ratio analysis

1. EXECUTIVE SUMMARY
The project undertaken by me is “Ratio Analysis”, with reference to Areva T&D India
Limited, Naini (Allahabad)
The Project was carried out under the guidance of Mr. Anshul Mehrotra (Finance). In this
report I have analyzed various factor to determine the company overall financial image.
Areva T&D India Limited, believes in the importance of four basic guiding principles in
terms of how they view themselves and their clients relationships; Quality, Service,
Teamwork and Innovation. AREVA, World energy expert, offers its customer technological
solutions for highly reliable nuclear power generation and electricity transmission and
distribution.
Areva is the world leader in energy business. It Ranks 1 st in the entire nuclear cycle and
Ranks 3rd in the electricity transmission and distribution.
The objective of the project was to analyze and interpret the financial statement of the
company as well as to judge its operational efficiency.
Four major ratios were studied under this project i.e. Liquidity Ratios, Solvency Ratios,
Turnover Ratios and Profitability Ratios.
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2. INTRODUCTION
In any organization, the two important financial statements are the Balance sheet & Profit and
loss account of the business. Balance sheet is a statement of the financial position of an
enterprise at a particular point of time. Profit and loss account shows the net profit or net loss
of a company for a specified period of time. When these statements of the last few year of
any organization are studied and analyzed, significant conclusions may be arrived regarding
the changes in the financial position, the important policies followed and trends in profit and
loss etc.
Analysis and interpretation of the financial statement has now become an important
technique of credit appraisal. The investors, financial experts, management executives and
the bankers all analyze these statements. Though the basic technique of appraisal remains the
same in all the cases but the approach and the emphasis in analysis vary.
A banker interprets the financial statement so as to evaluate the financial soundness and
stability, the liquidity position and the profitability or the earning capacity of borrowing
concern. Analysis of financial statement is necessary because it help in depicting the financial
position on the basis of past and current records. Analysis of financial statement helps in
making the future decision and strategies. Therefore, it is very necessary for every
organization whether it is a financial or manufacturing etc. to make financial statement and to
analyze it.
OBJECTIVES OF THE PROJECT
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3. Primary Objectives:
 To provide a report that gives a complete picture of the financial state of AREVA
T&D India Ltd. , Naini (Allahabad)
 To locate the weak spots of the business which need more attention.
 To analyze and interpret the financial statement of the company and give a proper
suggestion for its improvement.
 To interpret and analyze the financial ratios of the company
Secondary Objectives:
 To provide deeper analysis of the liquidity, solvency, activity and profitability of the
business.
 To provide information for making time-series analysis i.e. for making comparison of
a firm’s present ratios and with its past ratios.
 To provide information useful for making estimates and preparing the plans for the
future.
LIMITATIONS OF THE PROJECT
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4.  Research facilitates decision making and is not a substitute of decision making. It helps in
providing alternative solution and is not the solution itself.
 The topic is so broad to cover all the fields in just four weeks.
 One of the constraints in the completion of project was the busy environment of the
organization.
 Although Allahabad is not new for me yet the company is establish far away from the city.
 All the necessary data were not available to me due to company’s confidential matter.
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5. COMPANY PROFILE
AREVA, WORLDWIDE
Areva is a French public multinational industrial conglomerate that deals in energy, especially
in nuclear power. The parent company is incorporated under French law as a société anonyme
(public corporation). The French State owns more than 90%. Areva is just a name, inspired by
Arevalo Abbey in Spain. The real name of the company is S.A. des Participations du
Commissariat à Atomique.
With manufacturing facilities in 43 countries and a sales network in more than 100, AREVA
offers customers reliable technological solutions for CO2-free power generation and electricity
transmission and distribution. Areva is the world leader in nuclear power and the only company
to cover all industrial activities in this field. Areva’s 65,000 employees are committed to
continuous improvement on a daily basis, making sustainable development the focal point of
the group’s industrial strategy. The company is engaged in nuclear power generation and
transmission & distribution of electrical energy. It is the only company with a presence in each
industrial activity linked to nuclear energy: mining, chemistry, enrichment, combustibles,
services, engineering, nuclear propulsion and reactors, treatment, recycling, stabilization, and
dismantling. It is the world leader in nuclear power and the only company to cover all industrial
activities in this field. Areva specializes in infrastructure.
AREVA, The Global specialist in energy & transport infrastructure is in the business of
providing quality solutions & system design. AREVA is the government organization of
France. It acquired the Transfer & Distribution division of ALSTOM, a private organization of
France in 2004. It acquired the Naini division of Alstom in September 2005. The organization
is World leader in energy business. It is No.1 in the entire nuclear cycle. It is No.3 in electricity
transmission and distribution.
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6. AREVA: A RECOGNIZED LEADERSHIP
 World leader in the energy business
1. No.1 in the entire nuclear cycle
2. No.3 in electricity transmission and distribution
 Company’s Mission
1. Innovate to contribute to ever cleaner, safer and economical CO2-free power
generation and electricity transmission and distribution.
