Ratio Analysis project
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About This Presentation
Just Check this project you can find very easily get information about Ratio Analysis
Slide Content
1
2016 2017
Berhampur, Ganjam, Odisha
A Project Report on
OF SOUTHCO, BERHAMPUR
Submitted to
Biju Patnaik University of Technolozy
In Partial fulfillment of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by
D.V.A.Subhash
Roll no. -16MB15
Registration no – 1606301032
Internal Guide: External Guide:
MR.Anup Sir of MBA Dept. Birnchi Narayan Mallik
CFO, Southco, Berhampur
2016 2017
Berhampur, Ganjam, Odisha
A Project Report on
OF SOUTHCO, BERHAMPUR
Submitted to
Biju Patnaik University of Technolozy
In Partial fulfillment of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by
D.V.A.Subhash
Roll no. -16MB15
Registration no – 1606301032
Internal Guide: External Guide:
MR.Anup Sir of MBA Dept. Birnchi Narayan Mallik
CFO, Southco, Berhampur
2
ACKNOWLEDGEMENT
It gives me great pleasure to submit this project to the Biju Patnaik University of
Technolozy as a part of my curriculum of MBA course. I take this opportunity with great
pleasure to present this project on “RATIO ANALYSIS” which is a result of co
operation, hard work, and good wishes of many people. I am greatly indebted to many
people who have helped me directly or indirectly to complete the project report on many
respects.
I would express my sincere gratitude and thanks to my guide MBA Dept. for giving
varied assistance and valuable suggestions contributing in successfully completion of
this project work. I am grateful to “SOUTHCO”, for giving such an opportunity to
undertake my project work with the esteemed organization. I convey my great respect
and thanks to MR. B.N.MALLICK,CFO OF SOUTHCO for the guidance and
supervision which he has extended by spending his valuable time thus helped in
completing this project work. Besides this I thank to all the staff who have given
information regarding the project in some way or other.
Lastly I would like to thanks God and my parents for encouraging me to join this course
and provide me with their constant support and assistance to prepare this project.
DATE:
Place: Berhampur.
ACKNOWLEDGEMENT
It gives me great pleasure to submit this project to the Biju Patnaik University of
Technolozy as a part of my curriculum of MBA course. I take this opportunity with great
pleasure to present this project on “RATIO ANALYSIS” which is a result of co
operation, hard work, and good wishes of many people. I am greatly indebted to many
people who have helped me directly or indirectly to complete the project report on many
respects.
I would express my sincere gratitude and thanks to my guide MBA Dept. for giving
varied assistance and valuable suggestions contributing in successfully completion of
this project work. I am grateful to “SOUTHCO”, for giving such an opportunity to
undertake my project work with the esteemed organization. I convey my great respect
and thanks to MR. B.N.MALLICK,CFO OF SOUTHCO for the guidance and
supervision which he has extended by spending his valuable time thus helped in
completing this project work. Besides this I thank to all the staff who have given
information regarding the project in some way or other.
Lastly I would like to thanks God and my parents for encouraging me to join this course
and provide me with their constant support and assistance to prepare this project.
DATE:
Place: Berhampur.
3
DECLARATION
I hereby declare that this project “RATIO ANALYSIS OF SOUTHCO” has been
prepared & submitted to our guide during the academic year 2017-18. I also declare that
this project is a result of my own effort & is original. This report has not been submitted
to any other institute and published at my other time.
DATE :
PLACE: ( MR D.V.A.SUBHASH)
DECLARATION
I hereby declare that this project “RATIO ANALYSIS OF SOUTHCO” has been
prepared & submitted to our guide during the academic year 2017-18. I also declare that
this project is a result of my own effort & is original. This report has not been submitted
to any other institute and published at my other time.
DATE :
PLACE: ( MR D.V.A.SUBHASH)
4
Chapters Titles and topics
Page. No
1
INTRODUCTION
Introduction
2
OBJECTIVES & METHODOLOGY
Need of study
Scope of study
Objective of the study
Review of Literature
Research Methodology
Limitation of study
3
COMPANY PROFILE
4
DATA ANALYSIS AND INTERPRETATION
5
SUGGESTIONS & CONCLUSION
Suggestions
Conclusion
6
ANNEXURE
BIBLOGRAPHY
Chapters Titles and topics
Page. No
1
INTRODUCTION
Introduction
2
OBJECTIVES & METHODOLOGY
Need of study
Scope of study
Objective of the study
Review of Literature
Research Methodology
Limitation of study
3
COMPANY PROFILE
4
DATA ANALYSIS AND INTERPRETATION
5
SUGGESTIONS & CONCLUSION
Suggestions
Conclusion
6
ANNEXURE
BIBLOGRAPHY
5
List of Ratios
List of Ratios
Liquidity Ratio
Current Ratio
Quick/ Acid
test Ratio
Absolute
Liquid Ratio
Activity Ratio
Inventory
Turn over
Ratio
Receivables
Turnover
Ratio
Payables
Turnover
Ratio
Profitability
Ratio
General
Gross Profit
Ratio
Net Profit
Ratio
Operating
Ratio
Overall
Return on
Investment
Ratio
Dividend
Payout Ratio
Price Earning
Ratio
Leverage
Ratio
Debt-Equity
Ratio
Funded Debt
To Total
Capitalization
Debt Service
Ratio
List of Ratios
List of Ratios
Liquidity Ratio
Current Ratio
Quick/ Acid
test Ratio
Absolute
Liquid Ratio
Activity Ratio
Inventory
Turn over
Ratio
Receivables
Turnover
Ratio
Payables
Turnover
Ratio
Profitability
Ratio
General
Gross Profit
Ratio
Net Profit
Ratio
Operating
Ratio
Overall
Return on
Investment
Ratio
Dividend
Payout Ratio
Price Earning
Ratio
Leverage
Ratio
Debt-Equity
Ratio
Funded Debt
To Total
Capitalization
Debt Service
Ratio
6
7
INTRODUCTION :
ABOUT RATIO ANALYSIS
The ratio analysis is the most powerful tool of financial analysis. Several
ratios calculated from the accounting data can be grouped into various classes
according to financial activity or function to be evaluated.
DEFINITION:
“The indicate quotient of two mathematical expressions “and as “The
relationship between two or more things. “It evaluates the financial position
and performance of the firm.
As started in the beginning many diverse groups of people are interested in
analyzing financial information to indicate the operating and financial
efficiency and growth of firm. These people use ratios to determine those
financial characteristics of firm in which they interested with the help of
ratios one can determine.
The ability of the firm to meet its current obligations.
The extent to which the firm has used its long-term solvency by borrowing
funds.
The efficiency with which the firm is utilizing its assets in generating the
sales revenue.
The overall operating efficiency and performance of firm.
The information contained in these statements is used by management,
creditors, investors and others to form judgment about the operating
performance and financial position of firm.
INTRODUCTION :
ABOUT RATIO ANALYSIS
The ratio analysis is the most powerful tool of financial analysis. Several
ratios calculated from the accounting data can be grouped into various classes
according to financial activity or function to be evaluated.
DEFINITION:
“The indicate quotient of two mathematical expressions “and as “The
relationship between two or more things. “It evaluates the financial position
and performance of the firm.
As started in the beginning many diverse groups of people are interested in
analyzing financial information to indicate the operating and financial
efficiency and growth of firm. These people use ratios to determine those
financial characteristics of firm in which they interested with the help of
ratios one can determine.
The ability of the firm to meet its current obligations.
The extent to which the firm has used its long-term solvency by borrowing
funds.
The efficiency with which the firm is utilizing its assets in generating the
sales revenue.
The overall operating efficiency and performance of firm.
The information contained in these statements is used by management,
creditors, investors and others to form judgment about the operating
performance and financial position of firm.
8
Uses of financial statement can get further insight about financial strength
and weakness of the firm if they properly analyze information reported in
these statements.
Management should be particularly interested in knowing financial strength
of the firm to make their best use and to be able to spot out financial
weaknesses of the firm to take suitable corrective actions.
The further plans firm should be laid down in new of the firm’s financial
strength and weaknesses.
Thus financial analysis is the starting point for making plans before using any
sophisticated forecasting and planning procedures.
Understanding the past is a prerequisite for anticipating the future.
Ratio analysis is used to evaluate various aspects of a company's operating and
financial performance such as its efficiency, liquidity, profitability and
solvency. The trend of these ratios over time is studied to check whether they
are improving or deteriorating.
Financial Ratio Analysis Financial ratios are mathematical comparisons of
financial statement accounts or categories. These relationships between the
financial statement accounts help investors, creditors, and internal company
management understand how well a business is performing and of areas
needing improvement.
An accounting ratio compares two aspects of a financial statement, such as
the relationship (or ratio) of current assets to current liabilities.
The ratios can be used to evaluate the financial condition of a company,
including the company's strengths and weaknesses.
Ratios Defined. The illustration below shows a Business Ratios table. It
includes dozens of standard business ratios calculated from business plan
financials, and used and expected by bankers, financial analyst, and investors.
It also includes a column of statistical indicators for the specific type
of business
Uses of financial statement can get further insight about financial strength
and weakness of the firm if they properly analyze information reported in
these statements.
Management should be particularly interested in knowing financial strength
of the firm to make their best use and to be able to spot out financial
weaknesses of the firm to take suitable corrective actions.
The further plans firm should be laid down in new of the firm’s financial
strength and weaknesses.
Thus financial analysis is the starting point for making plans before using any
sophisticated forecasting and planning procedures.
Understanding the past is a prerequisite for anticipating the future.
Ratio analysis is used to evaluate various aspects of a company's operating and
financial performance such as its efficiency, liquidity, profitability and
solvency. The trend of these ratios over time is studied to check whether they
are improving or deteriorating.
Financial Ratio Analysis Financial ratios are mathematical comparisons of
financial statement accounts or categories. These relationships between the
financial statement accounts help investors, creditors, and internal company
management understand how well a business is performing and of areas
needing improvement.
An accounting ratio compares two aspects of a financial statement, such as
the relationship (or ratio) of current assets to current liabilities.
The ratios can be used to evaluate the financial condition of a company,
including the company's strengths and weaknesses.
Ratios Defined. The illustration below shows a Business Ratios table. It
includes dozens of standard business ratios calculated from business plan
financials, and used and expected by bankers, financial analyst, and investors.
It also includes a column of statistical indicators for the specific type
of business
9
10
NEED OF THE STUDY
Comparison between two or more financial statements
Analysis of financial aspects in the organization
Analysis of financial statements through ratios
For better understanding of financial position of the organization
To know the strengths and weakness of the organization
Predetermined activities are done through the ratios
NEED OF THE STUDY
Comparison between two or more financial statements
Analysis of financial aspects in the organization
Analysis of financial statements through ratios
For better understanding of financial position of the organization
To know the strengths and weakness of the organization
Predetermined activities are done through the ratios
11
Scope of the study
The scope of the study is limited to collecting financial data published in the
annual reports of the company every year. The analysis is done to suggest the
possible solutions. The study is carried out for 4 years (2013-16)
Using the ratio analysis, firms past, present and future performance can be
analyzed and this study has been divided as short term analysis and long term
analysis. The firm should generate enough profits not only to meet the
expectations of owner, but also to expansion activities.
Scope of the study
The scope of the study is limited to collecting financial data published in the
annual reports of the company every year. The analysis is done to suggest the
possible solutions. The study is carried out for 4 years (2013-16)
Using the ratio analysis, firms past, present and future performance can be
analyzed and this study has been divided as short term analysis and long term
analysis. The firm should generate enough profits not only to meet the
expectations of owner, but also to expansion activities.
12
OBJECTIVES OF STUDY
1. To study and analyze the financial position of the Company through ratio
analysis.
2. To suggest measures for improving the financial performance of
organization.
3. To analyze the profitability position of the company.
4. To assess the return on investment.
5. To analyze the asset turnover ratio.
6. To determine the solvency position of company.
7. To suggest measures for effective and efficient usage of inventory
REVIEW OF LITERATURE
OBJECTIVES OF STUDY
1. To study and analyze the financial position of the Company through ratio
analysis.
2. To suggest measures for improving the financial performance of
organization.
3. To analyze the profitability position of the company.
4. To assess the return on investment.
5. To analyze the asset turnover ratio.
6. To determine the solvency position of company.
7. To suggest measures for effective and efficient usage of inventory
REVIEW OF LITERATURE
13
FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths
and weakness of the firm. It is done by establishing relationships between the
items of financial statements viz., balance sheet and profit and loss account.
Financial analysis can be undertaken by management of the firm, viz.,
owners, creditors, investors and others.
.
Objectives of the financial analysis
Analysis of financial statements may be made for a particular purpose in
view.
1. To find out the financial stability and soundness of the business enterprise.
2. To assess and evaluate the earning capacity of the business
3. To estimate and evaluate the fixed assets, stock etc., of the concern.
4. To estimate and determine the possibilities of future growth of business.
5. To assess and evaluate the firm’s capacity and ability to repay short and long
term loans
Significance of financial analysis :
Financial analysis serves the following purpose:
To know the operational efficiency of the business:
FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths
and weakness of the firm. It is done by establishing relationships between the
items of financial statements viz., balance sheet and profit and loss account.
Financial analysis can be undertaken by management of the firm, viz.,
owners, creditors, investors and others.
.
Objectives of the financial analysis
Analysis of financial statements may be made for a particular purpose in
view.
1. To find out the financial stability and soundness of the business enterprise.
2. To assess and evaluate the earning capacity of the business
3. To estimate and evaluate the fixed assets, stock etc., of the concern.
4. To estimate and determine the possibilities of future growth of business.
5. To assess and evaluate the firm’s capacity and ability to repay short and long
term loans
Significance of financial analysis :
Financial analysis serves the following purpose:
To know the operational efficiency of the business:
14
The financial analysis enables the management to find out the overall
efficiency of the firm. This will enable the management to locate the weak
Spots of the business and take necessary remedial action.
Helpful in measuring the solvency of the firm:
The financial analysis helps the decision makers in taking appropriate
decisions for strengthening the short-term as well as long-term solvency of
the firm.
Comparison of past and present results:
Financial statements of the previous years can be compared and the trend
regarding various expenses, purchases, sales, gross profit and net profit can
be ascertained.
Helps in measuring the profitability:
Financial statements show the gross profit, & net profit.
Inter‐firm comparison:
The financial analysis makes it easy to make inter-firm comparison. This
comparison can also be made for various time periods.
Bankruptcy and Failure:
Financial statement analysis is significant tool in predicting the bankruptcy
and the failure of the business enterprise. Financial statement analysis
accomplishes this through the evaluation of the solvency position.
]
Helps in forecasting:
The financial analysis will help in assessing future development by making
forecasts and preparing budgets.
METHODS OF ANALYSIS:
The financial analysis enables the management to find out the overall
efficiency of the firm. This will enable the management to locate the weak
Spots of the business and take necessary remedial action.
Helpful in measuring the solvency of the firm:
The financial analysis helps the decision makers in taking appropriate
decisions for strengthening the short-term as well as long-term solvency of
the firm.
Comparison of past and present results:
Financial statements of the previous years can be compared and the trend
regarding various expenses, purchases, sales, gross profit and net profit can
be ascertained.
Helps in measuring the profitability:
Financial statements show the gross profit, & net profit.
Inter‐firm comparison:
The financial analysis makes it easy to make inter-firm comparison. This
comparison can also be made for various time periods.
Bankruptcy and Failure:
Financial statement analysis is significant tool in predicting the bankruptcy
and the failure of the business enterprise. Financial statement analysis
accomplishes this through the evaluation of the solvency position.
]
Helps in forecasting:
The financial analysis will help in assessing future development by making
forecasts and preparing budgets.
METHODS OF ANALYSIS:
15
A financial analyst can adopt the following tools for analysis of the
financial statements. These are also termed as methods of financial analysis.
A. Comparative statement analysis
B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. Ratio analysis
NATURE OF RATIO ANALYSIS
Ratio Analysis is a powerful tool of financial analysis. A ratio is defined
as "the indicated quotient of mathematical expression" and as "the
relationship between two or more things". A ratio is used as benchmark for
evaluating the financial position and performance of the firm. The
relationship between two accounting figures, expressed mathematically, is
known as a financial ratio. Ratio helps to summarizes large quantities of
financial data and to make qualitative judgment about the firm's financial
performance.
The persons interested in the analysis of financial statements can be
grouped under three head owners (or) investors who are desired primarily a
basis for estimating earning capacity. Creditors who are concerned primarily
with Liquidity and ability to pay interest and redeem loan within a specified
period. Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view to make
intelligent decisions
STANDARDS OF COMPARISON
The ratio analysis involves comparison for an useful interpretation of
the financial statements.
A single ratio in itself does not indicate favorable or unfavorable
condition. It should be compared with some standard.
Standards of comparison are:
1. Past Ratios
2. Competitor's Ratios
A financial analyst can adopt the following tools for analysis of the
financial statements. These are also termed as methods of financial analysis.
A. Comparative statement analysis
B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. Ratio analysis
NATURE OF RATIO ANALYSIS
Ratio Analysis is a powerful tool of financial analysis. A ratio is defined
as "the indicated quotient of mathematical expression" and as "the
relationship between two or more things". A ratio is used as benchmark for
evaluating the financial position and performance of the firm. The
relationship between two accounting figures, expressed mathematically, is
known as a financial ratio. Ratio helps to summarizes large quantities of
financial data and to make qualitative judgment about the firm's financial
performance.
The persons interested in the analysis of financial statements can be
grouped under three head owners (or) investors who are desired primarily a
basis for estimating earning capacity. Creditors who are concerned primarily
with Liquidity and ability to pay interest and redeem loan within a specified
period. Management is interested in evolving analytical tools that will
measure costs, efficiency, liquidity and profitability with a view to make
intelligent decisions
STANDARDS OF COMPARISON
The ratio analysis involves comparison for an useful interpretation of
the financial statements.
