Ratio Analysis of Bharat Heavy Electricals Limited: Final Draft

C
RATIO ANALYSIS OF
BHARAT HEAVY
ELECTRICALS LIMITED
FINAL DRAFT
SUMITTED TO : KAMESHWAR PANDEY (FACULTY)
SUBMITTED BY : VIDUSHI VERMA

ROLL NO. 1662
B.B.A. L.L.B. (1ST YEAR)
FOR THE SUBJECT OF PRINCIPLES OF ACCOUNTING AND AUDIT

RATIO ANALYSIS OF BHARAT HEAVY ELECTRICALS LIMITED
TABLE OF CONTENTS
ACKNOWLEDGEMENT
I would like to thank my faculty Mr. Kameshwar Pandey, whose assignment of such a
relevant and interesting topic made me work towards knowing the subject with a greater
interest and enthusiasm and moreover he guided me throughout the project.
I owe the present accomplishment of my project to my friends, who helped me immensely

with sources of research materials throughout the project and without whom I couldn’t have
completed it in the present way.
I would also like to thank the library staff for working long hours to facilitate us with
required material going a long way in quenching our thirst for education.
I would also like to extend my gratitude to my parents and all those unseen hands that helped
me out at every stage of my project.
RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. it may be

understood as a science of studying how research is done scientifically. So, the research
methodology not only talks about the research methods but also considers the logic behind
the method used in the context of the research study.
 Research Design:
Descriptive research is used in this study because it will ensure the minimization of bias and
maximization of reliability of data collected. The researcher had to use fact and information
already available through financial statements of earlier years and analyze these to make
critical evaluation of the available material. Hence by making the type of the research
conducted to be both Descriptive and Analytical in nature. From the study, the type of data to
be collected and the procedure to be used for this purpose were decided.
 Data Collection:
The required data for the study are basically secondary in nature and the data are collected
from the audited reports of the company.Primary data are those data, which is originally
collected afresh. In this project, Questionnaire Method and Interview Method, has been used
for gathering required information.
 Sources of Data:
The sources of data are from the annual reports of the company from the year 2012-13, 2013-
14, 2014-15 of BHEL
 Methods of Data Analysis:
The data collected were edited, classified and tabulated for analysis.
INTRODUCTION
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas.Ratio Analysis as a tool
possesses several important features. The data, which are provided by financial statements,
are readily available. The computation of ratios facilitates the comparison of firms which
differ in size. Ratios can be used to compare a firm's financial performance with industry
averages. In addition, ratios can be used in a form of trend analysis to identify areas where
performance has improved or deteriorated over time.
Because Ratio Analysis is based upon Accounting information, its effectiveness is limited by
the distortions which arise in financial statements due to such things as Historical Cost
Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in
financial analysis, to obtain a quick indication of a firm's performance and to identify areas
which need to be investigated further.
CHAPTER 1: BHARAT HEAVY ELECTRICALS LIMITED
Bharat Heavy Electricals Limited (BHEL) owned by the Government of India, is an