 Company’s 2011 Objectives
1. Achieve one-third of the world nuclear market and a €5Bn sales revenue
2. Deliver a double digit operating margin
3. Reach a significant position in CO2 free production systems
Areva Way
The AREVA way represents AREVA core beliefs, values and aspirations. It illustrates a
vision structure that guides the thoughts and actions of AREVA people in attaining the
ultimate goal of becoming No.1 AREVA. It stipulates the way in which the goal is realized
AREVA’s principles
"Enable everyone to have access to ever cleaner, safer and cheaper energy"
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7. AREVA T&D INDIA LIMITED
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8. Innovation, Growth, Leadership…
AREVA T&D INDIA LIMITED is a subsidiary of AREVA, France. It came to India by
acquiring the worldwide T&D sector of Alsthom, France. AREVA T&D INDIA LIMITED,
formerly known as ALSTOM LIMITED was originally incorporated as General Electric
Company of India (GECI) in 1911. GECI was amalgamated with the English Electric
Company of India (EEI) in April 1993 and the name was changed to GEC Alsthom India.
The company was promoted by GEC Alsthom, Netherlands, which has interests in GEC
Alsthom Triveni. The name of the company was changed from Alstom Limited to Areva
T&D India Limited from 23rd September, 2005.
AREVA T&D currently employs over 4600 people in India across 16 Manufacturing
Units and 22 Sales Offices. The company has been a trend- setter in the field of high voltage
switchgear and was the first to build the 765 KV sub- station in India with National Thermal
Power Corporation Limited (NTPC) at SIPAT, Chhattisgarh. Around 70% of power flow in
India’s transmission grids is managed by AREVA T&D’s Automation solutions.
Areva T&D India divides its business in verticals like, Systems, Products, Automation, and
Services.
• Products
Company’s Products segment comprises of Power Transformers, Instrument Transformers,
Circuit breakers and Medium Voltage Switch Gears. The company is present in products of
upto 765 KV. Areva T&D mainly focuses on Medium Voltage (MV) to Extra High Voltage
(EHV) products.
EHV Products: 132 KV and above
HV Products: 66 KV and Above
MV Products: 33 KV and Below
LV Products: 11 KV and Below (Not present)
• Systems
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9. Under this segment the company undertakes turnkey projects like building substations and
switchyards. The company is also present in high-end areas like 765 KV substations, HVDC
Substations and Gas Insulated Substations.
• Automation
Automation segment comprises of hardware and software for managing energy flows from
Load Dispatch Centres. It includes Supervisory Control and Data Acquisition (SCADA) used
for managing smooth energy flows from a centralized location.
• Services
This segment comprises services for network planning and after sales services for products
and systems business.
ENERGY: THE CORE BUSINESS OF AREVA
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10. O r g a n iz a t io n o f th e gr o u p
T R A N S MIS S IO N
FR ON T E N D R E A C T O R S & S E R V IC E S B A C K E N D
& D IS TR I B U T IO N
D iv is io n D iv is io n D iv is io n
D iv is io n
• Mi n i n g • P l a n ts • T re a tm e n t • P ro d u c ts
• C h e m i s try • E q u ip m e n t • R e c yc l i n g • S e rvi c e s
• E n ri c h m e n t • N u c le a r S e rvi c e s • L o g i s ti c s • S ys te m s
• Fuel • N u c le a r M e a s u re m e n ts • C le a-u p
n • A u to m a ti o n
• C o n s u l ti n g • E n g i n e e ri n g
& In fo rm a tio n S ys te m s
• AREVA T A
11 11
An Integrated Offer- 4 Division
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11. To answer its customers’ needs, AREVA’s development strategy is based on a
balanced presence in Europe, North and South America and Asia. For its nuclear operations,
the group offers its customers’ valued solutions throughout the cycle:
1. Front-End Division: This is the first division of AREVA which includes uranium ore
exploration, mining, concentration, conversion and enrichment; nuclear fuel design
and fabrication.
2. Reactors & Services Division: This division includes design and construction of
nuclear reactors and other non co2 emitting power generation system; supply of
products and services for nuclear power plant maintenance, upgrades and operations.
3. Back-End Division: This division offers solutions for the management of used fuel.
It includes treatment and recycling of used fuel; cleanup of nuclear facilities; nuclear
logistics. It is organized into five business units: Nuclear Site Value, Recycling,
Logistics, Clean-up and Engineering.
4. Transmission & Distribution (T&D) Division: This division includes transmission
and distribution operations which provide products, systems, automation and services
designed to transport and distribute electricity from the power plant to the final user.
