Introduction To BHEL

PROJECT REPORT
ON
“EVALUATION OF FINANCIAL PERFORMANCE OF

BHARAT HEAVY ELECTRICALS LTD”
ON
“THE BASIS OF RATIO ANALYSIS AND FINANCIAL
STATEMENTS”
Submitted Towards The Fullfillment Of
MASTER OF BUSINESS ADMINISTRATION DEGREE
PROGRAMME OF UPTU, LUCKNOW
SUBMITTED TO:
BHARAT INSTITUTE OF TECHNOLOGY, MEERUT
SUBMITTED BY: UNDER THE GUIDANCE OF:
Anuj Kumar Sharma Dr. Dinesh Kumar Maheshwari
M.B.A. IV Semester Associate Professor
Roll No. 0827170011
BHARAT INSTITUTE OF TECHNOLOGY MEERUT (UP)
(AFFILIATED TO UP TECHNICAL UNIVERSITY, LUCKNOW)
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BHARAT INSTITUTE OF TECHNOLOGY
(Approved by AICTE, Recognized by U.P. Govt. & Affiliated to U. P. Technical University, Lucknow)
Bye-Pass Road, Partapur, Meerut – 250 103
Phone: Off.–(0121)6531892,6533991,3263721 Fax: 0121
– 2967001
E-mail: dg@bitmeerut.edu.in Website: www.bitmeerut.edu.in
DATE: -
TO WHOM IT MAY CONCERN
This is certify that Mr. ANUJ KUMAR SHARMA is a bonafide student of
MBA forth semester in our institute. He has submitted this project report titled
“EVALUATION OF FINANCIAL FERFORMANCE OF BHARAT
HEAVY ELECTRICALS LTD ON THE BASIS OF RATIO ANALYSIS
AND FINANCIAL STATEMENTS” To fulfill the requirement of U.P.T.U.
He has completed Research Project under the guidance of Dr. Dinesh Kumar
Maheshwari.
Dr. Dinesh Kumar Maheshwari Prof. R. C. Sharad

Department of Management Director Management Studies
BIT, Meerut BIT, Meerut
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“STUDENT’S DECLARATION ’’
I ANUJ KUMAR SHARMA hereby declare that project report entitled “EVALUATION
OF FINANCIAL FERFORMANCE OF BHARAT HEAVY ELECTRICALS LTD ON
THE BASIS OF RATIO ANALYSIS AND FINANCIAL STATEMENTS” under the
guidance of Dr. D. K MAHESWARI Associate Professor (MBA Deptt) being submitted by
me in fulfillment of the requirement for the award of the degree of MASTER OF
BUSINESS ADMINISTRATION to U. P. TECHNICAL UNIVERSITY.
This is my original work and the same has not been submitted for award of any other
degree/diploma/fellowship or similar titles or prizes.
Place: ANUJ KUMAR SHARMA
Date: Roll No. – 0827170011
M.B.A. 4th Sem.
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“ACKNOWLEDGEMENT”
This project is the result of collective wisdom and efforts of several esteemed
persons including my faculties and my friends . It is due to their guidance and
support that a worthwhile project has come – forth .
I wish to express my gratitude to Dr. D. K MAHESWARI Associate Professor (MBA

Deptt), who has shown me the path of my success in such a manner that , it becomes
very easy for me to fight against every hurdles on my way. I wish to always have
his blessings with me to make right decision of my career.
I offer my acknowledgements to all the individuals who have given me the support and
by providing constructive feedbacks and help in the project report entitled
“EVALUATION OF FINANCIAL FERFORMANCE OF BHARAT HEAVY
ELECTRICALS LTD ON THE BASIS OF RATIO ANALYSIS AND FINANCIAL
STATEMENTS”.
I am also thankful to all my teachers who have given me full co-operation in the preparation
for this project report.
ANUJ KUMAR SHARMA
Roll No. – 0827170011
M.B.A. 4th Sem.
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“ PREFACE’’
The primary objective in writing this report is to provide the readers the insight
into structure and processes that the report can offer and the enormous practical
utility of its various techniques. This report enable us to develop a thorough
understanding about the FINANCIAL PERFORMANCE OF BHEL.
The aim is to explain the concepts and simultaneously to develop readers an
understanding of problem-solving methods based upon a careful discussion of model
formulation , solution procedures and analysis.
I hope that the presentation and sequence of chapters have made the text interesting
and lucid. Each chapter begins with a clear statement of pertinent definitions, examples
and other descriptive material. In writing this report I have benefited immensely by
referring to many books and publications. I express my gratitude to all such authors,
publishers and institutions; and also they are listed in the references. If anybody has
been left out inadvertently, I seek their pardon.
ANUJ KUMAR SHARMA
Roll No. – 0827170011
M.B.A. 4th Sem.
OBJECTIVES OF THE STUDY
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The objectives of the study are as follows:
1. To assess the short-term and long-term solvency of the company.
2. To know the efficiency of financial operations.
3. To predict the financial health and viability of the company with special reference to
the debt capacity.
4. To provide suggestions for improving the financial position.
5. To measure the financial soundness of the company by analyzing various ratios.
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
The study has been done in one of the leading Public limited companies. This study is based
on secondary data, which have been obtained from published sources i.e. Annual report for
the period of Four years (2005-06 to 2008-09). The collected data has been analysed with
the help of ratio analysis, and also through the application of statistical tools such as t test,
Correlation, Mean, and Standard Deviation.
LIMITATIONS OF THE STUDY
 This study is limited to five years.
 The study is restricted to the application of ratio analysis.
 This study is limited to only one company.
 The data of this study has been primarily taken from published annual reports only.
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DATA SOURCES :
The following sources have been sought for the prep of this report:
SOURCES OF DATA
Both primary and secondary data were collected to meet the objective, The data is collected
for the last four years from the annual reports of the Bharat Heavy Electricals Ltd. Due to
non-availability of the accounts of separation units. I measure the performance on the base
of all aggregate units.
1 Data is taken as per the requirements of the study. Secondary data is used for it.
Primary data is collected for the purpose of the theoretical part.
2 Also, various text books on financial management like ICFAI’s book, Khan &
Jain, Prasanna Chandra and I.M.Pandey were consulted to equip ourselves with the
topic. Internet websites the important amongst them being :
www.bhel.com,www.moneycontrol.com ,
www.google.com,www.scribd.com.
TOOLS FOR ANALYSING THE COLLECTED DATA
1) Various Formulas related to the evaluation of Ratio analysis projects have been used
in the report.
2) Various Statistical Tools such as- Tables, charts, diagrams have been used for
analyzing the concern data.

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SCOPE OF THE STUDY
This project is vital to me in a significant way. It does have some importance for the
company too. These are as follows –
• This project will be a learning device for the finance student.
• The project would also be an effective tool for credit policies of the companies.
• This will show different methods of holding inventory and dealing with cash and
receivables.
• This will show the liquidity position of the company and also how do they maintain
a particular liquidity position.
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BOARD OF DIRECTORES
Shri B.P. Rao
Chairman & Managing Director
PART TIME OFFICIAL DIRECTORS

Shri Saurabh Chandra Shri Rajiv Bansal
Additional Secretary & Financial Adviser Joint Secretary
PART TIME NON-OFFICIAL DIRECTOR

Shri S. Ravi Shri Ashok Kumar Shri M.A. Pathan Smt. Reva Nayyar
Basu
FUNCTIONAL DIRECTORS
Shri C. S. Verma Shri Anil Sachdev

