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What Does Profitability Ratios Mean?

A class of financial metrics that are used to assess a business's ability to

generate earnings as compared to its expenses and other relevant costs incurred

during a specific period of time. For most of these ratios, having a higher value

relative to a competitor's ratio or the same ratio from a previous period is indicative

that the company is doing well.

Some examples of profitability ratios are profit margin, return

on assets and return on equity. It is important to note that a little bit of background

knowledge is necessary in order to make relevant comparisons when analyzing

these ratios.

Introduction

This section of the tutorial discusses the different measures of corporate profitability

and financial performance. These ratios, much like the operational performance

ratios, give users a good understanding of how well the company utilized its

resources in generating profit and shareholder value.

The long-term profitability of a company is vital for both the survivability of the

company as well as the benefit received by shareholders. It is these ratios that can

give insight into the all important "profit".

In this section, we will look at four important profit margins, which display the amount

of profit a company generates on its sales at the different stages of an income

statement. We'll also show you how to calculate the effective tax rate of a company.

The last three ratios covered in this section - Return on Assets, Return on Equity

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and Return on Capital Employed - detail how effective a company is at generating

income from its resources.

Profit Margin Analysis

In the income statement, there are four levels of profit or profit margins - gross profit,

operating profit, pretax profit and net profit. The term "margin" can apply to the

absolute number for a given profit level and/or the number as a percentage of net

sales/revenues. Profit margin analysis uses the percentage calculation to provide a

comprehensive measure of a company's profitability on a historical basis (3-5 years)

and in comparison to peer companies and industry benchmarks.

Basically, it is the amount of profit (at the gross, operating, pretax or net income

level) generated by the company as a percent of the sales generated. The objective

of margin analysis is to detect consistency or positive/negative trends in a company's

earnings. Positive profit margin analysis translates into positive investment quality.

To a large degree, it is the quality, and growth, of a company's earnings that drive its

stock price.

Formulas:

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Return On Assets

This ratio indicates how profitable a company is relative to its total assets. The return

on assets (ROA) ratio illustrates how well management is employing the company's

total assets to make a profit. The higher the return, the more efficient management is

in utilizing its asset base. The ROA ratio is calculated by comparing net income to

average total assets, and is expressed as a percentage.

Formula:

Return on Equity

This ratio indicates how profitable a company is by comparing its net income to its

average shareholders' equity. The return on equity ratio (ROE) measures how much

the shareholders earned for their investment in the company. The higher the ratio

percentage, the more efficient management is in utilizing its equity base and the

better return is to investors.

Formula:

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Return on Capital Employed

The return on capital employed (ROCE) ratio, expressed as a percentage,

complements the return on equity (ROE) ratio by adding a company's debt liabilities,

or funded debt, to equity to reflect a company's total "capital employed". This

measure narrows the focus to gain a better understanding of a company's ability to

generate returns from its available capital base.

By comparing net income to the sum of a company's debt and equity capital,

investors can get a clear picture of how the use of leverage impacts a company's

profitability. Financial analysts consider the ROCE measurement to be a more

comprehensive profitability indicator because it gauges management's ability to

generate earnings from a company's total pool of capital.

Formula:

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Classification of Ratios

Balance Sheet Ratio P&L Ratio Balance Sheet and Profit & Loss Ratio

Financial Ratio Operating Ratio Composite Ratio Current Ratio Quick Asset Ratio Proprietary Ratio

Debt Equity Ratio

Gross Profit Ratio Operating Ratio Expense Ratio Net profit Ratio Stock Turnover

Ratio

Fixed Asset Turnover Ratio, Return on Total Resources Ratio

Return on Own Funds Ratio, Earning per Share Ratio, Debtors’ Turnover Ratio

Structural Classification

This is a conventional mode of classifying ratios where the ratios are classified on

the basis of information given in the financial statements, i.e. balance sheet and

profit and loss account to which the determinants of the ratios belong. On this basis,

all ratios are grouped as follows:

1. Balance Sheet Ratio: The components for computation of these ratios are

draws from balance sheet. These ratios are called financial ratios. Examples

of such ratios are: current ratio, liquid ratio, proprietary ratio, capital gear ratio,

fixed assets ratio etc.

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2. Profit and Loss Account Ratios: The figures used for the calculation of

these ratios are usually taken out from the profit and loss account. These

ratios are also called ‘income statement ratios’. Examples of such ratios

are: gross profit ratio, net profit ratio, operating ratio, expenses ratio, stock

turnover ratio etc.

3. Balance Sheet and Profit & Loss Ratio: The information required for the

computation of these ratios is normally drawn from both the balance sheet

and profit and loss account. Examples of such ratios are: return on capital

employed, return on owners’ fund, return on total investment, debtor’s

turnover ratio, creditors turnover ratio, fixed assets turnover ratio, working

capital turnover ratio etc.

FUNCTIONAL CLASSIFICATION

Now-a-days, it is the most popular mode of classifying the ratios. Accordingly, the

ratios may be grouped on the basis of certain tests which satisfy the needs of the

parties having financial interest in the business concern. For example, creditors or

banks have interest in the liquidity of the firm, debenture holders in the long-term

solvency and shareholders in the profitability of the firm. The ratios may be grouped

as per different interests or objectives as under:

1. Liquidity Ratios: These ratios are used to measure the ability of the firm to

meet its short-term obligations out of its short-term resources. Such ratios

highlight short-term solvency of the firm. Examples of such ratios are:

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I. Current Ratio

II. Liquid or Quick Ratio

III. Absolute Liquidity Ratio

2. Activity or Efficiency Ratio: These ratios enable the management to

measure the effectiveness or the usages at the command of the firm.

Following ratios are included in this category:

I. Stock Turnover Ratio

II. Total Assets Turnover Ratio

III. Fixed Assets Turnover Ratio

IV. Current Assets Turnover Ratio

V. Capital turnover Ratio

3. Profitability Ratio: These ratios are intended to measure the end result of

business operations i.e. profitability. Profitability is a measure of the ability to

make a profit expressed in relation to the sales or investments, and as such

the following ratios are computed in this category

Based on Sales

I. Gross Profit Ratio

II. Operating Ratio

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III. Expenses Ratio

IV. Operating Profit Ratio

V. Net Profit Ratio

Based on Capital or Investments

I. Return on Capital Employed

II. Return on Net Worth or Shareholders’ Fund

III. Return on Equity shareholders’ fund

IV. Return on Total Assets

1. LIQUIDITY OR SHORT-TERM SOLVENCY RATIOS

These ratios play a key role in analyzing the short-term financial position of a

business Liquidity refers to a firm’s ability to meet its current financial obligations as

they arise. Commercial banks and other short-term creditors i.e. suppliers of goods

and services are generally interested in such ratios. However, the management can

use these ratios to ascertain how efficiently it has utilizing the working capital. Some

of the principal liquidity ratios are described below:

I. Current ratio:

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Current ratio is one of the important ratios used in testing liquidity of a concern. This is a

good measure of the ability of accompany to maintain solvency over a short-run. This is

computed by dividing the total current assets by the total current liabilities and is

expressed as:

Current Assets

Current ratio= ------------------------------

Current Liabilities

The current assets of a firm represent those assets, which can be in the ordinary

course of business, converted into cash within one accounting year. The current

liabilities are defines as obligation maturing within a short period (usually one

accounting year). Excess of current assets over current liabilities is known as

working capital and since these two (Current assets and current Liabilities) are

used in current ratio therefore, this ratio is also know as working capital ratio.

Idle Current Ratio: 2:1

II. QUICK RATIO

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The solvency of the company is better indicated by quick Ratio. The fundamental

object of calculating this Ratio is to enable the financial management of a company

to ascertain that would happen if current creditors press for immediate payment and

either not possible to push up the sales of closing or it is sold; a heavy loss is likely

to be suffered. This problem arises because closing stock is two steps away from the

cash and their price is more or less uncertain according to market demand.

The term quick assets includes all current assets expect inventories and prepaid

expenses. It shows the relationship of quick assets and current liabilities. The Ratio

is calculated as following:

Quick Assets

Quick Ratio = -------------------------------

Current Liabilities

III. ABSOLATE LIQUIDITY RATIO

The absolute liquid ratio is the ratio between absolute liquid assets and current

liabilities is calculated by dividing the liquid assets and current liabilities. Expressed

in formula, the ratio is:

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Absolute liquidity Assets

Absolute liquidity Ratio= --------------------------------------------

Current Liabilities

The term liquid assets include cash bank balance and marketable securities, if

current liabilities are to pay at once, only balance of cash and bank and marketable

securities will be utilized. Therefore, to measure the absolute liquidity of a business,

this ratio is calculated.

IDLE RATIO: 0.5:1

The idle behind the norm is that if all creditors for demand for payment, at least 50%

of their claim should be satisfied at once.

The table shown on the next page reflects the absolute liquidity ratio TTSL.

2. ACTIVITY OR EFFICIENCY RATIOS

The funds of creditors and owners are invested in various assets to generate sales

and profit. The better the management of these assets, the large the amount of

sales. Activity ratios enable the firm to know how efficiently these assets are

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employed by it. These ratios indicate the speed with which assets are being

converted or turned over into sales. Hence, these ratios are also known as ‘turnover

ratios’ or ‘assets management ratios’. While calculating these ratios, a comparison

is made between sales and investment in various assets (stock, debtors, fixed

assets etc.). As such, an activity ratio is the relationship between sales or cost

of goods sold and investment in various assets of the firm. It is important to

note that these ratios are always expressed as turnover or in number of times i.e.

rate of turning over or rotation, also known as velocity. Several activity ratios can be

calculated to judge the effectiveness of assets utilization. The following are the

important and widely used ratios:

i. STOCK TURNOVER RATIO

Every firm has to maintain a certain level of inventory of finished goods so as to be

able to meet the requirements of the business. But the level of inventory should

neither be too high nor too low. A too high inventory means higher carrying costs and

higher risk of stocks becoming obsolete whereas too low inventory may mean the

loss of business opportunities. It is very essential to keep sufficient stock in business.