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12. AREVA T&D INDIA LIMITED, NAINI (ALLAHABAD)
Naini unit of AREVA T & D INDIA LIMITED was established in 1957. It is located 12
kilometers from Allahabad in the state of Uttar Pradesh (about 600 kms from New Delhi and
800 kms from Calcutta). The unit is spread over a total area of 87276 meter square providing
employment to 658 people. The unit has the certification of IMS. The unit is engaged in the
production of power transformers, distribution transformers and MV product lines. It is the
only unit in India producing the oil base transformers. The Naini unit of AREVA deals with
the business of Transmission & Distribution only. As a whole this T&D forms about one
third of the business of the AREVA on the global scale. In India the only unit of Areva
manufacturing Transformers is in Naini. The unit is capable of manufacturing and servicing
transformers up to a voltage range of 400 KV class. At present Naini works has installed
capacity to manufacture 4929 KVA power transformers annually. The transformer that is
below 20 MVA are called Distribution Transformers. The Switch Gear business at Naini
started in the year 1964. The company mainly deals in the manufacturing of medium voltage
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13. switchgears. The Naini unit is fully capable of designing, manufacturing, testing and
commissioning of transformers of 315 MVA up to 400 KVA class.
Locational Choice - Why at Naini?
 UP’ the large state with highest population & maximum urbanization in the country.
 ‘Allahabad’ the Home Town of Nehru the most famous Prime Minister.
 Post Independence ‘UP’ identified as the State with highest potential in Power Sector
development.
 ‘Naini’ the first organized industrial area planned in the country.
 No transformer producer in the Northern Region.
Product History – Areva T & D India Limited (Naini Works)
 1957 : Established Transformer
 1964 : Motor, Switchgear Added
 1985 : Introduced Vac. Switchgear
 1991 : Motor Operation Shifted
 1996 : 400kv Transformer
 1997 : Dist Transformer
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14.  2004 : Pss Introduced
Workshop at Naini
THE RANGE OF PRODUCTS: NAINI WORKS
The product range includes power transformers of all types up to 400 kV class series,
distribution transformers and switchgears.
 Distribution and Power transformers up to 400 kV class.
 Dry Type (flame proof and non flame proof) Mining transformers (approved by the
Directorate General of Mining Safety).
 Single phase track side transformers for railways.
 Rectifier transformers.
 Shunt reactors of coreless and gapped core types.
 Sealed type air / glass cushioned transformers.
 Air furnace transformers.
 Furnace transformers for calcium carbide, ferro silicon, ferro manganese, ferro
chrome.
 Drycol breathers.
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15.  Radiators suitable for transformers.
 Auto booster transformers.
 Compact substations.
At present Naini works has the capacity to manufacture 6000 MVA power transformers
annually.
Major Importing Countries from Naini Works
 Zimbabwe  Columbia  Australia
 Brazil  Croatia  Bangladesh
 China  Greece  Bhutan
 Myanmar  Malawi  Uganda
 Argentina  Nepal  Vietnam
Major Competitors in India
 ABB  Siemens  BBL
 BHEL  Crompton Greaves  EMCO
 CGL  TELK  ECE
 L&T  SCHNIDER  T&R
Major Customers in India
 All State Electricity  Indian Iron and Steel  Cochin Refinery.
Board. Company.  Reliance
 Power Grid Corporation  Bharat Heavy Textiles.
of India. Electricals Limited  ABB.
 National Hydro Power (BHEL).  TC Engineers.
Electric Corporation.  IFFCO.  Engineers India
 Kolkata Electric Supply  Kribhco. Limited.
Corporation  National Fertilizers  Indian Railways.
 Ahmedabad Electricity Limited (NEL).  HINDALCO.
Company.  ACC.  Ashok Leyland.
 New Delhi Municipal  Birla Cement.  Damodar Valley
Corporation.  Century Cement. Project.
 Tata Iron and Steel  Western Collieries.  Indian Oil
Company (TISCO).  Eastern Coalfields. Corporation
 Bhilai Steel Plant.  Oil and Natural Gas Limited.
 L&T. Corporation (ONGC).
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16. EXPANSION OF AREVA T&D INDIA LIMITED
HOSUR:
 The unit located at Bangalore is moved to a new site at Hosur to achieve the following
objectives:
 To build products up to Extra High Voltage (765 kV) and Ultra High Voltage (1200
kV) for the emerging needs of India’s transmission grid.
 To build extra capacities to take care of both domestic and export market.
. .
VADODARA:
AREVA T&D India has inaugurated its largest manufacturing site at Vadodara
 Four world class industrial units on one site
 Delivering extra and ultra high voltage (EHV & UHV) transformers
AREVA T&D India has inaugurated four new factories at a Greenfield site in Vadodara,
State of Gujarat on March 30, 2008. These four factories are amongst a total of eight
advanced technology manufacturing facilities that are being opened by AREVA on three sites
across India.
