Analysis Of FINANCIAL RECORD Of Telecom Sector

Our analysis as a part of management accounting course in MDI, is aimed at financial analysis of two particular companies of Telecom sector of India. Telecom sector is one of the quickest growing areas and shows the progress of 9. 1% in Q2 of financial 12 months 2009-2010 whereas GDP expansion of India has been 5. 8%.

We did a comparative examination of the balance sheet, income & cashflow statements of "Bharti Airtel" & "MTNL". Key ratios are generated and analysed for short-term and long-term investment, short-term and long-term loaning and suggesting a comprehensive strategy.

Accordingly, we've included balance sheet, income & cash flow statements of "Bharti Airtel" & "MTNL" over an interval of 5-years in appendix used for data examination.

Telecom Sector: An Introduction

Telecommunication is the assisted transmission on the distance for the purpose of communication.

The wide segmentation of Indian Telecom Sector can be carried out on the following basis:

Telecommunication Services

Basic service

Internet COMPANY (ISP)

Value added services

3G

Telecommunication Equipment

Current Scenario

Indian telecom industry a shinning knight in the armour of Indian market sectors continued to join up a significant growth in 2008-09. Indian telecom network, with subscriber base crossing 479 mn in July 2009, is the 3rd largest on earth, although it is the next largest cellular network

At the existing pace, the mark of 500 million cable connections by 2010 is well within reach.

The wire-line portion has been declining slowly but surely but the cordless subscriber bottom part grew at a element annual expansion rate (CAGR) of 75. 9 per cent per annum since 2003. The show of wireless telephones increased from 24. 3 per cent in March 2003 to 90. 88 % in Feb 2009. Universal gain access to goal feasibility has advanced affordability of cellular cellphone. Several steps are undertaken by Administration for decrease in entry barriers, creation of a level-playing field between incumbents and new entrants and forward looking regulation. Subsequently, there has been a rise in talk about of private sector altogether telephone relationships to more than 79 per cent in February 2009 against a meagre 5 % in 1999.

The market show of top 12 telecommunication providers and their devision based on type of services provided (GSM & CDMA) are shown below:

Market show of top 12 operators

Market talk about of top GSM operators

Market show of top CDMA operators

Criteria: For Collection of Companies

In the telecom sector, we've chosen Bharti Airtel Ltd and MTNL as two companies for financial examination and strategical recommendations.

The conditions to choose these two companies are:

MTNL is federal government held and Bharti Airtel Ltd. is a private sector company, this would give a clear picture from both guidelines.

MTNL and Bharti Airtel Ltd. both offer similar varieties of products/services in the market. For e. g. both are in permanent and mobile communication.

They deal extensively in Value added services and also provide broadband facilities to its consumers.

Their respective advantage keeping is quite near to one another.

Both the firms are holding companies in other companies.

MTNL has launched 3G services and Airtel would accomplish that from 2010.

Financial Ratio Analysis

It is a method of calculating the financial talents and weaknesses of the organization by transforming financial data into ratios. The main financial ratios of the firm that needs to be analyzed are:

liquidity

profitability

overall performance measures

Asset utilization proportion.

The financial analysis of MTNL and Bharti Airtel Ltd. is performed using key ratios not only in framework of the firm's record (over a period-trend analysis), but also with respect to each other(inter-firm).

Common size evaluation is additionally done to the compare financial data across companies. Common size claims normalize the total amount mattress sheets and income claims and thus making the task at hand simple.

Overview

Financial analysis is done to assess the viability, balance and profitability of your business. These could be satisfied by analysing the business on the following scenarios:

Short-term Investment

Long-term investment

Short-term Lending

Long-term Lending

Strategical suggestions

SHORT TERM INVESTMENT

To gain income by purchasing a company for a brief term, one has financial as well as non financial data available with him to compute the amount of risk and results involved in the stock he is investing for short-term.

