SUMMER INTERNSHIP PROJECT

ON
“Financial statement analysis of UPPCL”

Submitted in partial fulfillment of the requirement for the award of Master of

Business Administration (MBA)

Under the guidance of Submitted By:

Silpi Jauhari Gaurav Verma
Asst. Prof Sem. III
MBA II year
Roll No 2000520700024

Institute of Engineering & Technology,

Sitapur Road, Lucknow
(Session- 2020-22)

1
 Certificate from Institution

This is to certify that Gaurav Verma 2nd Year student of Master of

Business Administration of Institute of Engineering & Technology,

Sitapur Road, Lucknow has completed the summer internship project

report on “Financial statement analysis of UPPCL” in partial fulfillment

of the requirement for the award of Master of Business Administration

(MBA)

Date Silpi Jauhari

Asst. Prof.
MBA Department
IET Lucknow

2
 DECLARATION
This is to declare that I Gaurav Verma student of MBA, have personally

worked on the project entitled “Financial statement analysis of

UPPCL” The data mentioned in this report were obtained during genuine

work done and collected by me. The data obtained from other sources

have been duly acknowledged. The result embodied in this project has not

been submitted to any other University or Institute for the award of any

degree.

Date:

Place: Lucknow

3
 ACKNOWLEDGEMENT

It is said that “accomplishment must be credited to those who have put

the foundation of particular chore”.Here i pay gratitude to my parents for

lifting me up till this phase of life.I am thankful for their love , trust,

patient and support.

I wish to express my sincere gratitude to Silpi Jauhari Asst. Prof.for

providing me an opportunity to do my project work on “F

Financial

statement analysis of UPPCL”.

Words defeat me in expressing my heartfelt thanks to my friends for

their help,love and constant encouragement during my project session.

4
 PREFACE

MBA (Finance) program is one of the most reputed professional

courses in the field of management. This course includes both theory and
its application contents of curriculum.

Summer training is an integral part of the MBA program, as each

student is required to undergo summer training from an institute of repute
after 1st Year. As complimentary to that, every trainee has to prepare and
submit a report on the work conducts by the student during his/her
Summer Training.

This report is in continuation of the above tradition. This summer

training was done at “UPPCL”, Lucknow (U.P.). The topic of the
training was “Financial statement analysis of UPPCL”.

During my training period, I did a summer training in UPPCL under the

guidance of market professionals at UPPCL. This report is an attempt to

give an overview of financial study of UPPCL

5
 EXECUTIVE SUMMARY

This report is a summary of the dissertation done at UPPCL. The first

few pages of the report talk about an introduction to the UPPCL & the

need for specialists in Bank independently since their incorporation &

then with the profile of financial analysis. Hereafter the report talks about

the Research i.e. trend analysis of organization. Here we talk about the

process of financial analysis followed by principles of trend analysis. In

the next few pages an attempt has been made to clarify the details &

descriptions which one should know the qualities & reasons for benefits

provided by Identify costs of quality.

The last pages constitute of the findings of the Research & the

conclusion.

6
 TABLE OF CONTENTS

Page No.

1. INTRODUCTION

2. COMPANY PROFILE

3. OBJECTIVES OF THE STUDY

4. RESEARCH METHODOLOGY

5. LIMITATIONS

6. DATA ANALYSIS AND INTERPREATATION

7. FINDINGS

8. CONCLUSION

9. APPENDIX

10. BIBLIOGRAPHY

7
INTRODUCTION

8
 INTRODUCTION

FINANCIAL STATEMENT ANALYSIS

Financial analysis (also referred to as financial statement analysis or

accounting analysis or Analysis of finance) refers to an assessment of

the viability, stability and profitability of a business, sub-business

or project.

It is performed by professionals who prepare reports using ratios that

make use of information taken from financial statements and other

reports. These reports are usually presented to top management as one of

their bases in making business decisions.

 Continue or discontinue its main operation or part of its business;

 Make or purchase certain materials in the manufacture of its

product;

 Acquire or rent/lease certain machineries and equipment in the

production of its goods;

 Issue stocks or negotiate for a bank loan to increase its working

capital;

 Make decisions regarding investing or lending capital;

 Other decisions that allow management to make an informed

selection on various alternatives in the conduct of its business.

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Goals

Financial analysts often assess the following elements of a firm:

1. Profitability - its ability to earn income and sustain growth in both the

short- and long-term. A company's degree of profitability is usually based

on the income statement, which reports on the company's results of

operations;

2. Solvency - its ability to pay its obligation to creditors and other third

parties in the long-term;

3. Liquidity - its ability to maintain positive cash flow, while satisfying

immediate obligations;

Both 2 and 3 are based on the company's balance sheet, which indicates

the financial condition of a business as of a given point in time.

4. Stability - the firm's ability to remain in business in the long run,

without having to sustain significant losses in the conduct of its business.

Assessing a company's stability requires the use of both the income

statement and the balance sheet, as well as other financial and non-

financial indicators. etc.

Method

Financial analysts often compare financial

ratios (of solvency, profitability, growth, etc.):

10
 Past Performance - Across historical time periods for the same

firm (the last 5 years for example),

 Future Performance - Using historical figures and certain

mathematical and statistical techniques, including present and future

values, This extrapolation method is the main source of errors in

financial analysis as past statistics can be poor predictors of future

prospects.

 Comparative Performance - Comparison between similar firms.

These ratios are calculated by dividing a (group of) account balance(s),

taken from the balance sheet and / or the income statement, by another,

for example :

Net income / equity = return on equity (ROE)

Net income / total assets = return on assets (ROA)

Asset Management Ratios gauge how efficiently a company can

change assets into sales.

Stock price / earnings per share = P/E ratio

Comparing financial ratios is merely one way of conducting

financial analysis. Financial ratios face several theoretical

challenges:

11
 They say little about the firm's prospects in an absolute sense. Their

insights about relative performance require a reference point from

other time periods or similar firms.

 One ratio holds little meaning. As indicators, ratios can be logically

interpreted in at least two ways. One can partially overcome this

problem by combining several related ratios to paint a more

comprehensive picture of the firm's performance.

 Seasonal factors may prevent year-end values from being

representative. A ratio's values may be distorted as account balances

change from the beginning to the end of an accounting period. Use

average values for such accounts whenever possible.

 Financial ratios are no more objective than the accounting methods

employed. Changes in accounting policies or choices can yield

drastically different ratio values.

 Fundamental analysis.

Financial analysts can also use percentage analysis which involves

reducing a series of figures as a percentage of some base amount. For

example, a group of items can be expressed as a percentage of net

income. When proportionate changes in the same figure over a given time

period expressed as a percentage is known as horizontal analysis. Vertical

or common-size analysis, reduces all items on a statement to a “common

12
size” as a percentage of some base value which assists in comparability

with other companies of different sizes. As a result, all Income Statement

items are divided by Sales, and all Balance Sheet items are divided by

Total Assets.

Another method is comparative analysis. This provides a better way to

determine trends. Comparative analysis presents the same information for

two or more time periods and is presented side-by-side to allow for easy

analysis.

WORKING CAPITAL

Working capital, also known as net working capital or NWC, is a

financial metric which represents operating liquidity available to a

business. Along with fixed assets such as plant and equipment, working

capital is considered a part of operating capital. It is calculated as current

assets minus current liabilities. If current assets are less than current

liabilities, an entity has a working capital deficiency, also called a

working capital deficit.

Net Working Capital = Current Assets − Current Liabilities

A company can be endowed with assets and profitability but short of

liquidity if its assets cannot readily be converted into cash. Positive

13
working capital is required to ensure that a firm is able to continue its

operations and that it has sufficient funds to satisfy both maturing short-

term debt and upcoming operational expenses. The management of

working capital involves managing inventories, accounts receivable and

payable and cash.

Calculation

Current assets and current liabilities include three accounts which are

of special importance. These accounts represent the areas of the business

where managers have the most direct impact:

 accounts receivable (current asset)

 inventory (current assets), and

 accounts receivable (current asset)

Accounts receivable

Accounts receivable (A/R) is one of a series of accounting transactions

dealing with the billing of customers who owe money to a person,

company or organization for goods and services that have been provided

to the customer. In most business entities this is typically done by

generating an invoice and mailing or electronically delivering it to the

14
customer, who in turn must pay it within an established timeframe called

credit or payment terms.

