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A

DESSERTATION REPORT
On

“FINANCIAL ANALYSIS”
OF

Bharat Sanchar Nigam Limited

Aligarh (U.P.)

IN THE PARTIAL FULFILLMENT OF THE DEGREE OF


MASTER OF BUSINESS ADMINISTRATION
2008-2010

UNDER THE GUIDANCE OF: SUBMITTED BY:


MR NEERAJ GOGIA MOHD AKRAM
(LECTURER) MBA (FINANCE)
III SEM

/
DEPARTMENT OF MANAGEMENT STUDIES
SHIVDAN SINGH INSTITUTE OF TECHNOLGY AND MANAGEMENT
(AFFIALIATED TO UP TECHNICAL UNIVERSITY LUCKNOW)
2008-2010

1
ACKNOLEDGEMENT

I extend my sincere gratitude to Mr. Neeraj Gogia, my project guide for


successful completion of the project. He has been a great support and guide
to me during the entire dissertation. He has helped me throughout, from
choosing the project till completed the project report. This project given me
more confidence about the subject various concept of financial analysis of
BSNL.

My sincerest gratitude also extends to Mrs. Shagupta Perveen who has taken
a keen interest in my project from time to time, and encouraged me to
perform to the best of my ability. I am also thankful to my faculty members
for there support and help for completion of the project.

Thank you all for your time & guidance in helping me achieving my goal of
completing this project to the best of my ability.

Mohd Akram

Roll No-0800770035.

MBA2008-10

2
DECLARATION

I, MOHD AKRAM, hereby declare that the project on DESSERTATION


REPORT ON FINANCIAL ANALYSIS OF BHARAT SANCHAR
NIGAM LIMITED (BSNL) is written by me under the guidance of Mr.
Neeraj Gogia. The empirical conclusion & findings in the project are based
on the data collected by me and the entire project is not a reproduction of
any other sources.

Signature
Name-MOHD AKRAM

3
CONTENTS

Objective of the Project 9


 Research methodology 10
 Telecom industry 12
 Major players & competitors 13
 Break of telecom industry 14
 SWOT analysis of BSNL 26
 Assignment profile 30
 Data Analysis and Findings 44
 Conclusion 70
 Suggestions & Recommendations 75
 Appendix 78
 Bibliography 85

4
EXECUTIVE SUMMARY

This project is based on Balance sheet and profit and loss accounts of the Bharat
Sanchar Nigam Limited. It is done to find out whether the BSNL are improving our
Capital structure or not.

Further, in this Project

Chapter 1 includes the introduction of the company wherein I told about the
Objectives of the study and profile of the Bharat Sanchar Nigam Limited
.
Chapter 2 includes the Research Methodology wherein I have discussed the Research
Design and Various sources of the Data Collection.

Chapter 3 includes the Data analysis and Findings wherein I have analyze the data
Collected from the departmental records, project reports and web site records

Chapter 4 represents the conclusion and the suggestions based on the departmental
Records and project report.

5
Chapter 1
Introduction of BSNL

6
FINANCE

Finance is the life blood and nerve center of the business. As circulation
of blood is essential in the human body for maintain life, finance is a very
essential to smooth running of the business. In present time financial
managers are instrumental to a company’s success. Where as once the
financial manager was charged only with such routine taken as keeping
records, preparing financial reports, managing the company’s

Financial case position and occasionally in other activities. Now-a-days a financial


manager is supposed to perform the following function as:-

• Financial forecasting and planning.

• Acquisition of funds

• Investment of funds

• Helping in valuation decisions

• Maintaining proper liquidity


Financial statements present a mass of complex data in absolute monetary terms and
revel little about the liquidity, solvency and profitability of the business. In financial
analysis, the data given in financial statement is classified into simple groups and a

Comparison of various groups is made with one another to pin-point the stung points and
weaknesses of a business.

7
Significance of the study

Now the day analysis of financial statements has become of general interest various
parties are interested in the financial statements of a business due to various reasons. By
analyzing the financial statements each party can as retain whether his interest is safe or
not.

The significance of the financial statements analysis for different parties is as follow:-

Significance to management:- The management can measure the effectiveness of the


own polices and decisions, determine the advisability of adopting new policies,
procedures and document to owners, the result of their managerial efforts.

Significance to investors:- With the help of financial analysis investors and share
holders of the business can know about the earning capacity and the safety to their
investments in the business.

Significance for creditors:- Financial analysis tells them whether companies have
sufficient assets and funds to pay off its creditors.

Significance for government:- Government can judge, the basis of analysis of financial
statements, which industry is progressing on the desired lines and which industry need
the financial help.

Significance to financial institution:- With the help of financial statement analysis


financial institution can know the profit earning capacity of the business and its long term
solvency.
Significance to employees:- Analysis of financial statements helps the employees in
determining the true profit of the business enterprise.

8
OBJECTIVE OF THE PROJECT

BSNL and to comment on the growth or decline of BSNL. My main objective of the
study on this project was to analyze the Annual reports of

And to do this work I have done some calculations like-


(a) Ratio analysis.
(b) Cash flow statement

I have also shown the following

(a) SWOT analysis of BSNL

(b) Break up of Indian telecom industry.

9
Chapter 2
Research Methodology

10
RESEARCH METHODOLOGY

Achieving accuracy in any research requires in depth study regarding the subject. As the
prime objective of the project is to compare & analyze the annual reports of the BSNL
and to comment on the growth or decline in BSNL, Primary & Secondary both data was
used wherever needed.

Sources of secondary data were:-

Used to obtain information on BSNL, its history, current policies, competitor’s policies,
procedures, etc. wherever required.

(a) Internet.

(b) Annual reports provided by BSNL.

(c) Other documents related to BSNL.

Sources of Primary data were:-

(a) Personal observation.

(b) Interview method.

