MANAGERIAL ACCOUNTING PROJECT

REPORT
OBJECTIVE:- VERTICAL AND HORIZONTAL
ANALYSIS OF FINANCIAL STATEMENTS AND RATIOS
FOR ADANI POWER,CESC LIMITED,NTPC
LIMITED,RELIANCE POWER AND TATA POWER.

GROUP NO.- 8
TEAM MEMBERS:-
SUDEB BIBASWAN
VIBHOR GUPTA
UDAY GUPTA MULUKURI
BHANU NEGI

INTRODUCTION
ADANI POWER
Adani Power Limited is the power business subsidiary of Indian conglomerate Adani Group with
head office at Ahmedabad, Gujarat. The company is India's largest private power producer, with
capacity of 10,440 MW and also it is the largest solar power producer of India with a capacity of 688
MW.The company operates five supercritical boilers of 660 MW each (as per March 2012) at
Mundra, Gujarat & five 660 MW units(as per May 2015) at Tiroda, Maharashtra. It also operates a
mega solar plant of 40 MW at Naliya, Bitta, Kutch, Gujarat.It is India's first company to achieve the
supercritical technology. The plant is the only thermal power plant in India to be certified by UN
under CDM.
The company is implementing 16500 MW at different stages of construction. Its mission is to achieve
20000 MW by 2020. 100 MW of solar power station is also under advanced stage of implementation
at Surendranagar in Gujarat out of which 40 MW is already commissioned.The company has gone to
long term PPAs of about 7200 MW of its 9280 MW with government of Gujarat, Maharashtra,
Haryana and Rajasthan.

CESC Limited
The Calcutta Electric Supply Corporation or CESC is the Kolkata-based flagship company of the
RP-Sanjiv Goenka Group, born from the erstwhile RPG Group, under the chairmanship of
businessman Sanjiv Goenka. It is an Indian electricity generation and the sole distribution company
serving 567 square kilometres (219 sq mi) of area administered by the Kolkata municipal
corporation, in the city of Kolkata, as well as parts of Howrah, Hooghly, 24 Parganas (North) and
24 Parganas (South) districts in the state of West Bengal. It serves 3.0 million consumers
approximately, which includes domestic, industrial and commercial users.
NTPC Limited
NTPC Ltd., formerly known as National Thermal Power Corporation Limited, is an Indian Public
Sector Undertaking, engaged in the business of generation of electricity and allied activities. It is a
company incorporated under the Companies Act 1956 and a "Government Company" within the
meaning of the act. The headquarters of the company is situated at New Delhi. NTPC's core
business is generation and sale of electricity to state-owned power distribution companies and State
Electricity Boards in India. The company also undertakes consultancy and turnkey project contracts
that involve engineering, project management, construction management and operation and
management of power plants.
The company has also ventured into oil and gas exploration and coal mining activities. It is the
largest power company in India with an electric power generating capacity of 51,410 MW.Although
the company has approx. 16% of the total national capacity it contributes to over 25% of total power
generation due to its focus on operating its power plants at higher efficiency levels (approx. 80.2%
against the national PLF rate of 64.5%).NTPC currently produces 25 billion units of electricity per
month.It was founded by Government of India in 1975, which now holds 64.74% of its equity shares
on 30.06.2016(after divestment of its stake in 2004, 2010, 2013, 2014, 2016, & 2017).

RELIANCE POWER
Reliance Power Limited is part of the Reliance Anil Dhirubhai Ambani Group. It was established to
develop, construct and operate power projects in the Indian and international markets. Reliance
Infrastructure Limited, an Indian private sector power utility company and the Anil Dhirubhai Ambani
Group promote Reliance Power.
The company is the sole distributor of electricity to consumers in the suburbs of Mumbai. It also runs
power generation, transmission and distribution businesses in other parts of Maharashtra, Goa and
Andhra Pradesh.
With its subsidiaries, it is developing 13 medium and large-sized power projects with a combined
planned installed capacity of 33,480 MW.Reliance Natural Resources merged with Reliance Power
in 2010, shortly after its initial public offering.