engineering and manufacturing company based in New Delhi, India. Established in 1964,
BHEL is India's largest power plant equipment manufacturer. The company has been earning
profits continuously since 1971-72 and paying dividends uninterruptedly since 1976-77.It has
been granted the prestigious Maharatna (big gem) status in 2013 by Govt of India for its
outstanding performance.The elite list of maharatna contains another 6 behemoth PSU
companies of India.
IMAGE: BHEL LOGO
BHEL is an integrated power plant equipment manufacturer and one of the largest
engineering and manufacturing company of its kind in India engaged in the design,
engineering, manufacture, construction, testing, commissioning and servicing of a wide range
of products and services for core sectors of the economy, viz. Power, Transmission, Industry,
Transportation (Railways), Renewable Energy, Oil & Gas, Water and Defence with over 180
products offerings to meet the needs of these sectors. BHEL has been the bedrock of India's
Heavy Electrical Equipment industry since its incorporation in 1964.
BHEL's growth has been synchronous with achieving self-sufficiency in the indigenous
manufacturing of heavy electrical equipment. Out of the available 35,000 MW per annum
capacity for power plant equipment manufacturing in the country, BHEL alone constitutes a
mammoth 20,000 MW per annum capacity. A widespread network of 17 Manufacturing
Divisions, 2 Repair Units, 4 Regional Offices, 8 Service Centres, 6 Overseas Offices, 6 Joint
Ventures, 15 Regional Marketing Centres and current project execution at more than 150
project sites across India and abroad corroborates the humungous scale and size of its
operations.
Adding to its achievements, BHEL has joined the elite club of select global giants having an
installed base of over 170 GW of power generating equipment globally. In FY 2015-16 the
company has recorded the highest-ever commissioning of projects in its history. Enhanced
focus on project execution has resulted in BHEL creating history by way of
commissioning/synchronizing an all-time high 15,059 MW of power generating equipment
during the year. This includes the highest-ever power generation capacity addition of 13,061
MW to the Indian utility segment, a quantum jump of 59% over the previous year. With this,
BHEL has already achieved 94% of the capacity addition target for the XII Plan in first 4
years itself. 55% of the supercritical sets commissioned in the country are contributed by
BHEL, a testimony to its valuable contribution towards nation building.
BHEL also has a widespread overseas footprint in 78 countries with cumulative overseas
installed capacity of BHEL manufactured power plants nearing 10,000 MW including
Belarus, Bhutan, Egypt, Indonesia, Iraq, Kazakhstan, Malaysia, New Zealand, Oman,
Rwanda, Sudan, Tajikistan and UAE.
The high level of quality & reliability of BHEL products is due to adherence to international
standards by acquiring and adapting some of the best technologies from leading companies in
the world including General Electric Company, Alstom SA, Siemens AG and Mitsubishi
Heavy Industries Ltd., together with technologies developed in its own R&D centres. Most of
its manufacturing units and other entities have been accredited to Quality Management
Systems (ISO 9001:2008), Environmental Management Systems (ISO 14001:2004) and
Occupational Health & Safety Management Systems (OHSAS 18001:2007).
BHEL's greatest strength is its highly skilled and committed workforce of around 42,200
employees that have been the cornerstone of BHEL's journey ensuring success. Further, the
concept of sustainable development is inculcated in the DNA of BHEL which is evident from
its mission statement-"providing sustainable business solutions in the fields of energy,
industry and infrastructure". BHEL is also engaging with the society with its social initiatives
aimed at Community Development, Health & Hygiene, Education, Environment Protection,
Disaster Management, and Talent up gradation/Skill development.
The future is filled with both exciting opportunities & gruelling challenges. BHEL has
embraced new business opportunities by expanding its offerings and enhancing
competitiveness seeking to realize its long term vision. Creating new business avenues and
maximizing the utilization of available infrastructure will be the key to future growth and
stakeholders' wealth enhancement.
BHEL's investment in R&D is amongst the largest in the corporate sector in India.
During the year 2012-13, the company invested about Rs. 1,252 Crore on R&D efforts, which
corresponds to nearly 2.50% of the turnover of the company, focusing on new product and
system developments and improvements in existing products for cost competitiveness, higher
reliability, efficiency, availability and quality etc. To meet customer expectations, the
company has upgraded its products to contemporary levels through continuous in-house
efforts as well as through acquisition of new technologies from leading engineering
organizations of the world. The IPR (Intellectual Property Rights) capital of BHEL grew by
21.5% in the year, taking the total to 2170.
BHEL has established four specialized institutes, viz., Welding Research Institute (WRI) at
Tiruchirappalli, Ceramic Technological Institute (CTI) at Bangalore, Centre for Electric
Traction (CET) at Bhopal and Pollution Control Research Institute (PCRI) at Haridwar.
Amorphous Silicon Solar Cell plant at Gurgaon pursues R&D in Photo Voltaic applications.
Significantly, BHEL is one of the only four Indian companies and the only Indian Public
Sector Enterprise figuring in 'The Global Innovation 1000' of Booz & Co., a list of 1,000
publicly traded companies which are the biggest spenders on R&D in the world.
IMAGE: BHEL BUILDING