11
Telecom Industry
India's telecom sector has shown massive upsurge in the recent years in all respects of
industrial growth. From the status of state monopoly with very limited growth, it has
grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an
essential necessity for the people of India. This changing phase was possible with the
economic development that followed the process of structuring the economy in the
capitalistic pattern. Removal of restrictions on foreign capital investment and industrial
de-licensing resulted in fast growth of this sector. At present the country's telecom
industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone
companies were present, fixed landlines were popular in most parts of the country.

With government of India setting up the Telecom Regulatory Authority of India, and
measures to allow new players country, the featured products in the segment came in to
prominence. Today the industry offers services such as fixed landlines, WLL, GSM
mobiles, CDMA and IP services to customers. Increasing competition among players
allowed the prices drastically down by making the mobile facility accessible to the urban
middle class population, and to a great extends in the rural areas. Even for small
shopkeepers and factory workers a phone connection is not an unreachable luxury. Major

12
players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchinson Essar, BPL,
Tata, Idea, etc.

13
PLAYERS

PUBLIC PLAYERS

 BSNL

 MTNL

PRIVATE PLAYERS

 BHARTI AIRTEL

 RELIANCE

 TATA

 VODAFONE

 IDEA

 SHYAM

 HFCL

 AIRCEL

 SPICE

 BPL

14
Break up of
Telecom industry

15
MARKET SHARE OF PUBLIC AND PRIVATE
PLAYERS

16
MTNL Financial Year 2007-08 and
BSNL Financial Year 2007-08

17
Subscriber trend of MTNL in fixed line
telephony

SUBSCRIBER TREND IN MTNL IN


FIXED LINE TELEPHONY

5
4
3
2
1
0 Series1
S1 CONNECTI
2003-04
2004-05
2005-06
2006-07
2007-08

ONS

MTNL(IN
MILLIONS)

18
Subscriber trend of BSNL in fixed line
telephony

fixedline in BSNL

45
40
CONNECTION

35
30
25
Series1
20
15
10
5
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
BSNL (IN MILLIONS)

19
Market shares of private players (18%) in
fixed line telephony

20
Subscriber base of private players in fixed
line telephony
Private Players in Fixed line

4.5
4
3.5
3
conections

2.5
Series1
2
1.5
1
0.5
0
s

ha om

am
l
r te
nc vice

FC
c

hy
Ai
fo

H
r
se

S
In

r ti
le

e
Te

B
ia
ta

el
Ta

2007-08 in millios

21
Market shares of public players in Indian
mobile telephony

22
Subscriber trend of MTNL in mobile
telephony

MOBILE TELEPHONY

3.5
3
CONNECTIONS

2.5
2
Series1
1.5
1
0.5
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
MTNL IN MILLIONS

23
Subscriber trend of BSNL in mobile
telephony

MOBILE TELEPHONY

12
10
CONNECTION

8
6 Series1
4
2
0
2003- 2004- 2005- 2006- 2007-
04 05 06 07 08
BSNL IN MILLIONS

24
Market shares of private players (78%) in
mobile telephony

25
Subscriber base of private players in mobile
telephony

Private players in mobile

16
14
12
10
connection 8
6
Series1
4
2
0
Tata
Reliance
BhartiIdea
Airtel
cellular
vodafone
others
Teleservices
Infocom
in millions

26
SWOT Analysis of BSNL

STRENGTHS

 No real Competition in core activity in the immediate future.

 Highest market share in Delhi in terms of no. of landline connections.

 Strong and talented workforce of 54000+.

 High on cash.

 Covers remotest corners of all over the country.

 3G services.

27
WEAKNESS

 Poor Customer Services


o Poor quality of services and complaint handling.
o Tedious customer application processing.
o Erratic and faulty billing.
o Unfriendly payment facilities.

 Slow on implementation.

 Poor marketing.

 Poor system maintenance

 Poor employee motivation

28
OPPORTUNITIES

 Limited mobility market.

 Booming telecom sector.

 Per capita income is increasing.

 Staff strength.

29
THREATS

 New private players.

 Increasing foreign investments.

 Increasing no. of surrenders on landline connections.

 Downward trend in tariffs.

 Decreasing customer loyalty and the advantage of decades of monopoly is eroding.

30
Assignment
profile

31
RATIO ANALYSIS

Financial statement analysis is a judgmental process. One of the primary objectives is


identification of major changes in trends, and relationships and the investigation of the
reasons underlying those changes. The judgment process can be improved by experience
and the use of analytical tools. Probably the most widely used financial analysis
technique is ratio analysis, the analysis of relationships between two or more line items
on the financial statement. Financial ratios are usually expressed in percentage or times.
Generally, financial ratios are calculated for the purpose of evaluating aspects of a
company's operations and fall into the following categories:

• Liquidity ratios measure a firm's ability to meet its current obligations.


• Profitability ratios measure management's ability to control expenses and to earn


a return on the resources committed to the business.

• Leverage ratios measure the degree of protection of suppliers of long-term funds


and can also aid in judging a firm's ability to raise additional debt and its capacity
to pay its liabilities on time.

Efficiency, activity or turnover ratios provide information about management's


ability to control expenses and to earn a return on the resources committed to the
business

32
LIQUIDITY RATIOS

Working Capital
Working capital compares current assets to current liabilities, and serves as the liquid
reserve available to satisfy contingencies and uncertainties. A high working capital
balance is mandated if the entity is unable to borrow on short notice. The ratio indicates
the short-term solvency of a business and in determining if a firm can pay its current
liabilities when due.

 Formula
Current Assets
- Current Liabilities

Acid Test or Quick Ratio


A measurement of the liquidity position of the business. The quick ratio compares the
cash plus cash equivalents and accounts receivable to the current liabilities. The primary
difference between the current ratio and the quick ratio is the quick ratio does not include
inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio
will be lower than its current ratio. It is a stringent test of liquidity.