TATA POWER
The Tata Power Company Limited is an Indian electric utility company based in Mumbai,
Maharashtra, India and is part of the Tata Group. The core business of the company is to generate,
transmit and distribute electricity.With an installed electricity generation capacity of 10,577MW, it is
India's largest integrated power company.At the end of August 2013, its market capitalisation was
$2.74 billion (INR 182 billion).Tata Power has been ranked 3rd in 2017 Responsible Business
Rankings developed by IIM Udaipur. In February 2017, Tata Power became the first Indian company
to ship over 1 GW solar modules.

VERTICAL ANALYSIS AND IT’S

INTERPRETATION
Vertical Analysis is the proportional analysis of a financial statement in which each
entry in the balance sheet is represented as ratio to the total account. Generally entries
in income sheet are represented as percentage of total sales, so that we can clearly see
percentage of sales/income spent on that expense. The entries of balance statement
are stated as percentage of total assets/ total liabilities.
Usually vertical analysis is used for single year to analyze what portion of resources are
used properly. But vertical analysis can also be used as comparative basis for past
years performance to see relative changes in account balance.Vertical Analysis is very
helpful as,it can be used to compare businesses of different sizes very easily. Vertical
analysis helps us clearly analyze growth of a company and where the company is
heading.

Shareholder’s Funds

Year Adani CESC NTPC Reliance Tata

2016 10.63 21.89 39.1 76.55 16.88

2017 4.19 28.02 39.37 68.83 14.34

● Shareholder’s Fund in an organization represents net value of company that

would return to shareholders if all the company’s assets were to be liquidated.
● If percentage of shareholders fund over total assets is less, new investors are
less likely to fund the company. In fact, vertical analysis of shareholder’s fund
represents the trust, shareholders put into the company.
● As it can already be seen from the graph, Adani Power is likely to be the most
risky venture for the new shareholders to invest their money.
● On the other hand, Reliance Power has been proved to be the most reliable
venture for the shareholders to invest their money.
● Vertical analysis is basically best suited to analyze values in same financial year
but, looking at the trend of these two years, CESC and Tata Power are the only
two companies for which percentage increased and decreased respectively. This
can happen due to many reasons like increase in non-current liabilities.
Non-Current Liabilities

Year Adani CESC NTPC Reliance Tata

2016 52.19 52.26 45.86 3.86 48.91

2017 59.92 46.92 43.62 6.81 37.55

If percentage of non-current liabilities is higher, it means that the company depends

more on outsider’s funds than the shareholder’s funds in the company.

● The graph below shows that the Adani Power is not financially very healthy, as it
has got a very high amount of non-current liabilities and it can also be seen from
the graph that Adani Power has also got a increase in the non-current liabilities
from the year 2016 to the year 2017.
● On the other hand, Reliance Power is the company which has a very promising
performance base, as seen from the graph, has the lowest amount of non-current
liabilities and it does increase slightly from 2016 to 2017.
● Increase in non-current liabilities is not always undesirable for a company, non-
current liabilities also symbolize growth of the company. Because of this
reason, non-current liability is not the best matrix to compare the progress of a
company.

Non-Current Assets

Year Adani CESC NTPC Reliance Tata

2016 23.44 83.50 85.63 85.20 79.57

2017 18.92 75.40 87.71 88.27 76.64

● The Assets which cannot be used as the Operating Cash for the functioning and
progress of the company are called as the Non-Current Assets.
● If the Company has Non-Current Assets less than a particular Threshold Value,
then the Company is at high risk of hampering it’s long term growth and
progress.
● As it can be already seen from the graph, all the companies are having their non-
current assets valued well above the threshold except for Adani Power which
seems to be in trouble for it’s long term growth, progress and functioning.
Revenues

Year Adani CESC NTPC Reliance Tata

2016 104.27 102.82 102.34 1488.19 108.87

2017 108.60 105.54 102.41 1066.26 116.19

● Companies have to generate revenues from their production sales to meet their
operating expenses and generate profits to increase their current assets and
decrease their current liabilities.
● As it can already be seen from the graph,all the companies except Reliance
Power are generating low and steady revenues and their revenue generation
seems to remain constant for both years.
● Reliance Power generates a huge amount of revenue and the amount seems to
have decreased slightly from the year 2016 to the year 2017.
Expenses

