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PROFITABILITY ANALYSIS OF CHILIME

HYDROPOWER COMPANY LIMITED

A Project Work Report

By

Shikshya Tandan

TU Reg.No.7-2-0109-0103-2015

4th Year Symbol No. 1090037

Ganesh Multiple Campus

Submitted to:

Faculty of Management

Tribhuwan University

Kathmandu

In partial fulfilment of the requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Ganesh Chowk, Kathmandu

May, 2019
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CHAPTER - I

INTRODUCTION

1.1 Background of Study

Profitability is the ability of a business to earn a profit. A profit is what is left of the

revenue a business generates after it pays all expenses directly related to the generation of

the revenue, such as producing a product, and other expenses related to the conduct of the

business activities. There are many different ways for you to analyze profitability. Which

are a measure of the business's ability to generate revenue compared to the amount of

expenses it incurs. Let's look at a few of the primary analytical approaches. Profitability

determines whether a business stays in business. In Simple terms - An analysis of cost

and revenue of the firm which determines whether or not the firm is profiting is known as

profitability analysis. (Francis, 1992)

Profitability Analysis measures the amount of profit earned due to the efficiency of any

operation in a business. Profitability Analysis in operations essentially includes

evaluation of market segments or Strategic business units. Profitability analysis mainly

helps in analyzing this available information to evaluate and improve the profits in an

organization. These help in decision making and internal accounting in the fields of sales,

marketing and product management for a company. Cost-based Profitability Analysis is

the form of profitability analysis that groups costs and revenues according to the

available values and costing-based valuation approaches are followed for the analysis.

This method essentially plots the revenues against the expenses for given items. Hence

this becomes redundant when products are transferred out of the company. Hence this
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method essentially gives a short term profitability report for the company to analyze the

profitability of their values. On the other hand, account-based profitability analysis is a

form of profitability analysis in which an account-based valuation approach is followed.

This accounting method plots the revenues against expenses that have been incurred

during a certain given period of time. In this process, the changes in stock values, goods,

ongoing work and capitalized activities are taken into consideration for the given time

period. Hence, this gives a long term profitability report which can be used with financial

accounting. The cost and revenue elements involved give a broader analysis of the

elements of profits. Accounting methods include Cost-of-Sales Method and Period

Accounting Method. (Brigham, 1982)

1.2 Profile of the Organization

Chilime Hydropower Plant is a run-of-the-river type plant situated in Chilime of Rasuwa

district in Nepal, which is 133 km north of Kathmandu. Its headworks are located near

Chilime, whereas the underground power plant is located about 4.5 km (2.8 mi) to the

southwest in Syafrubesi on the banks of the local Bhotekoshi river. Water from a weir is

diverted into a reservoir before it can be used at the power plant. The difference in

elevation between the reservoir and power station affords a gross hydraulic head (water

drop) of 351.5 m (1,153 ft). The plant has an installed capacity of 22.1 MW. The

generated electricity is fed into the national grid via a 38 km 66 kV single circuit

transmission line. Most of the power house facilities are underground, with the

switchyard the only feature that remains on the surface. The plant employs two horizontal

axis Peloton turbines each of 11.28 MW. Nepal Electricity Authority (NEA) holds
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majority ownership with 51% share holding. Remaining 49% shareholding is from

general public including 10% equity ownership of local people. Chilime owns and

operates 22.1 MW power plant commissioned on August 25, 2003 and located in Rasuwa

district, 133 km north of capital city Kathmandu. It sales bulk electricity to NEA at the

long term PPA price. The annual energy generation from the plant is about 150 GWh.

Chilime has established following three subsidiariesRasuwagadhi Hydropower Company

Limited, Madhya Bhotekoshi Jalavidhyut Company Limited, Sanjen Jalavidhyut

Company Limited and Chilime Engineering and Services Company Limited. Chilime,

through its three subsidiaries, is developing four hydropower projects with aggregate

capacity of 270.3 MW.

The plant is operated by Chilime Hydropower Company Limited which is a subsidiary

of Nepal Electricity Authority. The plant started its commercial generation from August

2003. Chilime is the brainchild of Dr. Damber Bahadur Nepali, a prominent hydropower

expert in Nepal, who founded the company and worked as its first Managing Director.

