Financial Management Of Bharat Heavy Electrical Limited Finance Essay

Fiscal direction is that managerial activity which is concerned with the planning and controlling of the house ‘s fiscal resources. As a separate activity or subject, fiscal direction is of huge involvement to both academicians and practising directors.

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Fiscal direction as an integral of the overall direction, the finance people must hold analytical tools to do rational determinations in maintaining with the aim of the steadfast some of the more utile tools of fiscal analysis and planning are the topics of survey.

The house itself and outside suppliers of capital creditors all undertake fiscal statement analysis. Trade creditors ( providers owned money for goods and services ) are primary interested in liquidness of a house.

Investors in a company ‘s common stock are chiefly concerned with about a tend line as a consequence investors normally focus on analysing profitableness. They would besides be concerned with the houses fiscal status in so for as it affect – the ability of the house to play dividends and avoid bankruptcy.

Management besides employs fiscal analysis for the intent of internal control and better provides what capital providers seek in fiscal status and public presentation from the house.

The demand for is to analyze to measure the house present fiscal control and educate chance in relation to the current place.

Besides suggestions are to take a notice of fiscal place of the concern to the fiscal director for future program.

Fiscal direction refers to that portion of the direction activity, which is concerned with the planning, and commanding if the house ‘s fiscal resources. The focal point of fiscal direction is a decision- devising and determinations are made on the footing of fiscal statement analysis.

Fiscal statement analysis is a procedure of placing the fiscal strengths and failing of the house by decently set uping relationships between fiscal statements.

Through proper analysis, reading, fiscal statements can supply valuable penetrations into house ‘s public presentation.

Definition: –

“ The fiscal statements supply a sum-up of the histories of a concern endeavor, the balance sheet reflecting the assets, liabilities and capital as on a certain day of the month and the addition statement demoing the consequences of operations during a certain period. ”

— John N.Myer

“ Fiscal statements are organized sum-ups of elaborate information and are therefore a signifier of analysis. ”

— W.B.Meig

“ Fiscal analysis is procedure of measuring the relationship between constituent parts of a fiscal statement to obtain a better apprehension of a house ‘s place and public presentation “ .

— Metcalf & A ; Titard

Industry PROFILE

INDUSTRY PROFILE OF BHEL

Heavy Electrical Industry covers Units fabricating big works and machinery required for power coevals, transmittal, distribution and use these includes turbo-generators, boilers, and assorted types of turbines, transformers, motors switchgears and such points.

Majority of merchandises manufactured by Heavy Electrical Industry in the state, which includes points like power bring forthing unit ‘s electric motors, transforms ; switchgears etc. , are used by all sectors of the Indian Economy. Some major countries where these are used big undertakings for power coevals including atomic power Stationss, petrochemical composites, chemical workss integrated steel workss, non-ferrous metal unit ‘s etc. The industry has been upgrading the bing engineering. As a consequence, today India is among a smattering of states to hold strong industrial base can be undertake complex undertakings on turnkey footing for export markets besides. The industry is free to take up industry of my points.

The bing installed capacity in the industry is of the order of 4500MW of thermal, 1345MW of Hydro and 25MW of Gas based Power coevals equipment per annum and fabricating units depending upon the demands and their capacity are augmenting the capacity. The Industry has besides established a strong fabrication base for the demand of equipment for atomic power workss in the state. The portion of domestic equipment is about 66 % in the state ‘s coevals capacity. The heavy Electrical Industrial is capable of fabricating transmittal and distribution equipment unto 400KV AC and electromotive force DC.

The Indian industry has taken up the work for up step of transmittal to following electromotive force system of 765KV category transformers, reactors, CTs, CVTs, bushing and dielectrics etc. Large electrical motors used in Steel Plants, petrochemical composite and other such heavy industries are besides being fabricating in the state.

History OF BHEL

BHARAT HEAVY ELECTRICAL LIITED ( BHEL ) is one of the innovators in technology industries in the universe. The critical function played by the BHEL today in the state is the grade of its uninterrupted effects to better the service in the state by consultancy, fabrication and offering services in power subdivision.

The success narrative of BHEL nevertheless goes back to 1956 when its first works was set up in Bhopal. There major workss in Harridwar, Hyderabad and Tiruchinapalli followed this. These workss have been the nucleus of BHEL ‘s effects to turn and diversify and go one of the most incorporate powers and industrial equipment makers in the universe. The company now has 14 fabricating units, 8 service centres and 4 power Stationss spread all over India and abroad.

BHEL manufactures over 180 merchandises under 30 major merchandise groups and run into the demands of nucleus sector like Power, Industry, Transmission, Defenses, Tele communications, and Oil Business etc. Its merchandises have established in enviable repute of high quality and dependability. This is due to the accent paced all along on Design, Engineering and fabrication to international criterions by geting and following some of the best engineerings developed in its ain centres. BHEL has acquired ISO 9000 enfranchisement for Quality Management and ISO 14001 enfranchisement for Environment Management, BHEL caters to the demands of different sectors by planing and Manufacturing harmonizing to the demands of its clients in Power Sector.