To measure the volatility of the price of a stock relative to the rest of the market Beta ratio should be employed. Beta percentage provides home elevators the movement of the price of the stock as compared to all of those other currency markets. Beta of any stock may be used to compare a corporation using its peers from the same industry or sector to see the relative performance accordingly. In the event the beta value of any stock is more than 1, then your price of the stock is considered volatile when compared with the overall market. Thus the stock is labeled as risky. In the event the beta value of any stock is add up to 1, then your price of the stock fluctuates at the same level as the market. When the beta value of the stock is significantly less than 1, then the price of the stock is less volatile when compared with the entire market. Thus, the stock is grouped as less dangerous.

Market capitalisation (cap) - Market capitalization/capitalization ( market cover or capitalized/capitalized value) is a measurement of corporate and business size equal to the share price times the number of shares outstanding of the public company. It's the True Way of measuring A Company's Value

Another essential aspect that may be considered for short term investment is the P/E ratio. The P/E ratio provides relationship between the stock price and the business's earnings.

P/E Ratio = Stock Price / EPS (Cash flow per talk about)

The P/E ratio tells you what the marketplace thinks of a stock. It offers information about the shareholders' self-assurance in the stock and how much extra he is willing to cover it.

LONG TERM INVESTMENT

The estimated comes back that can be generated from the risks involved when committing for a long term, can be found out using the following criteria:-

Debt-equity percentage- Company's financial leverage can be assessed using this. Personal debt/equity ratio is add up to long-term credit debt divided by common shareholders' collateral. It really is considered risky to invest in a company with an increased debt/equity ratio, specially when interest levels are growing, as the additional interest is normally paid out from arrears.

Interest coverage ratio - This ratio is utilized to determine how easily a business pays interest on remarkable debt. The eye coverage proportion is determined by dividing a company's profits before interest and fees (EBIT) by the company's interest bills of the same period. Interest coverage percentage is given as ebit/ interest expense of the company. If this ratio is low, this means the company is burdened by arrears expense. If interest coverage proportion is 1. 5 or lower, the companies' potential to meet interest bills may be doubtful. An interest coverage ratio below 1 generally signifies the business is not creating sufficient earnings to satisfy the interest expenses.

Market capitalisation - Market cap really helps to determine the true value of the company.

Return on capital hired (ROCE)- This percentage signifies the efficiency and profitability of an company's capital assets and is determined as:

ROCE= EBIT/ (total assets-current liabilities)

ROCE should be higher than the rate of which the business borrows; normally any increase in borrowing will reduce shareholders' cash flow. A variation from this ratio is go back normally capital used (ROACE), which can take the average of opening and final capital useful for the period of time.

Operating profit ratio - This percentage measures the amount of money a firm is producing from its operations; it doesn't include income produced from ventures in other businesses. Operating income can be used to judge the general health of the core business and the managerial efficiency.

Total asset turnover percentage - This percentage calculates the total sales [earnings] for every asset a firm owns. The Property Turnover ratio is given as:

Total Earnings/ Average belongings for period

This ratio is an indicator of the relationship between belongings and earnings. Companies with low profit margins generally have high asset turnover and those with high income have low property turnover - this implies costs strategy. This ratio is useful to check on the growth of companies as a fact to see the growing revenue in proportion to sales.

SHORT TERM LENDING

To provide money to a company for a brief term the next things have to be considered before going forward with actually loaning the required amount-

Current percentage- This percentage is an indication of any company's capability to meet short-term debt obligations; higher the proportion, more liquid the company is. Current percentage is add up to current resources divided by current liabilities

If the existing assets of an company are usually more than twice the current liabilities, then that company is generally thought to have good short-term financial strength. If current liabilities surpass current assets, then your company may have problems meeting its short-term obligations

Quick proportion - This proportion is an signal of your company's short-term liquidity. The quick ratio is the steps of a company's potential to meet its short-term responsibilities using its liquid property. Higher the quick proportion better is the position of the company. The quick proportion is equal to Current assets-inventories/current liabilities. Additionally it is known as Acid solution test or liquidity percentage.

Quick proportion is usually more conservative than the existing ratio, and is a far more well-known liquidity strategy, because it will not include inventory in current belongings. Inventory is excluded because some companies face difficulty in turning their inventory into cash. In the event short-term obligations need to be paid off immediately, situations may arise where the current proportion would overestimate a company's short-term financial power.

