1
A DESSERTATION REPORT
On
“FINANCIAL ANALYSIS” OF
Bharat Sanchar Nigam Limited
Aligarh (U.P.)
IN THE PARTIAL FULFILLMENT OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION
2008-2010 UNDER THE GUIDANCE OF: SUBMITTED BY: MR NEERAJ GOGIA MOHD AKRAM (LECTURER) MBA (FINANCE) III SEM
/
DEPARTMENT OF MANAGEMENT STUDIES SHIVDAN SINGH INSTITUTE OF TECHNOLGY AND MANAGEMENT
(AFFIALIATED TO UP TECHNICAL UNIVERSITY LUCKNOW) 2008-2010
2
ACKNOLEDGEMENT
I extend my sincere gratitude to Mr. Neeraj Gogia
, my project guide for successful completion of the project. He has been a great support and guide to me during the entire dissertation. He has helped me throughout, from choosing the project till completed the project report. This project given me more confidence about the subject various concept of financial analysis of BSNL.
My sincerest gratitude also extends to Mrs. Shagupta Perveen who has taken a keen interest in my project from time to time, and encouraged me to perform to the best of my ability. I am also thankful to my faculty members for there support and help for completion of the project. Thank you all for your time & guidance in helping me achieving my goal of completing this project to the best of my ability. Mohd Akram Roll No-0800770035.
MBA2008-10
3
DECLARATION
I, MOHD AKRAM, hereby declare that the project on DESSERTATION
REPORT ON FINANCIAL ANALYSIS OF BHARAT SANCHAR
NIGAM LIMITED (BSNL) is written by me under the guidance of Mr.
Neeraj Gogia. The empirical conclusion & findings in the project are based
on the data collected by me and the entire project is not a reproduction of
any other sources.
Signature
Name-MOHD AKRAM
4
CONTENTS
Objective of the Project 9 Research methodology 10 Telecom industry 12 Major players & competitors 13 Break of telecom industry 14 SWOT analysis of BSNL 26 Assignment profile 30 Data Analysis and Findings 44 Conclusion 70 Suggestions & Recommendations 75 Appendix 78 Bibliography 85
5
EXECUTIVE SUMMARY
This project is based on Balance sheet and profit and loss accounts of the Bharat Sanchar Nigam Limited. It is done to find out whether the BSNL are improving our Capital structure or not. Further, in this Project Chapter 1 includes the introduction of the company wherein I told about the Objectives of the study and profile of the Bharat Sanchar Nigam Limited . Chapter 2 includes the Research Methodology wherein I have discussed the Research Design and Various sources of the Data Collection. Chapter 3 includes the Data analysis and Findings wherein I have analyze the data Collected from the departmental records, project reports and web site records Chapter 4 represents the conclusion and the suggestions based on the departmental Records and project report.
6
Chapter 1
Introduction of BSNL
7
FINANCE
Finance is the life blood and nerve center of the business. As circulation
of blood is essential in the human body for maintain life, finance is a very
essential to smooth running of the business. In present time financial
managers are instrumental to a company’s success. Where as once the
financial manager was charged only with such routine taken as keeping
records, preparing financial reports, managing the company’s
Financial case position and occasionally in other activities. Now-a-days a financial
manager is supposed to perform the following function as:-
• Financial forecasting and planning.
• Acquisition of funds
• Investment of funds
• Helping in valuation decisions
• Maintaining proper liquidity
Financial statements present a mass of complex data in absolute monetary terms and revel little about the liquidity, solvency and profitability of the business. In financial analysis, the data given in financial statement is classified into simple groups and a
Comparison of various groups is made with one another to pin-point the stung points and
weaknesses of a business.
8
Significance of the study
Now the day analysis of financial statements has become of general interest various
parties are interested in the financial statements of a business due to various reasons. By
analyzing the financial statements each party can as retain whether his interest is safe or
not.
The significance of the financial statements analysis for different parties is as follow:-
Significance to management:-
The management can measure the effectiveness of the
own polices and decisions, determine the advisability of adopting new policies,
procedures and document to owners, the result of their managerial efforts.
Significance to investors:-
With the help of financial analysis investors and share
holders of the business can know about the earning capacity and the safety to their
investments in the business.
Significance for creditors:-
Financial analysis tells them whether companies have
sufficient assets and funds to pay off its creditors.
Significance for government
:- Government can judge, the basis of analysis of financial
statements, which industry is progressing on the desired lines and which industry need
the financial help.
Significance to financial institution:- With the help of financial statement analysis
financial institution can know the profit earning capacity of the business and its long term
solvency.
Significance to employees
:- Analysis of financial statements helps the employees in
determining the true profit of the business enterprise.
9
OBJECTIVE OF THE PROJECT BSNL and to comment on the growth or decline of BSNL. My main objective of the
study on this project was to analyze the Annual reports of
And to do this work I have done some calculations like-
(a) Ratio analysis.
(b) Cash flow statement
I have also shown the following (a) SWOT analysis of BSNL
(b) Break up of Indian telecom industry.
10
Chapter 2
Research Methodology
11
RESEARCH METHODOLOGY
Achieving accuracy in any research requires in depth study regarding the subject. As the
prime objective of the project is to compare & analyze the annual reports of the BSNL
and to comment on the growth or decline in BSNL, Primary & Secondary both data was
used wherever needed.
Sources of secondary data were:-
Used to obtain information on BSNL, its history, current policies, competitor’s policies,
procedures, etc. wherever required.
(a) Internet.
(b) Annual reports provided by BSNL.
(c) Other documents related to BSNL.
Sources of Primary data were:-
(a) Personal observation.
(b) Interview method.