Year Adani CESC NTPC Reliance Tata

2016 104.49 88.85 88.29 613.83 92.00

2017 129.20 92.49 85.84 907.29 100.56

 ● Operating Expenses form the largest proportion of the total expenses which also
includes various direct and indirect costs like depreciation etc..
● All the companies except Reliance Power seem to have almost same amount of
expenses which seems to have been increasing or decreasing by a very small
amount in these two years.
● Reliance Power ,as seen from the graph, has huge amount of expenses
compared to others and it seems to have been increased slightly from the year
2016 to the year 2017.

RATIO
ANALYSIS AND IT’S INTERPRETATION
Quick Ratio
The quick ratio provides a more rigorous assessment of a company's ability to
pay its current liabilities. It does this by eliminating all but the most liquid of current
assets from consideration. Inventory is the most notable exclusion, because it is not as
rapidly convertible to cash and is often sold on credit.
Some analysts include inventory in the ratio, though, if it is more liquid than
certain receivables.

Year Adani Reliance TATA NTPC CESC

Power Power
2013 0.38 1.15 0.67 1.64 1.4
2014 0.38 0.64 0.37 1.36 0.9
2015 0.33 0.47 0.49 0.98 0.98
2016 0.25 0.76 0.47 0.67 0.79
2017 0.26 0.46 0.39 0.58 1.13
ANALYSIS
Generally, companies should aim to maintain a quick ratio that provides sufficient leverage
against liquidity risk given the level of predictability and volatility in a specific business sector
among other considerations. The more uncertain the business environment, the more likely that
companies would maintain higher quick ratios. Conversely, where cash flows are stable and
predictable, companies would seek to keep quick ratio at relatively lower levels. In any case,
companies must achieve the right balance between liquidity risk arising from a low quick ratio
and the risk of loss resulting from a high quick ratio.
In the case above as seen, quick ratios of companies when calculated for five years have a
tendency to show low average for Adani power, medium average for Reliance Power and Tata
power, and high average for NTPC and CESC.
NTPC and CESC companies are preferred on the basis of quick ratios.

Debt to Equity Ratio

The debt-to-equity (D/E) ratio is generally a solid indicator of a company's long-term
sustainability, because it provides a measurement of debt against stockholders' equity,
and is therefore also a measure of investor interest and confidence in a company. A
lower D/E ratio means more of a company's operations are being financed by
shareholders rather than by creditors. This is a plus for a company since shareholders
do not charge interest on the financing they provide.
Year Adani Reliance TATA NTPC CESC
Power Power
 2013 0.38 1.15 0.67 1.64 1.4
2014 0.38 0.64 0.37 1.36 0.9
2015 0.33 0.47 0.49 0.98 0.98
2016 0.25 0.76 0.47 0.67 0.79
2017 0.26 0.46 0.39 0.58 1.13

ANALYSIS

Given that the debt/equity ratio measures a company’s debt relative to the total value of
its stock, it is most often used to gauge the extent to which a company is taking on
debts as a means of leveraging (attempting to increase its value by using borrowed
money to fund various projects). A high debt/equity ratio generally means that a
company has been aggressive in financing its growth with debt. Thus Debt to Equity
Ratio signifies the amount of risk a company is attempt to take.
In the case above, Adani Power has an average of high debt to equity ratio. Tata
Power, NTPC, and CESC have a medium ratio, and CESC has a low debt to equity
ratio.
Tata Power, NTPC, and CESC are the prefered companies based on the debt to equity
ratio.

Profitability
The best metric for evaluating profitability is net margin, the ratio of profits to total
revenues. It is crucial to consider the net margin ratio because a simple dollar figure of
profit is inadequate to assess the company's financial health.

Year Adani Reliance TATA NTPC CESC

Power Power

2013 -30.82 204.8 10.71 11.99 11.95

2014 5.55 15.42 11.05 14.52 10.88

2015 -0.64 6.79 11.64 14.04 11.27

2016 0.04 58.55 9.14 15.23 11.83

2017 -54.94 13.37 3.92 19.21 11.63

ANALYSIS

The profit margin ratio directly measures what percentage of sales is made up of net income. In
other words, it measures how much profits are produced at a certain level of sales.