A single ratio in itself does not indicate favorable or unfavorable
condition. It should be compared with some standard.
Standards of comparison are:
1. Past Ratios
2. Competitor's Ratios
16
3. Industry Ratios
4. Projected Ratios
Past Ratios: Ratios calculated from the past financial statements of the
same firm.
Competitor's Ratios: Ratios of some selected firms, especially the most
progressive and successful competitor at the same point in time.
Industry Ratios: Ratios of the industry to which the firm belongs.
Projected Ratios: Ratios developed using the projected financial
statements of the same firm.
TIME SERIES ANALYSIS
The easiest way to evaluate the performance of a firm is to compare its
present ratios with past ratios. When financial ratios over a period of time are
compared, it is known as the time series analysis or trend analysis. It gives an
indication of the direction of change and reflects whether the firm's financial
performance has improved, deteriorated or remind constant over time.
CROSS SECTIONAL ANALYSIS
Another way to comparison is to compare ratios of one firm with some
selected firms in the industry at the same point in time. This kind of
comparison is known as the cross-sectional analysis. It is more useful to
compare the firm's ratios with ratios of a few carefully selected competitors,
who have similar operations.
INDUSTRY ANALYSIS
To determine the financial conditions and performance of a firm. Its
ratio may be compared with average ratios of the industry of which the firm
is a member. This type of analysis is known as industry analysis and also it
helps to ascertain the financial standing and capability of the firm & other
firms in the industry.
Industry ratios are important standards in view of the fact that each
industry has its characteristics which influence the financial and operating
relationships.
TYPES OF RATIOS
Management is interested in evaluating every aspect of firm's performance. In
view of the requirement of the various users of ratios, we may classify them
into following four important categories:
3. Industry Ratios
4. Projected Ratios
Past Ratios: Ratios calculated from the past financial statements of the
same firm.
Competitor's Ratios: Ratios of some selected firms, especially the most
progressive and successful competitor at the same point in time.
Industry Ratios: Ratios of the industry to which the firm belongs.
Projected Ratios: Ratios developed using the projected financial
statements of the same firm.
TIME SERIES ANALYSIS
The easiest way to evaluate the performance of a firm is to compare its
present ratios with past ratios. When financial ratios over a period of time are
compared, it is known as the time series analysis or trend analysis. It gives an
indication of the direction of change and reflects whether the firm's financial
performance has improved, deteriorated or remind constant over time.
CROSS SECTIONAL ANALYSIS
Another way to comparison is to compare ratios of one firm with some
selected firms in the industry at the same point in time. This kind of
comparison is known as the cross-sectional analysis. It is more useful to
compare the firm's ratios with ratios of a few carefully selected competitors,
who have similar operations.
INDUSTRY ANALYSIS
To determine the financial conditions and performance of a firm. Its
ratio may be compared with average ratios of the industry of which the firm
is a member. This type of analysis is known as industry analysis and also it
helps to ascertain the financial standing and capability of the firm & other
firms in the industry.
Industry ratios are important standards in view of the fact that each
industry has its characteristics which influence the financial and operating
relationships.
TYPES OF RATIOS
Management is interested in evaluating every aspect of firm's performance. In
view of the requirement of the various users of ratios, we may classify them
into following four important categories:
17
1. Liquidity Ratio
2. Leverage Ratio
3. Activity Ratio
4. Profitability Ratio
1. LIQUIDITY
It is essential for a firm to be able to meet its obligations as they
become due. Liquidity Ratios help in establishing a relationship between cast
and other current assets to current obligations to provide a quick measure of
liquidity. A firm should ensure that it does not suffer from lack of liquidity
and also that it does not have excess liquidity. A very high degree of liquidity
is also bad, 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 high liquidity. Liquidity ratios can be divided into three types:
1 Current Ratio
2 Quick Ratio
3 Cash Ratio
Current Ratio
Current ratio is an acceptable measure of firm’s short-term solvency
Current assets includes cash within a year, such as marketable securities,
debtors and inventors.
Prepaid expenses are also included in current assets as they represent
the payments that will not made by the firm in future. All obligations
maturing within a year are included in current liabilities.
These include creditors, bills payable, accrued expenses, short-term
bank loan, income-tax liability in the current year.
The current ratio is a measure of the firm's short term solvency. It
indicated the availability of current assets in rupees for every one rupee of
current liability. A current ratio of 2:1 is considered satisfactory. The higher
the current ratio, the greater the margin of safety; the larger the amount of
current assets in relation to current liabilities, the more the firm's ability to
meet its obligations. It is a cured -and -quick measure of the firm's liquidity.
Current ratio is calculated by dividing current assets and current liabilities.
Quick Ratio
1. Liquidity Ratio
2. Leverage Ratio
3. Activity Ratio
4. Profitability Ratio
1. LIQUIDITY
It is essential for a firm to be able to meet its obligations as they
become due. Liquidity Ratios help in establishing a relationship between cast
and other current assets to current obligations to provide a quick measure of
liquidity. A firm should ensure that it does not suffer from lack of liquidity
and also that it does not have excess liquidity. A very high degree of liquidity
is also bad, 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 high liquidity. Liquidity ratios can be divided into three types:
1 Current Ratio
2 Quick Ratio
3 Cash Ratio
Current Ratio
Current ratio is an acceptable measure of firm’s short-term solvency
Current assets includes cash within a year, such as marketable securities,
debtors and inventors.
Prepaid expenses are also included in current assets as they represent
the payments that will not made by the firm in future. All obligations
maturing within a year are included in current liabilities.
These include creditors, bills payable, accrued expenses, short-term
bank loan, income-tax liability in the current year.
The current ratio is a measure of the firm's short term solvency. It
indicated the availability of current assets in rupees for every one rupee of
current liability. A current ratio of 2:1 is considered satisfactory. The higher
the current ratio, the greater the margin of safety; the larger the amount of
current assets in relation to current liabilities, the more the firm's ability to
meet its obligations. It is a cured -and -quick measure of the firm's liquidity.
Current ratio is calculated by dividing current assets and current liabilities.
Quick Ratio
18
Quick Ratio establishes a relationship between quick or liquid
assets and current liabilities. An asset is liquid if it can be converted
into cash immediately or reasonably soon without a loss of value.
Cash is the most liquid asset, other assets that are considered to be
relatively liquid asset and included in quick assets are debtors and
bills receivables and marketable securities (temporary quoted
investments).
Liquid Assets
Quick Ratio = ----------------------------
Current Liabilities
Inventories are converted to be liquid. Inventories normally require some
time for realizing into cash; their value also has a tendency to fluctuate. The
quick ratio is found out by dividing quick assets by current liabilities.
Generally, a quick ratio of 1:1 is considered to represent a satisfactory current
financial condition.
Quick ratio is a more penetrating test of liquidity than the current ratio, yet it
should be used cautiously. A company with a high value of quick ratio can
suffer from the shortage of funds if it has slow- paying, doubtful and long
duration outstanding debtors. A low quick ratio may really be prospering and
paying its current obligation in time.
Cash Ratio
Cash is the most liquid asset; a financial analyst may examine Cash
Ratio and its equivalent current liabilities. Cash and Bank balances and short-
term marketable securities are the most liquid assets of a firm, financial
analyst stays look at cash ratio.
Trade investment is marketable securities of equivalent of cash. If the
company carries a small amount of cash, there is nothing to be worried about
the lack of cash if the company has reserves borrowing power. Cash Ratio is
perhaps the most stringent Measure of liquidity. Indeed, one can argue that it
is overly stringent. Lack of immediate cash may not matter if the firm stretch
its payments or borrow money at short notice.
Quick Ratio establishes a relationship between quick or liquid
assets and current liabilities. An asset is liquid if it can be converted
into cash immediately or reasonably soon without a loss of value.
Cash is the most liquid asset, other assets that are considered to be
relatively liquid asset and included in quick assets are debtors and
bills receivables and marketable securities (temporary quoted
investments).
Liquid Assets
Quick Ratio = ----------------------------
Current Liabilities
Inventories are converted to be liquid. Inventories normally require some
time for realizing into cash; their value also has a tendency to fluctuate. The
quick ratio is found out by dividing quick assets by current liabilities.
Generally, a quick ratio of 1:1 is considered to represent a satisfactory current
financial condition.
Quick ratio is a more penetrating test of liquidity than the current ratio, yet it
should be used cautiously. A company with a high value of quick ratio can
suffer from the shortage of funds if it has slow- paying, doubtful and long
duration outstanding debtors. A low quick ratio may really be prospering and
paying its current obligation in time.
Cash Ratio
Cash is the most liquid asset; a financial analyst may examine Cash
Ratio and its equivalent current liabilities. Cash and Bank balances and short-
term marketable securities are the most liquid assets of a firm, financial
analyst stays look at cash ratio.
Trade investment is marketable securities of equivalent of cash. If the
company carries a small amount of cash, there is nothing to be worried about
the lack of cash if the company has reserves borrowing power. Cash Ratio is
perhaps the most stringent Measure of liquidity. Indeed, one can argue that it
is overly stringent. Lack of immediate cash may not matter if the firm stretch
its payments or borrow money at short notice.
19
LEVERAGE RATIOS
Financial leverage refers to the use of debt finance while debt capital is
a cheaper source of finance: it is also a riskier source of finance. It helps in
assessing the risk arising from the use of debt capital. Two types of ratios are
commonly used to analyze financial leverage.
1. Structural Ratios &
2. Coverage ratios.
Current assets - Inventories
Quick Ratio = _________________________
Current Liabilities
Cash and bank balances + Current Investment
Cash Ratio= -------------------------------------------------------------------------
Current Liabilities
Structural Ratios are based on the proportions of debt and equity in the
financial structure of firm.
Coverage Ratios shows the relationship between Debt Servicing,
Commitments and the sources for meeting these burdens.
The short-term creditors like bankers and suppliers of raw material are more
concerned with the firm's current debt-paying ability. On the other hand,
long-term creditors like debenture holders, financial institutions are more
concerned with the firm's long-term financial strength.
To judge the long-term financial position of firm, financial leverage ratios are
calculated. These ratios indicated mix of funds provided by owners and
lenders.
There should be an appropriate mix of Debt and owner's equity in
financing the firm's assets. The process of magnifying the shareholder's return
through the use of Debt is called "financial leverage" or "financial gearing" or
"trading on equity". Leverage Ratios are calculated to measure the financial
risk and the firm's ability of using Debt to share holder's advantage.
LEVERAGE RATIOS
Financial leverage refers to the use of debt finance while debt capital is
a cheaper source of finance: it is also a riskier source of finance. It helps in
assessing the risk arising from the use of debt capital. Two types of ratios are
commonly used to analyze financial leverage.
1. Structural Ratios &
2. Coverage ratios.
Current assets - Inventories
Quick Ratio = _________________________
Current Liabilities
Cash and bank balances + Current Investment
Cash Ratio= -------------------------------------------------------------------------
Current Liabilities
Structural Ratios are based on the proportions of debt and equity in the
financial structure of firm.
Coverage Ratios shows the relationship between Debt Servicing,
Commitments and the sources for meeting these burdens.
The short-term creditors like bankers and suppliers of raw material are more
concerned with the firm's current debt-paying ability. On the other hand,
long-term creditors like debenture holders, financial institutions are more
concerned with the firm's long-term financial strength.
To judge the long-term financial position of firm, financial leverage ratios are
calculated. These ratios indicated mix of funds provided by owners and
lenders.
There should be an appropriate mix of Debt and owner's equity in
financing the firm's assets. The process of magnifying the shareholder's return
through the use of Debt is called "financial leverage" or "financial gearing" or
"trading on equity". Leverage Ratios are calculated to measure the financial
risk and the firm's ability of using Debt to share holder's advantage.
20
Leverage Ratios can be divided into five types.
1 Debt equity ratio.
2 Debt ratio.
3 Interest coverage ratio
4 Proprietary ratio.
5 Capital gearing ratio
Debt equity ratio
It indicates the relationship describing the lenders contribution for
each rupee of the owner's contribution is called debt-equity ratio. Debt equity
ratio is directly computed by dividing total debt by net worth. Lower the
debt-equity ratio, higher the degree of protection. A debt-equity ratio of 2:1 is
considered ideal. The debt consists of all short term as well as long-term and
equity consists of net worth plus preference capital plus Deferred Tax
Liability.
Long term Debts
Debt Equity Ratio = -------------------------------------------------------
Share holder funds (Equities
Debt ratio:
Several debt ratios may used to analyze the long-term solvency of a firm.
The firm may be interested in knowing the proportion of the interest-
bearing debt in the capital structure. It may, therefore, compute debt
ratio by dividing total total debt by capital employed on net assets. Total
debt will include short and long-term borrowings from financial
institutions, debentures/bonds, deferred payment arrangements for
buying equipments, bank borrowings, public deposits and any other
interest-bearing loan. Capital employed will include total debt net worth.
Interest Coverage Ratio
The interest coverage ratio or the time interest earned is used to test the
firms’ debt servicing capacity. The interest coverage ratio is computed by
dividing earnings before interest and taxes by interest charges. The
interest coverage ratio shows the number of times the interest charges
are covered by funds that are ordinarily available for their payment. We
Leverage Ratios can be divided into five types.
1 Debt equity ratio.
2 Debt ratio.
3 Interest coverage ratio
4 Proprietary ratio.
5 Capital gearing ratio
Debt equity ratio
It indicates the relationship describing the lenders contribution for
each rupee of the owner's contribution is called debt-equity ratio. Debt equity
ratio is directly computed by dividing total debt by net worth. Lower the
debt-equity ratio, higher the degree of protection. A debt-equity ratio of 2:1 is
considered ideal. The debt consists of all short term as well as long-term and
equity consists of net worth plus preference capital plus Deferred Tax
Liability.
Long term Debts
Debt Equity Ratio = -------------------------------------------------------
Share holder funds (Equities
Debt ratio:
Several debt ratios may used to analyze the long-term solvency of a firm.
The firm may be interested in knowing the proportion of the interest-
bearing debt in the capital structure. It may, therefore, compute debt
ratio by dividing total total debt by capital employed on net assets. Total
debt will include short and long-term borrowings from financial
institutions, debentures/bonds, deferred payment arrangements for
buying equipments, bank borrowings, public deposits and any other
interest-bearing loan. Capital employed will include total debt net worth.
Interest Coverage Ratio
The interest coverage ratio or the time interest earned is used to test the
firms’ debt servicing capacity. The interest coverage ratio is computed by
dividing earnings before interest and taxes by interest charges. The
interest coverage ratio shows the number of times the interest charges
are covered by funds that are ordinarily available for their payment. We
21
can calculate the interest average ratio as earnings before depreciation,
interest and taxes divided by interest.
Proprietary ratio
The total shareholder's fund is compared with the total tangible assets of
the company. This ratio indicates the general financial strength of
concern. It is a test of the soundness of financial structure of the concern.
The ratio is of great significance to creditors since it enables them to find
out the proportion of share holders funds in the total investment of
business.
Debt
Debt Ratio = ------------------------------
Equity
EBIT
Interest Coverage ratio = ------------------------------
Interest
Net worth
Proprietary Ratio = -------------------------------------------------- x 100
Total tangible assets
Capital gearing ratio:
This ratio makes an analysis of capital structure of firm. The ratio shows
relationship between equity share capital and the fixed cost bearing i.e.,
preference share capital and debentures.
ACTIVITY RATIOS
Turnover ratios also referred to as activity ratios or asset management ratios,
measure how efficiently the assets are employed by a firm. These
ratios are based on the relationship between the level of activity, represented
by sales or cost of goods sold and levels of various assets. The improvement
turnover ratios are inventory turnover, average collection period, receivable
turn over, fixed assets turnover and total assets turnover.
Activity ratios are employed to evaluate the efficiency with which the firm
manages and utilize its assets. These ratios are also called turnover ratios
can calculate the interest average ratio as earnings before depreciation,
interest and taxes divided by interest.
Proprietary ratio
The total shareholder's fund is compared with the total tangible assets of
the company. This ratio indicates the general financial strength of
concern. It is a test of the soundness of financial structure of the concern.
The ratio is of great significance to creditors since it enables them to find
out the proportion of share holders funds in the total investment of
business.
Debt
Debt Ratio = ------------------------------
Equity
EBIT
Interest Coverage ratio = ------------------------------
Interest
Net worth
Proprietary Ratio = -------------------------------------------------- x 100
Total tangible assets
Capital gearing ratio:
This ratio makes an analysis of capital structure of firm. The ratio shows
relationship between equity share capital and the fixed cost bearing i.e.,
preference share capital and debentures.
ACTIVITY RATIOS
Turnover ratios also referred to as activity ratios or asset management ratios,
measure how efficiently the assets are employed by a firm. These
ratios are based on the relationship between the level of activity, represented
by sales or cost of goods sold and levels of various assets. The improvement
turnover ratios are inventory turnover, average collection period, receivable
turn over, fixed assets turnover and total assets turnover.
Activity ratios are employed to evaluate the efficiency with which the firm
manages and utilize its assets. These ratios are also called turnover ratios
22
because they indicate the speed with which assets are being converted or
turned over into sales. Activity ratios thus involve a relationship between
sales and assets. A proper balance between sales and assets generally reflects
that asset utilization.
Activity ratios are divided into four types:
1 Total capital turnover ratio
2 Working capital turnover ratio
3 Fixed assets turnover ratio
4 Stock turnover ratio
Total capital turnover ratio: This ratio expresses relationship
between the amounts invested in this assets and the resulting in terms of
sales. This is calculated by dividing the net sales by total sales. The higher
ratio means better utilization and vice-versa.