Shri Narendra Modi, Chief Minister of Gujurat inaugurated the new facility, situated near
Kotambi village, in Vadodara, in the presence of Mr. Philippe Guillemot, Chairman and CEO
of AREVA T&D, and other senior company representatives and customers. The four
factories at Vadodara together cover an industrial surface of 350,000 sqm of which more than
69,000 sqm is the covered surface. These factories are:
1. Power Transformer factory with the largest testing capabilities in India: In
addition to AREVA’s existing power transformer factory at Naini (State of Uttar
Pradesh), the new factory in Vadodara will manufacture power transformers up to
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17. 1200kV AC and 800kV DC, supporting India’s growing needs in UHV AC & UHV
DC network developments.
2. The second Distribution Transformer factory in India: Vadodara also
manufactures Distribution Transformers, which adds additional capacity to the
existing facility at Naini. This new factory will improve geographical coverage across
India, ensuring the close proximity to customers. The Vadodara factory will supply
oil-immersed distribution transformers up to 30MVA.
3. Primary Distribution Equipment: The Primary Distribution factory manufactures
outdoor and indoor vacuum circuit breakers and air insulated switchboards up to
36kV. Modern design circuit breakers will require less welding and contain some
40% less raw materials, to help reduce CO2 emissions and electricity used during
production.
4. Secondary Distribution Equipment: The Secondary Distribution factory
manufactures gas insulated switchgear to 36kV for distribution networks, MXR
reclosers for overhead lines, and prefabricated substations. The factories incorporate
world class manufacturing equipment and facilities, latest generation high tech
equipments: high speed core cutting line; semi automatic winding machines, and an
impulse generator 1000. In the power transformer factory, handling facilities for
weights over 500 tons are sized for the production of the largest power transformers
for Ultra High Voltage applications.
PADAPPAI:
AREVA T&D inaugurates India’s first Gas Insulated Substation manufacturing
facility at Padappai
 Site to also manufacture ultra high voltage (1200 kV) switchgear
AREVA T&D India has inaugurated its latest state-of-the-art High Voltage
manufacturing site at Padappai, near Chennai on March 31, 2009. The new site is home to
three specific factories, manufacturing gas insulated substations, circuit breakers and
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18. disconnecting switches. These new factories are amongst a total of eight that are being
inaugurated on three sites in Vadodara, Padappai and Hosur by AREVA T&D.
At Padappai, Thiru Arcot Veeraswamy, honourable Minister for Electricity,
government of Tamil Nadu inaugurated the new facility, during an official ceremony, which
took place in the presence of Philippe Guillemot, Chairman and CEO of AREVA T&D,
together with invited guests and customers.
With its three factories, the Padappai site is AREVA T&D’s hub facility in the region for
high voltage, and fully equipped to meet India’s demand for extra and ultra high voltage
equipment (up to 1200kV). It has an industrial surface of 58,000 sqm, with 20,300 sqm of
covered workshop areas.
1. Gas Insulated Substation (GIS) factory: In line with AREVA T&D’s localization
strategy to become closer to its customers, Padappai is India’s FIRST manufacturing
facility for Gas Insulated Substations (GIS). AREVA T&D is the world leader in GIS,
including in India. At Padappai, AREVA will manufacture GIS up to 400kV.
2. Circuit Breakers factory: The second of the Padappai factories manufactures and
tests live tank circuit breakers from up to 1200kV. AREVA is already the first
company to manufacture in India circuit breakers with full spring operating
mechanisms and thermal blast chambers. As a global leader in the circuit breaker
product segment and number one in India since 1996, AREVA T&D is bringing its
advanced know-how to what will be a manufacturing centre of excellence.
3. Disconnecting Switches factory: The third factory manufactures disconnecting
switches from up to 1200kV. Benefiting from AREVA T&D’s worldwide leadership
position in Disconnectors, is the AREVA’s first disconnector factory in India.
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19. FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and weaknesses of the
firm and establishing relationship between the items of the balance sheet and profit & loss
account. Financial ratio analysis is the calculation and comparison of ratios, which are
derived from the information in a company’s financial statements. The level and historical
trends of these ratios can be used to make inferences about a company’s financial condition,
its operations and attractiveness as an investment. The information in the statements is used
by:
 Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position
of the company.
 Investors, to know about the present and future profitability of the company and its
financial structure.
 Management, in every aspect of the financial analysis. It is the responsibility of the
management to maintain sound financial condition in the company.
TYPES OF FINANCIAL ANALYSIS
On the basis of material used
External Analysis: External analysis is conducted by those persons who do not have access
to the detailed record of the enterprise and therefore have to depend on published accounts
and director’s and auditor’s report . Such type of analysis is made by investor’s, credit
agency, and government agency and research scholars.
Internal Analysis: Internal analysis is conducted by the management for the reason that the
management wishes to know the financial health and operational efficiency of the
organization. The important feature of such analysis is that as the management has access to
all information relating to the organization so the analysis is more detailed extensive and
correct.
