Ratio Analsys of Airtel

8/6/2019 Ratio Analsys of Airtel

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RATIO ANALYSIS OF STATE BANK OF INDIA(SBI)

A MINI PROJECT SUBMITTED TO JAWAHARLAL NEHRU TECHNOLOGICAL

UNIVERSITY, HYDERABAD IN PARTIAL FULFILLMENT FOR THE AWARD OF THEDEGREE OF MBA.

by

B.SHIVAJI

H.T.NO 10N81E0035

Under the guidance of

MR. SRI HARSHA

MR.LAKSHMA REDDY

MR.RAMA RAO

MR.SRAVAN KUMAR

DEPARTMENT OF BUSINESS ADMINISTRATION

SPHOORTHY ENGINEERING COLLEGE

NADARGUL(V),NEAR VANASTHALIPURAM,SAGAR ROAD

SAROORNAGAR(M),R.R(DIST)


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ACKNOWLEDGEMENT

I am immensely indebted to SRI HARSHA REDDY, Head of the

department

Sphoorthy Management Studies to carry out this project work.

I am also thankful to my course director Prof T LAXMA REDDY, my heartful

thanks to my faculty guide SRAVAN KUMAR and RAMA RAO for his valuable

guidance and sustained interest in my project work.

I would like to acknowledge my sincere thanks to all my faculty members

for their valuable advices and suggestions.

B.SHIVAJI


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Agenda

S.NO CONTENTS P.NO

Chapter-I Introduction in generalobjectives of study

scope of the studyResearch Methodologylimitations

Chapter-II History of the companyFunctions of the companyinvestments of the companysavings of the companyInfra structure facilitiesNo. of employees / employee turn overCompetition of the companySuppliers of the companyCustomer of the companyprofitability of the company

Chapter-III Ratio Analysis techniques with formulae

Collection of Balance sheet & profit and loss account for last5 years from present

Chapter-IV Theoretical aspects of ratio analysis

Chapter-V Conclusion, suggestion, recommendation


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CHAPTER-I


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INTRODUCTION

Financial statement analysis is the calculation and comparison of ratios

which are derived from the information in a company's financial

statements. The level and historical trends of these ratios can be used to

make inferences about a company's financial condition, its operations and

attractiveness as an investment.

Financial statements are calculated from one or more p ieces of information from

a company's financial statements. For example, the "gross margin" is the gross

profit from operations divided by the total sales or revenues of a company,

expressed in percentage terms. In isolation, a financial ratio is a useless piece of

information. In context, however, a financial ratio can give a financial analyst

an excellent picture of a company's situation and the trends that are developing.

A statement gains utility by comparison to other data and standards. Taking our

example, a gross profit margin for a company of 25% is meaningless by itself. If

we know that this company's competitors have profit margins of 10%, we know

that it is more profitable than its industry peers which are quite favorable. If we

also know that the historical trend is upwards, for example has been increasing

steadily for the last few years, this would also be a favorable sign that

management is implementing effective business policies and strategies.

Financial statement analysis groups the ratios in to categories which tell us about

different facets of a company's finances and operations. An overview of some of

the categories of ratios is given below.

It is imperative to note the importance of the proper context for statement

analysis. Like computer programming, financial ratio is governed by the GIGO

law of "Garbage In...Garbage Out!" A cross industry comparison of the

leverage of stable utility companies and cyclical mining companies would be


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worse than useless. Examining a cyclical company's profitability ratios over less

than a full commodity or business cycle would fail to give an accurate long-

term measure of profitability.

Using historical data independent of fundamental changes in a company's

situation or prospects would predict very little about future trends. For example,

the historical ratios of a company that has undergone a merger or had a

substantive change in its technology or market position would tell very little

about the prospects for this company.

Credit analysts, those interpreting the financial ratios from the prospects of a

lender, focus on the "downside" risk since they gain none of the upside from an

improvement in operations. They pay great attention to liquidity and leverage

ratios to ascertain a company's financial risk. Equity analysts look more to the

operational and profitability ratios, to determine the future profits that will

accrue to the shareholder.

Although financial ratio analysis is well-developed and the actual ratios are

well-known, practicing financial analysts o ften develop their own measures for

particular industries and even individual companies. Analysts will often differ

drastically in their conclusions from the same ratio analysis.


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OBJECTIVES OF THE STUDY:

The main objectives of the present study are given below

To present an overall view of the Airtel company

To evaluate the financial performance of AIRTEL Company

To calculate various Financial Ratios and to analyze and comment on

the financial performance of AIRTEL COMPANY during 2006-2010

To offer suggestions to AIRTEL COMPANY for the improvement of

financial performance


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SCOPE OF THE STUDY:

The scope of the study is limited to collecting financial

data published in the annual reports of the company every year. The

analysis is done to suggest the possible solutions. The study is carried

out for 5 years (2006-2010).


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Research Methodology:

The data used for analysis and interpretation from annual

reports of the company which are the secondary forms of data

The project is presented by using tables, graphs and with their

interpretations

Secondary data:

Secondary data obtained from the annual reports, magazines

and web sites


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LIMITATIONS OF THE STUDY:

1. Many statements are calculated on the basis of the balance-sheet, profit

& loss account figures. These figures are as on the balance-sheet and p&l

account date only and may not be indicative of the year -round position.