Company PROFILE

& A ;

Aim

BHARAT HEAVY ELECTRICAL LIMITED

The critical function played by the BHEL today in the state is the grade of it uninterrupted attempts to better the service in the state by consultancy, fabrication and offering services in power sector.

This success narrative of BHEL nevertheless goes back to 1956 when its first works was set up in BHOPAL. Three more major workss in HARDWARE, HYDERABAD and THRICHIRAPALLI followed this. These workss have been the nucleus of. BHEL ‘S attempts to turn and diversify and go one of the most incorporate power and industrial equipment makers in the universe. The company now has 14 fabrication units,8 service centres and 4 power sector regional centres, besides undertaking sites spread all over India and abroad.

BHEL manufactures over 180 merchandises under 30 major merchandise groups and meets the demands of nucleus sector like power, industry, transmittal, defence, telecommunications, oil concern etc. its merchandises have established an enviable repute for high quality and dependability. This is due to the accent placed all along on design, technology and fabrication to international criterions by geting and following some of the best engineerings developed in its ain R & A ; D centres. BHEL has acquired ISO 9000 enfranchisement for environments. BHEL caters to the demands of different sectors by planing and fabricating harmonizing to

the demand of its patronage in power sector.

Company VISION, MISSION AN OBJECTIVE

Vision

A universe Class, Innovation, Competitive and profitable Engineering Enterprise Providing entire Business Solutions.

Mission

To be the taking Engineering Enterprise supplying Quality merchandises System and services in the field of Energy, Transportation, Industry, Infrastructure and other possible countries.

Valuess

Meeting committednesss made to External and Internal clients.

Faster acquisition, Creativity and Speed of response.

Respect for Dignity and potency of persons.

Loyalty and Pride in the COMPANY.

Team playing

Ardor to Excel

Integrity and equity in all affairs.

Aim

Growth

To guarantee a steady growing by heightening the competitory border of BHEL in bing Business, new countries and international operation so as to carry through National outlooks from BHEL.

Profitableness

To supply a sensible and equal return on Capital employed, chiefly through betterments in Operational efficiency, Capacity Utilization and Productivity and bring forth equal internal resources to Finance the company growing. Assurance in supplying increased value for this money through International Standards of Product, Quality, Performance and superior client services.

Technology

To accomplish Technology excellence in operations by development of autochthonal Technologies to and efficient soaking up and version of imported Technologies to accommodate Business demands and precedences and supply a competitory advantage of the company.

Image

To carry through the outlook which shareholders like Government as ain employees, clients and the state at big have from BHEL.

SWOT ANALYSIS OF BHEL

The Strength, Weakness, Opportunities and Threats which are being experienced by BHEL as a turning concern have been summarized up in the undermentioned lines.

Strength

Huge pool of Trained Man Power.

Excellent province of art installations.

Good working ambiance

Rapport between Management and Union.

Merchandise manufactured to international Quality

Low labor Cost and low fabrication cost.

Failing

Excess Man power.

Slippage in bringing committednesss.

System execution inadequate.

No fiscal bundle.

Inadequate compensation bundle to employees.

Opportunity

Power Sector Machinery.

Liberalization has opened up the market.

Navratna Company Status.

Dominant participant in Domestic Market.

Menace

Liberalization – Entry of MNCs or private sector – more competition.

MNCs taking off good employees with attractive bundles.

Government revenue enhancement policy – against fabrication sector.

Poor substructure.

INTERNATIONAL OPERATIONS

BHEL has exported its equipment and services to over 50 states. In Malaysia, BHEL has supplied 80 % of the Boilers besides several hydro sets and gas turbines. BHEL equipment are in operation in Matta, CY, Saudi Arabia, Oman, Egypt, Libya, Greece, Bangladesh, Srilanka, Iraq, Australia etc. BHEL exports prison guard power undertakings of Thermal, Hydro, Gas based types, Substation undertakings Rehabilitation undertaking besides a broad assortment of merchandise like Insulators, values, Motors, grip Generators and services for Renovation and Modernization and Operation PowerStation.

Research AND DEVELOPMENT ( R & A ; D )

BHEL is one of the few companies worldwide involved in Development of Integrated Gasification Combined Cycle ( IGCC ) Technology, which word uses in clean Coal Technology. BHEL R & A ; D attempts have produced several new merchandises. Some of the recent successful R & A ; D merchandises are Automated Storage Retrieval Systems. Automated Guided Vehicles for Material Transportation, Automatic Robotic Welding Systems.

