A

PROJECT REPORT
ON
FINANCIAL PERFORMANCE ANALYSIS
OF
TORRENT POWER LTD

SUBMITTED TO
DR. KAPIL TRIVEDI
&
DR. BEENA S. BRAHMAN

SUBMITTED

VISHAL I. RABARI
T.Y.B.COM – C

ROLL NO.-- 258

SMT. M. P. PATEL COLLEGE OF COMMERCE & CENTER

FOR PROFESSIONAL COURSES, KADI
 PREFACE

It is a great opportunity for me to have the Bachelor of Commerce in Smt. M. P. Patel

College of Commerce & Center for Professional Courses, Kadi, a Constituent college of
Kadi Sarva Vishwavidyalaya, Kadi. I am submitting this project phase- II report on
“Financial Performance Analysis of TORRENT POWER LTD” in the accomplishment
of Bachelor of Commerce degree. It is a matter of honor and pride for me that I got a chance
to do a detailed study of TORRENT POWER LTD. The basic objective behind this project
report is to get in depth knowledge of the company.

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 ACKNOWLEDGEMENT

I take this opportunity to express my heartfelt gratitude to our I/C Director, Dr. Kapil
Trivedi for being provided me a platform to pursue my project report.

I am grateful to my Faculty Guide Dr. Beena S. Brahman for his constant guidance and
advice.

I extend my gratitude to Smt. M. P. Patel College of Commerce & Center for Professional
Courses, Kadi for giving me this opportunity.

I convey my earnest recognition to our university “Kadi Sarva Vishwavidyalaya” for

imparting practical education through the subjects like Project.

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 INDEX

SR.NO. PARTICULARS PAGE NO.

Preface II
Acknowledgement III
1 Introduction 01
2 Ratio Analysis 01
3 Financial Performance of Analysis 06
4 Findings 08
5 Conclusion 09

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1. INTRODUCTION:
Financial performance is a key indicator for every company to know its real position in
the market as well as self-evaluation. This is the reason why everyone is interested in
preparing and analysing the financial statement of his business, i.e. income statement and
balance sheet. It helps stakeholders like investors, shareholders, lenders, creditors,
employees, government and managers of all departments to know the financial position
of the business unit. In this project phase- II, I have started working on financial
performance analysis with respect to TORRENT POWER LTD. Secondary data of the
last three years of the company has been taken for the study. To analyse the financial
performance, ratio analysis tool along with tabular presentation is taken and relevant
findings are mentioned in this project
.
2. RATIO ANALYSIS:
Ratio analysis is a fundamental tool used by businesses, investors, and analysts to
evaluate the financial performance and health of a company. It involves analyzing
various financial ratios derived from the company's financial statements, such as the
balance sheet, income statement, and cash flow statement. These ratios provide insights
into the company's profitability, liquidity, solvency, efficiency, and overall operational
effectiveness. The primary purpose of ratio analysis is to assess the company's financial
condition, identify trends over time, compare performance against industry benchmarks,
and make informed decisions regarding investment, lending, or operational strategies. By
examining the relationships between different financial variables, ratio analysis helps
stakeholders gain a deeper understanding of a company's strengths, weaknesses,
opportunities, and threats.

There are several categories of financial ratios used in ratio analysis, including:

Liquidity Ratios: These ratios measure a company's ability to meet its short-term
obligations and manage its short-term liquidity risk. Examples include the current ratio
and the quick ratio.

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Profitability Ratios: Profitability ratios assess the company's ability to generate profits
relative to its revenue, assets, and equity. Common profitability ratios include return on
equity (ROE), return on assets (ROA), gross profit margin, and net profit margin.

Solvency Ratios: Solvency ratios evaluate the company's ability to meet its long-term
financial obligations and remain financially stable over the long term. Examples include
the debt-to-equity ratio and the interest coverage ratio.

Efficiency Ratios: Efficiency ratios measure how effectively a company utilizes its assets
and liabilities to generate revenue and manage expenses. Examples include the asset
turnover ratio, inventory turnover ratio, and accounts receivable turnover ratio.

Meaning :
Ratio analysis is a financial analysis technique used to evaluate the relationship between
different financial variables in a company's financial statements. It involves the
calculation and interpretation of various ratios to assess the financial performance,
solvency, efficiency, and overall health of a business.