CHAPTER 2: BHEL- OPERATIONS AND PRODUCTS
BHEL is engaged in the design, engineering, manufacturing, construction, testing,

commissioning and servicing of a wide range of products, systems and services for the core
sectors of the economy, viz. power, transmission, industry, transportation, renewable energy,
oil & gas and defence.
It has a network of 17 manufacturing units, 2 repair units, 4 regional offices, 8 service

centres, 8 overseas offices, 15 regional centres, 7 joint ventures, and infrastructure allowing it
to execute more than 150 projects at sites across India and abroad. The company has
established the capability to deliver 20,000 MW p.a. of power equipment to address the
growing demand for power generation equipment.
BHEL has retained its market leadership position during 2015-16 with 74% market share in
the Power Sector. An improved focus on project execution enabled BHEL record its highest
ever commissioning/synchronization of 15059 MW of power plants in domestic and
international markets in 2015-16, marking a 59% increase over 2014-15. With the all-time
high commissioning of 15000 MW in a single year FY2015-16, BHEL has exceeded 170 GW
installed base of power generating equipments.
It also has been exporting its power and industry segment products and services for over 40
years. BHEL's global references are spread across over 76 countries across all the six
continents of the world. The cumulative overseas installed capacity of BHEL manufactured
power plants exceeds 9,000 MW across 21 countries including Malaysia, Oman, Iraq, UAE,
Bhutan, Egypt and New Zealand. Their physical exports range from turnkey projects to after
sales services.
Main manufacturing facilities—
1. Centralised Stamping Unit & Fabrication Plant (CSU & FP), Jagdishpur
2. Insulator Plant (IP), Jagdishpur
3. Electronics Division (EDN), Bangalore
4. Electronic System Division (ESD), Bangalore
5. Electro-Porcelains Division (EPD), Bangalore
6. Heavy Electrical Plant (HEP), Bhopal

7. Industrial Valves Plant (IVP), Goindwal
8. Heavy Electrical Equipment Plant (HEEP), Ranipur (Haridwar)
9. Central Foundry Forge Plant (CFFP), Ranipur (Haridwar)
10. Heavy Power Equipment Plant (HPEP), Hyderabad
11. Transformer Plant (TP), Jhansi
12. Boiler Auxiliaries Plant (BAP), Ranipet
13. Component Fabrication Plant (CFP), Rudrapur
14. High Pressure Boiler Plant (HPBP), Tiruchirappalli
15. Seamless Steel Tube Plant (SSTP), Tiruchirappalli
16. Power Plant Piping Unit (PPPU), Thirumayam
17. Heavy Plates & Vessels Plant (HPVP), Visakhapatnam
The company is also setting up a new Greenfield Power Equipment Fabrication Plant
(GPEFP) at Bhandara, Maharashtra, the foundation stone for which was laid on 14 May
2013. Further, BHEL is planning to enter solar manufacturing in a big scale, as it has
announced its plans for a 600 MW Solar Module Factory.
Products and Services
1. Thermal power Plants

2. Nuclear power Plants
3. Gas based power Plants
4. Hydro power Plants
5. DG power Plants
6. Boilers (steam generator)
7. Boiler Auxiliaries
8. Gas generator
9. Hydro generator
10. Steam turbine
11. Gas turbine
12. Hydro turbine
13. Transformer
14. Switchgear
15. Oil field equipment
16. Boiler drum
17. Piping System
18. Soot Blowers
19. Valves
20. Seamless Steel Tubes
21. Condenser s and Heat exchangers
22. Pumps
23. Desalination and Water treatment plants

24. Automation and Control systems
25. Power electronics
26. Transmission system control
27. Semiconductor devices
28. Solar photo voltaics
29. Software system solutions
30. Bus ducts
31. Insulators
32. Control panels
33. Capacitors
34. Bushings
35. Electrical machines
36. DC, AC heavy duty Motors
37. Compressors
38. Control gears
39. Traction motors
40. Research and development product
IMAGE: BHEL VISION MISSION AND VALUES

