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    51790153 50721825-ratio-analysis-1 51790153 50721825-ratio-analysis-1 Document Transcript

    • EXECUTIVE SUMMARYThe project undertaken by me is “Ratio Analysis”, with reference to Areva T&D IndiaLimited, Naini (Allahabad)The Project was carried out under the guidance of Mr. Anshul Mehrotra (Finance). In thisreport I have analyzed various factor to determine the company overall financial image.Areva T&D India Limited, believes in the importance of four basic guiding principles interms of how they view themselves and their clients relationships; Quality, Service,Teamwork and Innovation. AREVA, World energy expert, offers its customer technologicalsolutions for highly reliable nuclear power generation and electricity transmission anddistribution.Areva is the world leader in energy business. It Ranks 1 st in the entire nuclear cycle andRanks 3rd in the electricity transmission and distribution.The objective of the project was to analyze and interpret the financial statement of thecompany as well as to judge its operational efficiency.Four major ratios were studied under this project i.e. Liquidity Ratios, Solvency Ratios,Turnover Ratios and Profitability Ratios. 1
    • INTRODUCTIONIn any organization, the two important financial statements are the Balance sheet & Profit andloss account of the business. Balance sheet is a statement of the financial position of anenterprise at a particular point of time. Profit and loss account shows the net profit or net lossof a company for a specified period of time. When these statements of the last few year ofany organization are studied and analyzed, significant conclusions may be arrived regardingthe changes in the financial position, the important policies followed and trends in profit andloss etc. Analysis and interpretation of the financial statement has now become an importanttechnique of credit appraisal. The investors, financial experts, management executives andthe bankers all analyze these statements. Though the basic technique of appraisal remains thesame in all the cases but the approach and the emphasis in analysis vary.A banker interprets the financial statement so as to evaluate the financial soundness andstability, the liquidity position and the profitability or the earning capacity of borrowingconcern. Analysis of financial statement is necessary because it help in depicting the financialposition on the basis of past and current records. Analysis of financial statement helps inmaking the future decision and strategies. Therefore, it is very necessary for everyorganization whether it is a financial or manufacturing etc. to make financial statement and toanalyze it. OBJECTIVES OF THE PROJECT 2
    • Primary Objectives:  To provide a report that gives a complete picture of the financial state of AREVA T&D India Ltd. , Naini (Allahabad)  To locate the weak spots of the business which need more attention.  To analyze and interpret the financial statement of the company and give a proper suggestion for its improvement.  To interpret and analyze the financial ratios of the companySecondary Objectives:  To provide deeper analysis of the liquidity, solvency, activity and profitability of the business.  To provide information for making time-series analysis i.e. for making comparison of a firm’s present ratios and with its past ratios.  To provide information useful for making estimates and preparing the plans for the future. LIMITATIONS OF THE PROJECT 3
    •  Research facilitates decision making and is not a substitute of decision making. It helps in providing alternative solution and is not the solution itself. The topic is so broad to cover all the fields in just four weeks. One of the constraints in the completion of project was the busy environment of the organization. Although Allahabad is not new for me yet the company is establish far away from the city. All the necessary data were not available to me due to company’s confidential matter. 4
    • COMPANY PROFILE AREVA, WORLDWIDEAreva is a French public multinational industrial conglomerate that deals in energy, especiallyin nuclear power. The parent company is incorporated under French law as a société anonyme(public corporation). The French State owns more than 90%. Areva is just a name, inspired byArevalo Abbey in Spain. The real name of the company is S.A. des Participations duCommissariat à Atomique.With manufacturing facilities in 43 countries and a sales network in more than 100, AREVAoffers customers reliable technological solutions for CO2-free power generation and electricitytransmission and distribution. Areva is the world leader in nuclear power and the only companyto cover all industrial activities in this field. Areva’s 65,000 employees are committed tocontinuous improvement on a daily basis, making sustainable development the focal point ofthe group’s industrial strategy. The company is engaged in nuclear power generation andtransmission & distribution of electrical energy. It is the only company with a presence in eachindustrial activity linked to nuclear energy: mining, chemistry, enrichment, combustibles,services, engineering, nuclear propulsion and reactors, treatment, recycling, stabilization, anddismantling. It is the world leader in nuclear power and the only company to cover all industrialactivities in this field. Areva specializes in infrastructure.AREVA, The Global specialist in energy & transport infrastructure is in the business ofproviding quality solutions & system design. AREVA is the government organization ofFrance. It acquired the Transfer & Distribution division of ALSTOM, a private organization ofFrance in 2004. It acquired the Naini division of Alstom in September 2005. The organizationis World leader in energy business. It is No.1 in the entire nuclear cycle. It is No.3 in electricitytransmission and distribution. 5