Ratio analysis is a process used to assess a company's financial performance by

comparing various financial variables. These variables can include liquidity, profitability,
solvency, and efficiency ratios. The data used in ratio analysis is usually taken from the
company's financial statements, which provide detailed information on the company's
financial performance over a period of time.

Definition:
Khan and Jain define the term ratio analysis as “the systematic use of ratios to interpret
the financial statements so that the strengths and weaknesses of a firm as well as its
historical performance and current financial conditions can be determined.”

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Why need Ratio Analysis ?
Here are some reason why ratio analysis is important:
Performance Evaluation: Ratios provide a snapshot of a company's performance over a
specific period.
Financial Health Assessment: Ratios help assess a company's financial health and
stability.
Comparative Analysis: Ratios facilitate comparisons between companies within the
same industry or sector.
Forecasting and Predictive Analysis: Ratios can be used as predictive tools to forecast
future performance. By analyzing trends in key ratios, analysts can anticipate potential
financial issues or opportunities.
Decision Making: Ratio analysis aids in decision-making processes such as investment
decisions, credit assessments, and strategic planning. It provides valuable insights into the
financial implications of various options.
Communication Tools: Ratios simplify complex financial information into digestible
metrics that can be easily communicated to stakeholders, including investors, lenders,
management, and employees.
Diagnosing Problems: Ratios highlight areas of concern within a company's operations.
For instance, low profitability ratios may indicate inefficiencies or pricing problems,
while high leverage ratios may signal excessive debt levels.
Monitoring Progress: Regularly monitoring key ratios allows management to track
progress towards financial goals and objectives. It helps identify deviations from planned
performance and enables timely corrective actions.

Advantages of Ratio Analysis are as follows:

 Helps in forecasting and planning by performing trend analysis.

 Helps in estimating budget for the firm by analysing previous trends.

 It helps in determining how efficiently a firm or an organisation is operating.

 It provides significant information to users of accounting information regarding the

performance of the business.

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  It helps in comparison of two or more firms.

 It helps in determining both liquidity and long term solvency of the firm.

Disadvantages of Ratio Analysis are as follows:

 Financial statements seem to be complicated.

 Several organisations work in various enterprises each possessing different

environmental positions such as market structure, regulation, etc., Such factors are
important that a comparison of 2 organisations from varied industries might be
ambiguous.

 Financial accounting data is influenced by views and hypotheses. Accounting criteria

provide different accounting methods, which reduces comparability and thus ratio
analysis is less helpful in such circumstances.

 Ratio analysis illustrates the associations between prior data while users are more
concerned about current and future data.

SOME RATIO ARE HERE :

1. Net Profit Ratio: This ratio measures the relationship between net profit (after tax) and
net sales. It indicates the percentage of profit earned on sales. It indicates how much
profit is earned from each unit of sales. Net profit measure a company’s financial
performance and profitability after tax. Net profit is a good measure to compare to result
of a business with its competitors. The formula for calculating the net profit ratio is:
Net Profit Ratio = Net Profit After Tax / Net Sales * 100

2. Operating Ratio: The operating ratio evaluates the efficiency of a company's operations
by comparing operating expenses to net sales. It shows the efficiency of the
management. The higher the ratio, the less will be the margin available to proprietors. It
indicates the proportion of revenue consumed by operating expenses. The formula for
calculating the operating ratio:
Operating Ratio = Cost of Goods Sold + Operating Expenses / Net Sales

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3. Debtor Ratio (also known as Accounts Receivable Turnover Ratio): This ratio
assesses the efficiency of a company in collecting its accounts receivable or debts from
customers.The accounts receivable turnover ratio measures the number of times over a
given period that a company collects its average accounts receivable. The formula for
calculating the debtor ratio is:

Debtor Turnover Ratio = Debtors + Bills Receivable / Credit Sales * Days of the year

4. Creditors Ratio (also known as Accounts Payable Turnover Ratio):The accounts

payable turnover ratio, also known as the payables turnover or the creditor's turnover
ratio, is a liquidity ratio that measures the average number of times a company pays its
creditors over an accounting period. This ratio evaluates how efficiently a company pays
its suppliers. It's calculated using the formula:

Creditors turnover ratio = Creditors + bills payable / credit purchase * days of the year

5. Debt Equity Ratio:Debt-to-equity (D/E) ratio is used to evaluate a company's financial

leverage and is calculated by dividing a company's total liabilities by its shareholder
equity. This ratio indicates the proportion of a company's financing that comes from debt
versus equity. It's calculated using the formula:

Debt Equity Ratio = Long Term Liabilities / Shareholders’ Funds

6. Stock Turnover Ratio (also known as Inventory Turnover Ratio): This ratio assesses
how many times a company's inventory is sold and replaced over a specific period.This
ratio assesses how efficiently a company manages its inventory by comparing the cost of
goods sold to average inventory. The formula for calculating the stock turnover ratio is:

Stock Turnover Ratio = Cost of Goods Sold / Average Stock

7. Current Ratio: This ratio measures a company's ability to cover its short-term liabilities
with its short-term assets.The current ratio describes the relationship between a

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 company’s assets and liabilities. So, a higher ratio means the company has more assets
than liabilities. It's calculated using the formula:

Current Ratio = Current Assets / Current Liabilities

3. FINANCIAL PERFORMANCE ANALYSIS OF TORRENT POWER

LTD :
A. NET PROFIT RATIO:

Years 2020-21 2021-22 2022-23

Net Profit Ratio (In 5.5% (88%) (88%)

%)

• Net profit ratio: The ratio has steadily increased from 5.5% to 88%
Indicating cignificant improvement in profitability.

B. DEBTORS TURNOVER RATIO:

Years 2020-21 2021-22 2022-23

Debtors Turnover 0.11times 0.10 times 9.71times

Ratio (In times)

• Debtors turnover ratio::The ratio has fluctuated, but generally remained

Below 1, suggesting the company collects receivables efficiently.

C. STOCK TURNOVER RATIO:

Years 2020-21 2021-22 2022-23

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Stock Turnover 27.57 times 8.52 times 43.77 times
Ratio (In times)

• Stock Turnover Ratio: The ratio has risen marginally, implying

Slightly faster inventory turnover.

D. CURRENT RATIO:

Years 2020-21 2021-22 2022-23

Current Ratio (%) 0.76% 1.08% 1.60%

• Current Ratio: The ratio has improved from 0.76 to 1.60, indicating

Better short-term debt repayment ability.

E. DEBT EQUITY RATIO:

Years 2020-21 2021-22 2022-23

Debt Equity Ratio 44.35% 5.5% 0.21%

(In %)

• Debt-to-Equity Ratio: The ratio has remained relatively stable

Around 2.5, suggesting moderate financial leverage.

F. OPERATING RATIO:

Years 2019-2020 2020-2021 2021-22

Operating Ratio 17.2% 30.08% 98.10%

(In %)

• Operating Ratio: The ratio has decreased from 17.2 to 98.10,

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 Suggesting better operational efficiency in generating profits.

G. RETURN ON NET WORTH:

Years 2020-21 2021-22 2022-23

Return On Net 12.92% 13.20% 19.09%

Worth (In %)

• Return on net worth:The ratio has increased from 12.92 to 19.09

Suggesting better efficiency in generating profits.

4. FINDINGS:
1. The company experienced significant fluctuations in profitability over the three-year
period.
2. There were improvements in debtors turnover ratio, indicating better efficiency in
collecting payments from customers.
3. The stock turnover ratio declined in 2021-2022, indicating slower inventory turnover,
potentially due to factors like overstocking or slow sales.
4. The current ratio, reflecting the company's ability to cover short-term liabilities with
short-term assets, deteriorated over the period.
5. The debt-equity ratio in 2020-2021 indicated a higher proportion of debt relative to
equity.
6. The operating ratio, representing the efficiency of managing operating expenses relative
to net sales revenue.
7. The exceptionally high return on net worth in 2020-2021 indicates strong profitability
relative to shareholder equity.

5. CONCLUSION:
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This report is an understanding of overall financial performance of the company through
ratio analysis. The presented report contains all important ratio which covers profitability,
liquidity, efficiency of the selected company. The presented report is submitted as a part
of Project Report Phase – II which included basic information of ratio analysis, financial
performance and findings. From the ratio analysis, it has been observed that the
performance of the company has been poor in the last three years.