An example of a common payment term is Net 30, meaning payment is

due in the amount of the invoice 30 days from the date of invoice. Other

common payment terms include Net 45 and Net 60 but could in reality be

for any time period agreed upon by the vendor and the customer.

While booking a receivable is accomplished by a simple accounting

transaction, the process of maintaining and collecting payments on the

accounts receivable subsidiary account balances can be a full time

proposition. Depending on the industry in practice, accounts receivable

payments can be received up to 10 - 15 days after the due date has been

reached. These types of payment practices are sometimes developed by

industry standards, corporate policy, or because of the financial condition

of the client.

On a company's balance sheet, accounts receivable is the amount that

customers owe to that company. Sometimes called trade receivables, they

are classified as current assets assuming that they are due within one year.

To record a journal entry for a sale on account, one must debit a

receivable and credit a revenue account. When the customer pays off their

accounts, one debits cash and credits the receivable in the journal entry.

15
The ending balance on the trial balance sheet for accounts receivable is

always debit.

Business organizations which have become too large to perform such

tasks by hand (or small ones that could but prefer not to do them by hand)

will generally use accounting software on a computer to perform this

task.

Associated accounting issues include recognizing accounts receivable,

valuing accounts receivable, and disposing of accounts receivable.

Accounts receivable departments use the sales ledger. Accounts

receivable is more commonly known as Credit Control in the UK, where

most companies have a credit control department.

Other types of accounting transactions include accounts payable, payroll,

and trial balance.

Since not all customer debts will be collected, businesses typically record

an allowance for bad debts which is subtracted from total accounts

receivable. When accounts receivable are not paid, some companies turn

them over to third party collection agencies or collection attorneys who

will attempt to recover the debt via negotiating payment plans, settlement

offers or legal action. Outstanding advances are part of accounts

receivables if a company gets an order from its customers with payment

16
terms agreed in advance. Since no billing is being done to claim the

advances several times this area of collectible is not reflected in accounts

receivables. Ideally, since advance payment is mutually agreed term, it is

the responsibility of the accounts department to take out periodically the

statement showing advance collectible and should be provided to sales &

marketing for collection of advances. The payment of accounts receivable

can be protected either by a letter of credit or by Trade Credit Insurance.

Companies can use their accounts receivable as collateral when obtaining

a loan (asset-based lending) or sell them through factoring. Pools or

portfolios of accounts receivable can be sold in the capital markets

through a securitization.

Book keeping for Accounts Receivable

Companies have two methods available to them for measuring the net

value of account receivables, which is computed by subtracting the

balance of an allowance account from the accounts receivable account.

The first method is the allowance method, which establishes a liability

account, allowance for doubtful accounts, or bad debt provision, that has

the effect of reducing the balance for accounts receivable. The amount of

the bad debt provision can be computed in two ways - either by reviewing

each individual debt and deciding whether it is doubtful (a specific

17
provision) or by providing for a fixed percentage, say 2%, of total debtors

(a general provision). The change in the bad debt provision from year to

year is posted to the bad debt expense account in the income statement.

The second method, known as the direct write-off method, is simpler than

the allowance method in that it allows for one simple entry to reduce

accounts receivable to its net realizable value. The entry would consist of

debiting a bad debt expense account and crediting the respective account

receivable in the sales ledger.

The two methods are not mutually exclusive, and some businesses will

have a provision for doubtful debts and will also write off specific debts

that they know to be bad (for example, if the debtor has gone into

liquidation.)

For tax reporting purposes, a general provision for bad debts is not an
[1]
allowable deduction from profit - a business can only get relief for

specific debtors that have gone bad. However, for financial reporting

purposes, companies may choose to have a general provision against bad

debts in line with their past experience of customer payments in order to

avoid over stating debtors in the balance sheet.

 inventory (current assets)

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 INVENTORY

Inventory is a list for goods and materials, or those goods and materials

themselves, held available in stock by a business. It is also used for a list

of the contents of a household and for a list for testamentary purposes of

the possessions of someone who has died. In accounting inventory is

considered an asset.

Origins of the word Inventory

The word inventory was first recorded in 1601. The French term

inventaire, or "detailed list of goods," dates back to 1415. Inventory

management is primarily about specifying the size and placement of

stocked goods. Inventory management is required at different locations

within a facility or within multiple locations of a supply network to

protect the regular and planned course of production against the random

disturbance of running out of materials or goods. The scope of inventory

management also concerns the fine lines between replenishment lead

time, carrying costs of inventory, asset management, inventory

forecasting, inventory valuation, inventory visibility, future inventory

price forecasting, physical inventory, available physical space for

inventory, quality management, replenishment, returns and defective

goods and demand forecasting.

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Other definitions of inventory management from across the web:

Involves a retailer seeking to acquire and maintain a proper merchandise

assortment while ordering, shipping, handling, and related costs are kept

in check.

Systems and processes that identify inventory requirements, set targets,

provide replenishment techniques and report actual and projected

inventory status.

Handles all functions related to the tracking and management of material.

This would include the monitoring of material moved into and out of

stockroom locations and the reconciling of the inventory balances. Also

may include ABC analysis, lot tracking, cycle counting support etc.

Management of the inventories, with the primary objective of

determining.controlling stock levels within the physical distribution

function to balance the need for product availability against the need for

minimizing stock holding and handling costs.

In business management, inventory consists of a list of goods and

materials held available in stock.

An inventory can also be a self examination, a moral inventory.

20
Labels: Inventory Management, Procurement, Supply Chain, Supply

Chain Management

Business inventory

The reasons for keeping stock

There are three basic reasons for keeping an inventory:

1. Time - The time lags present in the supply chain, from supplier to

user at every stage, requires that you maintain certain amount of

inventory to use in this "lead time"

2. Uncertainty - Inventories are maintained as buffers to meet

uncertainties in demand, supply and movements of goods.

3. Economies of scale - Ideal condition of "one unit at a time at a

place where user needs it, when he needs it" principle tends to

incur lots of costs in terms of logistics. So bulk buying, movement

and storing brings in economies of scale, thus inventory.

All these stock reasons can apply to any owner or product stage.

 Buffer stock is held in individual workstations against the

possibility that the upstream workstation may be a little delayed in

long setup or change-over time. This stock is then used while that

21
 change-over is happening. This stock can be eliminated by tools

like SMED.

These classifications apply along the whole Supply chain not just within a

facility or plant.

Where these stocks contain the same or similar items it is often the work

practice to hold all these stocks mixed together before or after the sub-

process to which they relate. This 'reduces' costs. Because they are

mixed-up together there is no visual reminder to operators of the adjacent

sub-processes or line management of the stock which is due to a

particular cause and should be a particular individual's responsibility with

inevitable consequences. Some plants have centralized stock holding

across sub-processes which makes the situation even more acute.

22
Special terms used in dealing with inventory

 Stock Keeping Unit (SKU) is a unique combination of all the

components that are assembled into the purchasable item.

Therefore any change in the packaging or product is a new SKU.

This level of detailed specification assists in managing inventory.

 Stockout means running out of the inventory of an SKU.[1]

 "New old stock" (sometimes abbreviated NOS) is a term used in

business to refer to merchandise being offered for sale which was

manufactured long ago but that has never been used. Such

merchandise may not be produced any more, and the new old stock

may represent the only market source of a particular item at the

present time.