This ratio also indirectly measures how well a company manages its expenses relative to its net
sales. That is why companies strive to achieve higher ratios. They can do this by either
generating more revenues why keeping expenses constant or keep revenues constant and lower
expenses.

Since most of the time generating additional revenues is much more difficult than cutting
expenses, managers generally tend to reduce spending budgets to improve their profit ratio.

In the case above Adani Power has a negative average of profitability ratio, Reliance power has a
positive but variable ratio, while Tata power ,NTPC, and CESC have a low but constant
profitability ratio.

Tata power ,NTPC, and CESC are the preferred companies based on the profitability ratio.

Earnings per Share

When buying a stock, you participate in the future earnings (or risk of loss) of the
company. Earnings per share (EPS) measures net income earned on each share of a
company's common stock. The company's analysts divide its net income by the
weighted average number of common shares outstanding during the year.

Year Adani Reliance TATA NTPC CESC

Power Power
2013 -17.48 1.83 3.44 15.3 49.5
2014 0.02 0.2 3.5 13.31 52.18
2015 -0.24 0.09 3.3 12.48 54.51
2016 2.13 1.44 2.36 12.42 53.34
2017 -8.16 0.23 0.63 11.38 65.09
 ANA
LYSI
S

Earning per share is the same as any profitability or market prospect ratio. Higher
earnings per share is always better than a lower ratio because this means the company
is more profitable and the company has more profits to distribute to its shareholders.

Although many investors don’t pay much attention to the EPS, a higher earnings per
share ratio often makes the stock price of a company rise. Since so many things can
manipulate this ratio, investors tend to look at it but don’t let it influence their
decisions drastically.

In the case above Adani power has a negative average of EPS ratio, Reliance Power
and Tata power has a low average of the ratio, NTPC has a medium EPS ratio, while
CESC has a high average of the ratio.

CESC and NTPC are preferred over the others based on the earning per share ratio.

Return on Equity (ROE)

The return on equity is the amount of net income returned as a percentage of
shareholders equity. Moreover, the return on equity estimates the profitability of a
corporation by revealing the amount of profit generated by a company with the money
invested by the shareholders.
Year Adani Reliance TATA NTPC CESC
Power Power
2013 -129.55 3.05 9.28 15.69 11.37
2014 0.06 0.33 8.02 12.78 10.72
2015 -0.88 0.14 6.98 12.6 9.65
2016 7.64 2.46 5.31 11.53 8.9
2017 -41.98 0.38 1.88 9.75 6.47

ANALYSIS

Return on equity measures how efficiently a firm can use the money from
shareholders to generate profits and grow the company. Unlike other return on
investment ratios, ROE is a profitability ratio from the investor’s point of view—not
the company. In other words, this ratio calculates how much money is made based on
the investor’s investment in the company, not the company’s investment in assets or
something else.

That being said, investors want to see a high return on equity ratio because this
indicates that the company is using its investors’ funds effectively. Higher ratios are
almost always better than lower ratios, but have to be compared to other companies’
ratios in the industry. Since every industry has different levels of investors and
income, ROE can’t be used to compare companies outside of their industries very
effectively.
In this case Adani power has a negative but variable return on equity ratio, Reliance
power has a low average of ratio, while Tata power ,NTPC and CESC has a medium
ratio.

Tata power ,NTPC and CESC are preferred on the basis of return of equity ratio.

Asset Turnover Ratio

The asset turnover ratio tells you how good the company is at using its assets to make
products to sell. For example, if Company A reported $100,000 of sales and owns
$50,000 in assets, its asset turnover ratio is 2x. Forever $1 of assets it owns, it can
generate $2 in sales each year.

