CHAPTER-1

1.1 INTRODUCTION
A FINANCIAL PERFORMANCE AND RATIO ANALYSIS FOR
BHARATHI AIRTEL

1.1. INTRODUCTION ABOUT THE STUDY:

In our present day economy, finance is the provision of money at the time when it is required.
Every enterprise whenever big, medium or small needs finance to carry on its operations and to
achieve its target. In fact, finance is so indispensable today that it is rightly said that, it is the life
hood of an enterprise without adequate finance, no enterprise can possible accomplish.

Finance guides and regulates investments decisions may be pertaining to capital

expenditure and revenue expenditure. To get the best out of the available funds is the major task
of financial management. The finance manager should perform his task most effectively.

“Finance is the lifeblood of business. It is rightly termed as the science of money. We

hold finance for the production of goods and services as their distribution”. The term business
finance indicates an activity or a process, which is concerned with acquisition of funds,
allocation of funds and finance controls.

The finance requirements of a company can be broadly classified into a long term,
medium term and short-term finance. Long term finance is needed for buying machinery and
equipment or for the provision of land, factory building and other fixed assets. Medium term
finance is needed for small tools, implements and major repairs. Short term finance is required
for new months for the purchase of raw materials for processing and meeting expenses like
wages, salaries etc. in order words to meet its working capital requirements.

Accounting and other business functions. The wastage of funds can be avoided. The
finance functions is not just a service function through it is generally viewed as one of the most
important decisions on the basic of availability of funds. In the finance function bended with
productions marketing, personal.
In evaluating such investment proposals, it is important to carefully consider the expected
benefits of investment against the expenses associated with it.

Organizations are frequently faced with Capital Budgeting decisions. Any decision that requires
the use of resources is a capital budgeting decisions. Capital budgeting is more or less a
continuous process in any growing concern.

The management is efficient if it is able to accomplish the objective of the enterprise. It is

effective when it accomplishes the objectives with minimum effort and cost in order to attain
long-range efficiency and effectiveness management must chat out its course in advance. A
systematic approach to facilitate effective management performance is profit planning and
control or budgeting. Budgeting is therefore an integral part of management in a way, a
budgetary control system has been described as a historical combination of a “goal setting
machine for increasing an enterprises profits and a goal achieving machine for facilitating
organizational co ordination and planning while achieving the budgeted targets

IMPORTANCE OF FINANCE

Finance is regarding as the lifeblood of a business enterprise. This is because in the

modern money-oriented economy. Finance is one of the basic foundation of all the sources for
being employed in manufacturing and merchandising activities. It has rightly been said that
business needs money to make more money. However, it is also true that money begets more
money only when it is properly managed. Hence, efficient management of every business
enterprise is closely linked with efficient management of its finances.

FINANCIAL STATEMENT:

A financial statement is an organized collection of data according to logical and

consistent accounting procedures. Its purpose is convey an understanding of some financial
aspects of a business firm. It may show position at a moment in time, as in the case of a balance
sheet or may reveal a series of activities over a given period of time, as in the case of income
statements. Thus the term financial statement generally refers to the two statements.
  The position statement (or) the balance sheet.
 The income statement (or) the profit & loss account.

FINANCIAL PERFORMANCE

INTRODUCTION

Analysis is the process of critically examining in detail accounting information given in

the financial statements. For the purpose of analysis individual items are studied, their
interrelationship with other related figures established, the data is sometimes rearranged ton have
a better understanding of the information with the help of different techniques of tools for the
purpose. Interpretation means explaining the meaning and significance of the data so simplified.
However both analysis and interpretation are interlinked.

MEANINNG:

Financial performance is the process of identifying the financial strengths and weakness
of the firm by properly establishing relationship between the items of the balance sheet and the
profit and loss account analysis and interpretation of financial statements refers to such a
treatment of data found in the financial statements so as to provide a full diagnosis of the
profitability and financial position of an enterprise.

Finance is a pre-requisite for mobilizing real resources to organize production and

marketing. Finance is rightly described as the life blood of any industry.

DEFINITION:

Financial analysis is the starting point for making plans before using any sophisticated
forecasting and budgetary procedures. It is their overall responsibility to see that the resources of
enterprise are used more efficiently and effectively.

According to John .N.MYER, the balance sheet reflect the assets, liabilities and capital as
on a certain data and the income statement should the results of operation during a certain period.
Financial analysis is helpful in assessing the financial position and profitability of a concern.
This is done through comparison by ratios for the same concern. This is done through
comparison by ratios for the same concern over a period of years. For one concern against of
financial statements helps in assessing.

 The present and future earning capacity or profitability of the concern.

 The operation efficiency of the concern a sa whole.
 The financial stability of a business concern.
 Then real meaning and significance of financial data.
 The long term liquidity of its funds etc.,

RATIO ANALYSIS

Ratio analysis is powerful tool of financial analysis. A ratio is a statistical yard stick that
provides a measures of relationship between two accounting figures. The term “ratio” refers to a
simple arithmetic expression of one number to another.

DEFINITION

According to Kennedy, ratio may be defined as “the indicated quotient of two

mathematical expressions and as the relationship between two or more things”.