Typology

1. Buffer/safety stock

2. Cycle stock (Used in batch processes, it is the available inventory

excluding buffer stock)

3. De-coupling (Buffer stock that is held by both the supplier and the

user)

4. Anticipation stock (building up extra stock for periods of increased

demand - e.g. ice cream for summer)

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5. Pipeline stock (goods still in transit or in the process of distribution

- have left the factory but not arrived at the customer yet)

24
Inventory examples

While accountants often discuss inventory in terms of goods for sale,

organizations - manufacturers, service-providers and not-for-profits - also

have inventories (fixtures, furniture, supplies, ...) that they do not intend

to sell. Manufacturers', distributors', and wholesalers' inventory tends to

cluster in warehouses. Retailers' inventory may exist in a warehouse or in

a shop or store accessible to customers. Inventories not intended for sale

to customers or to clients may be held in any premises an organization

uses. Stock ties up cash and if uncontrolled it will be impossible to know

the actual level of stocks and therefore impossible to control them.

While the reasons for holding stock are covered earlier, most

manufacturing organizations usually divide their "goods for sale"

inventory into:

 Raw materials - materials and components scheduled for use in

making a product.

 Work in process, WIP - materials and components that have begun

their transformation to finished goods.

 Finished goods - goods ready for sale to customers.

 Goods for resale - returned goods that are salable.

 Spare parts

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For example:

Manufacturing

A canned food manufacturer's materials inventory includes the

ingredients to form the foods to be canned, empty cans and their lids (or

coils of steel or aluminum for constructing those components), labels, and

anything else (solder, glue...) that will form part of a finished can. The

firm's work in process includes those materials from the time of release to

the work floor until they become complete and ready for sale to

wholesale or retail customers. This may be vats of prepared food, filled

cans not yet labelled or sub-assemblies of food components. It may also

include finished cans that are not yet packaged into cartons or pallets. Its

finished good inventory consists of all the filled and labelled cans of food

in its warehouse that it has manufactured and wishes to sell to food

distributors (wholesalers), to grocery stores (retailers), and even perhaps

to consumers through arrangements like factory stores and outlet centers.

Examples of case studies are very revealing, and consistently show that

the improvement of inventory management has two parts: the capability

of the organisation to manage inventory, and the way in which it chooses

to do so. For example, a company may wish to install a complex

inventory system, but unless there is a good understanding of the role of

26
inventory and its perameters, and an effective business process to support

that, the system cannot bring the necessary benefits to the organisation in

isolation.

Typical Inventory Management techniques include Pareto Curve ABC

Classification and Economic Order Quantity Management. A more

sophisticated method takes these two techniques further, combining

certain aspects of each to createThe K Curve Methodology. A case study

of k-curve benefits to one company shows a successful implementation.

Unnecessary inventory adds enormously to the working capital tied up in

the business as well as the complexity of the supply chain. Reduction and

elimination of these inventory 'wait' states is a key concept in Lean. Too

big an inventory reduction too quickly can cause a business to be

anorexic. There are well proven processes and techniques to assist in

inventory planning and strategy, both at business overview and part

number level. Many of the big MRP/and ERP systems do not offer the

necessary inventory planning tools within their integrated planning

applications.

High level inventory management

It seems that around about 1880[2] there was a change in manufacturing

practice from companies with relatively homogeneous lines of products

27
to vertically integrated companies with unprecedented diversity in

processes and products. Those companies (especially in metalworking)

attempted to achieve success through economies of scope - the gains of

jointly producing two or more products in one facility. The managers now

needed information on the effect of product mix decisions on overall

profits and therefore needed accurate product cost information. A variety

of attempts to achieve this were unsuccessful due to the huge overhead of

the information processing of the time. However, the burgeoning need for

financial reporting after 1900 created unavoidable pressure for financial

accounting of stock and the management need to cost manage products

became overshadowed. In particular it was the need for audited accounts

that sealed the fate of managerial cost accounting. The dominance of

financial reporting accounting over management accounting remains to

this day with few exceptions and the financial reporting definitions of

'cost' have distorted effective management 'cost' accounting since that

time. This is particularly true of inventory.

Hence high level financial inventory has these two basic formulas which

relate to the accounting period:

1. Cost of Beginning Inventory at the start of the period + inventory

purchases within the period + cost of production within the period

= cost of goods

28
 2. Cost of goods − cost of ending inventory at the end of the period =

cost of goods sold

The benefit of these formulae is that the first absorbs all overheads of

production and raw material costs in to a value of inventory for reporting.

The second formula then creates the new start point for the next period

and gives a figure to be subtracted from sales price to determine some

form of sales margin figure.

Manufacturing management is more interested in inventory turnover ratio

or average days to sell inventory since it tells them something about

relative inventory levels.

Inventory turn over ratio (also known as inventory turns) = cost of goods

sold / Average Inventory = Cost of Goods Sold / ((Beginning Inventory +

Ending Inventory) / 2) and its inverse

Average Days to Sell Inventory = Number of Days a Year / Inventory

Turn Over Ratio = 365 days a year / Inventory Turn Over Ratio

This ratio estimates how many times the inventory turns over a year. This

number tells us how much cash/goods are tied up waiting for the process

and is a critical measure of process reliability and effectiveness. So a

factory with two inventory turns has six months stock on hand which

generally not a good figure (depending upon industry) whereas a factory

29
that moves from six turns to twelve turns has probably improved

effectiveness by 100%. This improvement will have some negative

results in the financial reporting since the 'value' now stored in the factory

as inventory is reduced.

Whilst the simplicity of these accounting measures of inventory are very

useful they are in the end fraught with the danger of their own

assumptions. There are in fact so many things which can vary hidden

under this appearance of simplicity that a variety of 'adjusting'

assumptions may be used. These include:

 Specific Identification

 Weighted Average Cost

 Moving-Average Cost

 FIFO .

Inventory Turn is a financial accounting tools for evaluating inventory

and it is not necessarily a management tool. Inventory management

should be forward looking. The methodology applied is based on

historical cost of goods sold. The ratio may not be able to reflect the

usability of future production demand as well as customer demand.

Business models including Just in Time (JIT) Inventory, Vendor

Managed Inventory (VMI) and Customer Managed Inventory (CMI)

30
attempt to minimize on-hand inventory and increase inventory turns. VMI

and CMI have gained considerable attention due to the success of third

party vendors who offer added expertise and knowledge that

organizations may not possess.

31
Accounting perspectives

The basis of Inventory accounting

Inventory needs to be accounted where it is held across accounting period

boundaries since generally expenses should be matched against the

results of that expense within the same period. When processes were

simple and short then inventories were small but with more complex

processes then inventories became larger and significant valued items on

the balance sheet. This need to value unsold and incomplete goods has

driven many new behaviours into management practise. Perhaps most

significant of these are the complexities of fixed cost recovery, transfer

pricing, and the separation of direct from indirect costs. This, supposedly,

precluded "anticipating income" or "declaring dividends out of capital". It

is one of the intangible benefits of Lean and the TPS that process times

shorten and stock levels decline to the point where the importance of this

activity is hugely reduced and therefore effort, especially managerial, to

achieve it can be minimised.

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ACCOUNTING FOR INVENTORY

Each country has its own rules about accounting for inventory that fit

with their financial reporting rules.

So for example, organizations in the U.S. define inventory to suit their

needs within US Generally Accepted Accounting Practices (GAAP), the

rules defined by the Financial Accounting Standards Board (FASB) (and

others) and enforced by the U.S. Securities and Exchange Commission

(SEC) and other federal and state agencies. Other countries often have

similar arrangements but with their own GAAP and national agencies

instead.

It is intentional that financial accounting uses standards that allow the

public to compare firms' performance, cost accounting functions

internally to an organization and potentially with much greater flexibility.

A discussion of inventory from standard and Theory of Constraints-based

(throughput) cost accounting perspective follows some examples and a

discussion of inventory from a financial accounting perspective.

The internal costing/valuation of inventory can be complex. Whereas in

the past most enterprises ran simple one process factories, this is quite

probably in the minority in the 21st century. Where 'one process' factories

exist then there is a market for the goods created which establishes an

33
independent market value for the good. Today with multi-stage process

companies there is much inventory that would once have been finished

goods which is now held as 'work-in-process' (WIP). This needs to be

valued in the accounts but the valuation is a management decision since

there is no market for the partially finished product. This somewhat

arbitrary 'valuation' of WIP combined with the allocation of overheads to

it has led to some unintended and undesirable results.