CHAPTER 3: RATIO ANALYSIS
Ratio analysis is the process of determining and interpreting numerical relationships based on
financial statements. A ratio is a statistical yardstick that provides a measure of the
relationship between two variables or figures. This relationship can be expressed as a percent
or as a quotient. Ratios are simple to calculate and easy to understand. Ratio analysis is a
medium to understand the financial weakness and soundness of an organization. Keeping in
mind the objective of analysis, the analyst has to select appropriate data to calculate
appropriate ratios. Interpretation depends upon the caliber of the analyst.
The persons interested in the analysis of financial statements can be grouped under three
heads:
i) owners or investors
ii) creditors and
iii) financial executives.
Although all these three groups are interested in the financial conditions and operating
results, of an enterprise, the primary information that each seeks to obtain from these
statements differs materially, reflecting the purpose that the statement is to serve.
Investors desire primarily a basis for estimating earning capacity. Creditors are concerned
primarily with liquidity and ability to pay interest and redeem loan within a specified period.
Management is interested in evolving analytical tools that will measure costs, efficiency,
liquidity and profitability with a view to make intelligent decisions.
Ratio analysis is the process of determining and presenting the relationship of items and
group of items in the statements. According to Batty J. Management Accounting “Ratio can
assist management in its basic functions of forecasting, planning coordination, control and
communication”.
It is helpful to know about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgement, otherwise complex situations.
Ratio analysis can represent following three methods.
Ratio may be expressed in the following three ways :
1. Pure Ratio or Simple Ratio :- It is expressed by the simple division of one number by
another. For example , if the current assets of a business are Rs. 200000 and its current
liabilities are Rs. 100000, the ratio of ‘Current assets to current liabilities’ will be 2:1.
2. ‘Rate’ or ‘So Many Times :- In this type , it is calculated how many times a figure is, in
comparison to another figure. For example , if a firm’s credit sales during the year are Rs.
200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is
200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.
3. Percentage :- In this type, the relation between two figures is expressed in hundredth.
For example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit
capital, in term of percentage, is 200000/1000000*100 = 20%
ADVANTAGE OF RATIO ANALYSIS
1. Helpful in analysis of Financial Statements.
2. Helpful in comparative Study.
3. Helpful in locating the weak spots of the business.
4. Helpful in Forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal Standards.
7. Effective Control.
8. Study of Financial Soundness.
LIMITATIONS OF RATIO ANALYSIS

1. Comparison not possible if different firms adopt different accounting policies
2. Ratio analysis becomes less effective due to price level changes.
3. Ratio may be misleading in the absence of absolute data.
4. Limited use of a single data.
5. Lack of proper standards.
6. False accounting data gives false ratio.
7. Ratios alone are not adequate for proper conclusions.
8. Effect of personal ability and bias of the analyst.
On the basis of function or test, the ratios are classified as liquidity ratios, profitability ratios,
activity ratios and solvency ratios.
1. Liquidity Ratios:
Liquidity ratios measure the adequacy of current and liquid assets and help evaluate the
ability of the business to pay its short-term debts. The ability of a business to pay its short-
term debts is frequently referred to as short-term solvency position or liquidity position of the
business.
Generally a business with sufficient current and liquid assets to pay its current liabilities as
and when they become due is considered to have a strong liquidity position and a businesses
with insufficient current and liquid assets is considered to have weak liquidity position.
Short-term creditors like suppliers of goods and commercial banks use liquidity ratios to
know whether the business has adequate current and liquid assets to meet its current
obligations. Financial institutions hesitate to offer short-term loans to businesses with weak
short-term solvency position.
Commonly used liquidity ratios are given below:
 Current ratio or working capital ratio

 Quick ratio or acid test ratio
Unfortunately, liquidity ratios are not true measure of liquidity because they tell about the
quantity but nothing about the quality of the current assets and, therefore, should be used
carefully. For a useful analysis of liquidity, these ratios are used in conjunction with activity
ratios (also known as current assets movement ratios). Examples of activity ratios are
receivables turnover ratio, accounts payable turnover ratio and inventory turnover ratio etc.
2. Profitability ratios:
Profit is the primary objective of all businesses. All businesses need a consistent
improvement in profit to survive and prosper. A business that continually suffers losses
cannot survive for a long period.
Profitability ratios measure the efficiency of management in the employment of business

resources to earn profits. These ratios indicate the success or failure of a business enterprise
for a particular period of time.
Profitability ratios are used by almost all the parties connected with the business.
A strong profitability position ensures common stockholders a higher dividend income and
appreciation in the value of the common stock in future.
Creditors, financial institutions and preferred stockholders expect a prompt payment of

interest and fixed dividend income if the business has good profitability position.
Management needs higher profits to pay dividends and reinvest a portion in the business to
increase the production n capacity and strengthen the overall financial position of the
company.
Some important profitability ratios are given below:
 Net profit (NP) ratio

