Financial Reporting and Analysis Graded

Assignment 1

Understand The Financial Reporting System

Of

Adani Power Ltd

Submitted to: Pitresh Sir Submitted by: Abhay Verma

(0231PGM178)

DOON BUSINESS SCHOOL

SELAQUI, DEHRADUN
COMPANY NAME- Adani Power ltd
INTRODUCTION
a) Background information about Adani Power Limited:
Adani Power Limited is one of the largest integrated power companies
in India. Established in 1996 and headquartered in Ahmedabad, Gujarat,
it is part of the Adani Group, a conglomerate with diverse business
interests including energy, infrastructure, logistics, and more. Adani
Power is primarily engaged in the generation and distribution of
electricity. The company operates thermal and renewable power plants
across India and has a significant presence in the Indian power sector.

b) Purpose and scope of the project:

The purpose of this project is to conduct a comprehensive analysis of the
financial reporting of Adani Power Limited. This analysis will involve a
detailed examination of the company's financial statements, annual
reports, and other financial documents. The project aims to provide
insights into Adani Power's financial performance, its financial health,
and its ability to meet its financial obligations. Additionally, it will
explore the trends and patterns in Adani Power's financial data over a
specified period.

c) Importance of understanding financial reporting:

Understanding financial reporting is essential for various stakeholders,
including investors, creditors, regulators, management, and the general
public. Here are some reasons why it is important:

Investment Decisions: Investors rely on financial reports to make

informed investment decisions. They assess the company's financial
health and performance to determine whether it is a sound investment.

Creditor Relations: Creditors, such as banks and bondholders, use

financial reports to evaluate a company's creditworthiness and assess the
risk associated with lending or extending credit.

Regulatory Compliance: Companies are required to publish financial

reports in compliance with regulatory standards. Understanding financial
reporting is crucial for adhering to these regulations.

Management Decision-Making: Company management uses financial

reports to make strategic decisions, allocate resources, and set financial
goals. It helps in planning for the future.

Transparency and Accountability: Financial reports promote

transparency and accountability within the organization. They provide
stakeholders with a clear picture of the company's financial activities.
Performance Evaluation: Financial reporting helps in evaluating the
company's past and current performance, identifying areas of
improvement, and setting performance benchmarks.

Phase-1: Presentation of Financial Statements and Policy

Information

Adani power limited Balance Sheet Analysis - March 2022 &2023:

1. Share Capital:
- Share capital increased from Rs. 4,258 Crores in 2022 to Rs. 4,272
Crores in 2023, indicating a slight increase in the company's issued
capital.

2. Reserves:
- Reserves showed substantial growth, increasing from Rs. 14,600
Crores in 2022 to Rs. 25,772 Crores in 2023. This suggests that the
company has retained significant earnings, possibly due to profitability
or plowing back profits into the business.

3. Borrowings:
- Borrowings decreased from Rs. 48,744 Crores in 2022 to Rs. 42,181
Crores in 2023, indicating a reduction in the company's debt burden.

4. Other Liabilities:
 - Other liabilities decreased slightly from Rs. 14,780 Crores in 2022 to
Rs. 14,012 Crores in 2023.

5. Total Liabilities:
- Total liabilities increased from Rs. 81,981 Crores in 2022 to Rs.
85,821 Crores in 2023, primarily due to an increase in reserves and
changes in borrowings.

6. Fixed Assets:
- Fixed assets decreased from Rs. 53,274 Crores in 2022 to Rs. 51,451
Crores in 2023, suggesting a reduction in the company's investment in
property, plant, and equipment.

7. Capital Work in Progress (CWIP):

- CWIP increased significantly from Rs. 10,270 Crores in 2022 to Rs.
12,880 Crores in 2023, indicating ongoing investments and projects.

8. Investments:
- Investments increased substantially from Rs. 183 Crores in 2022 to
Rs. 654 Crores in 2023, potentially reflecting a change in the company's
investment portfolio.

9. Other Assets:
- Other assets increased from Rs. 18,254 Crores in 2022 to Rs. 20,836
Crores in 2023, indicating growth in non-current and current assets.
10. Total Assets:
- Total assets increased from Rs. 81,981 Crores in 2022 to Rs. 85,821
Crores in 2023, primarily due to changes in investments and other assets.

Overall, the balance sheet for 2023 shows a positive trend in the
company's reserves, a decrease in borrowings, and an increase in
investments and other assets. However, there has been a slight reduction
in fixed assets, and CWIP has significantly increased, possibly
indicating ongoing capital projects. It's important to assess these changes
in the context of the company's financial and strategic goals.