2. Comparing the ratios with past trends and with competitors may not

give a correct picture as the figures may not be easily comparable due to

the difference in accounting policies, accounting period etc.

3. It gives current and past trends, but not future trends.

4. Impact of inflation is not properly reflected, as many figures are taken at

historical numbers, several years old.

5. There are differences in approach among financial analysts on how to

treat certain items, how to interpret ratios etc.

6. The ratios are only as good or bad as the underlying information used to

calculate them.


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Chapter-II


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History of the company:

Bharti Tele-Ventures was incorporated on July 7, 1995 as a company

with limited liability under the Companies Act, for promoting

telecommunications services. Bharti Tele-Ventures received certificate

for commencement of business on January 18, 1996. The Company was

initially formed as a wholly-owned subsidiary of Bharti Telecom Limited.

The chronology of events since Bharti Tele-Ventures was incorporated in1995 is as follows:

AirTel on December 16, 2003 announced the launch of expense tracker

service, which provides customers the option of tracking their day -to-day

expenses on a daily or monthly basis. To avail of this service, the

customer should register himself by sending EXP REG Your mail ID{gt}

to 3020. This service will allow a user to track expenses, while on the

move by sending an SMS. Each SMS sent to 3020 would cost Rs 3.

-AirTel launched a family pack for its post-paid customers in Chennai onJanuary 29. According to a press release, the family pack may have a

maximum of 10 members spread across the country. The combined

basic plan fixed charges/rental of all family members in the pack will

have to be equal to Rs 450 but less than Rs 1000 for the family 450

pack and above Rs 1000 for the family 1000 pack. The offerings under

family pack 450 include 15 free mobile to mobile STD minutes within the

family, 50 free local calling minutes to each family member, calls within

the family in same circle at 50 paise per minute, 25 free local SMS and

one subscription alert service free for 3 months.

-Bharti Tele-Ventures enters into a three year service agreement with

Ericsson

-Bharti Tele-Ventures (BTVL) has signed and received unified access


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service licence to provide GSM services in five circles including Uttar

Pradesh (East), West Bengal & Andaman Nicobar, Orissa, Bihar and

Jammu & Kashmir. The licence has been granted to Bharti Cellular Ltd

(BCL), the cellular arm and subsidiary of BTVL.

-Airtel announces the signing of the first-ever bilateral roaming

agreement between an Indian mobile service provider and its

counterpart in Pakistan. This facility will be available to pre-paid as well

as post-paid customers. AirTel's roaming agreement is with Mobilink, the

only GSM cellular service provider in Pakistan

Nokia Siemens Networks on Jan 3 declared that it has been awarded a

multi million euro contract from Bharti Airtel Ltd for deployment of a

single interactive voice response (IVR) platform across 23 circles. The

three-year turnkey contract comprises designing, planning, systemsintegration and optimisation services to raise overall customer

experience. The new IVR solution will enable Airtel to deliver services

such as voice SMS, televoting, call management services, caller ring

back tone and voice portal on a faster time-to-market basis and,

therefore, reduce OPEX costs.

- Bharti Airtel Ltd on February 13, 2008 has announced that it has

achieved the 60 million customer mark. This landmark has catapulted

Bharti Airtel into the club of top mobile operators in the world in terms ofsubscriber base. The 60 million customer base covers mobile as well as

fixed line and broadband customers.

- Bharti Airtel tied up with US-based Apple Inc to bring the popular GSM-

based iPhone in the country.

- Bharti Airtel Ltd has forged a technology alliance with Infosys

Technologies Ltd to launch its Direct-to-Home (DTH) television services.

Infosys, through its digital convergence platform, will offer a suite of

products including devices, application servers and interactive

applications for Airtel's DTH services.

- Gearing up for the roll out its 3G services soon, Bharti Airtel on Monday

said it has chosen Ericsson India, Nokia Siemens Networks and Huawei


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Technologies as network partners to launch the third generation mobile

services. All the three partners will plan, design, deploy and maintain a

state-of-the-art 3G HSPA (high speed packet access) network in 13

telecom circles of the total 22 for which Bharti Airtel has bagged the

licences for over Rs.12,000 crore.

ORGANISATION STRUCTURE OF THE COMPANY:


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INVESTMENTS OF THE COMPANY:

Bharti Airtel's profit continues to be weighed down by the cost of debt it took on

to make investments in 3G spectrum in India and to acquire the African

operations of Zain.

The company also blamed low margins on its African operations and tariff wars

in India for a 31 percent year-on-year decline in its net profit in the quarter

ended March 31.India's largest mobile operator reported on Thursday that its revenue for the

quarter was 162.6 billion Indian rupees (US$3.6 billion at the exchange rate on

the last day of the quarter), up 51 percent from the same quarter last ye ar. But

net profit fell to 14 billion rupees from 20 billion rupees in the same quarter last

year. While its Indian operations made profit of 18 billion rupees, its Africa

operations lost over 4 billion rupees.

The figures for the quarter ended March 31 are not, however, strictly

comparable to those in the same quarter last year, because they include the

results from Bharti Airtel's acquisition in June last year of Zain's operations in 15

countries in Africa.

