in progress and finished goods.

b) Trade debtors: It comprises credit sales to customers.

c) Prepaid expense: The expenses which have been paid for goods and services whose benefit have yet to be received.

d) Loan & advances: Loan and advances given by the firm to other firm for a very short period of time.

e) Investments: Is short term. It is surplus funds invested in the government security share and short term bond..

2) CURRENT LIABILITIES: It is a part of working capital represent obligation which the firm has to clear to the outside parties in a short period generally within a year and this is mainly comprise of the following:

a) Sundry credit:Liabilities which are steam out of purchases of raw material on credit terms usually for a period of one or two months. b) Bank Overdraft: Withdrawals in excess of credit balance standing in the firm’s currents a/c with the banks. c) Short term loans: short term borrowing by the firms from bank and other firm’s part of C.L as short terms loans.

WORKING CAPITAL CYCLE

CASH

RECEIVABLES

FINISHED GOODS

MATERIALS

FACTORS DETERMINING THE SIZE OF WORKING CAPITAL There may be various factors which can be determine the size of the working capital:

1) Nature of Business: Magnitude of working capital business enterprise is to a considerable degree of function of the nature and character of the business. Example: a) In enterprise engaged in the manufacturing of essential product of daily consumption would need less amount of working capital.

b) If the enterprise dealing in luxuries product it will require a large reserve of net working capital.

2) Size of business: Requirement of working capital can also be determined by the size of the business. Firms engaged in the same line of business activity may have different working capital requirement because of varying business size. Example: a) 10 – 20 % of W.C is required in Hotels and restaurants. b) 20 – 30 % of W.C in services and semi manufacturing organizations. c) 80 – 90 % of W.C in hi-tech or heavy industry like steel, cement etc.

3) Production Cycle: Time lag between procurement of raw material to collection of cash. Example: a) Bakery industry-regular basis of requirement of W.C. b) Many venture projects require high amount of W.C but the W.C is pre-collected.

4) Business cycle: Business cycle of the enterprise also determines the W.C requirement. In times of economic and business oscillations, the management has to carry enough W.C to handle the situation of the upward and downward swings.

5) Production policy: W.C requirements also depends upon the various production policy adopted by the business organization.Example: a) Line Vs Batch production policy b) Seasonal Vs Bulk

Progressive accumulation of stock affects the requirements of W.C.Higher the accumulation, higher is the W.C requirement. Example: Automobile sector Diversification of the business also requires the high amount of Working Capital.

6) Credit policy: Credit policy adopted by the firm also affects the Working Capital requirements. It may depend on the: 

Economy conditions



Prevailing trade practices



Collection procedure



Customer patronage



Terms of creditors Vs terms of debtors

7) Growth & expansion of the company: As a company grows, it is logical to expect that a larger amount of W.C is required. It is very difficult to determine precisely the relationship between the growth in the volume of the business of the company and increase in the working capital.

8) Vagaries(deliberation/factors) in supply of R.M: 

Regular basis of supply of R.M, the W.C is constant



Sporadic supply of R.M, the W.C is not constant.

9) Profit level: Higher profit margin would improve the prospects of generating more internal funds thereby contributing to the W.C. Profit level of any enterprise depends on the: 

Nature of the product



Market holding



Intensity of completion



Effective quality management Example: Marico created its monopoly so the W.C requirement is very less for monopoly company, because their profit level is very high.

TYPES OF Working capital. There are two types of W.C, which are as follows:

1) Fixed / Regular / Permanent W.C.: any business activity dose not comes to an end after the realization of cash from customer. 

For the company having continuous business process, regular supply of W.C requirement.



Fixed W.C is determined at the starting of the project planning.

2) Variable / Temporary W.C: it fluctuates with the demand. 

Any amount over and above the permanent level of W.C is temporary, fluctuating or variable W.C.



An amount of W.C needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes.

Temporary W.C

Permanent W.C.

Approaches of W.C.: 1) Hedging / Matching: 

The hedging approaches suggest that long-term funds should be used to finance the fixed proportion of C.A requirements which are required in a certain amount for a given level of operation.



Purely temporary requirements, the seasonal variations over and above the permanent financing needs should be appropriately financed with short term funds(C.L)



This approach, therefore divides the requirements of total funds into permanent and seasonal components, each being financial by a different source.

Variable C.A.

Non-Variable C.A.

S.T. financing

L.T. financing

Fixed assets

2) Conservative approach: This approach suggests that the estimated requirement of total funds should be met from longterm funds should be restricted to only emergency situations or when there is an unexpected outflow of funds.