Director (Finance) Director (HR)
Shri Atul Saraya

Director (Power)
COMPANY SECRETARY
I.P. Singh
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HISTORY OF BHEL
1972
Company was set up at Bhopal in the name of M/s Heavy electrical (India) Ltd. in
collaboration with AEI, UK. Subsequently, three more plants were set up at Hyderabad,
Hardwar and Trichy. The Bhopal Unit was controlled by the company, the other three were
under the control of Bharat Heavy Electricals Ltd.
- The Company's object is to manufacture of heavy electrical equipments.
- In July the Operations of all the four plants were integrated.
1974
- In January Heavy electrical (India) Ltd was merged with BHEL.
- For the manufacture of a wide variety of products, the company has developed
technological infrastructure, skills and quality to meet the stringent requirements of the
power plants, transportation, petro chemicals, oil etc.
- BHEL has entered into collaboration which are technical in nature.
1982
- BHEL also entered into power equipments, to reduce its dependence on the power sector.
1991
- On 24th December converted into a public Limited company.
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1992
- Between January to February the company disinvested 489,52,000 equity shares of Rs.10
each. - During the year, 10 thermal sets, 2 gas sets and 11 hydro sets were commissioned.
1995
- The country's premier state owned undertaking, BHEL, has commissioned India's first 250
mw capacity thermal generating unit at Dahanu power station in Maharashtra. BHEL won
this world bank contract against competition from multinationals.
1996
- The company signed an agreement with Indian Railways for building and leasing 53 nos.
AC/DC locos of 5,000/4,600 HP.
1997
- In May a Joint venture company named Bhe-Ge Gas Turbine Services private Ltd. was
incorporated with General Electric to carryout after sales repair and servicing of GE designed
heavy duty gas turbines installed in India and certain other countries abroad.
- Another Joint venture company with Siemens AG was incorporated under the name
`Powerplant Performance Improvement Private Ltd.' to carry out plant performance
Improvement to old fossil fuel power plants in India and abroad.
- The joint venture between BHEL and GE, set up with an authorised capital of Rs.7 crores,
has been named BHEL-GE Gas Turbine Services Private Ltd.
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- With Siemens AG, BHEL's technical tie-up is for manufacture of steam turbines and
generators.
1998
- The public sector Bharat Heavy Electricals Ltd (BHEL) has entered into an agreement with
the Indian Space Research Organisation (ISRO) for manufacture and supply of solar
panels for upcoming Indian Satellites.
1999
- Bharat Heavy Electricals Ltd (BHEL) has entered into a technical collaboration agreement
with Babcock Borsig Power GmbH of Germany for the manufacture of `once through
boilers'.
2000
- The Company is considering a proposal to launch a voluntary retirement scheme (VRS) to
"select" employees who have been underperforming and not managed any promotions or
those who have consistently taken leave or anyother proficiency related criteria.
- The Company has bagged the `Samman Patra' award from the Finance Ministry for its
unblemished track record with Airport Customs in regard to payment of customs duties.
- The Company has won the `Best Productivity Performance Award' in the heavy engineering
industries category for the year 1997-98.
- BHEL Tiruchi has bagged the Handa Rolling Trophy and Golden Key Award for the year
2000-2001, consequently for second time.
2001
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- Bharat Heavy Electricals Ltd. has bagged the prestigious "Golden peacock" national quality
award for the second consecutive year for achieving excellence in quality conforming to
global standards.
- The Company has bagged the `Golden Trading House' status for attaining excellence in
global export operations.
2002
-Awarded the top exporters' award by Engineering Export Promotion Council for the year
1999-2000
-BHEL's Electroporcelains Division receives the OHSAS-18001 certification for its
occupational health and safety management system
-Launches its first-ever Vessel Traffic Management System (VTMS) at the New Mangalore
port
2003
-Awarded ISO 14001 and OHSA 18001 certifications by Det Norske Veritas, Netherlands.
The company bags the award for implementing an integrated management system, HSE
Health, Safety and Environment Management System.
2004
-Tata Consultancy Services (TCS) and Bharat Heavy Electricals Ltd (BHEL) on April 2
announced the release of PowerPac-G, a software product that addresses decision support
and integrated asset management needs of power generation plants. TCS and BHEL will
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jointly market the product in the Indian and global markets, and initial orders have been
firmed up.
2005
-Delists equity shares from the Madras Stock Exchange Ltd (MSE) w.e.f. January 19,
- Delists equity shares of the Company voluntary from The Stock Exchange, Ahmedabad
(ASE) with effect from January 28, 2005.
-Bharat Heavy Electricals Ltd (BHEL) and Rural Electrification Corporation (REC) have
entered into a memorandum of understanding to work jointly in offering solutions along with
financial packages in the power generation sector, covering both new power generation
projects and renovation and modernisation of existing power plants
-BHEL, TCS jointly working on marketing initiative 'Power Pack'
2007
-The Company has issued Bonus Shares in the Ratio of 1:1.
CORPORATE PROFILE OF BHEL
BHEL is the largest engineering and manufacturing enterprise in India in the energy
related/infrastructure sector. BHEL was established more than 40 years ago, ushering In
indigenous Heavy Electrical Equipment Industry in India, a dream which has been more
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than realized with a well recognized track record of performance. It has earning profits
continuously since 1971-1972.
BHEL caters to core sectors of the Indian Economy viz.,
• Power Generation and Transmission,

• Industry,
• Transportation,
• Renewable Energy,
• Defence, etc.
The NETWORK of BHEL’s

• 14 manufacturing divisions,
• 4 power sector regional centers,
• 8 Service centers,
• 15 regional offices and
• A large number of Project Sites spread all over India and abroad
enables the Company to promptly serve its customers and provide them with
suitable products, systems and services – efficiently and at competitive prices.
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BHEL has attained ISO 9001 certification for Quality management and all the
manufacturing units/divisions of BHEL have been upgraded to the latest ISO-9001: 2000
version.
All the major Units/Divisions of BHEL have been awarded ISO-14001 certification for
Environmental Management Systems and OHSAS–18001 certification for
Occupational Health and Safety Management Systems.
BHEL was the public sector company in the country to win the coveted “PRIZE” for its
Haridwar Unit under the CII Exim Award for business excellence, as per the globally
recognized modal of European Foundation for Quality Management.
 The Company received EEPC’s Top Export Award for Projects Exports for the
seventeenth year in succession.
 It has won the SCOPE Meritorious Award for R&D and innovation 2005-06 for
commendable contribution in the area of R&D innovation.
The Company achieved the perfect MoU score of 1.00 for the year 2006-07 and has also
been selected for MoU award for highest growth rate in the market capitalization among
listed PSEs during 2006-07. 12 out of the 13 power stations awarded with the Ministry of
Power’s Meritorious Productivity Awards for 2006-07 are equipped with BHEL sets,
reaffirming the quality and reliability of BHEL’s equipment.
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• POWER GENERATION
Power Generation Sector comprises Thermal, Gas, Hydro, and Nuclear power plant business.
As of 31.03.2008, BHEL –supplied sets account for 85,786 MW or around 64% of the total
installed capacity of 1,34,697 MW in the country. Significantly , these sets generated an all
time high 454.59 Billion Units of electricity contributing 73% of the total power generated in
the country, The cumulative capacity of the projects installed worldwide have crossed
1,00,000 MW.
The Company has proven expertise in Plant Performance Improvement through Renovation,
Modernization and Uprating of a variety of power plant equipment, besides specialized
know-how of residual life assessment, health diagnostics and life extension of plants. BHEL
built thermal sets consistently exceed the national average efficiency parameters and have
achieved the highest-ever Plant Load Factor (PLF) of 80.4% during 2007-08, which is 2.5%
higher than the national average. Operating Availability (OA) was also the highest-ever at
86.7%.
BHEL is one of the few companies worldwide, involved in the development of Integrated
Gasification combined Cycle (IGCC) technology which would usher in clean coal
technology.
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BHEL has set up Asia’s First 6.2MW IGCC power plant with indigenously designed
pressurised fluidised bed gasification. The company has also signed an MoU with
APGENCO for setting up a 125 MW IGCC plant at Vijayawada.
• INDUSTRIES
BHEL manufactures and supplies major capital equipment and systems like Captive Power
Plants, Centrifugal compressors, Drive turbines, Industrial boilers and auxiliaries, Waste heat
recovery boilers, Gas Turbines, Pumps, Heat Exchangers, Electrical Machines, Valves,
Heavy casting and forging, Electrostatic precipitators, ID/FD fans, Seamless pipes etc. to a
number of industries, like metallurgical, mining, cement, paper, fertilizers, refineries &
petro-chemicals etc., other than power utilities. BHEL has also emerged as a major supplier
of controls and instrumentation systems, especially distributed digital control systems for
various power plants and industries.
• TRANSPORTATON
Most of the trains in Indian Railways, whether electric or diesel powered, are equipped with
BHEL’s traction propulsion system and controls. The systems supplied are both conventional
DC drives and state-of-the-art drives. India’s first underground metro at Kolkata runs on
drives and controls supplied by BHEL. The company also manufactures Rolling stocks i.e.
Electric Locomotives up to 5000 HP and EMU coaches and diesel Electric locomotives from
350 HP to 3100 HP for both mainline and shunting duty applications.
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BHEL also undertakes retrofitting and overhauling of rolling stock. In the area of urban
transportation, BHEL is geared up for turnkey execution of electric trolley bus systems, light
rail systems and metro systems.
BHEL is contributing to the supply of electrics for EMUs for 1500V DC &25kV AV to
Indian Railways. Almost all the EMUs in service in India are with the electrics manufactured
and supplied by BHEL.BHEL has also diversified into the area of track maintenance
machines and coaches building for Indian Railways.
• RENEWABLE ENERGY
BHEL has been manufacturing and supplying a range of Renewable Energy systems and
products. It includes Solar Energy Systems viz. PV modules, PV power plants, Street
lighting, Solar pumps and solar water heating systems. A large number of small hydro power
stations have also been completed.
In line with the efforts being made at national level for development of remote areas, BHEL
has commissioned six stand alone Solar Photovoltaic (SPV) power plants of 3x110KWp
capacities in Sunderbans (West Bengal). 57 Sets of Solar PV operated petrol pumps are being
supplied to M/s HPCL to illuminate and run the company-owned petrol pumps smoothly
irrespective of Grid power outage.
• OIL AND GAS
BHEL is supplying onshore drilling rig equipment viz. Draw works, Rotary-table, Travelling
block, Swivel, Mast and Sub structure, Mud systems and Rig electrics to ONGC and Oil
India Ltd. Well heads & X-Mas tree valves upto 10,000 psi rating for onshore as well as off
shore application are being supplied to ONGC ,Oil India Ltd. And Private Drilling
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Companies. BHEL has also supplied Casting Support System, Mudline Suspension System
and Block Valves to ONGC for offshore application.
It also has the capability to supply complete onshore Drilling rigs, Super-deep drilling
rigs,Mobile rigs, Work over rigs and sub-sea well heads. Currently, BHEL is executing
orders for refurbishment and up-gradation of onshore Oil rigs from ONGC and Oil India Ltd.
BHEL has supplied GT driven centrifugal compressor packages to GAIL India Ltd. For their
gas compressor stations for the Dahej – Vijaipur gas pipeline project.
• TRANSMISSSION
BHEL supplies a wide range of products and systems for transmission and distribution
applications. The products manufactured by BHEL include Power transformers, Instruments
transformers, Dry tape transformers, Shunt reactors, Capacitors, Vacuum and SF6
switchgear, Gas insulated switchgears, Ceramic insulators, etc.
BHEL has developed and commercialized the country’s first indigenous 36kV Gas Insulated
Substation (GIS) and has also developed 145kV GIS which has undergone successful field
trials at Hyderabad. HVDC Disc insulators of rating 320kN/420kN have been developed for
the first time in the country for use in +/- 800kV HVDC application.
• INTERNATIONAL BUSINESS
BHEL has, over the years, established its references in 70 countries across all inhabited
continents of the world. These references encompass almost the entire range of BHEL
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products and services, covering Thermal, Hydro and gas-based turnkey power projects,
besides a wide variety of products l like Transformers, Compressors, Valves, Oil field
equipment, Electrostatic Precipitators, Photovoltaic equipment, Insulators Heat Exchangers,
Switchgear, Castings and Forgings etc.
• TECNOLOGY UP-GRADATION, RESEARCH & DEVELOPMENT
To remain competitive and meet customers’ expectations. BHEL lays great emphasis on the
continuous up-gradation of products & related technologies, and development of new
products. The Company has upgraded its products to contemporary levels through continuous
in-house efforts as well as through acquisition of technologies from leading engineering
organisations of the world.
• HUMAN RESOURCE DEVELOPMENT INSTITUTE
The Human Resource Development Institute (HRDI) situated in Noida, is the corner stone of
BHEL’s learning Infrastructure, along with the Advance Technical Education Centre
(ATEC) at Hyderabad and the Human Resource Development Centres (HRDCs) at different
units. Through various organizational developmental efforts, these centres ensure that the
resource of the organization – the Human Capital - is always in a state of readiness to meet
the dynamic challenges posed by the fast changing environment. It is their constant endeavor
to take the HRD activities to the strategic level of becoming an active partner in achieving
the organizational goals.
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• HEALTH, SAFETY AND ENVIRONMENT MANAGEMENT
BHEL is committed to be an environment friendly company in all its areas of activities,
products and services, providing safe and healthy working environment to all shareholders.
In fact this aspect has become an integral part of the company’s business performances.
Significantly, BHEL has also taken initiatives on Clean Development Mechanism (CDM)
projects to reduce greenhouse gas emissions in a more focused way and vigorous efforts are
being made to achieve milestones in this area
• CORPORATE SOCIAL RESPONSIBILITY OF B.H.E.L
As part of its social responsibility, BHEL adopted 56 villages having nearly 80,000
inhabitants. Other examples of CSR activities are Blood Donation and Health Check-up
camps, besides providing infrastructure support at these villages. In addition, BHEL provides
financial assistance to various NGOs/Trusts/Social Welfare Societies that are engaged in
social activities throughout the country.
• PARTICIPATION IN THE UN’s GLOBAL COMPACT