According to wixon, kell and Bedford, a ratio is defined as “an expression of the
quantitative relationship between two numbers”.

FINANCIAL STATEMENT

There are number ratios, which can be calculated from the information given in the profit
and loss account and balance sheet. The selection of particular ratio dependents upon the purpose
of firm which it is calculated by the analyst.
ADVANTAGE OF FINANCIAL PERFORMACE:

1. Maximization of Profit:

The budgetary control aims at the maximization of profits of the enterprise. To achieve
this aim, a proper planning and co-ordination of different functions is undertaken. There is
proper control over various capital and revenue expenditures. The resources are put to the best
possible use.

2. Co-ordination:

The working of the different departments and sectors is properly co-ordinate. The
budgets of different departments have a bearing on one another. The co-ordination of various
executives and subordinates is necessary for achieving budgeted targets.

3. Specific Aims:

The plans, policies and goals are decided by the top management. All efforts are put
together to reach the common goal of the organization. Every department is given a target to be
achieved. The efforts are directed towards achieving come specific aims. If there is no definite
aim then the efforts will be wasted in pursuing different aims.

4. Tool for Measuring Performance:

By providing targets to various departments, budgetary control provides a tool for

measuring managerial performance. The budgeted targets are compared to actual results and
deviations are determined. The performance of each department is reported to the top
management. This system enables the introduction of management by exception.

5. Economy:

The planning of expenditure will be systematic and there will be economy in spending.
The finances will be put to optimum use. The benefits derived for the concern will ultimately
extend to industry and then to national economy. The national resources will be used
economically and wastage will be eliminated.

An efficient allocation of capital is the most important finance function in modern times. It
involves decisions to commit firm’s funds to long-term assets. Such decisions are tend to
determine the value of company/firm by influencing its growth, profitability & risk.

Investment decisions are generally known as capital budgeting or capital expenditure

decisions. It is clever decisions to invest current in long term assets expecting long-term benefits
firm’s investment decisions would generally include expansion, acquisition, modernization and
replacement of long-term assets.

Such decisions can be investment decisions, financing decisions or operating decisions.

Investment decisions deal with investment of organization’s resources in Long tern (fixed)
Assets and / or Short term (Current) Assets. Decisions pertaining to investment in Short term
Assets fall under “Working Capital Management”. Decisions pertaining to investment in Long
term Assets are classified as “Capital Budgeting” decisions.

Capital budgeting decisions are related to allocation of investible funds to different long-term
assets. They have long-term implications and affect the future growth and profitability of the
firm.

In evaluating such investment proposals, it is important to carefully consider the expected

benefits of investment against the expenses associated with it.Organizations are frequently faced
with Capital Budgeting decisions. Any decision that requires the use of resources is a capital
budgeting decisions. Capital budgeting is more or less a continuous process in any growing
concern.

RATIO ANALYSIS INVOLVES THE FOLLOWING STEPS:

  Selection of relevant data from the financial statement depending upon the
analysis.
 Calculation of calculated ratio with the standard ratio or with the past ratio of the
same Concern or projected ratio.
 Interpretation based on comparison.

IMPORTANCE OF RATIOS

Importance of ratio analysis lies in the fact that it present facts on a comparative basic
and enables the sawing of inferences regarding the performance off a firm.

 Difficulty in comparison
 Impact of inflation
 Conceptual diversity

TO TEST THE ASSOCIATION OF OVERHEADS AND TURNOVER:

To the association of overheads and turnover with the help of correlation table, which
shows both are in positive manner. The result of analyzing the overheads and turnover with Karl
Pearson’s correlation model is given in the table.

BALANCE SHEET:

Balance sheet has been defined by kholer as a statement of financial position and an
economic unity disclosing as at a given movement of time its assets, at cost depreciated cost, on
their incited value; its liabilities; and its ownership equities usually, the balance sheet is
prospered by a firm to present a summary of financial position at the end of financial year. It
balances the assets of a firm against its financing.

CURRENT ASSESTS:
 Current assets which are changed to liquid assets of the firm are convertible into cash
within an accounting period. Cash in hand, cash at bank and other short term investments
constitute these assets.

FIXED ASSESTS:

Assets acquired for utilization and not for resale are termed as fixed or permanent assets,
are those assets, which are intended to be held for a long period.

CURRENT LIABILITIES:

The current liabilities are those liabilities, which are expected to be discharged within a
period of one year.

LIABILITIES:

A liability is a amount which a business is legally bound to pay. It is a claim by an

outsider on the assets of a business.

RATIOS:

Ratio analysis is one of the techniques of financial analysis where ratio is used a sa
yardstick for evaluating for financial conditions and performance of a firm.

It is a financial and quantitative statement, prepared and approved prior to a defined

period of time of policy to be pursued during that period for purpose of attaining a given
objective. It may include income, expenditure and employment capital.

In other words is a pre-determined detailed plan of action developed and distributed as a guide to
current operations and as a partial basis for the subsequent evaluation of performance the
techniques of financial analysis where ratio is used a sa yardstick for evaluating for financial
conditions and performance of a firm
1.2 Meaning Of Finance:-

Finance is rightly been termed as ‘master key’ providing accretes to are sources required for
running business activities. Finance is the management of monetary affairs of a company.