12
Telecom Industry
India's telecom sector has shown massive upsurge in the recent years in all respects of
industrial growth. From the status of state monopoly with very limited growth, it has
grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an
essential necessity for the people of India. This changing phase was possible with the
economic development that followed the process of structuring the economy in the
capitalistic pattern. Removal of restrictions on foreign capital investment and industrial
de-licensing resulted in fast growth of this sector. At present the country's telecom
industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone
companies were present, fixed landlines were popular in most parts of the country.
With government of India setting up the Telecom Regulatory Authority of India, and
measures to allow new players country, the featured products in the segment came in to
prominence. Today the industry offers services such as fixed landlines, WLL, GSM
mobiles, CDMA and IP services to customers. Increasing competition among players
allowed the prices drastically down by making the mobile facility accessible to the urban
middle class population, and to a great extends in the rural areas. Even for small
shopkeepers and factory workers a phone connection is not an unreachable luxury. Major
13
players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchinson Essar, BPL,
Tata, Idea, etc.
14
PLAYERS
PUBLIC PLAYERS
BSNL
MTNL
PRIVATE PLAYERS
BHARTI AIRTEL RELIANCE TATA VODAFONE
IDEA SHYAM
HFCL
AIRCEL
SPICE
BPL
15
Break up of Telecom industry
16
MARKET SHARE OF PUBLIC AND PRIVATE PLAYERS
17
MTNL Financial Year 2007-08 and BSNL Financial Year 2007-08
18
Subscriber trend of MTNL in fixed line telephony
20
03-0
4
2004
-05
2005
-06
2006
-07
2007
-08
S1012345
MTNL(IN MILLIONS)
CONNECTIONS
SUBSCRIBER TREND IN MTNL IN FIXED LINE TELEPHONY
Series1
19
Subscriber trend of BSNL in fixed line telephony
fixedline in BSNL
05
1015202530354045
2003-04
2004-05
2005-06
2006-07
2007-08
BSNL (IN MILLIONS)
CO
NN
EC
TIO
N
Series1
20
Market shares of private players (18%) in fixed line telephony
21
Subscriber base of private players in fixed line telephony
Private Players in Fixed line
00.5
11.5
22.5
33.5
44.5
Tata Tele
servic
es
Reliance In
focom
Bharti
Airtel
HFCL
Shyam
2007-08 in millios
cone
ctio
ns
Series1
22
Market shares of public players in Indian mobile telephony
23
Subscriber trend of MTNL in mobile telephony
MOBILE TELEPHONY
00.5
11.5
22.5
33.5
2003-04
2004-05
2005-06
2006-07
2007-08
MTNL IN MILLIONS
CO
NN
EC
TIO
NS
Series1
24
Subscriber trend of BSNL in mobile telephony
MOBILE TELEPHONY
02
46
810
12
2003-04
2004-05
2005-06
2006-07
2007-08
BSNL IN MILLIONS
CO
NN
EC
TIO
N
Series1
25
Market shares of private players (78%) in mobile telephony
26
Subscriber base of private players in mobile telephony
02468
10121416
connection
TataTeleservices
RelianceInfocom
Bharti AirtelIdea cellularvodafoneothers
in millions
Private players in mobile
Series1
27
SWOT Analysis of BSNL
STRENGTHS
No real Competition in core activity in the immediate future.
Highest market share in Delhi in terms of no. of landline connections.
Strong and talented workforce of 54000+.
High on cash.
Covers remotest corners of all over the country.
3G services.
28
WEAKNESS
Poor Customer Services
o Poor quality of services and complaint handling.
o Tedious customer application processing.
o Erratic and faulty billing.
o Unfriendly payment facilities.
Slow on implementation.
Poor marketing.
Poor system maintenance
Poor employee motivation
29
OPPORTUNITIES
Limited mobility market.
Booming telecom sector.
Per capita income is increasing.
Staff strength.
30
THREATS
New private players.
Increasing foreign investments.
Increasing no. of surrenders on landline connections.
Downward trend in tariffs.
Decreasing customer loyalty and the advantage of decades of monopoly is eroding.
31
Assignment profile
32
RATIO ANALYSIS
Financial statement analysis is a judgmental process. One of the primary objectives is
identification of major changes in trends, and relationships and the investigation of the
reasons underlying those changes. The judgment process can be improved by experience
and the use of analytical tools. Probably the most widely used financial analysis
technique is ratio analysis, the analysis of relationships between two or more line items
on the financial statement. Financial ratios are usually expressed in percentage or times.
Generally, financial ratios are calculated for the purpose of evaluating aspects of a
company's operations and fall into the following categories:
• Liquidity ratios
•
measure a firm's ability to meet its current obligations.
• Profitability ratios
•
measure management's ability to control expenses and to earn
a return on the resources committed to the business.
• Leverage ratios measure the degree of protection of suppliers of long-term funds
and can also aid in judging a firm's ability to raise additional debt and its capacity
to pay its liabilities on time.
Efficiency, activity or turnover ratios
provide information about management's ability to control expenses and to earn a return on the resources committed to the business
33
LIQUIDITY RATIOS
Working Capital
Formula
Working capital compares current assets to current liabilities, and serves as the liquid
reserve available to satisfy contingencies and uncertainties. A high working capital
balance is mandated if the entity is unable to borrow on short notice. The ratio indicates
the short-term solvency of a business and in determining if a firm can pay its current
liabilities when due.
Current Assets
- Current Liabilities
Acid Test or Quick Ratio
Formula
A measurement of the liquidity position of the business. The quick ratio compares the
cash plus cash equivalents and accounts receivable to the current liabilities. The primary
difference between the current ratio and the quick ratio is the quick ratio does not include
inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio
will be lower than its current ratio. It is a stringent test of liquidity.