HUMAN RESOURCE AND DEVELOPMENT ( HRD )

The greatest strength of BHEL is its extremely skilled and committed people. Every employee is given equal chance to develop himself and better his place. Continuous preparation and retraining a positive work civilization and engagement manner of direction have led to the Development of a motivated work force and enhanced Productivity and Quality.

THERMAL POWER PLANT:

Steam turbine, boilers and generators of up to 500 MW capacities to fabricate boilers and root turbines with ace critical steam rhythm parametric quantities and fiting generators up 660 MW unit installations available for 1000 MW size.

HYDRO POWER Plants:

Mini/micro hydro sets spherical, butterfly, rotary values and aides for hydro station.

GAS BASED POWER PLANTS:

Gas turbines and generators up to 260 mw ( 150 ) evaluation gas turbines based co-generation and combined rhythm system for industry and public-service corporation applications.

BIOLERS:

Heat recovery steam generators force per unit area vass chemical recovery boilers for paper industry runing from capacity of 100 to 100t/day of dry solids

Power Devicess:

High power capacity Si rectifying tubes, thirstier devices, and solar photovoltaic cells.

EQUIPMENT FOR NUCLEAR POWER PLANTS

Turbines and generators up to 500 mw capacity.

Steam generators for public-service corporations up to 500 MW.

Reheated / centrifuge

Heat money changers and force per unit area vas

Merchandises: –

BHEL manufactures a broad scope of power works equipments and besides caters to the industry sector.

The merchandises profile includes:

Gas turbines

Steam turbines

Compressors

Turbo generators

Pumps

Pulverizes

THEORETICAL

REVIEW OF THE

Subject

FINANCIAL STATEMENTS ANALYSIS

( A THEORETICAL BACK GROUND )

Introduction:

Every organisation whether it may be a concern one or non concern one is to keep accounting is compulsory because is the procedure of placing measurement and pass oning economic information to license informed judgements and determinations by users of the information. It involves entering sorting and sum uping assorted concern minutess. The terminal merchandises of concern minutess are the fiscal statements.

A fiscal statement is a aggregation of informations harmonizing to logical and consistent accounting processs. Its intent is so clear from the informations supra is to convey an apprehension of some fiscal facets of a concern house. It may demo a place at a minute in clip, as in the instance of a balance sheet or may uncover a series of activities over a given period of clip, as in the instance of an income statement.

In the words of John N.Myer, ” the fiscal statement provide a sum-up of the histories of a concern endeavor, the balance sheet reflecting the assets, liabilities and capital as on a certain day of the month and the addition statement demoing the consequences of operations during a certain period ” .

Accounting ratios calculated for Numberss of old ages how of the alterations of place. The ascertainment of tendencies helps in doing estimation for the hereafter.

Harmonizing to Accounting rules Board of America states the undermentioned aims of fiscal statements are:

To turn out dependable fiscal information about economic resources and duties of a concern house.

To supply other needed fiscal information about alterations in such economic resources and duties.

To supply dependable fiscal information that assists in gauging future gaining potencies.

Fiscal Statement:

Fiscal statements chiefly comprise two basic statements.

Balance sheet

Net income and Loss Account.

However GAAP specifies that a complete set of fiscal statement must include:

Balance sheet.

Income Statement.

A statement of alterations in proprietor ‘s histories.

A statement of alterations in fiscal place.

Analysis OF FINANCIAL STATEMENTS

Fiscal statements are prepared chiefly for determination devising. It plays a dominate function in puting the model of managerial determinations. But the information provided in the fiscal statements is non an terminal in itself as no meaningful decisions can be drawn. The information to the fiscal statements is of immense usage in doing determinations through analysis and reading of fiscal statements.

The term, ‘Financial analysis, ‘ besides refers to the procedure of finding fiscal strengths and failing of the house by set uping strategic relationship between the points of the balance sheet, net income and loss history and operative informations.

Harmonizing to Myers ‘Financial Statement analysis is mostly a survey of relationship among the assorted fiscal factors in a concern as disclosed by a individual set of statements, and a survey of the tendency of these factors as shown in series of statements ‘ .

TYPES OF FINANCIAL STATEMENT Analysis:

The fiscal analysis may be

The nature of the analysis and the stuff used by him

The aim of the analysis and

The modus operandi of the analysis

METHODS OR DEVICES OF FINANCIAL ANALYSIS

The analysis and reading of fiscal statements is used to find the fiscal place and consequence of operation as good. A figure of methods or devices are used to analyze the relationship between different statements. An attempt is made to utilize those devices, which clearly analyze the place of the endeavor. The undermentioned methods of analysis are by and large used:

Comparative balance sheet

Common size statement

Fundss flow analysis

Trend ratios

Ratio analysis

COMPARATIVE FINANCIAL STATEMENTS

The comparative fiscal statements are statements of the fiscal place at different periods of clip. The elements of fiscal place are shown in a comparative from as to show an thought of fiscal place at two more periods. Not merely the comparing of the figures of two periods but besides be relationship between balance sheet and income statement enables an in deepness survey of fiscal place and operative consequences. The comparative statement may demo:

Absolute figure in “ MONEY “ values of point ‘separately ‘ for EACH

Of the periods stated.