The success story of this indigenously-designed, locally-built and Nepali-financed

powerplant, largely the result of Dr. Nepali, has become a living proof that the paradigm

shift in Nepali hydropower planning has brought real change. ( www.chilime.com.np)

1.3 Objectives of the Study

Objective are the measureable out come from the report. Objective must be tangible,

specific, concrete, measurable, and achievable . As we know that object of every firm is

to make profit or plan profit. The main objective of this study is also to identify the
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profitability position of chimlime hydropower ltd. The main specific objective of the

study are follows.

 To analyze the net profit trend of the Chilime hydropower limited .

 To examine the ROA and ROE of the company over the last five years.

 To analyze the earning per share of the Chilime hydropower limited over the last

five years.

1.4 Rationale of the Study

This research have some limitation but there are also some rational these are this research

help to investor to make an investment decision on Chilime hydropower limited's stock.

This research help to policy maker to make the policy about hydropower company. This

research may help to the company manager to evaluate the overall profit of the company.

It provides literature to the researcher who wants to carry out further research in the

related field and this research work may also provide recommendation to related

department of the company.

1.5 Review of Literature

5.1 Conceptual Review

Profitability Analysis
An organization cannot survive without earning profits. Profits are the fuel to run an

organization and of course, profitability analysis helps a lot in efficiency analysis of an

organization. The management of the firm is naturally eager to measure its operating

efficiency. Similarly, the owners invest their funds in the expectation of reasonable
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returns. The operating efficiency of a firm and its ability to ensure adequate returns to its

shareholders depends ultimately on the profits earned by it. (Pradhan, 1994).

Profitability analysis is an important part of financial statement analysis of an

organization. It helps the management of the firm, shareholders, creditors etc. of the

organization. Apart from these, general public may also be interested in the profitability

of an organization. Profitability of an organization can be analyzed with the help of

profitability ratios. The important profitability ratios are; profitability ratios related to

sales and profitability ratios related to investments. (Van Horne, 2000).

1.5.2 Review of Previous Work

Khatri (2015) Conduct a thesis on " A study on cost volume and profit analysis of Butwal

power company limited " . The researcher used the secondary data in her research which

is collect from the secondary sources. The researcher's main objective are follows

 whether the BPC generate electricity as per installed capacity or not,

 What are components of cost volume and profit and the BPC is able to satisfy the

need of local consumer or not.

The major finding of the study are follows

 The main finding are her research are The BPC cannot generate the generate the

electricity as per installed capacity,

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 The components of cost volume is variable cost and fixed cost she found the both

cost are in increasing trend and the company satisfy the need of local are

consumer.

Adhikari (2006) Published an article on “successful performance of organization” in her

article Organizational performance can be judged by many different constituencies,

resulting in many different interpretations of “successful performance”. Each of these

perspectives of organizational performance can be argued to be unique. Further, each

organization has a unique set of circumstances, making performance measurement

inherently situational. Both of these issues are problematic for researchers, since theory

building involves making and testing assertions that explain or predict a particular

phenomenon (generally represented as a value of a dependent variable in a model) that

holds true across a broad range of specific instances. While it is possible to develop a

multi attribute model of organizational performance, building a model that addresses

multiple constituencies becomes problematic, since each group may have contradictory

objectives. Therefore, a unified perspective of overall organizational performance is

necessary to execute this research. Accordingly, this dissertation examines organizational

performance from a single constituency perspective, that of the common stockholder of

for-profit organizations. From this perspective, successful organizational performance

can be equated to successful value creation for common stockholders. In coming

chapters, I argue that this perspective typically equates value creation with organizational

financial performance; accordingly, this dissertation addresses the measurement of

organizational financial performance.

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In general, the concept of organizational performance is based upon the idea that an

organization is the voluntary association of productive assets, including human, physical,

and capital resources, for the purpose of achieving a shared purpose. Those providing the

assets will only commit them to the organization so long as they are satisfied with the

value they receive in exchange, relative to alternative uses of the assets. As a

consequence, the essence of performance is the creation of value. So long as the value

created by the use of the contributed assets is equal to or greater than the value expected

by those contributing the assets, the assets will continue to be made available to the

organization and the organization will continue to exist. Therefore, value creation, as

defined by the resource provider, is the essential overall performance criteria for any

organization.