 Formula
Securities + Cash + Marketable Accounts Receivable
Current Liabilities

33
Current Ratio
provides an indication of the liquidity of the business by comparing the amount of current

Assets to current liabilities. A business's current assets generally consist of cash,


marketable securities, accounts receivable, and inventories. Current liabilities include
accounts payable, current maturities of long-term debt, accrued income taxes, and other
accrued expenses that are due within one year..

 Formula
Current Assets
Current Liabilities

34
PROFITABILITY RATIOS

Return on Capital Employed

This ratio reflects the overall profitability of the business. It is calculated by comparing
the profit earned and the capital employed to earn it.

Formula

Return on Capital Employed = Profit before Interest, Tax and dividend *100

Capital Employed

Return on shareholder’s funds

This ratio reveals how profitably the proprietor’s funds have been utilized by the firm.

 Formula
Net profit after interest & tax
total shareholder’s funds

Net profit ratio

This ratio shows the relationship between net profit and sales.

Net Profit Ratio = Net Profit * 100


Net Sales

35
Earning Per Share

This ratio measures the profit available to the equity shareholders on a per share basis.
All profits left after payment of tax and preference dividend are available to equity
shareholders.

Formula

EPS = Net Profit – Dividend on Preference Shares


No of equity shares

Dividend per Share

DPS is the dividend distributed to equity shareholders divided by the no. of equity shares.

Formula
DPS = Dividend paid to Equity Shareholder
No. of Equity Shares

Dividend Payout Ratio

It measures the relationship between the earnings available to equity shareholders and the
dividend distributed among them.

Formula

DP = DPS * 100
EPS

36
Earnings and Dividend Yield

This ratio is closely related to EPS and DPS. While the EPS and DPS are calculated on
the basis of the book value of shares, this ratio is calculated on the basis of the market
value of shares.

Formula

Earnings Yield = EPS * 100


Market value per share

Dividend Yield = DPS * 100

Market value per share

Price Earning Ratio

It is computed by dividing the market price of a share by the EPS.

Formula

PE Ratio = market price of the share

EPS

37
SOLVENCY RATIOS

Debt Equity Ratio

This ratio explains the relationship between the long term debts and share holders funds.

Formula

Debt Equity Ratio = Debt

Equity

Debt to Total Fund Ratio

This ratio is a variation of the Debt Equity Ratio and gives the same indication as the debt
equity ratio. In this ratio, debt is expressed in relation to total funds.

Formula

Debt Total Funds Ratio = Debt

Equity + Debt

Proprietary Ratio

This ratio indicates the proportion of total assets funded by owners or shareholders.

Formula

Proprietary Ratio = Equity


Total Assets

Fixed Assets to Proprietor’s Funds Ratio

38
This ratio indicates the extent to which proprietor’s funds are sunk into fixed assets.

Formula

Fixed Assets to Proprietor’s Funds Ratio = Fixed Assets

Proprietor’s Funds

39
EFFICIENCY RATIOS

Sales to Working Capital (Net Working Capital Turnover)

Indicates the turnover in working capital per year. A low ratio indicates inefficiency,
while a high level implies that the company's working capital is working too hard.

 Formula
Net Sales
Average Working Capital

Total Asset Turnover

Measures the activity of the assets and the ability of the business to generate sales
through the use of the assets.

 Formula
Net Sales
Average Total Assets

Fixed Asset Turnover

Measures the capacity utilization and the quality of fixed assets.

 Formula
Net Sales
Net Fixed Assets

40
Comparative financial statements

In order to estimate the future leagues of a firm it is necessary to look into the past
performance for this purpose, it becomes essential to make comparative shady of its
financial statements for two or more years. There statements not only show the absolute
figures from one year to another. In addition there statements may also show the change
from one year to another in percentage firm.

Such comparative statements are of guest value in forming the opinion regarding the
process of the enterprises:-

• Make the data simpler and more understandable.


• It indicates the study points and weak points of the concern.
• It is also helpful in indicating the fund.
• It is helpful in comparison of firm’s performance with average performance of
industry.

Trend analysis:-
Trend percentage is very useful in making comparative study of the financial statements
for a number of years. This indicates the direction on movement over a long time and
help in forming an opinion as whether favorable or unfavorable tendencies have
developed.

41
CASH FLOW STATEMENT

A Cash flow statement is a statement showing inflows (receipt) and outflows


(payments). In other words it is a summary of sources and applications of cash during a
particular span of time. It analysis the reasons for changes in balance of cash between two
balance- sheets dates. The term “Cash” here stands fore cash and cash equivalents.

USES OF CASH FLOW STATEMENT

1. Useful for short-term financial planning.


2. Useful in preparing the cash budget.
3. Comparison with the cash budget.
4. Study of the trend of cash receipts and payments.
5. It explains the deviation of cash from earnings.
6. Helpful in ascertaining cash flow from various activities separately.
7. Helpful in making dividend decision.

42
LIMITATIONS OF CASH FLOW STATEMENT

1. It does not present true picture of the liquidity of the firm because liquidity does not depend upon
cash alone.
2. Judged by the cash flow statement.
3. It is prepared on the cash basis and hence ignores one of the basic concepts of
accounting, namely accrual concept.

43
Chapter 3
Data analysis &Finding

44
CURRENT RATIO

YEARS 2005 2006 2007 2008


CURRENT 125328.61 139278 146927.85 133520.28
ASSETS
CURRENT 92683.93 101094.81 106681.03 91308.45
LIABILITIES
CURRENT 1.35 1.38 1.38 1.46
RATIO

CURRENT RATIO

1.48
1.46
1.44
1.42
1.4
1.38 CURRENT RATIO
1.36
1.34
1.32
1.3
1.28
1 2 3 4

Comment
An ideal current ratio should be 2:1. But in none of the years the company
has achieved this ratio, it has always remained below this ratio, so this indicates that the
short term financial position of the company is unsatisfactory and the company is not in a
position to pay its current liabilities in time.