The Africa operations of Zain were already los ing money when Bharti Airtelacquired them, said Kamlesh Bhatia, a principal research analyst at Gartner. The

company is putting together an organization to take advantage of the economies

of scale that the African and South Asian operations can bring to t he company,

he said.

Bhatia was, however, unwilling to forecast when Bharti Airtel would show profit

growth. The company still has to make some more investments in its operations,

he said. The company's management has the expertise in emerging markets

that will be required to turn around the operations in Africa, he added.

Bharti Airtel acquired its African operations for an enterprise value of $10.7

billion in June. It also paid 156 billion rupees for 3G and broadband wireless

licenses and spectrum in India. As a result of these investments, the company's

debt has soared to 599.5 billion rupees at the end of the quarter, from 23.9billion rupees in the same quarter last year.

Bharti Airtel's revenue from operations in India, Sri Lanka, and Bangladesh was

up by 11 percent from the same quarter last year.

In the company's fiscal year ended March 31, revenue at 594.6 billion rupees

was up 42 percent from a year earlier. The company said that profits had dipped

by 33 percent to 60.4 billion rupees.


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The company had 212 million mobile customers across 19 countries, but more

than 162 million of these customers came from India, where the company is

struggling with falling average revenue per user (ARPU). Competition among

operators has pushed down monthly ARPU by 12 percent to 194 rupees in the

quarter, from 220 rupees per month in the same quarter last year.

Airtel Africa had 44 million customers in 16 countries at the end of the quarter,

adding 2.1 million customers in the quarter.

The company has also rolled out 3G services in over 21 cities in India, but these

investments are unlikely to start earning large revenue for the company soon, as

the 3G market is still nascent in India, analysts said

Savings

Saving Deposit

In saving deposit, annual 7% interest is provided to the account-holderswith the facilities that is available in this type of accounts. The interest iscalculated on the daily balance and added to the concerned account atthe three/three. The holders of this account are supposed to maintainRs. 500/= as minimum balance.

Special Saving Deposit

In Special saving deposit, we are offering three saving account.

Airtel Saving Minimum Balance Rs. 5,000/-Interest 8.5%

Airtel Special SavingMinimum Balance Rs.25,000/- Interest 9.5%

Airtel PremiumSaving

Minimum Balance Rs.50,000/-

Interest 10 -12%

Recurring/Periodic Saving

In this saving account, save your amount for the fixed/certain period.After the maturity period, we will pay total interest with depositamount.It is simply a daily saving scheme.

Period Interest

3 Months 8.5%

6 Months 9.5%

1 Year 10.5%

2 Years 11.5%

3 Years 12.5%


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Fixed Deposit

As name suggests itself; the clients of this type of accounts are requiredto operate their accounts within specified period of time that they

mention the time of account opening in application form. As per theduration of accounts and time span for calculation of interest, ASCCL isproviding varieties of comparative attractive interest rates.

Period Monthly Quarterly Yearly On Maturity

1 Year 12% 13% - 16%

2 Years 13% 14% 15% 17%

3 Years 14% 15% 16% 18%

4 Years 15% 16% 17% 19%

4 Years 6Months

- - - Double

Senior Citizen Saving

Respecting to the spirit of Co-operative revolution of government ofNepal, Airtel Saving & Credit Co- Operative Ltd (ASCCL) is establishedunder the Co-Operative Act 2048, with the slogan "Customer Satisfactionwith Maximum Return" in 9 Chaitra 2066 B.S. With due respect to thespirit of co-operative revolution of the government of Nepal. Airtel

Saving & Credit Co- Operative Ltd (ASCCL) has been operating with no.of financial opportunities to its needy members & society as a wholeignoring cheap assurance of the market. In the contest of competitivemarket due to government's liberal and free economic policy along withpace of technological enhancement, our entrepreneurs are facing no. ofthreats. Considering the competition from any corner of the world ournational entrepreneurs are supposed to be provided varieties ofresources and facilities (if necessary) as far as possible to any sector ofthe economy. For this ASCCL is operating with modern computerized

system in the financial market with different schemes towards economicup-liftmen through entrepreneurial development on the belief ofTodays investment is tomorrow's return " like a cash cow by takingcorporate social responsibility (CSR) into account. Hence, ASCCL in itstrue sense is the peoples representative in Nepalese financial market.

To Serve is our ultimate goal. Taking the view in mind drops make sealets shake our hands for economic development through successful


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entrepreneurial development. For this, dont worry, we manage bloodi.e. fund for your business organization. You just come with your soundbusiness scheme (i.e. plan). We would like to draw your attentiontowards the belief of getting opportunity to serve through the habits ofdaily saving. Hence, it is the right times to shake our hands.

SavingsSaving Deposit

In saving deposit, annual 7% interest is provided to the account-holderswith the facilities that is available in this type of accounts. The interest iscalculated on the daily balance and added to the concerned account atthe three/three. The holders of this account are supposed to maintain

Rs. 500/= as minimum balance.

Recurring/Periodic SavingIn this saving account, save your amount for the fixed/certain period.