1.6 Research Method

Research method is necessary for any research work. It is appropriate for present short

amount of method aspects which has been used for this study. This projects is developed

on the both exploratory and analytical in nature. This project is developed on the

secondary data basis. In order to collect the data and information, the following two

methods were employed, interview with the senior personnel and other staff of the

company.

Frequency visits were made to the Company and student intensively interacted with

personnel of the various section of the firm. Secondary sources such as important book;

related journal, financial study and procedure of work were consulate to understand the

relevant concept and literature directly and indirectly applicable to the present empirical

study. The relevant data and information were properly integrated, analyzed, interpreted
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and presented in the form of table, charts and diagram through this project work.

Different statistical tools like trend analysis, correlation analysis etc, and mathematical

methods were effectively used where necessary.

1.6.1 Research Design

This study is concerned with profitability analysis of Chilime Hydropower Ltd. The

adopted method of research design is case study method. It is intensive study of one

enterprise. Historical data are collected from Chilime Hydropower over 5 years and

analyzed according to set objectives of this study.

1.6.2 Population and Sample

At present, there are many Hydropower Companies operating in Nepal their shares are

traded actively in stock market. Due to time and resource factors, it is not possible to

study all of them regarding the study topic. Therefore, sampling will be done selecting

from many Hydropower Company of Nepal. The sample Hydropower Company to be

taken is Chilime Hydropower Company.

1.6.3 Data Collection Procedure

This report writing is totality based on the profitability analysis only. So, for many

research works, the necessary materials are collected from Chilime Hydropower head

office, Dhumbarahi, Kathmandu and annual report of of Chilime Hydropower Limited.

The methods of this study comprise of:

Primary Data
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The primary data were personally collected through interviews, direct observation and

questionnaires. I have conducted with the involved staff of the company. The secondary

data were collected by the internal and external sources.

Secondary Data
The secondary data collected from annual report of Chilime Hydropower and vouchers of

Chilime Hydropower were collected through the internal sources and different books

related with the study were collected through external sources.

1.6.4 Tools and Techniques

Various financial statistical tools and techniques used to evaluate the data trend line and

ratios. The trend line shows the trend of profit and ratios can be calculated through

accounting data contained in the financial statements. In view of the requirement of

various users of financial tools which are as follows:

1.6.4.1 Pictorial Tools

There are several graphical and pictorial tools that enhance researchers' understanding of

individual variables and the relationships between variables. Graphical and pictorial tools

provide a visual representation of the data.

A) Profitability Trend line

A trend line is a line acquired over pivot highs or under pivots lows to show the

prevailing direction price. Trend lines are the visual representation of support and

resistance in any timeframe. Trend line are used to show direction and speed of price, and

also describes patterns during periods of price contraction. To create a trend line we must

have at least two points on chart. Profitability trend line shows the net profit trend of the

company over the study period. In the trend line there are minimum to points required to
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analysis the net profit current year with the previous year. The trend line make with help

of excel.

1.6.4.2 Financial Tools and Techniques

Financial tools are instruments that help to analyze and interpret the financial

performance of an organization. In other words, financial tools help to analyze the

strength and weakness of a firm.

I ) Return on Assets
Return on assets is an indicator of how profitable a company is relative to its total assets.

Return on asset gives a manager, investor, or analyst an idea as to how efficient a

company's management is at using its assets to generate earnings. Return on assets is

displayed as a percentage. Return on assets , in basic terms, tells you what earnings were

generated from invested capital (assets). Return on asset for public companies can vary

substantially and will be highly dependent on the industry. This is why when using return

on asset as a comparative measure, it is best to compare it against a company's previous

ROA numbers or against a similar company's ROA. The return on asset figure gives

investors an idea of how effective the company is in converting the money it invests into

net income. The higher the ROA number, the better, because the company is earning

more money on less investment. It is calculated as follows.

Net profit after tax

ROA = X 100%
Total assets
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II) Return on Share holders' Equity

Return on Equity is a ratio that concerns a company's equity holders the most since it

measures their ability to earn a return on their equity investments. ROE may increase

dramatically without any equity addition when it can simply benefit from a higher return

helped by a larger asset base. As a company increases its asset size and generates a better

return with higher margins, equity holders can retain much of the return growth when

additional assets are the result of debt use. It is calculated as follows .

