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Understanding Financial Statements of Power Grid

Understanding Financial Statements of Power Grid. Dr Manoj Anand, MDI. Risk & Return Tradeoff. Investment Decisions Capital Structure Decisions Dividend Decisions Management of Working Capital. Financial Statements Objectives. Useful to present and potential investors & creditors

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Understanding Financial Statements of Power Grid

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  1. Understanding Financial Statements of Power Grid Dr Manoj Anand, MDI

  2. Risk & Return Tradeoff • Investment Decisions • Capital Structure Decisions • Dividend Decisions • Management of Working Capital

  3. Financial Statements Objectives • Useful to present and potential investors & creditors • in making rational investment & credit decisions

  4. Financial Statements Objectives • Comprehensible to those • who have a reasonable understanding of business & economic activities & • are willing to study the information with reasonable diligence

  5. Financial Statements Objectives • About the • economic resources of an enterprise, • the claim to those resources, & • effects of transactions & events that change resources & claim to those resources

  6. Financial Statements Objectives • About an enterprise’s financial performance during a period

  7. Balance Sheet Concepts • Money Measurement Concept • The Entity Concept • The Going Concern Concept

  8. Balance Sheet Concepts • The Cost Concept • Tangible Fixed Assets • Intangible Assets

  9. Balance Sheet Concepts • Rationale for Cost Concept • Relevance • Objectivity • Feasibility • Dual Concept

  10. Application of Funds • Fixed Assets • Investments • Current Assets, Loans & Advances • Less: Current Liabilities & Provisions • Miscellaneous Expenditure • (To the extent not written off)

  11. Sources of Funds • Shareholders Funds • Loan Funds

  12. Measuring Performance Compensation Setting Goals Margins Returns Cash Flows ? Growth Earnings Budget Targets Dividends Capital Budgeting Strategic Planning Corporate Tower of Babel

  13. VALUE DRIVER ANALYSIS AN EXAMPLE

  14. VALUE DRIVERS THREE LEVELS • GENERIC • BUSINESS UNIT SPECIFIC • OPERATING

  15. GENERIC VALUE DRIVERS

  16. ROCE TREE COST OF GOODS SOLD SELLING & ADMN EXPENSES OPERATING MARGIN DEPRECIATION ROCE PRE TAX SALES ROCE POST TAX CAPITAL TURNOVER FIXED ASSETS 1 -TAX RATE WORKING CAPITAL

  17. ELECTRIC POWER 6.68% (8.98%) Power Grid 2001 PERSONNEL EXPENSES 11.28% (9.28%) OPERATING MARGIN 49.56% (48.31%) GENERAL EXPENSES 3.47% (3.89%) ROCE PRE TAX 10.10% (8.92%) SALES 100% ROCE POST TAX 9.23% (7.87%) CAPITAL TURNOVER 0.20 (0.18) FIXED ASSETS 0.26 (0.23) 1 -TAX RATE 91.41% (88.28%) WORKING CAPITAL 2.18 (2.24 )

  18. OPERATING VALUE DRIVERS

  19. VALUE DRIVER TREE NO. OF WORKMEN 66 LABOUR 120 Rs.lakhs COST PER WORKMAN 1.82 SHOP EXPENSES 183 INDIRECT LABOUR 43 OVERHEAD 63 DEPRECIATION 1 ASSY SHOP EXPENSES 200 FLOOR SPACE CHARGES 5 CANTEEN 12 INTEREST 1(FA) + 4(WC) ALLOCATED OVERHEAD 17 REPAIRS & MAINT. 3 TRANSPORT 5 POWER 3 T&C 3

  20. Rs. Lakhs NO. OF WORKMEN 66 SETTING TIME VOLUME 2.4 L Nos COST/ WORKMAN 1.82 IDLE TIME PROD-MIX P.I.0.70 LAB.UTL 0.58 C.F 0.96 INDIRECT LABOUR 43 REWORK / REJECTION STD.TIME 0.3 HRS ABSENT0.86 DEPRECIATION 1 NON-STD OPERATIONS FLR SP. CHARGES 5 HOUR RATE JOB W / O STANDARDS BENEFITS INT 1(FA) + 4(WC) OTHERS OT RATE REPAIRS & MAINT. 3 SUP. 24 NO.OF SUP 7 SPAN OF CONTROL11 POWER 3 OTH 19 COST / SUP 3.43 T&C 3

  21. Rs.lakhs NO. OF WORKMEN 58 ( 66 ) SETTING TIME VOLUME 2.4 L Nos. COST/ WORKMAN 1.82 IDLE TIME PROD-MIX P.I. 0.80( 0.70 ) LAB.UTL 0.66 ( 0.58 ) C.F 0.96 INDIRECT LABOUR 43 REWORK / REJECTION STD.TIME 0.3 HRS ABSENT0.86 DEPRECIATION 1 NON-STD OPERATIONS IF PI IS RAISED TO 0.80 FLR SP. CHARGES 5 HOUR RATE JOB W / O STANDARDS BENEFITS INT 1(FA) + 4(WC) OTHERS OT RATE REPAIRS & MAINT. 3 SUP. 24 NO.OF SUP 7 SPAN OF CONTROL11 POWER 3 OTH 19 COST / SUP 3.43 T&C 3

  22. Rs.lakhs NO. OF WORKMEN 58 ( 66 ) LABOUR 105 ( 120 ) COST PER WORKMAN 1.82 SHOP EXPENSES 168 ( 183 ) INDIRECT LABOUR 43 OVERHEAD 63 DEPRECIATION 1 ASSY SHOP EXPENSES 183 (200 ) FLOOR SPACE CHARGES 5 CANTEEN 11 (12) INTEREST 1(FA) + 4(WC) ALLOCATED OVERHEAD 15 (17) REPAIRS & MAINT. 3 TRANSPORT 4 (5) POWER 3 T&C 3