After the maturity period, we will pay total interest with depositamount.It is simply a daily saving scheme.

Fixed DepositAs name suggests itself; the clients of this type of accounts are requiredto operate their accounts within specified period of time that theymention the time of account opening in application form. As per theduration of accounts and time span for calculation of interest, ASCCL isproviding varieties of comparative attractive interest rates.


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No. of employees / employee turn over

In a human resources context, turnoverorstaff turnoverorlabour

turnoveris the rate at which an employergains and loses employees.

Simple ways to describe it are "how long employees tend to stay" or"the rate of traffic through the revolving door." Turnover is measured

for individual companies and for their industry as a whole. If an

employer is said to have a high turnover relative to its competitors, it

means that employees of that company have a shorter average

tenure than those of other companies in the same industry. High

turnover may be harmful to a company's productivity if skilled workers

are often leaving and the worker population contains a high

percentage of novice workers.

In the U.S., for the period of December 2000 to November 2008, theaverage total non-farm seasonally adjusted monthly turnover rate was

3.3%.[1] However rates vary widely when compared over different

periods of time or different job sectors. For example, during the period

2001-2006, the annual turnover rate for all industry sectors averaged

39.6% before seasonal adjustments,[2] during the same period the

Leisure and Hospitality sector experienced an average annual rate of

74.6%.[3]

Model [8]

Thomas suggests that there tends to be a higher level ofstress with

people who work with or interact with a narcissist, which in turn

increases absenteeism and staff turnover.[9]


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[edit]Investments

Alternatively, low turnover may indicate the presence of employee

'investments' (also known 'side bets')[10]

in their position: certain

benefits may be enjoyed while the employee remains employed with

the organization, which would be lost upon resignation (e.g. healthinsurance, discounted home loans, redundancy packages, etc.). Such

employees would be expected to demonstrate lower intent to leave

than if such 'side bets' were not present.

[edit]

How to prevent turnover

Employees are important in any running of a business; without them

the business would be unsuccessful. However, more and more

employers today are finding that employees remain for approximately

23 to 24 months, according to the 2006 Bureau of Labor

Statistics[citation needed]

. The Employment Policy Foundation states it

costs a company an average of $15,000 per employee, including

separation costs, paperwork, unemployment; vacancy costs, including

overtime or temporary employees and replacement costs including

advertisement, interview time, relocation, training and decreased

productivity when colleagues depart. Providing a stimulating

workplace environment, which fosters happy, motivated and

empowered individuals, lowers employee turnover and absentee

rates.[11]

Promoting a work environment that fosters personal and

professional growth promotes harmony and encouragement on all

levels, so the effects are felt company wide.[11]

Continual training and reinforcement develops a work force that is

competent, consistent, competitive, effective and

efficient.[11]

Beginning on the first day of work, providing the individual

with the necessary skills to perform their job is important. [12] Before the

first day, it is important the interview and hiring process expose newhires to an explanation of the company, so individuals know whether

the job is their best choice.[13]

Networking and strategizing within the

company provides ongoing performance management and helps build

relationships among co-workers.[13]

It is also important to motivate

employees to focus on customer success, profitable growth and the

company well-being .[13]

Employers can keep their employees informed


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and involved by including them in future plans, new purchases, policy

changes, as well as introducing new employees to the employees

who have gone above and beyond in meetings. [13] Early engagement

and engagement along the way, shows employees they are valuable

through information or recognition rewards, making them feelincluded.

[13]

When companies hire the best people, new talent hired and veterans

are enabled to reach company goals, maximizing the investment of

each employee.[13]

BhartiAirtel

IdeaCellular

RelianceComm

TataComm

TataTeleservice

Mar '10 Mar '10 Mar '10 Mar '10 Mar '10

Sources Of Funds

Total Share Capital 1,898.77 3,299.84 1,032.01 285.00 1,897.20

Equity Share Capital 1,898.77 3,299.84 1,032.01 285.00 1,897.20

Share Application Money 186.09 44.45 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves34,650.1

98,112.95 49,466.88 6,995.78 -2,563.53

Revaluation Reserves 2.13 0.00 0.00 0.00 0.00

Networth36,737.1

811,457.24 50,498.89 7,280.78 -666.33

Secured Loans 39.43 5,988.61 3,000.00 1,281.76 2,300.43

Unsecured Loans 4,999.49 537.81 21,478.28 1,357.15 1,309.00

Total Debt 5,038.92 6,526.42 24,478.28 2,638.91 3,609.43

Total Liabilities41,776.1

017,983.66 74,977.17 9,919.69 2,943.10

BhartiAirtel

IdeaCellular

RelianceComm

TataComm

TataTeleservice

Mar '10 Mar '10 Mar '10 Mar '10 Mar '10

Application Of Funds

Gross Block44,212.5

322,834.40 39,838.17 6,820.94 5,574.14

Less: Accum. Depreciation16,187.5

67,907.34 9,225.69 2,316.14 2,070.32

Net Block28,024.9

714,927.06 30,612.48 4,504.80 3,503.82

Capital Work in Progress 1,594.74 462.58 1,683.52 386.15 196.91


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Profitability of the airtel company

Free res(Rs crore)