    • AREVA: A RECOGNIZED LEADERSHIP World leader in the energy business 1. No.1 in the entire nuclear cycle 2. No.3 in electricity transmission and distribution Company’s Mission 1. Innovate to contribute to ever cleaner, safer and economical CO2-free power generation and electricity transmission and distribution.  Company’s 2011 Objectives 1. Achieve one-third of the world nuclear market and a €5Bn sales revenue 2. Deliver a double digit operating margin 3. Reach a significant position in CO2 free production systemsAreva WayThe AREVA way represents AREVA core beliefs, values and aspirations. It illustrates avision structure that guides the thoughts and actions of AREVA people in attaining theultimate goal of becoming No.1 AREVA. It stipulates the way in which the goal is realizedAREVA’s principles"Enable everyone to have access to ever cleaner, safer and cheaper energy" 6
    • AREVA T&D INDIA LIMITED 7
    • Innovation, Growth, Leadership…AREVA T&D INDIA LIMITED is a subsidiary of AREVA, France. It came to India byacquiring the worldwide T&D sector of Alsthom, France. AREVA T&D INDIA LIMITED,formerly known as ALSTOM LIMITED was originally incorporated as General ElectricCompany of India (GECI) in 1911. GECI was amalgamated with the English ElectricCompany of India (EEI) in April 1993 and the name was changed to GEC Alsthom India.The company was promoted by GEC Alsthom, Netherlands, which has interests in GECAlsthom Triveni. The name of the company was changed from Alstom Limited to ArevaT&D India Limited from 23rd September, 2005. AREVA T&D currently employs over 4600 people in India across 16 ManufacturingUnits and 22 Sales Offices. The company has been a trend- setter in the field of high voltageswitchgear and was the first to build the 765 KV sub- station in India with National ThermalPower Corporation Limited (NTPC) at SIPAT, Chhattisgarh. Around 70% of power flow inIndia’s transmission grids is managed by AREVA T&D’s Automation solutions.Areva T&D India divides its business in verticals like, Systems, Products, Automation, andServices. • ProductsCompany’s Products segment comprises of Power Transformers, Instrument Transformers,Circuit breakers and Medium Voltage Switch Gears. The company is present in products ofupto 765 KV. Areva T&D mainly focuses on Medium Voltage (MV) to Extra High Voltage(EHV) products.EHV Products: 132 KV and aboveHV Products: 66 KV and AboveMV Products: 33 KV and BelowLV Products: 11 KV and Below (Not present) • Systems 8
    • Under this segment the company undertakes turnkey projects like building substations andswitchyards. The company is also present in high-end areas like 765 KV substations, HVDCSubstations and Gas Insulated Substations. • AutomationAutomation segment comprises of hardware and software for managing energy flows fromLoad Dispatch Centres. It includes Supervisory Control and Data Acquisition (SCADA) usedfor managing smooth energy flows from a centralized location. • ServicesThis segment comprises services for network planning and after sales services for productsand systems business. ENERGY: THE CORE BUSINESS OF AREVA 9
    • O r g a n iz a t io n o f th e gr o u p T R A N S MIS S IO N FR ON T E N D R E A C T O R S & S E R V IC E S B A C K E N D & D IS TR I B U T IO N D iv is io n D iv is io n D iv is io n D iv is io n • Mi n i n g • P l a n ts • T re a tm e n t • P ro d u c ts • C h e m i s try • E q u ip m e n t • R e c yc l i n g • S e rvi c e s • E n ri c h m e n t • N u c le a r S e rvi c e s • L o g i s ti c s • S ys te m s • Fuel • N u c le a r M e a s u re m e n ts • C le a-u p n • A u to m a ti o n • C o n s u l ti n g • E n g i n e e ri n g & In fo rm a tio n S ys te m s • AREVA T A11 11 An Integrated Offer- 4 Division 10
    • To answer its customers’ needs, AREVA’s development strategy is based on abalanced presence in Europe, North and South America and Asia. For its nuclear operations,the group offers its customers’ valued solutions throughout the cycle: 1. Front-End Division: This is the first division of AREVA which includes uranium ore exploration, mining, concentration, conversion and enrichment; nuclear fuel design and fabrication. 2. Reactors & Services Division: This division includes design and construction of nuclear reactors and other non co2 emitting power generation system; supply of products and services for nuclear power plant maintenance, upgrades and operations. 3. Back-End Division: This division offers solutions for the management of used fuel. It includes treatment and recycling of used fuel; cleanup of nuclear facilities; nuclear logistics. It is organized into five business units: Nuclear Site Value, Recycling, Logistics, Clean-up and Engineering. 4. Transmission & Distribution (T&D) Division: This division includes transmission and distribution operations which provide products, systems, automation and services designed to transport and distribute electricity from the power plant to the final user. 11