PROGRAMME
As the world’s largest global corporate citizenship initiative, the Global Compact is the first
and foremost concern which is exhibiting and building the social legitimacy of business and
markets. BHEL is committed to United Nations Global Programme, the set of core values
enshrined in its ten principles and the intent to advance Global Compact principles within
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company’s sphere of influence. BHEL has made these a part of the strategy, culture and day-
to-day operations. As part of this programme, BHEL continues to play a lead role in the
activities of the Global Compact Society in India, which acts as an apex level nodal agency
representing Indian corporate bodies and institutions/organizations that are committed to
UN’s Global Compact Programme.
MAJOR ACHIEVEMENT DURING 2007-2008
During the year BHEL secured several prestigious orders:
• Entry into new market – New Caledonia – Secured an order for 2x135MW
Circulating Fluidised Bed Combustion Boilers (CFBC) from Koniambo Nickel SAS
an overseas joint venture of Extrata, Switzerland. This is the first ever overseas order
for CFBC Boiler for utility application. This prestigious reference of BHEL is
expected to open up new markets for this environment friendly product with a large
growing demand.
• First ever order for Power Generation equipment from UAE – Order secured from
Ras Al Khaimah Investment Authority (RAKIA), UAE for supply & supervision of
2x42 MW (Fr6B) Gas Turbine Generator sets for their Al Ghail Power Plant to be
installed in Ras Al Khaimah, one of the seven emirates of UAE. This ground
breaking achievement in UAE market in Power Generation equipment is expected to
prove way for more opportunities not only in UAE but in other countries of Middle
East & North African region.
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• Second consecutive order for Gas Turbine base power plant secured from Libya –
300MW Gas Turbine (2xV94.2) based power plant on EPC basis at Western
Mountain Extension, Libya from General Electric Company of Libya (GECOL),
Libya. This project is an extension of recently commissioned 600MW Western
Mountain Power Plant by BHEL, which is the highest capacity Gas Turbine based
Power Plant installed by BHEL.
• First ever order for Steam Turbine & Generators from Ethiopia – Secured three orders
for Tendaho Sugar Factory(Phase-1, 2x20MW & Phase-2, 2x40MW Steam Turbine
& Generators) and Finchaa Sugar Turbine Factory (2x12MW Steam Turbine &
Generators) from Ethiopia for co-generation application. This is the largest overseas
order for co-generation application secured by BHEL.
• Export order for Steam Turbine Generators & CFBC Boilers secured from Indonesia
– 1x15MW Steam Turbine & Generators along with 120TPH CFBC Boiler Package
received from PTIBR, Indonesia for their captive power & steam application.
• Export order for CFBC Boilers for Mine Mouth Power Plant in Indonesia –
2x126TPH CFBC Boiler Package for utility application.
• Maiden export orders for motors from UAE & Kuwait – First ever orders received
from UAE & Kuwait for supply of motors.
• Maiden export order for Soot Blwers from UAE & New Zealand – First ever orders
received for supply of Soot Blowers to Ras.
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BHELSites
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SWOT ANALYSIS:
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SWOT analysis is basically used as important technique through which a company can know
its positive features and can overcome its negative aspects.
Therefore SWOT analysis an important role to formulate the business strategies for any
company, which are based on its strength, weakness, opportunity and threats. The SWOT
analysis of BHEL can be done as under: -
STRENGTHS
• Sound engineering base and Ability to assimilate
• Relatively stable industrial relationship
• Access to contemporary technologies with the support from renowned collaborators.
• Ability to set up power plants on turnkey basis,
• complete know- how for manufacture of entire equipment is available with the
company.
• Ability to manufacture or procure to supply spares
• Fully equipped to take capital maintenance and servicing of the power plants.
• Largest source of domestic business leading to major presence and influence in the
market.
• Ability to successfully overhaul and renovate power stations equipment of different
international companies.
• Low labour cost.
• For non- BHEL products, services and spares are not easily available and if they are,
price charged are very high.
• Sound financial position in terms of profitability and solvency.
• Low debt equity ratio (even lower than 0.5:1) for all the years under study, enabling
company to raise capital.
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WEAKNESSES
• Difficulty in keeping up the commitments on the product delivery and desired
sequence of supplies.
• Larger delivery cycles in comparison with international suppliers of similar
equipment.
• Inability to provide supplier’s credit, soft loans and financing of power projects.
• Lack of effective marketing infrastructure.
• Due to poor financial position of state electricity boards, which are the major
customers of BHEL in India, liquidity position of BHEL is not satisfactory.
• Being a public sector company BHEL is suffering from sub optimality of control due
to:
1. Displacement of social objectives by political objectives, which may lead to
redundant costs and also rising costs
2. Direct political intervention in managerial decision over an arm length
relationship that would restrict government’s task of setting appropriate
managerial incentive structure
3. Private goals that lead to budget growth and employment growth.
4. Internal inefficiencies in bureaucratic activity.
OPPORTUNITIES
• Demand for power and hence plant equipment is expected to grow.
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• Private sector power plants to offer expanded market as utilities suffers resource
crunch.
• Ageing power plants would give rise to more spares and services business.
• Life expansion program for old power stations.
• Export opportunities.
• Easy processing of joint ventures/ collaboration/import/acquisition of new
technology.
• Financial and operational autonomy for profit making public sector enterprises. To
make the public sector more efficient government has decided to grant enhanced
autonomy and delegation of powers to the profit making public sector enterprises.
THREATS
• Increased competition both national and international.
• Multilateral agencies reluctant to lend to power sector because of poor financial
management of S.E.Bs.
• More concessions to private sector and not to government owned utilities like NTPC
or S.E.Bs, so future power projects would be opened up in private sector.
• Level playing ground not available, foreign companies spending much more on
business promotion tactics.
EVALUATION OF FINANCIAL FERFORMANCE WITH