Financial accounting

An organization's inventory can appear a mixed blessing, since it counts

as an asset on the balance sheet, but it also ties up money that could serve

for other purposes and requires additional expense for its protection.

Inventory may also cause significant tax expenses, depending on

particular countries' laws regarding depreciation of inventory, as in Thor

Power Tool Company v. Commissioner.

Inventory appears as a current asset on an organization's balance sheet

because the organization can, in principle, turn it into cash by selling it.

Some organizations hold larger inventories than their operations require

in order to inflate their apparent asset value and their perceived

profitability.

34
In addition to the money tied up by acquiring inventory, inventory also

brings associated costs for warehouse space, for utilities, and for

insurance to cover staff to handle and protect it, fire and other disasters,

obsolescence, shrinkage (theft and errors), and others. Such holding costs

can mount up: between a third and a half of its acquisition value per year.

Businesses that stock too little inventory cannot take advantage of large

orders from customers if they cannot deliver. The conflicting objectives

of cost control and customer service often pit an organization's financial

and operating managers against its sales and marketing departments.

Sales people, in particular, often receive sales commission payments, so

unavailable goods may reduce their potential personal income. This

conflict can be minimised by reducing production time to being near or

less than customer expected delivery time. This effort, known as "Lean

production" will significantly reduce working capital tied up in inventory

and reduce manufacturing costs (See the Toyota Production System).

Inventory Accounting

By helping the organization to make better decisions, the accountants can

help the public sector to change in a very positive way that delivers

increased value for the taxpayer’s investment. It can also help to

incentivise progress and to ensure that reforms are sustainable and

35
effective in the long term, by ensuring that success is appropriately

recognized in both the formal and informal reward systems of the

organization.

To say that they have a key role to play is an understatement. Finance is

connected to most, if not all, of the key business processes within the

organization. It should be steering the stewardship and accountability

systems that ensure that the organization is conducting its business in an

appropriate, ethical manner. It is critical that these foundations are firmly

laid. So often they are the litmus test by which public confidence in the

institution is either won or lost.

Finance should also be providing the information, analysis and advice to

enable the organizations’ service managers to operate effectively. This

goes beyond the traditional preoccupation with budgets – how much have

we spent so far, how much have we left to spend? It is about helping the

organization to better understand its own performance. That means

making the connections and understanding the relationships between

given inputs – the resources brought to bear – and the outputs and

outcomes that they achieve. It is also about understanding and actively

managing risks within the organization and its activities.

36
 FIFO VS. LIFO ACCOUNTING

When a dealer buys goods from inventory, the value of the inventory is

reduced by the cost of goods sold (COGS). This is simple where the

COGS has not varied across those held in stock; but where it has, then an

agreed method must be derived to evaluate it. For commodity items that

one cannot track individually, accountants must choose a method that fits

the nature of the sale. Two popular methods which normally exist are:

FIFO and LIFO accounting (first in - first out, last in - first out). FIFO

regards the first unit that arrived in inventory as the first one sold. LIFO

considers the last unit arriving in inventory as the first one sold. Which

method an accountant selects can have a significant effect on net income

and book value and, in turn, on taxation. Using LIFO accounting for

inventory, a company generally reports lower net income and lower book

value, due to the effects of inflation. This generally results in lower

taxation. Due to LIFO's potential to skew inventory value, UK GAAP and

IAS have effectively banned LIFO inventory accounting.

STANDARD COST ACCOUNTING

Standard cost accounting uses ratios called efficiencies that compare the

labour and materials actually used to produce a good with those that the

same goods would have required under "standard" conditions. As long as

37
similar actual and standard conditions obtain, few problems arise.

Unfortunately, standard cost accounting methods developed about 100

years ago, when labor comprised the most important cost in manufactured

goods. Standard methods continue to emphasize labor efficiency even

though that resource now constitutes a (very) small part of cost in most

cases.

Standard cost accounting can hurt managers, workers, and firms in

several ways. For example, a policy decision to increase inventory can

harm a manufacturing managers' performance evaluation. Increasing

inventory requires increased production, which means that processes

must operate at higher rates. When (not if) something goes wrong, the

process takes longer and uses more than the standard labor time. The

manager appears responsible for the excess, even though s/he has no

control over the production requirement or the problem.

In adverse economic times, firms use the same efficiencies to downsize,

rightsize, or otherwise reduce their labor force. Workers laid off under

those circumstances have even less control over excess inventory and cost

efficiencies than their managers.

38
Many financial and cost accountants have agreed for many years on the

desirability of replacing standard cost accounting. They have not,

however, found a successor.

Theory of Constraints cost accounting

Eliyahu M. Goldratt developed the Theory of Constraints in part to

address the cost-accounting problems in what he calls the "cost world".

He offers a substitute, called throughput accounting, that uses throughput

(money for goods sold to customers) in place of output (goods produced

that may sell or may boost inventory) and considers labor as a fixed

rather than as a variable cost. He defines inventory simply as everything

the organization owns that it plans to sell, including buildings, machinery,

and many other things in addition to the categories listed here.

Throughput accounting recognizes only one class of variable costs: the

trully variable costs like materials and components that vary directly with

the quantity produced.

Finished goods inventories remain balance-sheet assets, but labor

efficiency ratios no longer evaluate managers and workers. Instead of an

incentive to reduce labor cost, throughput accounting focuses attention on

the relationships between throughput (revenue or income) on one hand

and controllable operating expenses and changes in inventory on the

39
other. Those relationships direct attention to the constraints or bottlenecks

that prevent the system from producing more throughput, rather than to

people - who have little or no control over their situations.

40
 NATIONAL ACCOUNTS

Inventories also play an important role in national accounts and the

analysis of the business cycle. Some short-term macroeconomic

fluctuations are attributed to the inventory cycle.

Distressed inventory

Also known as distressed or expired stock, distressed inventory is

inventory whose potential to be sold at a normal cost has or will soon

pass. In certain industries it could also mean that the stock is or will soon

be impossible to sell. Examples of distressed inventory include products

that have reached its expiry date, or has reached a date in advance of

expiry at which the planned market will no longer purchase it (e.g. 3

months left to expiry), clothing that is defective or out of fashion, and old

newspapers or magazines. It also includes computer or consumer-

electronic equipment that is obsolescent or discontinued and whose

manufacturer is unable to support it. One current example of distressed

inventory is the VHS format.

Inventory credit

Inventory credit refers to the use of stock, or inventory, as collateral to

raise finance. Where banks may be reluctant to accept traditional

collateral, for example in developing countries where land title may be

41
lacking, inventory credit is a potentially important way of overcoming

financing constraints. This is not a new concept; archaeological evidence

suggests that it was practiced in Ancient Rome. Obtaining finance against

stocks of a wide range of products held in a bonded warehouse is

common in much of the world. It is, for example, used with Parmesan

cheese in Italy.[5] Inventory credit on the basis of stored agricultural

produce is widely used in Latin American countries and in some Asian

countries. A precondition for such credit is that banks must be confident

that the stored product will be available if they need to call on the

collateral; this implies the existence of a reliable network of certified

warehouses. Banks also face problems in valuing the inventory. The

possibility of sudden falls in commodity prices means that they are

usually reluctant to lend more than about 60% of the value of the

inventory at the time of the loan.

ACCOUNTS PAYABLE

(CURRENT LIABILITY)

Accounts payable is a file or account that contains money that a person

or company owes to suppliers, but has not paid yet (a form of debt).

When you receive an invoice you add it to the file, and then you remove

it when you pay. Thus, the A/P is a form of credit that suppliers offer to

42
their purchasers by allowing them to pay for a product or service after it

has already been received.

The profession is unregulated, though there are international standard

setting bodies, an example of which is the International Accounts Payable

Professionals (IAPP), an association of more than 5,000 members in the

United States, Canada, the United Kingdom and other countries.[1] As part

of its Professional Standards Framework,[2] the IAPP has established a

new definition of accounts payable:

Accounts payable is a strategic, value-added accounting function that

performs the primary non-payroll disbursement functions in an

organization. As such, the AP operation plays a critical role in the

financial cycle of the organization. AP enables an organization to

accomplish its objectives by bringing a systematic, disciplined approach

to evaluate and improve the effectiveness of the entire payables process.