Net profit after tax

ROSE = X 100
Share holders' equity

iii) Earnings per Share (EPS)

The profitability of common stockholder’s investment can be measured in many other

ways. The income of per share is calculated by dividing the earning available to common

shareholders by the total number of common stock outstanding, thus,

Net profit after tax

EPS =
No. of shares outstanding

The higher earning indicates the better achievements in turns of profitability of the

companyby mobilizing their funds and vice versa. In other words, the Earning per share

indicates the strength and weakness of the company.

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1.7 Limitations of the Study

This research is done for the partial fulfillment of Bachelor of business studies (BBS). So

it limited only to academic purpose. Time limitation, financial problem, lack of research

materials and experience main elements which put constraints on study . As far as

possible every effort has been made to provide real picture of the study. However , it has

some limitation . They are listed below.

 This study is only based on the CHPCL so the result obtained cannot be applied

to the overall hydropower company .

 The study only focus on profit analysis of Chilime Hydropower Company

Limited.

 The research most of the based on the secondary data which is collect from the

secondary sources.

 The certain financial tools and technique are used to analysis the data.

 The study based on the certain assumption related to profitability analysis which

may change as per change in time.

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CHAPTER - II
RESULT AND ANALYSIS

2.1 Data Presentation and Analysis

In this chapter, to achieve the objective, which is set in introduction chapter, the relevant

data and information on Profitability analysis and its impact on market price of stock of

commercial banks are presented. Presentation and analysis of data is the study. Using the

various financial variable and statistical tools discussed in “Research Methodology”.

Before observing the impact of different financial indicators and variables on profit as

well as value of firm, we need to present and analyze them systematically. For this

purpose gross profit margin ratio, net profit margin ratio, ROA, ROE, DPS and EPS

.However these variables show the profit status of the CHPCL as well as their strength.

Consequently, it helps to identify the CHPCL's position regarding profitability ratio.

These variables have been presented by the help of table, figure and analyzed by using

financial tools as specified in chapter one.

2.1.1 Net profit Analysis

Net profit is the company total revenue after deducted the tax. Net profit is also called the

bottom line for a company or the net income. The term net profits is equivalent to net

income on the income statement, and one can use the terms interchangeably. The income

of Chilime Hydropower Company Limited's id sales of electricity to the local area

consumers and NEF. Net income is calculated before dividends paid to common

shareholders and after dividends to preferred shareholders and interest to lenders.

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Net profit trend of Chilime Hydropower Company

100000

95000

90000

Net income (in000)

85000

80000

75000
2013/14 2014/15 2015/16 2016/17 2017/18

(Figure: 2.1 )

The above table shows that the profit trend of Chilime Hydropower Company Limited

over the last five years. The profitability trend of the company is in fluctuation trend. The

company net profit is highest in the fiscal year 2015/2016 due to the increase in

electricity produce and sales of the company than other fiscal years and lowest in the

fiscal year 2014/2015 due to the decrease in electricity produce and sales of the company

than other fiscal years. Net profit of the company depended on the electricity produce and

sell the electricity by the company .

2.1.2 Return on Assets (ROA) Analysis

Return on assets (ROA) is an indicator of how profitable a company is relative to its total

assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's

management is at using its assets to generate earnings. Return on assets is displayed as a

percentage. Return on assets (ROA), in basic terms, tells us what earnings were generated
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from invested capital (assets). The ROA figure gives investors an idea of how effective

the company is in converting the money it invests into net income. The higher the ROA

number, the better, because the company is earning more money on less investment.

Return on assets is calculated as a percentage of net profit on the total assets. It’s the

actually calculate the percentage of net profit in the average total assets.