Securities + Cash + Marketable Accounts Receivable
Current Liabilities
34
Current Ratio
Assets to current liabilities. A business's current assets generally consist of cash,
marketable securities, accounts receivable, and inventories. Current liabilities include
accounts payable, current maturities of long-term debt, accrued income taxes, and other
accrued expenses that are due within one year..
provides an indication of the liquidity of the business by comparing the amount of current
Formula
Current Assets
Current Liabilities
35
Return on Capital Employed
PROFITABILITY RATIOS
This ratio reflects the overall profitability of the business. It is calculated by comparing
the profit earned and the capital employed to earn it.
Formula
Return on Capital Employed =
Capital Employed
Profit before Interest, Tax and dividend *100
This ratio reveals how profitably the proprietor’s funds have been utilized by the firm.
Return on shareholder’s funds
Formula
Net profit after interest & tax
total shareholder’s funds
Net profit ratio
This ratio shows the relationship between net profit and sales.
Net Profit Ratio = Net Profit
Net Sales
* 100
36
Earning Per Share
This ratio measures the profit available to the equity shareholders on a per share basis.
All profits left after payment of tax and preference dividend are available to equity
shareholders.
Formula
EPS =
No of equity shares
Net Profit – Dividend on Preference Shares
Dividend per Share
DPS is the dividend distributed to equity shareholders divided by the no. of equity shares.
Formula
DPS =
No. of Equity Shares
Dividend paid to Equity Shareholder
Dividend Payout Ratio
It measures the relationship between the earnings available to equity shareholders and the
dividend distributed among them.
Formula
DP =
EPS
DPS * 100
37
Earnings and Dividend Yield
This ratio is closely related to EPS and DPS. While the EPS and DPS are calculated on
the basis of the book value of shares, this ratio is calculated on the basis of the market
value of shares.
Formula
Earnings Yield = EPS
Market value per share
* 100
Dividend Yield = DPS
Market value per share
* 100
Price Earning Ratio
It is computed by dividing the market price of a share by the EPS.
Formula
PE Ratio =
EPS
market price of the share
38
Debt Equity Ratio
SOLVENCY RATIOS
This ratio explains the relationship between the long term debts and share holders funds.
Formula
Debt Equity Ratio =
Equity
Debt
Debt to Total Fund Ratio
This ratio is a variation of the Debt Equity Ratio and gives the same indication as the debt
equity ratio. In this ratio, debt is expressed in relation to total funds.
Formula
Debt Total Funds Ratio =
Equity + Debt
Debt
Proprietary Ratio
This ratio indicates the proportion of total assets funded by owners or shareholders.
Formula
Proprietary Ratio = Equity
Total Assets
Fixed Assets to Proprietor’s Funds Ratio
39
This ratio indicates the extent to which proprietor’s funds are sunk into fixed assets.
Fixed Assets to Proprietor’s Funds Ratio =
Formula
Proprietor’s Funds
Fixed Assets
40
EFFICIENCY RATIOS
Indicates the turnover in working capital per year. A low ratio indicates inefficiency,
while a high level implies that the company's working capital is working too hard.
Sales to Working Capital (Net Working Capital Turnover)
Formula
Net Sales
Average Working Capital
Total Asset Turnover
Measures the activity of the assets and the ability of the business to generate sales
through the use of the assets.
Formula
Net Sales
Average Total Assets
Measures the capacity utilization and the quality of fixed assets.
Fixed Asset Turnover
Formula
Net Sales
Net Fixed Assets
41
Comparative financial statements
In order to estimate the future leagues of a firm it is necessary to look into the past
performance for this purpose, it becomes essential to make comparative shady of its
financial statements for two or more years. There statements not only show the absolute
figures from one year to another. In addition there statements may also show the change
from one year to another in percentage firm.
Such comparative statements are of guest value in forming the opinion regarding the
process of the enterprises:-
• Make the data simpler and more understandable.
• It indicates the study points and weak points of the concern.
• It is also helpful in indicating the fund.
• It is helpful in comparison of firm’s performance with average performance of
industry.
Trend percentage is very useful in making comparative study of the financial statements
for a number of years. This indicates the direction on movement over a long time and
help in forming an opinion as whether favorable or unfavorable tendencies have
developed.
Trend analysis:-
42
CASH FLOW STATEMENT
A Cash flow statement is a statement showing inflows (receipt) and outflows
(payments). In other words it is a summary of sources and applications of cash during a
particular span of time. It analysis the reasons for changes in balance of cash between two
balance- sheets dates. The term “Cash” here stands fore cash and cash equivalents.
USES OF CASH FLOW STATEMENT
1. Useful for short-term financial planning.
2. Useful in preparing the cash budget.
3. Comparison with the cash budget.
4. Study of the trend of cash receipts and payments.
5. It explains the deviation of cash from earnings.
6. Helpful in ascertaining cash flow from various activities separately.
7. Helpful in making dividend decision.
43
LIMITATIONS OF CASH FLOW STATEMENT
1. It does not present true picture of the liquidity of the firm because liquidity does not depend upon
cash alone. 2. Judged by the cash flow statement.
3. It is prepared on the cash basis and hence ignores one of the basic concepts of
accounting, namely accrual concept.
44
Chapter 3
Data analysis &Finding
45
CURRENT RATIO
YEARS 2005 2006 2007 2008
CURRENT ASSETS
125328.61 139278 146927.85 133520.28
CURRENT LIABILITIES
92683.93 101094.81 106681.03 91308.45
CURRENT RATIO
1.35 1.38 1.38 1.46
An ideal current ratio should be 2:1. But in none of the years the company
has achieved this ratio, it has always remained below this ratio, so this indicates that the
short term financial position of the company is unsatisfactory and the company is not in a
position to pay its current liabilities in time.