In addition to the traditional AP activities whereby liabilities to third-

party entities (suppliers, vendors, taxing authorities, etc.) are recognized

and paid based on the credit policies agreed to between the company and

its suppliers, today's AP departments have taken on much wider roles

including fraud prevention, cost reduction, workflow system solutions,

cash-flow management, internal controls and vendor (supply chain)

financing.

43
In households, accounts payable are ordinarily bills from the electric

company, telephone company, cable television or satellite dish service,

newspaper subscription, and other such regular services. Householders

usually track and pay on a monthly basis by hand using cheques or credit

cards. In a business, there is usually a much broader range of services in

the A/P file, and accountants or bookkeepers usually use accounting

software to track the flow of money into this liability account when they

receive invoices and out of it when they make payments. Increasingly,

large firms are using specialized Accounts Payable Automation to

automate the paper and manual elements of processing an organization's

invoices.

Commonly, a supplier will ship a product, issue an invoice, and collect

payment later, which creates a cash conversion cycle, a period of time

during which the supplier has already paid for raw materials but hasn't

been paid in return by the final customer.

When the invoice arrives it is matched to the packing slip and purchase

order, and if all is in order, the invoice is paid. This is referred to as the

three-way match.

Quite a few organizations have been told that their vendors won’t be

sending paper invoices in the future. They insist on e-invoicing, fax or

44
email. You can take advantage of this new methodology in an organized

manner. It’s not that hard. Here’s what Accounts Payable Now &

Tomorrow suggests:

1) Set up a single e-mail address to be used exclusively for the receipt of

invoices. Whoever is responsible for either processing the invoices that

come into this address or forwarding them for approval should have the

password, as should their backup and perhaps the department manager.

The important thing is the e-mail account not belong to one person but

several in case of absences etc.

2) Set up a dedicated fax number to be used for accounts payable invoices

only. Invoices can be retrieved throughout the day and integrated into the

normal accounts payable workflow.

3) Set up an e-fax facility to receive faxed invoices into an e-mail

account. This should eliminate the problem of illegible invoices.

4) Make sure your new e-mail address and fax number are included in all

correspondence with vendors, especially your New Vendor Welcome kit

EXPENSE ADMINISTRATION

Expense administration is usually closely related to accounts payable, and

sometimes those functions are performed by the same employee. The

45
expense administrator verifies employees' expense reports, confirming

that receipts exist to support airline, ground transportation, meals and

entertainment, telephone, hotel, and other expenses. This documentation

is necessary for tax purposes and to prevent reimbursement of

inappropriate or erroneous expenses. Airline expenses are, perhaps, the

most prone to fraud because of the high cost of air travel and the

confusing nature of airline-related documentation, which can consist of

an array of reservations, receipts, and actual tickets.

Petty cash is also usually paid out by A/P personnel in the form of a

check made out to an employee, who cashes the check at the bank and

puts the cash in the petty cashbox.

46
 INTERNAL CONTROLS

A variety of checks against abuse are usually present to prevent

embezzlement by accounts payable personnel. Separation of duties is a

common control. Nearly all companies have a junior employee process

and print a cheque and a senior employee review and sign the cheque.

Often, the accounting software will limit each employee to performing

only the functions assigned to them, so that there is no way any one

employee – even the controller – can singlehandedly make a payment.

Some companies also separate the functions of adding new vendors and

entering vouchers. This makes it impossible for an employee to add

himself as a vendor and then cut a cheque to himself without colluding

with another employee. This file is referred to as the master vendor file. It

is the repository of all significant information about the company's

suppliers. It is the reference point for accounts payable when it comes to

paying invoices.

In addition, most companies require a second signature on cheques whose

amount exceeds a specified threshold.

Accounts payable personnel must watch for fraudulent invoices. In the

absence of a purchase order system, the first line of defense is the

approving manager. However, A/P staff should become familiar with a

47
few common problems, such as "Yellow Pages" ripoffs in which

fraudulent operators offer to place an advertisement. The walking-fingers

logo has never been trademarked, and there are many different Yellow

Pages-style directories, most of which have a small distribution.

According to an article in the Winter 2000 American Payroll

Association's Employer Practices, "Vendors may send documents that

look like invoices but in small print they state "this is not a bill." These

may be charges for directory listings or advertisements. Recently, some

companies have begun sending what appears to be a rebate or refund

check; in reality, it is a registration for services that is activated when the

document is returned with a signature."

In accounts payable, a simple mistake can cause a large overpayment. A

common example involves duplicate invoices. An invoice may be

temporarily misplaced or still in the approval status when the vendors

calls to inquire into its payment status. After the A/P staff member looks

it up and finds it has not been paid, the vendor sends a duplicate invoice;

meanwhile the original invoice shows up and gets paid. Then the

duplicate invoice arrives and inadvertently gets paid as well, perhaps

under a slightly different invoice number.

48
 AUDITS OF ACCOUNTS PAYABLE

Auditors often focus on the existence of approved invoices, expense

reports, and other supporting documentation to support checks that were

cut. The presence of a confirmation or statement from the supplier is

reasonable proof of the existence of the account. It is not uncommon for

some of this documentation to be lost or misfiled by the time the audit

rolls around. An auditor may decide to expand the sample size in such

situations.

Auditors typically prepare an ageing structure of accounts payable for a

better understanding of outstanding debts over certain periods (30, 60, 90

days, etc). Such structures are helpful in the correct presentation of the

balance sheet as of year end.

The current portion of debt (payable within 12 months) is critical,

because it represents a short-term claim to current assets and is often

secured by long term assets. Common types of short-term debt are bank

loans and lines of credit.

An increase in working capital indicates that the business has either

increased current assets (that is received cash, or other current assets) or

has decreased current liabilities, for example has paid off some short-

term creditors.

49
Implications on M&A: The common commercial definition of working

capital for the purpose of a working capital adjustment in an M&A

transaction ( i .e for a working capital adjustment mechanism in a sale

and purchase agreement) is equal to:

CASH BALANCE:

Current Assets - Current Liabilities excluding deferred tax

assets/liabilities, excess cash, surplus assets and/or deposit balances.

items often attract a one-for-one purchase price adjustment.

50
 WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short term financing are

referred to as working capital management. These involve managing the

relationship between a firm's short-term assets and its short-term

liabilities. The goal of working capital management is to ensure that the

firm is able to continue its operations and that it has sufficient cash flow

to satisfy both maturing short-term debt and upcoming operational

expenses.

Decision criteria

By definition, working capital management entails short term decisions -

generally, relating to the next one year period - which are "reversible".

These decisions are therefore not taken on the same basis as Capital

Investment Decisions (NPV or related, as above) rather they will be based

on cash flows and / or profitability.

 One measure of cash flow is provided by the cash conversion cycle

- the net number of days from the outlay of cash for raw material to

receiving payment from the customer. As a management tool, this

metric makes explicit the inter-relatedness of decisions relating to

inventories, accounts receivable and payable, and cash. Because

this number effectively corresponds to the time that the firm's cash

51
 is tied up in operations and unavailable for other activities,

management generally aims at a low net count.

 In this context, the most useful measure of profitability is Return

on capital (ROC). The result is shown as a percentage, determined

by dividing relevant income for the 12 months by capital

employed; Return on equity (ROE) shows this result for the firm's

shareholders. Firm value is enhanced when, and if, the return on

capital, which results from working capital management, exceeds

the cost of capital, which results from capital investment decisions

as above. ROC measures are therefore useful as a management

tool, in that they link short-term policy with long-term decision

making. See Economic value added (EVA).

MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of

policies and techniques for the management of working capital. These

policies aim at managing the current assets (generally cash and cash

equivalents, inventories and debtors) and the short term financing, such

that cash flows and returns are acceptable.

52
 Cash management. Identify the cash balance which allows for the

business to meet day to day expenses, but reduces cash holding

costs.