    • AREVA T&D INDIA LIMITED, NAINI (ALLAHABAD)Naini unit of AREVA T & D INDIA LIMITED was established in 1957. It is located 12kilometers from Allahabad in the state of Uttar Pradesh (about 600 kms from New Delhi and800 kms from Calcutta). The unit is spread over a total area of 87276 meter square providingemployment to 658 people. The unit has the certification of IMS. The unit is engaged in theproduction of power transformers, distribution transformers and MV product lines. It is theonly unit in India producing the oil base transformers. The Naini unit of AREVA deals withthe business of Transmission & Distribution only. As a whole this T&D forms about onethird of the business of the AREVA on the global scale. In India the only unit of Arevamanufacturing Transformers is in Naini. The unit is capable of manufacturing and servicingtransformers up to a voltage range of 400 KV class. At present Naini works has installedcapacity to manufacture 4929 KVA power transformers annually. The transformer that isbelow 20 MVA are called Distribution Transformers. The Switch Gear business at Nainistarted in the year 1964. The company mainly deals in the manufacturing of medium voltage 12
    • switchgears. The Naini unit is fully capable of designing, manufacturing, testing andcommissioning of transformers of 315 MVA up to 400 KVA class.Locational Choice - Why at Naini? UP’ the large state with highest population & maximum urbanization in the country. ‘Allahabad’ the Home Town of Nehru the most famous Prime Minister. Post Independence ‘UP’ identified as the State with highest potential in Power Sector development. ‘Naini’ the first organized industrial area planned in the country. No transformer producer in the Northern Region.Product History – Areva T & D India Limited (Naini Works) 1957 : Established Transformer 1964 : Motor, Switchgear Added 1985 : Introduced Vac. Switchgear 1991 : Motor Operation Shifted 1996 : 400kv Transformer 1997 : Dist Transformer 13
    •  2004 : Pss Introduced Workshop at NainiTHE RANGE OF PRODUCTS: NAINI WORKSThe product range includes power transformers of all types up to 400 kV class series,distribution transformers and switchgears.  Distribution and Power transformers up to 400 kV class.  Dry Type (flame proof and non flame proof) Mining transformers (approved by the Directorate General of Mining Safety).  Single phase track side transformers for railways.  Rectifier transformers.  Shunt reactors of coreless and gapped core types.  Sealed type air / glass cushioned transformers.  Air furnace transformers.  Furnace transformers for calcium carbide, ferro silicon, ferro manganese, ferro chrome.  Drycol breathers. 14
    •  Radiators suitable for transformers.  Auto booster transformers.  Compact substations.At present Naini works has the capacity to manufacture 6000 MVA power transformersannually.Major Importing Countries from Naini Works  Zimbabwe  Columbia  Australia  Brazil  Croatia  Bangladesh  China  Greece  Bhutan  Myanmar  Malawi  Uganda  Argentina  Nepal  Vietnam Major Competitors in India  ABB  Siemens  BBL  BHEL  Crompton Greaves  EMCO  CGL  TELK  ECE  L&T  SCHNIDER  T&R Major Customers in India  All State Electricity  Indian Iron and Steel  Cochin Refinery. Board. Company.  Reliance  Power Grid Corporation  Bharat Heavy Textiles. of India. Electricals Limited  ABB.  National Hydro Power (BHEL).  TC Engineers. Electric Corporation.  IFFCO.  Engineers India  Kolkata Electric Supply  Kribhco. Limited. Corporation  National Fertilizers  Indian Railways.  Ahmedabad Electricity Limited (NEL).  HINDALCO. Company.  ACC.  Ashok Leyland.  New Delhi Municipal  Birla Cement.  Damodar Valley Corporation.  Century Cement. Project.  Tata Iron and Steel  Western Collieries.  Indian Oil Company (TISCO).  Eastern Coalfields. Corporation  Bhilai Steel Plant.  Oil and Natural Gas Limited.  L&T. Corporation (ONGC). 15
    • EXPANSION OF AREVA T&D INDIA LIMITEDHOSUR:  The unit located at Bangalore is moved to a new site at Hosur to achieve the following objectives:  To build products up to Extra High Voltage (765 kV) and Ultra High Voltage (1200 kV) for the emerging needs of India’s transmission grid.  To build extra capacities to take care of both domestic and export market. . .VADODARA: AREVA T&D India has inaugurated its largest manufacturing site at Vadodara  Four world class industrial units on one site  Delivering extra and ultra high voltage (EHV & UHV) transformers AREVA T&D India has inaugurated four new factories at a Greenfield site in Vadodara,State of Gujarat on March 30, 2008. These four factories are amongst a total of eightadvanced technology manufacturing facilities that are being opened by AREVA on three sitesacross India. Shri Narendra Modi, Chief Minister of Gujurat inaugurated the new facility, situated nearKotambi village, in Vadodara, in the presence of Mr. Philippe Guillemot, Chairman and CEOof AREVA T&D, and other senior company representatives and customers. The fourfactories at Vadodara together cover an industrial surface of 350,000 sqm of which more than69,000 sqm is the covered surface. These factories are: 1. Power Transformer factory with the largest testing capabilities in India: In addition to AREVA’s existing power transformer factory at Naini (State of Uttar Pradesh), the new factory in Vadodara will manufacture power transformers up to 16