45
LIQUID RATIO

YEARS 2005 2006 2007 2008


LIQUID 123830.98 138390.12 145061.81 132142.12
ASSETS
CURRENT 92683.93 101094.81 106681.03 91308.45
LIABILITIES
LIQUID 1.34 1.37 1.36 1.45
RATIO

LIQUID RATIO

1.46
1.44
1.42
1.4
1.38
LIQUID RATIO
1.36
1.34
1.32
1.3
1.28
1 2 3 4

Comment
An ideal liquid ratio is 1:1.In all the years the company has shown a higher liquid ratio,
which is a very good indication of short tem financial position of a company.

46
DEBT-EQUITY RATIO

YEARS 2005 2006 2007 2008


DEBT 4874.80 5634.57 5740.08 6116.27
EQUITY 94969.73 103276.28 112367.74 109438.25
DEBT-EQUITY 0.05 0.545 0.051 0.06
RATIO

DEBT-EQUITY RATIO

0.6

0.5

0.4

0.3 DEBT-EQUITY RATIO

0.2

0.1

0
1 2 3 4

Comment
Generally debt-equity ratio of 2:1 is considered safe. The lower the ratio the better it is
for the long term lenders. In all the years this ratio has been below 2:1, which means that
the company provides sufficient protection to long-term lenders

47
DEBT TO TOTAL FUND RATIO

YEARS 2005 2006 2007 2008


DEBT 4874.80 5634.57 5740.08 6116.27
DEBT+EQUITYY 99844.53 108910.85 118107.82 115554.52
DEBT TO 0.049 0.517 0.049 0.053
TOTAL FUNDS
RATIO

DEBT TO TOTAL FUNDS RATIO

0.6

0.5

0.4
DEBT TO TOTAL
0.3
FUNDS RATIO
0.2

0.1

0
1 2 3 4

Comment
Generally debt to total fund ratio of .67:1 is considered satisfactory. Good concerns keep
this ratio below 67% and we can see that in all the years this ratio has been kept below
67%, which is good from the long tem solvency point of view.

48
PROPRIETARY RATIO

YEARS 2005 2006 2007 2008


EQUITY 94969.73 103276.28 112367.74 109438.25
TOTAL ASSETS 96778.86 106182.04 116427.11 107999.75
PROPERITARY 0.98 0.97 0.96 1.01
RATIO

PROPERITARY RATIO

1.02
1.01
1
0.99
0.98
PROPERITARY RATIO
0.97
0.96
0.95
0.94
0.93
1 2 3 4

Comment

A higher proprietary ratio is generally treated an indicator of a sound financial position


from long term point of view. In all the years this ratio is quite high which indicates that
the long tem financial position of the company is very sound

49
FIXED ASSETS TO PROPERITOR FUND
RATIO

YEARS 2005 2006 2007 2008


FIXED 63489.73 62583.82 70956.86 70942.46
ASSETS
PROPERITOR’S 94969.73 103276.28 112367.74 109438.25
FUNDS
FIXED 0.67 0.61 0.63 0.65
ASSETS TO
PROPERITOR
FUND RATIO

FIXED ASSETS TO PROPERITOR FUND RATIO

0.68
0.67
0.66
0.65
0.64 FIXED ASSETS TO
0.63 PROPERITOR FUND
0.62 RATIO
0.61
0.6
0.59
0.58
1 2 3 4

Comment
A fixed asset to proprietor’s fund ratio of 65% is considered ideal for the companies. The
lower the ratio the better it is for the long tem solvency of the business. In 2005 & 2008

50
this ratio is more than 65% while in 2006 & 2007 this ratio is less than 65%. . So we can
say that long term solvency of the company is better.

RETURN ON CAPITAL EMPLOYED

YEARS 2005 2006 2007 2008


PBIT & D 12925.75 17205.71 12514.79 6957.94
CAPITAL 96134.41 100767.01 111203.68 113154.29
EMPLOYED
RETURN 13.4% 17.07% 11.25% 6.14%
ON
CAPITAL
EMPLOYED

RETURN ON CAPITAL EMPLOYED

18.00%
16.00%
14.00%
12.00%
10.00% RETURN ON CAPITAL
8.00% EMPLOYED
6.00%
4.00%
2.00%
0.00%
1 2 3 4

Comment

51
In 2005 this ratio was 13.4% but it increased to 17.07% in 2006, than decreased to
11.25% in 2007 and again decreased to 6.14% in 2008. So we can say that the company
is not getting much return on its capital employed.

RETURN ON SHAREHOLDERS FUNDS

YEARS 2005 2006 2007 2008


PAIT 8997.24 12346.03 9484.26 5776.63
SHAREHOLDERSS 94969.73 103276.28 109438.25 112367.74
FUNDS
RETURN ON 9.47% 11.95% 8.66% 5.14%
SHAREHOLDERS
FUNDS

RETURN ON SHAREHOLDERS FUNDS

14.00%

12.00%

10.00%

8.00% RETURN ON
SHAREHOLDERS
6.00% FUNDS
4.00%

2.00%

0.00%
1 2 3 4

Comment

52
In 2005 this ratio was 9.47% but it increased to 11.95% in 2006 than it decreased to
8.66% in 2007 and it further decreased to 5.14% in 2008. So we can say that the return on
shareholders funds is decreasing year by yea

EARNING PER SHARE

YEARS 2005 2006 2007 2008


6 6 6
PAIT & D 8771.55*10 11504.78*10 9389.79*10 5802.92*106
NO. OF EQUITY
SHARES 63*107 63*107 63*107 63*107
EARNING PER 13.92 18.26 14.90 9.21
SHARE

EARNING PER SHARE

20
18
16
14
12
EARNING PER
10
SHARE
8
6
4
2
0
1 2 3 4

Comment:

53
In 2005 EPS was Rs.13.92 but it increased to Rs.18.26 in 2006 then it decreased to
Rs.14.90 in 2007 further decreased to Rs.9.21 in 2008. So we can say that EPS is
declining year by year.