Variable C.A.

S.T. financing

Non-Variable C.A.

L.T. financing

Fixed assets

3) Aggressive approach: Suggests that any firm has to use less long-term funds. 

According to this, L.T funds should not be used to finance the whole permanent W.C.



Some part of permanent W.C should be financed from S.T funds.



Risk is high in this ratio.

Variable C.A S.T. financing Non-Variable C.A

Fixed assets

L.T. financing

NEED OF WORKING CAPITAL Essentially sales generate working capital so long as cash, costs and expenses are less than sales income. However sale is not immediately converted into cash. There is a time gap between conversion of goods and receipt of cash. Working capital is required for this period in order to maintain the satisfactory level or run the firm for production of finished goods to sales of goods. So, corporation generally maintain the working capital an opposition to purchase raw material, pay salaries to employees and wages, administrative expenses, warehousing expenses and other expenses required for manufacturing the finished good to be sold to the consumer. The determination of working capital cycle is helpful for budgeting or forecasting and improving previous working capital ratio.

IMPORTANCE OF WORKING CAPITAL Investment in fixed assets are not sufficient to run the business operation. Working capital is blood of any firm which is need to purchase raw materials, pay salaries and wages, administrative expenses and day to day requirements. 1. Any corporation’s profitability depend on the effective working capital management.

2. Working capital is necessary for taking decision regarding long term investment.

3. It helps to know about loans & advances ,cash and debtors of the company

4. It is also helpful in minimize cost and expenses.

WORKING CAPITAL MANAGEMENT IN NTPC (Sample) 1) NET WORTH The net worth of the company at the end of fiscal 2015 was Rs.449587 million and increase of Rs.31824 million over the previous year mainly due to retained earnings.

2) LOAN FUNDS Our loans outstanding as on March 31, 2015 stood at Rs.201, 973 million in comparison to Rs.170878 million as at March 31, 2014. A summary of the loans outstanding is given below:

2015

2014

% change

Bonds

47,044

32,077

47%

Foreign CurrencyTerms loans

10,274

12,319

-17%

Other

9

11

-18%

Sub-total

57,327

44,407

29%

Unsecured loansFixed deposits

778

4,159

-81%

5000

-100%

Secured loans

Bonds Foreign CurrencyBonds/Notes

22,475

8,814

155%

Foreign CurrencyTerms loans

33,336

32,608

2%

Rupee term loans

87,821

75,339

17%

Loans from government of India

236

551

-57%

Sub-total

144,646

126,471

14%

Total

201,973

170,878

18%

The change in the loans outstanding is mainly because of the borrowings and repayments made during the year. During the year the company issued one series of rupee denominated bonds through private placement amounting to Rs.10, 000 million. The bonds have been issued for a period of 14 year with redemptions in equal semi-annual installments beginning at the end of three years.The debt to equity ratio at the end of fiscal 2006 of the company went up to 0.45 from 0.41 at the end the previous fiscal.

3) FIXED ASSETS During the year we added Rs.29334 million to our gross block mainly on account of capitalization of capital works in progress pertaining to projects which were commercialized during the year. With capital expenditure being incurred on various on-going projects the capital work in progress has shown a substantial increase.

2015

2014

%change

Gross block

460,396

431,062

7%

Net block

230,895

223,148

3%

Capital work-in-progress

103,999

67,063

55%

Construction stores and advances

32,341

32,189

0%

Total fixed assets

367,235

322,400

14%

4) INVESTMENTS Investments comprise bonds issued by various state governments under the one-time settlement scheme, equity investments in joint venture and subsidiary companies and investments out of surplus cash in various instruments as per the policy of the company. The break-up of investments is as follows:

2015

2014

Bonds issued under one time settlement scheme

171,762

164,107

Investments in joint ventures

6,818

1,318

Investment in subsidiaries

304

252

Investment of surplus cash in various instruments

8,508

32,504

5,306

7,428

customers

193

2,368

Total investments

192,891

207,977

Others Bonds against dues Investments of development surcharge on behalf of

5) CURRENT ASSETS The current assets and current liabilities as at March 31st 2015 and March 31st2014 and the changes therein were as follows:

2015 Current assets

Amount

2014

Change

%of current Amount

%of current Amount

assets

assets

%

Inventories

23,405

15%

17,819

14%

5,586

31%

Sundry debtors

8,678

6%

13,747

11%

-5,069

-37%

84,714

54%

60,783

47%

23,931

39%

10,161

6%

9,764

7%

397

4%

30,287

19%

26,993

21%

3,294

12%

157,245

100%

129,106

100%

28,139

22%

Cash

and

Bank

balances Other Current assets

Loans and advances

Total current assets

A major part of current asset comprised cash and bank balances. As at March31,2015, the cash and bank balances stood at Rs. 84,714 million being 54% of the total current assets in comparison to Rs. 60,783 million as at March 31,2014 which was 47% of the total current assets as on the date. Of these, Rs. 82,887 million were kept as term deposits with banks as on March 31, 2015 while the term deposits for the last year Rs. 57,050 million.