Ratios

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Per share ratios

Adjusted EPS (Rs) 22.40 48.93 34.08 21.20 10.60

Adjusted cash EPS (Rs) 33.19 66.76 52.16 34.34 18.84

Reported EPS (Rs) 24.82 40.79 32.90 21.27 10.62

Reported cash EPS (Rs) 35.61 58.63 50.99 34.41 18.86

Dividend per share 1.00 2.00 - - -

Operating profit per share (Rs) 36.65 69.50 56.16 38.28 21.32

Book value (excl rev res) per share (Rs) 96.24 145.01 106.34 60.17 7.76

Book value (incl rev res) per share (Rs.) 96.25 145.02 106.35 60.18 7.77

Net operating income per share (Rs) 93.77 179.37 135.73 94.16 59.45

One of the main methods used by technical analysts to forecasting

Investments15,773.3

22,755.13 31,898.60 2,501.30 120.00

Inventories 27.24 46.70 298.34 1.25 6.40

Sundry Debtors 2,104.98 430.12 1,738.63 632.29 264.12

Cash and Bank Balance 54.89 129.13 81.92 102.90 22.98

Total Current Assets 2,187.11 605.95 2,118.89 736.44 293.50Loans and Advances 6,276.12 3,533.15 17,886.79 4,042.38 301.05

Fixed Deposits 761.86 151.31 0.26 7.96 0.00

Total CA, Loans & Advances 9,225.09 4,290.41 20,005.94 4,786.78 594.55

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 12,183.2 4,313.76 5,836.53 2,084.67 1,466.05


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security prices is by the recognition of patterns and trends of security

prices, and the easiest way to spot patterns and trends is through the

use of charts. In fact, the use of charts is so prevalent, that technical

analysts are often called chartists. Originally, charts were drawn by

hand, but most charts nowadays are drawn by computer.

Charts are graphical displays of price information of securities over

time. Often, such charts also show volume. Besides allowing the

technical analyst to easily spot patterns and trends, the main benefits

of charts are the concise presentation of price and volume information

over a period of time, which can be used by fundamentalists to study

how the market has reacted to specific events. Market volatility can

also be easily gleaned from charts. Charts also help technical analysts

to decide on entrance and exit points, and at what prices to placestops to reduce risk.

The main chart types used by technical analysts are the line chart, bar

chart, candlestick chart, and point-and-figure charts. Charts can also

be displayed on an arithmetic or logarithmic scale. The types of charts

and the scale used depends on what information the technical analyst

considers to be most important, and which charts and which scale best

shows that information.

Chart Scales: Arithmetic And Logarithmic

Most charts display price intervals on the vertical axis and time

intervals on the horizontal axis. A chart based on the arithmetic

scale (aka linear scale) shows the same distance between equal

price differences. So if a chart had $10 price intervals, then each

interval is the same length on the vertical axis. So a $10 stock that

increased by $10 would be plotted up by the same amount as a $100

stock that increased by $10, even though the $10 stock doubled in

price while the $100 stock only increased by 10%.

6-month bar chart of Citigroup using the arithmetic scale, where the gridlines

are equally spaced and represent the same price increments.


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The logarithmic scale (aka semi-logarithmic scale) usespercentages as the primary unit rather than absolute differences. On a

logarithmic scale, a $10 stock increasing by $10 would plot higher than

a $100 stock rising by $10. Hence, a chart based on a logarithmic

scale presents price change information more accurately than a chart

based on an arithmetic scale. A chart based on the logarithmic scale

can also cover a wider range of prices than a chart of the same size

based on the arithmetic scale. However, if the price range displayed in

the graph is narrow, then there is little difference between the 2

scales.

6-month bar chart of Citigroup using the logarithmic scale. Note that the

gridlines are drawn closer together at higher prices, and that the price

difference between gridlines also increases at higher prices.


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BigCharts - Interactive Chart

Line Charts

Line charts are the simplest form of charts depicting price changes

over an interval of time. Usually, only the closing price is graphed,

depicted by a single point. The series of these points constitutes a

linehence, the name. However, intraday price changes can also be

plotted, either by plotting each trade, or by selecting the last price of a

given interval, such as an hour or 15 minutes. Because line graphs are

simple, it is easier to compare the prices of multiple securities or

indexes on the same graph.

The line chart also shows trends the best, which is simply the slope of

the line.

1-month line chart of Exxon-Mobil Corporation.


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http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=xom&time=8

Bar Charts

One of the basic tools of technical

analysis is the bar chart, where the open, close, high, and low prices

of stocks or other financial instruments are embedded in bars which

are plotted as a series of prices over a specific time period. Bar chartsallows traders to see patterns more easily. In other words, each bar is

actually just a set of 4 prices for a given day, or some other time

period, that is connected by a bar in a specific wayhence, it is often

referred to as a price bar.

A price bar shows the opening price of the financial instrument, which


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is the price at the beginning of the time period, as a left horizontal line,

and the closing price, which is the last price for the period, as a right

horizontal line. These horizontal lines are also called tick marks.

Thehigh price is represented by the top of the bar and the low

price is depicted by the bottom of the bar.

1-month bar chart of Exxon-Mobil Corporation.