Changes in absolute figures i.e. , addition or lessening in footings of

“ Money ” values.

Absolute informations in footings of per centums.

Addition of lessening in footings of per centums.

Addition of lessening in footings of per centums.

Such “ comparative fiscal statements ” are necessary for the survey of TRENDS and the way of motion in the fiscal place and operating consequences.

RATIO ANALYSIS

Introduction:

Fiscal analysis depends to really big extents of the usage of ratios through there are other every bit of import tools of such analysis. Therefore, a direct scrutiny of the magnitude of two released points is slightly edifying but the comparing is greatly facilitated by showing the relationship as a ratio.

Ratio analysis of concern endeavors enters on attempts to deduce quantitative steps or ushers refering the expected capacity of the house to run into its future fiscal duties or outlooks present and past informations are used for the intent and whatever extrapolations appear necessary. They are made to turn out an indicant of characteristic public presentation. Alexander Walt, who criticized the bankers for its lap sided development owing to their determinations sing the grant of recognition on current ratios entirely, made the presentation of an luxuriant system of ratio analysis in 1919.

Ratio:

Ratio is an look of the quantitative relationship that exists between the two Numberss. The ratio is defined as “ the indicated quotient of two mathematical looks. ” The ratio should be determined between related accounting variables to be meaningful and effectual.

Interpretation OF THE RATIOS

The reading of ratio is an import factor. The built-in restriction of ratio analysis should be kept in head while construing them. The reading of ratios can be made in the undermentioned ways.

1. SINGLE ABSOLUTE RATIO

By and large talking one can non pull decision when a individual is considered in isolation. But individual ratios may be studied in relation to certain thumb-rules, which are based upon all proved convention.

2. GROUP OF RATIOS:

Ratios can be interpreted by ciphering a group of related ratios. A individual ratio supported by other related extra ratios becomes more understanding and meaningful.

3. HISTORICAL Comparison:

One of the easiest and most popular ways of measuring the public presentation is to compare its present ratios called ‘comparison overtime ‘ . It gives an indicant of a way of alteration and reflects whether the house ‘s public presentation and fiscal place has imported, deteriorated or remained changeless over a period of clip.

4. PROJECTED RATIO:

Ratios can be calculated for future criterions based upon the projected fiscal statements. These future ratios are compared with the existent ratios to happen discrepancy, if any such discrepancy helps in interpretation and taking disciplinary action.

5. INTERFIRM COMPARISON:

Ratio of house can besides be compared with the ratios of some other houses in the industry at the same point of clip. This helps in measuring comparative fiscal place and public presentation of the house.

Stairss INVOLVED:

Choice: – Choice of relevant informations from the statements is depending upon the aim of the analysis.

Calculation: – Calculation of appropriate ratios from the above information.

Comparison: – Comparison of deliberate ratios of the same house in the past, or the ratios developed from projected fiscal statements or the ratios of other houses or the comparing with the industry to which the house belongs.

Interpretation: Interpretation of the ratios.

DATA ANALYSIS

AND

Interpretation

Comparative BALANCE SHEET for twelvemonth ended 2006- 2007 and 2007-2008

( Rs.In Lakhs )

Particulars

2006-2007

2007-2008

Increase/decre-ase in sums

%

CURRENT ASSETS

Inventories

81476

111466

29990

36.80

Book debts

177301

215291

37990

21.42

Cash /bank balances

12

14

2

16.70

Loans & A ; progresss

17273

24379

7206

41.71

Sums current assets ( A )

276062

351150

75088

27.19

FIXED ASSETS

Gross block

50268

55091

4823

9.59

Less cum depreciation

38021

41214

3193

8.39

Net block

12247

13877

6843

55.90

Capital work in advancement

7563

5404

-2159

-28.54

In touchable assets

19

1667

1648

8673.6

Entire fixed assets ( B )

108118

117253

9135

8.44

Sum ASSTES ( A+B )

384180

468403

84223

21.92

Current Liabilitiess

Progresss from clients

104813

131969

27156

26.00

Assorted creditors

46452

54586

8134

18.00

Other liabilities

3093

3034

– 59

-1.9

Commissariats

54511

65151

10640

19.51

Entire liabilities ( degree Celsius )

208869

254740

45871

22.00

Resources

Fundss from corp.office

3252

6504

3252

100

Militias & A ; surplus

212474

241734

29260

13.77

Inter unit balances ( cyberspace )

( 129311 )

( 131467 )

2156

0.16

Differed recognition

607

587

-20

-3.29

Loans

Sum

87022

117358

30336

34.86

Differed rev.expenditure

Sum

87022

117358

30336

34.86

Capital employed ( exclude iu & A ; ca )

79459

111954

32495

40.89

Interpretation: –

The current assets have increased by75088 hundred thousand between 2007-2008 on 27.19 % while the current liabilities have increased by 463580 hundred thousand i.e. , 22.00 % .