Phase 2: Understanding Major Heads in Profit and Loss

A/c and Balance Sheet
Profit & Loss Account Analysis (2022 and 2023):
Sales: This represents the total revenue generated by the company from
its products or services. Sales have increased steadily from 4,035 Crores
in March 2012 to 38,773 Crores in March 2023.
Expenses: These are the total costs associated with running the
business, including the cost of goods sold, operating expenses, and other
costs. Expenses have also increased over the years but appear to be well
below the sales revenue.
Operating Profit (OP): This is the profit generated from the
company's core operations, calculated by subtracting expenses from
sales. The operating profit has experienced fluctuations but generally
increased over the years.
Operating Profit Margin (OPM %): This is the operating profit as a
percentage of sales, which gives an indication of the company's
profitability from its core operations. It has shown some variation but
generally improved, reaching 26% in the most recent period.
Other Income: This includes any income from sources other than the
core business operations. Other income has seen significant fluctuations,
and it turned positive in recent years.
Interest: This is the interest expense paid on loans and borrowings. It
has been declining in recent years.
Depreciation: Depreciation represents the non-cash expense related to
the wear and tear of the company's assets. It has been increasing over the
years.
Profit before Tax: This is the company's profit before accounting for
income taxes. It has shown significant fluctuations but has been positive
in recent years.
Tax %: This column indicates the effective tax rate, which has varied
widely over the years, including negative rates.
Net Profit: This is the company's profit after accounting for income
taxes. It has seen significant fluctuations but has been positive in recent
years.
Earnings Per Share (EPS): This represents the earnings per share,
which is the net profit divided by the number of outstanding shares. The
EPS has been negative in the past but has become significantly positive
in recent years, indicating improved profitability on a per-share basis.
Dividend Payout %: This column shows the percentage of profits
paid out as dividends to shareholders. It appears to be zero in all the
years.
Overall, the company's financial performance has seen fluctuations, including
periods of losses, but it has improved significantly in recent years, with positive net
profits and increasing sales and operating profits.

Balance sheet

Assets, Liabilities, and Shareholders' Equity are fundamental

components of a balance sheet, which is a financial statement that
provides a snapshot of a company's financial position at a specific point
in time. Let's break down the balance sheet components based on the
data for the year 2023:

Assets:
Assets represent everything a company owns or has a claim to. They are
typically categorized into current assets and non-current assets.

Current Assets: These are assets that are expected to be converted into
cash or used up within one year. In your provided data, these include
items such as "Investments," "Other Assets," etc.

Non-Current Assets: These are assets that are not expected to be

converted into cash within one year. In your data, "Fixed Assets" and
"CWIP" (Capital Work in Progress) are non-current assets. Fixed Assets
represent things like property, plant, and equipment, while CWIP
includes assets under construction.

In the year 2023, the total assets are Rs. 85,821 Crores. This means that
the company has a total of Rs. 85,821 Crores in assets, which can be
divided into various categories as mentioned above.

Liabilities:
Liabilities represent the company's financial obligations, or what the
company owes to others. They are also typically categorized into current
liabilities and non-current liabilities.
Current Liabilities: These are obligations expected to be settled within
one year. Examples include short-term borrowings and accounts
payable.

Non-Current Liabilities: These are long-term obligations that are not due
within one year. In your data, "Borrowings" are non-current liabilities.

In the year 2023, the total liabilities are Rs. 81,981 Crores. This means
that the company owes a total of Rs. 81,981 Crores to various parties,
which can be divided into different categories, as mentioned above.

Shareholders' Equity:
Shareholders' Equity, also known as Owners' Equity, represents the
residual interest in the assets of the company after deducting its
liabilities. It is essentially the net worth of the company.

In the year 2023, Shareholders' Equity can be calculated as follows:

Shareholders' Equity = Total Assets - Total Liabilities
Shareholders' Equity = Rs. 85,821 Crores - Rs. 81,981 Crores = Rs.
3,840 Crores

Shareholders' Equity reflects the value of the company that belongs to its
shareholders. It can increase through profits or additional investments
and decrease through losses or dividends paid to shareholders.
Depreciation method
Companies can use different methods to account for depreciation of their
assets. The choice of depreciation method depends on various factors,
including accounting standards, tax regulations, and the nature of the
assets. Here are some common depreciation methods that companies
may use:

1. Straight-Line Depreciation:
- In this method, the asset's cost is evenly spread over its estimated
useful life.
- Formula: Depreciation Expense = (Cost of Asset - Salvage Value) /
Useful Life
- This method provides a consistent expense amount each year.