Candlestick Charts

Another type of chart used in technical

analysis is the candlestick chart, so called because the main

component of the chart representing prices looks like a candlestick,


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with a thick body, called the real body, and usually a line extending

above and below it, called the upper shadow and lower shadow,

respectively. The top of the upper shadow represents the high price,

while the bottom of the lower shadow represents the low price.

Patterns are formed both by the real body and the shadows.Candlestick patterns are most useful over short periods of time, and

mostly have significance at the top of an uptrend or the bottom of a

downtrend, when the patterns most often signify a reversal of the

trend.

While the candlestick chart shows basically the same information as

the bar chart, certain patterns are more apparent in the candlestick

chart. The candlestick chart emphasizes opening and closing prices.

The top and bottom of the real body represents the opening andclosing prices. Whether the top represents the opening or closing price

depends on the color of the real bodyif it is white, then the top

represents the close; black, or some other dark color, indicates that

the top was the opening price. The length of the real body shows the

difference between the opening and closing prices. Obviously, white

real bodies indicate bullishness, while black real bodies indicate

bearishness, and their pattern is easily observable in a candlestick

chart.

1-month candlestick chart of Exxon-Mobil Corporation.


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Point-And-Figure Charts

Point-and-figure charts list only significant price information as

columns of X's and O's without regard to time, so that trends,

resistance and support levels are more apparent. Although time is

depicted on the horizontal axis, the units of time are determined by

when the trend changes.

There are several ways of constructing point-and-figure charts, but all

are based on box size, which is the minimum price differential

necessary before a price is recorded as an X or an O. Columns of X's

show an uptrend, and O's show a downtrend. Generally, closing price

differentials are used. There is no high, low, opening, or closing prices

recorded, since only the change in price greater than the box size is

recorded as an X if the price differential is up or as an O if it is down.

Each consecutive X is recorded in the same column above the previous

X until the price reverses by more than the box size, then a new

column is started by recording an O in a box below and to the right of

the highest X in the previous column. O's are added downward with

each price decrease greater than the box size until the downtrend

reverses to an uptrend, starting a new column where the 1st X is

placed in the box above and to the right of the last O in the previous

column.

For example, if the box size is considered to be 1 point, then if XYZ

stock rises from 10 to 11, it is recorded as an X because the price rose

by at least 1 dollar. If the stock rose only $.50, then it would not be

recorded since the price increment was not at least the box size of 1dollar. If the price increased by at least 1 dollar the next day, then

another X would be recorded above the previous one in the same

column. If the next day, the price declined by $.25, then nothing

would be recorded, since the change is less than the box size. If on the

following day, the price declined by more than 1 dollar, then a new


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column ofO's would be started with the 1st O recorded 1box below

the top Xof the adjacent column. Each time the price declined by

more than the box size, then another O would be placed below the last

O of the column. When the stock rises by more than the box size, then

a new column of X's would be started, with the 1st X placed 1boxabove the bottom Oof the adjacent column. Note that, except for the

first and last columns, each X column is flanked by O columns, and

vice versa.

The construction of point-and-figure charts simplifies the drawing of

trend lines, and support and resistance levels, which is why point-and-

figure charts are ideal for detecting trends, and determining support

and resistance levels.

Point-and-figure chart of Intel Corporation. In this chart, the X's aregreen and

theO's arered, which increases theircontrast, making patterns moreapparent.

This seems to be the most common type of point-and-figure chart, butkeep in mind there are several variations that differ significantly from

the above description.


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Net Block 13,006.88 19,305.63 19,030.65 25,013.36 28,024.97

Capital Work in Progress 2,341.25 2,375.82 2,751.08 2,566.67 1,594.74

Investments 719.70 705.82 10,952.85 11,777.76 15,773.32

Inventories 17.74 47.81 56.86 62.15 27.24

Sundry Debtors 1,076.17 1,418.52 2,776.46 2,550.05 2,104.98

Cash and Bank Balance 201.81 239.11 200.86 153.44 54.89

Total Current Assets 1,295.72 1,705.44 3,034.18 2,765.64 2,187.11

Loans and Advances 1,937.54 3,160.02 5,103.13 5,602.83 6,276.12

Fixed Deposits 105.61 541.35 302.08 2,098.16 761.86

Total CA, Loans & Advances 3,338.87 5,406.81 8,439.39 10,466.63 9,225.09

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 6,735.36 9,809.83 12,400.38 13,832.49 12,183.25

Provisions 537.44 1,232.84 1,961.95 634.40 658.75

Total CL & Provisions 7,272.80 11,042.67 14,362.33 14,466.89 12,842.00

Net Current Assets -3,933.93 -5,635.86 -5,922.94 -4,000.26 -3,616.91

Miscellaneous Expenses 7.94 2.66 0.20 0.09 0.00

Total Assets 12,141.84 16,754.07 26,811.84 35,357.62 41,776.12

Contingent Liabilities 4,740.34 7,615.04 7,140.59 4,104.25 3,921.50

Book Value (Rs) 38.71 60.19 106.34 145.01 96.24


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Chapter-IV


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been said that business seeds money to make more money. However it is also

true that money budgets more money only when it is properly managed.