    • 1200kV AC and 800kV DC, supporting India’s growing needs in UHV AC & UHV DC network developments. 2. The second Distribution Transformer factory in India: Vadodara also manufactures Distribution Transformers, which adds additional capacity to the existing facility at Naini. This new factory will improve geographical coverage across India, ensuring the close proximity to customers. The Vadodara factory will supply oil-immersed distribution transformers up to 30MVA. 3. Primary Distribution Equipment: The Primary Distribution factory manufactures outdoor and indoor vacuum circuit breakers and air insulated switchboards up to 36kV. Modern design circuit breakers will require less welding and contain some 40% less raw materials, to help reduce CO2 emissions and electricity used during production. 4. Secondary Distribution Equipment: The Secondary Distribution factory manufactures gas insulated switchgear to 36kV for distribution networks, MXR reclosers for overhead lines, and prefabricated substations. The factories incorporate world class manufacturing equipment and facilities, latest generation high tech equipments: high speed core cutting line; semi automatic winding machines, and an impulse generator 1000. In the power transformer factory, handling facilities for weights over 500 tons are sized for the production of the largest power transformers for Ultra High Voltage applications.PADAPPAI: AREVA T&D inaugurates India’s first Gas Insulated Substation manufacturingfacility at Padappai  Site to also manufacture ultra high voltage (1200 kV) switchgear AREVA T&D India has inaugurated its latest state-of-the-art High Voltagemanufacturing site at Padappai, near Chennai on March 31, 2009. The new site is home tothree specific factories, manufacturing gas insulated substations, circuit breakers and 17
    • disconnecting switches. These new factories are amongst a total of eight that are beinginaugurated on three sites in Vadodara, Padappai and Hosur by AREVA T&D. At Padappai, Thiru Arcot Veeraswamy, honourable Minister for Electricity,government of Tamil Nadu inaugurated the new facility, during an official ceremony, whichtook place in the presence of Philippe Guillemot, Chairman and CEO of AREVA T&D,together with invited guests and customers.With its three factories, the Padappai site is AREVA T&D’s hub facility in the region forhigh voltage, and fully equipped to meet India’s demand for extra and ultra high voltageequipment (up to 1200kV). It has an industrial surface of 58,000 sqm, with 20,300 sqm ofcovered workshop areas. 1. Gas Insulated Substation (GIS) factory: In line with AREVA T&D’s localization strategy to become closer to its customers, Padappai is India’s FIRST manufacturing facility for Gas Insulated Substations (GIS). AREVA T&D is the world leader in GIS, including in India. At Padappai, AREVA will manufacture GIS up to 400kV. 2. Circuit Breakers factory: The second of the Padappai factories manufactures and tests live tank circuit breakers from up to 1200kV. AREVA is already the first company to manufacture in India circuit breakers with full spring operating mechanisms and thermal blast chambers. As a global leader in the circuit breaker product segment and number one in India since 1996, AREVA T&D is bringing its advanced know-how to what will be a manufacturing centre of excellence. 3. Disconnecting Switches factory: The third factory manufactures disconnecting switches from up to 1200kV. Benefiting from AREVA T&D’s worldwide leadership position in Disconnectors, is the AREVA’s first disconnector factory in India. 18
    • FINANCIAL ANALYSISFinancial analysis is the process of identifying the financial strengths and weaknesses of thefirm and establishing relationship between the items of the balance sheet and profit & lossaccount. Financial ratio analysis is the calculation and comparison of ratios, which arederived from the information in a company’s financial statements. The level and historicaltrends of these ratios can be used to make inferences about a company’s financial condition,its operations and attractiveness as an investment. The information in the statements is usedby:  Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position of the company.  Investors, to know about the present and future profitability of the company and its financial structure.  