Comment
CURRENT RATIO
1.281.3
1.321.341.361.381.4
1.421.441.461.48
1 2 3 4
CURRENT RATIO
46
LIQUID RATIO
LIQUID RATIO
1.281.3
1.321.341.36
1.381.4
1.421.441.46
1 2 3 4
LIQUID RATIO
Comment
An ideal liquid ratio is 1:1.In all the years the company has shown a higher liquid ratio,
which is a very good indication of short tem financial position of a company.
YEARS 2005 2006 2007 2008 LIQUID ASSETS
123830.98 138390.12 145061.81 132142.12
CURRENT LIABILITIES
92683.93 101094.81 106681.03 91308.45
LIQUID RATIO
1.34 1.37 1.36 1.45
47
DEBT-EQUITY RATIO
YEARS 2005 2006 2007 2008 DEBT 4874.80 5634.57 5740.08 6116.27
EQUITY 94969.73 103276.28 112367.74 109438.25 DEBT-EQUITY
RATIO 0.05 0.545 0.051 0.06
DEBT-EQUITY RATIO
0
0.1
0.2
0.3
0.4
0.5
0.6
1 2 3 4
DEBT-EQUITY RATIO
Comment
Generally debt-equity ratio of 2:1 is considered safe. The lower the ratio the better it is for the long term lenders. In all the years this ratio has been below 2:1, which means that the company provides sufficient protection to long-term lenders
48
DEBT TO TOTAL FUND RATIO
YEARS 2005 2006 2007 2008 DEBT 4874.80 5634.57 5740.08 6116.27
DEBT+EQUITYY 99844.53 108910.85 118107.82 115554.52 DEBT TO TOTAL FUNDS RATIO
0.049 0.517 0.049 0.053
DEBT TO TOTAL FUNDS RATIO
0
0.1
0.2
0.3
0.4
0.5
0.6
1 2 3 4
DEBT TO TOTALFUNDS RATIO
Comment
Generally debt to total fund ratio of .67:1 is considered satisfactory. Good concerns keep
this ratio below 67% and we can see that in all the years this ratio has been kept below
67%, which is good from the long tem solvency point of view.
49
PROPRIETARY RATIO
YEARS 2005 2006 2007 2008 EQUITY 94969.73 103276.28 112367.74 109438.25
TOTAL ASSETS 96778.86 106182.04 116427.11 107999.75 PROPERITARY
RATIO 0.98 0.97 0.96 1.01
PROPERITARY RATIO
0.930.940.950.960.97
0.980.99
11.011.02
1 2 3 4
PROPERITARY RATIO
Comment A higher proprietary ratio is generally treated an indicator of a sound financial position
from long term point of view. In all the years this ratio is quite high which indicates that
the long tem financial position of the company is very sound
50
FIXED ASSETS TO PROPERITOR FUND RATIO
YEARS 2005 2006 2007 2008 FIXED
ASSETS 63489.73 62583.82 70956.86 70942.46
PROPERITOR’S FUNDS
94969.73 103276.28 112367.74 109438.25
FIXED ASSETS TO PROPERITOR FUND RATIO
0.67 0.61 0.63 0.65
FIXED ASSETS TO PROPERITOR FUND RATIO
0.580.590.6
0.610.620.630.640.650.660.670.68
1 2 3 4
FIXED ASSETS TO PROPERITOR FUNDRATIO
Comment
A fixed asset to proprietor’s fund ratio of 65% is considered ideal for the companies. The
lower the ratio the better it is for the long tem solvency of the business. In 2005 & 2008
51
this ratio is more than 65% while in 2006 & 2007 this ratio is less than 65%. . So we can
say that long term solvency of the company is better.
RETURN ON CAPITAL EMPLOYED
YEARS 2005 2006 2007 2008 PBIT & D 12925.75 17205.71 12514.79 6957.94
CAPITAL EMPLOYED
96134.41 100767.01 111203.68 113154.29
RETURN ON
CAPITAL EMPLOYED
13.4% 17.07% 11.25% 6.14%
RETURN ON CAPITAL EMPLOYED
0.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%16.00%18.00%
1 2 3 4
RETURN ON CAPITALEMPLOYED
Comment
52
In 2005 this ratio was 13.4% but it increased to 17.07% in 2006, than decreased to
11.25% in 2007 and again decreased to 6.14% in 2008. So we can say that the company
is not getting much return on its capital employed.
RETURN ON SHAREHOLDERS FUNDS
YEARS 2005 2006 2007 2008 PAIT 8997.24 12346.03 9484.26 5776.63
SHAREHOLDERSS FUNDS
94969.73 103276.28 109438.25 112367.74
RETURN ON SHAREHOLDERS
FUNDS
9.47% 11.95% 8.66% 5.14%
RETURN ON SHAREHOLDERS FUNDS
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
1 2 3 4
RETURN ONSHAREHOLDERSFUNDS
Comment
53
In 2005 this ratio was 9.47% but it increased to 11.95% in 2006 than it decreased to
8.66% in 2007 and it further decreased to 5.14% in 2008. So we can say that the return on
shareholders funds is decreasing year by yea
EARNING PER SHARE
YEARS 2005 2006 2007 2008 PAIT & D 8771.55*10 11504.78*106 9389.79*106 5802.92*106 6
NO. OF EQUITY SHARES
63*10
7 63*107
63*10
7 63*107
EARNING PER SHARE
13.92 18.26 14.90 9.21
EARNING PER SHARE
02468
101214161820
1 2 3 4
EARNING PERSHARE
Comment:
54
In 2005 EPS was Rs.13.92 but it increased to Rs.18.26 in 2006 then it decreased to
Rs.14.90 in 2007 further decreased to Rs.9.21 in 2008. So we can say that EPS is
declining year by year.