Some analysts like to compute the total assets turnover in addition to or
instead of net assets turnover. This ratio shows the firm's ability in generating
sales from all financial resources committed to total assets.
Equity capital
Capital gearing ratio = -----------------------------------------------
P.S capital +Debentures +Loans
Sales
Total assets turnover = ----------------------------
Capital employed.
Working capital turnover ratio: This ratio measures the relationship
between working capital and sales. The ratio shows the number of times the
working capital results in sales. Working capital as usual is the excess of
current assets over current liabilities. The following formula is used to
measure the ratio:
Sales
Working capital turnover ratio = -----------------------------------------
Working capital
because they indicate the speed with which assets are being converted or
turned over into sales. Activity ratios thus involve a relationship between
sales and assets. A proper balance between sales and assets generally reflects
that asset utilization.
Activity ratios are divided into four types:
1 Total capital turnover ratio
2 Working capital turnover ratio
3 Fixed assets turnover ratio
4 Stock turnover ratio
Total capital turnover ratio: This ratio expresses relationship
between the amounts invested in this assets and the resulting in terms of
sales. This is calculated by dividing the net sales by total sales. The higher
ratio means better utilization and vice-versa.
Some analysts like to compute the total assets turnover in addition to or
instead of net assets turnover. This ratio shows the firm's ability in generating
sales from all financial resources committed to total assets.
Equity capital
Capital gearing ratio = -----------------------------------------------
P.S capital +Debentures +Loans
Sales
Total assets turnover = ----------------------------
Capital employed.
Working capital turnover ratio: This ratio measures the relationship
between working capital and sales. The ratio shows the number of times the
working capital results in sales. Working capital as usual is the excess of
current assets over current liabilities. The following formula is used to
measure the ratio:
Sales
Working capital turnover ratio = -----------------------------------------
Working capital
23
Fixed asset turnover ratio: The firm may which to know its efficiency
of utilizing fixed assets and current assets separately. The use of depreciated
value of fixed assets in computing the fixed assets turnover may render
comparison of firm's performance over period or with other firms.
The ratio is supposed to measure the efficiency with which fixed assets
employed a high ratio indicates a high degree of efficiency in asset utilization
and a low ratio reflects inefficient use of assets.
However, in interpreting this ratio, one caution should be borne in mind,
when the fixed assets of firm are old and substantially depreciated, the fixed
assets turnover ratio tends to be high because the denominator of ratio is very
low.
Stock turnover ratio:
Stock turnover ratio indicates the efficiency of firm in producing and selling
its product. It is calculated by dividing the cost of goods sold by the average
stock. It measures how fast the inventory is moving through the firm and
generating sales.
The stock turnover ratio reflects the efficiency of inventory management. The
higher the ratio, the more efficient the management of inventories and vice
versa .However, this may not always be true. A high inventory turnover may
be caused by a low level of inventory which may result if frequent stock outs
and loss of sales and customer goodwill.
Sales
Working capital turnover ratio = -------------------------------
Working capital
Net sales
Fixed asset turnover ratio = -------------------------
Fixed assets
Cost of goods sold
Stock turnover ratio = ------------------------------
Average stock
Opening stock + Closing stock
Fixed asset turnover ratio: The firm may which to know its efficiency
of utilizing fixed assets and current assets separately. The use of depreciated
value of fixed assets in computing the fixed assets turnover may render
comparison of firm's performance over period or with other firms.
The ratio is supposed to measure the efficiency with which fixed assets
employed a high ratio indicates a high degree of efficiency in asset utilization
and a low ratio reflects inefficient use of assets.
However, in interpreting this ratio, one caution should be borne in mind,
when the fixed assets of firm are old and substantially depreciated, the fixed
assets turnover ratio tends to be high because the denominator of ratio is very
low.
Stock turnover ratio:
Stock turnover ratio indicates the efficiency of firm in producing and selling
its product. It is calculated by dividing the cost of goods sold by the average
stock. It measures how fast the inventory is moving through the firm and
generating sales.
The stock turnover ratio reflects the efficiency of inventory management. The
higher the ratio, the more efficient the management of inventories and vice
versa .However, this may not always be true. A high inventory turnover may
be caused by a low level of inventory which may result if frequent stock outs
and loss of sales and customer goodwill.
Sales
Working capital turnover ratio = -------------------------------
Working capital
Net sales
Fixed asset turnover ratio = -------------------------
Fixed assets
Cost of goods sold
Stock turnover ratio = ------------------------------
Average stock
Opening stock + Closing stock
24
Average stock = --------------------------------------------
2
PROFITABILITY RATIOS:
A company should earn profits to survive and grow over a long period of
time. Profits are essential but it would be wrong to assume that every action
initiated by management of a company should be aimed at maximizing
profits. Profit is the difference between revenues and expenses over a period
of time.
Profit is the ultimate 'output' of a company and it will have no future if it fails
to make sufficient profits. The financial manager should continuously
evaluate the efficiency of company in terms of profits. The profitability ratios
are calculated to measure the operating efficiency of company. Creditors
want to get interest and repayment of principal regularly. Owners want to get
a required rate of return on their investment.
Generally, two major types of profitability ratios are calculated:
Profitability in relation to sales
Profitability in relation to investment
Profitability Ratios can be divided into six types:
1 Gross profit ratio
2 Operating profit ratio
3 Net profit ratio
4 Return on investment
5 Earns per share
6 Operating expenses ratio
1 Gross profit ratio:
First profitability ratio in relation to sales is the gross profit margin the gross
profit margin reflects.
The efficiency with which management produces each unit of product. This
ratio indicates the average spread between the cost of goods sold and the
sales revenue.
A high gross profit margin is a sign of good management. A gross margin
ratio may increase due to any of following factors: higher sales prices cost of
goods sold remaining constant, lower cost of goods sold, sales prices
remaining constant.
A low gross profit margin may reflect higher cost of goods sold due to firm's
inability to purchase raw materials at favorable terms, inefficient utilization
Average stock = --------------------------------------------
2
PROFITABILITY RATIOS:
A company should earn profits to survive and grow over a long period of
time. Profits are essential but it would be wrong to assume that every action
initiated by management of a company should be aimed at maximizing
profits. Profit is the difference between revenues and expenses over a period
of time.
Profit is the ultimate 'output' of a company and it will have no future if it fails
to make sufficient profits. The financial manager should continuously
evaluate the efficiency of company in terms of profits. The profitability ratios
are calculated to measure the operating efficiency of company. Creditors
want to get interest and repayment of principal regularly. Owners want to get
a required rate of return on their investment.
Generally, two major types of profitability ratios are calculated:
Profitability in relation to sales
Profitability in relation to investment
Profitability Ratios can be divided into six types:
1 Gross profit ratio
2 Operating profit ratio
3 Net profit ratio
4 Return on investment
5 Earns per share
6 Operating expenses ratio
1 Gross profit ratio:
First profitability ratio in relation to sales is the gross profit margin the gross
profit margin reflects.
The efficiency with which management produces each unit of product. This
ratio indicates the average spread between the cost of goods sold and the
sales revenue.
A high gross profit margin is a sign of good management. A gross margin
ratio may increase due to any of following factors: higher sales prices cost of
goods sold remaining constant, lower cost of goods sold, sales prices
remaining constant.
A low gross profit margin may reflect higher cost of goods sold due to firm's
inability to purchase raw materials at favorable terms, inefficient utilization
25
of plant and machinery resulting in higher cost of production or due to fall in
prices in market.
This ratio shows the margin left after meeting manufacturing costs. It
measures the efficiency of production as well as pricing. To analyze the
factors underlying the variation in gross profit margin, the proportion of
various elements of cost (Labor, materials and manufacturing overheads) to
sale may studied in detail.
2 Operating profit ratio
This ratio expresses the relationship between operating profit and sales. It is
worked out by dividing operating profit by net sales. With the help of this
ratio, one can judge the managerial efficiency which may not be reflected in
the net profit ratio.
3 Net profit ratio
Net profit is obtained when operating expenses, interest and taxes are
subtracted from the gross profit. Net profit margin ratio established a
relationship between net profit and sales and indicates management's
efficiency in manufacturing, administering and selling products.
This ratio also indicates the firm's capacity to withstand adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous
position to survive in the face of falling selling prices, rising costs of
production or declining demand for product
This ratio shows the earning left for share holders as a percentage of net
sales.
It measures overall efficiency of production, administration, selling,
financing. Pricing and tax management. Jointly considered, the gross and net
profit margin ratios provide a valuable understanding of the cost and profit
structure of the firm and enable the analyst to identify the sources of business
efficiency / inefficiency.
Gross profit
Gross profit ratio = ------------------------x 100
Net sales
of plant and machinery resulting in higher cost of production or due to fall in
prices in market.
This ratio shows the margin left after meeting manufacturing costs. It
measures the efficiency of production as well as pricing. To analyze the
factors underlying the variation in gross profit margin, the proportion of
various elements of cost (Labor, materials and manufacturing overheads) to
sale may studied in detail.
2 Operating profit ratio
This ratio expresses the relationship between operating profit and sales. It is
worked out by dividing operating profit by net sales. With the help of this
ratio, one can judge the managerial efficiency which may not be reflected in
the net profit ratio.
3 Net profit ratio
Net profit is obtained when operating expenses, interest and taxes are
subtracted from the gross profit. Net profit margin ratio established a
relationship between net profit and sales and indicates management's
efficiency in manufacturing, administering and selling products.
This ratio also indicates the firm's capacity to withstand adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous
position to survive in the face of falling selling prices, rising costs of
production or declining demand for product
This ratio shows the earning left for share holders as a percentage of net
sales.
It measures overall efficiency of production, administration, selling,
financing. Pricing and tax management. Jointly considered, the gross and net
profit margin ratios provide a valuable understanding of the cost and profit
structure of the firm and enable the analyst to identify the sources of business
efficiency / inefficiency.
Gross profit
Gross profit ratio = ------------------------x 100
Net sales
26
Operating profit
Operating profit ratio = ---------------------------x 100
Net sales
Net Profit
Net Profit Ratio = --------------------------- x 100
Net sales
4 Return on investment:
This is one of the most important profitability ratios. It indicates the relation
of net profit with capital employed in business. Net profit for calculating
return of investment will mean the net profit before interest, tax, and
dividend. Capital employed means long term funds.
5 Earnings per share:
This ratio is computed by earning available to equity share holders by the
total amount of equity share outstanding. It reveals the amount of period
earnings after taxes which occur to each equity share.
This ratio is an important index because it indicates whether the wealth of
each share holder on a per share basis as changed over the period.
6 Operating expenses ratio
It explains the changes in the profit margin ratio. A higher operating expenses
ratio is unfavorable since it will leave a small amount of operating income to
meet interest, dividends. Operating expenses ratio is a yardstick of operating
efficiency, but it should be used cautiously. It is affected by a number of
factors such as external uncontrollable factors, internal factors.
This ratio is computed by dividing operating expenses by sales. Operating
expenses equal cost of goods sold plus selling expenses and general
administrative expenses by sales.
E.B.I.T
Return on investment = ---------------------------------------- x 100
Operating profit
Operating profit ratio = ---------------------------x 100
Net sales
Net Profit
Net Profit Ratio = --------------------------- x 100
Net sales
4 Return on investment:
This is one of the most important profitability ratios. It indicates the relation
of net profit with capital employed in business. Net profit for calculating
return of investment will mean the net profit before interest, tax, and
dividend. Capital employed means long term funds.
5 Earnings per share:
This ratio is computed by earning available to equity share holders by the
total amount of equity share outstanding. It reveals the amount of period
earnings after taxes which occur to each equity share.
This ratio is an important index because it indicates whether the wealth of
each share holder on a per share basis as changed over the period.
6 Operating expenses ratio
It explains the changes in the profit margin ratio. A higher operating expenses
ratio is unfavorable since it will leave a small amount of operating income to
meet interest, dividends. Operating expenses ratio is a yardstick of operating
efficiency, but it should be used cautiously. It is affected by a number of
factors such as external uncontrollable factors, internal factors.
This ratio is computed by dividing operating expenses by sales. Operating
expenses equal cost of goods sold plus selling expenses and general
administrative expenses by sales.
E.B.I.T
Return on investment = ---------------------------------------- x 100
27
Capital employed
Net profit
Earnings per share = ------------------------------------ x 100
Number of equity shares
Operating expenses
Operating expenses ratio = ----------------------------- x 100
Sales
Research Methodology
Research Design
In view of the objects of the study listed above an exploratory research design
has been adopted. Exploratory research is one which is largely interprets and
already available information and it lays particular emphasis on analysis and
interpretation of the existing and available information.
To know the financial status of the company.
To know the credit worthiness of the company.
To offer suggestions based on research finding.
Data Collection Methods
Capital employed
Net profit
Earnings per share = ------------------------------------ x 100
Number of equity shares
Operating expenses
Operating expenses ratio = ----------------------------- x 100
Sales
Research Methodology
Research Design
In view of the objects of the study listed above an exploratory research design
has been adopted. Exploratory research is one which is largely interprets and
already available information and it lays particular emphasis on analysis and
interpretation of the existing and available information.
To know the financial status of the company.
To know the credit worthiness of the company.
To offer suggestions based on research finding.
Data Collection Methods
28
Primary Data
Information collected from internal guide and finance manager. Primary data
is first hand information.
Secondary Data
Company balance sheet and profit and loss account. secondary data is second
hand information.
Data Collection Tools
To analyze the data acquire from the secondary sources “Ratio Analysis “The
scope of the study is defined below in terms of concepts adopted and period
under focus.
First the study of Ratio Analysis is confined only to the southcoodisha.
Secondly the study is based on the annual reports of the organization for a
period of 4 years from 2013-14 to 2016-17 the reason for restricting the study
to this period is due time constraint
Past Ratios: Ratios calculated from the past financial statements of the same
firm.
Competitor's Ratios: Ratios of some selected firms, especially the most
progressive and successful competitor at the same point in time.
Industry Ratios: Ratios of the industry to which the firm belongs.
Projected Ratios: Ratios developed using the projected financial statements of
the same firm.
TIME SERIES ANALYSIS
The easiest way to evaluate the performance of a firm is to compare its
present ratios with past ratios. When financial ratios over a period of time are
compared, it is known as the time series analysis or trend analysis. It gives an
indication of the direction of change and reflects whether the firm's financial
performance has improved, deteriorated or remind constant over time.
Primary Data
Information collected from internal guide and finance manager. Primary data
is first hand information.
Secondary Data
Company balance sheet and profit and loss account. secondary data is second
hand information.
Data Collection Tools
To analyze the data acquire from the secondary sources “Ratio Analysis “The
scope of the study is defined below in terms of concepts adopted and period
under focus.
First the study of Ratio Analysis is confined only to the southcoodisha.
Secondly the study is based on the annual reports of the organization for a
period of 4 years from 2013-14 to 2016-17 the reason for restricting the study
to this period is due time constraint
Past Ratios: Ratios calculated from the past financial statements of the same
firm.
Competitor's Ratios: Ratios of some selected firms, especially the most
progressive and successful competitor at the same point in time.
Industry Ratios: Ratios of the industry to which the firm belongs.
Projected Ratios: Ratios developed using the projected financial statements of
the same firm.
TIME SERIES ANALYSIS
The easiest way to evaluate the performance of a firm is to compare its
present ratios with past ratios. When financial ratios over a period of time are
compared, it is known as the time series analysis or trend analysis. It gives an
indication of the direction of change and reflects whether the firm's financial
performance has improved, deteriorated or remind constant over time.
29
CROSS SECTIONAL ANALYSIS
Another way to comparison is to compare ratios of one firm with some
selected firms in the industry at the same point in time. This kind of
comparison is known as the cross-sectional analysis. It is more useful to
compare the firm's ratios with ratios of a few carefully selected competitors,
who have similar operations.
INDUSTRY ANALYSIS
To determine the financial conditions and performance of a firm. Its ratio
may be compared with average ratios of the industry of which the firm is a
member.
This type of analysis is known as industry analysis and also it helps to
ascertain the financial standing and capability of the firm & other firms in the
industry. Industry ratios are important standards in view of the fact that each
industry has its characteristics which influence the financial and operating
relationships.
LIMITATIONS
The study was limited to only four years Financial Data.
The study is purely based on secondary data which were taken primarily from
Published annual reports of SOUTHCO.
There is no set industry standard for comparison and hence the inference is
made on general standards.
The ratio is calculated from past financial statements and these are not
indicators of future.
The study is based on only on the past records.
Non availability of required data to analysis the performance.
CROSS SECTIONAL ANALYSIS
Another way to comparison is to compare ratios of one firm with some
selected firms in the industry at the same point in time. This kind of
comparison is known as the cross-sectional analysis. It is more useful to
compare the firm's ratios with ratios of a few carefully selected competitors,
who have similar operations.
INDUSTRY ANALYSIS
To determine the financial conditions and performance of a firm. Its ratio
may be compared with average ratios of the industry of which the firm is a
member.
This type of analysis is known as industry analysis and also it helps to
ascertain the financial standing and capability of the firm & other firms in the
industry. Industry ratios are important standards in view of the fact that each
industry has its characteristics which influence the financial and operating
relationships.
LIMITATIONS
The study was limited to only four years Financial Data.
The study is purely based on secondary data which were taken primarily from
Published annual reports of SOUTHCO.
There is no set industry standard for comparison and hence the inference is
made on general standards.
The ratio is calculated from past financial statements and these are not
indicators of future.
The study is based on only on the past records.
Non availability of required data to analysis the performance.
