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ABSTRACT:
Every company has its primary aim to Growth with the changing times
increase in competition has become their core competencies and should have
competitive edge over others. The Business matrices like Net sales, Profit after tax,
Total revenue, Total expenditure etc.; and level of satisfaction of the customers are
important indicators of representing a company in the market. A comparative
analysis of the major telecom providers like Bharti Airtel, Vodafone, Bharat
Sanchar Nigam Limited (BSNL) in India. In this paper on the basis of secondary
data which includes last Four Years Profit after tax, Total revenue, Total
expenditure etc.; has been collected to measure the level of satisfaction of the
Indian Telecom Providers customers. An empirical study has been done and
conclusions have been brought out on the basis of the data collected through online
to achieve this objective. The thesis applies the performance evaluation of the
major telecom providers in India. It means to evaluate how well the company is
performing to achieve their goals through ratio analysis of the major telecom
providers in India. The main data collection from the annual reports of the major
telecom providers in 2014-2016. Different financial ratios are evaluated such as
Liquidity, Debt, Asset management, Profitability and Market ratios. As
mathematical calculation is most important factor to evaluate the ratio analysis of
the company. In this paper the conclusion is that
Contents:
Abstract
1. Introduction
a. Back ground
b. Purpose and thesis questions
c. Limitation of study
d. Thesis outline
2. Literature Review
3. Methodology
a. Data collection
b. Data analysis
c. Formula for ratio analysis
4. Results and Analysis
a. Liquidity ratio
b. Debt coverage ratio
c. Asset management ratio
d. Profitability ratio
e. Market value ratio
5. Conclusion and Recommendations
6. References
1. INTRODUCTION
This chapter gives an introduction to the thesis and the general background of the
subject is followed by the thesis purpose, questions, limitations of the study and
thesis outline.
a. Background:
Performance evaluation of a company is usually related to how well a
company can use it Assets, Shareholders funds, Revenue, Expenses. Financial
analysis is one of the best tool to evaluate the performance of a company. In order
to determine the financial position of the major Telecom Providers and to make a
judgement how well their operations and efficiency are managed and how well
they are able to utilize their assets and earn profits.
I used ratio analysis for easily measurement of the liquidity position, debt
coverage situation, asset management condition, profitability and market value of
the major broadband service providers for the performance evaluation. The
analysis determines the greater the coverage liquid assets to short term liabilities
and compute the ability to pay the mortgage payments from the cash generate by
the major Telecom providers.
I am choosing the three major Telecom Providers in India.
1. Bharti Airtel:
Bharti Airtel is an Indian global telecommunications services
company based in New Delhi. It operates in 18 countries across south Asia and
Africa. Airtel provides GSM, 3G and 4G LTE mobile services, fixed line
broadband services and voice services depending upon the country of
operation. Bharti Airtel is the largest Broadband Service Provider in India with
400 million subscribers as of June 2016. The company complements its
mobile, broadband and telephone services and internet access with national and
international long distance services. It also has a submarine cable landing
station at Chennai which connects the submarine cable connecting Chennai and
Singapore.
2. Vodafone:
Vodafone India is the second largest mobile network operator in India
by subscriber base after Airtel with a market share of 18.42%. It has
approximately 200 million customers as of August 2016. Vodafone India
provides services on basis of 900MHz and 1800 MHz digital GSM technology.
Despite the official name being Vodafone communications, its products are
simply branded Vodafone.
3. Bharat Sanchar Nigam Limited (BSNL):
Bharat Sanchar Nigam Limited is an Indian state-owned telecommunications
company headquartered in New Delhi, India. It is incorporated On 15
September 2000 and took over the business providing of telecom services and
network management from erstwhile Central Government Department of
Telecom services (DTS) and telecom operations (DTO) with effect from 1
October 2000 on a going concern basis. It is largest provider of fixed
telephony, largest broadband service provider with more than 60% market
share and fifth largest mobile telephony provider in India. However, in recent
years the companys revenues and market share have plummeted into heavy
losses due to intense competition in the Indian telecommunications sector.
BSNL is Indias oldest and largest communication service provider with a
customer base of 255.73 million as of June 8, 2016.
Thesis questions:
c. Limitation of study:
There is some limitation of this thesis. When we used the main methods
of ratio analysis for comparative study and performance evaluation of the
major Telecom providers. We can face different kinds of problem to achieve
the good performance evaluation we need to choose a ratio that is suitable.