Credit coverage of the business has to be calculated to judge the trustworthiness of the business it essentially compares the debit period with the credit period for the business i. e. the credit time an organization offers to its customers and the credit period it gets from its suppliers. This also provides basic idea about the money requirements of the business.

Another important aspect to be considered is the cash from the operating activities and looking at it with the full total sales. It indicates the efficiency of the management in handling its resources and gives a glimpse of the future aspects of the business. The operating income ratio of the business also needs to be computed.

LONG TERM LENDING

The following things need to be considered before financing money to any company for an extended term.

Turnover ratios-This ratio is a measure of number of that time period a company's inventory is substituted during a given time period. Turnover percentage is calculated as cost of goods sold divided by average inventory during the time period. A higher turnover ratio is an indicator that the company's production and sale of goods or services is occurring at an instant pace.

Profitability ratios-A category of financial metrics that are being used to assess a business's capacity to generate revenue when compared with its bills and other relevant costs incurred throughout a specific period of time. A general rule followed for the majority of these ratios is the fact having a higher value relative to a competitor's ratio or the same ratio from a past period is indicative that the business does well. Numerous kinds of profitability ratios are profit margin, return on assets and go back on equity etc.

Profit margin is a procedures of how much an organization earns relative to its sales. A company with a higher profit margin is considered better than its competitor.

Two profit percentage ratios are:

operating income margin

net profit margin.

Operating profit margin measures the earnings before interest and taxes, and is determined as follows:

Operating PROFIT PERCENTAGE = Earnings before Interest and Fees/sales

Net profit percentage measures revenue after taxes and is calculated as follows:

Net Profit Margin = Earnings after Fees/ sales

Return on resources (ROA) tells how the performance of the management on all the firm's resources is. However, this will not give an idea about how well they are really accomplishing for the stockholders. It really is calculated the following:

Return on Assets = Cash flow after Taxes/ total assets

Return on equity (ROE) actions how well management is doing for the investor, because it instructs how much income investors are getting for each and every rupee invested. It is calculated the following:

Return on Equity = Profits after Fees/ equity

Another important percentage as a part of the analysis will be personal debt equity percentage which helps in measuring company's financial leverage. If this amount is too high it may signify future liquidity problems. If this proportion is too low it can indicate inefficient use of the many financing alternatives available to a business.

Apart from these ratios the interest coverage percentage and the debt service coverage percentage has to be calculated and assessed too. It's the ratio of net operating income to debt payments on a bit of investment in real estate. It is a popular benchmark found in the measurement of your income-producing company's capability to buy a property and its potential to produce enough revenue for its monthly mortgage payments. Higher this proportion is, and then it is much easier to borrow money for the property.

Strategical suggestions

The company should be recommended a strategy as in restructuring or diversification or growth. The strategy is decided based on the success and the credit policy of the business. The strategy must be examined very closely for the best possible results of the business and a dazzling future. The managerial efficiency also plays an important role in determining the right strategy for the company in future endeavours. Thus, strategical ideas should be produced remember these points in support of after detailed examination of financial and non-financial data is done

Observations

Analysis Of Financial Statements

LIQUIDITY RATIOS

Current ratio offers us a concept about how much of a company's current liabilities is covered up by its current investments. A higher number in this case shows that the companies can more than sufficiently meet its current responsibilities.

Quick ratio is the same as current ratio except for the actual fact that the current assets in cases like this does not include inventories since it is assumed that inventories aren't realized as easily as other current assets are.