30
The short span of the time provided also one of limitations
The short span of the time provided also one of limitations
31
32
33
COMPANY PROFILE
INTRODUCTON OF SOUTHCO.
The Southern Electricity Supply Company of Odisha limited (SOUTHCO) was
incorporated on 19-11-1997 under the companies Act, 1956 as a public Limited
company. The Company started functioning with effect from 26-11-1998, under the
distribution and retail supply license of GRIDCO, after notification in the official gazette
by the Govt. of Odisha, SOUTHCO received the distribution and retail supply license
from Odisha Electricity Regulatory commission(OERC) for distribution and retail supply
of electricity in the southern Odisha, consisting of district of Ganjam, Gajapati,
Rayagada, Koraput, Phulbani, Kandhamal, Nawrangpur, Malkangiri,and Puri(some
parts) with effect from 01-04-1999.By virtue of Power sector reform in Odisha.
SOUTHCO became a subsidiary of BSES Limited, Mumbai on 1
st
April, 1999 by
acquisition of 51% of the share holding of the company by BSES Limited. The company
has authorized and paid up capital of Rs.37.66 crores. At present, SOUTHCO operates in
the geographical area covering 47,000sq.kms.and provides electricity to about 16 lakhs
consumers in its licensed area
VISION OF THE COMPANY
SOUTHCO is committed to transform itself into a successful and efficient electric supply
company, responsive to the needs and expectation of consumers and interests of all
stake holders. Through teamwork and innovation, SOUTHCO shall ensure.
Development of an efficient and reliable electricity supply network which meets the
requirements of diverse group of consumers.
Development of the company as a learning organisation which consider customer
satisfaction as main purpose of business.
Streamlining of the billing system, revenue collection and other value added service for
consumers.
COMPANY PROFILE
INTRODUCTON OF SOUTHCO.
The Southern Electricity Supply Company of Odisha limited (SOUTHCO) was
incorporated on 19-11-1997 under the companies Act, 1956 as a public Limited
company. The Company started functioning with effect from 26-11-1998, under the
distribution and retail supply license of GRIDCO, after notification in the official gazette
by the Govt. of Odisha, SOUTHCO received the distribution and retail supply license
from Odisha Electricity Regulatory commission(OERC) for distribution and retail supply
of electricity in the southern Odisha, consisting of district of Ganjam, Gajapati,
Rayagada, Koraput, Phulbani, Kandhamal, Nawrangpur, Malkangiri,and Puri(some
parts) with effect from 01-04-1999.By virtue of Power sector reform in Odisha.
SOUTHCO became a subsidiary of BSES Limited, Mumbai on 1
st
April, 1999 by
acquisition of 51% of the share holding of the company by BSES Limited. The company
has authorized and paid up capital of Rs.37.66 crores. At present, SOUTHCO operates in
the geographical area covering 47,000sq.kms.and provides electricity to about 16 lakhs
consumers in its licensed area
VISION OF THE COMPANY
SOUTHCO is committed to transform itself into a successful and efficient electric supply
company, responsive to the needs and expectation of consumers and interests of all
stake holders. Through teamwork and innovation, SOUTHCO shall ensure.
Development of an efficient and reliable electricity supply network which meets the
requirements of diverse group of consumers.
Development of the company as a learning organisation which consider customer
satisfaction as main purpose of business.
Streamlining of the billing system, revenue collection and other value added service for
consumers.
34
Strengthening of safety, loss reduction activities & promoting environment protection.
POWER SUPPLY CHAIN
The above drawn graph is explained in words:
GENERATION
This is very first stage and is of prime importance in the power supply chain. As we all
known that power is generated from dam, but the generation of power depends upon
the level of water capacity in the dam and the height of the water which falls on the
turbine which generates power @220 kilo-watt. This generated power is sub-divided
into 132 kilo-watt of power and is transferred to the transmission station through a
conductor which helps in the proper transfer of power.
TRANSMISSION
•GENERATION
220KV
•TRANSMISSION
220/132KV
•DISTRIBUTION
132/33KV
Strengthening of safety, loss reduction activities & promoting environment protection.
POWER SUPPLY CHAIN
The above drawn graph is explained in words:
GENERATION
This is very first stage and is of prime importance in the power supply chain. As we all
known that power is generated from dam, but the generation of power depends upon
the level of water capacity in the dam and the height of the water which falls on the
turbine which generates power @220 kilo-watt. This generated power is sub-divided
into 132 kilo-watt of power and is transferred to the transmission station through a
conductor which helps in the proper transfer of power.
TRANSMISSION
•GENERATION
220KV
•TRANSMISSION
220/132KV
•DISTRIBUTION
132/33KV
35
This stage plays linkage role between generation and distribution stage and is of crucial
significance. The transmission station receives power at 132 kilo-volt from generation
station and step down the received power into 33 kilo-volt to transfer it to the various
distribution stations. It uses a conductor for transferring the power to the distribution
station.
DISTRIBUTION
This is the last stage in the power supply chain. It is from a distribution station that a
consumer receives power. A distribution station receives power from the transmission
station at 33kv, step down to 11 kv and supplies to its various consumers through
distribution transformers at 230 volts.
INTRODUCTION OF POWER SECTOR AND SEB
State Electricity Boards are constituted by various states Government under the
Electricity (Supply) Act 1948, which is central Act. The economic growth of any region
largely hinges on the infrastructure, particularly power. There were a number of
factors, which contributed to the growth of inefficiency in the sector ultimately eroding
the financial base of the state electricity board.
Primarily the non commercial functioning of the board resulted in serious constraints
leading to the present’s crisis. The non commercial functioning of the board could be
described as insufficient capitalization, low tariffs, poor bill collections, high T&D loss a
burden of having to undertake non remunerative projects on behalf of the state
without appropriate compensation. It was recognized that overall economic
development of the state was threatened as long as power supply constrained
industrial development of the state was threatened as long as power supply
constrained industrial development and financial losses of the power sector burden
public finance besides, it was also impossible of the state government to support other
expenses of the power sector, such as investment in generations transmissions and
distribution.
The state’s severe power sector problems are attributed to the SEB’s poor
operational efficiency, which is largely caused by the state government’s political
interference.
This stage plays linkage role between generation and distribution stage and is of crucial
significance. The transmission station receives power at 132 kilo-volt from generation
station and step down the received power into 33 kilo-volt to transfer it to the various
distribution stations. It uses a conductor for transferring the power to the distribution
station.
DISTRIBUTION
This is the last stage in the power supply chain. It is from a distribution station that a
consumer receives power. A distribution station receives power from the transmission
station at 33kv, step down to 11 kv and supplies to its various consumers through
distribution transformers at 230 volts.
INTRODUCTION OF POWER SECTOR AND SEB
State Electricity Boards are constituted by various states Government under the
Electricity (Supply) Act 1948, which is central Act. The economic growth of any region
largely hinges on the infrastructure, particularly power. There were a number of
factors, which contributed to the growth of inefficiency in the sector ultimately eroding
the financial base of the state electricity board.
Primarily the non commercial functioning of the board resulted in serious constraints
leading to the present’s crisis. The non commercial functioning of the board could be
described as insufficient capitalization, low tariffs, poor bill collections, high T&D loss a
burden of having to undertake non remunerative projects on behalf of the state
without appropriate compensation. It was recognized that overall economic
development of the state was threatened as long as power supply constrained
industrial development of the state was threatened as long as power supply
constrained industrial development and financial losses of the power sector burden
public finance besides, it was also impossible of the state government to support other
expenses of the power sector, such as investment in generations transmissions and
distribution.
The state’s severe power sector problems are attributed to the SEB’s poor
operational efficiency, which is largely caused by the state government’s political
interference.
36
Immediate minimum action to restore a measure of financial viability would include:
Finance restructuring to establish reasonable debt equity and satisfactory financial
objectives for SEB’s
Tariff adjustments to meet these revised objectives.
Improvements in mattering, billing and collections.
Contracting private companies or NTPC to rehabilitate and operate poorly performing
stations and other facilities and services.
State power strategy will also have to include.
Privatization of power distribution.
POWER SECTOR REFORM IN ODISHA
Background to the reform:The power sector in Odisha suffered from high
transmission and distribution losses, inadequate accountability for various segments
(generation, transmission,and distribution), poor financial performance, poor quality of
service and manpower related issues.
There was a pressing need to solve the financial problem in Odisha State Electricity
Board (OSEB) and meet the projected demand of funds for investment in generation,
transmission and distribution system. It was also the time when the new national
Economic policy, 1991 was announced which envisaged liberalization and private
participation in infrastructure development.
Reform Agenda:
Keeping this view in mind, the state Government of Odisha pioneered Reform and
Restructuring in the power sector by introducing POWER SECTOR REFORM ACT,1995,
which came into effect from 1
st
April 1996.Odisha Electricity Regulatory Commission
(OERC) was formed to establish an independent and transparent regulatory regime.
The Government of Odisha decides to restructure and substantially privatize the power
sector, to make power supply more efficient and to be able to meet the investments
needs of the sector.
The Odisha government ultimate objective was to wit draw from the power sector as
an operator of utilities, having instead privately-managed utilities operating in a
Immediate minimum action to restore a measure of financial viability would include:
Finance restructuring to establish reasonable debt equity and satisfactory financial
objectives for SEB’s
Tariff adjustments to meet these revised objectives.
Improvements in mattering, billing and collections.
Contracting private companies or NTPC to rehabilitate and operate poorly performing
stations and other facilities and services.
State power strategy will also have to include.
Privatization of power distribution.
POWER SECTOR REFORM IN ODISHA
Background to the reform:The power sector in Odisha suffered from high
transmission and distribution losses, inadequate accountability for various segments
(generation, transmission,and distribution), poor financial performance, poor quality of
service and manpower related issues.
There was a pressing need to solve the financial problem in Odisha State Electricity
Board (OSEB) and meet the projected demand of funds for investment in generation,
transmission and distribution system. It was also the time when the new national
Economic policy, 1991 was announced which envisaged liberalization and private
participation in infrastructure development.
Reform Agenda:
Keeping this view in mind, the state Government of Odisha pioneered Reform and
Restructuring in the power sector by introducing POWER SECTOR REFORM ACT,1995,
which came into effect from 1
st
April 1996.Odisha Electricity Regulatory Commission
(OERC) was formed to establish an independent and transparent regulatory regime.
The Government of Odisha decides to restructure and substantially privatize the power
sector, to make power supply more efficient and to be able to meet the investments
needs of the sector.
The Odisha government ultimate objective was to wit draw from the power sector as
an operator of utilities, having instead privately-managed utilities operating in a
37
competitive and appropriately regulated power market.Power sector industry
andmarket structures to be established under the reform program had been defined so
as to facilitate this ultimate objective with no furtherinstitutional restructuring.
TheWorld Bank supports these government initiatives by providing US$350 millions
assistance.
The Odisha power sector reform was carried out in two phases as explained below:
First phase of reform
Two Government-owned corporate utilities were formed with agreement ensuring
full autonomy with effect from 1
st
April 1996, these were:
Odisha Hydro Power Corporation (OHPC) ---responsible for transmission and
distribution functions.
Second phase of reform
Pursuant to the Odisha Electricity Reform Rules,1998,the Govt. of Odisha
transferred the distribution asset and properties along with personnel of GRIDCO to
four distribution companies with effect from 26
th
November 1998.These four
distribution companies namely CESCO,NESCO,WESCO and SOUTHCO continued to
function as affiliates of GRIDCO up to 31
st
march 1999.Through a process of
international competitive bidding, GRIDCO disinvested 51% share to private sector
investors keeping a share holding 49% taken place. Assets have been assigned to
respective companies. At present GRIDCO purchases power from independent
generation utilities e.g. NTPC, OHPC, OPGC, IIPs, and CPPs and provide it to four
privatized distribution companies who in turn cater to the need of customers.
Outcome and leanings:
The power sector restructuring in Odisha has shed significant light on the inherent
difficulties in the reform process. Valuable lessons could be learnt from this project that
could aid other state like Chhattisgarh in restructuring and reforming their power
utilities. Some key results and insights are:
competitive and appropriately regulated power market.Power sector industry
andmarket structures to be established under the reform program had been defined so
as to facilitate this ultimate objective with no furtherinstitutional restructuring.
TheWorld Bank supports these government initiatives by providing US$350 millions
assistance.
The Odisha power sector reform was carried out in two phases as explained below:
First phase of reform
Two Government-owned corporate utilities were formed with agreement ensuring
full autonomy with effect from 1
st
April 1996, these were:
Odisha Hydro Power Corporation (OHPC) ---responsible for transmission and
distribution functions.
Second phase of reform
Pursuant to the Odisha Electricity Reform Rules,1998,the Govt. of Odisha
transferred the distribution asset and properties along with personnel of GRIDCO to
four distribution companies with effect from 26
th
November 1998.These four
distribution companies namely CESCO,NESCO,WESCO and SOUTHCO continued to
function as affiliates of GRIDCO up to 31
st
march 1999.Through a process of
international competitive bidding, GRIDCO disinvested 51% share to private sector
investors keeping a share holding 49% taken place. Assets have been assigned to
respective companies. At present GRIDCO purchases power from independent
generation utilities e.g. NTPC, OHPC, OPGC, IIPs, and CPPs and provide it to four
privatized distribution companies who in turn cater to the need of customers.
Outcome and leanings:
The power sector restructuring in Odisha has shed significant light on the inherent
difficulties in the reform process. Valuable lessons could be learnt from this project that
could aid other state like Chhattisgarh in restructuring and reforming their power
utilities. Some key results and insights are:
38
Following the power sector reform, the net cash flow for Government of Odisha has
improved significantly as can be seen in the table at the end of this annexure.
The T&D losses that were assumed (staff appraisal Report of the world bank) to be
39.5% were actually greater than 50%.OERC based their tariff order considering 35%
T&D losses, leading to an additional T&D loss of 15% being absorbed by GRIDCO all
losses. The higher than anticipated T&D losses are one of the most important reason
for the current situation in Odisha Where in the private distribution companies are
unable to pay GRIDCO and hence have caused shadow on the overall reform exercise.
The higher than assessed T&D losses were in turn on account of higher agriculture
consumption, which were actually commercial losses. Non metered supply to most
agriculture consumers made it impossible to estimate the true extent of the T&D losses
Even though 100% collection efficiency was assumed by FY98, the actual collection was
83% in FY99.
Tariff increase was assumed to be 16% in FY 97 and 18% in FY98.Haryana and Andhra
Pradesh learnt from Odisha example and have provided for transition period support
from the state government.
FORMATION OF GRIDCO
GRIDCO incorporated in the under the Indian companies Act 1956 on April 20,
1995.GRIDCO will be responsible for transmission, coordination of the system planning
and operations, distribution and contracting for new generation.GRIDCO is represented
as Odisha state Electricity Board’s successor organization and will represent Odisha at
Eastern Region Load Dispatch Centre operated by POWER GRID.
On 28 November, GRIDCO announced its intention to part the business of it into four
distribution zones and shortly thereafter issued the RFQ and background information
documents. DISTCO’s have been incorporated for the four distribution zones and the
business will be transferred to the DISTCO’s. At this stage the DISTCO’s will be wholly
owned subsidiaries of GRIDCO. Privation is to be way of the transfer from GRIDCO to
the DISTCO’S which have been formed to acquire the Zonal Business, through an ICB
(INTERNATIONAL Competitive Bid) process.
Following the power sector reform, the net cash flow for Government of Odisha has
improved significantly as can be seen in the table at the end of this annexure.
The T&D losses that were assumed (staff appraisal Report of the world bank) to be
39.5% were actually greater than 50%.OERC based their tariff order considering 35%
T&D losses, leading to an additional T&D loss of 15% being absorbed by GRIDCO all
losses. The higher than anticipated T&D losses are one of the most important reason
for the current situation in Odisha Where in the private distribution companies are
unable to pay GRIDCO and hence have caused shadow on the overall reform exercise.
The higher than assessed T&D losses were in turn on account of higher agriculture
consumption, which were actually commercial losses. Non metered supply to most
agriculture consumers made it impossible to estimate the true extent of the T&D losses
Even though 100% collection efficiency was assumed by FY98, the actual collection was
83% in FY99.
Tariff increase was assumed to be 16% in FY 97 and 18% in FY98.Haryana and Andhra
Pradesh learnt from Odisha example and have provided for transition period support
from the state government.
FORMATION OF GRIDCO
GRIDCO incorporated in the under the Indian companies Act 1956 on April 20,
1995.GRIDCO will be responsible for transmission, coordination of the system planning
and operations, distribution and contracting for new generation.GRIDCO is represented
as Odisha state Electricity Board’s successor organization and will represent Odisha at
Eastern Region Load Dispatch Centre operated by POWER GRID.
On 28 November, GRIDCO announced its intention to part the business of it into four
distribution zones and shortly thereafter issued the RFQ and background information
documents. DISTCO’s have been incorporated for the four distribution zones and the
business will be transferred to the DISTCO’s. At this stage the DISTCO’s will be wholly
owned subsidiaries of GRIDCO. Privation is to be way of the transfer from GRIDCO to
the DISTCO’S which have been formed to acquire the Zonal Business, through an ICB
(INTERNATIONAL Competitive Bid) process.
39
The principal activities of each of the zonal business are the supply of
electricity to consumer’s operations and maintenance of the distribution network,
connection of new consumers and billing and collection of revenue. In addition, at
GDICO head office, activities carried out centrally include regulatory affairs unit, rural
electrifications, PMU, stores procurement, civil.Works DSM (Demand Side
Management), finance, legal, and human resources.The distribution system in Odisha is
supplied primarily through 132/33KV Grid sub-station (with some 220/33KV sub-
station).The system operates at 33KV and 11KV, where 33KV as used as a sub-
transmission voltage.