Management, in every aspect of the financial analysis. It is the responsibility of the management to maintain sound financial condition in the company. TYPES OF FINANCIAL ANALYSISOn the basis of material usedExternal Analysis: External analysis is conducted by those persons who do not have accessto the detailed record of the enterprise and therefore have to depend on published accountsand director’s and auditor’s report . Such type of analysis is made by investor’s, creditagency, and government agency and research scholars.Internal Analysis: Internal analysis is conducted by the management for the reason that themanagement wishes to know the financial health and operational efficiency of theorganization. The important feature of such analysis is that as the management has access toall information relating to the organization so the analysis is more detailed extensive andcorrect.On the basis of modus operandiAnalysis: This analysis is made to review and analyze of financial statements of a number ofyears and are therefore, based on financial data taken for those years. It is a time seriesanalysis. It shows comparison of financial data for several years against a chosen base year.Financial Statement is example of this type of analysis. 19
    • Vertical Analysis: This analysis is made to review and analysis the financial statements ofone particular year only. This type of analysis is also called Static Analysis as it is frequentlyused for referring to ratio development for one date or for one accounting period. Such ananalysis is useful in comparing the performance of several companies in the same group, ordivisions or departments in the same enterprise. RATIO ANALYSISThe term “Ratio” refers to the numerical and quantitative relationship between two items orvariables. This relationship can be exposed as  Percentages  Fractions  Proportion of numbersRatio analysis is defined as the systematic use of the ratio to interpret the financialstatements. So that the strengths and weaknesses of a firm, as well as its historicalperformance and current financial condition can be determined. Ratio reflects a quantitativerelationship helps to form a quantitative judgment. Ratio analysis is to present the figure offinancial statement in simple and tangible. Ratio analysis is the process of establishingmeaningful relationship between two figure and set for financial statement. OBJECTIVE OF RATIO ANALYSIS  Measuring the profitability.  Judging the operational efficiency of the business.  Assessing the solvency of the business.  Measuring short and long-term financial position of the company.  Facilitating comparative analysis performance. CLASSIFICATIONS OF RATIOSThe use of ratio analysis is not confined to financial manager only. There are different partiesinterested in the ratio analysis for knowing the financial position of a firm for differentpurposes. Various accounting ratios can be classified as follows:  Liquidity ratio 20
    •  Leverage ratio  Activity ratio  Profitability ratioLIQUIDITY RATIOS:It is extremely essential for a form to be able to meet its obligations as they become due.Liquidity ratios measure the ability of the firm to cover its current obligations. Liquidityratios by establishing a relationship between cash others current assets provide a quickmeasure of liquidity. A firm should ensure that it does not suffer from lack liquidity, and alsothat it is not too much liquid. The failure of a company to meet its obligations, due to lack ofsufficient liquidity, will result in bad credit image, loss of creditors confidence, or evenlawsuits resulting in the closure of the company. A very high degree of liquidity is also bad,as idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets.Therefore it is necessary to strike a proper balance between liquidity and lacks of liquidity.Important Liquidity Ratios are: a) Current Ratio b) Quick Ratio 21
    • CURRENT RATIOCurrent Ratio is defined as the relationship between current assets and current liabilities. Thisratio is also known as "working capital ratio". It is a measure of general liquidity and is mostwidely used to make the analysis for short term financial position or liquidity of a firm.CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIESThe two basic components of this ratio are:1) Current Assets2) Current LiabilitiesCurrent assets include cash, marketable securities, bills receivables, sundry debtors,inventories, work in progress and prepaid expenses. Current liabilities include outstandingexpenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short termadvances, income tax payable, dividend payable. Year 2009 2008 2007 Current Ratio 1.342 1.307 1.368 Table 1 1.38 1.37 1.36 1.35 1.34 1.33 2009 1.32 2008 1.31 2007 1.3 1.29 1.28 1.27 CURRENT RATIO 22
    • Fig 1Interpretation: A relatively high current ratio is an indication that the firm is liquid and hasthe ability to pay its current obligations in time and when they become due. On the otherhand, a relatively low current ratio represents that the liquidity position of the firm is notgood and the firm shall not be able to pay its current liabilities in time. A ratio equal to ornear to the rule of thumb 2:1 i.e current assets double the current liabilities is considered as astandard or normal or satisfactory. We can easily see from the above diagram that in all thethree years i.e. 2007, 2008 and 2009, the current ratio is below ideal standard.QUICK RATIOLiquid Ratio is also termed as "Acid Test Ratio" or "Liquid Ratio". An asset is said to beliquid if it can be converted into cash with a short period without loss of value.QUICK RATIO = LIQUID ASSETS___ CURRENT LIABILITIESThe two basic components of this ratio are:1) Liquid Assets2) Current LiabilitiesLiquid asset includes marketable securities, cash & bank, debtors and bills receivables. Year 2009 2008 2007 Liquid Ratio 1.112 1.074 1.16 Table 2 Fig 2 23
