Assessing financial management within BHEL

Category: Accounting

Financial management is that managerial activity which is concerned with the planning and controlling of the firm's financial resources. As a separate activity or discipline, financial management is of immense interest to both academicians and practicing managers

Financial management as an integral of the overall management, the finance people must have analytical tools to make rational decisions in keeping with the objective of the firm some of the more useful tools of financial analysis and planning are the subjects of study.

The firm itself and out side providers of capital creditors all undertake financial statement analysis. Trade creditors (suppliers owned money for goods and services) are primary interested in liquidity of a firm.

Investors in a company's common stock are principally concerned with about a tend line as a result investors usually focus on analyzing profitability. They would also be concerned with the firms financial condition in so for as it affect - the ability of the firm to play dividends and avoid bankruptcy.

Management also employs financial analysis for the purpose of internal control and better provides what capital suppliers seek in financial condition and performance from the firm.

The need for is to study to asses the firm present financial control and educate opportunity in relation to the current position.

Also suggestions are to take a notice of financial position of the concern to the financial manager for future plan.

Financial management refers to that part of the management activity, which is concerned with the planning, and controlling if the firm's financial resources. The focus of financial management is a decision- making and decisions are made on the basis of financial statement analysis.

Financial statement analysis is a process of identifying the financial strengths and weakness of the firm by properly establishing relationships between financial statements.

Through proper analysis, interpretation, financial statements can provide valuable insights into firm's performance.

DEFINITIONS:-

"The financial statements provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the increase statement showing the results of operations during a certain period."

--John N.Myer

"Financial statements are organized summaries of detailed information and are thus a form of analysis."

--W.B.Meig

"Financial analysis is process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firm's position and performance ".

--Metcalf & Titard

INDUSTRY PROFILE

INDUSTRY PROFILE OF BHEL

Heavy Electrical Industry covers Units manufacturing large plant and machinery required for power generation, transmission, distribution and utilization these includes turbo-generators, boilers, and various types of turbines, transformers, motors switchgears and such items.

Majority of products manufactured by Heavy Electrical Industry in the country, which includes items like power generating unit's electric motors, transforms; switchgears etc.,are used by all sectors of the Indian Economy. Some major areas where these are used large projects for power generation including nuclear power stations, petrochemical complexes, chemical plants integrated steel plants, non-ferrous metal unit's etc. The industry has been upgrading the existing technology. As a result, today India is among a handful of nations to have strong industrial base can be undertake complex projects on turnkey basis for export markets also. The industry is free to take up manufacture of my items.

The existing installed capacity in the industry is of the order of 4500MW of thermal, 1345MW of Hydro and 25MW of Gas based Power generation equipment per annum and manufacturing units depending upon the needs and their capacity are augmenting the capacity. The Industry has also established a strong manufacturing base for the requirement of equipment for nuclear power plants in the country. The share of domestic equipment is about 66% in the country's generation capacity. The heavy Electrical Industrial is capable of manufacturing transmission and distribution equipment unto 400KV AC and voltage DC.

The Indian industry has taken up the work for up gradation of transmission to next voltage system of 765KV class transformers, reactors, CTs, CVTs, bushing and insulators etc. Large electrical motors used in Steel Plants, petrochemical complex and other such heavy industries are also being manufacturing in the country.

HISTORY OF BHEL

BHARAT HEAVY ELECTRICAL LIITED (BHEL) is one of the pioneers in engineering industries in the world. The vital role played by the BHEL today in the country is the mark of its continuous effects to improve the service in the nation by consultancy, manufacturing and offering services in power section.

The success story of BHEL however goes back to 1956 when its first plant was set up in Bhopal. There major plants in Harridwar, Hyderabad and Tiruchinapalli followed this. These plants have been the core of BHEL's effects to grow and diversify and become one of the most integrated powers and industrial equipment manufactures in the world. The company now has 14 manufacturing units, 8 service centers and 4 power stations spread all over India and abroad.

BHEL manufactures over 180 products under 30 major product groups and meet the needs of crore sector like Power, Industry, Transmission, Defences, Tele communications, and Oil Business etc. Its products have established in enviable reputation of high quality and reliability. This is due to the emphasis paced all along on Design, Engineering and manufacturing to international standards by acquiring and adopting some of the best technologies developed in its own centers. BHEL has acquired ISO 9000 certification for Quality Management and ISO 14001 certification for Environment Management, BHEL caters to the needs of different sectors by designing and Manufacturing according to the needs of its clients in Power Sector.