The company basking high on the job capital. Long term liabilities increased by 30336 lakhs i.e.,34.86 %

The entire fixed assets block of the company have increased by 9135 lakhs i.e.,8.44 % this is bulk because of the deprecation of fixed assets easy increased.

There has a great rise in hard currency & A ; bank balanced in the twelvemonth 2007- 2008 i.e. , 16.70 % staying current assets are besides increased.

All loans are besides clear in the twelvemonth 2007-2008.

Progresss from clients

32228

44162

11934

37.02

Assorted creditors

27610

20461

-7149

-25.89

Other liabilities

2612

7841

5229

200.19

Commissariats

11977

12520

543

4.53

Entire liabilities ( degree Celsius )

74427

84990

1053

14.19

Resources

Fundss from corp.office

3252

3252

0

0

Militias & A ; surplus

102496

110026

7530

7.34

Inter unit balances ( cyberspace )

( 2066 )

( 36196 )

34130

1651.9

Differed recognition

573

386

-187

-32.63

Loans

Sum

104255

81768

-22487

-21.56

Differed rev.expenditure

Sum

104255

81768

-22487

-21.56

Capital employed ( exclu iu & A ; ca )

99337

79114

-20223

-20.35

Common SIZE BALANCE SHEET OF BHEL

2007

2008

Particulars

Sum

Roentgen

Percentage

%

Sum

Roentgen

Percentage

%

000 ‘S

000 ‘S

CUREENT ASSETS:

Inventories

81476

19.16

111466

22.13

BOOK DEBTS

177301

41.69

215291

42.75

CASH & A ; BANK BAL

12

0.028

14

0.00278

LOANS & A ; ADVANCES

17273

4.06

24379

4.84

TOTAL CURRENT ASSETS ( A )

276062

64.92

351150

69.73

FIXED ASSETS:

Gross block

50268

16.98

55091

14.80

Less cum depriciation

38021

12.84

41214

11.07

Net block

12247

4.13

13877

3.72

Capital work in advancement

7563

2.55

5404

1.45

In touchable assets

19

0.006

1667

0.44

Entire fixed assets ( B )

19829

6.70

20948

5.62

Entire assets ( A+B )

295891

100.00

372098

100.00

9 ) Net Net income Margin:

Net net income is obtained when runing disbursals involvement and revenue enhancements are subtracted from gross net income. This ratio establishes relationship between net net income and gross revenues and indicates direction efficiency in fabrication, administering and selling the merchandises. The ratio is over is over all steps of the house ‘s ability to turn each rupees gross revenues into net net income.

Net Net income

Net Net income = — — — — — — — — — — — — — -X 100

Gross saless

10 ) Tax return ON EQUITY CAPITAL:

In the existent sense, ordinary stockholders are the proprietors of the company. They assume the highest hazard. Preference stockholders have a penchant over ordinary stockholders in the payment of divided every bit good as capital. Preference stockholders got a fixed rate of dividend irrespective of the quantum of net incomes of the net incomes of the company. The rate of dividend varies with the variableness of net incomes in instance of the ordinary portions merely. Thus the ordinary stockholders are more interested in the profitableness of a company and the public presentation of the company should be judged on the footing of return on equity capital of the company. Return on equity capital is the relation between net incomes of a company and its equity capital. It can be calculated as follows

Net Net income AFTER TAX – FREE.DIVIDEND

RETURN ON EQUITY CAPITAL= — — — — — — — — — — — — — — — — — — — — — — — -x 100

EQUITY SHARE CAPITAL

Comprehensive ROI Analysis – Chart

Particulars

2010 ( Rs. In Crores )

2009 ( Rs in Crores )

Beginnings of financess:

Share holders financess

Equity Capital

Militias and excess

Loan Fundss

Secured loans

Finance rental duties

Unbarred loans

1,121

8,950 10,071

74

171 245

931

7,999 8,930

259

115

Entire

10,316

9,403

Application of Fundss:

Fixed Assetss

Gross Block

Less: Depreciation

Net Block

Capital Work in advancement

Investings Current Assets, Loans & A ; Progresss

Inventories

Assorted Debtors

Cash and Bank Balances

Loans and Progresss

Less: Current Liabilitiess

Commissariats

Net Current Assetss

Internet Deferred Tax Liability

6,667

3,150

3,517

27 3,544

288

2,709

9,468

3,206

2,043

17,426

10,109

513

10,622

6,804

( 320 ) ( 320 )