 Gross profit (GP) ratio
 Operating ratio
 Operating Profit ratio
 Return on investment R.O.I.
3. Activity ratios:
Activity ratios (also known as turnover ratios) measure the efficiency of a firm or company in
generating revenues by converting its production into cash or sales. Generally a fast
conversion increases revenues and profits.
Activity ratios show how frequently the assets are converted into cash or sales and, therefore,
are frequently used in conjunction with liquidity ratios for a deep analysis of liquidity.
Some important activity ratios are:
 Inventory turnover ratio

 Receivables turnover ratio
 Average collection period
 Accounts payable turnover ratio
 Average payment period
 Asset turnover ratio
 Working capital turnover ratio
 Fixed assets turnover ratio
4. Solvency ratios:
Solvency ratios (also known as long-term solvency ratios) measure the ability of a business to
survive for a long period of time. These ratios are very important for stockholders and
creditors.
Solvency ratios are normally used to:
Analyze the capital structure of the company
Evaluate the ability of the company to pay interest on long term borrowings
Evaluate the ability of the the company to repay principal amount of the long term loans
(debentures, bonds, medium and long term loans etc.).
Evaluate whether the internal equities (stockholders’ funds) and external equities (creditors’
funds) are in right proportion.
Some frequently used long-term solvency ratios are given below:
 Debt to equity ratio

 Times interest earned (TIE) ratio
 Proprietary ratio
 Fixed assets to equity ratio

 Current assets to equity ratio
 Capital gearing ratio
CHAPTER 4: FINANCIAL STATEMENTS OF BHEL FOR VARIOUS

YEARS
2012-2013
BALANCE SHEET
PROFIT AND LOSS STATEMENT

2013-2014
BALANCE SHEET
PROFIT AND LOSS STATEMENTS

2014-2015
BALANCE SHEET
PROFIT AND LOSS STATEMENT

CHAPTER 5: CALCULATION OF DIFFERENT RATIOS
 LIQUIDITY RATIOS:-
Liquidity ratios measure a company's ability to pay debt obligations and its margin of
safety through the calculation of metrics including the current ratio, quick ratio and
operating cash flow ratio. Current liabilities are analyzed in relation to liquid assets to
evaluate the coverage of short-term debts in an emergency. Bankruptcy analysts and
mortgage originators use liquidity ratios to evaluate going concern issues, as liquidity
measurement ratios indicate cash flow positioning.
I. WORKING CAPITAL RATIO:-

The working capital ratio, also called the current ratio, is a liquidity ratio that measures a
firm's ability to pay off its current liabilities with current assets. The working capital ratio is
important to creditors because it shows the liquidity of the company.
Current liabilities are best paid with current assets like cash, cash equivalents, and marketable
securities because these assets can be converted into cash much quicker than fixed assets. The
faster the assets can be converted into cash, the more likely the company will have the cash in
time to pay its debts.
The reason this ratio is called the working capital ratio comes from the working capital
calculation. When current assets exceed current liabilities, the firm has enough capital to run
its day-to-day operations. In other words, it has enough capital to work. The working capital
ratio transforms the working capital calculation into a comparison between current assets and
current liabilities.
Formula
The working capital ratio is calculated by dividing current assets by current liabilities.
Working Capital Ratio = Current Assets / Current liability
Both of these current accounts are stated separately from their respective long-term accounts
on the balance sheet. This presentation gives investors and creditors more information to
analyze about the company. Current assets and liabilities are always stated first on financial
statements and then followed by long-term assets and liabilities.
This calculation gives you a firm understanding what percentage a firm's current assets are of
its current liabilities.
CALCULATION OF RATIOS FOR ANALYSIS FOR BHEL—
WORKING CAPITAL= CURRENT ASSETS/ CURRENT LIABILITY
For the year 2012-2013
Current Asset = Rs. 1653.67
Current Liability= Rs. 1403.66
Working Capital = 1653.67/ 1403.66
= 1.17:1
Comments =
The given ratio is less than the standard ratio i.e. 2:1. This shows that for the given year
current assets are less than the twice current liability which is considered to be the ideal
situation. If it is less than the standard ratio of 2:1, it indicates lack of liquidity and shortage
of working capital. But a much higher ratio, even though it is beneficial to the short term
trade payables, is not necessarily good for the company.
Current asset = 1781.43
Current liability = 1460.82
Working capital = 1781.43/1460.82
=1.21:1
Comments =
The given ratio is less than the standard ratio i.e. 2:1. This shows that for the given year
current assets are less than the twice current liability which is considered to be the ideal
situation. If it is less than the standard ratio of 2:1, it indicates lack of liquidity and shortage
of working capital. But a much higher ratio, even though it is beneficial to the short term
trade payables, is not necessarily good for the company.
Current asset = 48537.54
Working capital ratio = 48537.54/ 22207.48
= 2.18:1
Comment =
The given ratio is more than the standard ratio i.e. 2:1. This shows that for the given year
current asset is twice the current liability. It means it is beneficial For the firm, and will bring
in profit. The sole aim of any organisation is to gain profit.
SIGNIFICANCE –
As a conventional rule, a ratio of 2:1 or more is considered satisfactory. The higher the ratio,
the better it is, because the firm will be able to pay its current liability more easily.
II. QUICK RATIO or ACID TEST RATIO or LIQUID RATIO –