The next largest component of our current assets is Loans and Advances which mainly include a sum of Rs. 9,573 million as loan to the government of Delhi subsequent to the conversion of the dues of Delhi Vidyut Board into loan under the one-time-settlement scheme. The government of Delhi pays us 8.5% tax-free interest on these Bonds. The other loans and advances to employees given for various purposes such as building of house, purchase of vehicles etc. as per the policies of the company.

Inventories as at March 31, 2015 were Rs. 23,405 million being 15% of current assets as against Rs. 17,819 million as on March 31, 2014 which was 14% of the current assets as on that date. Our inventories mainly comprise components and spares and coal which we maintain for operating our plants. Components and spares were Rs. 12,894 million as against Rs. 11,904 million in the last year. Coal inventories amounted to Rs. 7,476 million as against Rs. 3,115 million in the previous year indicating improved coal supply position.

6) CURRENT LIABILITIES

Our current liabilities as at March 31, 2015 were Rs. 49,102 million as against Rs. 52,306 million in the previous year. Our current liabilities mainly comprise creditors for capital expenditure, creditors for supply of goods and services, deposits and retention money from contractors. The liabilities for these at the end of the year stood at Rs. 36,057 million as against Rs. 33,168 million in the previous year. Besides these, we also owed a sum of Rs. 9,886 million to our customers as against Rs. 14,431 million in the previous year. These sums include amount payable to the customers since we are billing our customers for electricity on provisional tariffs as per directions of CERC, which are higher than the tariffs estimated by us as per CERC Regulations. These amounts would be paid or adjusted against future billings as and when the final tariff for various stations are determined by the regulator.

2015 Current assets

Amount

2014

Change

%of current Amount

%of current Amount

assets

assets

%

Liabilities

49,102

80%

52,306

78%

-3,204

-6%

Provisions

12,300

20%

15,161

22%

-2,861

-19%

100%

67,467

100%

-6,065

-9%

Total Current Liabilities 61,402

7) PROVISIONS As at March 31, 2015 we had provisions for certain liabilities outstanding amounting Rs. 12,300 million as against Rs. 15,161 million on 31 March, 2014. This mainly comprised Rs. 6,596 million as proposed dividend which we would be paying to our shareholders after they approve the same in the shareholders after they approve the same in the shareholders` meeting.

8) CASH FLOWS The cash and cash equivalents and cash flows on various activities for the past five years are tabulated below:

Our net cash from operating activities for the year ended March 31, 2015 increased by 22% from the previous year. The net cash from operating activities was Rs. 62,064 million as against Rs. 50,998 million for the previous year. Our net cash used in investing activities decreased to Rs. 27,136 million in fiscal 2015 from Rs. 64,136 million in the previous year. Cash flows on investing activities arise from expenditure on setting up power projects, investment of surplus cash in various securities, investment of development surcharge recovered from customers, investments in joint ventures and subsidiaries. The cash utilized for purchase of fixed assets increased by 25% from Rs. 53,699 million in the previous year to Rs. 66,956 million during this year. Cash was also realized on maturity of certain investments during the year.

During the year we used Rs. 10,997 million of cash on financing activities. In the previous year we had a net inflow of Rs. 7,570 million from financing activities mainly due to receipt of Rs. 26,841 million as proceeds from our initial public offering of shares. During the current year we had inflow of Rs. 29,592 million in the previous year. The cash used for repayment of long term borrowings this year was Rs. 17,131 million as against Rs. 13,242 million repaid in the previous year. The cash used for paying dividend and the tax thereon was Rs. 30,087 million as against Rs. 23,397 million in the previous year.