COMPANY PROFILE

&

OBJECTIVES

BHARAT HEAVY ELECTRICAL LIMITED

The vital role played by the BHEL today in the country is the mark of it continuous efforts to improve the service in the nation by consultancy, manufacturing and offering services in power sector.

This success story of BHEL however goes back to 1956 when its first plant was set up in BHOPAL. Three more major plants in HARDWARE, HYDERABAD and THRICHIRAPALLI followed this. These plants have been the core of. BHEL'S efforts to grow and diversify and become one of the most integrated power and industrial equipment manufacturers in the world. The company now has 14 manufacturing units,8 service centers and 4 power sector regional centers, besides project sites spread all over India and abroad.

BHEL manufactures over 180 products under 30 major product groups and meets the needs of core sector like power, industry, transmission, defense, telecommunications, oil business etc. its products have established an enviable reputation for high quality and reliability. This is due to the emphasis placed all along on design, engineering and manufacturing to international standards by acquiring and adopting some of the best technologies developed in its own R&D centers. BHEL has acquired ISO 9000 certification for environments. BHEL caters to the needs of different sectors by designing and manufacturing according to the need of its clientele in power sector.

COMPANY VISION, MISSION AN OBJECTIVE

VISION

A world Class, Innovation, Competitive and profitable Engineering Enterprise Providing total Business Solutions.

MISSION

To be the leading Engineering Enterprise providing Quality products System and services in the field of Energy, Transportation, Industry, Infrastructure and other potential areas.

VALUES

Meeting commitments made to External and Internal customers.

Faster learning, Creativity and Speed of response.

Respect for Dignity and potential of individuals.

Loyalty and Pride in the COMPANY.

Team playing

Zeal to Excel

Integrity and fairness in all matters.

OBJECTIVES

GROWTH

To ensure a steady growth by enhancing the competitive edge of BHEL in existing Business, new areas and international operation so as to fulfill National expectations from BHEL.

PROFITABILITY

To provide a reasonable and adequate return on Capital employed, primarily through improvements in Operational efficiency, Capacity Utilization and Productivity and generate adequate internal resources to Finance the company growth. Confidence in providing increased value for this money through International Standards of Product, Quality, Performance and superior customer services.

TECHNOLOGY

To achieve Technology excellence in operations by development of indigenous Technologies to and efficient absorption and adaptation of imported Technologies to suit Business needs and priorities and provide a competitive advantage of the company.

IMAGE

To fulfill the expectation which stockholders like Government as own employees, customers and the country at large have from BHEL.

SWOT ANALYSIS OF BHEL

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

STRENGTHS

Vast pool of Trained Man Power.

Excellent state of art facilities.

Good working atmosphere

Rapport between Management and Union.

Product manufactured to international Quality

Low labour Cost and low manufacturing cost.

WEAKNESS

Excess Man power.

Slippage in delivery commitments.

System implementation inadequate.

No financial package.

Inadequate compensation package to employees.

OPPORTUNITIES

Growing Power Sector Machinery.

Liberalization has opened up the market.

Navratna Company Status.

Dominant player in Domestic Market.

THREATS

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

MNCs taking away good employees with attractive packages.

Government taxation policy - against manufacturing sector.

Poor infrastructure.

INTERNATIONAL OPERATIONS

BHEL has exported its equipment and services to over 50 countries. In Malaysia, BHEL has supplied 80% of the Boilers besides several hydro sets and gas turbines. BHEL equipment are in operation in Matta, Cy, Saudi Arabia, Oman, Egypt, Libya, Greece, Bangladesh, Srilanka, Iraq, Australia etc. BHEL exports turnkey power projects of Thermal, Hydro, Gas based types, Substation projects Rehabilitation project besides a wide variety of product like Insulators, values, Motors, traction Generators and services for Renovation and Modernization and Operation PowerStation.

RESEARCH AND DEVELOPMENT (R & D)

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

HUMAN RESOURCE AND DEVELOPMENT (HRD)

The greatest strength of BHEL is its highly skilled and committed people. Every employee is given equal opportunity to develop himself and improve his position. Continuous training and retraining a positive work culture and participation style of management have led to the Development of a motivated work force and enhanced Productivity and Quality.

THERMAL POWER PLANT:

Steam turbine, boilers and generators of up to 500 MW capacities to manufacture boilers and stem turbines with super critical steam cycle parameters and matching generators up 660 MW unit facilities available for 1000 MW size.