This means that data must be correct, otherwise calculations of ratio may be
erroneous. In some cases, we cant find the items to analysis the ratio such
as common shareholder equity, market value of share, book value of share,
interest charged etc. as result we cant complete ratio analysis and also cant
compare among the major telecom providers.
d. Thesis outline:
Chapter: 01 Chapter: 02
Introduction Literature review
Chapter: 04 Chapter: 03
Result and analysis Methodology
Chapter: 05 Chapter: 06
Conclusion and References
recommendations
Chapter: 01- Introduction
The introductory chapter will lay out the general structure and framework of
the thesis. And explains the purpose and thesis questions, limitation of the study
and thesis outline.
Main data for the thesis are the annual reports of major telecom providers
(Bharti Airtel, Vodafone, BSNL) from 2013 to 2016. When we measured the
ratio analysis for any company, we must use the annual report.
I have used four main financial statements for ratio analysis of major
telecom providers such as balance sheet, income statement, cash flow
statement, statement of shareholders equity.
b) Data analysis:
I used this model for comparative study and performance evaluation of
major telecom providers. It indicates the different steps such as selection of
annual report, identification of balance sheet, income statement, cash flow
statement, ratio analysis, mathematical calculation, statistical analysis of
companies, comparison among three companies and finally declaration of
best one among the three companies.
Selection of Annual report: The Annual report present financial data
of a companys position, operating performance and funds flow for an
accounting period. we use annual reports of three companies from
2013 to 2016.
Identification of balance sheet, income statement and cash flow
statement from the annual report. I used some data from balance sheet
for finding different ratios such as liquidity, debt coverage, asset
management ratios. And from income statement I analyzed the
profitability and debt coverage ratios. From cash flow statement I
market value ratios.
Identifying the ratios for the comparative study and performance
evaluation such as liquidity, asset management, profitability, debt
coverage and market value ratios. These ratios are important for
analyzing how well a company can generate its assets, liquidity,
revenue, expenses, shareholder equity and profits or losses.
Mathematical calculations: The mathematical calculations have
been used for three companies from the income statement and balance
sheet.
Graphical analysis: The graphical analysis is an inexpensive, easy to
learn program for producing, analyzing and printing graphs. I used
Microsoft excel for graphs of three companies.
I compared all the ratios like liquidity, solvency, asset management,
profitability and market value ratios among the three companies. I
also commented why company better than other company and also
discuss why not those companies is not good position while
comparing with others.
Declaration: The best one among three declared and can easily
measure the best one because we use different kinds of ratios and
know the result of comparative study and performance evaluation of
the three companies.
Formula for ratio analysis:
I used different types of formula for calculation of different kinds of ratio. I
collected some formula from IPCC Financial management text book by ICAI. And
also collected some data from accounting principles by Weygand. Formula is the
most important thing the thesis to calculate the ratio analysis for the comparative
study and performance evaluation of three companies.
Liquidity ratio
Current ratio = current assets/current liabilities
Quick ratio = current assets {stock + prepaid expenses}/current liabilities
Cash ratio = cash + short investments/ current liabilities
Debt coverage ratio
Debt ratio = total liabilities/total assets
Interest coverage ratio = EBIT/Interest expense
Debt to equity ratio = long term liabilities/shareholders fund
Proprietary ratio = shareholders fund /capital employed
Asset management ratio
Account receivable turnover = sales / average accounts receivable
Average collection period = 360 Days/ accounts receivable turnover
Inventory turnover ratio = cost of goods sold/average inventory
Fixed asset turnover ratio = net sales/net fixed assets
Total asset turnover = sales/total asset
Profitability ratio
Gross profit margin = gross profit/ sales
Operating profit margin = operating profit/sales
Net profit margin = net profit/sales
Return on total assets = pat/total assets
Return on common stock equity = net income/common stockholders fund
Market value ratio
Earnings per share = net income / weighted average number of share outstanding
Book value per share = common stockholders equity/outstanding shares
Market/Book ratio = Market price per share/ book value per share
4.RESULT AND ANALYSIS
In this part I present the result from the data analysis. This part is separate into five
categories. At first, I examined briefly the performance of the liquidity position of
the three telecom providers, presentation of the asset management condition of
those companies, I demonstrated the performance of the profitability of those
companies, debt management position and representation of market value of those
companies.