 Inventory management. Identify the level of inventory which

allows for uninterrupted production but reduces the investment in

raw materials - and minimizes reordering costs - and hence

increases cash flow; see Supply chain management; Just In Time

(JIT); Economic order quantity (EOQ); Economic production

quantity

 Debtors management. Identify the appropriate credit policy, i.e.

credit terms which will attract customers, such that any impact on

cash flows and the cash conversion cycle will be offset by

increased revenue and hence Return on Capital (or vice versa); see

Discounts and allowances.

 Short term financing. Identify the appropriate source of

financing, given the cash conversion cycle: the inventory is ideally

financed by credit granted by the supplier; however, it may be

necessary to utilize a bank loan (or overdraft), or to "convert

debtors to cash" through "factoring".

53
Working capital is directly affecting by other management issues, such as

product mix, supply chain design and business model (for example agent

vs. distributor)

54
COMPANY

PROFILE

55
 COMPANY PROFILE

Uttar Pradesh Power Corporation Limited

Uttar Pradesh Power Corporation Limited

(UPPCL)

Uttar Pradesh State Government

Type
Undertaking

Industry Electric Power

Website [1]

Uttar Pradesh Power Corporation Limited (UPPCL) is the company

responsible for electricity transmission and distribution within the Indian

state of Uttar Pradesh. Its chairman is Mr. Sanjay Agarwal.

UPPCL will be professionally managed utility supplying reliable and cost

efficient electricity to every citizen of the state through highly motivated

employees and state of art technologies, providing an economic return to

our owners and maintaining leadership in the country.

We shall achieve this being a dynamic, forward looking, reliable, safe and

trustworthy organization, sensitive to our customers interests, profitable

56
and sustainable in the long run, providing uninterrupted supply of quality

power, with transparency and integrity in operation, providing

TO OUR CONSUMERS:

High productivity reflected in a fair, equitable and cost based tariff across

consumer categories, accurate and timely billing on a rational,

comprehensible billing basis reflecting actual consumption, and

convenient system for payment of dues. Simple and well-advertised

procedures, guaranteed connection of requested load within reasonable

time, prompt breakdown attendance, and Efficient Complaint handling.

Timely actions based on anticipation of the future & perspective

planning, and Clear Communication on customer issues.

TO OUR SHAREHOLDERS :

A secure and well managed asset, corporate governance in line with

Kumaramagalam Birla committee recommendations, a business growing

organically and through diversification, and satisfied stakeholders.

TO OUR EMPLOYEES :

Opportunities for career growth and development, Pride in the

Organization, and a sense of belongingness, with the ability to contribute

to the organization. Well defined service conditions and full compliance

57
with Labour Laws. Accountability and Responsibility for actions

including performance incentives based on fair and transparent

assessment and compensation in line with the best in the industry, and an

increased sense of security based on the increased success of the

organization.

TO THE REGULATOR :

The equitable satisfaction of all stakeholders, ensuring the long-term

stability of the section and an Adherence to Regulations and Guidelines

issued by the Regulator, including inter alias Compliance with License

Conditions, Furnishing Accurate and Timely Information, Ensuring

techno-economic feasibility of investments, and an effective consumer

grievance redressed systems.

TO OUR FINANCIAL INSTITUTIONS :

Sustained growth and profitability, sound economic appraisal of projects

to be undertaken, security of loan and timely servicing of debts, and

Timely Publication of Audited Financial statements, including sound

accounting & financial practice in accordance with Law.

58
TO THE STATE GOVERNMENT :

Implementation of Reform Legislation and of all Government Policies

and directives as far as is practical, applying Public Funding and

Subsidies to the intended category of Consumers. Compliance with the

rule of law and electrical safety rules. The satisfaction of stakeholders.

In return Government will assist us by Ensuring Law and order and

enforcement and assistance with revenue realization.

TO OUR SUPPLIERS :

Transparent and efficient procedures for tendering and timely ordering

and settlement in adherence with Commercial Agreements.

TO OTHER UTILITIES :

Reliable and secure system operations in accordance with Grid Code, 0.2

class metering, and timely readings, an Integrated Information system to

provide fast and accurate interface data, Timely settlement observing

Proper Commercial Agreements between entities, and Adherence to

System operating procedures in terms of merit order dispatch, security,

etc.

59
TO THE PUBLIC :

Effective communication of policies and procedures, a Reliable supply to

essential public services, enforcing adequate safety norms and

environmental and social norms, minimizing inconvenience dare to

disruptions etc.

We shall be a diversified business with a core function of providing

quality, uninterrupted power, Commercial focus considering all techno-

economic issues of investments, and a high level of Consumer Service

with new connections on demand and low complaint resolution times.

Diversifications shall include optic fiber based activities, consultancy,

manufacture, and repairs, and we shall have a Diversified investment

portfolio around the globe.

We shall satisfy all stakeholders including the regulator.

We shall be a global industry Leader working in close cooperation with

other utilities supporting self-sustained growth through financially viable

business units and technological leadership, providing a world class cost

of supply, and world class profits, doubling turnover every 5 years. We

shall function independently; implementing prudent safety and

environment norms, with a cost of supply based tariff, without external

interference, in a transparent corruption free operating environment, in

compliance with statutory requirements. We shall add value to our

60
shareholders, safeguard the environment, and maintain our asset base. We

shall maintain a strong image with the general public.

We shall measure success on global standards, e.g.

Parameter Measurement

Reliability of supply 99.50%

Technical losses 10%

Commercial losses 2%

Collection efficiency 97%

Billing efficiency 100%

Employee cost 25 p/u

We shall have a Long-term dynamic vision based on strong perspective

planning. We shall have sophisticated procedures including on line

billing, on line queries and eBusiness functions.

We shall have the most motivated. Satisfied and best-trained employees

with full competence in all key areas optimally deployed and the most

satisfied customers in the sector.

61
Our Supply quality shall be: 2% variation in voltage and 0.5 Hz variation

in frequency, with Fault repairs in 1 to 2 hours and redressal of 100% and

new connections will be made on demand.

Restructuring

For efficient operation & management Uttar Pradesh Power

Corporation Limited (UPPCL) is further restructured into;

 Dakshinanchal Vidyut Vitaran Nigam Limited (DVVNL)[2] - Agra

Zone Discom

 Madhyanchal Vidyut Vitaran Nigam Limited (MVVNL)[3] -

Lucknow Zone Discom

 Pashchimanchal Vidyut Vitaran Nigam Limited (PVVNL)[4] -

Meerut Zone Discom

 Purvanchal Vidyut Vitaran Nigam Limited (PUVVNL)[5] -

Varanasi Zone Discom

 Kanpur Electricity Supply Company (KESCO)[6] - Kanpur City

Discom

 Lucknow Electricity Supply Administration (LESA) - Lucknow

City Discom

 Uttar Pradesh Power Transmission Limited (UPPTCL)[7] - State

Transmission Utility

62
Power Procurement

Uttar Pradesh Power Corporation Limited (UPPCL) procures power

from; state government owned power generators (Uttar Pradesh Rajya

Vidyut Utpadan Nigam & Uttar Pradesh Jal Vidyut Nigam Limited),

central government owned power generators (NTPC Limited & THDC

Ltd) and Independent Power Producers - IPP (mostly private power

companies) through power purchase agreement for lowest per unit cost of

electricity.

Financial Condition & Line losses

The total loss of the UP Power Corporation Limited (UPPCL) is

estimated somewhere between Rs 29,000 crore to 55,000 crore. Thus

UPPCL is finding it hard to make payment to state, central and other

private power companies against electricity procurement.

The causes of such a poor financial conditions of UPPCL include:

 Higher line losses due to aging over stressed infrastructure

 Pilferage of power at large scale

 Inferior quality of transformers and other equipments

 Selling power much below its purchasing cost

63
Discom wise Aggregate Technical & Commercial (AT & C) Loss / Total

line losses (in %) for a period of 2010-11;

 Dakshinanchal Vidyut Vitaran Nigam Limited (DVVNL) - 46.80%

 Madhyanchal Vidyut Vitaran Nigam Limited (MVVNL) - 31.81%

 Pashchimanchal Vidyut Vitaran Nigam Limited (PVVNL) -

29.59%

 Purvanchal Vidyut Vitaran Nigam Limited (PUVVNL)[5] -

38.67%

Power Plants SPVs

In line of Power Finance Corporation, UPPCL created SPVs (Shell

Companies);

 To attract private investment in implementation of New Power

Plant Projects in state of Uttar Pradesh,

 To meet the growing power demand of Uttar Pradesh state,

 To procure power at lowest possible feasible rates.