Financial statement:

A Financial statement is an organized collection of data according to logical

and consistent accounting procedures. It is purpose is to convey an

understanding of some financial aspects of a business firm.

The term financial statement is generally refers to two basic statements.

Income statement

Balance sheet of cover business may also prepare

Statement of retained earnings

Statement showing the changes in financial position

III.2 TECHNIQUES OF FINANCIAL ANALYSIS:

Financial analysis techniques are


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Comparative financial statements

Common size financial statements

Trend percentage

Funds flow analysis

Cash flow analysis

Cup analysis (cost volume profit)

Ratio analysis

Working capital managemen

III.3 CLASSFICATION OF RATIOS:

A ratio is an arithmetical relationship between two figures. Financial

ratio analysis is a study of ratios between various items or groups of

items n financial statements. Financial ratios are classified into five

types.

1. Liquidity ratios.

2. Leverage ratios.

3. Turnover ratios.

4. Profitability ratios.

5. Valuation ratios.


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I. Liquidity ratios:

Liquidity refers to the ability of a firm to meet its obligations in

the short run usually one year. Liquidity ratios are generally based on

the relationship between current assets and current liabilities. The

important liquidity ratios are: current ratio, acid test ratio and cash

ratio.

1. Current ratio:

A very popular ratio, current ratio is defined as:

Current assets

Current Ratio = -------------------------------

Current liabilities

Current assets include cash, marketable securities, debtors, investors, loans

and advances and pre-paid expenses. Current liabilities that are expected to

mature in the next twelve months. These comprise loans; secured or


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unsecured those are due in the next twelve months and current liabilities

and provisions.

The current ratio measures the ability of the firm to meet its

current liabilities- current assets get converted into cash n the operating

cycle of the firm and provide the funds needed to pay current liabilities.

Apparently, the higher the current ratio, the greater the short term

solvency. However, in interpreting the current ratio the composition of

current assets must not be overlooked. A firm with a high proportion of

current assets in the form of cash and debtors is more liquid than one with

a high proportion of current assets in the form of inventories even though

both the firms have the same current ratio.

The general norm for current ratio in India is 1.33. Internationally it is

2.

2. Acid-test ratio:

Also called the quick ratio, the acid-test ratio is defined as:

Quick assets

Acid-test Ratio = -----------------------------

Current liabilities

Quick assets are defined as current assets excluding inventories.


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The acid-test ratio is a fairly stringent measure of liquidity. It is based on

those current assets which are highly liquid-inventories are excluded from

the numerator of this ratio because inventories are deemed to be least

component of current assets.

3. Cash ratio:

Because cash and bank balances and short term marketable securities

are the most liquid assets of a firm, financial analysis look at cash ratio,

which is defined as:

Cash and bank balances + Current investments

Cash ratio = --------------------------------------------------------------------

Current liabilities

Clearly, the cash ratio is perhaps the most stringent measure of liquidity.

II. Leverage ratios:

Financial leverage refers to the use of debt finance. While debt

capital is a cheaper source of finance, it is also a riskier source of finance.

Leverage ratios help in assessing the risk arising from the debt capital. Two

types of ratios are commonly used to analyze financial leverage: structural


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ratios and coverage ratios. Structural ratios are based on the proportions of

debt and equity in the financial structure of the firm. The important

structural ratios are debt-equity ratio and debt-assets ratio Coverage ratios

show the relationship between debt servicing commitments and the

sources for meeting these burdens. The important coverage ratios are:

interest coverage ratio, fixed charges ratio, and debt service coverage ratio.

1. Debt-equity ratio:

The debt-equity ratio shows the relative contributions of creditors andowners. It is defined as:

Debt

Debt-equity ratio = ---------------

Equity

The numerator of this ratio consists of all debt, short-term as well as

long-term, and denominator consists of net worth plus preference capital.

In general, the lower the debt-equity ratio, the higher the degree of

protection enjoyed by the creditors.


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2. Debt-asset ratio:

The debt-assets ratio measure the extent to which borrowed funds

supports the firm assets. It is defined as:

Debt

Debt-assets ratio = -------------

Assets

The numerator of this ratio includes all debt, short-term as well as long-

term, and the denominator of this ratio is the total of all assets.

3. Interest coverage ratio:

Also called the times interest earned, the interest coverage ratio is

defined as:

Profit before interest and taxes

Interest coverage ratio = ----------------------------------------------


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Interest

Note that profit before interest and taxes is used in the numerator ofthis ratio because of the ability of a firm to pay interest is not affected by

tax payment, as interest on debt funds is a tax-deductible expense. A high

interest coverage ratio means that the firm can easily meet its interest

burden even if profit before interest and taxes suffer a considerable

decline. A low interest coverage ratio may result in financial embarrassmen t

when profit before interest and taxes decline. This ratios is widely used by

lenders to assets a firms debt capacity. Further, it is a major determinant of

bond rating.

Though widely used, this ratio is not a very appropriate measure of

interest coverage because the source of interest payment is cash flow

before interest and taxes not profit before interest and taxes. In view of

this, we may use a modified interest coverage ratio.