Following important objectives are to be achieved.
a. To provide “reliable electricity supply “to its users.
b. To enable pick and energy demand to be meet at the load growth increases
c. To reduce the technical loss levels of the system
Power will be supplied the DISTCO’S .By GRIDCO under the term of BSA (Bulk Supply
Agreement) at the BST (Bulk Supply Tariff).
GRIDCO’s six main function represented below:
1. Corporate planning and divestiture
2. Human Resource Management
3. Finance
4. Commercial
5. Distribution
6. Transmission
ORGANISATION UNDER STUDY: SOUTH CO
FORMATION OF SOUTHCO:
The southern Electricity Supply Company of Odisha Limited (SOUTHCO) was
incorporated on 19-11-1997 under the companies Act 1956 as a public Limited
company. The Company started functioning with effect from 26-11-1998, under the
distribution and retail supply license Of GRIDCO, after notification in the official gazette
by the govt. of Odisha. SOUTHCO receives Distribution and retail supply license from
The principal activities of each of the zonal business are the supply of
electricity to consumer’s operations and maintenance of the distribution network,
connection of new consumers and billing and collection of revenue. In addition, at
GDICO head office, activities carried out centrally include regulatory affairs unit, rural
electrifications, PMU, stores procurement, civil.Works DSM (Demand Side
Management), finance, legal, and human resources.The distribution system in Odisha is
supplied primarily through 132/33KV Grid sub-station (with some 220/33KV sub-
station).The system operates at 33KV and 11KV, where 33KV as used as a sub-
transmission voltage.
Following important objectives are to be achieved.
a. To provide “reliable electricity supply “to its users.
b. To enable pick and energy demand to be meet at the load growth increases
c. To reduce the technical loss levels of the system
Power will be supplied the DISTCO’S .By GRIDCO under the term of BSA (Bulk Supply
Agreement) at the BST (Bulk Supply Tariff).
GRIDCO’s six main function represented below:
1. Corporate planning and divestiture
2. Human Resource Management
3. Finance
4. Commercial
5. Distribution
6. Transmission
ORGANISATION UNDER STUDY: SOUTH CO
FORMATION OF SOUTHCO:
The southern Electricity Supply Company of Odisha Limited (SOUTHCO) was
incorporated on 19-11-1997 under the companies Act 1956 as a public Limited
company. The Company started functioning with effect from 26-11-1998, under the
distribution and retail supply license Of GRIDCO, after notification in the official gazette
by the govt. of Odisha. SOUTHCO receives Distribution and retail supply license from
40
Odisha Electricity Regulatory Commission (OERC) for distribution and retail supply of
electricity in the southern Odisha ,consisting of distribution districts of Ganjam,
Gajapati, Rayagada, Koraput, Boudh, Kandhamal, Nawrangpur, Malkangiri and Puri
(some parts) witheffect from 01-04-1999. By virtue of Power sector reform in Odisha,
SOUTHCO become a subsidiary of BSES Limited, Mumbai on 1
st
April, 1999 by
acquisition of 51% of the shareholding of the company by BSES Limited. The Company
has authorized and paid up capital of Rs.37.66 crores.
PRIVATISATION:
In 1993 GOO (Government of Odisha) commenced an extensive reform program of
electricity sector in Odisha. In 1995 the state legislature enacted the reform act which
is financial instrument if the reform. OERC electricity regulating authority in India was
established in August 1996 under the reform Act.
The transmission and distribution business of OSEB (Odisha State Electricity Board)
were transferred to GRIDCO on April 1996, GOO (Govt. Of Odisha) issued a policy
statement setting out its continuing objectives for reform. In March 1997, OERC issued
its first tariff order.
The GRID Corporation of Odisha limited incorporated under the provisions of the
companies Act 1956 with effect from the 20
th
of April 1995 with the main objects of
engaging in the business of procurement, transmission and bulk supply of electricity
energy.
SOUTHCO LTD. (a subsidiary of BSES ltd.)Has been given license for retail supply of
power to consumer in the district of Ganjam, Gajapati, Rayagada, Koraput, Boudh,
Kandhamal, Nawrangpur, Malkangiri.Today having nineteen electrical division under
SOUTHCO, it caters to the electrical power needs of about 16 lakhs consumers.
SOUTHCO,receives its+ requirement of resource from different 132/33 KV and sub-
stations such as Berhampur, Chatrapur, Narendrapur, Aska, Digapahandi, Boudh,
Bhanjanagar, Phulbani, Rayagada, Jayanagar (Jeypore), Tentulikhunti etc.
The collaboration with Reliance Energy Limited came about when GRIDCO began
the process inviting bids from national as well as international companies for choosing
investors in private sectors.
Odisha Electricity Regulatory Commission (OERC) for distribution and retail supply of
electricity in the southern Odisha ,consisting of distribution districts of Ganjam,
Gajapati, Rayagada, Koraput, Boudh, Kandhamal, Nawrangpur, Malkangiri and Puri
(some parts) witheffect from 01-04-1999. By virtue of Power sector reform in Odisha,
SOUTHCO become a subsidiary of BSES Limited, Mumbai on 1
st
April, 1999 by
acquisition of 51% of the shareholding of the company by BSES Limited. The Company
has authorized and paid up capital of Rs.37.66 crores.
PRIVATISATION:
In 1993 GOO (Government of Odisha) commenced an extensive reform program of
electricity sector in Odisha. In 1995 the state legislature enacted the reform act which
is financial instrument if the reform. OERC electricity regulating authority in India was
established in August 1996 under the reform Act.
The transmission and distribution business of OSEB (Odisha State Electricity Board)
were transferred to GRIDCO on April 1996, GOO (Govt. Of Odisha) issued a policy
statement setting out its continuing objectives for reform. In March 1997, OERC issued
its first tariff order.
The GRID Corporation of Odisha limited incorporated under the provisions of the
companies Act 1956 with effect from the 20
th
of April 1995 with the main objects of
engaging in the business of procurement, transmission and bulk supply of electricity
energy.
SOUTHCO LTD. (a subsidiary of BSES ltd.)Has been given license for retail supply of
power to consumer in the district of Ganjam, Gajapati, Rayagada, Koraput, Boudh,
Kandhamal, Nawrangpur, Malkangiri.Today having nineteen electrical division under
SOUTHCO, it caters to the electrical power needs of about 16 lakhs consumers.
SOUTHCO,receives its+ requirement of resource from different 132/33 KV and sub-
stations such as Berhampur, Chatrapur, Narendrapur, Aska, Digapahandi, Boudh,
Bhanjanagar, Phulbani, Rayagada, Jayanagar (Jeypore), Tentulikhunti etc.
The collaboration with Reliance Energy Limited came about when GRIDCO began
the process inviting bids from national as well as international companies for choosing
investors in private sectors.
41
These would in acquire equity shares in the four companies in due course. The bid of
the Reliance group was accepted and it acquires the right to make investment in three
of the total four companies. These were SOUTHCO, NESCO and the WESCO.
The total share of the company is as:
PRIVATISATION OF DISTRIBUTION SYSTEM
What do we want to achieve from privatization?
OPERATIONAL IMPROVEMENTS
a. Improve quality of service and reduce losses.
b. Improve operational efficiencies and reduce losses
FINANCIAL BENEFITS
a. Attract private investment into distribution business.
b. Reduce the present government funding of the electricity sector.
c. Contribute to increase economic growth in Odisha.
EMPLOYEE CONSIDERATIOON
a. Create opportunities for secured and increasingly rewarding employment for qualified
personnel.
49%
GRIDCO
51%
REL
TOTAL
SHARE OF
THE
COMPANY
These would in acquire equity shares in the four companies in due course. The bid of
the Reliance group was accepted and it acquires the right to make investment in three
of the total four companies. These were SOUTHCO, NESCO and the WESCO.
The total share of the company is as:
PRIVATISATION OF DISTRIBUTION SYSTEM
What do we want to achieve from privatization?
OPERATIONAL IMPROVEMENTS
a. Improve quality of service and reduce losses.
b. Improve operational efficiencies and reduce losses
FINANCIAL BENEFITS
a. Attract private investment into distribution business.
b. Reduce the present government funding of the electricity sector.
c. Contribute to increase economic growth in Odisha.
EMPLOYEE CONSIDERATIOON
a. Create opportunities for secured and increasingly rewarding employment for qualified
personnel.
49%
GRIDCO
51%
REL
TOTAL
SHARE OF
THE
COMPANY
42
b. Provide a stable environment for employees
(SOUTHCO)(Stations):
The following are the receiving stations under SOUTHCO, Odisha
Aska
Tentulikhunti
Therubali
Balimela power house
Sunabeda
Narendrapur
Parlakhemundi
Sonepur
Balugaon
Bhanjanagar
Berhampur
Chhatrapur
Ganjam
Jayanagar
Mohana
Phulbani
Rayagada
PERSONAL DEPARTMENT AND INFORMATION SYSTEM OF SOUTHCO:
Necessary are needed to carry out the proper flow of information. Right and capable
people should be placed in right position to take full advantage of their respective
talents. The employees should share the same guiding values. The objective and
mission of the firm should be known and practiced by everyone with a common style of
thinking and behaving.
And a greatest need of improvement in the area of developing people who are able to
represent alternative make judgements and think strategically. So that company could
b. Provide a stable environment for employees
(SOUTHCO)(Stations):
The following are the receiving stations under SOUTHCO, Odisha
Aska
Tentulikhunti
Therubali
Balimela power house
Sunabeda
Narendrapur
Parlakhemundi
Sonepur
Balugaon
Bhanjanagar
Berhampur
Chhatrapur
Ganjam
Jayanagar
Mohana
Phulbani
Rayagada
PERSONAL DEPARTMENT AND INFORMATION SYSTEM OF SOUTHCO:
Necessary are needed to carry out the proper flow of information. Right and capable
people should be placed in right position to take full advantage of their respective
talents. The employees should share the same guiding values. The objective and
mission of the firm should be known and practiced by everyone with a common style of
thinking and behaving.
And a greatest need of improvement in the area of developing people who are able to
represent alternative make judgements and think strategically. So that company could
43
choose right people to train, educate and motivate them, so that our company will be
able to achieve objectives and to adapt to any changing environment.
South co has the philosophy of recruitment to its various posts a select breed of
ambition and dedicated personnel, who are healthy mind and have long range, plans to
grow and develop with organizationSouth co believes in offering careers and not jobs.
The company provides an excellent environment for growth and training and
development.This department very much linked with all other departments. They are
dealing with labour, the selection of workman, and their placement training and
promotion problem.
Various Reports Prepared by Personnel Department as follows:
1. Personnel Report: report indicting the work and conduct of each employee at the time
of consideration of annual increments and promotion.
2. Shift Managers Reports: Shift in charge submits a daily reports indicating how many
workers have been present on work, absent or leave due to any other reason.
PRESENT CONSUMER BILLING SYSTEM (AT SOUTHCO)
South co’s present billing system is fully computerized and centralizes at
corporate office Berhampur. The entire billing system is managed by Reliance
Infrastructure and Consultant Ltd. In addition to this spot billing activities is going on by
different private agencies to provide better services to consumers like delivery of bills
at the door step of the consumer. Presently “Know your bill” are being engaged in spot
billing activities covering around 16 lakhs no. ofconsumers.
In the present system meter reading preparation of bills and distribution of bills is
being done on monthly basis at Corporate Office by RIEL. Spot billing system is
implemented for domestic consumers in single phase connections. A collection of
revenue is done through the field executive and by engaging the no. Of squad
comparison of clerk/lineman and junior engineers. Revenue collected is being
deposited in the divisions/banks within 48 hours of collection by the respective S.D.O’s.
In rural and distance areas also J.E’s/S.D.O’s deposit, the money in bank and send the
draft in to Corporate Office, SOUTHCO.
Documents required for new service connections:
1. Application form No. 1-3nos
choose right people to train, educate and motivate them, so that our company will be
able to achieve objectives and to adapt to any changing environment.
South co has the philosophy of recruitment to its various posts a select breed of
ambition and dedicated personnel, who are healthy mind and have long range, plans to
grow and develop with organizationSouth co believes in offering careers and not jobs.
The company provides an excellent environment for growth and training and
development.This department very much linked with all other departments. They are
dealing with labour, the selection of workman, and their placement training and
promotion problem.
Various Reports Prepared by Personnel Department as follows:
1. Personnel Report: report indicting the work and conduct of each employee at the time
of consideration of annual increments and promotion.
2. Shift Managers Reports: Shift in charge submits a daily reports indicating how many
workers have been present on work, absent or leave due to any other reason.
PRESENT CONSUMER BILLING SYSTEM (AT SOUTHCO)
South co’s present billing system is fully computerized and centralizes at
corporate office Berhampur. The entire billing system is managed by Reliance
Infrastructure and Consultant Ltd. In addition to this spot billing activities is going on by
different private agencies to provide better services to consumers like delivery of bills
at the door step of the consumer. Presently “Know your bill” are being engaged in spot
billing activities covering around 16 lakhs no. ofconsumers.
In the present system meter reading preparation of bills and distribution of bills is
being done on monthly basis at Corporate Office by RIEL. Spot billing system is
implemented for domestic consumers in single phase connections. A collection of
revenue is done through the field executive and by engaging the no. Of squad
comparison of clerk/lineman and junior engineers. Revenue collected is being
deposited in the divisions/banks within 48 hours of collection by the respective S.D.O’s.
In rural and distance areas also J.E’s/S.D.O’s deposit, the money in bank and send the
draft in to Corporate Office, SOUTHCO.
Documents required for new service connections:
1. Application form No. 1-3nos
44
2. Proof of ownership.
a) If a consumer purchased the premises sale deed.
b) Successor property-copy of will & death certificate.
c) New constructed – site document and plan approved by B.D.A (original copy)
d) Govt. Distributer-Allotment certificate
e) Gifted-Gift Deed
f) IF consumer tenant-registered lease deed.
(N.B. – All are to be attested)
3. Passport size photo with attested (2 nos.)
4. Wiring completion certificate of electrical contractor-1no.
5. Treasury challan for (Dom) Rs.30/-,for (Com) Rs.75/-
6. Tahasil cess receipt (Xerox copy)
7. Municipality Holding Tax receipt (Xerox copy)
8. Site documents and plan approved of B.D.A (original copy)
9. Way leave permission
10. Route map (rough)
11. Processing fees
a. For single phase supply Rs.25/-
b. For single 3 phase L.T supply Rs.100/-
12. Meter with Testing Report (If party will supply)
FORMAT OF THE BILL:
The bill shall contain consumer information, information regarding tariff and also
contain
Consumer number, name and address
Name of division, sub-division, and section.
Connected load or contract demand of consumer.
Types of supply (i.e. single phase, two phases, three phases. L.T/ H.T. or E.H.T.)
2. Proof of ownership.
a) If a consumer purchased the premises sale deed.
b) Successor property-copy of will & death certificate.
c) New constructed – site document and plan approved by B.D.A (original copy)
d) Govt. Distributer-Allotment certificate
e) Gifted-Gift Deed
f) IF consumer tenant-registered lease deed.
(N.B. – All are to be attested)
3. Passport size photo with attested (2 nos.)
4. Wiring completion certificate of electrical contractor-1no.
5. Treasury challan for (Dom) Rs.30/-,for (Com) Rs.75/-
6. Tahasil cess receipt (Xerox copy)
7. Municipality Holding Tax receipt (Xerox copy)
8. Site documents and plan approved of B.D.A (original copy)
9. Way leave permission
10. Route map (rough)
11. Processing fees
a. For single phase supply Rs.25/-
b. For single 3 phase L.T supply Rs.100/-
12. Meter with Testing Report (If party will supply)
FORMAT OF THE BILL:
The bill shall contain consumer information, information regarding tariff and also
contain
Consumer number, name and address
Name of division, sub-division, and section.
Connected load or contract demand of consumer.
Types of supply (i.e. single phase, two phases, three phases. L.T/ H.T. or E.H.T.)
45
Category of consumers (i.e. domestic , commercial)
Status of meter (OK/defective/missing)
Billing period/ cycle.
Initial meter reading of the billing period / cycle with date.
Final meter reading of the billing period / cycle with date.
Number of units consumed during the billing period.
Tariff applicable.
Amount payable within due date.
Amount payable after due date.
Billing details
o Electricity Duty.
o Current electricity charges.
o Current miscellaneous charges.
o Arrears electricity charges.
o Arrears miscellaneous charges
o Delayed payment surcharges.
o Rebate allowed.
o
CLASIFICATION OF CONSUMERS:
Licensee may classify or reclassify the consumer into various categories from time to
time as may be approved by the commission and fix different tariffs and conditions of
supply for different class of consumers. The present classification as follows:
(a) Domestic
This category relates to supply of power to residential premises for domestic
purpose only and shall include consumer under Kutirjyoti programme.
This shall also include supply to occupants of flats in multi-storeyed buildings or
residential colonies receiving power at single point for domestic purpose when
connected load for non-domestic load exceeds10% of the total connection load.
Category of consumers (i.e. domestic , commercial)
Status of meter (OK/defective/missing)
Billing period/ cycle.
Initial meter reading of the billing period / cycle with date.
Final meter reading of the billing period / cycle with date.
Number of units consumed during the billing period.
Tariff applicable.
Amount payable within due date.
Amount payable after due date.
Billing details
o Electricity Duty.
o Current electricity charges.
o Current miscellaneous charges.
o Arrears electricity charges.
o Arrears miscellaneous charges
o Delayed payment surcharges.
o Rebate allowed.
o
CLASIFICATION OF CONSUMERS:
Licensee may classify or reclassify the consumer into various categories from time to
time as may be approved by the commission and fix different tariffs and conditions of
supply for different class of consumers. The present classification as follows:
(a) Domestic
This category relates to supply of power to residential premises for domestic
purpose only and shall include consumer under Kutirjyoti programme.