DIVIDEND PER SHARE

YEARS 2005 2006 2007 2008


6 6 6
DIVIDEND PAID TO 2835*10 2835*10 2835*10 2520*106
EQUITY
SHAREHOLDERS
NO. OF EQUITY
SHARES 63*107 63*107 63*107 63*107

DIVIDEND PER 4.5 4.5 4.5 4


SHARE

DIVIDEND PER SHARE

4.6
4.5
4.4
4.3
4.2 DIVIDEND PER
4.1 SHARE
4
3.9
3.8
3.7
1 2 3 4

54
Comment:
DPS remained constant at Rs.4.5 from 2005 to 2007 but it declined to Rs.4 in 2008. So
we can say that DPS earned by the shareholders in these years has not varied much.

DIVIDEND PAYOUT RATIO

YEARS 2005 2006 2007 2008


DPS Rs. 4.5 Rs 4.5 Rs 4.5 Rs. 4
EPS Rs.13.92 Rs. 18.26 Rs. 14.90 Rs. 9.21
DIVIDEND PAYOUT 32.33 24.64 30.20 43.43
RATIO

DIVIDEND PAYOUT RATIO

50
45
40
35
30
DIVIDEND
25
PAYOUT RATIO
20
15
10
5
0
1 2 3 4

55
Comment:
In year 2005 the d/p ratio was 32.33% but, in 2006 it decreased to 24.64% then in 2007 it
increased to 30.20% and it further increased to 43.43% in 2008. This increasing trend
indicates that shareholders are in a good position.

EARNING YIELD RATIO

YEARS 2005 2006 2007 2008


EPS 13.92 18.26 14.90 9.21
Market value/share 10 10 10 10
Earning yield 139.20 182.60 149 92.10

Earning yield

200
180
160
140
120
100 Earning yield
80
60
40
20
0
1 2 3 4

Comment

56
In year 2005 this ratio was 139.2% but it increased to 182.6% then it decreased to 149%
and further decreased to 92.1% in 2008. So we can say that after 2008 this ratio has
continuously declined.

DIVIDEND YIELD RATIO

YEARS 2005 2006 2007 2008


DPS 4.5 4.5 4.5 4
Market 10 10 10 10
value/share
DIVIDEND yield 45 45 45 40

DIVIDEND yield

46
45
44
43
42
DIVIDEND yield
41
40
39
38
37
1 2 3 4

57
Comment
This ratio has remained constant at 45% from 2005 to 2007 but it declined to 40% in
2008. So we can say that this ratio has not varied much in these four years.

PRICE EARNING RATIO

YEARS 2005 2006 2007 2008


MARKET PRICE 10 10 10 10
OF SHARE
EPS 13.92 18.26 14.90 9.21
PRICE EARNING .718 .547 .671 .108
RATIO

58
PRICE EARNING RATIO

0.8
0.7
0.6
0.5
PRICE EARNING
0.4
RATIO
0.3
0.2
0.1
0
1 2 3 4

Comment
In 2005 this ratio was 0.718 but it declined to 0.547 in 2006 then it increased to 0.671 in
2007 then it declined to 0.108 in 2008. So we can say that this ratio has been fluctuating
little bit from 2005 to 2007 but it drastically decreased in 2008.

NET PROFIT RATIO

PBT
YEARS 2005 2006 2007 2008
SALES 58065.30 63695.99 55820.70 55609.85
PBT 12597.56 16859.51 12156.67 6713.58
PBT RATIO 21.70 26.47 21.77 12.07

59
PBT RATIO

30

25

20

15 PBT RATIO

10

0
1 2 3 4

Comment
In 2005 this ratio was 21.7% but it increased to 26.47% in 2006 then declined to 21.775
in 2007 and further declined to 12.07% in 2008. A decline in this ratio indicates decline
in the overall efficiency and profitability of the business.

PAT
YEARS 2005 2006 2007 2008
SALES 58065.30 63695.99 55820.70 55609.85
PAT 8997.24 12346.03 9484.26 5776.63
PAT RATIO 15.50 19.38 16.99 10.38

60
PAT RATIO

25

20

15
PAT RATIO
10

0
1 2 3 4

Comment:
In 2005 this ratio was 15.50% but it increased to 19.38% in 2006 then decreased to
16.99% in 2007 and further decreased to 10 .38 % in 2008. A decline in this ratio
indicates decline in the overall efficiency and profitability of the business.

STOCK TURNOVER RATIO

YEARS 2005 2006 2007 2008


SALES 58065.30 63695.99 55820.70 55609.85
AVERAGE STOCK 2135.185 1192.755 1376.96 1622.10
STOCK TURNOVER 27.19 53.40 40.53 34.28
RATIO

61
STOCK TURNOVER RATIO

60

50

40
STOCK
30 TURNOVER
RATIO
20

10

0
1 2 3 4

Comment
In 2005 this ratio was 27.19 times but, it increased to53.4 times in 2006 then decreased to
40.53 times in 2007 and then further decreased to 34.28 times in 2008. So we can say that
after 2006 this ratio has declined continuously which shows that the speed with which the
stock is turned into sales is declining.

FIXED ASSETS TURNOVER RATIO

YEARS 2005 2006 2007 2008


SALES 58065.30 63695.99 55820.70 55609.85
NET FIXED ASSETS 55171.74 62102.82 64686.29 65687.49
FIXED ASSETS 1.05 1.025 0.86 0.85
TURNOVER RATIO

62
FIXED ASSETS TURNOVER RATIO

1.2

0.8
FIXED ASSETS
0.6
TURNOVER RATIO
0.4

0.2

0
1 2 3 4

Comment:
In 2005 this ratio was 1.05 times but, it decreased to 1.025 times in 2006 then decreased

to 0.86 times in 2007 and further decreased to 0.85 times in 2008. A continuous decline

in this ratio indicates that the fixed assets are not efficiently utilized.