On the basis of modus operandi
Analysis: This analysis is made to review and analyze of financial statements of a number of
years and are therefore, based on financial data taken for those years. It is a time series
analysis. It shows comparison of financial data for several years against a chosen base year.
Financial Statement is example of this type of analysis.
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20. Vertical Analysis: This analysis is made to review and analysis the financial statements of
one particular year only. This type of analysis is also called Static Analysis as it is frequently
used for referring to ratio development for one date or for one accounting period. Such an
analysis is useful in comparing the performance of several companies in the same group, or
divisions or departments in the same enterprise.
RATIO ANALYSIS
The term “Ratio” refers to the numerical and quantitative relationship between two items or
variables. This relationship can be exposed as
 Percentages
 Fractions
 Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret the financial
statements. So that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition can be determined. Ratio reflects a quantitative
relationship helps to form a quantitative judgment. Ratio analysis is to present the figure of
financial statement in simple and tangible. Ratio analysis is the process of establishing
meaningful relationship between two figure and set for financial statement.
OBJECTIVE OF RATIO ANALYSIS
 Measuring the profitability.
 Judging the operational efficiency of the business.
 Assessing the solvency of the business.
 Measuring short and long-term financial position of the company.
 Facilitating comparative analysis performance.
CLASSIFICATIONS OF RATIOS
The use of ratio analysis is not confined to financial manager only. There are different parties
interested in the ratio analysis for knowing the financial position of a firm for different
purposes. Various accounting ratios can be classified as follows:
 Liquidity ratio
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21.  Leverage ratio
 Activity ratio
 Profitability ratio
LIQUIDITY RATIOS:
It is extremely essential for a form to be able to meet its obligations as they become due.
Liquidity ratios measure the ability of the firm to cover its current obligations. Liquidity
ratios by establishing a relationship between cash others current assets provide a quick
measure of liquidity. A firm should ensure that it does not suffer from lack liquidity, and also
that it is not too much liquid. The failure of a company to meet its obligations, due to lack of
sufficient liquidity, will result in bad credit image, loss of creditors confidence, or even
lawsuits resulting in the closure of the company. A very high degree of liquidity is also bad,
as idle assets earn nothing. The firm’s funds will be unnecessarily tied up in current assets.
Therefore it is necessary to strike a proper balance between liquidity and lacks of liquidity.
Important Liquidity Ratios are:
a) Current Ratio
b) Quick Ratio
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22. CURRENT RATIO
Current Ratio is defined as the relationship between current assets and current liabilities. This
ratio is also known as "working capital ratio". It is a measure of general liquidity and is most
widely used to make the analysis for short term financial position or liquidity of a firm.
CURRENT RATIO = CURRENT ASSETS
CURRENT LIABILITIES
The two basic components of this ratio are:
1) Current Assets
2) Current Liabilities
Current assets include cash, marketable securities, bills receivables, sundry debtors,
inventories, work in progress and prepaid expenses. Current liabilities include outstanding
expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short term
advances, income tax payable, dividend payable.
Year 2009 2008 2007
Current Ratio 1.342 1.307 1.368
Table 1
1.38
1.37
1.36
1.35
1.34
1.33 2009
1.32 2008
1.31
2007
1.3
1.29
1.28
1.27
CURRENT RATIO
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23. Fig 1
Interpretation: A relatively high current ratio is an indication that the firm is liquid and has
the ability to pay its current obligations in time and when they become due. On the other
hand, a relatively low current ratio represents that the liquidity position of the firm is not
good and the firm shall not be able to pay its current liabilities in time. A ratio equal to or
near to the rule of thumb 2:1 i.e current assets double the current liabilities is considered as a
standard or normal or satisfactory. We can easily see from the above diagram that in all the
three years i.e. 2007, 2008 and 2009, the current ratio is below ideal standard.
QUICK RATIO
Liquid Ratio is also termed as "Acid Test Ratio" or "Liquid Ratio". An asset is said to be
liquid if it can be converted into cash with a short period without loss of value.
QUICK RATIO = LIQUID ASSETS___
CURRENT LIABILITIES
The two basic components of this ratio are:
1) Liquid Assets
2) Current Liabilities
Liquid asset includes marketable securities, cash & bank, debtors and bills receivables.
Year 2009 2008 2007
Liquid Ratio 1.112 1.074 1.16
Table 2
Fig 2
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24. Interpretation: A high ratio is an indication that the firm is liquid and has the ability to meet
its current or liquid liabilities in time and on the other hand a low liquidity ratio represents
that the firm's liquidity position is not good. As a rule of thumb ratio of 1:1 is considered to
be satisfactory.
It can be interpreted from the above diagram that in all the three years i.e. 2007, 2008 and
2009, the quick ratio is above than ideal standard.
LEVERAGE RATIO
The term solvency refers to the ability of a concern to meet its long term obligation. The long
term indebtedness of a firm includes debenture holders.