This shall also include supply to occupants of flats in multi-storeyed buildings or
residential colonies receiving power at single point for domestic purpose when
connected load for non-domestic load exceeds10% of the total connection load.
46
(b) General Purpose:
This category relates to supply of power to premises to which are used for office,
business, commercial or other purpose not covered under any other category with a
contract demand up to but excluding 110KVA and where the non domestic load
exceeds 10% of the total connect load.
(c) Street lighting:
This category relates to supply of power to local authority or public body for providing
street lights.
(d) Railway transitions:
This category relates to supply of power to railway transactions
(e)Irrigation pumping Agriculture:
This category relates to supply of power for pumping of water in lift irrigation,
flow-irrigation, and for lifting of water from wells, nallas, stream, rivulets, rivers, ponds,
dug wells exclusively for agriculture purpose.
(f)Public water works and sewerage pumping installation:
This category relates to supply of power for public water supply and sewerage
pumping installation owned and operated by the state Government, local bodies or
their agencies.
(g) General purpose:
This category relates to supply of power gor all general purpose comprising mixed load
and with a contract demand of 110 KVA and above where the non-domestic load
exceeds 10% of the total connected load.
(h)public Instructions:
(b) General Purpose:
This category relates to supply of power to premises to which are used for office,
business, commercial or other purpose not covered under any other category with a
contract demand up to but excluding 110KVA and where the non domestic load
exceeds 10% of the total connect load.
(c) Street lighting:
This category relates to supply of power to local authority or public body for providing
street lights.
(d) Railway transitions:
This category relates to supply of power to railway transactions
(e)Irrigation pumping Agriculture:
This category relates to supply of power for pumping of water in lift irrigation,
flow-irrigation, and for lifting of water from wells, nallas, stream, rivulets, rivers, ponds,
dug wells exclusively for agriculture purpose.
(f)Public water works and sewerage pumping installation:
This category relates to supply of power for public water supply and sewerage
pumping installation owned and operated by the state Government, local bodies or
their agencies.
(g) General purpose:
This category relates to supply of power gor all general purpose comprising mixed load
and with a contract demand of 110 KVA and above where the non-domestic load
exceeds 10% of the total connected load.
(h)public Instructions:
47
This category relates to supply of power to educational institution including hostels,
government hospitals, government dispensaries, primary health centres, charitable
dispensaries, religious institution, dharma salas, electrics crematoriums and non-
commercial sports organizations.
(i) Small industries:
This category relates to supply of power for industrial production purpose with a
contract demand below 22KVA, where power is generally utilized as motive force.
(j) Medium industries:
This category relates to supply of power for industrial production with contract demand
of 22KVA but below 110 KVA, where power is generally utilized as motive force.
(k) Large industries:
This category relates to supply of power for industrial production with contract demand
of 110KVA but below 2500 KVA, where the power is substantially utilized as motive
force for industrial production.
(l)Heavy industries:
This category relates to supply of power to industries with a contract demand of 25000
KVA and above power is substantially utilized as motive force.
(m)Mini steel plant
This category relates to supply of power steel to manufacturing units license operate as
mini steel plants with contract demand of 4444 KVA and above where power is ordinals
utilized in induction or arc furnaces.
(n) Power intensive industries:
This category relates to supply of power to industries where power is
substantially utilized as raw materials involving electro-metallurgical process with a
contract demand of and above 2000 KVA
(o) Temporary supply:
This category relates to supply of power to educational institution including hostels,
government hospitals, government dispensaries, primary health centres, charitable
dispensaries, religious institution, dharma salas, electrics crematoriums and non-
commercial sports organizations.
(i) Small industries:
This category relates to supply of power for industrial production purpose with a
contract demand below 22KVA, where power is generally utilized as motive force.
(j) Medium industries:
This category relates to supply of power for industrial production with contract demand
of 22KVA but below 110 KVA, where power is generally utilized as motive force.
(k) Large industries:
This category relates to supply of power for industrial production with contract demand
of 110KVA but below 2500 KVA, where the power is substantially utilized as motive
force for industrial production.
(l)Heavy industries:
This category relates to supply of power to industries with a contract demand of 25000
KVA and above power is substantially utilized as motive force.
(m)Mini steel plant
This category relates to supply of power steel to manufacturing units license operate as
mini steel plants with contract demand of 4444 KVA and above where power is ordinals
utilized in induction or arc furnaces.
(n) Power intensive industries:
This category relates to supply of power to industries where power is
substantially utilized as raw materials involving electro-metallurgical process with a
contract demand of and above 2000 KVA
(o) Temporary supply:
48
This category relates to supply of power to meet temporary needs on special
occasions including marriage or other ceremonial functions, fairs , festivals, religious,
functions or seasonal business provided that such power supply doesn’t exceed a
period of six months.
(p) Industries Owning Generation plants (captive Power Plants) Availing:
Emergency supply only
This category relates to supply of power to industries with generating plants or
including captive power plants only for start-up of the unit or to meet their essential
auxiliary and survival requirements in the event of the failure of their generation
capacity.
Such emergency assistance shall be limited to 25% of the rated capacity of the largest
unity in the captive power plant or generating paint .in case any special provision is
made in a power purchase agreement, approved or accepted by the commission, such
provision shall apply in such cases, subject to the provision of this code.
Consumer under special agreement:
81. The licence may. Having regard to the nature of supply and purpose for which
supply is required, fix special tariff and conditions of supply for the consumers not
covered by the classification enumerated in this code.
For such purpose licensee may enter into special agreements with the approval of the
commission with suitable modifications in the standard agreement form. The
commission shall separately approve the traffic in the cases.
Reclassification of consumers
If it is found that a consumer has been classified in a particular category erroneously or
the purpose of supply as mentioned in the agreement has changed or the consumption
of power has exceeded the limit of that category or any order of reduction
This category relates to supply of power to meet temporary needs on special
occasions including marriage or other ceremonial functions, fairs , festivals, religious,
functions or seasonal business provided that such power supply doesn’t exceed a
period of six months.
(p) Industries Owning Generation plants (captive Power Plants) Availing:
Emergency supply only
This category relates to supply of power to industries with generating plants or
including captive power plants only for start-up of the unit or to meet their essential
auxiliary and survival requirements in the event of the failure of their generation
capacity.
Such emergency assistance shall be limited to 25% of the rated capacity of the largest
unity in the captive power plant or generating paint .in case any special provision is
made in a power purchase agreement, approved or accepted by the commission, such
provision shall apply in such cases, subject to the provision of this code.
Consumer under special agreement:
81. The licence may. Having regard to the nature of supply and purpose for which
supply is required, fix special tariff and conditions of supply for the consumers not
covered by the classification enumerated in this code.
For such purpose licensee may enter into special agreements with the approval of the
commission with suitable modifications in the standard agreement form. The
commission shall separately approve the traffic in the cases.
Reclassification of consumers
If it is found that a consumer has been classified in a particular category erroneously or
the purpose of supply as mentioned in the agreement has changed or the consumption
of power has exceeded the limit of that category or any order of reduction
49
enhancement of contract demand has been obtained, the engineer may reclassify him
under appropriate category after issuing notice to him to execute a fresh agreement on
the basis of the alerted classification or modified contract demand.
If the consumer doesn’t take steps within the time indicated in the notice to
executethe fresh agreement, the engineer may after issuing a clear seven days show
cause notice and after considering his explanation, if any, may disconnect the supply of
power
TRAIFF DETAILS
CHARGES FOR SUPPLY
Tariff and charges:
83.Traffics and charges for supply of electricity shall be determined by the licensee
with the approval of the commission under section 26 of the act. Such tariff, tariffs or
charges shall take effect only after seven days from the date of publication in at is to
daily newspapers having circulation in the area of supply. The charges may include:-
(a) Minimum monthly charge
(b) Demand charge
(c) Energy charge
(D) Other charge
Minimum monthly charge:
84. Every consumer, during continuance of agreement under regulation 15,
shall be liable topay minimum monthly charges even if no electricity is consumed for
any reason whatsoever or supply has been disconnected due to default of the
consumer.
Demand charges:
85. (1) monthly demand charges shall be payable by the consumer on the basis of
maximum demand and contract demand as determined in the tariff notification. In case
enhancement of contract demand has been obtained, the engineer may reclassify him
under appropriate category after issuing notice to him to execute a fresh agreement on
the basis of the alerted classification or modified contract demand.
If the consumer doesn’t take steps within the time indicated in the notice to
executethe fresh agreement, the engineer may after issuing a clear seven days show
cause notice and after considering his explanation, if any, may disconnect the supply of
power
TRAIFF DETAILS
CHARGES FOR SUPPLY
Tariff and charges:
83.Traffics and charges for supply of electricity shall be determined by the licensee
with the approval of the commission under section 26 of the act. Such tariff, tariffs or
charges shall take effect only after seven days from the date of publication in at is to
daily newspapers having circulation in the area of supply. The charges may include:-
(a) Minimum monthly charge
(b) Demand charge
(c) Energy charge
(D) Other charge
Minimum monthly charge:
84. Every consumer, during continuance of agreement under regulation 15,
shall be liable topay minimum monthly charges even if no electricity is consumed for
any reason whatsoever or supply has been disconnected due to default of the
consumer.
Demand charges:
85. (1) monthly demand charges shall be payable by the consumer on the basis of
maximum demand and contract demand as determined in the tariff notification. In case
50
maximum demand meter is not provided or the metre has become defective, the
monthly demand charges shall be payable on the basis of contract
(2) such monthly demand charges shay be payable during the continuance of the
agreement under regulation 15 even if no electricity is consumed for any reason
whatsoever or supply has been disconnected due to default of consumer.
(3) during statutory power cuts and power restrictions imposed by the licensee, if the
restriction on demand is imposed for a period exceeding sixty hours in a month. The
monthly demand charges shall be prorated in accordance with the period and quantum
of demand restrictions imposed. In all other cases the consumer shall be liable to pay
the full demand charges.
Energy charges:
86. Energy charges as prescribed in the licensee’s tariff shall be payable by the
consumer on the basis of actual consumption of the energy.
Other charges:
87. The licensee may levy other charges including customer charges, connection
charges, reconnection charges, delay payment surcharge, fuel surcharge, and power
purchase surcharge and power factor penalty as approved by the commission from
time to time.
PAYAMENT OF BILLS:
Payment of bills
89.It would be the duty of engineer or his authorized agent to ensure that the bills
are dispatched with ten days from the end of billing cycle and records of such
dispatched are duly maintained.
90. the charges payable by a consumer for supply of electrical power and other sums
payable to the licenses shall be billed on prorated monthly basis indicating the period
for which charges have been levied and the consumer shall pay the bill amount by the
due date on the bill or within a period of seven days from the date of receiving bill. If
for any reason the consumer does not receives the bill for the billing cycle within two
weeks of the end of the billing cycle, it would be the obligation of the consumer to
maximum demand meter is not provided or the metre has become defective, the
monthly demand charges shall be payable on the basis of contract
(2) such monthly demand charges shay be payable during the continuance of the
agreement under regulation 15 even if no electricity is consumed for any reason
whatsoever or supply has been disconnected due to default of consumer.
(3) during statutory power cuts and power restrictions imposed by the licensee, if the
restriction on demand is imposed for a period exceeding sixty hours in a month. The
monthly demand charges shall be prorated in accordance with the period and quantum
of demand restrictions imposed. In all other cases the consumer shall be liable to pay
the full demand charges.
Energy charges:
86. Energy charges as prescribed in the licensee’s tariff shall be payable by the
consumer on the basis of actual consumption of the energy.
Other charges:
87. The licensee may levy other charges including customer charges, connection
charges, reconnection charges, delay payment surcharge, fuel surcharge, and power
purchase surcharge and power factor penalty as approved by the commission from
time to time.
PAYAMENT OF BILLS:
Payment of bills
89.It would be the duty of engineer or his authorized agent to ensure that the bills
are dispatched with ten days from the end of billing cycle and records of such
dispatched are duly maintained.
90. the charges payable by a consumer for supply of electrical power and other sums
payable to the licenses shall be billed on prorated monthly basis indicating the period
for which charges have been levied and the consumer shall pay the bill amount by the
due date on the bill or within a period of seven days from the date of receiving bill. If
for any reason the consumer does not receives the bill for the billing cycle within two
weeks of the end of the billing cycle, it would be the obligation of the consumer to
51
approach the engineer and collect a duplicate bill. When supply to a new consumer is
commenced or an agreement is terminated on a day other then the first day of a
month, demand charges and other charges as applicable under tariff notification shall
be levied prorate for the number of day during the month of which supply shall have
been given or agreement shall have been in force.
91. The consumer has to make full payment of bill within the due date even if he raises
a dispute regarding the correctness of the bill, provided that the consumer with
connected load of 10k. W. or less shall pay at list the undisputed amount of the bill
pending engineer’s decision on the dispute.
(2) The engineer shall resolve the dispute within two months and take action under
Regulation 92.
92. (1) if the licensee finds the bill to be erroneous, a revised bill shall be furnished to
the consumer indicating a revised due date. Excess amount paid by the consumer shall
be refunded by way of adjustment in the subsequent bill.Such excess amount.Shall be
refunded together with interest at the rate of 2% per month from the date of payment
of excess amount.
(2) if the license is finds the bill to be correct, the consumer shall be intimated
accordingly and notified to pay the balance, if any, within fifteen days with interest the
rate of 20% per month from the due date. If the engineer does not resolve the dispute
within two months stipulated in Regulation 91, the However, if the dispute is not
resolved due to negligence or non- cooperation of the consumer, the consumer will be
liable to pay interest.
(3) Failure to make payment as provided under regulation 91 or regulation 92(2) above
shall merit action as provided in regulation 96.
93. The billed amount shall be paid by the consumer either in cash or by Bank Draft or
banker’s cheque, or where specifically allowed by the licensee, by account payee
cheques or credit cards.
94. if the due date indicated in the bill for payment of the amount is a Sunday or a
public holiday, the amount may be paid on the succeeding Working day.
95. The consumer shall first adjust the amount paid by the consumer towards
electricity duty provided that in case of part payment, the proportionate share of the
approach the engineer and collect a duplicate bill. When supply to a new consumer is
commenced or an agreement is terminated on a day other then the first day of a
month, demand charges and other charges as applicable under tariff notification shall
be levied prorate for the number of day during the month of which supply shall have
been given or agreement shall have been in force.
91. The consumer has to make full payment of bill within the due date even if he raises
a dispute regarding the correctness of the bill, provided that the consumer with
connected load of 10k. W. or less shall pay at list the undisputed amount of the bill
pending engineer’s decision on the dispute.
(2) The engineer shall resolve the dispute within two months and take action under
Regulation 92.
92. (1) if the licensee finds the bill to be erroneous, a revised bill shall be furnished to
the consumer indicating a revised due date. Excess amount paid by the consumer shall
be refunded by way of adjustment in the subsequent bill.Such excess amount.Shall be
refunded together with interest at the rate of 2% per month from the date of payment
of excess amount.
(2) if the license is finds the bill to be correct, the consumer shall be intimated
accordingly and notified to pay the balance, if any, within fifteen days with interest the
rate of 20% per month from the due date. If the engineer does not resolve the dispute
within two months stipulated in Regulation 91, the However, if the dispute is not
resolved due to negligence or non- cooperation of the consumer, the consumer will be
liable to pay interest.
(3) Failure to make payment as provided under regulation 91 or regulation 92(2) above
shall merit action as provided in regulation 96.
93. The billed amount shall be paid by the consumer either in cash or by Bank Draft or
banker’s cheque, or where specifically allowed by the licensee, by account payee
cheques or credit cards.
94. if the due date indicated in the bill for payment of the amount is a Sunday or a
public holiday, the amount may be paid on the succeeding Working day.
95. The consumer shall first adjust the amount paid by the consumer towards
electricity duty provided that in case of part payment, the proportionate share of the
52
duty from the total collection shall be adjusted first. Out of the balance, adjustments
shall be made in the following order of priority:
1. Current electricity charges.
2. Current miscellaneous charges.
3. Arrear electricity charges.
4. Arrear miscellaneous charges.
5. Delayed payment charges.
96. Where a consumer neglects to pay the charges or dues or any part of the charges
or dues, the engineer may after giving him not less than seven clear day notice in
Writing and Without prejudice to the other rights and modes available for realization of
the amount, disconnect the supply until the charges or dues and reconnection charges
are paid by the consumer. Failure to take steps for clearance of the dues within the
period of two months from the date of service of bill shall render the agreement liable
to termination provided the initial period of agreement is over.
REBATE
97. Payment of the billed amount in time shall entitled categories of consumers,
specified in the tariff order under section 26 of the Odisha electricity Reform. Act 1995,
to a rebate on such amount for the current billing period. Every bill shall indicate the
amount payable by the relevant category of consumer if payment is made within the
prescribed due date and the amount payable if the payment is made beyond the
prescribed due date. The categories of consumer who are entitled to a rebate and the
rate of rates of such rebate shall be determined by the license from time to time as part
of the traffic as approved by the commission.
Delayed payment surcharge
98. Category of consumers to whom delayed payment surcharge is applicable as per
tariff order shall be liable to pay such delayed payment surcharge at the rate of 2% per
month of default in payment by due date. There shall be no surcharge over surcharge.
duty from the total collection shall be adjusted first. Out of the balance, adjustments
shall be made in the following order of priority:
1. Current electricity charges.
2. Current miscellaneous charges.
3. Arrear electricity charges.
4. Arrear miscellaneous charges.
5. Delayed payment charges.
96. Where a consumer neglects to pay the charges or dues or any part of the charges
or dues, the engineer may after giving him not less than seven clear day notice in
Writing and Without prejudice to the other rights and modes available for realization of
the amount, disconnect the supply until the charges or dues and reconnection charges
are paid by the consumer. Failure to take steps for clearance of the dues within the
period of two months from the date of service of bill shall render the agreement liable
to termination provided the initial period of agreement is over.