Definition of Finance:-

Ray G Jones and Dean Dudely observe that the word finance come indirectly from Latin word
“Finis”.
In simple words “Finance is economics and Accounting”. Economics is proper utilization of
scare resources and accounting Economics is proper utilization of scarce resources and
Accounting is keeping a record or tract of things.

Kenneth Ridgeley and Ronald Bums Accent, “Financing is the process of organizing the flow of
funds so that a business can carry out its objectives in the most efficient manner of meeting its
obligation as they are due”

1.3 Scope Of Finance:-

What is finance? What are firm’s financial activities? How are they related to firm’s
other activities?

There exists an inseparable relation between finance on one hand and on the other.
Almost all kinds of business activities directly or indirectl y involved the acquisition and
use of funds. E.g.: recruitment and promotion of employees, buying of machines,
advertising, sales promotion activities requires outlay of cash and therefore affect
financial resources. Finance functions or decision includes investment decision, finance
decision, dividend decision, and liquidity decision.

A firm performs functions simultaneously and continuously in the normal course of

business. They do not necessarily occur in a sequence. Finance functions call for skillful
planning control and execution of firm’s attitudes.
1.4 Functions Of Finance:-

There are three major functions of finance:

a) Investment decision
b) Financing decision
c) Dividend decision.
a) Investment decision:

Investment decision relates to selection of asset in which funds will be inverted by a firm. The
assets that can be acquired by a firm may be long term asset and short term assets.

b) Financing decision:

Financing decision is concerned with financing mix or capital structure the mix of department
and equity is known as capital structure. Determination of the proportion of equity and debt is
the main issue in financing to share holders and also financial risk.

c) Dividend decision:

A firm may distribute its profits or retain the balance with it the decision depends upon the
preference of the shareholders and investment opportunities available to the firm. Dividend
decision has a strong influence on the market price of share.

Therefore, the dividend policy is too determined in terms of its impact on shareholders’ value.
The optimum dividend policy is one. Which maximize the value of shares and wealth of
shareholders the financial manager should determine the optimum payout ratio that is the
proportion of net profit to be paid out to shareholders? The financial manager should also
consider those factors. This determines the dividend policy in practice.

1.5 Financial Management:-

Financial management is a part of managerial activity, which is mainly concerned with the
planning, and controlling of financial resources of a firm. Prof Solomon defines “Financial
management is concerned with efficient use of an important economic resource is capital funds.

1.6 Importance Of Financial Management:-

Financial management is that managerial activity which is concerned with the planning
and control of firm’s financial resources. As a separate activity or discipline it is of
recent origin. It was a branch of economics till 1890 still today it has no unique body of
knowledge of its own and draws heavily on economics for its theoretical concepts. The
subject of financial management is of immense interest to both academicians and
practicing managers. It is of great interest to academicians, because the subject is still
developing and are still certain areas where controversies exist for which no enormous
solution have been reached as yet. The most crucial decision of the firm are those which
relate to finance and an understanding of the theory of financial management provides
than with conceptual and analytical insights to make those decisions skillfully.

1.7 Objectives Of Financial Management:-

The term objective reforms to a goal or decision criterion for taking financial decisions. There
are two objectives:

a) Profit maximization
b) Wealth maximization

a) PROFIT MAXIMIZATION:

The term profit maximization is deep rooted in the economic theory. It is needed that when
pursue the policy of maximizing profits society’s resources are efficiently utilized. The firms
should undertake those actions that would pursue profits and drop those actions that would
decrease profits. The financial decisions should be oriented to the maximization of profits.
Profits provides yardstick for measuring the economic performance of firms. It makes allocation
of resources to profitable and desirable areas. It also ensures maximum social welfare. On these
grounds profit maximization serves as criteria for financial decision.

b) WEALTH MAXIMISATION:

Wealth maximization or value maximization or net present Value maximization provides an

appropriate and operationally feasible decision criterion for financial management decisions. It
provides an unambiguous measure of what financial management should seek to maximize in
making investment and financing decisions. It satisfies the three requirements of a suitable
criterion namely precise, time value of money and quality of benefits.

In wealth maximization criterion the benefits associated with assets are measured in terms of
cash flows rather than accounting profits. The cash flows are a precise concept with definite
meaning. It overcomes the deficiencies associated with accounting profits.

Research Design:-

Research design of study is a conceptual structure a sketch or plan laid out for conducting the
study. It is considered as a blue print of the final copy of the project where it shows the activities
undertaken while doing the study. It constitutes the steps taken beginning with of collection of
clarifying it. Analyzing, interpreting, processing and finally putting it is an actual form.

2.1 Objectives of the Study:-

1. To ascertain the overall profitability of the company.

2. To analyze trends on the basis of ratios for consecutive 4 years.
3. To gain insight as to how a financial statement can be use to predict future.
4. To analyze working capital funds with the help of ratios.
2.2 Scope of Study:-

The scope of the study is limited to Bharti Airtel and is an attempt to find out the
financial position during past 4 years from the Annual report of the company with special
reference to financial analysis.