THE HELP OFFINANCIAL STATEMENT
• BALANCE SHEET
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• POFIT AND LOSS ACCOUNT
BALANCE SHEET
A financial statement that lists the assets, liabilities and equity of a company at a
specific point in time and is used to calculate the net worth of a business. A basic tenet of
double-entry book-keeping is that total assets (what a business owns) must equal liabilities
plus equity (how the assets are financed). In other words, the balance sheet must balance.
Subtracting liabilities from assets shows the net worth of the business. The top portion of the
balance sheet should list your company's assets in order of liquidity, from most liquid to least
liquid. Current assets are cash or its equivalent or those assets that will be used by the
business in a year or less. They include the following:
Cash is the cash in hand at the time books are closed at the end of the fiscal year. This
refers to all cash in checking, savings and short-term investment accounts.
Accounts receivable is the income derived from credit accounts. For the balance sheet,
it's the total amount of income to be received that's logged into the books at the close of
the fiscal year.
Inventory is derived from the cost of goods table. It's the inventory of material used to
manufacture a product not yet sold.
"Total current assets" is the sum of cash, accounts receivable, inventory and supplies.
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Other assets that appear in the balance sheet are called long-term or fixed assets because
they're durable and will last more than one year. Examples of long-term assets include the
following.
 Capital and plant is the book value of all capital equipment and property (if you own the
land and building), less depreciation.
 Investment includes all investments owned by the company that can't be converted to
cash in less than one year. For the most part, companies just starting out have not
accumulated long-term investments.
 Miscellaneous assets are all other long-term assets that are not "capital and plant" or
"investment."
"Total long-term assets" is the sum of capital and plant, investments, and miscellaneous
assets.
"Total assets" is the sum of total current assets and total long-term assets
After listing the assets, you then have to account for the liabilities of your business. Like
assets, liabilities are classified as current or long term. Debts that are due in one year or less
are classified as current liabilities. If they're due in more than one year, they're long-term
liabilities. Here are examples of current liabilities:
 Accounts payable include all expenses incurred by the business that are purchased from
regular creditors on an open account and are due and payable.
32
 Accrued liabilities are all expenses incurred by the business that are required for
operation but have not yet been paid at the time the books are closed. These expenses are
usually the company's overhead and salaries.
 Taxes are those payments still due and payable at the time the books are closed.
"Total current liabilities" is the sum of accounts payable, accrued liabilities and taxes.
Long-term liabilities include the following:
 Bonds payable is the total of all bonds at the end of the year that are due and payable over
a period exceeding one year.
 Mortgage payable is loans taken out for the purchase of real estate that are repaid over a
long-term period. The mortgage payable is that amount still due at the close of the fiscal
year.
 Notes payable are the amounts still owed on any long-term debts that won't be repaid
during the current fiscal year.
"Total long-term liabilities" is the sum of bonds payable, mortgages payable and notes
payable.
"Total liabilities" is the sum of total current and long-term liabilities. Once the liabilities have
been listed, the owner's equity can then be calculated. The amount attributed to owner's
equity is the difference between total assets and total liabilities. The amount of equity the
owner has in the business is an important yardstick used by investors to evaluate the
company. Many times, it determines the amount of capital they feel they can safely invest in
the business.
33
POFIT AND LOSS ACCOUNT
 The Profit and Loss Account is an accounting document whose usefulness is to know the
financial year, which is obtained by difference between two bodies formed respectively
by the Revenues and Benefits on the one hand and the costs and losses on the other.
 The profit represents the increase in net worth that the company has experienced as a
result of operations during the year These operations have allowed the company to offset
the expenses that have been incurred and have also generated a surplus that belongs to
shareholders or to the employer who increases the value of the investment was made at
the beginning of the activity.
Financial Perspective of BHEL
Year at a Glance --2006-07

(Rs. in crores) 2006-07 2005-06 CHANGE (%)
Orders Received 35643 18938 88.21
Orders Outstanding 55000 37600 46.28
Turnover 18738.95 14525.49 29.01
Value Added 7182.27 5682.80 26.39
34
Employee (Nos.) 42124 42601 -1.12
Profit Before Tax 3736.07 2564.35 45.69
Profit After Tax 2414.70 1679.16 43.80
Dividend 599.66 354.90 68.97
Dividend Tax 92.83 49.78 86.48
Retained Earnings 1722.21 1274.49 35.13
Total Assets 22362.54 17505.92 27.74
Net Worth 8788.26 7301.38 20.36
Total Borrowings 89.33 558.24 -84.00
Debt : Equity 0.01 0.08 -87.50
Per Share (in Rupees) :
- Net worth 359.06 298.31 20.36
- Earnings 98.66 68.60 43.80
Economic value
Added 1657 1079 53.51
(US $ in million)
Turnover 4344 3270 32.84
Profit Before Tax 866 577 50.01
Profit After Tax 560 378 48.15
Conversion Rates (Rate as on 31st March) :
1 US $ = Rs. 43.14 for 2006-07
1 US $ = Rs. 44.42 for 2005-06

(Rs.in Crore) 2007-08 2006-07 CHANGE (%)
Turnover 21401 18739 14.2
Value Added 8323 7182 15.9
Employee (Nos.) 43636 42124 3.6
Dividend 746 600 24.4
35
Corporate Dividend
Tax 127 93 36.8
Retained Earnings 1986 1722 15.3
Total Assets 29352 22280 31.7
Net Worth 10774 8788 22.6
Total Borrowings 95 89 6.3
Debt : Equity 0.01 0.01 0.0
- Net worth 220.1 179.5 # 22.6
- Earnings 58.4 49.3 # 18.4
Economic value
added 1810 1657 9.2
(US $ in million)
Turnover 5419 4344 24.8
Conversion Rates (Rate as on 31st March):
1 US $ = Rs.39.49 for 2007-08
1 US $ = Rs. 43.14 for 2006-07
# The paid up share capital has increased from Rs. 244.76 crores in 2006-07 to Rs. 489.52
crores in 2007-08 on account of
issue of bonus shares. Accordingly previous year figures are reworked out based on enhanced
share capital for comparison.

(Rs.In Crore) 2008-09 2007-08 CHANGE (%)
Turnover 28033 21401 30.99
Value Added 9894 8323 18.88
Employee (Nos.) 45666 43636 4.65
36
Dividend 832 746 11.53
Corporate Dividend
Tax 142 127 11.81
Retained Earnings 2165 1986 9.01
Total Assets 39581 29554 33.93
Net Worth 12939 10774 20.01
Total Borrowings 149 95 56.84
Debt : Equity 0.01 0.01 0.00
- Net worth 264.32 220.11 20.08
- Earnings 64.11 58.41 9.73
Economic value
added 2008 1810 10.94
DATA ANALYSIS
1. Turnover Of the BHEL
Year 2004-05 2005-06 2006-07 2007-08 2008-09
37
Turnover in Crore 10336 14525 18739 21401 28033
During the year the turnover increased by 30.99% to Rs.28033 crore from Rs.21401 crore in
the previous year. The Turnover net of Excise duty, increased by 35.78% from Rs.19305
Crore in 2007-08 to Rs. 26212 crore in 2008-09.
2. Profit Before Tax/Profit After Tax of BHEL
Year 2004-05 2005-06 2006-07 2007-08 2008-09

Profit Before Tax 1582 2564 3736 4430 4849
Profit After Tax 953 1675 2415 2859 3138
38
6000
5000
4000
3000 ProfitBeforeTax
ProfitAfter Tax
2000
1000
0
2004 -05 2005 -06 2006 -07 2007 -08 2008 -09
Profit before Tax for the year 2008-09 is placed at Rs. 4849 crore as against Rs. 4430 crore
during 2007-08. Profit After
Tax is placed at Rs. 3138 crore as against Rs. 2859 Crore during 2007-08. Profit before tax
has grown by 9.46% only
To the Members, impacted mainly by increase in material cost and additional wage revision
provision.
3. Net Worth Per Share (in Rs.)
Year 2004-05 2005-06 2006-07 2007-08 2008-09

Net Worth Per Share (in Rs.) 123 149 180 220 264
39
NetWorthPerShare(inRs.)
300 264
250 220
200 180
149
150 123 Net WorthPer Share(in
100 Rs.)
50
0
2004 -05 2005 -06 2006 -07 2007 -08 2008 -09
In 2007-08 bonus shares were issued in the ratio of 1:1, figures (charts ) are restated based on
enhanced share capital for comparison.
40
4. Earnings Per Share (in Rs.)
Year 2004-05 2005-06 2006-07 2007-08 2008-09

Earnings Per Share (in Rs.) 123 149 180 220 264
EarningPer Share in Rs.

70 64.11
58.41
60
49.33
50
40 34.3 Earning Per Share in Rs.