Higher ratio indicates

Stock is sold out fast

Same volume of sales from less stock or more sales from same stocks

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Too high ratio shows stock outs or over trading

Less working capital requirement

Lower ratio reveals

Stock is sold at a slow speed

Same volume of sales from more stocks or less sales from same stocks

More working capital requirement

Too low ratios show obsolete stocks or under trading

Cost of Goods Sold or Sales

Inventory (stock) Turnover Ratio: -----------------------------------------------

Average Inventory at cost

It is always better to calculate Turnover Ratios on the basis of “Cost of Goods

Sold”. If information regarding cost of goods sold is not available, only there

the “Sales” figure should be used as base.

ii. TOTAL ASSETS TURNOVER RATIO:

This ratio expresses the relationship between costs of goods sold or net sales and

total assets or investments of a firm. It is also called ‘Total Investment Turnover

Ratio’ and is calculated by using the following formulae:

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Net Sales or Cost of Goods Sold

Total Assets Turnover Ratio= --------------------------------------------------------

Total Assets

Interpretation and Significance: This ratio indicates the number of times the

assets are turned over in a year in relation to sales. A higher total assets turnover

ratio indicates that assets are not properly utilized in comparison to sales. Thus,

there is an over investment in assets. Extremely high ratio means over-trading in the

business.

iii. FIXED ASSETS TURNOVER RATIO

This ratio expresses the relationship between fixed assets (less depreciation) and

net sales or cost of goods sold. Since investment in fixed assets is made for the

ultimate purpose of efficient sales, the ratio is used to measure the fulfillment of that

objective. As such, investments are excluded from fixed assets as they do not affect

sales. It is calculated by using the following formula:

Sales or Cost of Goods Sold

Fixed Assets Turnover Ratio=-------------------------------------------------------------

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Fixed Assets (less depreciation)

Interpretation and Significance: This ratio measures the efficiency and profit

earning capacity of the firm. The higher the ratio, the greater is the intensive

utilization of fixed assets. Lower ratio means under utilization of fixed asset and

excessive investment in these assets. As volume of sales depends on a variety of

factors such as price, quality of goods, salesmanship, marketing etc. it is argued that

no direct relationship can be established between sales and fixed assets.

Accordingly, it is not recommended for general use.

iv. CURRENT ASSETS TURNOVER RATIO

This ratio expresses the relationship between current assets and net sales or cost of

goods sold. It is calculated using the following formula:

Sales or Cost of Goods Sold

Current Assets Turnover Ratio=-----------------------------------------------------

Current Assets

Interpretation and Significance: This ratio reflects the efficiency and capacity of

working capital. It is a very useful technique for non-factoring units or those

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manufacturing units requiring lesser working capital. On the basis of this ratio,

efficiency or current assets and over or under investment in the firm is examined.

v. CAPITAL TURNOVER RATIO

This ratio establishes the relationship between net sales or cost of goods sold and

capital employed. Capital employed is calculated either by deducting current

liabilities from total assets or by adding long-term loans in shareholders’ funds (share

capital + reserves and surplus). Fictitious and non-trading assets are excluded from

assets. It is calculated using the following formulae:

Sales or Cost of Goods Sold

Capital Turnover Ratio: -------------------------------------------------------------

Capital Employed

Interpretation and Significance: The efficiency and effectiveness of the

operations are judged by comparing the sales or cost of sales with the amount of

capital employed in the business and not with the assets held in the business.

Therefore, this ratio is a better measurement of efficient use of capital employed.

Efficient use of capital symbolizes profit earning capacity and managerial efficiency

of the business. A higher ratio indicates the quicker rotation of capital to generate

higher sales which leads to higher profitability. On the contrary a lower ratio will

indicate that either the capital is not being used infinity to generate enough sales.

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3. PROFITABILITY RATIOS

The main objective of every business firm is to earn profit. It is possible only when

resources of the firm are effectively utilized. The firm’s ability to earn maximum profit

by the best utilization of its resources is called profitability. Profit refers to the

absolute quantity of profit, whereas profitability refers to the ability to earn profit.

Profit is an absolute measure of earning capacity and profitability is the relative

measure of earning capacity. Profitability depends on quantum of sales, cost of

production and use of financial resources etc. The profitability of a firm can easily be

measured by its profitability ratios. These ratios indicate overall managerial

efficiency. There are two types of profitability ratios. First, profitability ratios based on

sales: Second, profitability ratios based on capital and assets.

PROFITABILITY RATIOS BASED ON SALES

From profit point of view, it is significant that adequate profit should be earned on

each unit of sales. If adequate profit is not earned on sales, there will be difficulty in

meeting the operating expenses and nod dividend will be paid to the shareholders.

Therefore, following profitability ratios are calculated in relation to sales. These are

also called ‘General Profitability Ratios’.

i. Gross Profit Ratio

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This ratio expresses the relationship of gross profit on sales to net sales in terms of

percentage. Expressed as a formula, the gross profit ratio is:

Gross Profit

Gross Profit Ratio= -------------------------- * 100

Net Sales

Net Sales – Cost of Goods Sold

Gross Profit Ratio = ------------------------------------------ * 100

Net Sales

Interpretation and Significance: This ratio measures the trading effectiveness

and basic profit earning potentiality of a firm. The higher the ratio, the greater will be

the margin and that is why it is also called, ‘margin ratio’. An increase in the gross

profit ratio may be the result of one or all of the following:

Higher selling price but cost of goods remaining the same

Lower cost of goods sold but selling price remaining the same

Such combination of selling prices and costs where margin is more

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Increase in items of excess margin

On the contrary, a low gross profit ratio is the indication of the fact that – (1) profit are

declining in comparison to sales, (2) production costs are much more due to inability

to purchases raw material on reasonable terms, inefficient use of plant and

machinery and over investment. This low gross profit may also be the result of

reduction in selling price without a corresponding decline in cost of production.

Therefore, a relatively low gross profit ratio is a danger signal and warrants a

detailed analysis of the factors responsible for it.

ii. Operating Ratio

This ratio expresses the relationship between operating costs and net sales.

Operating costs refer to cost of goods sold plus operating expenses. Expressed as a

formula:

Operating Costs

Operating Ratio = --------------------------- * 100

Net Sales

Cost of Goods Sold + Operating Expenses

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Operating Ratio = --------------------------------------------------------- * 100

Net Sales

Interpretation and Significance: this ratio indicates the operational efficiency

and profit earning capacity of the business. It shows the percentage of net sales that

is absorbed by cost of goods sold and operating expenses. Therefore, the lower the

operating ratio, the higher the operating profit to recover non-operating

expenses such as interest, divided etc. and vice-versa. While interpreting this

ratio, it is important to note that changing management decisions may create

possible variations in expenses from year to year or firm to firm. An operating ratio

ranging between 75% and 85% is generally considered as standard for

manufacturing firms.

iii. Operating profit Ratio

This ratio is also called Operating Profit Margin. It establishes the relationship

between operating profits and net sales. It is also defined as the ratio of profit

before depreciation, interest and tax to total turnover. Operating profit means the

net profit arising from the normal operations and activities of the business without

taking into account of extraneous transactions and expenses of purely financial

nature. In other words, operating profit is calculated by sub-starting all direct

and indirect expenses relating to main business from net sales. This ratio is

calculated by using the following formulae:

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Operating Profit

Operating profit Ratio = --------------------------- * 100

Net Sales

Gross Profit – Operating Expenses

Operating Profit Ratio = ---------------------------------------------- * 100

Net Sales

Interpretation and Significance: This ratio indicates the net profitability of the

main business i.e. operating efficiency of a firm. In some firms, the profit from main

business is very low; while the profit from secondary functions such as interest on

bank deposits and dividend on shares etc. is so much that the net profit of the net

profit of the firm at the end is enhanced. In such a case, the operating profit ratio

explains that the efficiency of the firm is very low. Therefore, the higher the operating

ratio, the better would be the operational efficiency of the firm. A higher operating

profit ratio means that a firm has been able not only to increase its sales but also

been able to cut down its operating expenses.

iv. Expenses ratio

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Sometimes, it becomes imperative to analysis each component of cost of goods sold

and operating expenses to find out how far the firm is able to save or over spend in

respect of different items of expenses. Therefore, to express the relationship of each

item of cost of goods and operating expenses with sales, the expenses ratios are

computed. These ratios reveal the relationship of different expenses to net

sales. Important expenses ratios are calculated using the following formulae:

Material consumed

Material Consumed Ratio = ---------------------------------- * 100

Net Sales

Manufacturing Expenses

Manufacturing Expenses Ratio = ----------------------------------------------- * 100

Net Sales

Administrative Expenses

Administrative Expenses Ratio = ---------------------------------------------- * 100

Net Sales

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Selling and Distribution Expenses Ratio =

Selling and Distribution Expenses

------------------------------------------------------ * 100

Net Sales

Finance Expenses

Finance Expenses Ratio = ------------------------------------- * 100

Net Sales

Non-operating Expenses

Non-operating Expenses Ratio = ----------------------------------------------- * 100

Net Sales

Interpretation and Significance: Expenses ratios reveal the managerial efficiency

and profit earning capacity of the firm. If these ratios are compared over a period of time with

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the ratios of similar firm as well as with the previous ratios of the same firm, the saving or

over spending of each item can be ascertained. While interpreting the expenses ratios, it

should be kept in view that certain fixed expenses would decrease as sales increase, but

variable expenses would remain constant.

v. Net Profit Ratio

This ratio measures the relationship between net profit and sales of a firm. Net

profit is the excess of revenue over expenses during a particular accounting period.

The net profit ratio is determined by dividing the net profit by sales and expressed as

percentage. The formula used is as follows:

Net Profit (After tax)

Net Profit Ratio = -------------------------------- * 100

Net Sales

Net Profit (before tax)

Net Profit Ratio = --------------------------------- * 100

Net Sales

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Interpretation and Significance: This ratio is the indication of overall profitability

and efficiency of the business. It not only reveals the recovery of costs and expenses

from to revenue of the period, but also to leave a margin of reasonable

compensation to the owners for providing capital at their risk. A high net profit ratio

would only means adequate returns to the owners. It also enables a firm to withstand

in cut-throat competition when the selling price is falling or cost of production is

rising. A low net profit ratio on the other hand, would only indicate inadequate returns

to the owners.

Profitability Ratios based on Capital

This efficiency of an enterprise is judged by the amount of profits. But sometimes the

conclusions drawn on the basis of profits to sales ratio may be misleading, as the

amount of profit depends to a great extent upon the volume of investment in assets

or capital employed in the business. Therefore, the state of efficiency cannot be

judged by the volume of profits alone. This requires the calculation of ratio with

reference to capital and assets to measure the real profitability. The important

categories of such ratios are discussed below:

Return on capital Employed

The primary objective of making investment in any business is to obtain adequate

return on capital. Therefore, to measure the overall profitability of the firm, it is

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essential to compare profit with capital employed. With this objective, return on

capital employed is calculated. It is also called` Return on investment’ (ROI).This

ratio expresses the relationship between profit and capital employed and is

calculated in percentage by dividing the net-profit by capital employed.