Research Design:-

Research design of study is a conceptual structure a sketch or plan laid out for conducting the
study. It is considered as a blue print of the final copy of the project where it shows the activities
undertaken while doing the study. It constitutes the steps taken beginning with of collection of
clarifying it. Analyzing, interpreting, processing and finally putting it is an actual form.

2.1 Objectives of the Study:-

5. To ascertain the overall profitability of the company.

6. To analyze trends on the basis of ratios for consecutive 4 years.
7. To gain insight as to how a financial statement can be use to predict future.
8. To analyze working capital funds with the help of ratios.

2.2 Scope of Study:-

The scope of the study is limited to Bharti Airtel and is an attempt to find out the
financial position during past 4 years from the Annual report of the company with special
reference to financial analysis.

2.3 Methodology:-

No series assumptions so far were made as to limit the usefulness of the study was made
at any stage. However the following assumptions were made –
A study period of four years (2008-2011)

Objectives of the study and the research design as agreed upon by the company and the
researcher are sufficient, accurate and correct portray true state affairs of Ratio analysis
of the company.

Published information from the company is accurate and true.

2.4 Research Design:-

Research design means a search of facts, answers to question and solution to problems. The data
are analyzed through ratio analysis common size balance sheet, comparative balance sheet and
fund flow analysis.
It is a prospective investigation. Research is a systematic logical study of an issue or problem
through scientific method. It is a systematic and objective analysis and recording of controlled
observation that may lead to the development of generalization, principles, resulting in prediction
and possibly ultimate control of events there are various designs, which are descriptive and
helpful for analytical research.

2.5 Data Source:-

This study makes extensive use of secondary data collected in the forms of annual reports. The
nature of secondary data collected was both qualitative and quantitative in nature. Considering
the above plan, research plan for the study is essentially a combination of qualitative and
quantitative aspects.

The secondary sources of data can be divided in to mainly two parts.

Internal
 Accounting section
 Finance section
 HRD department
 Miscellaneous records
External
 Information for published materials like,
 Annual reports of the company
 Balance sheets and profit and loss accounts
 Magazines
There was also primary data, which was through discussions held with the concerned company
officials from finance department. The primary data was obtained through survey method i.e.
personal interview method.

2.6 Techniques of Analysis:-

The data are analyzed through ratio analysis common size balance sheet, comparative balance
sheet and fund flow analysis.

2.7 Limitations Of The Study:-

1. The study is limited to Bharti Airtel and the finding need not apply in similar
sense to other firms.
2. The inferences that have been framed only on the basis of financial statement.
3. Based on the limited information it is not possible to arrive at a proper conclusion.
4. Limitations of Financial analysis.
3.1 HISTORY AND BACKGROUND OF THE COMPANY:-

Sunil Bharti Mittal founded the Bharti Group. In 1983, Sunil Mittal was into an agreement with
Germany's Siemens to manufacture the company's push-button telephone models for the Indian
market. In 1986, Sunil Bharti Mittal incorporated Bharti Telecom Limited (BTL) and his
company became the first in India to offer push-button telephones, establishing the basis of
Bharti Enterprises. This first-mover advantage allowed Sunil Mittal to expand his manufacturing
capacity elsewhere in the telecommunications market. By the early 1990s, Sunil Mittal had also
launched the country's first fax machines and its first cordless telephones. In 1992, Sunil Mittal
won a bid to build a cellular phone network in Delhi. In 1995, Sunil Mittal incorporated the
cellular operations as Bharti Tele-Ventures and launched service in Delhi. In 1996, cellular
service was extended to Himachal Pradesh. In 1999, Bharti Enterprises acquired control of JT
Holdings, and extended cellular operations to Karnataka and Andhra Pradesh. In 2000, Bharti
acquired control of Sky cell Communications, in Chennai. In 2001, the company acquired
control of Spice Cell in Calcutta. Bharti Enterprises went public in 2002, and the company was
listed on Bombay Stock Exchange and National Stock Exchange of India. In 2003, the cellular
phone operations were rebranded under the single Airtel brand. In 2004, Bharti acquired control
of Hexagon and entered Rajasthan. In 2005, Bharti extended its network to Andaman and
Nicobar.’2009; Airtel launched its first international mobile network in Sri Lanka. In 2010,
Airtel began operating in Bangladesh.

Today, Airtel is the largest cellular service provider in India and fifth largest in the world.

3.2 Type of Organizational Structure:-

The organizational structure that existed till recently concentrated on the hierarchy of the
operations (not services) inside the company as a whole. The structure depicts the corresponding
operation/region of different in-charges and hence it didn't hold anyone responsible for each of
its services. So, the company found it better to restructure its organizational chart and it came
into implementation from 1 August. The transformed organizational structure will have two
distinct Customer Business Units (CBU) with clear focus on B2C (Business to Customer) and
B2B (Business to Business) segments. Bharti Airtel's B2C business unit will comprehensively
service the retail consumers, homes and small offices, by combining the erstwhile business units
– Mobile, Telemedia, Digital TV, and other emerging businesses (like M-commerce, M-health,
M-advertising etc.). The B2C organization will consist of Consumer Business and Market
Operations.