5,747

2,561

3,186

28 3,214

222

2,540

9,428

662

1,712

14,342

7,902

572

8,474

5,868

10,316

9,304

ANALYSIS CHART

For 2010 For 2009

Tax return 1912 1586

Tax return on capital Employed= — — — — — — — — — — — — = — — — — — — =18.53 % = — — — — — — — — = 17.06 %

Capital Employed 10316 9304

Profitability Capital Turnover Ratio

For 2010 For 2009 For 2010 For 2009

Return = 1912 =8.05 % 1586 =8.74 % Gross saless = 23756 =2.30times 18155 =1.95times

Gross saless 23756 18155 Capital Employed 10316 9304

Materials = 15179 =63.90 % . 10996 =60.57 %

Gross saless 23756 18155 Fixed Assets Turnover

For 2010 For 2009

Wagess = 2543 =10.70 % . 2293 =12.63 % Gross saless = 23756 =6.20times 18155 =5.28times

Gross saless 23756 18155 Capital Employed 3832 3436

Over caputs = 3546 = 14.93 % . 2815 = 15.51 %

Gross saless 23756 18155

Depreciation = 412 = 1.73 % . 377 = 2.08 %

Gross saless 23756 18155

Int. & A ; Fin. Exp. = 164 = 0.69 % . 88 = 0.48 %

Gross saless 23756 18155

Working Capital Employee turnover

For 2010 For 2009

Sales/Working capital = 23756/6484 = 3.66 times 18155/5868 = 3.09 times

Inventory Employee turnover

Sales/Inventory = 23756/2709 = 8.7 times 18155/2540 = 7.15 times

Debtors Turnover

Sales/creditors = 23756/9468 = 2.51 times

18155/9428 = 1.92 times

Other current Assests Employee turnover

Sales/Other CA = 23756/5249 = 4.53 times 18155/2374 = 7.65 times

Creditors TurunOver

Sales/Creditors = 23756/10109 = 2.35 times 18155/7902 = 2.30 times

Other Current Liabilities Turnover

Sales/Other CL = 23756/833 = 28.52 times 18155/572 = 3.14 times s

INCOME STATEMENTS

Particulars

YEAR1 ( R.S )

Year 2 ( R.S )

CASH SALES

Recognition Gross saless

Cost OF GOODS SOLD

30,000

2,70,000 3,00,000

2,36,000

32,000

3,42,000 3,74,000

2,98,000

GROSS Net income

64,000

76,000

Optimistic Lad

( a ) Ke = Dividend +g = 90×40 % +5 %

Monetary value 360

= 10 % +5 % = 15 %

Futuristic Limited

( B ) Ke = Dividend +g = 2 +10 %

Monetary value 40

= 5 % +10 % = 15 %

( degree Celsius ) Ke = Dividend +g

Monetary value

0.15 = 2 + 0.11

mononuclear phagocyte systems

Hence MPS 2/ 0.04 = Rs.50

( vitamin D ) Ke = Dividend +g

Monetary value

0.16 = 2 + 0.10

mononuclear phagocyte systems

Hence MPS = 2 / 0.06 = Rs.33.33

Calculation of WACC

The Capital Structure of BHEL Ltd is – Equity Capital Rs5 hundred thousand ; Militias and Surplus Rs.2 hundred thousand gold Debentures Rs.3 hundred thousand. The Cost of capital before revenue enhancement are ( a ) Equity -18 % and ( B ) Debentures – 10 % . You ai required to calculate the Leaden Average Cost of Capital.

From the undermentioned information, compute WACC of Super-Good Ltd.

aˆ? Debt to Total Fundss: 2:5

aˆ? Preference Capital to Equity Capital: 1:1

aˆ? Preference Dividend Rate: 15 %

aˆ? Interest on Unsecured bonds: Rs.20000 for half-year.

aˆ? EB1T at 30 % of Capital Employed: Rs.3 hundred thousand

aˆ? Cost of Equity Capital is 24 % .

( degree Celsius ) Backwork Ltd has a Debt Equity Ratio of 2:1 and a WACC of 12 % . Its Debentures bear involvement of 15 % . Fin out the cost of Equity Capital.

Component

Sum

( Rs._in_Iakhs )

A

% of Amount

A

Cost in %

A

Merchandise %

Equity

Militias

Unsecured bonds

5.00

2.00

3.00

10.00

A

50 %

20 %

30 %

A

18 %

18 %

6.5 %

A

9 %

3.6 %

1.95 %

14.55 %

Note: ( I ) Militias are taken at same rate as equity

( two ) After revenue enhancement cost of unsecured bonds = Interest ten ( 1- Tax rate )

= 10 tens ( 1- 0.35 ) 6.5 %

Therefore WACC = 14.55 %

EBIT @ 30 % of capital Employed = Rs.3 hundred thousand

Therefore Capital Employed = 3lakhs/30 % = Rs.10 hundred thousand

Entire Capital

Rs. 10 hundred thousand

Capital Debt

Rs. Lakhs ( bal fig ) 2/5 Thursdaies of entire financess = Rs. 4 hundred thousand