Net profit (PBIT)

Return on capital Employed= ---------------------------- * 100

Capital Employed

Alternatively, it can be calculated as:

Return on Capital Employed = Assets Turnover * Profit Margin

Sales Net Profit

= ------------------- * -------------------- * 100

Total Sales Sales

Interpretation and Significance: Since profit is the overall objective of a

business enterprise, this ratio is a barometer of the overall performance of the

enterprise. It measures how efficiently the capital employed in the business is being

used. In other words, it is also a measure how efficiently the capital employed in the

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business. Even the performance of two dissimilar firms may be compared with the

help of this ratio. Furthermore, the ratio can be used to judge the borrowing policy of

the enterprise. If an enterprise having the ratio of return on investment 15% borrows

at 16%, it would indicate that it is borrowing at a rate higher than its earning. The

comparisons of this ratio with that of similar firms and with industry average over a

period of time would disclose as to how effectively the long-term funds provided by

owners and creditors have been used.

Return on Net Worth

This ratio expresses the percentage relationship between net profit (after

interest and tax) and net worth or shareholders’ funds. This is also known as

‘Return on Proprietors’ funds’ it is used to ascertain the rate of return on

resources provided by the shareholders. The ratio is calculated by using the

following formula:

Net Profit (after tax and interest)

Return on Shareholders’ Fund = --------------------------------------------------- * 100

Shareholders’ Funds or Net Worth

Significance: This ratio measures the amount of earnings for each rupee that the

shareholders alive invested in the company. The higher the ratio the more favorable

is the interpretation of the company’s use of its resources contributed by the

shareholders. This ratio can be composed with that of other units engaged in similar

activities as also with the industry on average.

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Return on Equity Shareholders’ funds

Equity shareholders are the real owners of a company. Therefore, the profitability of

a company from the owners’ stand point should be viewed in terms of return to

equity shareholders. This ratio is calculated by dividing the profit available for equity

shareholders by the equity shareholders’ funds. Expressed as a formula, the ratio is:

Return on Equity Shareholders’ fund =

Net Profit after tax – Preference Dividend

----------------------------------------------------------------------- * 100

Equity Shareholders’ funds

Interpretation and significance: This ratio is the best measure of a company’s

profit earning capacity. The higher the ratio, the better the performance and

prospectus of the company. It provides adequate test to evaluate whether a

company has earned satisfactory return for its equity shareholders or not. The

adequacy of the return can be measured by comparing it with the return of the

previous year or of companies engaged in similar business or with the overall

industry average. The investors can decide to invest or not to invest in the equity

shares of a company by comparing it with the normal rate of return in the market.

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Due to issue of new shares or buy back of share during the year, the equity capital

and preference share capital of the company do not remain the same throughout the

year. Therefore, to calculate the amount of average shareholders’ fund which is one

half of the opening and closing balance is used to calculate the – (1) Return on Net

worth and (2) Return on Equity shareholders’ Fund. In absence of opening balance,

closing balance is used.

Return on Total Assets

Profitability can also be measured by establishing relationship between net profit and

total assets. This ratio is computed by dividing the net profits after tax by total and

total assets. This ratio is computed by dividing the net profits after tax by total funds

invested or total assets. Total assets means all net fixed assets, current assets are

included only when they have realizable value. Expressed as formula, the ratio is

Net Profit after Tax

Return on Total Assets = ---------------------------- * 100

Total Assets

Interpretation and significance: This ratio measures the profitability of

investments which reflects managerial efficiency. The higher the ratio, the better is

the profit earning capacity of the firm or vice versa. But this ratio does not reveal the

profitability of different sources of funds used in purchasing the total assets.

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Technically, this ratio suffers from the drawback that the interest paid to the creditors

is excluded form the net profit, whereas the real return on the total assets is the net

operating earnings. Therefore, to consider real earning, interest on long-term loans

should be added back to profit after tax. Thus, return on total assets should be

computed on the following revised formula:

Net Profit after tax + Interest

Return on Total Assets = -------------------------------------------- * 100

Total Assets

Note: In any view profit is earned on total assets of the business during the year and

these assets may increase or decrease during the year. Therefore, average amount

of the total assets should be used in calculating this ratio.

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2.0 SCOPE OF THE STUDY

Studies due with the details that affect the profit of the company along with

that the financial ratios will the help us to know the financial position and

liquidity of the company .some more reasons are as follows-

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The profile provides detailed financial ratios for the past five years as well as

interim ratios for the last five interim periods for major companies.

Examines key information about company for business intelligence.

Financial ratios presented for major public companies include revenue trends,

profitability, growth, margins and returns, liquidity and leverage, financial

position and efficiency ratios.

The company's core strengths and weaknesses and areas of development or

decline are analyzed and presented objectively. Business, strategic and

operational aspects are taken into account.

Opportunities available to the company are sized up and its growth potential

assessed. Competitive and/or technological threats are highlighted.

The profile contains valuable and critical company information ' business

structure and operations, the company history, major products and services,

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prospects, key competitors, key employees, executive biographies, important

locations and subsidiaries.

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“Ratio analysis” is a technique of analysis and interpretation of financial. It is a

process of establishing and interpretation various ratios for helping in making more

meaning decision. The ratio analysis is the most powerful tool of financial analysis.

Analysis of ratio provides dues to the financial position of a concern. There are the

pointers or indicates of financial strength, soundness, position or weakness of an

enterprise. One can draw conclusions about the exact financial position of a concern

with the help of ratios.

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The topic was chosen to analyses the performance in terms of short term solvency

and profitability position of "TATA TELESERVICES LTD”

Yet another factor, which efforts the useless of ratio is that there is difference of

opinion regarding the various concepts used to compute the ratios. Different firms

may use the terms in different senses of the same firm may interpret and see them

different at different situation.

Even though the ratios suffer from serious limitation, the analyst should not be

carried away by it’s over simplified nature. Easy computation with high degree of

precision, Nevertheless there are important tool of financial analysis the reliability

and significance attached to ratio will largely depend upon the equity of data on

which they are based.

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Overview

The global reach and industry expertise of Tata Communications drives and delivers

a new world of communications. The company leverages its Tata Global Network,

vertical intelligence and leadership in emerging markets to deliver value-driven,

globally managed solutions.

Tata Communications is a leading global provider of a new world of communications.

With a leadership position in emerging markets, Tata Communications leverages its

advanced solutions capabilities and domain expertise across its global and pan-India

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network to deliver managed solutions to multi-national enterprises, service providers

and Indian consumers.

The Tata Global Network includes one of the most advanced and largest submarine

cable networks, a Tier-1 IP network, with connectivity to more than 200 countries

across 400 PoPs, and nearly 1 million square feet of data center and colocation

space worldwide.

Tata Communications' depth and breadth of reach in emerging markets includes

leadership in Indian enterprise data services, leadership in global international voice,

and strategic investments in operators in South Africa (Neotel), Sri Lanka (Tata

Communications Lanka Limited), and Nepal (United Telecom Limited).

Tata Communications Limited is listed on the Bombay Stock Exchange and the

National Stock Exchange of India and its ADRs are listed on the New York Stock

Exchange. (NYSE: TCL)

INTRODUCTION

Tata Teleservices Limited spearheads the Tata Group’s presence in the telecom

sector. The Tata Group had revenues of around USD 70.8 billion in Financial Year

2008-09, and includes over 90 companies, over 363,039 employees worldwide and

more than 3.5 million shareholders.

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Incorporated in 1996, Tata Teleservices is the pioneer of the CDMA 1x technology

platform in India. It has embarked on a growth path since the acquisition of Hughes

Tele.com (India) Ltd [renamed Tata Teleservices (Maharashtra) Limited] by the Tata

Group in 2002. It launched mobile operations in January 2005 under the brand name

Tata Indicom and today enjoys a pan-India presence through existing operations in

all of India’s 22 telecom Circles. The company is also the market leader in the fixed

wireless telephony market. The company’s network has been rated as the ‘Least

Congested’ in India for five consecutive quarters by the Telecom Regulatory

Authority of India through independent surveys.

Tata Teleservices Limited now also has a presence in the GSM space, through its

joint venture with NTT DOCOMO of Japan, and offers differentiated products and

services under the TATA DOCOMO brand name. TATA DOCOMO arises out of the

Tata Group’s strategic alliance with Japanese telecom major NTT DOCOMO in

November 2008. TATA DOCOMO has received a pan-India license to operate GSM

telecom services—and has also been allotted spectrum in 18 telecom Circles. The

company has rolled out GSM services in 17 of India’s 22 telecom Circles in the quick

span of less than a year. The company plans to launch pan-India operations by the

end of FY 2010-11.

TATA DOCOMO marks a significant milestone in the Indian telecom landscape, and

has already redefined the very face of telecom in India, being the first to pioneer the

per-second tariff option—part of its ‘Pay for What You Use’ pricing paradigm. Tokyo-

based NTT DOCOMO is one of the world’s leading mobile operators—in the

Japanese market, the company is the clear market leader, used by over 50 per cent

of the country’s mobile phone users.

40

Tata Teleservices operates under five different brands— Tata Indicom (CDMA

services), Tata DOCOMO (GSM services), Virgin Mobile, Tata Walky (which is the

brand for fixed wireless phones), Tata Photon (the company’s brand that provides a

variety of options for wireless mobile broadband access) and T24. TTSL recently

entered into a strategic partnership agreement with Indian retail giant Future Group

to offer mobile telephony services under a new brand name—T24—on the GSM

platform. The exciting new brand was unveiled in February and it has commenced

the GSM operations under the brand name T24 in Andhra Pradesh and will roll out

services in other circles shortly.

Today, Tata Teleservices Ltd, along with Tata Teleservices (Maharashtra) Ltd,

serves nearly 70 million customers in more than 450,000 towns and villages across

the country, with a bouquet of telephony services encompassing Mobile Services,

Wireless Desktop Phones, Public Booth Telephony and Wire line Services.