3.3 BOARD OF DIRECTORS:-

Sunil Bharti Mittal Chairman and Managing Director

Ajay Lal Non Executive Director

Chua Sock Koong Non Executive Director

Lord Evan Mervyn Davies Non Executive Director

N Kumar Non Executive Director

Pulak Prasad Non Executive Director

Rakesh Bharti Mittal Non Executive Director

Tan Yong Choo Non Executive Director

Manoj Kohli Joint Managing Director and CEO

Akhil Gupta Non Executive Director

Craig Ehrlich Non Executive Director

Hui Weng Cheong Non Executive Director

Nikesh Arora Non Executive Director

Rajan Bharti Mittal Non Executive Director

Salim Ahmed Salim Non Executive Director

Tsun-Yan Hsieh Non Executive Director

3.4 AWARDS AND ACHIVEMENTS:-

Airtel has won the ‘Most Preferred Cellular Service Provider Brand’ award at the CNBC Awaaz
Consumer Awards in Mumbai. This is 6th year in a row that Airtel has won the award in this
category. This year, the awards were based on an exhaustive consumer survey done by The
Nielsen Company. Over 3,000 consumers, spanning 19 cities and 16 states in India, rated brands
across different categories to choose brands which delivered true value for money.

Bharti Airtel has received the prestigious Business world-FICCI-SEDF Corporate Social
Responsibility Award 2009-2010. The FICCI Socio Economic Development Foundation (FICCI-
SEDF) and Business world CSR award was instituted in 1999 to recognize exemplary
responsible business practices by the Indian industry.
 Financial Analysis:

Financial analysis is the analysis of financial statement of a Company to assess its financial
health and soundness of its management. ‘Financial Statement Analysis’ involves a study of the
financial statements of a company to ascertain its prevailing state of affairs and the reasons
thereof. Such a study would enable the public and the investors to ascertain whether one
company is more profitable than the other and also to state the causes and factors that are
probably responsible.

Ratio Analysis:-

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated
quotient of two mathematical expressions as relationship between two or more things”.
In financial analysis, a ratio is used as a bench mark for evaluating the financial position
and performance of a firm. The absolute accounting figures reported in the financial
statement do not provide a meaningful understanding of the performance and financial
position of a firm. An accounting figure conveys meaningful message when it is related
to some other relevant information. For example Rs 5 corer net profit may look
impressive but the firm’s performance can be said to be good or bad only when the net
profit figure is related to firm’s investments. The relationship between two accounting
figures expressed mathematically is known as financial ratio. A ratio quantitative
relationship, which can be in turn used to make a qualitative judgment.

Classification of Ratios:-

Ratios may be classified in a number of ways keeping in view the particular

purpose. Ratios indicating profitability are calculated on the basis of the profit and loss
account; those indicating financial position are computed on the basis of balance sheet.
This classification is rather crude and unsuitable to determine the profitability and
financial position of business. To achieve these purpose ratios may be classified as

1. Liquidity Ratios
2. Return On Investments Ratios
3. Solvency Ratios
4. Efficiency or Turnover Ratios
5. Profitability Ratios
6. Capital Market Ratios

Liquidity Ratios:-
i. Current Ratio
ii. Quick or Acid Test Ratio
iii. Debtors Ratio
iv. Debtors Turnover Ratio
v. Creditors Ratio
vi. Creditors Turnover Ratio
vii. Inventory Holding Period
viii. Inventory Turnover Ratio
 CHAPTER 2

REVIEW OF LITERATURE

2.1 Meaning and Importance of Financial Statement Analysis

Author: Rashid Javed

All financial documents are essentially historical documents. Financial statement
involves careful selection of the data for the primary purpose of forecasting the financial health
of the company. This is accomplished by examining trends in key financial data, comparing
financial data across companies and analyzing key financial ratios.

Managers are widely concerned with financial ratios. The specific ratios selected depend
on the company’s strategy. Since managers must report to shareholders and may wish to raise
funds from external sources, managers must pay attention to the financial ratios by external
inventories to evaluate the company’s investment potential and creditworthiness.

Although financial statements analysis is a highly useful tool, it has two limitations.

These two limitations involve the comparability of financial data between companies and
the need to look beyond ratios. Comparison of one company with another can provide valuable
clues about the financial health of organization. Unfortunately, differences in accounting
methods between companies sometime make it difficult to compare the companies financial data.

Ratios should not be viewed as an end, but rather they should be viewed as a starting
point, as indicators of what to pursue in greater depth. They raise many questions, but they
rarely answer any questions by themselves. The analyst should look at industry trends,
technology changes, changes in consumer tastes changes in broad economic factors and changes
within the firm itself. A recent change in a key management position might provide a basis of
optimism about the future, even though the past performance of the firm may have been
mediocre.

2.1.2 The importance of Business Financial Analysis and Management

 Author: Frank Goley
Planning and control are the two most important ingredients to a successful business. A
business plan takes most of the guess work out of business strategy and control through solid
financial analysis. Financial data provides a way to gauge where you are in your strategic plan,
telling you where changes in your plan are necessary. Because of this, financial data analysis
and management are vitally important to run a successful business.