Year Adani Reliance TATA NTPC CESC

Power Power
2013 -5.1 2.74 3.64 7.89 4.25
2014 1.53 0.27 3.12 6.11 3.99
2015 -0.18 0.11 3.01 5.22 3.68
2016 0.01 1.88 2.26 4.77 3.65
2017 -14.49 0.26 0.71 3.96 3.03
ANALYSIS

This ratio measures how efficiently a firm uses its assets to generate sales, so a higher
ratio is always more favorable. Higher turnover ratios mean the company is using its
assets more efficiently. Lower ratios mean that the company isn’t using its assets
efficiently and most likely have management or production problems.
In this case Adani power has a negative but variable return on equity ratio, Reliance
power, Tata power , CESC has a medium ratio, while NTPC has a high return on
assets ratio.

NTPC is preferred on the basis of return of equity ratio.

HORIZONTAL ANALYSIS
CAGR
(2013-2017)5 yrs. Adani Reliance TATA NTPC CESC

Total
Shareholder's
Fund -8.58 -0.03 2.34 4.76 19.88

Total Current
Liabilities 12.66 32.68 21.4 11.62 20.26

Total Current
Assets 27.92 5.81 12.1 -9.15 24.42

Total Revenue 14.37 17.41 -5.71 3.64 8.02

Total Expenses 13.54 29.38 -4.85 5.39 8.63

Profit/ Loss for the

period 32.71 -40.54 -27.48 -7.14 8.68
 INTERPRETATION OF CAGR

From the table given above and the graphs for each parameter which includes total
shareholder’s funds, total current assets,total current liabilities,total revenue,total
expenses and total profit/loss for the entire period. CAGR(Compounded Annual
Growth Rate) is calculated for the entire period of 5 years(2013-2017) for each of the
five companies based on the above mentioned six parameters.

● CESC has the highest shareholder’s funds growth while Adani Power has the
lowest.
● Reliance Power has the highest total current liabilities growth while NTPC
has the lowest.
● Adani Power has the highest total current assets growth while NTPC has the
lowest.
● Reliance Power has the highest total revenue growth while TATA Power has
the lowest.
● Reliance Power has the highest total expenses growth while TATA Power has
the lowest.
● Adani Power has the highest profit/loss (period) growth while Reliance
Power has the lowest.

CONCLUSION
PROBLEMS:-
 ● Average transmission and distribution losses (T&D) exceed 25% of total
power generation compared. India's T&D losses are almost 2.5 times the
world average. The T&D losses are due to variety of reasons viz., substantial
energy sold at low voltage, sparsely distributed loads over large rural areas,
inadequate investment in distribution system, improper billing and high
pilferage.
■ Lack of coal supply was a major hurdle in the power sector till some time
back. Majority of power generation takes place through thermal power plants
which uses coal as its raw material. However, with e-coal auctions coming in
the picture, this problem seems to have been resolved considerably. Major
players in the generation space were sitting on sufficient inventories of coal as
at the end of the previous fiscal year.
■ Presently, major concern for the power generators is the off-take of electricity.
Power generators sell power to SEBs or DISCOMs. SEBs are facing financial
crisis and are minting losses to the extent of Rs 700 billion annually. The
SEBs do not have enough resources to purchase power from the generators.
Hence a situation has risen wherein there is excess of power but no takers for
the same.
■ Based on the balance sheets, income statements, and the ratios, If we had
Rs. 100 we would invest in Reliance power, NTPC, Tata power, and CESC
equally as they have the most constant average values.
SOLUTIONS:-
● Various aspects like ramping up coal production by both public and private sector
in a time-bound manner, increased participation of private sector in coal
production and easing of regulatory framework, clearances and approvals for
allocation and development of coal blocks & gas infrastructure need to be
addressed while formulating such reforms.
● Regulators need to be sensitized to the challenges faced by the sector and policy
framework needs to be crafted and enforced to ensure a win-win situation for all
the stakeholders. They must pro-actively intervene to resolve the immediate
issues ailing the power sector.
● A robust and sustainable credit enhancement mechanism for funding in Energy
Sector needs to be put in place through increased participation by global funding
agencies like The World Bank, ADB etc. in the entire value chain.
● There is a strong need to push for wider-scale implementation of public private
partnership models. The private sector has been playing a key role in generating
power, a more supportive environment will help in bridging the energy deficit of
the country.