The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to
pay its current liabilities when they come due with only quick assets. Quick assets are current
assets that can be converted to cash within 90 days or in the short-term. Cash, cash
equivalents, short-term investments or marketable securities, and current accounts receivable
are considered quick assets.
Short-term investments or marketable securities include trading securities and available for
sale securities that can easily be converted into cash within the next 90 days. Marketable
securities are traded on an open market with a known price and readily available buyers. Any
stock on the New York Stock Exchange would be considered a marketable security because
they can easily be sold to any investor when the market is open.
The quick ratio is often called the acid test ratio in reference to the historical use of acid to
test metals for gold by the early miners. If the metal passed the acid test, it was pure gold. If
metal failed the acid test by corroding from the acid, it was a base metal and of no value.
The acid test of finance shows how well a company can quickly convert its assets into cash in
order to pay off its current liabilities. It also shows the level of quick assets to current
liabilities.
Formula
The quick ratio is calculated by adding cash, cash equivalents, short-term investments, and
current receivables together then dividing them by current liabilities
CALCULATION OF QUICK RATIO—

Quick Ratio = Liquidity asset/ Current liability
For the year 2012- 2013
Liquidity asset = 1236.18
Quick ratio = 1236.18/ 1403.66
= 0.88:1
Comments =
The ratio for the year 2012-2013 is less than the standard ratio of 1:1, therefore it can be said
that the organization will have to face higher risk of meeting liability obligation. However,
low acid test ratio will increase the profitability of the organization.
Quick ratio = 1348.81/ 1460.82
= 0.92:1
Comment =
The ratio for the year 2013-2014 is less than the standard ratio of 1:1, therefore it can be said
that the organization will have to face higher risk of meeting liability obligation. However,
low acid test ratio will increase the profitability of the organization.
Quick ratio = 38435.88/ 22207.48
= 1.73:1
Comments =
The ratio for the year 2014-2015 is more than the standard ratio of 1:1. It shows smaller
chances of risk and higher degree of profitability.
Overall Comments—
Generally ratio of 1:1 is considered to be satisfactory. Quick ratio has more rigorous test for
liquidity than the current ratio and when used together with current ratio, it gives better
picture of short term financial position of firm. In the given firm quick ratio is increasing year
by year this shows that it is in a position to pay its current liabilities immediately.
 PROFITABILITY RATIOS:-
Profitability ratios compare income statement accounts and categories to show a

company's ability to generate profits from its operations. Profitability ratios focus on
a company's return on investment in inventory and other assets. These ratios basically
show how well companies can achieve profits from their operations.
Investors and creditors can use profitability ratios to judge a company's return on
investment based on its relative level of resources and assets. In other words,
profitability ratios can be used to judge whether companies are making enough
operational profit from their assets. In this sense, profitability ratios relate to
efficiency ratios because they show how well companies are using thier assets to
generate profits. Profitability is also important to the concept of solvency and going
concern.
1. GROSS PROFIT RATIO-