ROA of Chilime Hydropower Company limited

( Rs in 000)

Fiscal year Net profit(Rs) Average total assets(Rs) ROA(%)

2013/14 93968 1825464 5.15
2014/15 85353 1579195 5.40
2015/16 98246 1439238 6.82
2016/17 93402 1550795 6.02
2017/18 91407 1643525 5.56
(Table : 2.1)

The above table show that the trend of return on assets is in fluctuation .A high ROA

indicates that the assets of the company are being used profitably and there are minimum

losses and wastages of assets. Conversely, a low ROA indicates that the assets of the

company are not being used in a profitable manner and there are losses and wastages of

the assets. If the company could not manage the ROA of the present year, there would be

faced high losses in the future. So, the company should be managed it properly. Return

on Asset is highest o 6.82% during the year 2016/17 while lowest 5.15% during the year

2013/2014 .The company has a fluctuation net profit while the total assets has been in a

increasing trend.
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2.1.3 Return on Shareholder’s equity (ROE)

Return on share holder's equity (ROSE) is a measure of financial performance calculated

by dividing net income by shareholders' equity. Because shareholders' equity is equal to a

company’s assets minus its debt, ROSE could be thought of as the return on net assets.

ROSE is considered a measure of how effectively management is using a company’s

assets to create profits. ROSE is expressed as a percentage and can be calculated for any

company if net income and equity are both positive numbers. Net income is calculated

before dividends paid to common shareholders and after dividends to preferred

shareholders and interest to lenders.

( Rs in 000)

Fiscal year Net profit Shareholder’s ROE (%)

2013/14 93968 153764 6.11
2014/15 85353 134578 6.34
2015/16 98246 125466 7.30
2016/17 93402 135568 6.8
2017/18 91407 138387 6.60

(Table : 2.3)

Above table show the return on shares holder's equity of the Chilime Hydropower

Company. The ROE of the company increased continuously till fiscal year2015/16 . The

return on shareholder’s equity of company is in a fluctuating trend. The highest 7.30%

being in the year 2014/15 while the lowest is during the year 2013/14 with the value of

6.11%. ROSE is considered a measure of how effectively management is using a

company’s assets to create profits. ROSE can be calculated for any company if net

income and equity are both positive numbers. Net income is calculated before dividends
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paid to common shareholders and after dividends to preferred shareholders and interest to

lenders.

2.1.4 Earning per Share (EPS)

The profitability of common stockholder’s investment can be measured in many other

ways. The income of per share is calculated by dividing the earning available to common

shareholders by the total number of common stock outstanding. Thus, The higher earning

indicates the better achievements in turns of profitability of the bank by mobilizing their

funds and vice versa. In other words, the Earning per share indicates the strength and

weakness of the company.

Earning per share of Chilime Hydropower Company Limited

(Rs in 000)
Fiscal year Net income(in Rs) No. of shares outstanding EPS
2013/14 93968 28654562 32.79
2014/15 85353 27256320 31.31
2015/16 98246 27713600 35.45
2016/17 93402 34479244 27.08
2017/18 91407 39651131 23.05

Table 2.4

The table 2.6 shows the earnings per share of Chilime Hydropower Company Limited.

Highest earning per share is better its shows the earning ability of each of the share. The

company earning per share is in the fluctuation trend it is highest in the fiscal year

2015/16 i.e Rs 35.45 and lowest in the fiscal year 2017/2018 i,e Rs 23.05.
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2.2 Major Findings

This section includes the key findings of the study obtained from the analysis of data.

Conclusion

derived from the findings are presented in the next chapter. The forgoing analysis of

profitability of the Chilime Hydropower reveals the following:

2.2.1 The profitability trend of the company is in fluctuation trend. The company net

profit is highest in the fiscal year 2015/2016 due to the increase in electricity

produce and sales of the company than other fiscal years and lowest in the fiscal

year 2014/2015 due to the decrease in electricity produce and sales of electricity

the than other fiscal years.

2.2.2 Return on Asset is highest o 6.82% during the year 2016/17 while lowest 5.15%

during the year 2013/2014 .The company has a fluctuation net profit while the

total assets has been in a increasing trend.

2.2.3 The return on shares holder's equity of the Chilime Hydropower was increased

continuously till fiscal year 2015/16 . The company return on shareholder’s equity

is in a fluctuating trend. The highest 7.30% being in the year 2015/16 while the

lowest is during the year 2013/14 with the value of 6.11%.