REBATE
97. Payment of the billed amount in time shall entitled categories of consumers,
specified in the tariff order under section 26 of the Odisha electricity Reform. Act 1995,
to a rebate on such amount for the current billing period. Every bill shall indicate the
amount payable by the relevant category of consumer if payment is made within the
prescribed due date and the amount payable if the payment is made beyond the
prescribed due date. The categories of consumer who are entitled to a rebate and the
rate of rates of such rebate shall be determined by the license from time to time as part
of the traffic as approved by the commission.
Delayed payment surcharge
98. Category of consumers to whom delayed payment surcharge is applicable as per
tariff order shall be liable to pay such delayed payment surcharge at the rate of 2% per
month of default in payment by due date. There shall be no surcharge over surcharge.
53
Instalment Facilities
99. Payment of bill by instalments may be granted by the licensee to the senior
citizens and disabled in the domestic category on request and on production of proof.
In respect of other, the facility may be granted at the discretion of the designated
authority of licensee. Grant of instalments shall not affect the liability of the consumer
to pay delayed payment surcharge till full clearance of the arrears. Consumers availing
instalment Facilities shall not be eligible to avail rebate. The licensee may designate the
authority to grant instalment Facilities.
Recovery of Arrear
100. In addition to other modes of recovery available under the law, the engineer
shall be entitled to take resource to processing under the Odisha public Demand
recovery Act. 1962 (Act 1 of 1963) for realization of the licensee’s dues if such dues are
treated as public demand
Instalment Facilities
99. Payment of bill by instalments may be granted by the licensee to the senior
citizens and disabled in the domestic category on request and on production of proof.
In respect of other, the facility may be granted at the discretion of the designated
authority of licensee. Grant of instalments shall not affect the liability of the consumer
to pay delayed payment surcharge till full clearance of the arrears. Consumers availing
instalment Facilities shall not be eligible to avail rebate. The licensee may designate the
authority to grant instalment Facilities.
Recovery of Arrear
100. In addition to other modes of recovery available under the law, the engineer
shall be entitled to take resource to processing under the Odisha public Demand
recovery Act. 1962 (Act 1 of 1963) for realization of the licensee’s dues if such dues are
treated as public demand
54
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED BALANCE SHEET
AS at31ST MARCH, 2013
Particulars As at
31st march,2013
As at
31st march,2012
1. EQUITY AND LIABLITIES
(1)share holder’s funds
(a)share capital
(b) Reserve and surplus
(2)Non-Current Liabilities:
(a)Long-term borrowings
(b) Other long-term Liabilities
(c)Long term provision
(₹ in lakhs)
3,766.00
(64,091.50)
(60,325.50)
16,384.59
14,478.72
30,938.48
(₹ in lakhs)
3,766.00
(61,127.49)
(57,361.49)
17,509.28
13,348.72
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED BALANCE SHEET
AS at31ST MARCH, 2013
Particulars As at
31st march,2013
As at
31st march,2012
1. EQUITY AND LIABLITIES
(1)share holder’s funds
(a)share capital
(b) Reserve and surplus
(2)Non-Current Liabilities:
(a)Long-term borrowings
(b) Other long-term Liabilities
(c)Long term provision
(₹ in lakhs)
3,766.00
(64,091.50)
(60,325.50)
16,384.59
14,478.72
30,938.48
(₹ in lakhs)
3,766.00
(61,127.49)
(57,361.49)
17,509.28
13,348.72
55
(3) Current Liabilities:
(a)Short-term borrowing
(b)Trade payables
(c)Other current liabilities
(d) Short-term provisions
TOTAL
ii. ASSETS
(1) Non-current assets (a)Fixed assets
(i) Tangible assets
(2) (ii) Capital work-in-progress
(b)Long term loans& advances
(c)Other non-current assets
(2) Current Assets:
(a)Inventories
(b) Trade receivables
(c)Cash and bank balance
(d)Short-term loans and advances
(e)Other current assets
TOTAL
61801.78
5,553.30
17012.68
57699.62
30,615.67
1,10,881.27
112,357.55
22,509.23
2,330.29
24,839.52
17.75
43,167.04
68,024.31
5,203.58
26,463.18
9,852.94
1007.91
1,805.63
44,333.24
1,12,357.55
24,144.72
55,002.72
4,710.66
9,279.29
49,395.39
19,509.98
83,435.31
81,076.54
23,411.97
2,191.22
25,603.20
17.75
26,855.29
52,730.13
2,761.83
16,735.08
7,760.26
347.97
995.16
28,346.41
81,076.54
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED STATEMENT OF PROFIT AND LOSS FOR
THE YEAR ENDED
Particulars Note Year ended
31
st
mar,2013
Year ended
31stmar,2012
(3) Current Liabilities:
(a)Short-term borrowing
(b)Trade payables
(c)Other current liabilities
(d) Short-term provisions
TOTAL
ii. ASSETS
(1) Non-current assets (a)Fixed assets
(i) Tangible assets
(2) (ii) Capital work-in-progress
(b)Long term loans& advances
(c)Other non-current assets
(2) Current Assets:
(a)Inventories
(b) Trade receivables
(c)Cash and bank balance
(d)Short-term loans and advances
(e)Other current assets
TOTAL
61801.78
5,553.30
17012.68
57699.62
30,615.67
1,10,881.27
112,357.55
22,509.23
2,330.29
24,839.52
17.75
43,167.04
68,024.31
5,203.58
26,463.18
9,852.94
1007.91
1,805.63
44,333.24
1,12,357.55
24,144.72
55,002.72
4,710.66
9,279.29
49,395.39
19,509.98
83,435.31
81,076.54
23,411.97
2,191.22
25,603.20
17.75
26,855.29
52,730.13
2,761.83
16,735.08
7,760.26
347.97
995.16
28,346.41
81,076.54
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED STATEMENT OF PROFIT AND LOSS FOR
THE YEAR ENDED
Particulars Note Year ended
31
st
mar,2013
Year ended
31stmar,2012
56
Revenue from operation
Other Income
Total
Expenses
Cost of electrical energy purchased(net rebate)
Employee benefits expenses
Finance costs
Depreciation and Amortization expenses
Less: Transferred from service contribution and capital
subsidy
Other expenses
Total
(Loss) before Exceptional Items and tax
Exceptional Items
(Less): Considered as Regulatory Assets
Tax expenses:
Current tax
Deferred tax
(Loss )after tax
Earning per equity share (face value 10per share)
Basic
Diluted
( ₹ in lakhs)
91,283.27
3197.96
94,481.23
61,175.97
27,324.66
2,625.21
1,802.62
(192.66)
1,609.96
5,168.31
97,904.10
(3,422.88)
-
-
(3,422.88)
-
-
(3,422.88)
(9.09)
(9.09)
( ₹ in lakhs)
62,239.32
887.12
66,760.81
44946.81
13662.85
2127.31
1758.25
(188.02)
1570.23
6,615.65
68922.85
(2162.04)
12,908.64
(12,908.64)
(2162.04)
-
-
(2,162.04)
(5.74)
(5.74)
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED
BALANCE SHEET AS at 31ST MARCH, 2015
Particulars As at
31st march,2015
As at
31st march,2014
Revenue from operation
Other Income
Total
Expenses
Cost of electrical energy purchased(net rebate)
Employee benefits expenses
Finance costs
Depreciation and Amortization expenses
Less: Transferred from service contribution and capital
subsidy
Other expenses
Total
(Loss) before Exceptional Items and tax
Exceptional Items
(Less): Considered as Regulatory Assets
Tax expenses:
Current tax
Deferred tax
(Loss )after tax
Earning per equity share (face value 10per share)
Basic
Diluted
( ₹ in lakhs)
91,283.27
3197.96
94,481.23
61,175.97
27,324.66
2,625.21
1,802.62
(192.66)
1,609.96
5,168.31
97,904.10
(3,422.88)
-
-
(3,422.88)
-
-
(3,422.88)
(9.09)
(9.09)
( ₹ in lakhs)
62,239.32
887.12
66,760.81
44946.81
13662.85
2127.31
1758.25
(188.02)
1570.23
6,615.65
68922.85
(2162.04)
12,908.64
(12,908.64)
(2162.04)
-
-
(2,162.04)
(5.74)
(5.74)
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED
BALANCE SHEET AS at 31ST MARCH, 2015
Particulars As at
31st march,2015
As at
31st march,2014
57
1. EQUITY AND LIABILITIES
(1)share holder’s funds
(a)share capital
(b) Reserve and surplus
(2)Non-Current Liabilities:
(a)Long-term borrowings
(b) Other long-term Liabilities
(c)Long term provision
(3) Current Liabilities:
(a)Short-term borrowing
(b)Trade payables
(c)Other current liabilities
(d) Short-term provisions
TOTAL
ii. ASSETS
(1) Non-current assets (a)Fixed assets
(i) Tangible assets
(2) (ii) Capital work-in-progress
(b)Long term loans & advances
(c)Other non-current assets
(2) Current Assets:
(a)Inventories
(b) Trade receivables
(c)Cash and bank balance
(d)Short-term loans and advances
(e)Other current assets
TOTAL
( ₹ in lakhs)
3,766.00
(76,779.62)
(73,013.62)
15,087.30
18,754.15
38,726.50
72,567.95
9,426.28
31,556.74
68,205.70
44,320.16
1,53,508.88
1,53,063.20
32,963.24
5,697.89
38,661.13
113,89
55,721.65
94,496.20
6,430.48
31,749.82
16,494.20
1,167.80
2,724.24
58,566.53
1,53,063.20
(₹ in lakhs)
3,766.00
(52,087.74)
(48,321.74)
16,149.41
16,596.09
34,108.37
66,853.87
6,813.71
28,104.71
59,696.94
33,860.20
1,28,475.55
1,47,007.69
21,429.77
17,704.58
39,134.35
203.54
55,574.31
94,912.20
6,188.14
26,634.36
17,140.44
1,734.72
397.83
52.095.49
1,47,007.69
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED
Particulars Note Year ended
31
st
mar,2015
Year ended
31stmar,2014
1. EQUITY AND LIABILITIES
(1)share holder’s funds
(a)share capital
(b) Reserve and surplus
(2)Non-Current Liabilities:
(a)Long-term borrowings
(b) Other long-term Liabilities
(c)Long term provision
(3) Current Liabilities:
(a)Short-term borrowing
(b)Trade payables
(c)Other current liabilities
(d) Short-term provisions
TOTAL
ii. ASSETS
(1) Non-current assets (a)Fixed assets
(i) Tangible assets
(2) (ii) Capital work-in-progress
(b)Long term loans & advances
(c)Other non-current assets
(2) Current Assets:
(a)Inventories
(b) Trade receivables
(c)Cash and bank balance
(d)Short-term loans and advances
(e)Other current assets
TOTAL
( ₹ in lakhs)
3,766.00
(76,779.62)
(73,013.62)
15,087.30
18,754.15
38,726.50
72,567.95
9,426.28
31,556.74
68,205.70
44,320.16
1,53,508.88
1,53,063.20
32,963.24
5,697.89
38,661.13
113,89
55,721.65
94,496.20
6,430.48
31,749.82
16,494.20
1,167.80
2,724.24
58,566.53
1,53,063.20
(₹ in lakhs)
3,766.00
(52,087.74)
(48,321.74)
16,149.41
16,596.09
34,108.37
66,853.87
6,813.71
28,104.71
59,696.94
33,860.20
1,28,475.55
1,47,007.69
21,429.77
17,704.58
39,134.35
203.54
55,574.31
94,912.20
6,188.14
26,634.36
17,140.44
1,734.72
397.83
52.095.49
1,47,007.69
SOUTHERN ELECTRICITY SUPPLY COMPANY OF ODISHA LIMITED
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED
Particulars Note Year ended
31
st
mar,2015
Year ended
31stmar,2014
58
Revenue from operation
Other Income
Total
Expenses
Cost of electrical energy purchased(net rebate)
Employee benefits expenses
Finance costs
Depreciation and Amortization expenses
Less: Transferred from service contribution and capital
subsidy
Other expenses
Total
(Loss) before tax
Tax expenses:
Current tax
Deferred tax
(Loss )after tax
Earning per equity share (face value 10per share)
Basic
Diluted
75,101.99
1,473.82
76,575.81
60,673.01
20,885.24
3,278.69
2,000.21
(672.63)
1,327.58
12,538.00
1,05,702.52
(29,126.71)
-
-
-
(29,126.71)
(77.34)
(77.34)
92.290.60
1,632.76
93,923.36
60,899.25
20,062.23
2,832.57
1,837.68
(196.54)
1,641.14
9,564.35
94,999.54
(1,076.18)
-
-
-
(1,076.18)
(2.86)
(2.86)
Revenue from operation
Other Income
Total
Expenses
Cost of electrical energy purchased(net rebate)
Employee benefits expenses
Finance costs
Depreciation and Amortization expenses
Less: Transferred from service contribution and capital
subsidy
Other expenses
Total
(Loss) before tax
Tax expenses:
Current tax
Deferred tax
(Loss )after tax
Earning per equity share (face value 10per share)
Basic
Diluted
75,101.99
1,473.82
76,575.81
60,673.01
20,885.24
3,278.69
2,000.21
(672.63)
1,327.58
12,538.00
1,05,702.52
(29,126.71)
-
-
-
(29,126.71)
(77.34)
(77.34)
92.290.60
1,632.76
93,923.36
60,899.25
20,062.23
2,832.57
1,837.68
(196.54)
1,641.14
9,564.35
94,999.54
(1,076.18)
-
-
-
(1,076.18)
(2.86)
(2.86)
59
Types of Ratio
Liquidity
Ratio
Current Ratio
Quick/ Acid
test Ratio
Absolute
Liquid Ratio
Activity Ratio
Inventory
Turn over
Ratio
Receivables
Turnover
Ratio
Payables
Turnover
Ratio
Profitability
Ratio
General
Gross Profit
Ratio
Net Profit
Ratio
Operating
Ratio
Overall
Return on
Investment
Ratio
Dividend
Payout Ratio
Price Earning
Ratio
Leverage
Ratio
Debt-Equity
Ratio
Funded Debt
To Total
Capitalization
Debt Service
Ratio
Types of Ratio
Liquidity
Ratio
Current Ratio
Quick/ Acid
test Ratio
Absolute
Liquid Ratio
Activity Ratio
Inventory
Turn over
Ratio
Receivables
Turnover
Ratio
Payables
Turnover
Ratio
Profitability
Ratio
General
Gross Profit
Ratio
Net Profit
Ratio
Operating
Ratio
Overall
Return on
Investment
Ratio
Dividend
Payout Ratio
Price Earning
Ratio
Leverage
Ratio
Debt-Equity
Ratio
Funded Debt
To Total
Capitalization
Debt Service
Ratio
60
Liquidity Ratios:-
Liquidity refers to the ability of a concern to its current obligations as and when these
became due. The short term obligations are meet by realizing the amount from current,
floating or circulating assets.
To measure the liquidity of a firm, the following ratio can be calculated.
1. Current Ratio
2. Quick /Acid test Ratio
3. Absolute liquid Ratio
1. Current Ratio :-
The ratio between all current assets and all current liabilities. Another way of expressing
liquidity. It is a measure of the firm’s short-term solvency. It indicates the availability of
current assets in rupees for every one rupee of current liability. A ratio of greater than
one means that the firm has more current assets than current claims against them
Current Assets
Current ratio = -------------------------------
Current Liabilities
Interpretation:-
Generally a high Current ratio is an indication that the firm is liquid that is has the
ability to pay its current liability in time. Relatively a low Current ratio indicates that the
liquidity position of firm is not good. It will face difficulty in meeting current obligation.
As a matter of standard or thumb rules a current ratio of 2:1 is concerned as satisfactory.
2. Liquid / Acid test Ratio :-
Quick ratio establishes a relationship between quick, or liquid, assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably
soon without a loss of value.
Current Assets – Inventories
Quick Ratio =______________________________
Current liabilities
Liquidity Ratios:-
Liquidity refers to the ability of a concern to its current obligations as and when these
became due. The short term obligations are meet by realizing the amount from current,
floating or circulating assets.
To measure the liquidity of a firm, the following ratio can be calculated.
1. Current Ratio
2. Quick /Acid test Ratio
3. Absolute liquid Ratio
1. Current Ratio :-
The ratio between all current assets and all current liabilities. Another way of expressing
liquidity. It is a measure of the firm’s short-term solvency. It indicates the availability of
current assets in rupees for every one rupee of current liability. A ratio of greater than
one means that the firm has more current assets than current claims against them
Current Assets
Current ratio = -------------------------------
Current Liabilities
Interpretation:-
Generally a high Current ratio is an indication that the firm is liquid that is has the
ability to pay its current liability in time. Relatively a low Current ratio indicates that the
liquidity position of firm is not good. It will face difficulty in meeting current obligation.
As a matter of standard or thumb rules a current ratio of 2:1 is concerned as satisfactory.
2. Liquid / Acid test Ratio :-
Quick ratio establishes a relationship between quick, or liquid, assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably
soon without a loss of value.
Current Assets – Inventories
Quick Ratio =______________________________
Current liabilities
61
Interpretation:-
Usually a high quick ratio is an indication that a firm is able to meet short term
obligation in due time without difficulty and vise-versa. A quick ratio of 1:1 is
concerned a satisfactory.