In December 2008, Tata Teleservices announced a unique reverse equity swap

strategic agreement between its telecom tower subsidiary, Wireless TT Info-Services

Limited, and Quippo Telecom Infrastructure Limited—with the combined entity

kicking off operations with 18,000 towers, thereby becoming the largest independent

entity in this space—and with the highest tenancy ratios in the industry. Today, the

combined entity has a portfolio of nearly 35,000 towers.

TTSL’s bouquet of telephony services includes mobile services, wireless desktop

phones, public booth telephony, wireline services and enterprise solutions.

Over the last few months, Tata Teleservices’ industry-best and innovative offerings

have gained industry-wide recognition and the Year 2010 saw TTSL add many

41

notable accolades to its name. TTSL was named The Best Emerging Markets

Carrier by Telecom Asia, and received 8 awards at the World HRD Conference,

including 5th Best Employer in India. The company also received 3 awards at the

Telecom Operator Awards 2010 from Tele.net; Best Company, CEO of the Year and

Best Quality of Service, and Business Standard award for ‘Most Innovative Brand of

the Year’.

Tata Communications

We at Tata communications apart of the Tata family take pride in sharing the set of

five core values of the family: integrity, understanding, excellence, unity and

responsibility. These values, which have been part of the Group's beliefs and

convictions from its earliest days, continue to guide and drive the business decisions

of Tata companies. The Group and its enterprises have been steadfast and

distinctive in their adherence to business ethics and their commitment to corporate

social responsibility. This is a legacy that has earned the Group the trust of many

millions of stakeholders in a measure few business houses anywhere in the world

can match.

Corporate Governance in substance rather than form is what the company believes

in and actively implements. To implement this, a high level Corporate Governance

council has been formed to ensure that the best practices of Corporate Governance

are adopted.

We believe in fairness in words, actions and deeds with all our stakeholders.

42

TATA GROUP PROFILE

Tata Communications Limited along with its global subsidiaries (Tata

Communications) is a leading global provider of the new world of communications.

The company leverages its Tata Global Network, vertical intelligence and leadership

in emerging markets, to deliver value-driven, globally managed solutions to the

Fortune 1000 and mid-sized enterprises, service providers and consumers.

The Tata Communications portfolio includes transmission, IP, converged voice,

mobility, managed network connectivity, hosted data center, communications

solutions and business transformation services to global and Indian enterprises &

service providers as well as, broadband and content services to Indian consumers.

The Tata Global Network encompasses one of the most advanced and largest

submarine cable networks, a Tier-1 IP network, connectivity to more than 200

countries across 400 PoPs and more than one million square feet data center

space.  Tata Communications serves its customers from its offices in 80 cities in 40

countries worldwide. Tata Communications has a strategic investment in South

African operator Neotel, providing the company with a strong anchor to build an

African footprint.

The number one global international wholesale voice operator and number one

provider of International Long Distance, Enterprise Data and Internet Services in

India, the company was named "Best Wholesale Carrier" at the World

Communications Awards in 2006 and was named the "Best Pan-Asian Wholesale

43

Provider" at the 2007 Capacity Magazine Global Wholesale Telecommunications

Awards for the second consecutive year.

Becoming the leading integrated provider to drive and deliver a new world of

communications, Tata Communications became the unified global brand for VSNL,

VSNL International, Teleglobe, Tata Indicom Enterprise Business Unit and CIPRIS

on February 13, 2008.

Tata Communications Ltd. is a part of the $62.5 billion Tata Group; it is listed on the

Bombay Stock Exchange and the National Stock Exchange of India and its ADRs

are listed on the New York Stock Exchange (NYSE: TCL).

Tata is a rapidly growing business group based in India with significant international

operations. Revenues in 2007-08 are estimated at $70.8 billion USD , of which 61

per cent is from business outside India. The Group employs around 350,000 people

worldwide. The Tata name has been respected in India for 140 years for its

adherence to strong values and business ethics.

The business operations of the Tata Group currently encompass seven business

sectors: communications and information technology, engineering, materials,

services, energy, consumer products and chemicals. The Group's 27 publicly listed

enterprises have a combined market capitalization of some $60 billion, among the

highest among Indian business houses, and a shareholder base of 3.2 million. The

major companies in the Group include Tata Steel, Tata Motors, Tata Consultancy

Services (TCS), Tata Power, Tata Chemicals, Tata Tea, Indian Hotels and Tata

Communications.

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The Group's major companies are beginning to be counted globally. Tata Steel

became the sixth largest steel maker in the world after it acquired Corus. Tata

Motors is among the top five commercial vehicle manufacturers in the world and has

recently acquired Jaguar and Land Rover. TCS is a leading global software

company, with delivery centers in the US, UK, Hungary, Brazil, Uruguay and China,

besides India. Tata Tea is the second largest branded tea company in the world,

through its UK-based subsidiary Tetley. Tata Chemicals is the world's second largest

manufacturer of soda ash. Tata Communications is one of the world's largest

wholesale voice carriers.

In tandem with the increasing international footprint of its companies, the Group is

also gaining international recognition. Brand Finance, a UK-based consultancy firm,

recently valued the Tata brand at $11.4 billion and ranked it 57th amongst the Top

100 brands in the world. Business week ranked the Group sixth amongst the

"World's Most Innovative Companies" and the Reputation Institute, USA, recently

rated it as the "World's Sixth Most Reputed Firm."

Founded by Jamsetji Tata in 1868, the Tata Group's early years were inspired by the

spirit of nationalism. The Group pioneered several industries of national importance

in India: steel, power, hospitality and airlines. In more recent times, the Tata Group's

pioneering spirit has been showcased by companies like Tata Consultancy Services,

India's first software company, which pioneered the international delivery model, and

Tata Motors, which made India's first indigenously developed car, the Indica, in 1998

and recently unveiled the world's lowest-cost car, the Tata Nano, for commercial

launch by end of 2008.

45

The Tata Group has always believed in returning wealth to the society it serves.

Two-thirds of the equity of Tata Sons, the Tata Group's promoter company, is held

by philanthropic trusts which have created national institutions in science and

technology, medical research, social studies and the performing arts. The trusts also

provide aid and assistance to NGOs in the areas of education, healthcare and

livelihoods. Tata companies also extend social welfare activities to communities

around their industrial units. The combined development-related expenditure of the

Trusts and the companies amounts to around 4 per cent of the Group's net profits.

Going forward, the Group is focusing on new technologies and innovation to drive its

business in India and internationally. The Nano car is one example, as is the Eka

supercomputer (developed by another Tata company), which in 2008 is ranked the

world's fourth fastest. The Group aims to build a series of world class, world scale

businesses in select sectors. Anchored in India and wedded to its traditional values

and strong ethics, the Group is building a multinational business which will achieve

growth through excellence and innovation, while balancing the interests of its

shareholders, its employees and wider society.

Our Culture

46

Our People

Our global office holds talent from six continents. Our vast pool of expertise in the

communications and technology sectors embody our commitment to conduct ethical

and sustainable business. Tata Communications continues a tradition of developing

and deploying innovative solutions for existing and emerging markets worldwide. Our

international team reflects the dynamic and diverse market Tata Communications

serves.

Our Values

Service and business at Tata Communications is guided by a commitment to ethical

and responsible conduct.

Integrity: Trust travels

We must conduct our business fairly, with honesty and transparency.

Everything we do must stand the test of public scrutiny.

Understanding: Open the world

We must be caring, show respect, compassion and humanity for our

colleagues and customers around the world, and always work for the benefit

of the communities we serve.

47

 

Flexibility: Act agile

We work to create, design and grow in an environment that supports our

customers and people with adaptive thinking and action.

 

Excellence: Go the distance

We must constantly strive to achieve the highest possible standards in our

day-to-day work and in the quality of the goods and services we provide.

 

Unity: Journey as one

we must work cohesively with our colleagues across the Group and with our

customers and partners around the world, building strong relationships based

on tolerance, understanding and mutual cooperation.

 

Responsibility: Advance life

48

We must continue to be responsible, sensitive to the countries, communities

and environments in which we work, always ensuring that what comes from

the people goes back to the people many times over.

Purpose

• At the Tata Group their purpose is To improve the quality of life of the

communities they serve.

• They do this through leadership in sectors of national economic significance,

to which the Group brings a unique set of capabilities.

• This requires them to grow aggressively in focused areas of business.

• Their heritage of returning to society what they earn evokes trust among

consumers, employees, shareholders and the community.

• The Tata name is a unique asset representing leadership with trust

.

49

CEO managing director

Srinath Narasimhan

Managing Director, CEO

Tata Communications

Srinath Narasimhan is the Managing Director and CEO of Tata Communications

(formerly VSNL), part of the $62.5 billion Tata Group.

Mr. Srinath has over 20 years experience within the Tata Group, having held various

positions in project management, sales and marketing, as well as significant

corporate functions in several Tata companies. Mr. Srinath has been responsible for

spearheading new projects in high-technology areas such as process automation

and control, computers and telecommunications and was an instrumental figure early

in the launch of the Tata Group's CDMA services.

Mr. Srinath previously served as Executive Assistant to the Chairman for Tata

Industries, a position he held until 1992. He worked with a strategic team to set up

Tata Information Systems, which later became Tata IBM. Throughout his tenure

here, he accepted a number of assignments in sales and marketing.

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In 1998, Mr. Srinath returned to Tata Industries as General Manager, Projects and

worked with Tata Teleservices in this capacity for a year. In 1999, he moved to

Hyderabad as Chief Operating Officer responsible for all the operations of Tata

Teleservices. In late 2000, Mr. Srinath took over as Chief Executive Officer of Tata

Internet Services, a position he held until February 2002, when he moved to VSNL

as Director (Operations).  He subsequently became Executive Director for VSNL.

In 2006, Mr. Srinath was honored with the Telecom Asia 'CEO of the Year' award in

recognition of his role in transforming VSNL from a domestic monopoly to a major

global telecommunications company in just four years. During this time, VSNL's

business model was reinvented and the company entered several new businesses,

both in India and abroad.

Mr. Srinath holds a degree in Mechanical Engineering from the Indian Institute of

Technology, Chennai and an MBA from the Indian Institute of Management, Kolkata,

specializing in marketing and systems.

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History

52

Milestones

1868

53

• The TATA Group was founded byJamsetji Nusserwanji Tata in the mid 19th

century, a period when India had just set out on the road to gaining

independence from British rule.

1874

• The Central India Spinning, Weaving and Manufacturing Company is set up,

marking the Group's entry into textiles.

1902

• The Indian Hotels Company is incorporated to set up the Taj Mahal Palace

and Tower, India's first luxury hotel, which opened in 1903.