HYDRO POWER PLANTS:

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

GAS BASED POWER PLANTS:

Gas turbines and generators up to 260 mw (150) rating gas turbines based co-generation and combined cycle system for industry and utility applications.

BIOLERS:

Heat recovery stem generators pressure vessels chemical recovery boilers for paper industry ranging from capacity of 100 to 100t/day of dry solids

POWER DEVICES:

High power capacity silicon diodes, thirstier devices, and solar photovoltaic cells.

EQUIPMENT FOR NUCLEAR POWER PLANTS

Turbines and generators up to 500 mw capacity.

Steam generators for utilities up to 500 MW.

Reheated / separator

Heat exchangers and pressure vessel

Products:-

BHEL manufactures a wide range of power plant equipments and also caters to the industry sector.

The products profile includes:

Gas turbines

Steam turbines

Compressors

Turbo generators

Pumps

Pulverizes

THEORETICAL

REVIEW OF THE

TOPIC

FINANCIAL STATEMENTS ANALYSIS

( A THEORETICAL BACK GROUND )

INTRODUCTION:

Every organization whether it may be a business one or non business one is to maintain accounting is mandatory because is the process of identifying measuring and communicating economic information to permit informed judgments and decisions by users of the information. It involves recording classifying and summarizing various business transactions. The end products of business transactions are the financial statements.

A financial statement is a collection of data according to logical and consistent accounting procedures. Its purpose is so clear from the data above is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment in time, as in the case of a balance sheet or may reveal a series of activities over a given period of time, as in the case of an income statement.

In the words of John N.Myer,"the financial statement provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the increase statement showing the results of operations during a certain period".

Accounting ratios calculated for numbers of years how of the changes of position. The ascertainment of trends helps in making estimate for the future.

According to Accounting principles Board of America states the following objectives of financial statements are:

To proved reliable financial information about economic resources and obligations of a business firm.

To provide other needed financial information about changes in such economic resources and obligations.

To provide reliable financial information that assists in estimating future earning potentials.

FINANCIAL STATEMENTS:

Financial statements primarily comprise two basic statements.

Balance sheet

Profit and Loss Account.

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

Balance sheet.

Income Statement.

A statement of changes in owner's accounts.

A statement of changes in financial position.

ANALYSIS OF FINANCIAL STATEMENTS

Financial statements are prepared primarily for decision making. It plays a dominate role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn. The information to the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.

The term, 'Financial analysis,' also refers to the process of determining financial strengths and weakness of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and operative data.

According to Myers 'Financial Statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements, and a study of the trend of these factors as shown in series of statements'.

TYPES OF FINANCIAL STATEMENT ANALYSIS:

The financial analysis may be

The nature of the analysis and the material used by him

The objective of the analysis and

The modus operandi of the analysis

METHODS OR DEVICES OF FINANCIAL ANALYSIS

The analysis and interpretation of financial statements is used to determine the financial position and result of operation as well. A number of methods or devices are used to study the relationship between different statements. An effort is made to use those devices, which clearly analyze the position of the enterprise. The following methods of analysis are generally used:

Comparative balance sheet

Common size statement

Funds flow analysis

Trend ratios

Ratio analysis

COMPARATIVE FINANCIAL STATEMENTS

The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative from as to present an idea of financial position at two more periods. Not only the comparison of the figures of two periods but also be relationship between balance sheet and income statement enables an in depth study of financial position and operative results. The comparative statement may show:

Absolute figure in "MONEY "values of item 'separately' for EACH

of the periods stated.

Changes in absolute figures i.e., increase or decrease in terms of

"MONEY" values.

Absolute data in terms of percentages.

Increase of decrease in terms of percentages.

Increase of decrease in terms of percentages.

Such "comparative financial statements" are necessary for the study of TRENDS and the direction of movement in the financial position and operating results.

RATIO ANALYSIS

Introduction:

Financial analysis depends to very large extents of the use of ratios through there are other equally important tools of such analysis. Thus,a direct examination of the magnitude of two released items is somewhat enlightening but the comparison is greatly facilitated by expressing the relationship as a ratio.

Ratio analysis of business enterprises enters on efforts to derive quantitative measures or guides concerning the expected capacity of the firm to meet its future financial obligations or expectations present and past data are used for the purpose and what ever extrapolations appear necessary. They are made to prove an indication of feature performance. Alexander Walt, who criticized the bankers for its lap sided development owing to their decisions regarding the grant of credit on current ratios alone, made the presentation of an elaborate system of ratio analysis in 1919.