Preference 1:1 Equity

Rs. 3 lakhs Rs. 3 hundred thousand

Interest Amount = 20000A-2 = Rs. 40000

Interest rate = 10 %

constituent

Sum

% ( Amount )

Cost in %

WACC

Equity

Preference

Debt

Rs.3 hundred thousand

Rs.3 hundred thousand

Rs.4 hundred thousand

30 %

30 %

40 %

24 %

15 %

6.5 %

( 10 % A-65 % )

WACC

7.20 %

4.50 %

2.60 %

14.30 %

constituent

Ratio

Cost in %

WACC

Equity

Debt

2/3

1/3

15 % ten 65 % = 9.75 %

5.50 = 16.50 %

1/3

6.50 % [ 9.75 ten 2/3 ]

5.50 % ( bal fig )

12.00 % ( given )

Prefer ke= 16.50 %

Administration 10: WACC calculation with and without revenue enhancement -RTP

The undermentioned information has been extracted from the Balance Sheet of ABC Ltd. as on 3 1 December:

Rs.inLakhs

Equity Share Capital 400

12 % Debentures 400 1196 Term loan 1200

2000

WACC of the company. It had been paying dividends at a consistent rate of 20 % per annum.was difference will it do if the current monetary value of the Rs. 100 portion is Rs. 160?

The consequence of Income Tax on WACC under both the above state of affairss. ( Taxte4O % ) .

Competition of WACC ( based on Book Value Proportions and Ignoring Tax )

constituents

Proportion ( B )

Individual cost ( degree Celsius )

WACC ( vitamin D ) = ( B ) A- ( degree Celsius )

Equity Share Capital

Unsecured bonds

Term loan

4/20

4/20

12/20

Ke = 20 % ( dividendapproach )

Kd= 12 %

Kd= 18 %

4.00 %

2.40 %

10.80 %

WACC

17.20 %

Particulars

Year 1 ( Rs. )

Year 2 ( Rs. )

Cash gross revenues

Recognition Gross saless

Less: Cost of goods sold

Gross Net income

30,000

2,70,000 3,00,000

2,36,000

64,000

32,000

3,42,000 3,74,000

2,98,000

76,000

11. Evaluation Techniques – RTP

BHEL Limited Company is sing puting in a undertaking necessitating a capital spending of Rs.4, 00,000. Prognosis for one-year net income after depreciation but before revenue enhancement is follows –

Old ages

1

2

3

4

5

Net income

2,00,000

2,00,000

1,60,000

1,60,000

80,000

A

Depreciation may be taken as 20 % en Original Cost and revenue enhancement at 50 % of Net Income.

You are required to measure the undertaking harmonizing to each of the undermentioned methods:

( a ) Pay-Back method

( B ) Rate of return on Original investing Method.

( degree Celsius ) Rate of return on Average Investment method.

( vitamin D ) Discounted Cash Flow method taking cost of capital as 10 % .

( vitamin E ) non present value — — — — — — – method

( degree Fahrenheit ) Internal rate of return method.

1. Statement of Cash Flows

Year

PBT

Pat

Depn.

Net income

Accumulative cashflows

Disc. FactorA® ] Disc.Cash 1 Cum.Disc. 20 % Flow | CashFlow

1

2,00,000

1,00,000

80,000

1,80.000

1.80.000

0.909

1,63,620

2

2,00,000

1,00,000

80,000

1,80,000

3,60,000

0.826

1.48,680

3

1,60,000

80,000

80,000

1,60,000

5,20,060

0.751

1,20,160

4

1,60,000

80,000

80,000

1,60,000

6,80,000

0.683

1,09,280

5

80,000

40,000

80,000

1,20,000

8,00,000

0.621

74,520

Entire Cash Inflows

8,00,000

6,16,260

0

Less: Cash Outflow (

investing )

4,00,000

1.000

( 4,00,000 )

Net Present Value

2,16,260

2. Evaluation of Undertaking

( a ) Pay Back Period

Since, the investing of Rs.4,00,000 is recovered wholly in the twelvemonth back period lies between 2 and 3.

Pay Back Period = Base Year + [ Investment Amount Less Cumulative Cash Inflow boulder clay Base Yearl

[ Cum. Cash Inflow for Following twelvemonth Less Cum. Cash Inflow for Base Year ]

= 2Years + [ ( 4,00,000-3,60,000 ) .. ( 4,20,000-3,60,000 ) ]

= 2 Old ages + ( 40,000 + 1,60,000 )

= 2 4- 0.25 = 2.25 Old ages or 2 Old ages and 3 Calendar months

Decision: Since the undertaking cost is recovered during the undertaking period itself, the undertaking may be

undertaken.