Profit before interest and taxes + depreciation

----------------------------------------------------------------

Debt interest


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III. Turnover ratios:

Turnover ratios, also referred to as activity ratios or assets

management ratios, measure hoe efficiently the assets are employees by a

firm. These ratios are based on the relationship between the level of

activity, represented by sales or cost of goods sold, and levels of various

assets. The important turnover ratios are: inventory turn over, average

collection period, receivables turnover, fixed assets turnover, and total

assets turnover.

1. Inventory turnover:

The inventory turnover, or stock turnover, measures how fast the

inventory is moving through the firm and generating sales. It is defined as:

Cost of goods sold

Inventory turnover ratio = ------------------------------

Average inventory


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The inventory turnover reflects the efficiency of inventory

managements. The higher the ratio, the more efficient the management of

inventories and vice-versa. However, this may not always be true. A high

inventory turnover may be caused by a low level of inventory which may

result in frequent stock outs and loss of sales and customer goodwill.

Notice that as inventories tend to change over the year, we use the

average of the inventories at the beginning and end of the year. In general,averages may be used when a flow figure is related to a stock figure.

2. Debtor turnover:

This ratio shows how many times receivable turnover accounts

during the year. It is defined as:

Net credit sales

Debtors turnover = -----------------------------------------

Average accounts receivable

Obviously, the higher the debtors turnover the greater the efficiency of

credit management.


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3. Average collection period:

The average collection period represents the number of days worth

of credit sales that is locked in debtors. It is defined as:

Average debtors

Average collection period = --------------------------------------

Average daily credit sales

If the figure for credit sales is not available, one may have to make do

with the net sales figure.

Note that the average collection period and the accounts receivable

turnover are related as follows:

365

Average collection period = ------------------------------------------

Accounts receivable turnover


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The average collection period may be compared with the firms credit

terms to judge the efficiency of credit management.

4. Fixed assets turnover:

This ratio measures sales per rupee of investment n fixed assets It is

defined as:

Net Sales

Fixed assets turnover = ------------------------------------

Average net fixed assets

This ratio is supposed to measure the efficiency with which fixed assets

is employed a high ratio indicates a high degree of efficiency in asset

utilization and a low ratio reflects inefficient use of assets. However, in

interpreting this ratio, one caution should be Bourne in mind. When the

fixed assets turnover tends to be high because the denominator of the ratio

is very low.

5. Total assets turnover:

Akin to the output-capital ratio in economic analysis, the total assets

turnover is defined as:


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Net Sales

Total assets turnover = -----------------------------

Average total assets

This ratio measures hoe efficiently assets are employed overall.

IV.Profitability ratios:

Profitability reflects the final result of business operations. There

are two types of profitability ratios.

1. Profit margins ratios and

2. Rate of return ratios

Profit margin ratios show the relationship between profit and sales. The

two popular profit margin ratios are: gross profit margin ratio and net profit

margin ratio. Rate of return ratios reflect the relationship between profit

and investment. The important rate of return measures is; return on total

assets, earning power and return on equity.

1. Gross profit margin ratio:


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The gross profit margin ratio is defined as:

Gross profit

Gross profit ratio = ---------------------

Net sales

Gross profit is defined as the difference between net sales and cost of

goods sold.

This ratio shows the margin left after meeting manufacturing

costs. It measures the efficiency of production as well as pricing. To analyze

the factors underlying the variation in gross profit margin the proportion of

various elements of cost of sales may study in detail.

2. Net profit margin ratio:

The net profit margin ratio is defined as:

Net profit

Net profit ratio = --------------------

Net Sales

This ratio shows the earnings left for shareholders as a percentage of

net sales. It measures the overall efficiency of production, administration,


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selling, financing, pricing and tax management. Jointly considered, the gross

and net profit margin ratios provide a valuable understanding of the cost and

profit structure of the firm and enable the analyst to identify the sources of

business efficiency or inefficiency.

3. Return on total assets:

A commonly used rate of return measure, the return on total assets

also called return on capital employed or return on investment id defined as:

Net income (Profit)

Return on total assets ratio = ------------------------------


The net income to total assets ratio is supposedly a measure of how

efficiency the capital is employed. Though widely used, this is an odd measure

because the numerator measures the return to shareholders (equity and

preference) and the denominator represents the contribution of shareholders

as well as creditors.


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To ensure internal consistency, the following variant of return on total

assets may be employed:

Net income + Interest

-------------------------------


4. Return on Equity:

A measure of great interest to shareholders, the return on equity is

defined as:

Equity earning

Return on Equity ratio = --------------------------

Average net worth

The numerator of this ratio is equal to profit after tax less preference

dividends. The denominator includes all contributions made by equity

shareholders (paid-up capital = reserve and surplus). This ratio is also called

the return on net worth.


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The return on equity measures the profitability of equity invested in the

firm. It is regarded as a very important because it reflects the productivity

of the ownership capital employed in the firm. It is influenced by several

factors: earning power, debt-equity ratio, average cost of debt funds and

tax rate.

In judging all the profitability measures it should be borne in the mind

that the historical valuation of assets imparts an upward bias to profitability

measures during an inflationary period. This happens because the

numerator of these measures represents current values whereas the

denominator represents historical values.

Documents

Ratio Analsys of Airtel