DIVIDEND PER SHARE
YEARS 2005 2006 2007 2008
DIVIDEND PAID TO EQUITY
SHAREHOLDERS
2835*10 2835*106 6 2835*10 6 2520*10 6
NO. OF EQUITY SHARES
63*10
7 63*107
63*10
7 63*107
DIVIDEND PER SHARE
4.5 4.5 4.5 4
DIVIDEND PER SHARE
3.73.83.9
44.1
4.24.34.44.54.6
1 2 3 4
DIVIDEND PERSHARE
55
Comment:
DPS remained constant at Rs.4.5 from 2005 to 2007 but it declined to Rs.4 in 2008. So
we can say that DPS earned by the shareholders in these years has not varied much.
DIVIDEND PAYOUT RATIO
YEARS 2005 2006 2007 2008
DPS Rs. 4.5 Rs 4.5 Rs 4.5 Rs. 4
EPS Rs.13.92 Rs. 18.26 Rs. 14.90 Rs. 9.21 DIVIDEND PAYOUT
RATIO 32.33 24.64 30.20 43.43
.
DIVIDEND PAYOUT RATIO
05
101520253035404550
1 2 3 4
DIVIDENDPAYOUT RATIO
56
Comment
:
In year 2005 the d/p ratio was 32.33% but, in 2006 it decreased to 24.64% then in 2007 it
increased to 30.20% and it further increased to 43.43% in 2008. This increasing trend
indicates that shareholders are in a good position.
EARNING YIELD RATIO
YEARS 2005 2006 2007 2008 EPS 18.26 13.92 14.90 9.21
Market value/share 10 10 10 10 Earning yield 139.20 182.60 149 92.10
Earning yield
020406080
100120140160180200
1 2 3 4
Earning yield
Comment
57
In year 2005 this ratio was 139.2% but it increased to 182.6% then it decreased to 149%
and further decreased to 92.1% in 2008. So we can say that after 2008 this ratio has
continuously declined.
DIVIDEND YIELD RATIO
YEARS 2005 2006 2007 2008 DPS 4.5 4.5 4.5 4
Market value/share
10 10 10 10
DIVIDEND yield 45 45 45 40
DIVIDEND yield
3738394041
4243444546
1 2 3 4
DIVIDEND yield
58
Comment
This ratio has remained constant at 45% from 2005 to 2007 but it declined to 40% in
2008. So we can say that this ratio has not varied much in these four years.
PRICE EARNING RATIO
YEARS 2005 2006 2007 2008
MARKET PRICE OF SHARE
10 10 10 10
EPS 18.26 13.92 14.90 9.21
PRICE EARNING RATIO
.718 .547 .671 .108
59
PRICE EARNING RATIO
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1 2 3 4
PRICE EARNINGRATIO
Comment
In 2005 this ratio was 0.718 but it declined to 0.547 in 2006 then it increased to 0.671 in
2007 then it declined to 0.108 in 2008. So we can say that this ratio has been fluctuating
little bit from 2005 to 2007 but it drastically decreased in 2008.
NET PROFIT RATIO
PBT
YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85
PBT 16859.51 12597.56 12156.67 6713.58
PBT RATIO 21.70 26.47 21.77 12.07
60
PBT RATIO
0
5
10
15
20
25
30
1 2 3 4
PBT RATIO
Comment
In 2005 this ratio was 21.7% but it increased to 26.47% in 2006 then declined to 21.775
in 2007 and further declined to 12.07% in 2008. A decline in this ratio indicates decline
in the overall efficiency and profitability of the business.
PAT
YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85
PAT 12346.03 8997.24 9484.26 5776.63
PAT RATIO 15.50 19.38 16.99 10.38
61
PAT RATIO
0
5
10
15
20
25
1 2 3 4
PAT RATIO
Comment:
In 2005 this ratio was 15.50% but it increased to 19.38% in 2006 then decreased to
16.99% in 2007 and further decreased to 10 .38 % in 2008. A decline in this ratio
indicates decline in the overall efficiency and profitability of the business.
STOCK TURNOVER RATIO
YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85
AVERAGE STOCK 1192.755 2135.185 1376.96 1622.10
STOCK TURNOVER RATIO
27.19 53.40 40.53 34.28
62
STOCK TURNOVER RATIO
0
10
20
30
40
50
60
1 2 3 4
STOCKTURNOVERRATIO
Comment
In 2005 this ratio was 27.19 times but, it increased to53.4 times in 2006 then decreased to
40.53 times in 2007 and then further decreased to 34.28 times in 2008. So we can say that
after 2006 this ratio has declined continuously which shows that the speed with which the
stock is turned into sales is declining.
FIXED ASSETS TURNOVER RATIO
YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85
NET FIXED ASSETS 62102.82 55171.74 64686.29 65687.49
FIXED ASSETS TURNOVER RATIO
1.05 1.025 0.86 0.85
63
FIXED ASSETS TURNOVER RATIO
0
0.2
0.4
0.6
0.8
1
1.2
1 2 3 4
FIXED ASSETSTURNOVER RATIO
Comment:
In 2005 this ratio was 1.05 times but, it decreased to 1.025 times in 2006 then decreased to 0.86 times in 2007 and further decreased to 0.85 times in 2008. A continuous decline in this ratio indicates that the fixed assets are not efficiently utilized.