Financial institutions provide medium and long term loans and other creditors sale goods on
installment basis. The long term creditors of firm are primary interested in knowing the
firm’s ability to pay regular interest on long-term borrowings, repayment of the principal
amount at the maturity and the security of their loans.
Accordingly, long term solvency ratios indicate a firm’s ability to meet the fixed interest and
cost and repayment schedules associated with its long-term borrowing.
The following ratios serve the purpose of determining the solvency of the concern.
 Debt-Equity Ratio
 Debt to Total Fund Ratio
 Proprietary Ratio
 Fixed Assets to Proprietor’s Fund Ratio
 Capital Gearing Ratio
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25. DEBT EQUITYRATIO
This ratio expresses the relationship between capital contributed by creditors and that
contributed by owners. It expresses the degree of protection provided by the owners for the
creditors. The higher the ratio, the greater the risk being assumed by creditors. A more highly
leveraged company has a more limited debt capacity.
DEBT EQUITY RATIO= DEBT
EQUITY
Whereas, Debt includes Debentures, Mortgage Loan, Bank Loan, Loan from financial
institutions and Public Deposits etc. and Equity includes Equity Share Capital, Preference
Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserves and Credit
Balance of P&L Account.
Year 2009 2008 2007
Debt Equity Ratio 0.885 0.6471 0.1842
Table 3
1
0.9
0.8
0.7
0.6
2009
0.5
0.4 2008
0.3 2007
0.2
0.1
0
DEBT EQUITY RATIO
Fig 3
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26. Interpretation: Though the ideal standard is 2:1, in all the three year company has this ratio
much below than its ideal standard which means there are very less external equity in
comparison to internal equity.
DEBT TO TOTAL FUND RATIO
This ratio is a variation of the debt equity ratio and gives the same indication as the debt
equity ratio. In this ratio, debt is expressed in relation to total funds, i.e. , both equity and
debt. It is calculated as under:
DEBT TO TOTAL FUND RATIO = DEBT______
EQUITY + DEBT
Year 2009 2008 2007
Debt To Total Fund Ratio 0.46971 0.3929 0.1556
Table 4
Fig 4
Interpretation: Generally, debt to total funds ratio of 0.67:1 is considered satisfactory. A
higher ratio than this is generally treated as indicator of risky financial position from the
long- term point of view. While with the Areva this ratio is much below than ideal standards
in all the three years i.e. 2007, 2008 and 2009.
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27. PROPRIETORY RATIO
This ratio indicates the proportion of total funds provided by owners or shareholders. It is
calculated as under:
PROPRIETARY RATIO = EQUTIY____
EQUITY +DEBT
Year 2009 2008 2007
Proprietary Ratio 0.5302 0.607 0.8443
Table 5
Fig 5
Interpretation: This ratio should be .33:1 or more than that. In all the three years this ratio is
above its ideal standard which means that the firm is less dependent on external sources of
finance.
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28. FIXED ASSETS TO PROPRIETORS FUND RATIO
This ratio indicates the extent to which proprietors fund are sunk into the fixed assets.
FIXED ASSET TO PROPRIETORS FUND RATIO = FIXED ASSET____________
PROPRIETORS FUND (i.e. NET WORTH)
Year 2009 2008 2007
Fixed Asset To Proprietor Fund Ratio 1.027 0.892 0.417
Table 6
Fig 6
Interpretation: If this ratio is less than 100% it would mean that proprietors funds are more
than fixed assets and a part of working capital is provided by the proprietors. The lower the
ratio, the better it is for the long-term solvency of business because more proprietors’ funds
will be available for working capital. It can be seen that in all the three years this ratio is
much below than ideal standard which shows a good solvency position for the company.
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29. CAPITAL GEARING RATIO
This ratio establishes a relationship between equity capital (including all reserves and
undistributed profits) and fixed cost bearing capital. In fixed cost bearing capital we include
preference share capital and fixed interest bearing loans. Thus,
CAPITAL GEARING RATIO= EQUITY SHARE CAPITAL +RESERVE + P&L
BALANCE
FIXED COST BEARING CAPITAL
Whereas, Fixed Cost bearing capital= Preference Share Capital+ Debentures+ Long Term
Loan
Year 2009 2008 2007
Capital Gearing Ratio 13.613 17.55 13.302
Table 7
20
18
16
14
Fig 7
12
Interpretation: In all the three years we see a low capital gearing ratio. Low capital gearing
mean the amount of fixed cost bearing is less than the equity share capital.
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29
8

30. ACTIVITY RATIO
Funds are invested in various assets in business to make sales and earn profits. The efficiency
with which asset are managed directly effects the volume of sales. The better the
management of asset, the larger is the amount of sales and the profits. Activity ratio measures
the efficiency or effectiveness with which a firm manages its resources or assets. These ratios
are also called turnover ratios because they indicate the speed with which assets are converted
or turned over into sales. It included the following ratios:
 Inventory Turnover Ratio
 Fixed Asset Turnover Ratio
 Working Capital Turnover Ratio
 Capital Turnover Ratio
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31. INVENTORY TURNOVER RATIO
This ratio indicates the relationship between the sales and the inventory.