RATIO:

Ratio is an expression of the quantitative relationship that exits between the two numbers. The ratio is defined as "the indicated quotient of two mathematical expressions." The ratio should be determined between related accounting variables to be meaningful and effective.

INTERPRETATION OF THE RATIOS

The interpretation of ratio is an import factor. The inherent limitation of ratio analysis should be kept in mind while interpreting them. The interpretation of ratios can be made in the following ways.

1. SINGLE ABSOLUTE RATIO

Generally speaking one cannot draw conclusion when a single is considered in isolation. But single ratios may be studied in relation to certain thumb-rules, which are based upon all proven conventio

2. GROUP OF RATIOS:

Ratios can be interpreted by calculated a group of related ratios. A single ratio supported by other related additional ratios becomes more understanding and meaningful.

3.HISTORICAL COMPARISON:

One of the easiest and most popular ways of evaluating the performance is to compare its present ratios called 'comparison overtime'. It gives an indication of a direction of change and reflects whether the firm's performance and financial position has imported, deteriorated or remained constant over a period of time.

4.PROJECTED RATIO:

Ratios can be calculated for future standards based upon the projected financial statements. These future ratios are compared with the actual ratios to find variance, if any such variance helps in interpreting and taking corrective action.

5.INTERFIRM COMPARISON:

Ratio of firm can also be compared with the ratios of some other firms in the industry at the same point of time. This helps in evaluating relative financial position and performance of the firm.

STEPS INVOLVED:

Selection:- Selection of relevant data from the statements is depending upon the objective of the analysis.

Calculation:- Calculation of appropriate ratios from the above data.

Comparing:- Comparing of calculated ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of other firms or the comparison with the industry to which the firm belongs.

Interpretation: Interpretation of the ratios.

DATA ANALYSIS

AND

INTERPRETATION

INTERPRETATION:

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

The company enjoying high working capital.Long term liabilities increased by 30336 lakhs i.e.,34.86%

The total fixed assets block of the company have increased by 9135 lakhs i.e.,8.44%this is majority because of the deprecation of fixed assets slowly increased.

There has a grate rise in cash &bank balanced in the year 2007- 2008 i.e., 16.70 % remaining current assets are also increased.

All loans are also clear in the year 2007-2008.

9) NET PROFIT MARGIN:

Net profit is obtained when operating expenses interest and taxes are subtracted from gross profit. This ratio establishes relationship between net profit and sales and indicates management efficiency in manufacturing, administrating and selling the products. The ratio is over is over all measures of the firms ability to turn each rupees sales into net profit.

NET PROFIT

NET PROFIT = ---------------------------X 100

SALES

RETURN ON EQUITY CAPITAL:

In the real sense, ordinary shareholders are the owners of the company. They assume the highest risk. Preference shareholders have a preference over ordinary shareholders in the payment of divided as well as capital. Preference shareholders got a fixed rate of dividend irrespective of the quantum of profits of the profits of the company. The rate of dividend varies with the variability of profits in case of the ordinary shares only. Thus the ordinary shareholders are more interested in the profitability of a company and the performance of the company should be judged on the basis of return on equity capital of the company. Return on equity capital is the relation between profits of a company and its equity capital. It can be calculated as follows

NET PROFIT AFTER TAX - FREE.DIVIDEND

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

EQUITY SHARE CAPITAL

Suggestions

It is suggested that the should concentrate on the management of current assets and current liabilities more effectively.

The inventory should be reduced to the maximum possible extent by following procedures like :just in time ", import substitution, As far as possible ,the raw material should be bought as and well necessary.

The debtors constitute nearly 50% of total current assets. As the company would find difficult to carry and manage such huge receivables, it should endeavor to realize its receivables as quickly as possible.

Company's average collection period of debtors is not satisfactory when company to the previous year. So, the company should strict minimize the period future.

A major proportion of sundry debtors constitute dues from state electricity boards and public sectors undertaking. The company should examine the feasibility of entering into such agreement with SEB'S and PSU'S to BHEL.So that the long outstanding debts can be cleared off.

There should be revisions of credit policy on sales and liquidity to reduce the debtors there by increase the efficiency in collection performance.

Steps should also be taken to reduce the scrap, which has been increasing over the years. Necessary measures should be taken for the disposal of the scrap as soon as possible.

The investment in loans and advances should be minimized to the possible extent.