    • Interpretation: A high ratio is an indication that the firm is liquid and has the ability to meetits current or liquid liabilities in time and on the other hand a low liquidity ratio representsthat the firms liquidity position is not good. As a rule of thumb ratio of 1:1 is considered tobe satisfactory.It can be interpreted from the above diagram that in all the three years i.e. 2007, 2008 and2009, the quick ratio is above than ideal standard.LEVERAGE RATIOThe term solvency refers to the ability of a concern to meet its long term obligation. The longterm indebtedness of a firm includes debenture holders.Financial institutions provide medium and long term loans and other creditors sale goods oninstallment basis. The long term creditors of firm are primary interested in knowing thefirm’s ability to pay regular interest on long-term borrowings, repayment of the principalamount at the maturity and the security of their loans.Accordingly, long term solvency ratios indicate a firm’s ability to meet the fixed interest andcost and repayment schedules associated with its long-term borrowing.The following ratios serve the purpose of determining the solvency of the concern.  Debt-Equity Ratio  Debt to Total Fund Ratio  Proprietary Ratio  Fixed Assets to Proprietor’s Fund Ratio  Capital Gearing Ratio 24
    • DEBT EQUITYRATIO This ratio expresses the relationship between capital contributed by creditors and that contributed by owners. It expresses the degree of protection provided by the owners for the creditors. The higher the ratio, the greater the risk being assumed by creditors. A more highly leveraged company has a more limited debt capacity. DEBT EQUITY RATIO= DEBT EQUITY Whereas, Debt includes Debentures, Mortgage Loan, Bank Loan, Loan from financial institutions and Public Deposits etc. and Equity includes Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserves and Credit Balance of P&L Account. Year 2009 2008 2007Debt Equity Ratio 0.885 0.6471 0.1842 Table 3 1 0.9 0.8 0.7 0.6 2009 0.5 0.4 2008 0.3 2007 0.2 0.1 0 DEBT EQUITY RATIO Fig 3 25
    • Interpretation: Though the ideal standard is 2:1, in all the three year company has this ratio much below than its ideal standard which means there are very less external equity in comparison to internal equity. DEBT TO TOTAL FUND RATIO This ratio is a variation of the debt equity ratio and gives the same indication as the debt equity ratio. In this ratio, debt is expressed in relation to total funds, i.e. , both equity and debt. It is calculated as under: DEBT TO TOTAL FUND RATIO = DEBT______ EQUITY + DEBT Year 2009 2008 2007Debt To Total Fund Ratio 0.46971 0.3929 0.1556 Table 4 Fig 4 Interpretation: Generally, debt to total funds ratio of 0.67:1 is considered satisfactory. A higher ratio than this is generally treated as indicator of risky financial position from the long- term point of view. While with the Areva this ratio is much below than ideal standards in all the three years i.e. 2007, 2008 and 2009. 26
    • PROPRIETORY RATIOThis ratio indicates the proportion of total funds provided by owners or shareholders. It iscalculated as under:PROPRIETARY RATIO = EQUTIY____ EQUITY +DEBT Year 2009 2008 2007Proprietary Ratio 0.5302 0.607 0.8443 Table 5 Fig 5Interpretation: This ratio should be .33:1 or more than that. In all the three years this ratio isabove its ideal standard which means that the firm is less dependent on external sources offinance. 27
    • FIXED ASSETS TO PROPRIETORS FUND RATIO This ratio indicates the extent to which proprietors fund are sunk into the fixed assets. FIXED ASSET TO PROPRIETORS FUND RATIO = FIXED ASSET____________ PROPRIETORS FUND (i.e. NET WORTH) Year 2009 2008 2007Fixed Asset To Proprietor Fund Ratio 1.027 0.892 0.417 Table 6 Fig 6 Interpretation: If this ratio is less than 100% it would mean that proprietors funds are more than fixed assets and a part of working capital is provided by the proprietors. The lower the ratio, the better it is for the long-term solvency of business because more proprietors’ funds will be available for working capital. It can be seen that in all the three years this ratio is much below than ideal standard which shows a good solvency position for the company. 28
    • CAPITAL GEARING RATIOThis ratio establishes a relationship between equity capital (including all reserves andundistributed profits) and fixed cost bearing capital. In fixed cost bearing capital we includepreference share capital and fixed interest bearing loans. Thus,CAPITAL GEARING RATIO= EQUITY SHARE CAPITAL +RESERVE + P&LBALANCE FIXED COST BEARING CAPITALWhereas, Fixed Cost bearing capital= Preference Share Capital+ Debentures+ Long TermLoan Year 2009 2008 2007Capital Gearing Ratio 13.613 17.55 13.302 Table 7 20 18 16 14 Fig 7 12Interpretation: In all the three years we see a low capital gearing ratio. Low capital gearingmean the amount of fixed cost bearing is less than the equity share capital. 10 29 8
