BHEL

(Bharat Heavy Electricals Limited)

Bharat Heavy Electricals Limited (BHEL), owned by Government of India, is a
power plant equipment manufacturer and operates as an engineering
and
manufacturing company based in New Delhi, India. Established in 1964, BHEL
is India's largest engineering and manufacturing company of its kind. The company
has been earning profits continuously since 1971-72 and paying dividends
uninterruptedly since 1976-77.
BHEL was established in 1964. Heavy Electricals (India) Limited was merged with
BHEL in 1974. In 1982, it entered into power equipments, to reduce its dependence
on the power sector. It developed the capability to produce a variety of electrical,
electronic and mechanical equipments for all sectors, including transmission,
transportation, oil and gas and other allied industries. In 1991, it was converted into
a public limited company. By the end of 1996, the company had handed over 100
Electric Locomotives to Indian Railway and installed 250 Hydro-sets across India.

If we want to know the debt pattern of BHEL, we must calculate the Debt Equity
ratio and Debt to Total Assets Ratio. By analyzing these ratios, we are able to
understand the debt pattern.

Debt Equity Ratio

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative
proportion of shareholders' equity and debt used to finance a company's
assets. The ratio is also known as Risk or Gearing.
D/E Ratio=Total Assets/Shareholders Equity

This ratio shows the relationship between debt and equity 1:1 is said to be at a
satisfactory level. It is important to realize that if the ratio is greater than 1,
the majority of assets are financed through debt. If it is smaller than 1, assets are
primarily financed through equity.

From the balance sheet of BHEL, we conclude that,

For year 2010,

D/E Ratio= Total Debt/ (share capital + reserves)
= 127.75/ (489.52 + 15427.84)
= 0.01:1
Interpretation:This Ratio tells us that creditors are providing 1 Rs. of financing for each 100
Rs. being provided by shareholders. Creditors would generally like this ratio to
be low. The lower the ratio, the higher the level of the firms financing that is being
provided by shareholders and the larger the margin of protection in the event of
shrinking asset values or outright losses.
In another words, this ratio means that for every rupee that the BHEL has, it
has a debt of 1 paisa. It is really a good scenario. Instead, BHEL with low

debt/equity ratio will have less debt to take care of. So, its earnings would be
sufficient to service the debt and also some free funds to take care of other business
activities like expansion, diversification of business or starting a new venture
altogether.

For the year 2011,

D/E Ratio= Total Debt/ (share capital + reserves)
= 102.14/ (489.52 + 19664.32)
= 0.01:1
Interpretation:This Ratio tells us that creditors are providing 1 Rs. of financing for each 100
Rs. being provided by shareholders.
In another words, this ratio means that for every rupee that the BHEL has, it
has a debt of 1 paisa. It is really a good scenario.

For the year 2012,

D/E Ratio= Total Debt/ (share capital + reserves)
= 123.43/ (489.52 + 24883.69)
= 0.005:1

Interpretation:This Ratio tells us that creditors are providing 50 paisa of financing for each
100 Rs. being provided by shareholders.

In another words, this ratio means that for every rupee that the BHEL has, it
has a debt of 0.5 paisa. It is really a very good scenario

For the Year 2013,

D/E Ratio= Total Debt/ (share capital + reserves)
= 1415.20/ (489.52 + 29954.58)
= 0.05:1

Interpretation:This Ratio tells us that creditors are providing 5 Rs. of financing for each 100
Rs. being provided by shareholders.
In another words, this ratio means that for every rupee that the BHEL has, it
has a debt of 5 paisa. It is really a good scenario.

For the year 2014,

D/E Ratio= Total Debt/ (share capital + reserves)
= 2654.77/ (489.52 + 32557.53)
= 0.08:1

Interpretation:This Ratio tells us that creditors are providing 8 Rs. of financing for each 100
Rs. being provided by shareholders.
In another words, this ratio means that for every rupee that the BHEL has, it
has a debt of 8 paisa. It is really a good scenario.

By calculating D/E Ratio over 5 years (2010-2014), we conclude that the ratio
is less than 1:1. It means
debt is less than owners' equity
the business is positively geared
the external lenders are bearing less risk than the owners
the owner has a stronger financial interest in the business than external
lender
BHEL may not be taking advantage of opportunities and realizing the full
growth potential of your business.

Debt to Total Assets Ratio

The Debt to total assets ratio is derived by dividing a firms total debt by its total
assets. This ratio serves a similar purpose to the D/E Ratio. It highlights the relative
importance of debt financing to the firm by showing the percentage of the firms
assets that it is supported by debt financing.
Debt to Total Assets Ratio= (Total debt/Total Assets)*100

For the year 2010,

D/TA Ratio= (127.75/16045.11)*100
= 0.8 %
Interpretation:
This ratio shows that 0.8% of the firms assets are financed with debt and the
remaining 99.2% of the financing comes from shareholders equity. This points
out that the greater the percentage of financing provided by shareholders equity,
the larger the margin of protection afforded the BHELs creditors. In short, the
higher D/TA Ratio, the greater the financial risk; the lower this ratio, the lower the
financial risk.

For the year 2011,

D/TA Ratio= (102.14/20255.98)*100
= 0.5 %
Interpretation:
This ratio shows that 0.5% of the firms assets are financed with debt and the
remaining 99.5% of the financing comes from shareholders equity.

For the year 2012,

D/TA Ratio= (123.43/25496.64)*100
= 0.48 %
Interpretation:
This ratio shows that 0.48% of the firms assets are financed with debt and the
remaining 99.52% of the financing comes from shareholders equity.

For the year 2013,

D/TA Ratio= (1415.20/31859.30)*100
= 4.44 %
Interpretation:
This ratio shows that 4.44% of the firms assets are financed with debt and the
remaining 95.56% of the financing comes from shareholders equity.

For the year 2014,

D/TA Ratio= (2654.77/35701.82)*100
= 7.44 %
Interpretation:
This ratio shows that 7.44% of the firms assets are financed with debt and the
remaining 92.56% of the financing comes from shareholders equity.

By calculating D/TA Ratio over 5 years (2010-2014), we conclude that

Less than 8% of the firms assets are financed with debt and the remaining
almost 92% of the financing comes from shareholders equity.

This means that it carries little burden of having to pay back its loans.
However, the firm has to share its profits with its shareholders, perhaps by
distributing stock dividends.
Sharing profits with shareholders tends to be more expensive than paying
interest to lenders.