2015

2014

2013

Opening cash and Cash equivalents

60,783

66,351

23,894

Net cash from operating activities

62,064

50,998

58,118

Net cash used in investing activities

27,136

64,136

24,597

Net cash flow from financing activities

10,997

7,570

8,873

Intangibles

63

Change in cash and cash equivalents

23,931

5,568

42,457

Closing cash and cash equivalents

84,714

60,783

66,351

CURRENT RATIO

Current Ratio 2 1.8 1.6

1.78 1.59

1.4

1.33

1.2 1 0.8 0.6

0.4 0.2 0

INFERENCE:

An ideal Current Ratio is 1.5 & 2:1 which indicates good short term financial strength of a business. In the case of this company it is showing a downward trend 1.78 (2012-13), 1.59 (2013-14) and 1.33 (2014-15) which indicates problem in its working capital management. It may which is due to decrease in Inventories, Trade Receivables, Cash & Bank Balance and Increase in Other Current Liabilities & Short Term Provisions.

1. QUICK RATIO

Quick Ratio 1.8 1.6

1.67

1.46

1.4 1.2

1.18

1 0.8 0.6 0.4 0.2 0

INFERENCE:

It is vital that a company have enough cash on hand to meet accounts payable, interest expenses and other bills when they become due. The higher the ratio, the more financially secure a company is in the short term. A common rule of thumb is that companies with a quick ratio of greater than 1.0 are sufficiently able to meet their short-term liabilities.

2. GROSS PROFIT MARGIN

Gross Profit Margin 25 20.64 18.9

20

14.42

15 10 5 0 2012-13

2013-14

2014-15

INFERENCE:

A business's ultimate goal is to raise its profit margins. However, decreasing the gross profit margin temporarily may be beneficial in the long run. A business may decrease its gross profit margin by lowering the cost of the goods it sells or by using higher quality, and thus more expensive, materials to make the goods. Lower prices attract new customers, which may eventually raise profit margins. Likewise, higher quality goods retains customers, which also can raise profit margins in the future.

3. INVENTORY TURNOVER RATIO

Inventory Turnover Ratio 16

15.16 13.3

14 12

10.21

10 8 6 4 2 0 2012-13

2013-14

2014-15

INFERENCE:

The Inventory cost has been increase along with Cost of Revenue from operations due to which Inventory Turnover ratio has decreased in 2014-15. This situation is not really bad for the company as it is witnessing increase in its revenue over the past three years.

4. DEBT-EQUITY RATIO

Debt-Equity Ratio 1.4

1.24

1.2 1 0.82

0.88

0.8 0.6 0.4 0.2 0 2012-13

2013-14

2014-15

INFERENCE:

A lower debt to equity ratio usually implies a more financially stable business. Companies with a higher debt to equity ratio are considered more risky to creditors and investors than companies with a lower ratio. Unlike equity financing, debt must be repaid to the lender. Since debt financing also requires debt servicing or regular interest payments, debt can be a far more expensive form of financing than equity financing. Companies leveraging large amounts of debt might not be able to make the payments.

5. DEBTORS TURNOVER RATIO

Debtors turnover Ratio 14 12.31

12

10.86

10.09

10 8 6 4 2 0 2012-13

2013-14

2014-15

INFERENCE: The ratio is intended to evaluate the ability of a company to efficiently issue credit to its customers and collect funds from them in a timely manner. A high turnover ratio indicates a combination of a conservative credit policy and an aggressive collections department, as well as a number of high-quality customers. A low turnover ratio represents an opportunity to collect excessively old accounts receivable that are unnecessarily tying up working capital. Low receivable turnover may be caused by a loose or nonexistent credit policy, an inadequate collections function, and/or a large proportion of customers having financial difficulties. It is also quite likely that a low turnover level indicates an excessive amount of bad debt.

6. FIXED ASSET TURNOVER RATIO

Fixed Asset Turnover ratio 0.62

0.61

0.61

0.6

0.6 0.59 0.58 0.57

0.56

0.56 0.55 0.54 0.53 2012-13

2013-14

2014-15

INFERENCE:

The fixed-asset turnover ratio is, in general, used by analysts to measure operating performance. It is a ratio of net sales to fixed assets. This ratio specifically measures how able a company is to generate net sales from fixed-asset investments.

INTEREST SERVICE COVERAGE RATIO

Interest Service Coverage Ratio 8 7.05

7.09

7 5.54

6 5 4 3 2

1 0 2012-13

2013-14

2014-15

INFERENCE:

The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest payments. Interest coverage ratio is equal to earnings before interest and taxes (EBIT) for a time period, often one year, divided by interest expenses for the same time period. The interest coverage ratio is a measure of the number of times a company could make the interest payments on its debt with its EBIT. It determines how easily a company can pay interest expenses on outstanding debt.

7. RETURN ON CAPITAL EMPLOYED

Return on Capital Employed 14 12

11.84 10.83

10 7.78

8 6 4 2 0 2012-13

2013-14

2014-15

INFERENCE:

Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. A higher ROCE indicates more efficient use of capital. ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is not employing its capital effectively and is not generating shareholder value.