3. Absolute Liquid Ratio:-
The Ratio between Cash and Marketable Securities and Current Liabilities
Cash and Bank Balances
Absolute Liquid Ratio= -----------------------------------------
Current Liabilities
Interpretation:-
The absolute liquid ratio should be (0.5:1) . Here, the company should be able to
meet its half of the current liabilities at any time. It indicates the actual liquid available
to meet its current liabilities.
Liquidity Ratios Table
Sl.No
Ratios
2011-12
2012-13
2013-14
2014-15
1
Current Ratio
0.343
0.400
0.405
0.382
2
Quick Ratio
0.310
0.353
0.357
0.339
3
Absolute Liquid
Ratio
0.093
0.089
0.133
0.107
Interpretation:-
Usually a high quick ratio is an indication that a firm is able to meet short term
obligation in due time without difficulty and vise-versa. A quick ratio of 1:1 is
concerned a satisfactory.
3. Absolute Liquid Ratio:-
The Ratio between Cash and Marketable Securities and Current Liabilities
Cash and Bank Balances
Absolute Liquid Ratio= -----------------------------------------
Current Liabilities
Interpretation:-
The absolute liquid ratio should be (0.5:1) . Here, the company should be able to
meet its half of the current liabilities at any time. It indicates the actual liquid available
to meet its current liabilities.
Liquidity Ratios Table
Sl.No
Ratios
2011-12
2012-13
2013-14
2014-15
1
Current Ratio
0.343
0.400
0.405
0.382
2
Quick Ratio
0.310
0.353
0.357
0.339
3
Absolute Liquid
Ratio
0.093
0.089
0.133
0.107
62
Interpretation:-
From the above table, it has been observed that SOUTHCO is exhibiting its
insufficiency of current assets should be assessed by comparing them with short term
liabilities. Here, It is noticed that no one ratio is crossing the thumb rules of it
individually. There is an increasing trend since last four years that is quite good. But
still, the company should improve its liquidity position so as to increase its goodwill and
ability to keep the operations safe in side.
Activity Ratios:-
Funds are invested in various assets to make sales and earned profit. The
efficiency with which assets are managed directly effects the sales volume and
profitability. Activity ratio is also known as Turnover Ratio. It measures the efficiency
with which a firm manages its assets. The ratios are called as turnover ratio because the
indicate the speed with which assets are converted or turned over into sales. Turnover
Ratio includes the following:
1. Inventory Turnover Ratio:-
It is also called as Stock Turnover Ratio. It is calculated to know the no. of times
the average stock is converted or turnover during the year.
Cost of Goods sold
Inventory Turnover Ratio = ---------------------------------
Average Stock
0 0 0 0
0.343
0.4 0.405
0.382
0.31
0.353 0.357
0.339
0.093 0.089
0.133
0.107
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
Ratios Current RatioQuick Ratio Absolute Liquid Ratio
Interpretation:-
From the above table, it has been observed that SOUTHCO is exhibiting its
insufficiency of current assets should be assessed by comparing them with short term
liabilities. Here, It is noticed that no one ratio is crossing the thumb rules of it
individually. There is an increasing trend since last four years that is quite good. But
still, the company should improve its liquidity position so as to increase its goodwill and
ability to keep the operations safe in side.
Activity Ratios:-
Funds are invested in various assets to make sales and earned profit. The
efficiency with which assets are managed directly effects the sales volume and
profitability. Activity ratio is also known as Turnover Ratio. It measures the efficiency
with which a firm manages its assets. The ratios are called as turnover ratio because the
indicate the speed with which assets are converted or turned over into sales. Turnover
Ratio includes the following:
1. Inventory Turnover Ratio:-
It is also called as Stock Turnover Ratio. It is calculated to know the no. of times
the average stock is converted or turnover during the year.
Cost of Goods sold
Inventory Turnover Ratio = ---------------------------------
Average Stock
0 0 0 0
0.343
0.4 0.405
0.382
0.31
0.353 0.357
0.339
0.093 0.089
0.133
0.107
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
Ratios Current RatioQuick Ratio Absolute Liquid Ratio
63
Interpretation:-
Increasing the turnover ratio is better is the condition because it increases the
overall sales revenue of the organization.
2. Receivables Turnover Ratio:-
It is calculated to measure the debt collecting capacity of a firm. It indicates the
speed at which the debtors are converted into cash. It is expressed in terms of time.
Net credit annual Sales
Debtors Turnover Ratio = ----------------------------------
Average Trade debtors
Average collection period = 365/Ratio
3. Payables Turnover Ratio:-
The ratio is obtained by dividing the Annual net credit Purchases by Average
Payables (Creditors).
Net Credit Annual Purchases
Creditors Turnover Ratio = ---------------------------------------------
Average Trade Creditors
Average Payment period = 365 / Ratio
Activity Ratio Table
Interpretation:-
Increasing the turnover ratio is better is the condition because it increases the
overall sales revenue of the organization.
2. Receivables Turnover Ratio:-
It is calculated to measure the debt collecting capacity of a firm. It indicates the
speed at which the debtors are converted into cash. It is expressed in terms of time.
Net credit annual Sales
Debtors Turnover Ratio = ----------------------------------
Average Trade debtors
Average collection period = 365/Ratio
3. Payables Turnover Ratio:-
The ratio is obtained by dividing the Annual net credit Purchases by Average
Payables (Creditors).
Net Credit Annual Purchases
Creditors Turnover Ratio = ---------------------------------------------
Average Trade Creditors
Average Payment period = 365 / Ratio
Activity Ratio Table
64
sdf
SL.NO
Ratios
2011-12
2012-13
2013-14
2014-15
1
Inventory
Turnover
Ratio
20.32
22.92
16.20
11.9
2
Receivables
Turnover
Ratio
6.98
4.39
3.81
4.88
3
Payables
Turnover
Ratio
5.51
4.65
2.69
2.03
Interpretation:-
The turnover ratio of SOUTHCO has more efficient management due to higher
the value of debtor’s turnover and lowers the creditor’s turn over. Therefore, the
SOUTHCO has better liquidity position. So the SOUTHCO should continue their better
turn over period as far as possible. There is a decreasing trend in both Stock and Debtors
ratios. And the creditors’ turnover ratio is decreasing trend which means better is the
condition.
Profitability Ratios:-
I. General Profitability Ratios:-
1. Gross Profit Ratio:-
20.32
22.92
16.2
11.9
6.98
4.39
3.81
4.88
5.51
4.65
2.69
2.03
0
5
10
15
20
25
Ratios 2011-12 2012-13 2013-14 2014-15
Inventory Turnover RatioReceivables Turnover RatioPayables Turnover Ratio
sdf
SL.NO
Ratios
2011-12
2012-13
2013-14
2014-15
1
Inventory
Turnover
Ratio
20.32
22.92
16.20
11.9
2
Receivables
Turnover
Ratio
6.98
4.39
3.81
4.88
3
Payables
Turnover
Ratio
5.51
4.65
2.69
2.03
Interpretation:-
The turnover ratio of SOUTHCO has more efficient management due to higher
the value of debtor’s turnover and lowers the creditor’s turn over. Therefore, the
SOUTHCO has better liquidity position. So the SOUTHCO should continue their better
turn over period as far as possible. There is a decreasing trend in both Stock and Debtors
ratios. And the creditors’ turnover ratio is decreasing trend which means better is the
condition.
Profitability Ratios:-
I. General Profitability Ratios:-
1. Gross Profit Ratio:-
20.32
22.92
16.2
11.9
6.98
4.39
3.81
4.88
5.51
4.65
2.69
2.03
0
5
10
15
20
25
Ratios 2011-12 2012-13 2013-14 2014-15
Inventory Turnover RatioReceivables Turnover RatioPayables Turnover Ratio
65
This ratio is calculated to measure the proportion of gross profit to net sales.
Gross Profit
Gross Profit Ratio = ------------------------ x 100
Net Sales
2. Net Profit Ratio:-
It is calculated to measure the proportion of net profit to net sales. Here the net
profit means net profit after tax.
Net profit after tax
Net Profit Ratio = ------------------------------- x 100
Net Sales
3. Operating Ratio:-
This ratio is calculated to express the percentage of operating cost to net sales.
Operating Cost
Operating Cost Ratio = ----------------------- x 100
Net Sales
II. Overall Profitability Ratio:-
1. Return On Investment:-
This ratio is also called as Return on Share-holders fund.
Net profit after tax
Return on Investment = --------------------------------- x 100
Share Holders fund /
Net Worth
2. Dividend Payout Ratio:-
It is calculated to know the extent to which earnings have been retained in the
business and the extent it is distributed to the share holder’s.
This ratio is calculated to measure the proportion of gross profit to net sales.
Gross Profit
Gross Profit Ratio = ------------------------ x 100
Net Sales
2. Net Profit Ratio:-
It is calculated to measure the proportion of net profit to net sales. Here the net
profit means net profit after tax.
Net profit after tax
Net Profit Ratio = ------------------------------- x 100
Net Sales
3. Operating Ratio:-
This ratio is calculated to express the percentage of operating cost to net sales.
Operating Cost
Operating Cost Ratio = ----------------------- x 100
Net Sales
II. Overall Profitability Ratio:-
1. Return On Investment:-
This ratio is also called as Return on Share-holders fund.
Net profit after tax
Return on Investment = --------------------------------- x 100
Share Holders fund /
Net Worth
2. Dividend Payout Ratio:-
It is calculated to know the extent to which earnings have been retained in the
business and the extent it is distributed to the share holder’s.
66
Dividend Per share
DPR = ----------------------------------- x 100
Earnings per Share
3. Price Earnings Ratio:-
This ratio is calculated to measure the relationship between market price per share and
earnings per share.
Market price per share
PER = --------------------------------- x 100
Earnings per share
Leverage Ratios:-
Leverage ratios are also called as capital structure ratio. It refers to the relationship
between various long term from financing such as debentures, bonds, mortgages,
preference capital, equity capital etc . In every business financing the assets is a great
problem. As a general rule there should be a proper mix of debt and equity.
Leverage ratios are calculated to test the long term finance position of the firm.
1. Debt-Equity Ratio:-
This ratio is calculated to measure the relationship between claims of insiders and
outsiders against the assets of the firm thus it is relationship between external equity and
internal equity.
Total Long term Debts
Debt- equity ratio = --------------------------------- x 100
Share holders fund /
Net worth
Here, the standard norm of this ratio is (0.5:1)
2. Funded Debt to Total Capitalization:-
Dividend Per share
DPR = ----------------------------------- x 100
Earnings per Share
3. Price Earnings Ratio:-
This ratio is calculated to measure the relationship between market price per share and
earnings per share.
Market price per share
PER = --------------------------------- x 100
Earnings per share
Leverage Ratios:-
Leverage ratios are also called as capital structure ratio. It refers to the relationship
between various long term from financing such as debentures, bonds, mortgages,
preference capital, equity capital etc . In every business financing the assets is a great
problem. As a general rule there should be a proper mix of debt and equity.
Leverage ratios are calculated to test the long term finance position of the firm.
1. Debt-Equity Ratio:-
This ratio is calculated to measure the relationship between claims of insiders and
outsiders against the assets of the firm thus it is relationship between external equity and
internal equity.
Total Long term Debts
Debt- equity ratio = --------------------------------- x 100
Share holders fund /
Net worth
Here, the standard norm of this ratio is (0.5:1)
2. Funded Debt to Total Capitalization:-
67
This ratio is calculated to know the proportion of outside long term borrowings to the
total long term borrowings.
Funded Debt
FDTC = ------------------------------ x 100
Total capitalization
Funded Debt = Outside long term loans
Total Capitalisation = Share holders fund + Long term loans
3. Debt Service Ratio:-
It is also called as interest coverage ratio. It is calculate to determine the debt
service capacity of the firm. It is calculated by the bankers and other money lenders.
Net Profit before Interest
And tax
Debt service ratio = --------------------------------------- x 100
Fixed interest charges
Leverage Ratios Table
SL.NO
Ratios
2011-12
2012-13
2013-14
2014-15
This ratio is calculated to know the proportion of outside long term borrowings to the
total long term borrowings.
Funded Debt
FDTC = ------------------------------ x 100
Total capitalization
Funded Debt = Outside long term loans
Total Capitalisation = Share holders fund + Long term loans
3. Debt Service Ratio:-
It is also called as interest coverage ratio. It is calculate to determine the debt
service capacity of the firm. It is calculated by the bankers and other money lenders.
Net Profit before Interest
And tax
Debt service ratio = --------------------------------------- x 100
Fixed interest charges
Leverage Ratios Table
SL.NO
Ratios
2011-12
2012-13
2013-14
2014-15
68
1
Debt- Equity
Ratio
-0.95
-1.02
-1.38
-0.99
2
Funded Debt
to Total
Capitalization
-23.31
41.86
3.61
-162.82
3 Debt - Service
Ratio
-0.016
-0.303
0.620
-7.883
Interpretation:-
From the above table shows that the leverage position of the company is not good
in condition. All the ratios show a negative position. The company should improve their
own funds to continue with the operations and to get profits.
0 0 0 0
-0.95 -1.02 -1.38 -0.99
-23.31
41.86
3.61
-162.82
-0.016 -0.303
0.62
-7.883
-200
-150
-100
-50
0
50
100
Ratios
Debt- Equity Ratio Funded Debt to Total Capitalization
Debt - Service
Ratio
1
Debt- Equity
Ratio
-0.95
-1.02
-1.38
-0.99
2
Funded Debt
to Total
Capitalization
-23.31
41.86
3.61
-162.82
3 Debt - Service
Ratio
-0.016
-0.303
0.620
-7.883
Interpretation:-
From the above table shows that the leverage position of the company is not good
in condition. All the ratios show a negative position. The company should improve their
own funds to continue with the operations and to get profits.
0 0 0 0
-0.95 -1.02 -1.38 -0.99
-23.31
41.86
3.61
-162.82
-0.016 -0.303
0.62
-7.883
-200
-150
-100
-50
0
50
100
Ratios
Debt- Equity Ratio Funded Debt to Total Capitalization
Debt - Service
Ratio
69
SUGGESTIONS
The company has to increase the profit maximization and has to decrease the operating
expenses
.
SUGGESTIONS
The company has to increase the profit maximization and has to decrease the operating
expenses
.
70
The company should maintain sufficient cash and bank balances; they should invest the
idle cash in marketable securities or short term investments in shares, debentures, bonds
and other securities.
The company must reduce its debtors collection period from 83 & 84 days to 40 days be
adopting credit policy by providing discounts to the debtors.
Return on investment fluctuates every year. The company has to make efforts in
increasing return on investments by reducing its administration, selling and other
expenses.
The company should increase its interest coverage ratio to serve long term debts.
The net loss of the company is increasing over the study period. The organization should
improve its operational activities to cover the losses.
As south co is a service oriented company we should not expect more profits but still the
company should keep the activities of the organization as much as possible profitably to
keep the interest of the share holders as well as company a safe side.
The ratios of the company are not so favorable
Employee expenses are increasing year by year which decreases the profit the company
should keep this expenses as minimum as possible
Conclusion
SOUTHCO, an organization caring the service burden of many consumers, is recognized
as the best distribution company among the four distribution companies. The initial year
The company should maintain sufficient cash and bank balances; they should invest the
idle cash in marketable securities or short term investments in shares, debentures, bonds
and other securities.
The company must reduce its debtors collection period from 83 & 84 days to 40 days be
adopting credit policy by providing discounts to the debtors.
Return on investment fluctuates every year. The company has to make efforts in
increasing return on investments by reducing its administration, selling and other
expenses.
The company should increase its interest coverage ratio to serve long term debts.
The net loss of the company is increasing over the study period. The organization should
improve its operational activities to cover the losses.
As south co is a service oriented company we should not expect more profits but still the
company should keep the activities of the organization as much as possible profitably to
keep the interest of the share holders as well as company a safe side.
The ratios of the company are not so favorable
Employee expenses are increasing year by year which decreases the profit the company
should keep this expenses as minimum as possible
Conclusion
SOUTHCO, an organization caring the service burden of many consumers, is recognized
as the best distribution company among the four distribution companies. The initial year
71
of privatization had experience turbulence, human financial crises etc. but day by day,
year by year, the pattern is not under control. The days of super cyclone too bent the
head of the organization. But the war footing steps taken by the courageous manpower,
deposits, personal difficulties made the unbelievable task to a realistic one. This was a
qualitative performance of SOUTHCO, which own the lakhs of hearts. While doing the
study, one had kept in mind, always the quality as the main factors for study the
consumers and due to the goodwill of the organization.
BIBLOGRAPHY
1. I.M.Pandey : Financial Management
of privatization had experience turbulence, human financial crises etc. but day by day,
year by year, the pattern is not under control. The days of super cyclone too bent the
head of the organization. But the war footing steps taken by the courageous manpower,
deposits, personal difficulties made the unbelievable task to a realistic one. This was a
qualitative performance of SOUTHCO, which own the lakhs of hearts. While doing the
study, one had kept in mind, always the quality as the main factors for study the
consumers and due to the goodwill of the organization.
BIBLOGRAPHY
1. I.M.Pandey : Financial Management
72
2. S.P. Jain & K.L. Narang : Cost & Management accounting
3. K.Rajeswara rao & G. Prasad : Accounting & Finance
Web-sites:
www.google.com
www.amaron.co.in
www.slideshare.net
2. S.P. Jain & K.L. Narang : Cost & Management accounting
3. K.Rajeswara rao & G. Prasad : Accounting & Finance
Web-sites:
www.google.com
www.amaron.co.in
www.slideshare.net
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