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: MR NEERAJ GOGIA (LECTURER) SUBMITTED BY: MOHD AKRAM MBA (FINANCE)

III SEM
/

DEPARTMENT OF MANAGEMENT STUDIES

SHIVDAN SINGH INSTITUTE OF TECHNOLGY AND MANAGEMENT (AFFIALIATED TO UP TECHNICAL UNIVERSITY LUCKNOW)

2008-2010

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

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

CONTENTS

Objective of the Project Research methodology Telecom industry Major players & competitors Break of telecom industry SWOT analysis of BSNL Assignment profile Data Analysis and Findings Conclusion Suggestions & Recommendations Appendix Bibliography

9 10 12 13 14 26 30 44 70 75 78 85

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.

Chapter 1
Introduction of BSNL

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 companys success. Where as once the financial manager was charged only with such routine taken as keeping records, preparing financial reports, managing the companys 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.

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 sufficient assets and funds to pay off its creditors.

companies have

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.

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) (b) Ratio analysis.
Cash flow statement

I have also shown the following (a) (b) SWOT analysis of BSNL Break up of Indian telecom industry.

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, competitors 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
2003-04 2004-05 2005-06 2006-07 2007-08

S1

CONNECTI ONS

Series1

MTNL(IN MILLIONS)

18

Subscriber trend of BSNL in fixed line telephony

fixedline in BSNL
45 40 35 30 25 20 15 10 5 0 200304 200405 200506 200607 200708

CONNECTION

Series1

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

conections

3 2.5 2 1.5 1 0.5 0 Series1

Ta ta

Te le R se el r ia nc vice e s In fo c B ha om r ti Ai r te l H FC L S hy am
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
CONNECTIONS

3 2.5 2 1.5 1 0.5 0 2003- 2004- 2005- 2006- 200704 05 06 07 08 MTNL IN MILLIONS Series1

23

Subscriber trend of BSNL in mobile telephony

MOBILE TELEPHONY
12
CONNECTION

10 8 6 4 2 0 2003- 2004- 2005- 2006- 200705 06 07 08 04 BSNL IN MILLIONS Series1

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 4 2 0 Tata Bharti Airtel vodafone Reliance Idea cellular others Teleservices Infocom in millions

Series1

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 shareholders funds This ratio reveals how profitably the proprietors funds have been utilized by the firm. Formula Net profit after interest & tax total shareholders 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 Proprietors Funds Ratio

38

This ratio indicates the extent to which proprietors funds are sunk into fixed assets. Formula Fixed Assets to Proprietors Funds Ratio = Fixed Assets Proprietors 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 firms 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
139278 101094.81 1.38

2007
146927.85 106681.03 1.38

2008
133520.28 91308.45 1.46

125328.61 CURRENT ASSETS 92683.93 CURRENT LIABILITIES CURRENT 1.35 RATIO

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

CURRENT RATIO

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
138390.12 101094.81 1.37

2007
145061.81 106681.03 1.36

2008
132142.12 91308.45 1.45

123830.98 LIQUID ASSETS 92683.93 CURRENT LIABILITIES LIQUID 1.34 RATIO

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

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
DEBT EQUITY DEBT-EQUITY RATIO

2005
4874.80 94969.73 0.05

2006
5634.57 103276.28 0.545

2007
5740.08 112367.74 0.051

2008
6116.27 109438.25 0.06

DEBT-EQUITY RATIO 0.6 0.5 0.4 0.3 0.2 0.1 0 1 2 3 4 DEBT-EQUITY RATIO

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
5634.57 108910.85 0.517

2007
5740.08 118107.82 0.049

2008
6116.27 115554.52 0.053

4874.80 DEBT DEBT+EQUITYY 99844.53 DEBT TO 0.049 TOTAL FUNDS RATIO

DEBT TO TOTAL FUNDS RATIO 0.6 0.5 0.4 0.3 0.2 0.1 0 1 2 3 4 DEBT TO TOTAL FUNDS RATIO

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
EQUITY TOTAL ASSETS PROPERITARY RATIO