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship
between gross profit and total net sales revenue. It is a popular tool to evaluate
the operational performance of the business . The ratio is computed by dividing

the gross profit figure by net sales.
Formula:
Following formula is used to calculated gross profit ratio (GP Ratio):
Gross profit / (Net sales × 100)
Where Gross profit = Net sales - Cost of goods sold
Cost of goods sold = Opening stock + Net purchases + Direct expenses - Closing
stock
Net sales = Sales - Returns inwards
CALCULATION OF RATIOS FOR BHEL

Gross profit ratio = (gross profit / net sales) x 100
2012-2013—
Gross profit ratio = 17.85/ 77.86 x 100
= 22.94%
2013-2014—
Gross profit ratio = 20/89.79 x 100
= 22.28%
2014-2015—
gross profit ratio= 27.58/ 123.51 x 100
= 22.33%
SIGNIFICANCE –
This ratio measures the margin of profit available on sales. No ideal standards are fixed but it
should be adequate enough to meet not only operating expense but also to provide for
depreciation, interest on loans, dividends and creation of reserves.
COMMENTS –
As the figure clearly states that the revenue generated from the sales is increasing but the
profit is going down by few digits because of increase in manufacturing activities. But stil the
ratio is quite significant however company needs to find reasons for this decrease which
seems to be problematic in future.
2. NET PROFIT RATIO—
Net profit ratio (NP ratio) expresses the relationship between net profit after taxes
and sales. This ratio is a measure of the overall profitability net profit is arrived at
after taking into account both the operating and non-operating items of incomes
and expenses. The ratio indicates what portion of the net sales is left for the
owners after all expenses have been met.
Formula:
Following formula is used to calculate net profit ratio:
Net profit ratio = (Net profit after tax / Net sales) × 100
It is expressed in percentage. Higher the net profit ratio, higher is the profitability
of the business.
CALCULATION OF RATIO FOR BHEL –
Net profit ratio = (Net profit after tax / Net sales) × 100
2012-2013
NET PROFIT (in crores) = 16.25/ 114.59 x 100 = 14.19%
2013-2014
NET PROFIT = 9.43/ 77.86 X 100 = 11.61%
2014-2015
NET PROFIT = 10.35/89.79 X100 = 11.5%
SIGNIFICANCE –
Net profit ratio is used to measure the overall profitability of business. Net profit margin is
considered as an indicator of the success of the management to operate the business
successfully. It is possible the gross profit ratio may be increasing but net profit may increase
or sho decreasing trend.
3. OPERATING PROFIT—
Operating net profit ratio is calculated by dividing the operating net profit by
sales. This ratio helps in determining the ability of the management in running the
business.
Formula:
Operating profit ratio = (Operating profit / Net sales) × 100
Operating profit = Gross profit - Operating Expenses
OR
Operating profit = Net sales - Operating cost
OR
Operating profit= Net sales - (Cost of goods sold + Administrative and office
expenses + Selling and distribution exp.)
OR
(Net profit + Non-operating expenses) - (Non-operating incomes)
Higher the ratio, better it is
CALCULATION OF RATIOS FOR BHEL—
Operating profit ratio = (Operating profit / Net sales) × 100