1. Liquidity ratio:
Liquidity ratio refers to the ability of the company to interact its assets which
are most readily converted into cash. Assets are converted into cash in a
short period of time that are concerned to liquidity position. It is the
relationship between cash and current liability.
The liquidity ratio is categorized into:
Current ratio
Quick ratio
Cash ratio
Current ratio: The current ratio is calculated by dividing current assets by current
liabilities. Current assets include inventory, trade debtors, advances, deposits,
repayment, investment in marketable securities in short term loan, cash and cash
equivalents. Current liabilities include short term bank loans, long term loans, trade
creditors, liabilities for other finance etc. Current ratio is acceptable of short term
creditors for any company.
Current ratio
2.5
1.5
0.5
0
2016 2015 2014
Bharti Airtel Vodafone BSNL
Analysis: A Current ratio of 1.0 or greater is an indication that the company is
well-positioned to cover its current or short liabilities. If it is less than 1.0 could be
a sign of trouble that the company runs into financial difficulty. According to the
above data all the three telecom providers are less than 1.0 it could be a sign of
trouble that the telecom providers runs into financial difficulty.
The formula of quick ratio or acid test ratio are as follow as;
Quick ratio = (current asset {inventories + prepaid expenses})/current liabilities
(in crores)
Year Bharti Airtel Vodafone BSNL
1.5
0.5
0
2016 2015 2014
-0.5
Analysis:
Quick ratio less than 1 indicates that the companys sales are decreasing or balance
sheet is over-leveraged and also it is having a hard time in collecting accounts
receivables. If it is greater than 1 it indicates that the company experiencing
revenue growth and collecting accounts receivables. According to above data all
the three telecom service providers are less than 1 which indicates that the sales are
decreasing and balance sheet is over-leveraged and it is having hard time in
collection of account receivables. The quick ratio is not a perfect indicator to
assume the liquidity of all current assets that comprise to cover the short term debts
since the company still needs a level of working capital to remain a going concern.
Cash ratio:
The cash ratio is estimate to current liabilities into cash. It can be taken that the
company can pay off its current liabilities in the given year from its operation. It is
the most famous ratio for realize the liquidity position of any company. Generally,
we know that current ratio and quick ratio is not good way to analysis the liquidity
position for a company because it is corresponding of account receivable and
inventory which takes time to convert into cash. Finally, we can express that the
cash ratio gives a better result.
The formula for current ratio is as below;
Cash ratio= cash/ current liabilities
(in crores)
Year Bharti Airtel Vodafone BSNL
0.6
0.5
0.4
0.3
0.2
0.1
0
2016 2015 2014
Cash ratio is not realistic for a company to maintain excessive levels of cash and
near-cash assets to cover current liabilities. According to the above data Vodafone
is maintaining excessive level of cash and near cash assets to cover its current
liabilities while compared with other providers.
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2016 2015 2014
Bharti Airtel Vodafone BSNL
Analysis:
In this problem analysis we see that the percentage of ratio has decreased from
2015 to 2016 in the Bharti Airtel because their asset was increased at a higher rate
than from the last year. If any company debt ratio decreases day by day, it is a
good indicator for that company. While comparing with other two it is opposite to
Bharti Airtel because those companys debt ratio has increase than last year. For
this reason, those companies cant stand in the good position. Therefore, Bharti
Airtel is better than Vodafone and BSNL.
=0.171 =0.2988
0.6
0.5
0.4
0.3
0.2
0.1
0
2016 2015 2014
Analysis:
If a firms debt-equity ratio varies significantly from its competitors or the averages for
its industry, this should raise a red flag. Companies with a ratio that is too high can be at
risk for financial problems or even a default if they cant meet their debt obligations.
Interest coverage ratio:
The time interest earned ratio indicates the companys ability to meet interest
payment as they come due. It is calculated by dividing their earnings before
interest tax by the interest charged. The company able to pay its annual cost
because this ratio denote the annual interest charged for any company.
Interest coverage ratio = earnings before interest and tax/interest charged
(in crores)
Year Bharti Airtel Vodafone BSNL
2016 5846900/18795600=0.311 132000/150700=0.8759 1.075/0.048=22.395
2015 3515300/14837100=0.236 228600.26/98300.31=2.325 1.279/0.0152=8.414
2014 3644700/12181200=0.299 454800.11/125500.29=3.623 1.147/0.0128=8.9609
INTEREST COVERAGE RATIO
25
20
15
10
0
2016 2015 2014
Analysis:
In this discussion I realize that the higher ratio of time earned, it will have
indicated the higher the company ability to pay the interest from their opportunity
income. A declining interest coverage ratio is something for investors to be wary
of, as it indicates that a company may be unable to pay its debts in the future.