1907

• The Tata Iron and Steel Company (now Tata Steel) is established to set up

India's first iron and steel plant in Jamshedpur. The plant started production in

1912.

1910

• The first of the three Tata Electric Companies, The Tata Hydro-Electric Power

Supply Company, (now Tata Power) is set up.

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1911

• The Indian Institute of Science is established in Bangalore to serve

as a centre for advanced learning.

1912

• Tata Steel introduces eight-hour working days, well before such a system was

implemented by law in much of the West.

1917

• The Tata’s enter the consumer goods industry, with the Tata Oil Mills

Company being established to make soaps, detergents and cooking oils.

1932

• Tata Airlines, a division of Tata Sons, is established, opening up the aviation

sector in India.

1939

• Tata Chemicals, now the largest producer of soda ash in the country, is

established

1945

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• Tata Engineering and Locomotive Company (renamed Tata Motors in 2003) is

established to manufacture locomotive and engineering products.

• Tata Industries is created for the promotion and development of hi-tech

industries.

1952

• Jawaharlal Nehru, India's first Prime Minister, requests the Group to

manufacture cosmetics in India, leading to the setting up of Lakme.

1954

• India's major marketing, engineering and manufacturing organisation, Voltas,

is established.

1962

• Tata Finlay (now Tata Tea), one of the largest tea producers, is established.

• Tata Exports is established. Today the company, renamed Tata International,

is one of the leading export houses in India.

1968

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• Tata Consultancy Services (TCS).

India's first software services company, is established as a division of Tata

Sons.

1970

• Tata McGraw-Hill Publishing Company is created to publish educational and

technical books.

• Tata Economic Consultancy Services is set up to provide services in the field

of industrial, marketing, statistical and techno-economic research and

consultancy.

1984

• Titan Industries – a joint venture between the Tata Group and the Tamil Nadu

Industrial Development Corporation (TIDCO) – is set up to manufacture

watches.

1991

• Tata Motors rolls out its millionth vehicle. (The two-million mark was reached

in 1998 and the third million in 2003.)

1995

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• Tata Quality Management Services institutes the JRD QV Award, modelled on

the Malcolm Baldrige National Quality Value Award of the United States,

laying the foundation of the Tata Business Excellence Model.

1996

• Tata Teleservices (TTSL) is established to spearhead the Group's foray into

the telecom sector.

• Tata Indicom delivers cellular services through its CDMA mobile telephony

platform. It has pre-paid and post-paid options, enhanced through tie-ups for

handsets with leading manufacturers.

1998

• Tata Indica – India's first indigenously designed and manufactured car – is

launched by Tata Motors, spearheading the Group's entry into the passenger

car segment.

1999

• The new Tata Group corporate mark and logo are launched.

2000

• Tata Tea acquires the Tetley Group, UK. This is the first major acquisition of

an international brand by an Indian business group.

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2001

• Tata AIG – a joint venture between the Tata Group and American

International Group Inc (AIG) – marks the Tata

re-entry into insurance.

• (The Group's insurance company, New India Assurance, was nationalized in

1956).

• The Tata Group Executive Office (GEO) is set up to design and implement

change in the Tata Group and to provide long-term direction.

2002

• The Tata Group acquires a controlling stake in VSNL, India's leading

international telecommunications service provider.

• Tata Consultancy Services (TCS) becomes the first Indian software company

to cross one billion dollars in revenues.

• Titan launches Edge, the slimmest watch in the world.

• Idea Cellular, the cellular service born of a tie-up involving the Tata Group, the

Birla Group and AT&T, is launched.

• Tata Indicom, the umbrella brand for telecom services from the Tata

Teleservices stable, starts operations.

2003

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• Tata Motors launches CityRover – Indicas fashioned for the European market.

The first batch of CityRovers rolled out from the Tata Motors stable in Pune on

September 16, 2003.

2004

• Tata Motors acquires the heavy vehicles unit of Daewoo Motors, South Korea.

• TCS goes public in July 2004 in the largest private sector initial public offering

(IPO) in the Indian market, raising nearly $1.2 billlion.

2005

• Tata Steel acquires Singapore-based steel company NatSteel by subscribing

to 100 per cent equity of its subsidiary, NatSteel Asia .

• VSNL acquired Tyco Global Network, making it one of the world's largest

providers of submarine cable bandwidth.

• Tata Sons completes 60 years of Tata operations in the US.

• The Taj takes over management of The Pierre, NY .

• Taco acquires Wundsch Weidinger, Germany.

• Tata Steel acquires stake in Carborough Down Coal Project, Queensland,

Australia

• VSNL acquires Teleglobe International Holdings, Bermuda

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• TCS acquires Sydney-based Financial Network Services (FNS)

• Tata Motors passenger vehicle sales cross one-million mark

• TCS acquires leading BPO firm Comicrom in Chile.

• The Indian Hotels Company acquires hotel run by Starwood, Sydney.

• Tata Steel acquires Millennium Steel, Thailand.

• Tata Chemicals acquires controlling stake in Brunner Mond Group, UK.

• Tata launched gold plus ,a new jewellery range.

2006

• Tata Credit Card launched

• Foundation stone for the Tata Medical Centre unveiled in Kolkata

• TCS launches India’s largest e-governance initiative, MCA-21

• Tata Steel ranked world’s best steel maker for the third time by World Steel

Dynamics

• Tata Coffee acquires US-based Eight O'Clock Coffee

• Tatas join hands with Indigene Pharmaceuticals to build a global

biopharmaceutical company

• Tata Sky satellite television service launched across the country

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• Tata Steel begins construction of R670 million Ferrochrome plant in South

Africa

• Tata Group acquires 30-per cent stake in Glacéau

• VSNL rebrands SNO as Neotel in South Africa

2007

• In a giant leap, Tata Steel's acquisition of the Anglo-Dutch steel major Corus

has vaulted the former to the fifth position from 56th in global steel production

capacity.

2008

• Vsnl, Vsnl international and Teleglobe unite as tata communication.

2009

• Tata Communication and tyco telecommunication complete TGN-Intra Asia

system.

Tata in communication sactor

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1. Broadband services (Tata Indicom)

2. Telecommunications (Tata Indicom)

• Tata Teleservices and VSNL, through their common brand Tata Indicom, offer

a complete range of telecom solutions for business needs. Tata Indicom is the

world leader in fixed wireless services.

They are providing:

Fixed-wire phone connections

Web conferencing

Centrex (central exchange)

Consultancy

• Management consultancy (Tata Economic Consultancy Services, Tata

Strategic Management Group)

 Corporate Sustainability

Working for the disadvantaged sections of the society is a way of life at the Tata

Group. As Mr. JRD Tata believed, “society is an important stakeholder in the

development of any organization”. Social Responsibility has been central to the core

values of the Tata group for over a century now—and Tata companies have not only

63

been proactive on compliance with regulatory requirements, but have also had a

farsighted vision in ensuring sustainability of business processes; restoration of

biodiversity; and conserving wildlife where possible.

Keeping in tune with the changing business, environmental and social scenarios, the

Tata Group has adopted the term ‘Corporate sustainability’ instead of Corporate

Social Responsibility. Sustainable livelihoods are the demand of all social initiatives

in the Group. Tata Teleservices Ltd is a responsible corporate citizen, and strives to

give back to the community it operates in. The main objective behind the CS

initiatives of TTSL is to use telecom to impact the life of the underprivileged sections

of society. The company Endeavour’s to make a positive contribution to the

community by supporting a wide range of socio-economic, educational and health

initiatives. Keeping in mind the Tata Group guidelines and the objective mentioned

above, we have identified and implemented many CS initiatives since 2006-end.

Toward the end of 2008, with the then new TTSL Corporate Sustainability team

having come on board, Tata Teleservices Limited began the process of joining the

select few Tata Group companies that had put together their CS Big Picture. Under

the guidance of the Tata Council for Community Initiatives, TTSL began work on this,

and the ‘Big Picture’ was put together in mid-2008. Under the TTSL Big Picture (see

image below), Education and Environment were identified as the two primary pillars

for CS@TTSL, with all projects and activities stemming from there.

That having been said, it was also decided that rather than put a stop to all the good

work that many of TTSL’s 20 Circle offices were doing (but which were not aligned to

the Big Picture), the CS team would let these carry on for the cause of continuity in

64

the target communities, slowly bringing them under the pillars identified—the process

of Big Picture Alignment at TTSL, thus, began.

TATA Business Excellence Model

Tata Business Excellence Model is a framework which helps companies to achieve

excellence in their business performance. This is the chosen model by the TATA

group to help in building globally competitive organizations across TATA Group

companies. TBEM is based on the Malcolm Balridge National Quality Award Model

of the U.S.

The Criteria have three important roles in strengthening competitiveness:

To help improve organizational performance practices, capabilities, and

results

To facilitate communication and sharing of best practices information among

all organizations within TATA Group.

To help in guiding organizational planning and opportunities for learning

TBEM Criteria is designed to help organizations use an integrated approach to

organizational performance management that results in

Delivery of ever-improving value to customers and stakeholders, contributing

to organizational sustainability

Improvement of overall organizational effectiveness and capabilities

65

Organizational and personal learning

The Criteria are built on the following set of 11 Interrelated Core Values and

Concepts:

Visionary Leadership

Customer-driven Excellence

Organizational and Personal Learning

Valuing Employees and Partners

Agility

Focus on the Future

Managing for Innovation

Management by Fact

Social Responsibility

Focus on Results and Creating Value

Systems Perspective

The Core Values and Concepts are embodied in seven Categories, as follows:

Leadership

Strategic Planning

Customer and Market Focus

Measurement, Analysis, and Knowledge Management

66

Work force Focus

Process Management

Business Results

The TBEM criteria are the operational details of the Core Values, applied to the

different facets of a Business organization.

The 7 Criteria Categories are divided into 18 items and 32 Areas to Address

The TBEM framework has the following characteristics

Focus on Business results

Non-prescriptive and Adaptable

Maintains System Perspective

Supports Goal based diagnosis

TBEM instills a process centric approach in an organization as a means to achieve

the chosen Business Goals

Tata Teleservices Limited as a part of the TATA Group has adopted the TATA

Business Excellence model as an intricate part of its operation structure and uses it

to grow from strength to strength, keeping Operational excellence and Business

results in focus.

Vision

67

Deliver a new world of communications to advance the reach and leadership of

our customers.