30
19.48
20
10
0
2004-05 2005-06 2006-07 2007-08 2008-09
In 2007-08 bonus shares were issued in the ratio of 1:1, figures (charts ) are restated based on
enhanced share capital for comparison.
41
5. Dividend
Year 2004-05 2005-06 2006-07 2007-08 2008-09

Dividend 196 355 600 746 832
Dividend
900 832
800 746
700 600
600
500
400 355
Dividend
300 196
200
100
0
2004-05 2005-06 2006-07 2007-08 2008-09
The Board has recommended a Final Dividend of 80% (Rs.8 per share), Rs. 392 crore, for the
year 2008-09. An interim dividend of 90% (Rs. 9 per share), Rs. 440 crore, on share capital
of Rs. 490 crore, has already been paid for the year 2008-09. Thus the total dividend payment
for the year 2008-09 is Rs. 832 crore (exclusive of dividend tax) as against Rs. 746 crore paid
in the previous year. Provision of Rs. 67 crore has been made for Corporate Dividend Tax on
the Final dividend proposed. Corporate Dividend Tax of Rs. 75 crore has already been paid
on the interim dividend.
Analysis of the financial performance of BHEL

42
I. Share Capital
Figures in Rs. Crore

Year 2008-09 2007-08 2006-07 2005-06
Authorised Share capital 2000 2000 325.00 325.00
Issued, subscribed & Paid up Share Capital 490 490 244.76 244.76
In the Extraordinary General Meeting of the Shareholders of the company held on 30th April,
2007 the Shareholders approved increase in Authorised Share Capital from Rs. 325 crore to
Rs. 2000 crore of Face Value of Rs. 10/- per Equity Share and issue of bonus shares in the
ratio of 1:1. Bonus shares were allotted on 6th June, 2007 to the shareholders, the authorised
share capital and paid-up share capital stand increased to Rs. 2000 crore and Rs. 490 crore
respectively.
2. Reserves & Surplus
43
Year 2008-09 2007-0808 2006-07 2005-06
Capital Reserve 3 3 2.75 2.75
Foreign Project Reserve 1 3 3.57 5.02
Bonds Redemption Reserve 0.00 0.00 0.00 500.00
General Reserve 11850 9849 8094.46 6329.79
Profit & Loss Account 595 430 442.72 219.06
12449 10285 8543.50 7056.62
• The change in Reserve & Surplus as on 31.03.2007 were on account of: i) transfer of
Rs.1.45 crore from Foreign Project Reserve to Profit & Loss account ii) transfer of
bond redemption reserve Rs. 500 crore to General Reserve on redemption of b0onds
on its maturity iii) adjustment of Rs. 235.33 crore to the general reserve consequent to
the transitional provisions of Accounting Standard -15 (Revised) (Employee Benefits)
and iv) an amount of Rs.1500/- crore has been transferred from Profit & Loss account
to General Reserve.
• The Reserve & Surplus has increased by Rs. 1986 crore during 2007-08 after addition
of profit after dividend distribution. During the year, an amount of Rs. 245 crore was
transferred from Reserve & Surplus to paid up share capital consequent to issue of
bonus shares. With this the net increase in reserve & surplus in 2007-08 is Rs. 1741
crore.
• The Reserve & Surplus has increased by Rs. 2164 crore and the erection and
commissioning facilities at project during 2008-09 after addition of profit after
dividend sites. distribution.
3. Loans Funds

Year 2008-09 2007-08 2006-07 2005-06
Secured Loans 0 0 0.00 500.00
Unsecured Loans
149 95 89.33 58.24 44
• Secured loan of Rs. 500 crore towards bonds were redeemed during the year and
repaid on its maturity. Unsecured Loan represents assets taken on lease in 2006-07.
• Unsecured Loans represent assets taken on lease in 2007-08.
• Unsecured Loan represents assets taken on Finance Lease. Increase was due to EDP
equipment taken on Finance Lease in 2008-09
4. Fixed Assets
Figures in Rs.
Crore
Year 2008-09 2007-08 2006-07 2005-06
Gross Block 5224 4443 4135.05 3822.06
Less:Depreciation/amortisation 3713 3403 3117.05 2852.76
Add:/( Less):Lease Adjustment
41 -59 -29.26 12.98
Account
Net Block 1470 981 988.74 982.28
Capital Work-in-Progress 1157 658 302.54 184.57
45
Gross Block and Capital Work in progress increased by Rs. 782 crore, and Rs. 499 crore
respectively during the year 2008-2009 due to Capital expenditure incurred on ongoing
capacity augmentation programme at various manufacturing units and the erection and
commissioning facilities at project sites.
46
5. Investments

Year 2008-09 2007-08 2006-07 2005-06
Long Term Trade Investments 52 8 8.29 8.29
Long term trade investments have increased by Rs. 44 mainly on account of equity
contribution of Rs. 5.05 crore in Joint Venture Companies and Rs. 38.95 Crore paid as
advance for issue of shares in Subsidiary Company & Finance Lease. Joint Venture
Companies.
6. Deferred Tax Assets
47
Year 2008-09 2007-08 2006-07 2005-06
Deferred Tax
1840 1338 935.16 673.72
Assets
• Deferred Tax assets has increased by Rs. 261.44 crore to Rs. 935.16 crore as on
31.3.2007. The increase is mainly on account of timing difference for certain category
of expenses including additional provision on account of AS-15 (R) Employee
Benefits.
• Deferred Tax assets have increased by Rs. 403 crore as on 31.3.2008.. The increase is
mainly on account of provisions including provision for wage revision due w.e.f.
01.01.2007.
• Deferred Tax assets (Net) have increased by Rs. 502 crore as on 31.3.2009.mainly on
account of increase in provisions including provision for wage revision.
7. Inventories
48
Year 2008-09 2007-08 2006-07 2005-06
Inventories 7837 5736 4217.6 3744.37
• Inventory increased by Rs. 473.30 crore or 12.64% over previous year in tune with
the increase in volume of operations. In terms of days of turnover, it has decreased
from 94 days in 2005-06 to 82 days in 2006-07.
• Inventory increased by Rs. 1518 crore over previous year in tune with the increase in
volume of operations. In terms of days of turnover, it has increased from 82 days in
2006-07 to 98 days in 2007-08. The inventory build up is also part of the strategies of
the management considering long lead time for certain special steel material and to
meet shorter delivery requirements of the customers.
• Inventory increased by Rs. 2101 crore over previous year in tune with the increase in
volume of operations. In terms of days of turnover, it has increased from 98 days in
2007-08 to 102 days in 2008-09.
8. Sundry Debtors
49
Year 2008-09 2007-08 2006-07 2005-06
Sundry Debtors 15976 11975 9695.82 7168.07
• Debtors in absolute terms increased by Rs. 2527.75 crore mainly due to increase in
turnover. In terms of day of turnover it increased from 180 days in 2005-06 to 189
days in 2006-07.
• Debtors in absolute terms increased by Rs. 2362 crore mainly due to increase in
turnover. In terms of days of turnover it increased from 187 days in 2006-07 to 204
days in 2007-08. The increase in debtors is also partially due to change in payment
terms. Debtors also include goods dispatched which could not be billed immediately
due to required documentation for billing.
• Debtors in absolute terms increased by Rs. 4001 crore mainly due to increase in
turnover In terms of days of turnover it increased from 204 days in 2007-08 to 208
days in 2008-09. Debtors also include goods dispatched which could not be billed
immediately due to required documentation for billing.
9. Cash and Bank Balances

Year 2008-09 2007-08 2006-07 2005-06
50
Cash & Bank Balances 10315 8386 5808.91 4133.97
• The cash and cash equivalents have increased from Rs.4133.97 crore in 2005-06 to
Rs. 5808.91 crore in 2006 -07 reflecting the sound liquidity of the company.
• The cash and cash equivalents have increased from Rs. 5809 crore in 2006-07 to Rs.
8386 crore in 2007-08 reflecting the sound liquidity of the company.
• The cash and cash equivalents have increased from Rs. 8386 crore in 2007-08 to Rs.
10315 crore in 2008-09 reflecting the sound liquidity of the company.
51
10. Loans and advances & other Current Assets

Year 2008-09 2007-08 2006-07 2005-06
Loans & advances 2424 1186 1140.87 1199.87
Other Current assets 350 421 199.70 84.50
• Loans & advances have decreased by Rs 59 crore. Other current assets represent
interest accrued on bank deposits and investments 2006-2007.
• Loans & advances have increased by Rs. 45 crore. Other current assets represent
interest accrued on bank deposits and investments 2007-2008.
• Loans & advances have increased by Rs 1036 crore in line with increased level of
operations. Other current assets represent interest accrued on bank deposits and
investments 2008-2009.
52
11. Current Liabilities & Provisions

Year 2008-09 2007-08 2006-07 2005-06
Current
23357 16576 11897.87 8807.74
Liabilities
Provisions 4976 3244 2522.24 1512.28
28333 19821 14420.11 10320.02
• The increase in current liabilities is due to increase in advances received from customers
by Rs. 2096.38 crore. in 2006-07.
• The increase in current liabilities is mainly due to increase in advances received from
customers by Rs. 3702 crore and in sundry creditors & liabilities by Rs. 1141 crore.
Increase in provisions was mainly due to provisioning for wage revision in 2007-08.
• The increase in current liabilities is mainly due to increase in advances received from
customers by Rs. 5041 crore and in sundry creditors & liabilities by Rs. 3270 crore due to
increase in volume of operations. Increase in provision was mainly due to additional
provisioning for wage revision (including Rs.661 crore provision for gratuity due to
53
enhancement in limit from Rs.3.5 Lakh to Rs. 10 Lakh based on the guidelines issued by
DPE) in 2008-09
PROFIT & LOSS ACCOUNT

12. Turnover
Figur
es in Rs. Crore
Year 2008-09 2007-08 2006-07 2005-06
Gross Turnover 28033 21401 18738.95 14525.49
Less: Excise duty & 1821 2096 1501.42 1151.46

service Tax
26212 19305 17237.53 13374.03
• Turnover increased by 29.01% during the year, Power segment and industry segment
contributed 73.56% and 26.44% respectively for the total revenue of the company.
• Turnover increased by 14.2% during the year, Power segment and industry segment
contributed 74% and 26% respectively for the total revenue of the company.
• Turnover net of Excise duty increased by 35.78% during the year. Power segment and
industry segment contributed 76% and 24% respectively for the total revenue of the
company.
54
13. Other Income