The Role of SPVs (Shell Companies) are preparing feasibility report

(including Technology, Size, Coal linkages, Land & Water issues) , all

clearances (including environment clearances) & Land Acquisition etc.

These SPVs (Shell Companies) are transferred to developer private

64
company through bidding for lowest per unit cast of selling electricity to

UPPCL.

UPPCL SPVs;

 Bara Thermal Power Project, Prayagraj Power Generation

Company Limited (Tehsil - Bara, Distt. Allahabad) - 3 x 660 MW

(Under Construction)

 Karchana Thermal Power Station, Sangam Power Generation

Company Limited (Tehsil - Karchana, Distt. Allahabad) - 2 x 660

MW (Under Construction)

65
OBJECTIVES OF

THE STUDY

66
 OBJECTIVES OF THE STUDY

1. To know the causes of the financial analysis for UPPCL

2. To know procedure of financial analysis of UPPCL .

3. To know the working capital management of UPPCL

67
 RESEARCH METHODOLOGY

The report is the result of a survey which was undertaken in UPPCL .

The objectives of the project has been fulfilled by getting response from

the Employee's associated to these segments through a personal interview

in finance department. The responses available through the balance sheet

and personal interview are used to evaluate the working capital

management of the company.

THE RESEARCH PROBLEM

The problem formulation is the first step to a successful research process.

The summer training undertaken the problem of analyzing the trend

analysis of Banking industry of the company and to find out the ratio

analysis of company.

THE RESEARCH DESIGN

The research design used in the project is Descriptive

Research. The investigation is carried upon the working capital in

UPPCL in Lucknow. The reason for choosing this design is to get

responses from the company’s Balance sheet.

68
 COLLECTION OF DATA

The data has been taken from secondary source

 Secondary data source

Secondary data was collected from following sources

Balance sheet

Websites

Books

Personal consultation

THE AREA OF WORK

The field work is conducted in the UPPCL in financial

department Lucknow .

69
 THE ANALYTICAL TOOLS USED

The analytical tools used are mostly graphical in nature

which include

 Bar Charts

 Tables showing percentage

70
 LIMITATIONS

It is not possible to remove the limitation of any investigators. So this

project also has certain limitation that is:

1) Information was gathered through the rating of the subject, thus

biasness is possible.

2) As the sample size was small it is possible that it may not represent

the precise picture.

3) Employees of the organization may hide the fact.

4) The management did not agree to disclose all the confidential data.

5) Number of respondent are very less, so clear conclusion can’t be

drawn.

71
 DATA ANALYSIS

PERFORMANCE HIGHLIGHTS

Company has completed another successful year in 2016-17 registering

impressive growth over the previous year. During the year, the company
has registered a net profit of Rs. 30.50 million by increasing production to
Rs. 191.77 million from a level of Rs. 149.83 million during the previous
year. The turnover during the year has increased by 35.40% to Rs. 194.59
million from Rs. 143.72 million during the previous year. During the year
2015-16, net worth of the company reached a level of Rs. 87.28 million.
The major highlights of performance during the year 2015-16 are
summarized below.

(Rupees in million)

s.no. Particulars 2016-17 2015-16 Increased by

1 Turnover 194.59 143.72 35.40%
2 Production 191.77 149.83 27.99%
3 Value added 74.91 61.46 21.88%
4 Net profit before 30.50 19.14 59.35%
tax
5 Value added per 6.69 5.06 32.21%
employee (Rs. In
lacs)
6 New worth 87.28 56.96 53.23%

72
 1 What is Profitability Ratio (EBIT) in UPPCL in last 5 year?

PROFITABILITY RATIO -:

EBIT (Earnings Before Interest and Taxes)

Revenue - COGS- Operating Expenses

EBIT =
Year EBIT

2012-13 -24.94

2013-14 -10.86

2014-15 1.84

2015-16 19.14

2016-17 30.5

INTERPETATION:

Profitability Ratio (EBIT) in UPPCL in last 5 year is increased year by year in

2012-13 is -24.94 and in 2016-17 is 30.50

73
Q.2 What is Return on Assets in UPPCL in last 2 year?

Return on Assets
Return on Assets = Net Income / Assets * 100

2015-16 33.52%

2016-17 34.94%

INTERPETATION:

Return on Assets in UPPCL in last 2 year is increased year by year in 2015-16

is 33.52 and in 2016-17 is 34.94%

74
Q. 3 What is solvency ratio in UPPCL in last 5 year?

SOLVENCY RATIO

2012-13
-113.4%
2013-14
-121.61%
2014-15
-117.14%
2015-16
56.96%
2016-17
87.28%

INTERPETATION:

solvency ratio in UPPCL in last 5 year is increased year by year in 2012-13 is

-113.40 and in 2016-17 is 87.28%

75
Q.4 What is Liquidity Ratio in UPPCL in last 2 year?

2015-16 1.4
2016-17 4.57
LIQUIDITY RATIO

In finance, the Acid-test or quick ratio or liquid ratio measures the

ability of a company to use its near cash or quick assets to immediately
extinguish or retire its current liabilities. Quick assets include those
current assets that presumably can be quickly converted to cash at close
to their book values.

INTERPETATION:

The quick ratio 2015-16 is 1.4 and in 2016-17 the ratio is increasing 4.57.

76
Q. 5 What is Current Ratio in UPPCL in last 2 year?

2016-17 4.53
2015-16 2.4
CURRENT RATIO

The current ratio is a financial ratio that measures whether or not a firm
has enough resources to pay its debts over the next 12 months. It
compares a firm's current assets to its current liabilities. It is expressed as
follows:

INTERPETATION:

The current ratio 2015-16 is 2.40 and in 2016-17 the ratio is increasing

4.53.

77
Q. 6 What is Networking Capital in UPPCL in last 2 year?

NETWORKING CAPITAL

Net Working Capital =Current Assets –Current Liabilities

2016-17 2015-16
Current assets 30581.46 13222.70
Current liabilities 6749.80 5506.25
Net W.C. 23831.66 7716.45

INTERPETATION:

The NETWORKING CAPITAL 2015-16 is 7716.45 and in 2016-17 the

ratio is increasing 23831.66.

78
Q.7 What is activity ratio in UPPCL in last 5 year?

ACTIVITY RATIO

Rs. In million

2012-13 51.4

2013-14 70.07

2014-15 94.42

2015-16 143.72

2016-17 194.59

INTERPETATION:

The activity ratio in UPPCL in last 5 year is increase year by year 2012-13
is 51.40 and in 2016-17 the ratio is increasing by 194.59.

79
Q.8 What is debt equity ratio in UPPCL in last 2 year?

2015-16 1.26%
2016-17 1.02%
DEBT EQUITY RATIO

Debt equity ratio =total liabalities /share holders equity

2007-08 2008-09

INTERPETATION:

The Dept equity ratio 2015-16 is 1.02 and in 2016-17 the ratio is

increasing 1.26.

80
Q. 9 What is value added per employee in UPPCL in last 5 year?
VALUE ADDED PER EMPLOYEE

Rs. In Lakhs

2012-13 1.93

2013-14 2.8

2014-15 4.02

2015-16 5.06

2016-17 6.69

INTERPETATION:

The value added per employee in UPPCL in last 5 year 2012-13 is 1.93

and in 2016-17 the ratio is increasing 6.69.

81
FINDINGS

82
 FINDINGS

The summary of results of various ratios are presented. The summary of

major findings are mentioned below :-

(I) Gross Working Capital :- Trend of Gross Working Capital ( GWC)

or total current assets showed an upward trend. The total investment in

current assets increases from Rs. 7716.45 million to Rs. 23831 million

during the period under reviewed. This is a good indication from the

smooth running of the day-to-day operation as well as paying the current

obligation points of review. But since 2013-14 it has been decreased

continuously the main factor for this is decrease in sundry debtors.