    • ACTIVITY RATIOFunds are invested in various assets in business to make sales and earn profits. The efficiencywith which asset are managed directly effects the volume of sales. The better themanagement of asset, the larger is the amount of sales and the profits. Activity ratio measuresthe efficiency or effectiveness with which a firm manages its resources or assets. These ratiosare also called turnover ratios because they indicate the speed with which assets are convertedor turned over into sales. It included the following ratios:  Inventory Turnover Ratio  Fixed Asset Turnover Ratio  Working Capital Turnover Ratio  Capital Turnover Ratio 30
    • INVENTORY TURNOVER RATIOThis ratio indicates the relationship between the sales and the inventory.INVENTORY TURNOVER RATIO= SALES___ INVENTORY Year 2009 2008 2007Stock Turnover Ratio 9.4 6.83 7.35 Table 8 Fig 8Interpretation: It can be interpreted from the above chart that in the year 2009, the stockturnover ratio is much more in comparison to any of the three year.FIXED ASSET TURNOVER RATIO 31
    • This ratio is of particular importance in manufacturing concern where the investment in fixed assets is quite high. This ratio reveals how efficiently the fixed assets are being utilized. FIXED ASSETS TURNOVER RATIO= COST OF GOODS SOLD NET FIXED ASSET Net Fixed Asset= Fixed Asset –Depreciation Year 2009 2008 2007Fixed Asset Turnover Ratio 2.898 2.768 5.773 Table 9 Fig 9 Interpretation: From the above diagram it be seen that there is a fall in the fixed asset turnover ratio from the year 2007 to 2009. WORKING CAPITAL TURNOVER RATIO This ratio reveals how efficiently working has been utilized in making sales. In other words, it shows the number of times working capital has been rotated in producing sales. 32
    • WORKING CAPITAL TURNOVER RATIO = COST OF GOODS SOLD WORKING CAPITAL Working Capital= Current Assets – Current Liabilities Year 2009 2008 2007Working Capital Turnover Ratio 3.515 3.5225 3.369 Table 10 Fig 10 Interpretation: It can be found out from the above chart that in all three year working capital turnovers is almost three and half times in a year. CAPITAL TURNOVER RATIO It is used to calculate the rate of return on common equity, and is a measure of how well a company uses its stockholder’s equity in producing sales. It is calculated as: 33
    • CAPITAL TURNOVER RATIO: COST OF GOODS SOLD CAPITAL EMPLOYED Capital Employed= Equity Share Capital + Preference Share Capital + All Reserves + P&L Balance + Long term Loans – Fictitious Assets – Non-operating Assets Year 2009 2008 2007Capital turnover Ratio 2.773 2.337 2.41 Table 11 Fig 11 Interpretation: In each year i.e. 2007, 2008 and 2009, Capital Turnover Ratio is almost two times. PROFITABLITY RATIO 34
    • Profitability ratio can be defined as a ratio that explains the profitability of a company duringa specific period of time. It explains how profitable a company is. These ratios can becompared during different financial years to see the overall performance of a company.Some of the profitability ratios are:  Gross profit ratio  Net profit ratio  Operating ratio  Return on capital employed (ROCE) ratio  Return on equity capital  Earnings per shareGROSS PROFIT RATIOThis ratio establishes the relationship between gross profit and sales. It measures the marginof profit available on sales. 35
    • GROSS PROFIT RATIO= GROSS PROFIT *100 NET SALES Year 2009 2008 2007Gross Profit Ratio 0.276 0.3219 0.3400 Table 12 Fig 12Interpretation: It can be seen that consistently from the year 2007 there is a fall in the grossprofit ratio.NET PROFIT RATIOThis ratio is also known as net margin. Net profit is obtained when operating expenses,interest and taxes are subtracted from the operating profit. This ratio provides considerableinsight in to overall efficiency of the business and earnings left for shareholders as apercentage of net sales. 36
    • NET PROFIT RATIO = NET PROFIT * 100 NET SALES Year 2009 2008 2007 Net Profit 0.053 0.085 0.107 Ratio Table 13 Fig 13Interpretation: Net Profit is also consistently decreasing year by year.OPERATING NET PROFIT RATIOThis ratio establishes the relationship between operating profit and sales to measure therelative operating efficiency of the company. It is calculated by dividing operating net profitwith by sales. 37
    • OPERATING NET PROFIT RATIO= OPERATING NET PROFIT *100 NET SALES Year 2009 2008 2007Operating Profit Ratio 0.084 0.142 0.171 Table 14 Fig 14 Interpretation: It can be easily drawn from the above bar graph that operation profit is decreasing a very rapid pace year by year. RETURN ON CAPITAL EMPLOYED This ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is usually in percentage and is also known as ‘Rate of Return’ or ‘Yield on Capital’. RETURN ON CAPITAL EMPLOYED= PROFIT BEFORE INTEREST, TAX AND DIVIDENDS CAPIAL EMPLOYED 38