Year 2008-09 2007-08 2006-07 2005-06
Other operational
514 422 376.80 276.90
Income
Misc/Other income 213 127 128.59 109.77
Interest Income 770 896 318.17 160.25
14997 1445 823.56 546.92
The increase is on account of additional interest income and other operational income such as
export incentives, scrap etc.
The increase in interest income was contributed by higher level of short term investments and
interest on Income Tax refunds.
During 2007-08 there was an Interest Income (Net) of Rs. 252 crore on Income Tax refund.
Excluding this there is an increase of Rs.304 crore during 2008-09. This was mainly
55
contributed by increase in interest income from short term investments, Exchange Variation
(Net) gain etc.
14. Employees Remuneration & Benefits

Year 2008-09 2007-08 2006-07 2005-06
Employees Remuneration
& 2984 2608 2368.95 1878.51
Benefits
• Employees Remuneration & Benefits increased by Rs.490.44 crore or 26.11% during
the year 2006-07 compared to the previous year. Apart from normal increase the
changes in method of accounting of certain employee benefits due to implementation
of AS-15 (R) has also contributed to the increase. This also includes the expenses on
distribution of momentos to employees to commemorate the golden jubilee of our
Bhopal unit.
• Employees Remuneration & Benefits increased by Rs. 239 crore or 10.1% during the
year 2007-08 compared to the previous year. It includes Rs.199 crore of adhoc
payment made during the year against wage revision, pending final settlement.
56
• Employees Remuneration & Benefits increased by Rs. 376 crore or 14.42% during
the year 2008-09 compared to the previous year. It includes Rs.177 crore paid as
Adhoc to be adjusted against wage revision payments.
15.Other Expenses of manufacturing, Administration, Selling &

Distribution

Year 2008-09 2007-08 2006-07 2005-06
Manufacturing,
Administration, 1836 1644 1496.11 1170.05
Selling & Distribution
• The increase is in line with the increase in volume of operation. Other Expenses of
manufacturing, Administration, Selling & Distribution are marginally lower in 2007-
08 as compared to 2006-07.
• The increase in Other Expenses of manufacturing, Administration, Selling &
Distribution is Rs. 192 Crore or 11.68% in 2008-09 as compared to 2007-08 in line
with increased level of operations of the company.
57
16. Interest and other borrowing costs

Year 2008-2009 2007-08 2006-07 2005-06
Interest and other borrowing
31 35 43.33 58.75
costs
The decrease in interest cost was due to repayment of bonds on its maturity in November,
2006.
58
17. Depreciation

Year 2008-09 2007-08 2006-07 2005-06
Depreciation 334 297 272.97 245.93
The increase in depreciation by Rs. 27.04 crore was on account of increase in Capital
investments.
59
18. Provision for Taxation

Year 2008-09 2007-08 2006-07 2005-06
Income Tax - Current Year 2251 1935 1421.00 1019.05
- Earlier Years (-)78 12 14.30 3.58
Deferred tax (-)502 (-)403 (-)162.93 (-)155.44
Fringe Benefit Tax 40 27 49.00 18.00
1711 1571 1321.37 885.19
Tax liability has been provided as per the provisions of Income Tax. The increase in Income
Tax was due to increase in the taxable profit for the year. The effective tax rate was 38.03%
in 2006-07 as against 39.74% in 2005-06. The increase in fringe benefit tax was due to
increase in certain employee benefits.
19. Net Profit after Tax

Year 2008-09 2007-08 2006-07 2005-06
Profit after Tax 3138 2859 2414.70 1679.16
The Net profit for the year rose by Rs. 735.54 crore or 43.80%.
60
20. Dividend
The company has paid interim dividend of 125%, Rs.305.95 crore, on share capital of Rs.
244.76 crore during the year 2006-07. The Board has recommended a final dividend of 60%
Rs.293.71 crore on the enhanced paid up share capital consequent to 1:1 bonus issue,
equivalent to 120% on the pre bonus equity share capital for the year 2006-07. The total
dividend payment for the year 2006-07 is Rs. 599.66 crore (exclusive of dividend tax) as
against Rs. 354.90 crore in the previous year. Provision of Rs. 49.92 crore has been made for
corporate dividend tax on the final dividend proposed. Corporate dividend tax of Rs. 42.91
crore has already been paid on the interim dividend.
21. Transfer to General Reserve
• An amount of Rs. 1500 crore has been transferred to General Reserve for the year
2006-07 as against Rs.1200 crore in 2005-06
2007-08 as against Rs. 1500 crore in 2006-07.
2008-09.
61
RATIO ANALYSIS
This Project provides a basic understanding of how to use ratio analysis for evaluating
financial performance.
Why Use ratios

It has been said that you must measure what you expect to manage and accomplish. Without
measurement, you have no reference to work with and thus, you tend to operate in the dark.
One way of establishing references and managing the financial affairs of an organization is to
use ratios. Ratios are simply relationships between two financial balances or financial
calculations. These relationships establish our references so we can understand how well we
are performing financially. Ratios also extend our traditional way of measuring financial
performance; i.e. relying on financial statements. By applying ratios to a set of financial
statements, we can better understand financial performance.
Return on Equity
Calculating Return on Equity

For publicly traded companies, the relationship of earnings to equity or Return on Equity is
of prime importance since management must provide a return for the money invested by
shareholders. Return on Equity is a measure of how well management has used the capital
invested by shareholders.
Return on Equity tells us the percent returned for each monetary unit invested by
shareholders.
62
Return on Equity is calculated by dividing Net Income by Average Shareholders Equity
(including Retained Earnings).
SUMMARY — Return on Equity is one of the most widely used ratios for publicly traded
companies. It measures how much return management was able to generate for the
shareholders.
The formula for calculating Return on Equity is: Net Income / Average Shareholders
Equity
Components of Return on Equity

Return on Equity has three ratio components. The three ratios that make up Return on Equity
are:
 Profit Margin = Net Income / Sales
 Asset Turnover = Sales / Assets
 Financial Leverage = Assets / Equity
Profit Margin measures the percent of profits you generate for each dollar of sales. Profit
Margin reflects your ability to control costs and make a return on your sales. Profit Margin is
calculated by dividing Net Income by Sales. Management is interested in having high profit
margins.
Years 2008-09 2007-08 2006-07

Net Income 3138 2859 2415
Sales(Gross) 28033 21401 18739
Profit Margin in % 11.2 13.4 12.9
63
Asset Turnover measures the percent of sales you are able to generate from your assets.
Asset Turnover reflects the level of capital we have tied-up in assets and how much sales we
can squeeze out of our assets. Asset Turnover is calculated by dividing Sales by Average
Assets. A high asset turnover rate implies that we can generate strong sales from a relatively
low level of capital. Low turnover would imply a very capital-intensive organization.
Years 2008-09 2007-08 2006-07

Sales(Gross) 28033 21401 18739
Total Avg. Assets 41421 30690 23298
Asset Turnover 0.67 0.70 0.80
Financial Leverage is the third and final component of Return on Equity. Financial
Leverage is a measure of how much we use equity and debt to finance our assets. As debt
increases, we financial leverage increases. Generally, management tends to prefer equity
financing over debt since it carries less risk. The Financial Leverage Ratio is calculated by
dividing Assets by Shareholder Equity.
2008-09 2007-08 2006-07

Total Avg. Assets 41421 30690 23298
Shareholder Equity 490 490 245
Financial Leverage 84.53 62.63 95.0
Now let us compare our Return on Equity to a combination of the three component ratios:
From our Company,
Year 2008-09 2007-08 2006-07

Net Income 3138 2859 2415
Shareholder Equity 490 490 245
Return on Equity in 6.40 5.84 9.86
64
we can combine the three components of Return on Equity :
Year 2008-09 2007-08 2006-07