WORKING CAPITAL TURNOVER RATIO

YEARS 2005 2006 2007 2008


SALES 58065.30 63695.99 55820.70 55609.85
WORKING CAPITAL 32644.68 38183.09 40246.82 42211.83
WORKING 1.77 1.67 1.39 1.32
CAPITAL

63
TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

2
1.8
1.6
1.4
1.2 WORKING
CAPITAL
1
TURNOVER
0.8 RATIO
0.6
0.4
0.2
0
1 2 3 4

Comment
In 2005 this ratio was 1.77 times but it declined to 1.67 times in 2006 and again declined
to 1.39 times in 2007 and further declined to 1.32 times in 2008. A continuous decline in
this ratio indicates that the working capital has not been efficiently utilized.

The four year comparative analysis is as follow:-

64
140000

120000

100000

80000 SOURCES OF FUNDS


NET BLOCK
60000
NET CURRENT ASSETS
40000

20000

0
2004-05 2005-06 2006-07 2007-08

Comment

Net working capital increased in 2006 with a very large amount then decreased in 2007
and further decreased in 2008.
Net block increased in 2006 with large amount and decreased in 2007 and further
decreased in 2008.
Sources of funds increased in 2006 with large amount and decreased in 2007 and further
decreased in 2008.

65
80000
2004-05
60000
2005-06
40000
2006-07
20000
2007-08
0
PROFIT PROFIT INCOME EXPENDITURE
BEFORE TAX AFTER TAX

Comment
PAT increased significantly in 2006 but it decreased drastically in 2007 and further
decreased in 2008.

PBT increased with large amount in 2006 then decreased with large amount in 2007 and
then increase with a small amount in 2008.

Total expenditure increased in 2006 but decreased in 2007 and finally increased in
2008.

Total income increased in 2006 but decreased in 2007 and finally increased in 2008.

66
ANALYSIS OF CASH FLOW STATEMENT

40000

30000

20000 Cash flow from operating


activities
10000 Cash flow from investing
activities
0
Cash flow from financing
2004-05 2005-06 2006-07 2007-08
-10000 activities
Cash flow from financing
-20000 activities

-30000

-40000

Comment
Investing activities include the purchase and sale of long term assets not held for resale.
Cash flow from the investing activities discloses the expenditure incurred for resources
intended to generate future income and cash flows. These activities have been increasing
year by year.

Operating activities are the main revenue generating activities of the enterprise, as they
include cash flows from those transactions and events which enter into the ascertainment
of net profit or loss of the enterprise.
Operating activities are decreasing year by year.

Financing activities are the activities that result in change in capital and borrowings of
the enterprise. In 2006 these activities have increased to a large extent then, it decreased
by some amount in 2007 after that in 2008 it has improved a little bit.

67
Chapter 4
Conclusion and Suggestions

68
Conclusion

69
FROM 1986 of its establishment to 2008, in these 22 years company has shown many
faces, threw out this journey. At one time BSNL had a monopoly in the market. But now
this nirvana company is facing a very tough competition from the giants like Bharti-
Airtel, Reliance comm.., Idea cellular, Hutch- essar etc.
Now I will give some conclusions which I derived during the analysis of financial
statements:-

 Out the past four years, in 3 years BSNL recorded a decrease in profit and in 2
years a decrease in income, but the expenditure has continuously increased.

 These are the years where telecom sector emerge as a fastest growing sector of
economy. And in same years BSNL fail to gain more income.

 Although the income figure is continuously falling but there is no impact shown
on expenditure side, it is continuously increasing over the years. This is the main
cause of reduction in profits.
 In the year 2007-08 BSNL current assets fell with a huge margin due to this year
poor performance. After this year company has shown a growth in current assets
but not sufficient to fulfill the short-term requirements.

 In the year 2007-08 fixed assets found significant growth with 12.56% which is a
good sign for long term prospect. But increase in fixed assets during last two
years is not sufficient.

70
 Company’s current ratio fell very short of the ideal, which shows an inadequate
margin of safety to the creditors, company has no sufficient cash to pay its
liabilities. Due to Shortage of working capital in the business, company is
trading out of its resources.

 The capital employed ratio is not very high. It shows the ineffective and
inefficient utilization of capital. So there is need to use the capital in a better way
to gain maximum profit in the long term.

 Except the year 2005-06, in all other years the Debt equity ratio is very low
which shows that the money which is invested in the company by outsiders is
very low. Means out of 1rs to the owners only Rs. 0.06 is invested by the
outsiders this year, which shows lack of interest in investing money by outsiders
in the company.

 After three years in a row, in year 2007-08, there is decrease in dividend because
of pressure of previous years poor performance. It is not easy to understand that
the company is not cutting the expenditure but cutting the dividend.

 Decreasing Earning per Share shows reduction in the market price of BSNL
shares. Company is losing the faith of shareholders. Earning per share is
continuously decreasing so as the profit of shareholders. And in the year 2007-08
it has fallen quite dramatically.

 Employee remuneration & benefits area is a area of major concern because


there is no impact of profit or loss on this area and expenditure on employee is
simultaneously rising.

 BSNL net profit ratio is not a handsome ratio. So the low net profit ratio indicates
inadequate return.

71
So, these are the drawbacks that have come from the analysis of financial
statements. From this we can say that the company fails to have a good financial
management, in all fields. Accept the year 2005-06 in rest 3 years the condition is
miserable. Along with the financial statements I have observed many things during
the 8 weeks stay in the organization. These are:-

 Definitely company is suffering with the problem of overstaffing. 54000 employees


work in BSNL, which increases the expenditure. Even though in FMS where I
worked have 35 employees but according to me 20 are more than enough for that
department.

 The average age of employees is much higher, you will hardly found any young
face in BSNL, and the average age of BSNL employees is around 35-40. So lack of
young talent.