2.2.4 The company earning per share is also in the fluctuation trend it is highest in the

fiscal year 2015/16 i.e Rs 35.45 and lowest in the fiscal year 2017/2018 i ,e Rs

23.05.
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CHAPTER- III
SUMMARY AND CONCLUSION

This chapter focuses on summarizing the study held with the conclusions and some
recommendation on the basis of findings. For this purpose, the chapter has been divided
into two parts as summary and conclusion.

3.1 Summary
Nepal is a country with a high potentiality of hydroelectricity. It is second richest country

in water resources in the world with potential capacity of 83000 MW hydroelectricity.

Currently, Nepal is producing 613 MW electricity in both private and public sector taken

together. Chilime Hydropower is the largest company producing hydroelectricity in the

private sector.

The study was conducted with the objectives to analyze the profitability position of

Chilime Hydropower Company Ltd over the study period 2014/15 to 2017/18 following a

descriptive and analytical research design. To make the study more reliable, different

types of analysis have been conducted . Various financial tools and techniques are used to

analysis and evaluate the collected data from different sources which is mention on the

research methodology. To fulfill the this research first I review the previous research

report writing and articles related with the topic. This research has some rational and

limitation which is mention in first chapter. The second chapter includes the data

presentation and analysis and the major finding of the study. The theoretical statement is

to study of the profitability over the last five years. In the first chapter introduce about

hydroelectricity and profile of the Chilime Hydropower Company Ltd and set the specific
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objective of the study. The objective of the study is profitability analysis of the company

with the help of the profitability trend line trend line, ROA and ROE and the earning per

share of Chilime Hydropower Company.

3.2 Conclusions
Based on major findings, this study concludes that there is strong profitability position of

company. All the profitability ratios are positive. at last he following conclusions are

made; The company cannot produce the electricity to the hydropower capacity so the net

profit of the company is in fluctuation trend. The company net profit directly affect the

profitability ratios and EPS. Return on Asset is highest o 6.82% during the year 2016/17

while lowest 5.15% during the year 2013/2014 .The company has a fluctuation net profit

while the total assets has been in a increasing trend. The return on shares holder's equity

of the Chilime Hydropower was increased continuously till fiscal year 2015/16. The

return on shareholder’s equity is in a fluctuating trend. Return on share holder's equity

(ROE) is a measure of financial performance calculated by dividing net income by

shareholders' equity. Because shareholders' equity is equal to a company’s assets minus

its debt, ROE could be thought of as the return on net assets. ROE is considered a

measure of how effectively management is using a company’s assets to create profits.

ROE is expressed as a percentage and can be calculated for any company if net income

and equity are both positive numbers. The highest 7.30% being in the year 2015/16 while

the lowest is during the year 2013/14 with the value of 6.11%. The higher earning

indicates the better achievements in turns of profitability of the bank by mobilizing their

funds and vice versa. In other words, the Earning per share indicates the strength and

weakness of the company. The company earning per share is also in the fluctuation trend
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it is highest in the fiscal year 2015/16 i.e Rs 35.45 and lowest in the fiscal year

2017/2018 i ,e Rs 23.05.The
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BIBLIOGRAPHY

Brigham, E. F. (1982). Financial Management Theory & Practice. New York: The
Dryden Press.

Francis, J. C. (1992). Investments Analysis and Management. London: McGraw-Hill

Intonation Finace Series.

Cook, J.W. and Hatt k. Paul (1976) "methods in Social Research", Tokyo: Magraw-Hill
hogahuska Limited

Gupta, S.P. (1994) "Essay Approach to Statistics, New", Delhi: Chand & Company Ltd

Khatri, Sabita (2015) "A study on cost volume and profit analysis of Butwal power
company limited " .

Pandey,I.M. (2001) "Financial Management", New Delhi: Encyclopedia-Volume 9

(finance)

Pradhan, R.S. (2040) "Financial Management Kathmandu", Buddha Academic

Enterprizes.

Van Horne, J. C. (2000). Financial Management and Policy. New Delhi: Prentice Hall
of India Private Limited.

www.chilime.com.np

www.investopedia.com
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APPENDIXES

Appendix no. I

Net profit over the last five years

Fiscal year Net Profit

(Rs in 000)

2013/2014 93968

2014/2015 85353

2015/2016 98246

2016/2017 93402

2017/2018 91407

(Source: Annual report 2013/2014 to 2017/2018)