2012-2013—
OPERATING PROFIT RATIO = 29.79 / 114.59 X 100 = 26%
2013-2014—
OPERATING PROFIT RATIO = 18.10 / 77.86 X 100 = 20.41%
2014- 2015—
OPERATING PROFIT RATIO = 20.21/89.79 X 100 = 22.51%
SIGNIFICANCE—
This ratio measures the rate of net profit earned on sales. It helps in determining the overall
efficiency of the business operations. An increase in the ratio over the previous years, show
improvement in the overall efficiency and profitability of the business.
COMMENTS—
The net profit also shows a decrease in the operating expenses as compared to past years. So
they should keep a watch on their operating activities and try to reduce the expenditure
incurred on them. As the figure clearly states that the revenue generated from the sales is
increasing but the profit is going down by few digits because of increase in operational
activities. Still the ratio of current year is quite significant but this continuous decrease might
be problematic. Quantity is increasing but rate increased that is why there is gain otherwise it
would have been a loss.
CONCLUSION
The given project report discussed the ratio analysis based on the financial statement of
Bharat Heavy Electrical Limited (BHEL). Bharat Heavy Electricals Limited (BHEL) owned
by the Government of India, is an engineering and manufacturing company based in New
Delhi, India. Established in 1964, BHEL is India's largest power plant equipment
manufacturer. The company has been earning profits continuously since 1971-72 and paying
dividends uninterruptedly since 1976-77.
It has been granted the prestigious Maharatna (big gem) status in 2013 by Govt of India for
its outstanding performance.The elite list of maharatna contains another 6 behemoth PSU
companies of India. ‘
The financial statememts proved the efficiency of business done by BHEL as a firm thereby
stating the reason behind its success. The rapid progress in the year 2014-2015 was evident
which was tremendous as compared to year 2013-2014 and year 2014-2015.
BIBLIOGRAPHY
BOOKS –
 D.K. Goel, Rajesh Goel, Shelly Goel; New ISC Accountancy Class XI, Arya
publications
 D.K. Goel, Rajesh Goel, Shelly Goel; New ISC Accountancy Class XII, Arya
Publications
WEBSITES—
 http://www.accountingdetails.com
 http://www.accountingtools.com
 http://www.investopedia.com/terms/g/gross_profit_margin.asp
 http://www.accountingformanagement.org/classification-of-financial-ratios/
 http://www.myaccountingcourse.com/financial-ratios/profitability-ratios
 http://www.bhel.com/financial_information/pdf/13-
14/BHEL%20Annual%20Report%202013-14%20(English)%20.pdf
 http://www.bhel.com/financial_information/

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C

SUMITTED TO : KAMESHWAR PANDEY (FACULTY)

SUBMITTED BY : VIDUSHI VERMA

FOR THE SUBJECT OF PRINCIPLES OF ACCOUNTING AND AUDIT

I owe the present accomplishment of my project to my friends, who helped me immensely

Research methodology is a way to systematically solve the research problem. it may be

 Methods of Data Analysis:

CHAPTER 1: BHARAT HEAVY ELECTRICALS LIMITED

Bharat Heavy Electricals Limited (BHEL) owned by the Government of India, is an

IMAGE: BHEL LOGO

IMAGE: BHEL BUILDING

CHAPTER 2: BHEL- OPERATIONS AND PRODUCTS

BHEL is engaged in the design, engineering, manufacturing, construction, testing,

It has a network of 17 manufacturing units, 2 repair units, 4 regional offices, 8 service

Main manufacturing facilities—

6. Heavy Electrical Plant (HEP), Bhopal

Products and Services

1. Thermal power Plants

23. Desalination and Water treatment plants

IMAGE: BHEL VISION MISSION AND VALUES

CHAPTER 3: RATIO ANALYSIS

Ratio analysis can represent following three methods.

Ratio may be expressed in the following three ways :

ADVANTAGE OF RATIO ANALYSIS

1. Helpful in analysis of Financial Statements.

2. Helpful in comparative Study.

3. Helpful in locating the weak spots of the business.

5. Estimate about the trend of the business.

6. Fixation of ideal Standards.

8. Study of Financial Soundness.

LIMITATIONS OF RATIO ANALYSIS

2. Ratio analysis becomes less effective due to price level changes.

3. Ratio may be misleading in the absence of absolute data.

4. Limited use of a single data.

5. Lack of proper standards.

6. False accounting data gives false ratio.

7. Ratios alone are not adequate for proper conclusions.

8. Effect of personal ability and bias of the analyst.

Commonly used liquidity ratios are given below:

 Current ratio or working capital ratio

Profitability ratios measure the efficiency of management in the employment of business

Creditors, financial institutions and preferred stockholders expect a prompt payment of

Some important profitability ratios are given below:

 Net profit (NP) ratio

Some important activity ratios are:

 Inventory turnover ratio

Solvency ratios are normally used to:

Analyze the capital structure of the company

Some frequently used long-term solvency ratios are given below:

 Debt to equity ratio

 Fixed assets to equity ratio

CHAPTER 4: FINANCIAL STATEMENTS OF BHEL FOR VARIOUS

PROFIT AND LOSS STATEMENT

PROFIT AND LOSS STATEMENTS

PROFIT AND LOSS STATEMENT

CHAPTER 5: CALCULATION OF DIFFERENT RATIOS

I. WORKING CAPITAL RATIO:-

Working Capital Ratio = Current Assets / Current liability