According to the above data BSNL is having higher ratio of time earned which
indicates that the company ability to pay interest from their income will be high
while comparing with other to they are declining in interest coverage ratio that
indicates that they are unable to pay them in future.
14
12
10
0
2016 2015 2014
Analysis:
(in crores)
Year Bharti Airtel Vodafone BSNL
250
200
150
100
50
0
2016 2015 2014
Analysis:
As a result, I recognize the average collection period had decreased from 2015 to
2016 for both Vodafone and BSNL. A low ratio indicates good collection period
and its also indicates of high cash balance whereas Bharti Airtel had increased
from 2015 to 2016 a high ratio indicates bad collection period and also indicates
low cash balance. If company increase the sale those company ultimately earn
profits.
Account payable turnover:
The accounts payable turnover ratio is computed by account payable to sales. It
measures the tendency of a company credit policy whether extend account payable
or not.
The account payable turnover ratio equation is as follow as:
Accounts payable turnover = sales/ account payable
(in crores)
Year Bharti Airtel Vodafone BSNL
2016 96619200/25580600=3.777 4981000/1791500=2.780 13.581/1.216=11.168
2015 92135100/10329100=8.919 4908000.73/592500.44=8.283 12.667/1.942=6.5226
2014 85863500/10576300=8.118 4456900.82/553300.74=8.054 11.94/1.139=10.482
12
10
0
2016 2015 2014
Analysis:
This analysis shows that there is opposite in accounts receivable turnover. Here in
Bharti Airtel has decreased by 2015 to 2016. It is the signal for the company that
there are maintaining a low accounts payable so we can say that the company pays
their accounts payable immediately. As a result, there is allow balance of cash. In
other two companies has gone opposite that ratio is increase compare than previous
year. So it is important for that companies because these company has high cash
balance. As result I confirm that Vodafone and BSNL is good condition compare
than Bharti Airtel service provider.
120
95.31
100
80
55
60 44.345 44.69
40.36 43.462
32.23 34.34
40
20
0
2016 2015 2014
Analysis:
From this analysis I can express that the Bharti Airtel has increase double of this
ratio from 2015 to 2016. It broken that the account payable is standard position.
Conversely the Vodafone and BSNL also increases but not more than so Bharti
Airtel changed their creditor policy and tried to pay the payable as possible as to
increase current liability.
200
180
160
140
120
100
80
60
40
20
0
2016 2015 2014
Analysis:
In this analysis I identify that the continuous improvement of inventory turnover
ratio the years 2014,2015 and 2016 in Bharti Airtel, Vodafone and BSNL Service
providers. I understood that the cost of goods sold is increasing day by day as well
as the turnover is also increasing because the increasing rate of sales is higher than
average inventory. High ratio indicates inventory is selling quickly and that little
unused inventory is being stored. Generally, it is important that they are holding
much more inventory, which has make up the cash balance. So for the confirm that
the three providers capture much more inventory to be in best position.
FIXED TURNOVER
1.2
0.8
0.6
0.4
0.2
0
2016 2015 2014
Analysis:
In this ratio I found that fixed asset turnover ratio was as high as in 2015 1.18 in
BSNL compare than other two companies. However, it decreased to 0.6673 in
2016. In contrast the two providers have rapid declination of fixed assets turnover
ratio in2016 occurred because sales and net fixed assets the increase of companies.
I mention that balance sheet shows that large amount of investments were made
during that year that inflate the money volume of fixed assets and give an
impression of mismanagement.
0.6
0.5
0.4
0.3
0.2
0.1
0
2016 2015 2014
Analysis:
In this analysis we see that a gradual fall of companys total asset turnover in 2015
declined to 0.447 times in Bharti Airtel. Instead the Vodafone and BSNL also
declined slightly. It may be an indicator of companys pricing strategy as company
with high profit margins trends to have low asset turnover. It is in fact might be
one of the reason for why the assets turnover was low in the year 2016 for all three
providers other than investment in marketable securities every other asset
especially long term investments, inventories, short term loans and cash balance
had gone up substantially profit margin may not be the actual reason for the
turnover to go down.