    • Capital Employed= Equity Share Capital + Preference Share Capital + All Reserves + P&L Balance + Long term Loans – Fictitious Assets – Non-operating Assets Year 2009 2008 2007Return on Capital Employed 0.384 0.528 0.636 Table 15 Fig 15 Interpretation: Return on capital employed shows the return earned by the company on the application of funds. As given in the above figure we find that it is decreasing year by year that means returns earned by the company is not adequate. RETURN OF EQUITY SHAREHOLDER’S FUNDS This ratio is also called as ‘Return on Net Worth’. This ratio reveals how the firms have utilized profitability the owner funds. The ordinary shareholder’s equity is also referred as a net worth. It is calculated by dividing earnings after taxes (eat) with net worth. RETURN ON EQUITY SHAREHOLDER’S FUND 39
    • = NET PROFIT AFTER INTEREST, TAX AND PREFERENCE DIVIDEND*100 EQUITY SHAREHOLDER’S FUND Equity Shareholder’s Funds= Equity Share Capital + All Reserves + P&L A/C Balance – Fictitious Asset Year 2009 2008 2007Return on Total Equity 0.717 0.692 0.633Shareholders Fund Table 16 0.74 0.72 0.7 0.68 2009 0.66 2008 0.64 2007 0.62 0.6 0.58 RETURN ON TOTAL EQUITY SHAREHOLDERS FUND Fig 16 Interpretation: This ratio shows the overall return earned by the equity shareholder which means the per share return earned. It is clear from the figure that this ratio is increasing year by year that means profit earned on per share basis is increasing which is favorable to the shareholders. EARNIGS PER SHARE The profitability of the shareholders’ investment can also be measured in many ways. The EPS is calculated by dividing the profit after tax by the total nos. of ordinary shares outstanding. EARNING PER SHARE= NET PROFIT- DIVIDEND ON PREFERENCE SHARE 40
    • NUMBER OF EQUTY SHARE Year 2009 2008 2007Earnings Per Share 8.03 9.47 9.05 Table 17 Fig 17Interpretation: EPS simply shows the profitability of the firm on a per-share basis. As it canbe seen by the figure that EPS ratio in year 2008 is better than other two years which showsthat the portion of a companys profit allocated to each outstanding share of common stock ismore in that year. FINDINGS 41
    •  Current Ratio is too low, which means that company do not have sufficient funds to meet their Current Liabilities As there is fall in the Fixed Asset Turnover Ratio, it means that fixed asset have not been used as efficiently, as they had been used in the previous year. Company is less dependent on External (Debt) source of financing. It can be drawn from the report that sufficient amount of proprietors fund is involved in the Working Capital. This means that company has adequate liquid asset. Areva do not have to pay much fixed interest bearing charges, as they have less External Equity. Inventory turnover ratio is ideal in all the three years. Study also shows that Gross Profit Ratio, Net Profit Ratio and Operating Profit Ratio are decreasing year by year. Return on Equity Shareholders fund is increasing every year. 42
    • SUGGESTIONSBelow mention are the suggestions required by the company after this study:  Company can go into expansion activities by financing it from external equity.  It had good dividend per share ratio which means company is distributing dividend every year which can be retained by company for expansion.  Company should give more emphasis on inventory management.  Company has sufficient cash in the form of Loan and Advances which can be utilized in other investing activities. 43
    • CONCLUSIONAn immense support from my project guide motivated me to undertake this practical projectwork in the most emphatic manner. It was not just a part of my curriculum but a real lifeexperience of carrying out a field work. My contribution included a detailed study of “RatioAnalysis of last three years financial statement of Areva T&D Ltd.My study included the analysis and interpretation of financial statement of Areva T&D Ltd.to get the overview of financial status of the company. Proper technique had been used forevaluating the ratios from the financial statements.Analysis and data presentation of ratios has been done through using simple tables and graphchart to show the figures in last three years.Areva T&D India offers transmission and distribution services and also manufactures powerequipment. Globally Areva, which is also a significant player in nuclear energy, derives about 44
    • a third of its revenues from its transmission and distribution unit. The company plans toinvest around Euro 50 million in the country`s transmission and distribution sector over theperiod 2007-2010.During the study of sample 5 government companies which were the debtors of AREVA itwas found that the they were given more liberty in payment terms as compared to privatecompanies.It would be more profitable if the payment terms of government’s company’s debtors arerevised accordingly and they are agreed on the terms that ensures regular inflow of moneyand keeps the contract cash rich mostly. BIBLIOGRAPHYBOOKS • Financial management, I.M. Pandey. • Financial management, Khan and JainWEBSITES • www.areva.com 45
    • • www.areva-td.com• www.areva-np.com• www.arevagroup.com• www.arevatde.com• www.google.com 46