Commitment

Invest in building long-lasting relationships with customers and partners and lead

the industry in responsiveness and flexibility.

Strategy

Build leading-edge IP-leveraged solutions advanced by our unmatched global

infrastructure and leadership in emerging markets.

Communication on Progress Year: 2009-2010

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Tata Teleservices Limited (TTSL) is leading the way for Tata Group‟s presence in

the telecom sector. Incorporated in 1996, Tata Teleservices is the pioneer of CDMA

1x technology in India, and after launching mobile operations in January 2005 under

the brand name Tata Indicom, today now enjoys a pan-India presence, with existing

operations in India‟s 22 telecom circles. The company also leads the market in fixed

wireless telephony, and for the last five consecutive quarters, the company‟s

network has been rated the “Least Congested” by the Telecom Regulatory Authority

of India.

Now TTSL also has a presence in GSM space, thanks to its November 2008

strategic alliance with Japan‟s NTT DOCOMO. The joint venture now offers

differentiated products and services under the TATA DOCOMO brand name. TATA

DOCOMO marks a significant milestone in Indian telecom, redefining the industry

with its innovative per-second tariff option, or “Pay for What You Use” pricing

paradigm. TTSL‟s bouquet of telephony services includes mobile, wireless desktop,

public booth, wireline and enterprise solutions. Four brands comprise Tata

Teleservices Limited: Virgin Mobile, Tata Walky (fixed wireless phones), Tata Photon

family (different options of wireless mobile broadband access), and T24 (GSM

mobile services, through a strategic partnership with Indian company Future Group).

In December 2008, Tata Teleservices announced a unique reverse equity swap

strategic agreement between its telecom tower subsidiary, Wireless TT Info-Services

Limited (WTTISL), and Quippo Telecom Infrastructure Limited (QTIL). Kicking off

operations with 18,000 towers, this combined entity has become the largest

independent entity in telecom, with the highest tenancy ratios in the industry.

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Today, the WTTISL and QTIL partnership has a portfolio of around 35,000 towers.

Currently, Tata Teleservices Ltd, combined with Tata Teleservices (Maharashtra)

Ltd, serves nearly 65 million customers in over 420,000 towns and villages across

the country, providing top-quality telephony services.

Tata Communications’ strategic focus

Over the next two to three years, Tata Communications will focus on:

Redefining "wholesale" from a commodity, low value business to a

partnership-driven, value-enhancing one

Expanding access networks in India including rolling out wireless (WiMAX)

networks for business and consumes

Rapidly grow its global enterprise segment with catalyst services including

Telepresence, media and entertainment solutions, Ethernet and cloud

computing

Achieving global benchmarks in customer services and operations

Creating at least one new "home market" in addition to India and South Africa

70

COMPANY NAME

METHODOLOGY ADOPTED.

OBJECTIVES OF THE STUDY.

TOOLS AND TECNIQUES USED.

GEOGRAPHICAL AREA COVERED.

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72

RESEARCH METHODOLOGY

The study is made on the basis of secondary data. The annual report by the firms

was of great help collection the necessary information. In addition to this, the

personal of “TATA TELESERVICES LTD” were very co-operative in forwarding the

necessary information as and when required.

5.1 METHODOLOGY ADOPTED

UNIVERSE OF THE STUDY-:

A research design is the arrangement of conditions for collection and analysis of

data in a manner that aims to combine relevance to the research purpose with

economy in procedure. Research design is a plan that specifies the sources and

types of information relevant to the research problem. It is a strategy specifying

which approach will be used for gathering and analyzing the data. In fact research

design is the conceptual structure within which research is conducted. It constitutes

the blue print for the collection, measurement and analysis of data.

Types of Research Design:-

Research Design is mainly of three types:-

1. Exploratory Research:-

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2. Descriptive Research or Conclusive Research:-

3. Experimental Research or empirical research

The research undertaken by me in this project is empirical research. The

research methodology adopted for the project can be stated as follows:-

In order to do the research successfully and fulfill the objective of the research, the

prime thing was to study the entire balance sheet and P & L accounts of different

years of TATA TELESERVICES LTD. I had done that by collecting the required

information through firm’s manual and data available on internet

. After that a detailed and systematic report was then prepared.

SAMPING SIZE

Area covered for this study has been taken as TATA TELESERVICES LTD. Sample

size for this study which is taken by me is approx 75 people’s .It has been so taken

by the researcher because it was convenient for her to approach the site easily.

Also, the research has been carried over the topic. Finance ratio analysis because it

clearly prescribes the strengths and weakness of company and its financial value.

SAMPLING METHOD

Sampling is the process of selecting units (e.g. people, organizations) from a

population of interest so that by studying the sample we may fairly generalize our

results back to the population from which they were chosen.

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The difference between non probability and probability sampling is that non

probability sampling does not involve random selection and probability sampling

does.

We can divide non probability sampling methods into two broad types: accidental or

purposive

Most sampling methods are purposive in nature because we usually approach the

sampling problem with a specific plan in mind.

This research analysis has not been carried over any types of sampling because the

data is strictly of secondary type and does not count in any types of sampling

method.

The study is made on the basis of secondary data. The annual reports by the firms

were of great help collection the necessary information. In addition to this, the

personal of “TATA TELESERVICES LTD” were very co-operative in forwarding the

necessary information as and when required.

Data require for this project is mainly two type’s i.e. primary data & secondary data

and I also use the Graphs in analysis of ratio which help to understand to every one.

Tools for data collection

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Data require for this project is mainly tow type’s i.e. primary data & secondary data and I

also use the Graphs in analysis of ratio which help to understand to every one.

Primary Data: -

Those are collected fresh and the time and this happens to be original in character. The

primary data were collected through personal interaction with the manager and official of

the firm.

• Data is collected from telephone enquiries.

• Concert with the expertise.

• Data is collected from survey.

Secondary Data: -

Secondary data means data is already available i.e. they refer the data which have

already been collected and analyzed by someone else, then he has to look into various

sources form whose he can obtain them, usually the publications technical trade journal

books, Magazines, Net and Reports of company etc.

• Data is collected from past year records.

• Data is collected from my guide.

• Data is collected from GOOGLE.

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5.3 OBJECTIVES OF THE STUDY

The objectives of this project are as under:

1. To compare the financial ratio from last 5 year of “TATA TELESERVICES LTD.”

2. To analyze the profitability ratio of “TATA TELESERVICES LTD.”

3. To check the liquidity position of “TATA TELESERVICES LTD.”

4. To gain insight into long tern solvency of “TATA TELESERVICES LTD.”

5. To know the financial Position of the Company by calculating the ratio analysis of “TATA

TELESERVICES LTD.”

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SAMPLES & TOOLS

Samples used in the profitability of TATA TELESERVICES LTD. company

are following:

Profit & Loss account of the unit for the years 2005-06 to 2009-10.

Balance Sheet of the unit for the years 2005-06 to 2009-10.

Various schedules relevant to the Profit & Loss account and Balance Sheet.

The tools used in the profitability of TATA TELESERVICES LTD.

Company are following:

Comparative Balance Sheet.

Comparative Profit and Loss Account.

Various standards ratio.

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TOOLS OR TECHNIQUES OF FINANCIAL STATEMENTS ANALYSIS

Financial statements indicate certain absolute information about assets, liabilities,

equity, revenues, expenses and profit or loss of an enterprise. Various techniques

are applied for analyzing the financial statements.

Following tools and techniques for analysis of the statements:

1. Comparative Balance sheet Statements:

Comparative Financial Statements are the

Statements in which figures for two or more periods are placed side by side along

with change in figures in absolute and percentage form to facilitate comparison. Both

Income Statement and Position Statement are prepared in the form of comparative

Financial Statements.

2. Comparative profit and loss account Statement:

It expresses all figures of financial

statements as percentage of common base. In the P&L account the sale figure is

assumed to be 100 and all figures are expressed as a percentage of sales.

3. Ratio Analysis:

It expresses the relationship between two

financial variables taken from financial statements of an accounting period in the

form of ratios.

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COMPARATIVE BALANCE SHEET

The comparative balance sheet analysis is the study of the trend of the same items,

groups of items and computed items in two balance sheets of the unit on different

dates. The changes in periodical balance sheet items reflect the conduct of a

business. The changes can be observed by the comparison of the balance sheet at

the beginning and at the end of a period and these changes can help in forming an

opinion about the progress of a unit.

Comments and Interpretations of Comparative Balance sheet:

The working capital has decreased by Rs. 21.16crore in compare to the last years. In

the year 2010 ,2009,2008,2007,and 2006 is Rs. 196.96crore ,218.07crore,125.00

cr ,203.17 crore ,and 175.08 crore respectively This is mainly due to increase the

current liability in the current year.

Reserve & surplus, which is having only current year profit, has increased by Rs.

298.01 crore with respect to previous year.

Intangible assets have decreased by Rs. 29.84Lakh. This is due to prior year impact

of delaying capitalization on computer software.

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Area covered for this study has been taken as TATA TELESERVICES LTD in NEW

DELHI. It has been so taken by the researcher because it was convenient for her to

approach the site easily.

Also, the research has been carried over the topic. Finance ratio analysis because it

clearly prescribes the strengths and weakness of company and its financial value.

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Profit and Loss (Rs. in crores)

Particular 2009-2010 2008-2009

Telecom Revenue 2069.10 1941.68Other income 208.71 112.28Total Income 2277.81 2053.96Expenditure 1737.30 1460.78Earnings Before Interest, Depreciation, Tax 540.51 593.18Finances Treasury Charges (Net) 317.62 304.78Depreciation 520.89 446.79Loss Before Tax 298.00 158.39Wealth Tax & Fringe Benefit Tax 0.01 1.21Loss After Tax 298.01 159.60

Interpretation: The total revenue grew by 10.90% to Rs. 2,277.81 Cr. During the

year, the Company consolidated its position in the market by increasing its share of

new additions in the wireless market (i.e. fixed wireless and mobile). The subscriber

base grew by 73% to cross 13 million, mainly through the very successful launch of

GSM services by the company, The change in interconnect regime with reduced

termination charges and competitive pressures which pulled down the tariffs resulted

in lower Average Revenue per User (ARPU) compared to the previous year.

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Operating expenses increased by 18.93%, mainly due to costs associated with the

launch and operations of GSM services. The Company reported a positive EBIDTA

of Rs. 540.51 Cr., as compared to the previous year’s EBIDTA of Rs. 593.18 Cr.,

despite the costs associated with the launch of GSM services.