( B ) Rate of Return on Original Investment Method

– Particulars

Entire Return

[ Entire Cash Inflows ]

Time period of Tax return

Average Tax return

[ Entire Cash Inflows /5 Years ]

Original Investing

Rate of Return

[ Average Return /Original Investment ]

Note: It is assumed that Return obtained is reinvested in the concern and non retreat. Hence, the return for the period of 5 old ages is equal to sum of Returns for the period.

Decision: If the Rate of Return is higher than a comparable return rate, so the undertaking may be accepted.

Rate of Return on Average Investment Method

Particulars

Entire Return Period of Return Average Return

[ Entire Cash Inflows ]

[ Entire Cash Inflows /5 Years ]

Original Investment Add: Average Tax return

Average Investing

Rate of Return

[ Average Return/ Average Investment ]

Decision: If the Rate of Return on Average Investment is higher than a comparable return rate, so the undertaking may be accepted.

( D ) DISCOUNTED CASH FLOW METHOD ( Npv method ) the undertaking has outputs a positive NPV of 2,16,260 on an investing of Rs 4,00,000 there for the undertaking may be under taken

( E ) NET PRESENT VALUE METHOD

The profitableness index of de undertaking is higher than 1, and at that place for the undertaking can be implemented

( F ) INTERNAL Rate OF RETURN METHOD

Time

CASH FLOW

PV FACTOR

RATE 1=25 % [ R1 ]

DISCOUNT CASH FLOW

P V FACTOR 40 % [ R2 ]

PV FACTOR

DISCOUNT CASH FLOW

PV FACTOR

1

2

3

4

5

1,80,000

1,80,000

1,60,000

1,60,000

1,20,000

0.800

0.640

0.512

0.410

0.328

1,44,000

1,15,200

81,920

65,600

39,360

0.735

0.541

0.398

0.292

0.215

O

8,00,000

( 4,00,000 )

1.000

4,46,080

( 4,00,000 )

Net PRESENT VALUE

46,080 [ VJ

Rate 1 [ R1: = [ ( Entire Cash Inflows + Total Outflow ) – 1 ] ^ [ Period – 1 ]

= [ ( 800 h-400 ) -1 ] h- [ 5-1 ]

= [ 2.00-1 ] -4

=25 %

Rate 2 [ R2 ] : = R, + ( Profitability Index under R1 – 1 )

= 0.25 + [ ( 4,46,080 – 4,00,000 ) – 1 ] = 0.25+ [ 1.11-1 ]

: =0.25 + 0.11

= 0.36

= Value at IRR = 0

internal Rate of Return [ IRR ] = R2 + [ v2-vm ] * [ r1-r2 ]

V2-v1

36 % + [ ( -34,120-0 ) / ( -34,120-46,080 ) ] ten [ 25 %

36 % + [ -34,120/-80,200 ] x [ -11 % ]

36 % + 0.425 ten -11 %

36 % – 4.675 %

Decision: IRR is greater than the Cost of Capital of 10 % . Therefore, the undertaking may be accepted

12. Calculation of I.R.R – Difference in Project IRR and Equity IRR – N 01

XYZ Ltd an substructure company is measuring a proposal to construct, operate and reassign a subdivision of 35 kilometers of

route at a undertaking cost of Rs.200 Crores to De financed as follows –

‘ Equity Share Capital

Loans at the rate of involvement of 15 % p.a. from fiscal establishments Rs.150 Crores

Time period

Actual Value

Budget Value

Reason

1

180000

185000

Actuals are about in line with budget

2

180000

225000

High Labour and Machine Turnover

3

160000

150000

In clip reception of required inputs

4

160000

165000

Actuals are about in line with budget

5

120000

150000

Lack of handiness of needed natural stuff ( Insufficient Quantities & A ; Poor quality )

Decision

It is suggested that they should concentrate on the direction of current assets and current liabilities more efficaciously.

The stock list should be reduced to the maximal possible extent by following processs like merely in clip “ , import permutation, As far as possible, the natural stuff should be bought as and good necessary.

The debitors constitute about 50 % of entire current assets. As the company would happen hard to transport and pull off such immense receivables, it should endeavour to recognize its receivables every bit rapidly as possible.

Company ‘s mean aggregation period of debitors is non satisfactory when company to the old twelvemonth. So, the company should strict minimise the period hereafter.

A major proportion of assorted debitors constitute dues from province electricity boards and public sectors set abouting. The company should analyze the feasibleness of come ining into such understanding with SEB ‘S and PSU ‘S to BHEL.So that the long outstanding debts can be cleared off.

There should be alterations of recognition policy on gross revenues and liquidness to cut down the debitors at that place by increase the efficiency in aggregation public presentation.

Stairss should besides be taken to cut down the bit, which has been increasing over the old ages. Necessary steps should be taken for the disposal of the bit every bit shortly as possible.

The investing in loans and progresss should be minimized to the possible extent.

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