Profitability ratio:
Profitability ratio designate a companys overall efficiency and performance. It
measures the company how to use of its assets and control of its expenses to
generate an acceptable rate of return. It also used to examine how well the
company is operating or how well current performance compares to past records of
the three major broadband service providers.
Gross profit margin:
Gross margin express of the company efficiency of raw material and labor during
the working process. If any company higher gross profit margin, then the company
is more efficient to control their raw material and labor. So it is most important for
comparative study and performance evaluation of three broadband service
providers. It can be assigned to single products or entire company.
The gross profit margin ratio formula as follows;
Gross profit margin= gross profit/ sales*100
(in crores)
Year Bharti Airtel Vodafone BSNL
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2016 2015 2014
Analysis:
The gross profit margin has slightly decreased in 2016 compare with 2015 in
Vodafone and BSNL providers. On the contrary, in 2016 sales has increased as
well as gross profit margin has also increased for the Bharti Airtel to increase
profit margin they should try to decrease their cost of goods sold. I think that
Bharti Airtel is best performing because their gross profit is increase day by day.
Net profit margin:
The net profit margin is determined of net profit after tax to net sales. It argues that
how much of sales are changeover after all expenses. The higher net profit margins
are the better for any three broadband service providers.
Net profit margin = net profit after tax/ sales * 100
(in crores)
Year Bharti Airtel Vodafone BSNL
2016 6076700/96619200 (540500)/4981000 0.948/13.581
=6.28% =10.851% =6.98%
2015 5183500/92135100 669600.05/4908000.73 (0.496)/12.667
=5.625% =14.25% =(3.915%)
2014 2772700/85863500 6887100.33/4456900.82 (0.12)/11.94
=3.229% =154.52% = (1.005%)
160.00%
140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2016 2015 2014
-20.00%
Bharti Airtel Vodafone BSNL
Analysis:
In this analysis I think net profit margin has increased in 2016 compare than last
year in Bharti Airtel because net profit and sales increase from last year. As a
result, this company is standard in position. Instead I also see other two providers
in both years this net profit and sales is little bit increase not more than.
Return on assets ratio:
Return on asset ratio can be directly computed by dividing net income by average
total asset. It finds out the ability of the company to utilize their assets and also
measure of efficiency of the company in generating profits.
Return on assets= net profit after taxes/ total assets*100
(in crores)
Year Bharti Airtel Vodafone BSNL
2016 6893000/225723100=3.053 512700/16910700=3.03 0.809/22.819=3.545
Return on assets
10
9
8
7
6
5
4
3
2
1
0
2016 2015 2014
Analysis:
Return on equity:
Return on equity is compute by dividing net income less preferred dividend by
average company stockholder equity. It demonstrates how a company to generate
earnings growth for using investment fund. It has some alternative name such as
return on net worth.
Return on common stock equity = net income/ common stockholders equity *100
Year Bharti Airtel Vodafone BSNL
2016 3799800/66769300 (540500)/8332500 0.948/22.819=4.154
=5.6909 =(6.4866)
2015 6076700/56493800 669600.05/7688000.79 (0.496)/21.176=(2.342)
=10.75 =8.7096
2014 5183500/59756000 6887100.33/8229300.65 (0.12)/20.728=(0.578)
=8.674 =83.68
Return on Equity
90
80
70
60
50
40
30
20
10
0
2016 2015 2014
-10
Bharti Airtel Vodafone BSNL
Market value ratios:
The final ratios are the market value ratio. It referred to the stock holder in
analyzing present and future investment in a company. In this ratio the
stockholders are interested in the way to certain variables affect the value of their
holdings. In order to the stockholder is able to analyze the likely future market
value of the stock market.
Earnings per share(EPS) ratio:
Earnings per share ratio are a small variation of ownership ratio. It calculated by
dividing net income into total number of share outstanding. It is most important for
deterring of share price.
Earnings per share ratio= Net income/ weighted average number of share
outstanding
(in crores)
Year Bharti Airtel Vodafone BSNL
2016 6076700/399700.4 (540500)/2655800.57 0.948/0.783=1.210
=15.205 =(0.20366)
2015 5183500/399700.4 669600.05/2655800.57 (0.496)/0.783
=12.967 =0.2521 =(0.633)
2014 2772700/399700.4 6887100.33/2655800.57=2.593 (1.2)/7.83=(0.1532)
=6.936
EPS RATIO
16
14
12
10
0
2016 2015 2014
-2