 Service, which is the main task, is also an area of concern, means BSNL is quite
infamous for its bad service. The network as well as the connectivity is not good.

 The other companies like Airtel, Tata indicom, Reliance, idea, Hutch are making
profits as well as rapidly increasing their customers. But BSNL fails to generate
speedy growth in fastest growing market.

 Not using new technology or working towards 3 G phones means high speed
streaming video, gaming, video messaging, and even mobile TV.
 BSNL have one of the best plans for subscribers but it fails to aware customer about
all of them. So there is desperately need of extensive advertising.

72
Suggestion &
recommendations

73
The study has provided with the useful data from the respondents. There has a lot
to be recommended. Following are the recommendations:

 There should be increase in investment of BSNL. So that could be earned


more profit. Because, if investment will be high than profit will be earned
high.

 There should be improved the working process of BSNL. Because working


Process of BSNL is take more time.

 Departments of BSNL do not have good coordination. So there should be


Good coordination in departments of BSNL. If coordination will have good
in Departments, than there will not has to face any problem in proper work.

 Time to time, there should be provided training of employee. So that they


could take information about the new technology of them proper working
Process.

 There should be good communication between each departments of BSNL.

 There should be computerized work in BSNL. But also at this time, paper
Work are continue to see in many department.

 Use better & high tech methods of advertising, so that more & more
subscriber attract towards BSNL.

 Should try to decrease expenditure especially in the employee’s


remuneration & benefit area.

 Should increase the service quality as well as better customer care service.

 Should work towards 3 G phones, means high speed streaming video,


gaming, video messaging, and even mobile TV.

74
Appendix

75
COMPARATIVE BALANCE SHEET FROM YEARS 2005 TO 2008

SOURCES OF FUNDS 2005 2006 2007 2008


SHAREHOLDER’S FUNDS
6300 6300 6300 6300
SHARE CAPITAL
88669.73 96976.28 103138.25 106067.74
RESERVE & SURPLUS
4874.80 5634.57 5704.08 6116.27
DEFFERED TAX LIABILITY
TOTAL 99844.53 108910.85 115178.33 118484.01

APPLICATIONS OF FUNDS
FIXED ASSETS GROSS BLOCK 126652.06 135629.33 142522.52 148541.50
LESS: DEPRECIATION 71480.32 73526.51 77836.23 82854.01

NET BLOCK (i) 55171.74 62102.82 64686.29 65687.49

CAPITAL WORK-IN-PROGRESS (ii) 8317.99 4818.00 6270.57 5254.97


3710.12 3806.94 3974.65 4187.24
INVESTMENTS (iii)
CURRENT ASSETS, LOANS & ADVANCES
1497.63 887.88 1866.04 1378.16
INVENTORIES
13069.84 16494.59 17580.39 14151.03
SUNDRY DEBTORS
18154.64 25530.69 25173.98 20583.99
CASH & BANK BALANCES
567.02 685.06 849.84 944.11
OTHER CURRENT ASSETS
92039.48 95679.78 101457.60 96462.99
LOANS & ADVANCES

125328.61 139278.00 146927.85 133520.28

LESS: CURRENT LIABILITES &


PROVISIONS 47534.75 47324.24 50645.03 40251.26
45149.18 53770.67 56036.00 51057.19
CURRENT LIABILITES
PROVISIONS

92683.93 101094.91 106681.03 91308.45

NET CURRENT ASSETS (W.C.) (IV) 32644.68 38183.09 40246.82 42211.83

DEFFERED REVENUE EXPENDITURE 1142.48


(v)

TOTAL ( i + ii+ iii+ iv + v) 99844.53 108910.85 115178.33 118484.01

(The above figures are in rupees million)

76
STATEMENT SHOWING PERCENTAGE INCREASE OR
DECREASE IN THE BALANCE SHEETS FROM 2005 TO 2008

PARTICULARS 2005 2006 2007 2008


6.354100199
SOURCES OF FUNDS
SHAREHOLDER’S FUNDS
SHARE CAPITAL 6.35 2.84
6.70 9.36
RESERVE & SURPLUS 1.87 6.55
(81.38) 15.58
DEFFERED TAX LIABILITY

2.87
TOTAL (13.6) 9.08 5.75

77
APPLICATIONS OF FUNDS
FIXED ASSETS
7.95 7.08 5.08 4.22
GROSS BLOCK
11.33 2.86 5.86 6.44
LESS: DEPRECIATION

NET BLOCK (i) 3.86 12.56 4.15 1.54

CAPITAL WORK-IN-PROGRESS 4.26 (42.07)


30.14 (16.19)
(ii) 261.33 2.60
4.40 5.34
INVESTMENTS (iii)
CURRENT ASSETS, LOANS &
(45.98) (40.71)
ADVANCES 110.16 (26.14)
77.54 26.20
INVENTORIES 6.72 (19.50)
(25.73) 40.63
SUNDRY DEBTORS (1.39) (18.23)
(90.13) 20.81
CASH & BANK BALANCES 24.05 11.09
.66 3.94
OTHER CURRENT ASSETS 6.04 (4.92)
LOANS & ADVANCES
(4.88) 11.13 5.51 (9.12)

LESS: CURRENT LIABILITES &


PROVISIONS 6.98
27.63 (.44) (20.52)
CURRENT LIABILITES 4.24
9.97 19.09 (8.88)
PROVISIONS

NET CURRENT ASSETS (W.C.)