2.1.3 Understanding Financial Statements

Author: Matt Bacak

The value of the accurate financial statements generated is undisputed. This is as
financial statements are like windows into the health of a company. Just by viewing financial
statements, adept business owners will be able to determine the strengths and weaknesses at the
time that the statement was generated. With this, the owner can then chart the way into the
future for the company has.

A person can call himself a full or part-time stock trader/investor while maintaining other
professions. When a stock trader/investor has clients, and acts as a money manager or advisor
with the intention of adding value to his clients finances, he is also called I financial advisor or
manager.

2.1.4 Financial Statement Analysis

Author: Shubhra
The financial statement analysis provides a systematic approach for extracting and
evaluating the accounting information needed for a specific business purpose. Although every
analysis is different, the process used is likely to be similar.

The financial statement analysis process includes establishing a goal or goals that the
analysis is supported to achieve which helps draw the analyst’s attention to the most relevant
information. The selection of techniques to generate the information required depends on the
goal of the analysis. As ratios, common techniques include common-size statements, vertical
analysis and horizontal analysis. Finally, interpretation of the results requires putting the results
in context, for example, by comparing results with industry benchmarks.

Kothari C.R., “Quantitative Techniques”, Pg10-20, “I have taken knowledge about

research design, sample design & sampling. In this I got what type of sample can be chosen and
more about sample design”

Berry G.C., “Marketing Research10”, “Some theoretical knowledge about the type of
data”

Pandey, I.M “Financial Management” Pg-143-145 “How to prepare comparative

balance sheet and how can we evaluate”.
 DATA ANALYSIS & INTERPERTATION
RATIO ANALYSIS
The primary uses of financial statement are evaluating past performance and predicting
future performance and both of these are facilitated by comparison. Therefore the focus of
financial analysis is always on the crucial information contained in the financial statements. This
depends on the objectives and performance of such analysis. The purpose of evaluating such
financial statement is different from person to person depending on its relationship. In other
words, even though the business unit itself and shareholders, debentures holders, investors, etc.
all undertake the financial analysis, the purpose, means and extent of such analysis differs. For
example, trade creditors may be interested primarily in the liquidity of the firm because the
ability of the business unit to the business unit to pay their claims are best judged by means of
through analysis of its liquidity.

The shareholder and the potential investors may be interested in the present and the
further earnings per share, the stability of such earnings and comparison of these earnings with
other units in the industry. Similarly the debenture holders and the financial institution lending
long term loans term may be concerned with the cash flow ability of the business unit to pay
pack the debt in the long run. The management of the business unit, in contrast, looks to the
financial statement from various angles. These statement are required not only for the
management own evaluation and decision making but also for internal control and overall
performance of the firm. Thus the scope, extent and means of any financial analysis are a part of
the larger information processing system which from the very basic of any “decision making”
process.

The financial analysts always need certain yardstick to evaluate the efficiency and
performance of any business unit. The one of the most frequently used yardstick is ratio analysis.
Ratio analysis involves the use of various methods for calculating and interpreting financial
ratios of assess the performance and status of the business unit. It is a tool of financial analysis,
which studies the numerical or quantitative relationship between two variables and item. A ratio
can be worked out by dividing one of the variables of the relationship with other variable and
such ratio value is compared with standards/ norms.

In other words, ratio are relative figures reflection the relationship between variables and
enable the analysis to draw conclusion regarding the financial operations.

It is very important that the base(or denominator) selected for each ratio is relevant with
the numerator. The two must be such that one is closely connected with and is influenced by the
other.

This is the measure of inter relationship between different sections of the financial
statement which then is compared with the budgeted or forecasted results, prior year results and
or the industrial results. To be most important ratios must include a study of underlying data.
Ratios should be taken as guides that are useful in evaluating a company’s financial position and
operations and making comparison with results in previous year of with other companies. The
primary purpose of ratios is to point out areas needing further investigations. A part from the
ratios other information which should be looked at includes.

TYPES OF RATIO

Several ratios calculated from the accounting data, can be grouped into various classes
according to financial activity or function to be evaluated, as stared earlier, the parties interested
in financial analysis are short-term and long-term creditors. Owners and management interest is
in liquidity position or the short-term solvency of the firm. Long-term creditors, on the other
hand, more interested in the long- term solvency and profitability of the firm.

Similarly owners concentrate on the firm profitability and financial condition.

Management is interested in evaluating every aspect of the firm’s performance. In view of the
requirements of the various users of ratios, classifying into following four important categories.

 Current ratio

 Proprietary ratio
  Debt equity ratio

 Return on total resources ratio

 Return on capital employee

 Reserve to equity share capital ratio

 Equity ratio

 Net working capital ratio

COMPARATIVE BALANCE SHEET

The single balance sheet shows assets and liabilities as on a particular data. The comparative
balance sheet shows the value of assets and liabilities on two different data if helps in
comparison a comparative balance sheet has two columns to record the record the figures of the
current year and the previous year. A third column is used to show the increase or decrease in
figures. A fourth column may be added for giving percentage of increase or decrease.