WORKING CAPITAL TURNOVER RATIO
YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85
WORKING CAPITAL 38183.09 32644.68 40246.82 42211.83
WORKING CAPITAL
1.77 1.67 1.39 1.32
64
TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
00.20.40.60.8
11.21.41.61.8
2
1 2 3 4
WORKINGCAPITALTURNOVERRATIO
Comment
In 2005 this ratio was 1.77 times but it declined to 1.67 times in 2006 and again declined
to 1.39 times in 2007 and further declined to 1.32 times in 2008. A continuous decline in
this ratio indicates that the working capital has not been efficiently utilized.
The four year comparative analysis is as follow:-
65
0
20000
40000
60000
80000
100000
120000
140000
2004-05 2005-06 2006-07 2007-08
SOURCES OF FUNDS
NET BLOCK
NET CURRENT ASSETS
Comment
Net working capital increased in 2006 with a very large amount then decreased in 2007
and further decreased in 2008.
Net block increased in 2006 with large amount and decreased in 2007 and further
decreased in 2008.
Sources of funds increased in 2006 with large amount and decreased in 2007 and further
decreased in 2008.
66
0
20000
40000
60000
80000
PROFITBEFORE TAX
PROFITAFTER TAX
INCOME EXPENDITURE
2004-05
2005-06
2006-07
2007-08
Comment
PAT increased significantly in 2006 but it decreased drastically in 2007 and further
decreased in 2008.
PBT increased with large amount in 2006 then decreased with large amount in 2007 and
then increase with a small amount in 2008.
Total expenditure increased in 2006 but decreased in 2007 and finally increased in
2008.
Total income increased in 2006 but decreased in 2007 and finally increased in 2008.
67
ANALYSIS OF CASH FLOW STATEMENT
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
2004-05 2005-06 2006-07 2007-08
Cash flow from operatingactivitiesCash flow from investingactivitiesCash flow from financingactivitiesCash flow from financingactivities
Comment
Investing activities include the purchase and sale of long term assets not held for resale.
Cash flow from the investing activities discloses the expenditure incurred for resources
intended to generate future income and cash flows. These activities have been increasing
year by year.
Operating activities are the main revenue generating activities of the enterprise, as they
include cash flows from those transactions and events which enter into the ascertainment
of net profit or loss of the enterprise.
Operating activities are decreasing year by year.
Financing activities are the activities that result in change in capital and borrowings of
the enterprise. In 2006 these activities have increased to a large extent then, it decreased
by some amount in 2007 after that in 2008 it has improved a little bit.
68
Chapter 4
Conclusion and Suggestions
69
Conclusion
70
FROM 1986 of its establishment to 2008, in these 22 years company has shown many
faces, threw out this journey. At one time BSNL had a monopoly in the market. But now
this nirvana company is facing a very tough competition from the giants like Bharti-
Airtel, Reliance comm.., Idea cellular, Hutch- essar etc.
Now I will give some conclusions which I derived during the analysis of financial
statements:-
Out the past four years, in 3 years BSNL recorded a decrease in profit and in 2
years a decrease in income, but the expenditure has continuously increased.
These are the years where telecom sector emerge as a fastest growing sector of
economy. And in same years BSNL fail to gain more income.
Although the income figure is continuously falling but there is no impact shown
on expenditure side, it is continuously increasing over the years. This is the main
cause of reduction in profits.
In the year 2007-08 BSNL current assets fell with a huge margin due to this year
poor performance. After this year company has shown a growth in current assets
but not sufficient to fulfill the short-term requirements. In the year 2007-08 fixed assets found significant growth with 12.56% which is a
good sign for long term prospect. But increase in fixed assets during last two
years is not sufficient.
71
Company’s current ratio fell very short of the ideal, which shows an inadequate
margin of safety to the creditors, company has no sufficient cash to pay its
liabilities. Due to Shortage of working capital in the business, company is
trading out of its resources.
The capital employed ratio is not very high. It shows the ineffective and
inefficient utilization of capital. So there is need to use the capital in a better way
to gain maximum profit in the long term.
Except the year 2005-06, in all other years the Debt equity ratio is very low
which shows that the money which is invested in the company by outsiders is
very low. Means out of 1rs to the owners only Rs. 0.06 is invested by the
outsiders this year, which shows lack of interest in investing money by outsiders
in the company.
After three years in a row, in year 2007-08, there is decrease in dividend because
of pressure of previous years poor performance. It is not easy to understand that
the company is not cutting the expenditure but cutting the dividend.
Decreasing Earning per Share shows reduction in the market price of BSNL
shares. Company is losing the faith of shareholders. Earning per share is
continuously decreasing so as the profit of shareholders. And in the year 2007-08
it has fallen quite dramatically.
Employee remuneration & benefits area is a area of major concern because
there is no impact of profit or loss on this area and expenditure on employee is
simultaneously rising.
BSNL net profit ratio is not a handsome ratio. So the low net profit ratio indicates
inadequate return.
72
So, these are the drawbacks that have come from the analysis of financial
statements. From this we can say that the company fails to have a good financial
management, in all fields. Accept the year 2005-06 in rest 3 years the condition is
miserable. Along with the financial statements I have observed many things during
the 8 weeks stay in the organization. These are:-
Definitely company is suffering with the problem of overstaffing. 54000 employees
work in BSNL, which increases the expenditure. Even though in FMS where I
worked have 35 employees but according to me 20 are more than enough for that
department.
The average age of employees is much higher, you will hardly found any young
face in BSNL, and the average age of BSNL employees is around 35-40. So lack of
young talent.
Service, which is the main task, is also an area of concern, means BSNL is quite
infamous for its bad service. The network as well as the connectivity is not good.
The other companies like Airtel, Tata indicom, Reliance, idea, Hutch are making
profits as well as rapidly increasing their customers. But BSNL fails to generate
speedy growth in fastest growing market.