INVENTORY TURNOVER RATIO= SALES___
INVENTORY
Year 2009 2008 2007
Stock Turnover Ratio 9.4 6.83 7.35
Table 8
Fig 8
Interpretation: It can be interpreted from the above chart that in the year 2009, the stock
turnover ratio is much more in comparison to any of the three year.
FIXED ASSET TURNOVER RATIO
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32. This ratio is of particular importance in manufacturing concern where the investment in fixed
assets is quite high. This ratio reveals how efficiently the fixed assets are being utilized.
FIXED ASSETS TURNOVER RATIO= COST OF GOODS SOLD
NET FIXED ASSET
Net Fixed Asset= Fixed Asset –Depreciation
Year 2009 2008 2007
Fixed Asset Turnover Ratio 2.898 2.768 5.773
Table 9
Fig 9
Interpretation: From the above diagram it be seen that there is a fall in the fixed asset
turnover ratio from the year 2007 to 2009.
WORKING CAPITAL TURNOVER RATIO
This ratio reveals how efficiently working has been utilized in making sales. In other words,
it shows the number of times working capital has been rotated in producing sales.
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33. WORKING CAPITAL TURNOVER RATIO = COST OF GOODS SOLD
WORKING CAPITAL
Working Capital= Current Assets – Current Liabilities
Year 2009 2008 2007
Working Capital Turnover Ratio 3.515 3.5225 3.369
Table 10
Fig 10
Interpretation: It can be found out from the above chart that in all three year working capital
turnovers is almost three and half times in a year.
CAPITAL TURNOVER RATIO
It is used to calculate the rate of return on common equity, and is a measure of how well a
company uses its stockholder’s equity in producing sales. It is calculated as:
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34. CAPITAL TURNOVER RATIO: COST OF GOODS SOLD
CAPITAL EMPLOYED
Capital Employed= Equity Share Capital + Preference Share Capital + All Reserves + P&L
Balance + Long term Loans – Fictitious Assets – Non-operating Assets
Year 2009 2008 2007
Capital turnover Ratio 2.773 2.337 2.41
Table 11
Fig 11
Interpretation: In each year i.e. 2007, 2008 and 2009, Capital Turnover Ratio is almost two
times.
PROFITABLITY RATIO
34

35. Profitability ratio can be defined as a ratio that explains the profitability of a company during
a specific period of time. It explains how profitable a company is. These ratios can be
compared during different financial years to see the overall performance of a company.
Some of the profitability ratios are:
 Gross profit ratio
 Net profit ratio
 Operating ratio
 Return on capital employed (ROCE) ratio
 Return on equity capital
 Earnings per share
GROSS PROFIT RATIO
This ratio establishes the relationship between gross profit and sales. It measures the margin
of profit available on sales.
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36. GROSS PROFIT RATIO= GROSS PROFIT *100
NET SALES
Year 2009 2008 2007
Gross Profit Ratio 0.276 0.3219 0.3400
Table 12
Fig 12
Interpretation: It can be seen that consistently from the year 2007 there is a fall in the gross
profit ratio.
NET PROFIT RATIO
This ratio is also known as net margin. Net profit is obtained when operating expenses,
interest and taxes are subtracted from the operating profit. This ratio provides considerable
insight in to overall efficiency of the business and earnings left for shareholders as a
percentage of net sales.
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37. NET PROFIT RATIO = NET PROFIT * 100
NET SALES
Year 2009 2008 2007
Net Profit 0.053 0.085 0.107
Ratio
Table 13
Fig 13
Interpretation: Net Profit is also consistently decreasing year by year.
OPERATING NET PROFIT RATIO
This ratio establishes the relationship between operating profit and sales to measure the
relative operating efficiency of the company. It is calculated by dividing operating net profit
with by sales.
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38. OPERATING NET PROFIT RATIO= OPERATING NET PROFIT *100
NET SALES
Year 2009 2008 2007
Operating Profit Ratio 0.084 0.142 0.171
Table 14
Fig 14
Interpretation: It can be easily drawn from the above bar graph that operation profit is
decreasing a very rapid pace year by year.
RETURN ON CAPITAL EMPLOYED
This ratio reflects the overall profitability of the business. It is calculated by comparing the
profit earned and the capital employed to earn it. This ratio is usually in percentage and is
also known as ‘Rate of Return’ or ‘Yield on Capital’.