Market Capture and Net Profit compare with other company’s

Market Cap.(Rs. cr.)

Net Profit

Bharti Airtel 131,603.41 9,426.16Reliance Comm 28,875.74 478.93Idea Cellular 23,719.92 1,053.66Tata Comm 7,828.95 483.18Spice Comm 3,929.12 -1,015.22TataTeleservice 3,803.88 -298.01MTNL 3,442.95 -2,514.87Tulip Telecom 2,596.23 249.58

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Interpretation: Bharti Airtel is the big competitor of TATA TELESERVICES,

1.85% capture in market which is too small compare to the other tele companies,

TATA TELESERVICES try to give more innovation in to their product and services it

help to increases their sale and profitability of the company.

Current ratio and Quick ratio

Particular 2006 2007 2008 2009 2010

Current ratio 0.15 0.24 0.19 0.18 0.14

Quick ratio 0.29 0.37 0.45 0.56 0.40

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Interpretation: Traditionally a current ratio of 2:1 is considered to be a satisfactory

ratio. On the basis of this traditional rule , if the current ratio is 2 or more, it means

the firm is adequately liquid and has the ability to meets it current obligation but if

the current ratio is less than two it means the firm has difficulties in meeting its

current obligations. The logic behind this rule is that even if the value of current

assets becomes half, the firm can still meet its short term obligations. Here the

current ratio in the year 2010 is 0.14:1 that is more than the last years

2006,2007,2008,2009 ratio which is 0.15:1, 0.24:1, 0.19:1 and 0.18:1 respectively.

It indicates rs. of quick assets available for each rs. Of current liability tradionally a

quick ratio of 1:1 is considered to be a satisfactory ratio but hear in the year 2010

quick ratio is 0.40:1 is decreased to compared to the last year ratio 0.56:1 and this

decreased due to cheques in hand.

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Operating Profit Margin

Particular 2006 2007 2008 2009 2010

Operating

Profit

Margin11.23 20.54 23.75 28.27 22.27

Interpretation: This ratio indicates an average operating cost incurred on a sale of

goods worth Rs.100.Lower the ratio, greater is the operating profit to cover the non-

operating expenses, to pay dividend and to create reserves and vice versa. Here the

operating ratio in year 2010, 2009, 2008, 2007, and 2006 are 22.27%, 28.27, 23.75,

20.54 and 11.23 respectively. in the year 2010 4% more in compare last year 2009.

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This change is due to increase the sale because of operational efficiency of the

company. Operating ratios increases year to year which is good for the company.

Gross Profit Margin

Particular 2006 2007 2008 2009 2010

Gross Profit

Margin

0.58 10.61 -1.98 6.32 -1.28

Interpretation: Gross profit ratio of 2006 to 2010 are0.58%,10.61%,-1.98,6.32%

and-1.28% .i.e. fluctuate during year so it indicate the profit earning of the company

is not so good negative ratios shows the poor performance of the company. higher

the ratio, the more efficient the production and purchase management. This change

due to change in government policy because of government fix the prices of the raw

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material of the company and in this year it gives the more margin of profit on sale

and that’s why this ratio increases.

Net Profit Margin

Particular 2006 2007 2008 2009 2010

Net Profit

Margin

-49.31 -21.81 -7.07 -7.80 -13.44

Interpretation: This ratio is the indication of overall profitability and efficiency of

the business. high net profit ratio would only means adequate returns to the owners.

It also enables a firm to withstand in cut-throat competition when the selling price is

falling or cost of production is rising .the ratio in the year 2010 , 2009,2008,2007,

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and 2006 are -49.31%, -21.81%,-7.07,-7.08% and -13.44% respectively it shows

loss of the company.

Return On Investment

Particular 2006 2007 2008 2009 2010

Return On

Investment

-21.48 -8.21 1.44 5.09 -0.73

Interpretation: The ratio can be used to judge the borrowing policy of the

enterprise. If an enterprise having the ratio of return on investment 15% borrows at

16%, it would indicate that it is borrowing at a rate higher than its earning. The

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comparisons of this ratio with that of similar firms and with industry average over a

period of time would disclose as to how effectively the long-term funds provided by

owners and creditors have been used.

Inventory Turnover Ratio

Particular 2006 2007 2008 2009 2010

Inventory

Turnover

Ratio

--- 641.35 769.00 1012.25 345.37

Interpretation: It indicates the speed with which the inventory is converted into

sales. in general, a high ratio indicates efficient performance since an improvement

in the ratio shows that either the same volume of sales has been maintained with a

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lower investment in stocks, or the volume of sales has increased without any

increase in the amount of stocks. However, too high ratio and too low ratio call for

further investigation. A too high ratio may be the result of very low inventory levels,

which may result in frequent stock-out, and thus the firm may incur high stock out

costs. On the other hand, a too low ratio may be the result of excessive inventory

levels: slow moving or obsolete inventory and thus the firm may incur high carrying

costs. Thus a firm should have neither a very high nor a very low stocks turnover

ratio: it should have a satisfactory level here the stocks turnover ratio in year 2010

is345.37 that is low 666.88 from the last three years i.e 641.35,769.00, 1012.25 in

the year 2007,2007,2008 respectively.

Asset Turnover Ratio

Particular 2006 2007 2008 2009 2010

Asset Turnover

Ratio

0.35 0.40 0.49 0.57 0.49

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Interpretation: The asset turnover ratio simply compares the turnover with the

assets that the business has used to generate that turnover. ratio in the year 2010 ,

2009,2008,2007, and 2006 are 0.49%, 0.57%, 0.49, 0.40% and 0.35% respectively.

This ratio were increasing till 2009 but due to some reason it go to down fall in 2010.

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1. The total revenue grew by 10.90% to Rs. 2,277.81 Cr. During the year, the Company

consolidated its position in the market by increasing its share of new additions in the

wireless market (i.e. fixed wireless and mobile).

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2. Operating expenses increased by 18.93%, mainly due to costs associated with the

launch and operations of GSM services.

3. The Company reported a positive EBIDTA of Rs. 540.51 Cr, as compared to the

previous year’s EBIDTA of Rs. 593.18 Cr, despite the costs associated with the

launch of GSM services.

4. Current ratio position is not good in the period 2006 to 2010.it is not stable. An ideal

current ratio is 2:1. The current ratio in the year 2010 is 0.14:1 that is more than

the last years 2006, 2007, 2008, 2009 ratio which is 0.15:1, 0.24:1, 0.19:1 and

0.18:1 respectively.

5. The operating ratio in year 2010, 2009, 2008, 2007, and 2006 are 22.27%,

28.27, 23.75, 20.54 and 11.23 respectively. Operating ratios increases year to

year which is good for the company.

6. A quick ratio1:1 is usually considered satisfactory it is again a rule of thumb only.

Again it is not stable. Year wise it is increase or decrease.

7. In 2010 and 2010 inventory ratio are not more than 2009, 2008 and 2007. The

company working capital might be tied up in finance inventory.

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8. The stocks turnover ratio in year 2010 is345.37 that is low 666.88 from the

last three years i.e. 641.35,769.00, 1012.25 in the year 2007,2007,2008

respectively.

9. Gross profit ratio of 2006 to 2010 are 0.58%,10.61%,-1.98,6.32% and-

1.28% .i.e. fluctuate during year so it indicate the profit earning of the

company is not so good negative ratios shows the poor performance of the

company. Net profit of the company is not in good position.

10. Company market share is too low comparing other Teleservices company. But TATA

TELESERVICES is growing year to year.

11. The change in interconnect regime with reduced termination charges and competitive

pressures which pulled down the tariffs resulted in lower Average Revenue per User

(ARPU) compared to the previous year.

12. During the year, the Company registered highest incremental wireless subscriber

additions of 28% and end of period market share of 17.6%.

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1. The company should maintain the current ratio for the years by proper maintaining

current assets and current liabilities.

2. The company should properly utilize its liquid assets by employing it in better

technologies. Which may increase the efficiency and quality of the products?

3. The company should reduce cost of production and also operating cost, which may

ultimately increase the profits of the company.

4. The company should improve our competitiveness through improved material

utilization and reduced process cost.

5. The company should increase there efficiencies of net working capital and to

maintain adequate level of working capital.

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There is not accurate information provided by the management.

Information is not sufficient for study which is given by the company.

Limited period which is not sufficient for the study.

Sample size is too small not represent whole NEW DELHI.

No good response from the clients during telephonic communication.

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As of April 2010, there were more than 638 million telephone connections in the

country of which 601 million were wireless connections. Approximately 15 million

mobile connections are being added every month. The national mobile tele-density

is around 54 per hundred. So in way we can say that company is growing year to

year.

During the year, the Company focused on increasing its retail presence to achieve a

better market penetration for its various products and services.

Profitability depend upon the profitability ratios of the company and most of the

profitability ratios of the company going in a negative(such as gross profit ratio and

net profit ratio) way which is not good sigh of the company.

Company does not properly utilize their liquid assets by which company suffer lot.

There are imbalance between the current liability net current assets in the company

and it’s affect the current ratios and present current ratios of the company is not

good.

At last we can say that overall performance of the TATA TELESERVICES company

are not so good. TATA TELESERVICES improve their services and it help increase

the sale.

During the year, the Company registered highest incremental wireless subscriber

additions of 28% and end of period market share of 17.6%. During the year, the

Company increased its focus on CDMAs inherent data capabilities to offer high

speed data services to subscribers. The Company offers High Speed Internet

Access (HSIA) service undertheTata Photon* brand. The Company has also made

significant investments in the Enterprise business segment. The Company further

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expanded its wire line presence in Mumbai, Delhi and other state. The Company

continued to focus on value added service offerings. The Company introduced

several attractive product and service propositions that addressed specific customer

needs.

During the year, the Company has focused on operational efficiency and quality

control measures with a constant endeavor to further improve its network quality.

The Company has also successfully unlocked the bandwidth potential in its existing

transmission network and offered transmission bandwidth to the new operators. The

Company has undertaken ISO 9001:2008 certification to demonstrate its capability to

consistently provide services that enhance customer satisfaction through effective

deployment of a quality management system. In view of the losses, the Directors

regret their inability to recommend any dividend for the year under consideration. No

appropriations are proposed to be made for the year under consideration. The total

revenue grew by 10.90% to Rs. 2,277.81 Cr. in the year; the Company consolidated

its position in the market by increasing its share of new additions in the wireless

market (i.e. fixed wireless and mobile).