Calculated using:

Current Ratio = Current Assets/ Current Liabilities

Quick Ratio = (Current Resources - Inventories)/Current Liabilities

LONG TERM SOLVENCY RATIO

Financial Leverage Proportion = Belongings/Shareholders' Equity

Debt-Equity Percentage = PERMANENT Liabilities/ Shareholders' Equity

Debt-Total Money = Long Term Liabilities/( LASTING Liabilities + Shareholders' Collateral)

Interest Coverage Percentage = EBIT/ Interest

PROFITABILITY RATIOS

Profitability reflects the final position of business functions. These ratios help us to gauge the overall success of the business. The major Profitability Ratio receive below:

Gross PROFIT PERCENTAGE = Gross Profit / Turnover

Net PROFIT PERCENTAGE = Net Profit / Turnover

Earning Per Share = PAT / Quantity of Shares Outstanding

Cash Earning Proportion = Cash Made by Businesses / PAT

Dividend Payout Proportion = Dividend Per Show / Earning Per Share

ACTIVITY OR ASSET UTILIZATION RATIOS

Activity Ratios, also referred to as Asset Management Percentage, measures how effectively the assets are employed by a company. These ratios are based on the relationship between your level of activity, represented by Sales, Cost of Goods of Sold, and levels of various property. The major Activity Ratios will be the following:

Total Property Turnover = Sales Revenue/ Total Assets

Equity Turnover = Sales Revenue / Shareholders' Equity

Fixed Investments Turnover = Sales Income/ Resolved Assets

Current Possessions Turnover = Sales Income/ Current Assets

Working Capital Turnover = Sales / Online Current Assets

Inventory Turnover Proportion = Cost of Goods Sold / Inventory

Debtor Turnover = Sales / Debtors

Average Positioning Period = 365 / Inventory Turnover Ratio

Average Collection Period = 365 / Debtor Turnover Ratio

VALUATION RATIOS

Book Value Per Show = Shareholders' Equity / Number of Shares Outstanding

Market Value to Book Value Ratio = SELLING PRICE / Reserve Value Per Share

Price Earning Ratio = Current Market Price/ EPS

Market Capitalization = Market Price per share x Number of Shares

Earning per Show = PAT/Amount of Stocks Outstanding

OVERALL PERFORMANCE

There are basically three main ratios which are being used to analyze the overall performance of any Organizations, these proportion in themselves speaks a lot about how precisely the business has performed in the last year and what are the objectives about the company in the future. The three ratios are:

Return on Possessions = PAT + Interest (1-Taxes Rate)/ Total Assets

Return on Invested Capital = PAT + Interest (1-Taxes Rate)/(LONG RUN Liabilities + Shareholders' Collateral)

Return on Equity = PAT/ Shareholders' Equity

Conclusion

State-run Mahanagar Mobile phone Nigam Ltd ( MTNL) reported a 53% year-on-year drop in its online earnings at Rs976 crore for the 3rd quarter (Q3) ended December as the business continued to lose market show to more competitive rivals such as Bharti Airtel Ltd and Reliance Communications Ltd, in the markets of Mumbai and Delhi. The firm's total profits for Q3 also dropped to Rs1, 326 crore, from around Rs1, 428 crore in the year-ago one fourth.

"The personnel cost alone makes up about almost 35% of our revenues, adding a lot of pressure on our profitability, " A. K. Arora, executive director of MTNL, possessed said in an interview previously this month.

However, staff costs during the quarter transpired from Rs474 crore in the matching quarter previous fiscal to Rs433 crore before quarter. The decrease in costs was brought about by a voluntary old age structure that was initiated in fiscal 2006 and fiscal 2007, matching with an MTNL statement. Through the quarter, the business's cellular phone subscriber bottom also increased by 182, 760 new cable connections, having MTNL's total members to 2, 954, 880 at end-December.

What may have added to the decrease in revenues is other income through the quarter, "which came right down to Rs137 crore, from almost Rs200 crore a year ago, " said Yogesh Kirve, collateral analyst at Mumbai-based Anand Rathi Securities Ltd.

MTNL was create in 1986 by the Union administration to enhance phone connection across India. The government currently supports a 56. 25% stake in the company.

Shares of MTNL fell 6. 62% to close Wednesday trade at Rs123. 40 on the Bombay Stock Exchange.

Bibliography

www. capitaline. com

www. economictimes. com

www. bharti. com

www. mtnl. net. in

www. investopedia. com

www. indiainfoline. com

www. moneycontrol. com

www. wikipedia. org

http://www. indianomics. com/2009/07/15/top-12-wireless-operators-in-india-by-subscribers/