Net Working Capital ( NWC) :- Likewise GWC trend of NWC also

showed an increasing trend up to 2016-17 but thereafter it has decreased

year by year. The highest NWC was in the year of 2013-14 and lowest

being in the year of 2014-15. The factor contributed to decrease is the

decrease in sundry debtors considerably and also increase in sundry

creditors and other current liabilities. This must be reviewed and attempts

to reduce the other current liabilities. This attempts shall improve the

liquidity position of organization.

83
Position of Liquidity or Trend in liquidity :- Analysis of various

liquidity ratio express the trend of liquidity over the past twelve years.

Analysis of current ratio reveals that the ratio shown an increasing

trend up to 1999-00 but thereafter it decreased . It was highest in the year

of 2016-17 being 3.97:1 thereafter it has decreased continuously and

comes to 1.09 in 2014-15. This is below the norms. It should be improve

by reducing the other current liabilities and sundry creditors. However

current ratio in many cases does not reveal the real picture of liquidity as

the same is trend analysis only . It takes into consideration all the

components of current assets (e.g.) inventory and debtors, which

ultimately takes some times for conversion into cash.

Analysis of the Super quick ratio also reveals that the trend is increasing

up to 2012-13 but after that it decreased. It has .71:1 in 2016-17 and then

comes to .66:1 except slightly increased in the year 2014-15 .In the year

2015-16 it is below than the standard norms of 1:1. These leads to

analysis of super quick ratio which is quite relevant in this case.

The results shows a gloomy picture in comparison to current & quick

ratio. Since super quick ratio excludes aspects of sundry debtors from the

components of current assets in comparison to super quick ratio, hence

analysis of sundry debtors needs for the investigation. This aspect is

84
further summarized and explained in expressing the results of efficiency

of working capital used.

Over all receivable management shows a gloomy picture, which indicates

inefficiency in receivable management. However the situation is quite

improving due to continuous efforts of present management. In a nut

shell the position of sundry debtors requires more constituent collection

effort, special cell to monitor and review the position incessantly,

pressure on various state electricity department and SEB through central

govt. for speed collection of receivable.

85
CONCLUSIONS

86
 CONCLUSIONS
In spite of various obstacle hurdles, limitations and bottlenecks, financial

analysis in UPPCL has a bright future for growth and expansion. The

organization is a profit making and contributing lot in the path of the

progress of the nation by providing easy working capital management of

UPPCL to various states including some strategic remote areas. financial

analysis of UPPCL is the only pioneer organization in the field of

financial analysis in UPPCL sector at present . As mentioned in this

chapter the organization is already working on its planning for rapid

growth by commissioning more projects, entering. Our nation is facing

acute shortage of technology . Thus to achieve rapid industrialization &

growth of other sector including software. financial analysis of UPPCL

has to play a greater role by increasing its capacity manifold in future /

coming days and the organization has great importance from the nations

point of view.

Trend analysis in a business enterprise is synonymous with the blood of

the human body. The importance of Trend analysis from liquidity and

profitability point of view can not be over emphasized. Both these

significant aspects largely depends upon efficient management of Trend

analysis, (i.e.) management of inventory, receivable, cash & bank

balances and short term creditors & other short-term liabilities, liquidity

87
which refers to the ability of a firm to meet its current obligations

encompasses current assets and their structure. In recent times high

importance is being given corporate liquidity as it has direct impact on

profitability as well as long term survival of the firms. Maintaining sound

liquidity and profitability position ultimately depends upon efficient and

smooth management of working .

The present study is divided into five parts. In this part

importance of the study, importance of financial analysis and potential,

status and development of financial analysis of UPPCL , data and

methodology of the study has been discussed. In the second part the

objectives of the study has clearly defined. In third chapter deals with

various concepts, aspects & dimensions of working capital. In forth part

an attempt is made to know the trend, status and management of Trend

analysis through analysis by using various financial and statistical

techniques. In fifth chapter summery of result, findings, scope of futures

research limitations of study etc. has been described briefly.

88
BIBILIOGRAPHY

89
 BIBILIOGRAPHY

1- I M PANDEY FINANCIAL MANAGEMENT

2- C.R. KOTHARI Research Methodology

3- Website : www.UPPCL.com

4- www.google.com

5- www.wikipedia.com

90
APPENDIX

91
 Questionnaire
Q.1 What is Profitability Ratio (EBIT) in UPPCL in last 5 year?

Year EBIT
2012-13
2013-14
2014-15
2015-16
2016-17

Q.2 What is Return on Assets in UPPCL in last 2 year?

2015-16
2014-15
Q. 3 What is Solvency Ratio in UPPCL in last 5 year?

2012-13
2013-14
2014-15
2015-16
2016-17

Q.4 What is Liquidity Ratio in UPPCL in last 2 year?

2015-16
2016-17
Q. 5 What is Current Ratio in UPPCL in last 2 year?

2015-16
2016-17

92
Q. 6 What is Netwroking Capital in UPPCL in last 2 year?

2016-17 2015-16
Current assets
Current liabilities
Net W.C.

Q.7 What is activity ratio in UPPCL in last 5 year?

2012-13
2013-14
2014-15
2015-16
2016-17

Q.8 What is debt equity ratio in UPPCL in last 2 year?

2015-16
2016-17

Q. 9 What is value added per in UPPCL in last 5 year?

2012-13
2013-14
2014-15
2015-16
2016-17

93
 Balance Sheet of UPPCL ------------------- in Rs. Cr. ----------------
Mar '17 Mar '16 Mar '15 Mar '14 Mar '13

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds
Total Share Capital 489.52 489.52 489.52 489.52 489.52
Equity Share Capital 489.52 489.52 489.52 489.52 489.52
Reserves 31,804.92 32,563.83 33,595.08 32,557.53 29,954.58
Networth 32,294.44 33,053.35 34,084.60 33,047.05 30,444.10
Secured Loans 0.00 0.00 0.00 2,550.00 1,286.00
Unsecured Loans 89.55 126.29 61.00 104.77 129.20
Total Debt 89.55 126.29 61.00 2,654.77 1,415.20
Total Liabilities 32,383.99 33,179.64 34,145.60 35,701.82 31,859.30
Mar '17 Mar '16 Mar '15 Mar '14 Mar '13

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds
Gross Block 5,279.20 12,965.92 12,304.80 11,812.47 10,585.56
Less: Accum.
1,683.32 9,002.73 8,164.28 7,119.53 6,127.07
Depreciation
Net Block 3,595.88 3,963.19 4,140.52 4,692.94 4,458.49
Capital Work in Progress 168.34 315.36 517.80 642.12 1,171.59
Investments 661.42 663.40 417.67 420.17 429.17
Inventories 7,372.38 9,637.39 10,101.66 9,797.55 11,763.82
Sundry Debtors 22,075.56 24,428.98 26,223.50 28,071.92 29,234.49
Cash and Bank Balance 10,491.79 10,085.99 9,812.70 11,872.93 7,732.05
Total Current Assets 39,939.73 44,152.36 46,137.86 49,742.40 48,730.36
Loans and Advances 16,864.83 17,595.79 17,253.28 17,293.54 15,338.84
Total CA, Loans &
56,804.56 61,748.15 63,391.14 67,035.94 64,069.20
Advances
Current Liabilities 19,653.30 22,069.67 23,281.09 26,763.33 29,327.02
Provisions 9,192.91 11,440.79 11,040.44 10,326.02 8,942.13
Total CL & Provisions 28,846.21 33,510.46 34,321.53 37,089.35 38,269.15
Net Current Assets 27,958.35 28,237.69 29,069.61 29,946.59 25,800.05
Total Assets 32,383.99 33,179.64 34,145.60 35,701.82 31,859.30

Contingent Liabilities 13,992.77 8,778.10 6,016.83 11,337.90 3,441.04

Book Value (Rs) 131.94 135.04 139.26 135.02 124.38

94