The Company reported a positive EBIDTA of Rs.540.51 Cr, as compared to the

previous year’s EBIDTA of Rs. 593.18 Cr, despite the costs associated with the

launch of GSM services.

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Books:-

Financial Management: - Prasanna Chandra

Financial Management: - Ravi M. Vechalakar

Cost & Management Account: - Ravi Kishor

Magazines:-

Annual General Report

Company Document

Internet Sites:-

www.tatateleservices.com

www.google.com

www.moneycontrol.com

www.rediffmoneywiz.com

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SOURCES OF COLLECTION OF DATA:-

1. Staff of the TATA TELESERVICES LTD

2. Magazines and Internet

3. Journal Books of TATA TELESERVICES LTD

4. Annual General Report of 2006-07, 2007-08, 2008-09 and 2009-10

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Key Financial Ratios of Tata Teleservices Rs. in crores)

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10Investment Valuation RatiosFace Value 10.00 10.00 10.00 10.00 10.00Dividend Per Share -- -- -- -- --Operating Profit Per Share (Rs) 0.81 1.60 2.14 3.03 2.60Net Operating Profit Per Share (Rs)

7.20 7.78 9.02 10.72 11.65

Free Reserves Per Share (Rs) -13.27 -11.78 -11.06 -11.94 -13.51Bonus in Equity Capital -- -- -- -- --Profitability RatiosOperating Profit Margin(%) 11.23 20.54 23.75 28.27 22.27Profit Before Interest And Tax Margin(%)

-31.79 -11.03 -1.90 6.28 -1.28

Gross Profit Margin(%) 0.58 10.61 -1.98 6.32 -1.28Cash Profit Margin(%) -6.30 9.52 16.39 15.47 7.54Adjusted Cash Margin(%) -1.61 8.95 16.39 15.47 7.54Net Profit Margin(%) -49.31 -21.81 -7.07 -7.80 -13.44Adjusted Net Profit Margin(%) -44.62 -22.38 -7.07 -7.80 -13.44Return On Capital Employed(%) -21.48 -8.21 1.44 5.09 -0.73Return On Net Worth(%) 108.73 96.70 62.68 43.33 44.72Adjusted Return on Net Worth(%)

-- -- -- -- --

Return on Assets Excluding Revaluations

-19.56 -1.78 -1.06 -1.94 -3.51

Return on Assets Including Revaluations

-19.56 -1.78 -1.06 -1.94 -3.51

Return on Long Term Funds(%) -40.54 -10.43 2.33 12.44 -2.43Liquidity And Solvency RatiosCurrent Ratio 0.15 0.24 0.19 0.18 0.14Quick Ratio 0.29 0.37 0.45 0.56 0.40Debt Equity Ratio -- -- -- -- --Long Term Debt Equity Ratio -- -- -- -- --Debt Coverage RatiosInterest Cover -2.92 -0.91 0.21 0.58 -0.07Total Debt to Owners Fund -- -- -- -- --Financial Charges Coverage Ratio

0.88 1.72 2.60 2.18 1.50

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Financial Charges Coverage Ratio Post Tax

0.51 1.76 2.72 2.07 1.67

Management Efficiency Ratios

Inventory Turnover Ratio -- 641.35 769.001,012.2

5345.37

Debtors Turnover Ratio 7.35 8.63 9.18 9.20 8.76

Investments Turnover Ratio -- 633.77 769.001,012.2

5345.37

Fixed Assets Turnover Ratio 0.57 0.75 0.49 0.57 0.49Total Assets Turnover Ratio 1.03 1.22 1.21 1.18 1.16Asset Turnover Ratio 0.35 0.40 0.49 0.57 0.49Average Raw Material Holding -- -- -- -- --Average Finished Goods Held -- -- -- 0.36 1.03

Number of Days In Working Capital

-270.33 -184.78 -118.06 -79.30 -142.94

Profit & Loss Account RatiosMaterial Cost Composition -- 0.23 0.45 0.44 1.23

Imported Composition of Raw Materials Consumed

-- -- -- -- --

Selling Distribution Cost Composition

16.83 16.96 9.48 10.06 15.78

Expenses as Composition of Total Sales

-- -- -- -- --

Cash Flow Indicator RatiosDividend Payout Ratio Net Profit -- -- -- -- --

Dividend Payout Ratio Cash Profit

-- -- -- -- --

Earning Retention Ratio -- -- -- -- --Cash Earning Retention Ratio -- 100.00 100.00 100.00 100.00AdjustedCash Flow Times -- 15.90 9.02 9.83 21.58Earnings Per Share -3.56 -1.72 -0.66 -0.84 -1.57Book Value -3.27 -1.78 -1.06 -1.94 -3.51

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PROFIT AND LOSS OF TATA TELESERVICES LTD. (Rs. in crores)

Mar '06 Mar '07 Mar '08 Mar '09 Mar '1012 mths 12 mths 12 mths 12 mths 12 mths

IncomeSales Turnover 1,095.13 1,406.98 1,707.19 2,034.62 2,210.39Excise Duty 0.00 0.00 0.00 0.00 0.00Net Sales 1,095.13 1,406.98 1,707.19 2,034.62 2,210.39Other Income -49.34 24.30 78.40 -26.51 37.28Stock Adjustments 0.00 0.00 0.00 -0.21 4.39Total Income 1,045.79 1,431.28 1,785.59 2,007.90 2,252.06ExpenditureRaw Materials 0.00 3.36 7.80 9.15 27.37Power & Fuel Cost 30.17 36.76 52.27 0.00 107.96Employee Cost 48.56 71.00 93.63 112.90 146.26Other Manufacturing Expenses

495.18 569.48 648.32 814.29 823.66

Selling and Admin Expenses

279.99 319.19 220.72 288.68 464.37

Miscellaneous Expenses

118.18 118.12 278.97 232.81 170.95

Preoperative Exp Capitalised

0.00 0.00 0.00 0.00 -18.79

Total Expenses 972.08 1,117.91 1,301.71 1,457.83 1,721.78Operating Profit 123.05 289.07 405.48 576.58 493.00PBDIT 73.71 313.37 483.88 550.07 530.28Interest 142.02 177.61 182.27 268.68 331.99PBDT -68.31 135.76 301.61 281.39 198.29Depreciation 471.90 446.23 439.35 446.79 520.89Other Written Off 0.00 0.00 0.00 0.00 0.00Profit Before Tax -540.21 -310.47 -137.74 -165.40 -322.60Extra-ordinary items 0.00 0.00 12.93 8.21 25.16PBT (Post Extra-ord Items)

-540.21 -310.47 -124.81 -157.19 -297.44

Tax 0.85 0.70 0.93 1.21 0.01

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Reported Net Profit -541.06 -310.61 -125.74 -159.60 -298.01Total Value Addition 972.08 1,114.55 1,293.91 1,448.68 1,694.41Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 0.00 0.00 0.00 0.00 0.00Corporate Dividend Tax 0.00 0.00 0.00 0.00 0.00Per share data (annualised)

Shares in issue (lakhs) 15,205.8518,094.9

718,935.6

418,971.9

118,971.9

7Earning Per Share (Rs) -3.56 -1.72 -0.66 -0.84 -1.57Equity Dividend (%) 0.00 0.00 0.00 0.00 0.00Book Value (Rs) -3.27 -1.78 -1.06 -1.94 -3.51

COMPAREATIVE BALANCE SHEET OF TATA TELESERVICES LTD.

(Rs. in crores)

Mar '06 Mar '07 Mar '08 Mar '09 Mar '1012 mths 12 mths 12 mths 12 mths 12 mths

Sources Of FundsTotal Share Capital 1,520.59 1,809.50 1,893.56 1,897.19 1,897.20Equity Share Capital 1,520.59 1,809.50 1,893.56 1,897.19 1,897.20Share Application Money 0.00 0.00 0.00 0.00 0.00Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves -2,018.20 -2,130.71 -2,094.15 -2,265.52 -2,563.53

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00Net worth -497.61 -321.21 -200.59 -368.33 -666.33Secured Loans 1,080.12 1,696.26 2,098.09 2,036.13 2,300.43Unsecured Loans 1,031.73 332.61 528.78 1,076.16 1,309.00Total Debt 2,111.85 2,028.87 2,626.87 3,112.29 3,609.43Total Liabilities 1,614.24 1,707.66 2,426.28 2,743.96 2,943.10Application Of FundsGross Block 3,646.17 4,053.52 4,524.71 4,552.63 5,574.14Less: Accum. Depreciation

1,384.66 1,826.85 1,663.58 1,653.55 2,070.32

Net Block 2,261.51 2,226.67 2,861.13 2,899.08 3,503.82Capital Work in Progress 175.08 203.17 125.00 218.07 196.91Investments 0.00 0.00 0.00 75.00 120.00Inventories 0.00 2.22 2.22 2.01 6.40Sundry Debtors 155.80 170.32 201.48 240.73 264.12Cash and Bank Balance 22.31 38.51 34.45 27.48 22.98Total Current Assets 178.11 211.05 238.15 270.22 293.50Loans and Advances 146.59 171.37 216.99 299.91 301.05Fixed Deposits 5.08 45.10 0.01 0.00 0.00Total CA, Loans & 329.78 427.52 455.15 570.13 594.55

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AdvancesDeffered Credit 0.00 0.00 0.00 0.00 0.00Current Liabilities 1,074.19 1,071.79 981.91 981.61 1,466.05Provisions 77.94 77.91 33.09 36.71 6.13Total CL & Provisions 1,152.13 1,149.70 1,015.00 1,018.32 1,472.18Net Current Assets -822.35 -722.18 -559.85 -448.19 -877.63Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00Total Assets 1,614.24 1,707.66 2,426.28 2,743.96 2,943.10

Contingent Liabilities 434.62 423.60 406.51 979.37 565.14Book Value (Rs) -3.27 -1.78 -1.06 -1.94 -3.51

Compare with other TELE company’s (Rs. in crores)

Market Cap.(Rs. cr.)

Net Profit

Bharti Airtel 131,603.41 9,426.16Reliance Comm 28,875.74 478.93Idea Cellular 23,719.92 1,053.66Tata Comm 7,828.95 483.18Spice Comm 3,929.12 -1,015.22TataTeleservice 3,803.88 -298.01MTNL 3,442.95 -2,514.87Tulip Telecom 2,596.23 249.58

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