Thus while in the balance sheet the emphasis is on status in the comparative balance sheet it is on
change comparative balance sheet indicates whether the business is moving in a favorable or
unfavorable direction. It is very useful for studying the trends in an enterprise.

COMMON-SIZE STATEMENT

Financial statement present absolutes figure. A comparisons of absolutes figure could be

misleading the statement which report the figure as a percentage of some common base are
called common size statement.

In the common-size balance sheet total of assets liabilities is taken as total common size
statements are useful to a financial analysis. They make comparison easy and meaningful.

ANALYSIS AND INTERPRETATION OF FINANCIAL PERFORMANCE

 Analysis and interpretation of financial statement is the most important step in accounting. To
have a very clear understanding of profitability and financial position of a company. The
financial statements have to be analyzed and interpreted. Analysis refers to the methodological
classification of the data given in the financial statement.

The term interpretation means explaining the meanings and significance of the data so arranged.
It is the study of the relationship between various functional factors. The relationship between
profit and capital employed, current asset and current liabilities and gross profit have to be
explained further to make interpretation more meaningful comparisons have to be made.
Comparison of relationship between various financial factors of the same company over a period
of time can be made.

CURRENT RATIO
Current ratio may be defined as the relationship between current assets an current
liabilities. This ratio also known as working capital ratio is a measure of general liquidity and is
most widely used to make the analysis of short-term financial position or liquidity of a firm. It is
calculated by dividing by the total of current assets by total of the current liabilities.

CURRENT ASSETS
CURRENT RATIO = --------------------------------------

CURRENT LIABILITIES

THE TABLE SHOWING CURRENT RATIO

 TABLE NO - 3:1:1
Rupees in lacks
YEAR CURRENT CURRENT RATIO
ASSETS LIABILITIES
2014-15 25555.09 21466.85 1.19
2015-16 19216.09 18261.97 1.05

2016-17 14569.45 16344.23 0.89

2017-18 16782.00 22403.06 0.74

2018-19 18755.29 23047.57 0.81

Sources: Annual report of the raajkamal international

INTERPRETATION
The table shows the current assets position of the company. The current ratio was not
fluctuation trend during the study period. The current ratios in all years satisfy the standard
norms of 2:1. Hence the position indicates that the current ratio not satisfactory during the study
from 2014 to 2015.

THE TABLE SHOWING CURRENT RATIO

TABLE NO - 3:1:1
 CURRENT LIABILITIES

2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION
The table shows the current assets position of the company. The current ratio was not
fluctuation trend during the study period. The current ratios in all years satisfy the standard
norms of 2:1. Hence the position indicates that the current ratio not satisfactory during the study
from 2014 to 2015.

QUICK RATIO
Quick ratio also known as acid test or liquid then the current ratio, term ‘liquidity’ refers
to the ability of a firm to pay its short-term obligations as and when they become due. Two
determines of current ratio as, a measure of liquidity, are current assets and current liability.

CURRENT ASSET - INVENTORY

QUICK RATIO = -----------------------------------------------

CURRENT LIABILITIES
 THE TABLE SHOWING QUICK RATIO
TABLE NO - 3:1:2
Rupees in lacks

YEAR CURRENT CURRENT RATIO

ASSETS- LIABILITIES
INVENTORY
2014-15 12278.87 21466.85 0.71

2015-16 11541.61 18261.97 0.61

2016-17 5076.92 16344.23 0.46

2017-18 10586.4 22403.06 0.43

2018-19 9181.47 23047.57 0.15

Sources: Annual report of the Bharathi Airtel

INTERPRETATION
The liquid ratio does not satisfy the standard norms of 1: 1. So the short term financial
position not satisfactory during the period 2014 - 2019. It is stands at 0.71 in the year of 2014-
2015 and decrease in the next all years.

THE CHART SHOWING QUICK RATIO

CHART NO - 3:1:2
 CURRENT ASSETS- INVENTORY

2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION
The liquid ratio does not satisfy the standard norms of 1: 1. So the short term financial
position not satisfactory during the period 2014 - 2019. It is stands at 0.71 in the year of 2014-
2015 and decrease in the next all years.

PROPRIETARY RATIO
A variant to the debt-equity ratio is the proprietary ratio which is also known as equity ratio
or share holders to total equities ratio or net worth to total assets ratio. The ratio of proprietors
funds (proprietors share holders fund) to total assets is an important ratio for determining long-
term solvency of a firm.
 SHARE HOLDERS FUND

PROPRIETARY RATIO = ------------------------------------

TOTAL TANGIBLE ASSET

THE TABLE SHOWING PROPRIETARY RATIO

TABLE NO - 3:1:3

Rupees in lacks
YEAR SHARE HOLDERS TOTAL TANGIBLE RATIO
FUND ASSET

2014-15 17654.63 51364.07 0.34

2015-16 17449.04 43378.22 0.40

2016-17 17346.65 37357.96 0.46

2017-18 17244.38 38039.42 0.45

2018-19 8856.73 42047.67 0.21

Sources: Annual report of the Bharathi Airtel

INTERPRETATION
The above table indicates proprietor’s ratio of the study period was at fluctuating ratio.
But in the period of2016-2017 only satisfy in the profit ratio. Then another four years profit ratio
unsatisfactory during the study period.
 THE CHART SHOWING PROPRIETARY RATIO:

CHART NO - 3:1:3

RATIO

2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION
The above table indicates proprietor’s ratio of the study period was at fluctuating ratio.
But in the period of2016-2017 only satisfy in the profit ratio. Then another four years profit ratio
unsatisfactory during the study period.
DEBT – EQUITY RATIO
Debt-equity ratio, also known as external-internal equity ratio is calculated to measure
the relative claims of outsider and the owners (I, e,;) shareholders against the firm’s assets. This
ratio indicates the relationship between the external equities or the outsider’s funds and the
internal equities or the shareholders funds.

OUTSIDERS FUND

DEBT – EQUITY RATIO = ----------------------------------

SHARE HOLDERS FUND

THE TABLE SHOWING DEBT – EQUITY RATIO

TABLE NO - 3:1:4
Rupees in lacks
YEAR OUTSIDER FUND SHARE HOLDERS RATIO
FUND

2014-15 21466.85 17654.63 1.22

2015-16 18261.97 17449.04 1.05

2016-17 16344.23 17346.65 0.94

2017-18 22403.06 17244.38 1.30

2018-19 23047.57 8856.73 2.60

Sources: Annual report of the Bharathi Airtel

INTERPRETATION
The above table identifies the dept- equity ratio of the company was fluctuating during
the study period is lowest in the year 2016-2017of 0.94 and highest in the year 2018-2019of
2.60 in least two years the company debt- equity ratio was not to the standard norms of the 2
: 1.
 THE CHART SHOWING DEBT – EQUITY RATIO

CHART NO - 3:1:4

EQUITY RATIO

2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION
The above table identifies the dept- equity ratio of the company was fluctuating during
the study period is lowest in the year 2016-2017of 0.94 and highest in the year 2018-2019of
2.60 in least two years the company debt- equity ratio was not to the standard norms of the 2
: 1.

FIXED ASSET TURN OVER RATIO

 This ratio measures sale per rupee of is fixed assets. This ratio is supported to measure
the efficiency with fixed are employed a high ratio indicates a high degree of efficiency in asset
utilization and low ratio efficient use of assets.

NET SALES

FIXED ASSET TURN OVER RATIO = -----------------------------

FIXED ASSET

THE TABLE SHOWING FIXED ASSET TURNOVER RATIO

TABLE NO - 3:1:5
Rupees in lacks
YEAR NET SALES FIXED ASSET RATIO

2014-15 62705.83 18747.61 3.34

2015-16 66211.45 16982.41 3.89

2016-17 59118.21 15771.88 3.74

2017-18 57404.00 14313.90 4.01

2018-19 66152.71 13031.30 5.07

Sources: Annual report of the Bharathi Airtel

INTERPRETATION
 The above table shows the fixed assets turnover ratio during the study period the ratio is
decline from 2018-2019 of 5.07% to 2014-2015 of 3.34% the ratio is unsatisfactory.

THE CHART SHOWING FIXED ASSET TURNOVER RATIO

CHART NO - 3:1:5

FIXED ASSET TURNOVER RATIO

2014-15
2015-16
2016-17
2017-18
2018-19

INTERPRETATION

The above table shows the fixed assets turnover ratio during the study period the ratio is
decline from 2018-2019 of 5.07% to 2014-2015 of 3.34% the ratio is unsatisfactory.
 BALANCE SHEET AS ON 31ST MARCH 2019

31ST MARCH 2019

TABLE NO – 3:2:1
31st march 2019 31st march2019 Increase /
Particulars (Rupees (Rupees decrease
in lacks) In lacks)

[a]sources of funds
Share capital 16125.68 16125.68 -
Reserve & surplus 1643.91 1528.95 - 114.96
[b] loans
Secured 11602.42 12320.77 + 718.35
unsecured 4498.10 6601.80 +2103.07

Total current assets 33870.11 36577.20 2707.09

Application of fund:
[a]Fixed assets
Net block 19957.69 18747.61 -1210.08
[b]Investments 7024.87 7061.37 + 36.05
-1173.58
[c]Current assets loans & advances:
Inventories 8586.78 10276.20 +1689.42
Sundry debtors 5132.64 3866.47 - 1266.17
Cash & bank balance 887.36 6326.36 +5439.00
Other current assets 573.98 485.73 - 88.02
Loans & advances 4497.31 4600.33 + 103.02
+5877.02
[d] less: current liabilities:
+ 531.59
Current liabilities 19966.23 20497.82
314.39
Deferred payment liabilities 970.23 655.84
+ 234.94
Provisions 734.10 969.10
 - 452.14
[e] net current assets
Miscellaneous Expenditure 234.41 19.83 - 214.58
Profit & loss account balance 8645.06 7315.99 - 1329.64
- 1544.22

Total current liabilities 33870.11 36577.20 2707.09