  23. Rs.lakhs NO. OF WORKMEN 66 SETTING TIME VOLUME 2.4 L Nos. COST/ WORKMAN 1.82 IDLE TIME PROD-MIX P.I.0.70 LAB.UTL 0.58 C.F 0.96 INDIRECT LABOUR 40 (43) REWORK / REJECTION STD.TIME 0.3 HRS ABSENT0.86 DEPRECIATION 1 NON-STD OPERATIONS IF SOC IS RAISED TO 12 FLR SP. CHARGES 5 HOUR RATE JOB W / O STANDARDS BENEFITS INT 1(FA) + 4(WC) OTHERS OT RATE REPAIRS & MAINT. 3 SUP. 21 (24) NO.OF SUP 6 (7) SPAN OF CONTROL(SOC) 12 (11) POWER 3 OTH 19 COST / SUP 3.43 T&C 3

  24. Rs.lakhs NO. OF WORKMEN 66 LABOUR 120 COST PER WORKMAN 1.82 SHOP EXPENSES 180 (183) INDIRECT LABOUR 40 (43) OVERHEAD 60 (63) DEPRECIATION 1 ASSY SHOP EXPENSES 197 (200) FLOOR SPACE CHARGES 5 CANTEEN 12 INTEREST 1(FA) + 4(WC) ALLOCATED OVERHEAD 17 REPAIRS & MAINT. 3 TRANSPORT 5 POWER 3 T&C 3

  25. Rs.lakhs NO. OF WORKMEN 58 (66) SETTING TIME VOLUME 2.4 L Nos. COST/ WORKMAN 1.82 IDLE TIME PROD-MIX P.I. 0.80 (0.70) LAB.UTL 0.66 (0.58) C.F 0.96 INDIRECT LABOUR 40 (43) REWORK / REJECTION STD.TIME 0.3 HRS ABSENT0.86 DEPRECIATION 1 NON-STD OPERATIONS COMBINED EFFECT OF PI & SOC FLR SP. CHARGES 5 HOUR RATE JOB W / O STANDARDS BENEFITS INT 1(FA) + 4(WC) OTHERS OT RATE REPAIRS & MAINT. 3 SUP. 21 (24) NO.OF SUP 6 (7) SPAN OF CONTROL (SOC) 12 (11) POWER 3 OTH 19 COST / SUP 3.43 T&C 3

  26. Rs.lakhs NO. OF WORKMEN 58 (66) LABOUR 105 (120) COST PER WORKMAN 1.82 SHOP EXPENSES 165 (183) INDIRECT LABOUR 40 (43) OVERHEAD 60 (63) DEPRECIATION 1 ASSY SHOP EXPENSES 180 (200) FLOOR SPACE CHARGES 5 CANTEEN 11 (12) INTEREST 1(FA) + 4(WC) ALLOCATED OVERHEAD 15 (17) REPAIRS & MAINT. 3 TRANSPORT 4 (5) POWER 3 10 % Reduction in Expenses T&C 3

  27. Rs.lakhs NO. OF WORKMEN 59 ( 66 ) SETTING TIME VOLUME 2.4 L Nos. COST/ WORKMAN 1.82 IDLE TIME PROD-MIX P.I. 0.70 LAB.UTL 0.58 C.F 0.96 INDIRECT LABOUR 43 REWORK / REJECTION STD.TIME 0.27 (0.3) HRS ABSENT0.86 DEPRECIATION 1 NON-STD OPERATIONS IF STD TIME IS REDUCED TO 0.27 HRS FLR SP. CHARGES 5 HOUR RATE JOB W / O STANDARDS BENEFITS INT 1(FA) + 4(WC) OTHERS OT RATE REPAIRS & MAINT. 3 SUP. 24 NO.OF SUP 7 SPAN OF CONTROL11 POWER 3 OTH 19 COST / SUP 3.43 T&C 3

  28. Rs.lakhs NO. OF WORKMEN 59 ( 66 ) LABOUR 107 ( 120 ) COST PER WORKMAN 1.82 SHOP EXPENSES 170 ( 183 ) INDIRECT LABOUR 43 OVERHEAD 63 DEPRECIATION 1 ASSY SHOP EXPENSES 185 (200 ) FLOOR SPACE CHARGES 5 CANTEEN 11 (12) INTEREST 1(FA) + 4(WC) ALLOCATED OVERHEAD 15 (17) REPAIRS & MAINT. 3 TRANSPORT 4 (5) POWER 3 T&C 3

  29. FOUR KEY STRATEGIES TO INCREASE VALUE

  30. EVA = {NOPAT/CAPITAL -COST OF CAPITAL} x CAPITAL Operate: Improve the return earned on existing capital Build: Invest as long as returns exceed the cost of capital Harvest: Divest capital when returns fails to achieve cost of capital Optimize: Reduce cost of capital by optimizing capital structure

  31. VALUE BASED MANAGEMENT FRAMEWORK Strategic Financial VALUE Corporate Governance

  32. DETERMINANTS OF VALUE Return Growth Cash Flow Capital Company Value Risk Cost of Capital

  33. Better Decisions Shareholder Value Culture Better Morale Better Results Better Pay Virtuous Circle for Competitive Advantage

  34. Measuring Performance Compensation Setting Goals VBM Capital Allocation Strategic Planning Uniform Standards, Goals & Terminology

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