Profit Margin 0.112 0.134 0.129
Asset Turnover 0.67 0.70 0.80
Financial Leverage 84.53 62.63 95.0
Return on Equity in 6.40 5.84 9.86
Now that we understand the basic ratio structure, we can move down to a more detail analysis
with ratios. Four common groups of detail ratios are:
• Liquidity,
• Asset Management,
• Profitability and
• Leverage.
65
We will also look at market value ratios.
Liquidity Ratios
Liquidity Ratios help us understand if we can meet our obligations over the short-run. Higher
liquidity levels indicate that we can easily meet our current obligations. We can use several
types of ratios to monitor liquidity.
1. Current Ratio
Current Ratio is simply current assets divided by current liabilities. Current assets include
cash, accounts receivable, marketable securities, inventories, and prepaid items. Current
liabilities include accounts payable, notes payable, salaries payable, taxes payable, current
maturity's of long-term obligations and other current accruals.
Current Assets
1- Current ratio = ……………………
Current Liabilities
(Rs. In Crore)
2005-06
Year 2008-09 2007-08 2006-07
15130
Current Assets 34470 26518 19922
8807
Current Liability 23357 16576 11898
1.72:1
Ratio 1.48:1 1.60:1 1.67:1
66
Comments
The current ratio is indicated to be most ideal. As BHEL's current ratio was 1.72 in 2005-
06 it also decreases in the next year 2006-07 and next two year 2007-08 and 2008-09. It is
seen that the current liability is the main reason for the highest level of current ratio in
2005-06. During the last four year the current liability went up from Rs.8807 Crore to
Rs.23357 Crore therefore current ratio decrease during the period. During the four year the
current assets also register a continuous increase.
From the trend of the current ratio, it is clear that the organization should give greater
importance to its current liability by reducing credit from its supplier.
2. Acid Test or Quick Ratio
Since certain current assets (such as inventories) may be difficult to convert into cash, we
may want to modify the Current Ratio. Also, if we use the LIFO (Last In First Out) Method
for inventory accounting, our current ratio will be understated. Therefore, we will remove
certain current assets from our previous calculation. This new ratio is called the Acid Test or
Quick Ratio; i.e. assets that are quickly converted into cash will be compared to current
liabilities. The Acid Test Ratio measures our ability to meet current obligations based on the
most liquid assets. Liquid assets include cash, marketable securities, and accounts receivable.
67
The Acid Test Ratio is calculated by dividing the sum of our liquid assets by current
liabilities.
Current Assets - Inventories

2- Acid Test ratio = ………….………………………………
Current liabilities
(Rs. In Crore)
Year 2008-09 2007-08 2006-07 2005-06
Liq. Current Assets 26633 20782 15705 11386
Current Liability 23357 16576 11898 8807
Acid Test Ratio 1.14:1 1.25:1 1.31:1 1.29:1
Comments
This ratio indicates the liquidity position of the company more completely by excluding
inventory. The current visible is of an decrease from 1.31 to 1.14 during years 2006-07 to
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2008-09. In the year 2006-07, there was slightly increase in the ratio when compared with the
ratio of 2005-06.
The Decline in the trend is due to an increase in the level of receivables from 2006 to 2009
but is also due to a generally rising trend of current liability. The ratio would have show
negative performance but for the considerable decrease in the level of cash during the last
year
Asset Management Ratios
A second group of detail ratios is asset management ratios. Asset management ratios measure
the ability of assets to generate revenues or earnings. They also compliment our liquidity
ratios. We looked at one asset management ratio already; namely Total Asset Turnover when
we analyzed Return on Equity. We will now look at five more asset management ratios:
 Accounts Receivable Turnover,
 Days in Receivables,
 Inventory Turnover,
 Days in Inventory, and
 Capital Turnover.
69
1. Accounts Receivable Turnover
Accounts Receivable Turnover measures the number of times we were able to convert our
receivables over into cash. Higher turnover ratios are desirable. Accounts Receivable
Turnover is calculated as follows:
Sale
1. Receivables Turnover Ratio = ……………………….
Average Receivables
Year 2008-09 2007-08 2006-07 2005-06

Sales 28090 21498 18839 14587
Average Receivables 15976 11975 9613 7168
Receivables Turnover
1.76:1 1.8:1 1.96:1 2.04:1
Ratio
Comments
This ratio gives the efficiency of receivables as current assets. It is relates sales to average
receivables in this way specifically address the receivables actually contributing to a given
volume of sales during the year. There are the trend of this ratio ideally falling. During these
70
year even though the sales registered overall increase, the receivables have also the consistent
in a rise with the control of receivables during the year 2006 to 2009. NOTE — We are
assuming that all of our sales are credit sales; i.e. we do not have any significant cash sales.
2. Days in Accounts Receivable

The Number of Days in Accounts Receivable is the average length of time required to collect
our receivables. A low number of days is desirable. Days in Accounts Receivable is
calculated as follows:
365 or 360 or 300

1. Days in Accounts Receivables = ……………………….
Account Receivable Turnover Ratio
Year 2008-09 2007-08 2006-07 2005-06

Receivables Turnover
1.76 1.8 1.96 2.04
Ratio
No of Days 365 365 365 365
Days in Accounts
207 203 186 179
Receivables
71
Comment : - There is a continuous increasing of Days in Accounts Receivables which
directly means that company takes more to realizing the amount which is held by debtors.
3. Inventory Turnover
Inventory Turnover is similar to accounts receivable turnover. We are measuring how many
times did we turn our inventory over during the year. Higher turnover rates are desirable. A
high turnover rate implies that management does not hold onto excess inventories and our
inventories are highly marketable. Inventory Turnover is calculated as follows:
Cost of Sale
1. Inventory Turnover Ratio = ……………………….
Average Inventory
Year 2008-09 2007-08 2006-07 2005-06
Cost of goods sold (in crore) 19577 15462 12642 10544
Average Inventories 3837 5736 4218 3744

Inventory Turnover ratio(in
5.10 2.70 3.00 2.81
Times)
72
Comments:-
we were able to turn our inventory over 5.10 times during the year 2008-2009.
4. Days in Inventory
Days in Inventory is the average number of days we held our inventory before a sale. A low
number of inventory days is desirable. A high number of days implies that management is
unable to sell existing inventory stocks. Days in Inventory is calculated as follows:
365 or 360 or 300
1. Days in Inventory = ……………………….
Inventory Turnover
Year 2008-09 2007-08 2006-07 2005-06
Inventory Turnover ratio 5.10 2.70 3.00 2.81
Days 365 365 365 365
Days in Inventory 72 135 122 130
73
Comments:-
If we refer above table we use the entire calendar year for measuring inventory, then on
average we are holding our inventories 72 days before a sale in the year 2008-2009.
3. Operating Cycle
Now that we have calculated the number of days for receivables and the number of days for
inventory, we can estimate our operating cycle.
Operating Cycle = Number of Days in Receivables + Number of Days in Inventory.
Year 2009 2008 2007 2006

Days in Accounts
207 203 186 179
Receivables
Days in Inventory 72 135 122 130
Operating Cycle 279 338 308 309
74
Comments:-
So on average, it takes us 279 days to generate cash from our current assets in the year 2008-
2009.
If we look back at our Current Ratio, we found that we had 1.48 times more current assets than
current liabilities in the year 2008-2009. We now want to compare our Current Ratio to our
Operating Cycle. Our turnover within the Operating Cycle is 365 / 279 or 1.31. This is lower than
our Current Ratio of 1.48. This indicates that we have additional assets to cover the turnover of
current assets into cash. If our current ratio were below that of the Operating Cycle Turnover Rate,
this would imply that we do not have sufficient current assets to cover current liabilities within the
Operating Cycle. We may have to borrow short-term to pay our expenses.
5. Capital Turnover
One final turnover ratio that we can calculate is Capital Turnover. Capital Turnover measures
our ability to turn capital over into sales. Remember, we have two sources of capital: Debt
and Equity. Capital Turnover is calculated as follows:
Capital Turnover = Net Sales / Interest Bearing Debt + Shareholders
Equity
Year 2009 2008 2007 2006

Shareholders Equity +
12939 10774 8788 7301
reserve & surplus
75
Interest Bearing Debt 149 95 89 558
Net Sale 26212 19305 17238 13374
Capital 13088 10869 8877 7859
Capital Turnover 2.00 1.78 1.94 1.70
For each Rs. 1 of capital invested (both debt and equity), we are able to generate Rs. 2.00 in sales
in the year 2008-2009.
Profitability Ratios
A third group of ratios that we can use are profitability ratios. Profitability Ratios measure the
level of earnings in comparison to a base, such as assets, sales, or capital. We have already
reviewed two profitability ratios: Return on Equity and Profit Margin. Two other ratios we can use
to measure profitability are
 Operating Income to Sales and
 Return on Assets.
76
1. Operating Income to Sales
Operating Income to Sales compares Earnings Before Interest and Taxes (EBIT) to Sales. By
using EBIT, we place more emphasis on operating results and we more closely follow cash
flow concepts. Operating Income to Sales is calculated as follows:
EBIT
1. Operating Income to Sales = ……………………….
Net Sale
Year 2008-09 2007-08 2006-07 2005-06
EBIT 4880 4465 3779 2623
Net Sale 26212 19305 17238 13374