RETURN ON CAPITAL EMPLOYED= PROFIT BEFORE INTEREST, TAX AND
DIVIDENDS
CAPIAL EMPLOYED
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39. Capital Employed= Equity Share Capital + Preference Share Capital + All Reserves + P&L
Balance + Long term Loans – Fictitious Assets – Non-operating Assets
Year 2009 2008 2007
Return on Capital Employed 0.384 0.528 0.636
Table 15
Fig 15
Interpretation: Return on capital employed shows the return earned by the company on the
application of funds. As given in the above figure we find that it is decreasing year by year
that means returns earned by the company is not adequate.
RETURN OF EQUITY SHAREHOLDER’S FUNDS
This ratio is also called as ‘Return on Net Worth’. This ratio reveals how the firms have
utilized profitability the owner funds. The ordinary shareholder’s equity is also referred as a
net worth. It is calculated by dividing earnings after taxes (eat) with net worth.
RETURN ON EQUITY SHAREHOLDER’S FUND
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40. = NET PROFIT AFTER INTEREST, TAX AND PREFERENCE DIVIDEND*100
EQUITY SHAREHOLDER’S FUND
Equity Shareholder’s Funds= Equity Share Capital + All Reserves + P&L A/C Balance –
Fictitious Asset
Year 2009 2008 2007
Return on Total Equity 0.717 0.692 0.633
Shareholders Fund
Table 16
0.74
0.72
0.7
0.68
2009
0.66
2008
0.64
2007
0.62
0.6
0.58
RETURN ON TOTAL EQUITY SHAREHOLDERS FUND
Fig 16
Interpretation: This ratio shows the overall return earned by the equity shareholder which
means the per share return earned. It is clear from the figure that this ratio is increasing year
by year that means profit earned on per share basis is increasing which is favorable to the
shareholders.
EARNIGS PER SHARE
The profitability of the shareholders’ investment can also be measured in many ways. The
EPS is calculated by dividing the profit after tax by the total nos. of ordinary shares
outstanding.
EARNING PER SHARE= NET PROFIT- DIVIDEND ON PREFERENCE SHARE
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41. NUMBER OF EQUTY SHARE
Year 2009 2008 2007
Earnings Per Share 8.03 9.47 9.05
Table 17
Fig 17
Interpretation: EPS simply shows the profitability of the firm on a per-share basis. As it can
be seen by the figure that EPS ratio in year 2008 is better than other two years which shows
that the portion of a company's profit allocated to each outstanding share of common stock is
more in that year.
FINDINGS
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42.  Current Ratio is too low, which means that company do not have sufficient funds to
meet their Current Liabilities
 As there is fall in the Fixed Asset Turnover Ratio, it means that fixed asset have not
been used as efficiently, as they had been used in the previous year.
 Company is less dependent on External (Debt) source of financing.
 It can be drawn from the report that sufficient amount of proprietors fund is involved
in the Working Capital. This means that company has adequate liquid asset.
 Areva do not have to pay much fixed interest bearing charges, as they have less
External Equity.
 Inventory turnover ratio is ideal in all the three years.
 Study also shows that Gross Profit Ratio, Net Profit Ratio and Operating Profit Ratio
are decreasing year by year.
 Return on Equity Shareholders fund is increasing every year.
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43. SUGGESTIONS
Below mention are the suggestions required by the company after this study:
 Company can go into expansion activities by financing it from external equity.
 It had good dividend per share ratio which means company is distributing dividend
every year which can be retained by company for expansion.
 Company should give more emphasis on inventory management.
 Company has sufficient cash in the form of Loan and Advances which can
be utilized in other investing activities.
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44. CONCLUSION
An immense support from my project guide motivated me to undertake this practical project
work in the most emphatic manner. It was not just a part of my curriculum but a real life
experience of carrying out a field work. My contribution included a detailed study of “Ratio
Analysis of last three years financial statement of Areva T&D Ltd.
My study included the analysis and interpretation of financial statement of Areva T&D Ltd.
to get the overview of financial status of the company. Proper technique had been used for
evaluating the ratios from the financial statements.
Analysis and data presentation of ratios has been done through using simple tables and graph
chart to show the figures in last three years.
Areva T&D India offers transmission and distribution services and also manufactures power
equipment. Globally Areva, which is also a significant player in nuclear energy, derives about
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45. a third of its revenues from its transmission and distribution unit. The company plans to
invest around Euro 50 million in the country`s transmission and distribution sector over the
period 2007-2010.
During the study of sample 5 government companies which were the debtors of AREVA it
was found that the they were given more liberty in payment terms as compared to private
companies.
It would be more profitable if the payment terms of government’s company’s debtors are
revised accordingly and they are agreed on the terms that ensures regular inflow of money
and keeps the contract cash rich mostly.
BIBLIOGRAPHY
BOOKS
• Financial management, I.M. Pandey.
• Financial management, Khan and Jain
WEBSITES
• www.areva.com
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46. • www.areva-td.com
• www.areva-np.com
• www.arevagroup.com
• www.arevatde.com
• www.google.com
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