2. Declining Balance (Double-Declining Balance) Depreciation:

- This method front-loads depreciation, resulting in higher depreciation
expenses in the early years and lower expenses later.
- Formula: Depreciation Expense = (Book Value at the Beginning of
the Year) x (Depreciation Rate)
- The depreciation rate is typically double the straight-line rate.
- This method reflects the idea that assets often lose more value in their
early years.

3. Units of Production Depreciation:

- This method is based on the actual usage or production of the asset.
 - Formula: Depreciation Expense = (Cost of Asset - Accumulated
Depreciation) x (Units Produced / Total Estimated Units)
- It's commonly used for assets like machinery or vehicles, where wear
and tear depend on usage.

4. =Sum-of-the-Years'-Digits Depreciation:
- This method accelerates depreciation, with higher expenses in the
earlier years and decreasing amounts in subsequent years.
- Formula: Depreciation Expense = (Remaining Useful Life / Sum of
the Years' Digits) x (Cost of Asset - Accumulated Depreciation)
- The sum of the years' digits is calculated as (n * (n + 1)) / 2, where n
is the asset's useful life in years.

5. MACRS (Modified Accelerated Cost Recovery System):

- This method is used for tax purposes in the United States and follows
predefined depreciation schedules provided by tax regulations.
- It has different depreciation rates for various classes of assets and
allows for accelerated depreciation.

PHASE 3
Impact of different costs on Revenue of the Company and the relationship
between different components of Profit and Loss A/c
The Profit and Loss Account (P&L) or Income Statement of Adani
Power Limited, like any company, consists of various components that
collectively show the company's financial performance over a specific
period. These components are interconnected and can provide valuable
insights into the company's operations and profitability. Here's a
breakdown of some key components and their relationships:

1. Revenue:
- Primary Income Source: Revenue, often referred to as "Sales" or
"Turnover," represents the total income generated by Adani Power from
its core operations, which is primarily the generation and sale of
electrical power.

2. Cost of Goods Sold (COGS):

- Direct Relationship with Revenue: COGS represents the costs
directly associated with producing or generating the revenue. This
includes fuel costs, maintenance, and other operational expenses. The
relationship is direct because as revenue increases, so does the cost of
generating that revenue.

3. Gross Profit:
- Revenue - COGS: Gross profit is the difference between revenue and
the cost of goods sold. It represents the profit generated from core
operations before considering other operating expenses.

4. Operating Expenses:
- Indirect Relationship with Gross Profit: Operating expenses, such as
employee salaries, administrative costs, and marketing expenses, are
incurred to support the company's operations. There is an indirect
relationship because these expenses reduce the gross profit, and the
higher they are, the lower the gross profit.
5. Operating Profit (EBIT - Earnings Before Interest and Taxes):
- Gross Profit - Operating Expenses: Operating profit represents the
profit generated from the core operations of the company after deducting
operating expenses but before accounting for interest and taxes. It
reflects the operational efficiency and profitability of Adani Power's core
business.

6. Interest Expenses:
- Direct Relationship with Profit: Interest expenses are the costs
associated with the company's borrowings. As interest expenses
increase, they directly reduce the company's profit.

7. Profit Before Tax (PBT):

- Operating Profit - Interest Expenses: PBT is the profit remaining
after deducting interest expenses but before considering income tax. It
reflects the company's overall profitability before taxes.

8. Income Tax Expenses:

- Direct Relationship with Profit Before Tax: Income tax expenses are
a direct deduction from the profit before tax, reducing the final profit or
"Profit After Tax."

9. Profit After Tax (PAT or Net Profit):

- Profit Before Tax - Income Tax Expenses: PAT represents the
ultimate profit of the company, the portion that is available to
shareholders after all expenses, including taxes. It's a critical indicator of
the company's bottom-line profitability.

10. Earnings Per Share (EPS):

- Profit After Tax / Number of Outstanding Shares: EPS shows the
portion of profit attributable to each outstanding share of the company's
stock. It's a common metric used by investors to assess the company's
profitability on a per-share basis.

The relationship between these components can provide insights into

how efficiently Adani Power Limited operates and how various factors,
such as revenue growth, cost control, interest expenses, and tax
liabilities, impact its overall profitability. Analyzing these components
over multiple periods can help identify trends and assess the company's
financial health and performance.