Operating Income to Sales in
19 23 22 20
%
2. Return on Assets
Return on Assets measures the net income returned on each of assets. This ratio measures
overall profitability from our investment in assets. Higher rates of return are desirable.
Return on Assets is calculated as follows:
Net Income
1. Return on Assets = ……………………….
Average Total Assets
77
Year 2008-09 2007-08 2006-07 2005-06
Net Income 3138 2859 2415 1679
Average Total Assets 41654 30690 23298 18180
Return on Assets in % 7.53 9.32 10.37 9.24
This gives us a 7.53% return on assets, Return on Assets is often modified to ensure accurate
measurement of returns. For example, we may want to deduct out preferred dividends from Net
Income or maybe we should include operating assets only and exclude intangibles, investments,
and other assets not managed for an overall rate of return.
78
Leverage Ratios
Another important group of detail ratios are Leverage Ratios. Leverage Ratios measure the use of
debt and equity for financing of assets. We previously looked at the Financial Leverage Ratio as
part of Return on Equity.
Three other leverage ratios that we can use are
 Debt to Equity,
 Debt Ratio, and
 Times Interest Earned.
1. Debt to Equity
Debt to Equity is the ratio of Total Debt to Total Equity. It compares the funds provided by
creditors to the funds provided by shareholders. As more debt is used, the Debt to Equity
Ratio will increase. Since we incur more fixed interest obligations with debt, risk increases.
On the other hand, the use of debt can help improve earnings since we get to deduct interest
expense on the tax return. So we want to balance the use of debt and equity such that we
maximize our profits, but at the same time manage our risk. The Debt to Equity Ratio is
79
Total Liabilities
1. Debt to Equity = ……………………….
Shareholders Equity
Year 2008-09 2007-08 2006-07 2005-06
Debts 149 95 89 558
Shareholders Equity 12939 10774 8788 7301
Debt to Equity in % 1.15 0.90 1.01 7.64
The Debt to Equity Ratio is 1.15%,. When compared to our equity resources, 1.15% of our
resources are in the form of debt.
80
KEY POINT — As a general rule, it is advantageous to increase our use of debt (trading on the
equity) if earnings from borrowed funds exceeds the costs of borrowing.
2. Debt Ratio
The Debt Ratio measures the level of debt in relation to our investment in assets. The Debt
Ratio tells us the percent of funds provided by creditors and to what extent our assets protect
us from creditors. A low Debt Ratio would indicate that we have sufficient assets to cover
our debt load. Creditors and management favor a low Debt Ratio. The Debt Ratio is
Total Liabilities
1. Debt Ratio = ……………………….
Total Assets
Year 2008-09 2007-08 2006-07 2005-06
Total Liabilities 28333 20022 14420 10320
Total Assets 41654 30690 23298 18180
Debt Ratio in % 68.01 65.24 61.90 56.77
81
Comments:-
Total Liabilities are $ 75,000 and Total Assets are $ 500,000. The Debt Ratio is 15%, $
75,000 / $ 500,000 = .15. 15% of our funds for assets comes from debt.
NOTE — We use Total Liabilities to be conservative in our assessment.
CONCLUSION
1. The increasing percentage of current assets to the total assets at first might indicate a
preference for liquidity in place of profitability, but a look into the nature of the
business carried on by “BHARAT HEAVEY ELECTRICALS LIMITED” reveal the
reason behind it.
2. The sales has increased and the profits risen despite the 8.68% decrease in working
capital 2009. This would automatically suggest towards a very efficient working
capital management where the assets of the firm which are short-term in nature have
been utilized optimally in connection to their fixed assets. The firm has gone towards
such a dramatic shift in their working capital position might be because of the
tremendous growth.
82
3. What has to be kept in mind before coming to a conclusion as to the policy of the
company, is the fact that the firm being primarily into assembling, its investment in
the fixed asset segment need not be high.
4. During the last four year the current liability went up from Rs.8807 Crore to
Rs.23357 Crore therefore current ratio decrease during the period. During the four
year the current assets also register a continuous increase.
5. It would be danger for the firm to increase the production process and decrease the
conversion rate still as the firm is required to meet the increasing demand.
6. Here the firm has not been able to bring down its WIP conversion periods.
7. The time taken for the firm to realize its finished goods as sales has increased as
compared to last year. This growth in sales could be traced. So it is only natural that
they are able to better their conversion rate of finished goods to sales.
8. Firm has large resources in cash and bank balances. While large resources in cash and
bank balances may seem to affect the revenue the firm could have earned by investing
it elsewhere as maintenance of current assets as cash and in near cash assets and
marketable securities may increase the liquidity position but not the revenue or profit
earning capacity of the firm.
9. During these year even though the sales registered overall increase, the receivables
have also the consistent in a rise with the control of receivables during the year 2006
to 2009.
10. But receivables to the total of current assets ratio shows the proportion of receivables
in the quantum of current assets where this ratio have an consistent falling trend.
83
Receivables to liabilities ratio is showing falling trend. It means Company is reducing
its receivable as against its liabilities.
RECOMMENDATIONS
The study has provided with the useful data from the respondents. There has a lot to be
recommended. Following are the recommendations:
1. A look into the capacity utilization of the plant would reaffirm this point. It would be
ideal for the firm to continue in the same line and not have excessive investment in
the fixed asset as they can easily add onto this part.
2. From the trend of the current ratio, it is clear that the organization should give greater
importance to its current liability by reducing credit from its supplier.
84
3. There must be a decrease in the level of receivables and considerable increase
in the level of cash in the future.
4. Firm should decrease the production process and increase the conversion rate
still as the firm is required to meet the increasing demand.
5. Firm should be able to bring down its WIP conversion periods
6. There is a need for better promotion for the investment products & services.
7. More returns should be provided . BHEL should provide this facility by tie up
with the other organizations as well. The main reason is that, the entire customers do
not want risk of only one company. They should have suitable choice while selecting
or investing . This will definitely add to the goodwill & profit for the company.
LIMITATIONS
Limitations of study and difficulties encountered:
85
Nothing in this universe is free from Limitations and present project is not an Acceptation to
it. Due to certain restrictions on the part of potential customers as well as actual
customers and Suppressed and based responses from them ,appropriate Figure for
relevant data and their interpretation Precisely this has been my personal experience
while Carrying out the present study. Some of the limitations I found and difficulties
encountered can be enumerated as under:
Annual reports and journals in the company was not readily available.
Due to company’ s security reasons, internal data was not easily available.
 Staff members were not conscious about the research, so they were not much
supportive.
 Security matters have a great deal.
 Appearance in companies meeting where substantial decisions were taken was not
allowed.
 Less assistance from the companies’ daily routine documents
References
86
BOOKS :
1. Financial Management By Professor I.M.PANDEY- Edition 2008-09
(Chapter- , Page No. )
2. Financial Management By Dr. S.N. Maheshwari Edition 2008-09
3. Financial Management By Khan & Jain Edition 2008-09
INTERNET
• BHEL web site: www.bhel.com
• COMPANY MANUAL & PROFLE
• Comapany Annual Report 2006-2007
• www.google.com
• www.shine.com
• www.moneycontrol.com
• www.sify.com
87

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Introduction To BHEL

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PROJECT REPORT

“EVALUATION OF FINANCIAL PERFORMANCE OF

Submitted Towards The Fullfillment Of

MASTER OF BUSINESS ADMINISTRATION DEGREE

PROGRAMME OF UPTU, LUCKNOW

BHARAT INSTITUTE OF TECHNOLOGY, MEERUT

SUBMITTED BY: UNDER THE GUIDANCE OF:

Anuj Kumar Sharma Dr. Dinesh Kumar Maheshwari

M.B.A. IV Semester Associate Professor

Roll No. 0827170011

BHARAT INSTITUTE OF TECHNOLOGY MEERUT (UP)

(AFFILIATED TO UP TECHNICAL UNIVERSITY, LUCKNOW)

TO WHOM IT MAY CONCERN

This is certify that Mr. ANUJ KUMAR SHARMA is a bonafide student of

“EVALUATION OF FINANCIAL FERFORMANCE OF BHARAT

HEAVY ELECTRICALS LTD ON THE BASIS OF RATIO ANALYSIS

AND FINANCIAL STATEMENTS” To fulfill the requirement of U.P.T.U.

Dr. Dinesh Kumar Maheshwari Prof. R. C. Sharad

OF FINANCIAL FERFORMANCE OF BHARAT HEAVY ELECTRICALS LTD ON

THE BASIS OF RATIO ANALYSIS AND FINANCIAL STATEMENTS” under the

guidance of Dr. D. K MAHESWARI Associate Professor (MBA Deptt) being submitted by

me in fulfillment of the requirement for the award of the degree of MASTER OF

BUSINESS ADMINISTRATION to U. P. TECHNICAL UNIVERSITY.

degree/diploma/fellowship or similar titles or prizes.

Place: ANUJ KUMAR SHARMA

Date: Roll No. – 0827170011

M.B.A. 4th Sem.

I wish to express my gratitude to Dr. D. K MAHESWARI Associate Professor (MBA

for this project report.

ANUJ KUMAR SHARMA

Roll No. – 0827170011

M.B.A. 4th Sem.

utility of its various techniques. This report enable us to develop a thorough

understanding about the FINANCIAL PERFORMANCE OF BHEL.

The aim is to explain the concepts and simultaneously to develop readers an

understanding of problem-solving methods based upon a careful discussion of model

formulation , solution procedures and analysis.

been left out inadvertently, I seek their pardon.

ANUJ KUMAR SHARMA

Roll No. – 0827170011

M.B.A. 4th Sem.

OBJECTIVES OF THE STUDY

1. To assess the short-term and long-term solvency of the company.

2. To know the efficiency of financial operations.

the debt capacity.

4. To provide suggestions for improving the financial position.

5. To measure the financial soundness of the company by analyzing various ratios.

Correlation, Mean, and Standard Deviation.

LIMITATIONS OF THE STUDY

 This study is limited to five years.

 The study is restricted to the application of ratio analysis.

 This study is limited to only one company.

of all aggregate units.

Primary data is collected for the purpose of the theoretical part.

topic. Internet websites the important amongst them being :

TOOLS FOR ANALYSING THE COLLECTED DATA

analyzing the concern data.

company too. These are as follows –

• This project will be a learning device for the finance student.

a particular liquidity position.

PART TIME OFFICIAL DIRECTORS

PART TIME NON-OFFICIAL DIRECTOR