Not using new technology or working towards 3 G phones means high speed
streaming video, gaming, video messaging, and even mobile TV.
BSNL have one of the best plans for subscribers but it fails to aware customer about
all of them. So there is desperately need of extensive advertising.
73
Suggestion & recommendations
74
The study has provided with the useful data from the respondents. There has a lot
to be recommended. Following are the recommendations:
There should be increase in investment of BSNL. So that could be earned more profit. Because, if investment will be high than profit will be earned high.
There should be improved the working process of BSNL. Because working
Process of BSNL is take more time. Departments of BSNL do not have good coordination. So there should be
Good coordination in departments of BSNL. If coordination will have good in Departments, than there will not has to face any problem in proper work.
Time to time, there should be provided training of employee. So that they
could take information about the new technology of them proper working Process.
There should be good communication between each departments of BSNL.
There should be computerized work in BSNL. But also at this time, paper
Work are continue to see in many department.
Use better & high tech methods of advertising, so that more & more subscriber attract towards BSNL.
Should try to decrease expenditure especially in the employee’s
remuneration & benefit area. Should increase the service quality as well as better customer care service.
Should work towards 3 G phones, means high speed streaming video,
gaming, video messaging, and even mobile TV.
75
Appendix
76
COMPARATIVE BALANCE SHEET FROM YEARS 2005 TO 2008
(The above figures are in rupees million)
SOURCES OF FUNDS SHAREHOLDER’S FUNDS
SHARE CAPITAL RESERVE & SURPLUS
DEFFERED TAX LIABILITY
2005
6300 88669.73 4874.80
2006
6300 96976.28 5634.57
2007
6300 103138.25 5704.08
2008
6300 106067.74 6116.27
TOTAL 99844.53 108910.85 115178.33 118484.01
APPLICATIONS OF FUNDS FIXED ASSETS GROSS BLOCK
LESS: DEPRECIATION 126652.06 71480.32
135629.33 73526.51
142522.52 77836.23
148541.50 82854.01
NET BLOCK (i) 55171.74 62102.82 64686.29 65687.49
CAPITAL WORK-IN-PROGRESS (ii) INVESTMENTS (iii)
CURRENT ASSETS, LOANS & ADVANCES INVENTORIES
SUNDRY DEBTORS CASH & BANK BALANCES OTHER CURRENT ASSETS
LOANS & ADVANCES
8317.99 3710.12
1497.63 13069.84 18154.64 567.02
92039.48
4818.00 3806.94
887.88
16494.59 25530.69 685.06
95679.78
6270.57 3974.65
1866.04 17580.39 25173.98 849.84
101457.60
5254.97 4187.24
1378.16 14151.03 20583.99 944.11
96462.99
125328.61 139278.00 146927.85 133520.28
LESS: CURRENT LIABILITES & PROVISIONS
CURRENT LIABILITES PROVISIONS
47534.75 45149.18
47324.24 53770.67
50645.03 56036.00
40251.26 51057.19
92683.93 101094.91 106681.03 91308.45
NET CURRENT ASSETS (W.C.) (IV)
32644.68 38183.09 40246.82 42211.83
DEFFERED REVENUE EXPENDITURE (v)
1142.48
TOTAL ( i + ii+ iii+ iv + v) 99844.53 108910.85 115178.33 118484.01
77
STATEMENT SHOWING PERCENTAGE INCREASE OR
DECREASE IN THE BALANCE SHEETS FROM 2005 TO 2008
PARTICULARS 2005 2006 2007 2008
SOURCES OF FUNDS SHAREHOLDER’S FUNDS
SHARE CAPITAL RESERVE & SURPLUS
DEFFERED TAX LIABILITY
6.70 (81.38)
9.36 15.58
6.354100199
6.35 1.87
2.84 6.55
TOTAL (13.6) 9.08 5.75 2.87
78
APPLICATIONS OF FUNDS FIXED ASSETS GROSS BLOCK
LESS: DEPRECIATION
7.95 11.33
7.08 2.86
5.08 5.86
4.22 6.44
NET BLOCK (i) 3.86 12.56 4.15 1.54
CAPITAL WORK-IN-PROGRESS (ii)
INVESTMENTS (iii) CURRENT ASSETS, LOANS &
ADVANCES INVENTORIES
SUNDRY DEBTORS CASH & BANK BALANCES OTHER CURRENT ASSETS
LOANS & ADVANCES
4.26 261.33
(45.98) 77.54
(25.73) (90.13)
.66
(42.07) 2.60
(40.71) 26.20 40.63 20.81 3.94
30.14 4.40
110.16 6.72
(1.39) 24.05 6.04
(16.19) 5.34
(26.14) (19.50) (18.23) 11.09 (4.92)
(4.88) 11.13 5.51 (9.12)
LESS: CURRENT LIABILITES & PROVISIONS
CURRENT LIABILITES PROVISIONS
27.63 9.97
(.44) 19.09
6.98 4.24
(20.52) (8.88)
NET CURRENT ASSETS (W.C.) (IV)
(38.94) 16.96 5.40 4.88
TOTAL (i + ii+ iii+ iv ) (13.61) 9.08 5.75 2.87
79
COMPARATIVE PROFIT & LOSS ACCOUNT FROM 2005 TO 2008
PARTICULARS 2005 2006 2007 2008 INCOME
INCOME FROM SERVICES OTHER INCOME
58065.30 2236.91
63695.99 3143.31
55820.70 4917.18
55609.85 5300.13
(a) 60302.21 66839.30 60737.88 60909.98
EXPENDITURE EMPLOYEE’S REMUNERATION &
BENEFITS REVENUE SHARING
LICENCE FEES ADMN., OPERATING & OTHER EXP.