8. TOTAL ASSET TURNOVER RATIO

Total Asset Turnover Ratio 0.485 0.48

0.48 0.475 0.47

0.47 0.465 0.46

0.46 0.455 0.45 2012-13

2013-14

2014-15

INFERENCE:

The Totalasset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets.A low asset turnover ratio suggests problems with excess production capacity, poor inventorymanagement, or lax collection methods. Increases in the asset turnover ratio over time may indicate a company is "growing into" its capacity.

FINDINGS AND CONCLUSIONS

FINDINGS AND CONCLUSIONS



The total income of NTPC Ltd. For the year 2014-15 increased by 16.59% to Rs. 57399.49 crores from Rs. 49233.88 crores during 2013-2014



The net profit after tax increased from Rs 9102.59 crores from Rs 8728.20 crores registering a growth of 5.29 % over last year.



Employee’s remuneration and benefits have increased by 15% from Rs 2,412.36 crores in financial year 2009-10 to Rs 2,789.71 crores in the year 2010-11 of which Rs 69.48 crores is due to additional commercial capacity.



During the year 2014-15, company realized 100% payment for current bills raised for sale of power for the 8th successive year.



It was observed that a major portion of current assets comprised of Cash and Bank balances.



The company has established a State- of-the-art IT enabled Project Monitoring Centers (PMC) for facilitating fast track project implementation.



The supply of power improved during the year 2014-15 owing to increase in capacity in coal as well as gas based plants.



NTPC Ltd. has always discharged its social responsibility as a part of its Corporate Governance Philosophy. It follows the global practice of addressing CSR issues in an integrated multi stake holder approach covering the environment and social aspects.

LIMITATIONS & RECOMMENDATIONS

LIMITATIONS & RECOMMENDATIONS 

Gross Profit ratios have continuously gone under various fluctuations in the last five years. However the ratios are more than the industry standard. Gross profit ratio was lowest last year i.e. 2015, 31.95% this indicates that overheads cost has not been controlled as required. Such low margin indicates that the business is unable to control its production cost.



Majority of the projects undertaken by NTPC are in growth stage or their respective lifecycle. This is one of the reasons for its low profits in recent years.



Net profit is the number that really matters, as this is the true indication of profitability. The total income of NTPC Ltd. For the year 2014-15 increased by 16.59% to Rs 57,399.49 crores from Rs 49,233.88 crores during 2013-14



Net profit ratio for NTPC has been highest in the year 2007 i.e. 21.05%. Thereafter it has continuously declined. It was lowest in the year 2015 i.e. 16.58%



Though net profits ratio of NTPC have declined they are still decent as compared to its counterparts in industry.



In the initial years i.e. during 2015 and 2014current ratio has clearly exceeded the ideal ratio i.e. 2:1. In 2015 it was 3.22:1 while in the year 2014 it was 3.11:1. Significant improvement has been shown in proceeding years and the ratio has been best in the year 2013 as compared to other four years, as during this it was 2.70:1 that is quite close to the ideal ratio.



In case of NTPC Ltd this returns on total assets ratio is continuously declining which shows that return as compared to the assets is declining.



NTPC Ltd. belongs to power sector industry where gestation period for new projects is always more than 3-5 years, therefore a part of capital gets blocked in such projects.



In last financial year debt has registered a growth of 14% which seems to be matching with company’s rate of diversification.



The debt-equity ratio at the end of financial year 2013-14 increased to 0.64 from 0.61 at the end of previous financial year.



The amount raised through term loans, bonds and foreign currency borrowings was used for capital expenditure and re-financing while amount raised through deposits have been used for working capital purposes.



Looking at the profitability, size and promising future prospects , we can say that for NTPC Ltd. there is still a room for including more of debt into its capital structure as debt is a cheaper source of finance so thereby it would lead to more of profitability



For NTPC Ltd the Fixed assets turnover ratio was highest in the year2008 i.e. 1.41. Company should put in efforts to increase it further as a higher fixed asset turnover indicates better efficiency in fixed assets utilization.



Trends show the increasing value added per employee, it shows that even this aspect is now been given due attention



More earnings can be retained for fast-track implementation of new projects with ultimate of increasing net worth.During all five years more than 60% of net earnings after tax is retained with an aim efficient reinvestment which will fetch better returns.



The growth of company through capacity addition and strategic diversification of its operations would lead to increase in shareholders’ value.

ANNEXURE