(IV) (38.94) 16.96 5.40 4.88

TOTAL (i + ii+ iii+ iv ) (13.61) 9.08 5.75 2.87

78
COMPARATIVE PROFIT & LOSS ACCOUNT FROM 2005 TO 2008

PARTICULARS 2005 2006 2007 2008


INCOME
INCOME FROM SERVICES 58065.30 63695.99 55820.70 55609.85
OTHER INCOME 2236.91 3143.31 4917.18 5300.13
(a) 60302.21 66839.30 60737.88 60909.98

EXPENDITURE
EMPLOYEE’S REMUNERATION &
BENEFITS 14338.53 16193.70 18361.06 19053.12
REVENUE SHARING 8383.14 11822.79 8781.99 12263.19
LICENCE FEES 5818.16 6429.58 4971.63 4589.59
ADMN., OPERATING & OTHER EXP. 10166.21 9749.57 10228.34 11579.15
DEPRECIATION 8670.42 5437.95 5880.07 6466.99
INTEREST 328.19 346.20 358.12 244.36

(b) 47704.65 49979.79 48581.21 54196.40


PROFIT BEFORE TAX c=( a –b) 12597.56 16859.51 12156.67 6713.58

PROVISION FOR TAXATION 3020.00 3753.71 2566.90 560.76


PROVISION FOR DEFFERED TAXATION
580.32 759.77 105.51 376.19

(d) 3600.32 4513.48 2672.41 936.95


PROFIT AFTER TAX e=(c–d) 8997.24 12346.03 9484.26 5776.63
PRIOR PERIOD ADJUSTMENTS (f) 225.69 841.25 94.47 (26.29)
PROFIT FOR THE YEAR g=(e-f) 8771.55 11504.78 9389.79 5802.92
PROFIT AVAILABLE FOR
APPROPRIATION 8771.55 11504.78 9389.79 5802.92

(The above figures are in rupees million)

79
STATEMENT SHOWING PERCENTAGE INCREASE OR DECREASE IN
THE PROFIT & LOSS ACCOUNT FROM 2005 TO 2008

PARTICULARS 2005 2006 2007 2008


INCOME
(5.48) 9.67 (12.36) (.37)
INCOME FROM SERVICES
(9.92) 40.52 56.43 7.78
OTHER INCOME

(a) (5.66) 10.84 (9.13) 0.28

EXPENDITURE
EMPLOYEE’S REMUNERATION &
4.12 3.76
BENEFITS 12.93 13.38
(15.11) 39.64
REVENUE SHARING 41.03 (28.51)
(12.44) (7.68)
LICENCE FEES 10.50 (22.94)
42.11 13.20
ADMN, OPERATING & OTHER EXP. (6.75) 10.40
6.19 9.98
DEPRECIATION (37.28) 8.13
13.81 (31.76)
INTEREST 5.48 3.44

(b) 3.93 4.76 (2.79) 11.55


PROFIT BEFORE TAX c=( a –b) (30.10) 33.83 (27.89) (44.77)
PROVISION FOR TAXATION
24.29 (31.61) (78.15)
PROVISION FOR DEFFERED TAXATION (38.83)
30.92 (86.11) 256.54

(d) (27.08) 25.36 (40.79) (64.93)


PROFIT AFTER TAX e=(c–d) (31.24) 37.22 (23.17) (39.09)
PRIOR PERIOD ADJUSTMENTS (f) 186.55 272.74 (88.77) (127.82)
PROFIT FOR THE YEAR g=(e-f) (32.56) 31.16 (18.38) (38.19)
PROFIT AVAILABLE FOR
(32.56) 31.16 (18.38) (38.19)
APPROPRIATION

80
Cash flow statement for the years (2005-2008)

Particulars 2005 2006 2007 2008

Cash flow from operating activities


Net profit before tax and ordinary items 12597.56 16859.51 12156.67 6713.58
Adjustment for
Prior period adjustment (net) (198.37) (538.87) (12.85) 55.22
Profit on sale of fixed assets (10.84) (7.67) (8.50) (6.70)
Loss on sale of fixed assets 89.86 115.18 208.08 94.27
Depreciation 8672.75 5437.95 5880.07 6466.99
Compensation charged under VRS scheme 285.63

Compensation paid under VRS scheme (1428.11)


Interest cost 26.32 346.20 358.12 244.36
Interest income (1634.53) (1748.11) (2478.46) (4009.42)
Interest paid (21.83) (331.55) (360.68) (244)
Operating cash profit before working capital 19520.92 20132.64 15742.46 8171.82
changes
Adjustment for
Trade and other receivables 8344.92 2556.44 (3984.34) (6315.88)
Inventories 1275.11 609.74 (978.17) 487.90
Trade and other payables 15324.66 4657.52 6079.08 (5848.67)
Cash generated from operations 44465.61 27955.99 16859.02 (3504.82)
Direct taxes paid (8326.70) (9695.26) (4731.95) 5637.95
Net cash flow from operating activities 36138.92 18260.73 12127.08 2133.13
Cash flow from investing activities
Purchase of fixed assets (12061.94) (9336.65) (10276.54) (6595.37)
(Including capital W.I.P)
Sale of fixed assets 19.77 57.71 79.24 26.28
Interest received 1319.35 1694.74 2514.92 4010.92
Investment (2683.35) (96.82) (167.72) (212.59)
Net cash flow from investing activities (13406.17) (7681.01) (7850.10) (2770.75)
Cash flow from financing activities
Repayment of loans (26190.38) (5.43) (3.87) (1.40)
Dividend paid (including tax) (2835.00) (3198.23) (4630.17) (3950.97)
(29025.38) (3203.67) (4634.04) (3952.37)
Net cash flow from financing activities

Net increase/decrease in cash and cash equivalents (6292.64) 7376.40 (357.06) (4589.99)

Cash and cash equivalents as at the beginning of 24446.52 18154.64 25531.04 25173.98
the year
Cash and cash equivalents as at the end of the year 18153.88 25531.04 25173.98 20583.99

81
Bibliography

82
Bibliography

• Management Accounting Shashi K. Gupta & R.K. Sharma

• Financial Management I.M. Pandey.

• Research Paper: Financial Analysis Hampton John J. Financial Decision


Making, Second Ed p.75

• Web sites

o www.bsnl.co.in

o www.google.com

o www.mpbsnl.com

• Annual Reports of BSNL 2006-2008.

83
84