DEPRECIATION INTEREST
14338.53 8383.14 5818.16 10166.21 8670.42 328.19
16193.70 11822.79 6429.58 9749.57 5437.95 346.20
18361.06 8781.99 4971.63 10228.34 5880.07 358.12
19053.12 12263.19 4589.59 11579.15 6466.99 244.36
(b) 47704.65 49979.79 48581.21 54196.40 PROFIT BEFORE TAX c=( a –b) 12597.56 16859.51 12156.67 6713.58
PROVISION FOR TAXATION PROVISION FOR DEFFERED TAXATION
3020.00
580.32
3753.71
759.77
2566.90
105.51
560.76
376.19
(d) 3600.32 4513.48 2672.41 936.95 PROFIT AFTER TAX e=(c–d) 8997.24 12346.03 9484.26 5776.63
PRIOR PERIOD ADJUSTMENTS (f) 225.69 841.25 94.47 (26.29) PROFIT FOR THE YEAR g=(e-f) 8771.55 11504.78 9389.79 5802.92
PROFIT AVAILABLE FOR APPROPRIATION
8771.55
11504.78
9389.79
5802.92
(The above figures are in rupees million)
80
STATEMENT SHOWING PERCENTAGE INCREASE OR DECREASE IN THE PROFIT & LOSS ACCOUNT FROM 2005 TO 2008
PARTICULARS 2005 2006 2007 2008
INCOME INCOME FROM SERVICES
OTHER INCOME
(5.48) (9.92)
9.67 40.52
(12.36) 56.43
(.37) 7.78
(a) (5.66) 10.84 (9.13) 0.28
EXPENDITURE EMPLOYEE’S REMUNERATION &
BENEFITS REVENUE SHARING
LICENCE FEES ADMN, OPERATING & OTHER EXP.
DEPRECIATION INTEREST
4.12 (15.11) (12.44) 42.11 6.19 13.81
12.93 41.03 10.50 (6.75) (37.28)
5.48
13.38 (28.51) (22.94) 10.40 8.13 3.44
3.76 39.64 (7.68) 13.20 9.98
(31.76)
(b) 3.93 4.76 (2.79) 11.55 PROFIT BEFORE TAX c=( a –b) (30.10) 33.83 (27.89) (44.77)
PROVISION FOR TAXATION PROVISION FOR DEFFERED TAXATION
(38.83) 24.29
30.92 (31.61) (86.11)
(78.15) 256.54
(d) (27.08) 25.36 (40.79) (64.93) PROFIT AFTER TAX e=(c–d) (31.24) 37.22 (23.17) (39.09)
PRIOR PERIOD ADJUSTMENTS (f) 186.55 272.74 (88.77) (127.82) PROFIT FOR THE YEAR g=(e-f) (32.56) 31.16 (18.38) (38.19)
PROFIT AVAILABLE FOR APPROPRIATION (32.56) 31.16 (18.38) (38.19)
81
Cash flow statement for the years (2005-2008)
Particulars 2005 2006 2007 2008
Cash flow from operating activities
Net profit before tax and ordinary items 12597.56 16859.51 12156.67 6713.58 Adjustment for Prior period adjustment (net)
(198.37)
(538.87)
(12.85)
55.22
Profit on sale of fixed assets (10.84) (7.67) (8.50) (6.70)
Loss on sale of fixed assets 89.86 115.18 208.08 94.27 Depreciation 8672.75 5437.95 5880.07 6466.99 Compensation charged under VRS scheme 285.63
Compensation paid under VRS scheme (1428.11) Interest cost 26.32 346.20 358.12 244.36 Interest income (1634.53) (1748.11) (2478.46) (4009.42) Interest paid (21.83) (331.55) (360.68) (244) Operating cash profit before working capital changes
19520.92 20132.64 15742.46 8171.82
Adjustment for Trade and other receivables
8344.92
2556.44
(3984.34)
(6315.88)
Inventories 1275.11 609.74 (978.17) 487.90 Trade and other payables 15324.66 4657.52 6079.08 (5848.67) Cash generated from operations 44465.61 27955.99 16859.02 (3504.82) Direct taxes paid (8326.70) (9695.26) (4731.95) 5637.95 Net cash flow from operating activities 36138.92 18260.73 12127.08 2133.13 Cash flow from investing activities Purchase of fixed assets (Including capital W.I.P)
(12061.94) (9336.65) (10276.54) (6595.37)
Sale of fixed assets 19.77 57.71 79.24 26.28 Interest received 1319.35 1694.74 2514.92 4010.92 Investment (2683.35) (96.82) (167.72) (212.59) Net cash flow from investing activities (13406.17) (7681.01) (7850.10) (2770.75) Cash flow from financing activities Repayment of loans (26190.38) (5.43) (3.87) (1.40) Dividend paid (including tax) (2835.00) (3198.23) (4630.17) (3950.97)
Net cash flow from financing activities (29025.38) (3203.67) (4634.04) (3952.37)
Net increase/decrease in cash and cash equivalents (6292.64) 7376.40 (357.06) (4589.99)
Cash and cash equivalents as at the beginning of the year
24446.52 18154.64 25531.04 25173.98
Cash and cash equivalents as at the end of the year 18153.88 25531.04 25173.98 20583.99
82
Bibliography
83
Bibliography
• Management Accounting Shashi K. Gupta & R.K. Sharma • Financial Management I.M. Pandey. • Research Paper: Financial Analysis Hampton John J. Financial Decision Making, Second Ed p.75 • Web sites o www.bsnl.co.in o www.google.com o www.mpbsnl.com • Annual Reports of BSNL 2006-2008.
84
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