2005
94969.73 96778.86 0.98

2006
103276.28 106182.04 0.97

2007
112367.74 116427.11 0.96

2008
109438.25 107999.75 1.01

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

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
62583.82 103276.28 0.61

2007
70956.86 112367.74 0.63

2008
70942.46 109438.25 0.65

63489.73 FIXED ASSETS PROPERITORS 94969.73 FUNDS FIXED 0.67 ASSETS TO PROPERITOR FUND RATIO

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

FIXED ASSETS TO PROPERITOR FUND RATIO

Comment
A fixed asset to proprietors 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
PBIT & D CAPITAL EMPLOYED RETURN ON CAPITAL EMPLOYED

2005
12925.75 96134.41 13.4%

2006
17205.71 100767.01 17.07%

2007
12514.79 111203.68 11.25%

2008
6957.94 113154.29 6.14%

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

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
12346.03 103276.28 11.95%

2007
9484.26 109438.25 8.66%

2008
5776.63 112367.74 5.14%

8997.24 PAIT SHAREHOLDERSS 94969.73 FUNDS RETURN ON 9.47% SHAREHOLDERS FUNDS

RETURN ON SHAREHOLDERS FUNDS 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1 2 3 4 RETURN ON SHAREHOLDERS FUNDS

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
6

2006
11504.78*10 63*107 18.26
6

2007
9389.79*10 63*107 14.90
6

2008
5802.92*106 63*107 9.21

8771.55*10 PAIT & D NO. OF EQUITY 63*107 SHARES EARNING PER 13.92 SHARE

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

EARNING PER SHARE

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
DIVIDEND PAID TO EQUITY SHAREHOLDERS NO. OF EQUITY SHARES DIVIDEND PER SHARE

2005
2835*10
6

2006
2835*10
6

2007
2835*10
6

2008
2520*106

63*107 4.5

63*107 4.5

63*107 4.5

63*107 4

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

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
DPS EPS DIVIDEND PAYOUT RATIO
.

2005
Rs. 4.5 Rs.13.92 32.33

2006
Rs 4.5 Rs. 18.26 24.64

2007
Rs 4.5 Rs. 14.90 30.20

2008
Rs. 4 Rs. 9.21 43.43

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

DIVIDEND PAYOUT RATIO

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
EPS Market value/share Earning yield

2005
13.92 10
139.20

2006
18.26

2007
14.90

2008
9.21

10
182.60

10
149

10
92.10

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

Earning yield

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
DPS Market value/share DIVIDEND yield

2005
4.5 10
45

2006
4.5 10 45

2007
4.5 10 45

2008
4
10 40

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

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
MARKET PRICE OF SHARE EPS PRICE EARNING RATIO

2005
10 13.92
.718

2006
10 18.26 .547

2007
10 14.90 .671

2008
10
9.21 .108

58

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

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
SALES PBT PBT RATIO

2005
58065.30 12597.56
21.70

2006
63695.99 16859.51 26.47

2007
55820.70 12156.67 21.77

2008
55609.85
6713.58 12.07

59

PBT RATIO 30 25 20 15 10 5 0 1 2 3 4 PBT RATIO

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
SALES PAT PAT RATIO

2005
58065.30 8997.24
15.50

2006
63695.99 12346.03 19.38

2007
55820.70 9484.26 16.99

2008
55609.85
5776.63 10.38

60

PAT RATIO 25 20 15 PAT RATIO 10 5 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
SALES

2005
58065.30

2006
63695.99 1192.755 53.40

2007
55820.70 1376.96 40.53

2008
55609.85
1622.10 34.28

AVERAGE STOCK 2135.185 STOCK TURNOVER RATIO 27.19

61

STOCK TURNOVER RATIO 60 50 40 30 20 10 0 1 2 3 4 STOCK TURNOVER RATIO

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
SALES

2005
58065.30

2006
63695.99 62102.82 1.025

2007
55820.70 64686.29 0.86

2008
55609.85
65687.49 0.85

NET FIXED ASSETS 55171.74 FIXED ASSETS TURNOVER RATIO 1.05

62

FIXED ASSETS TURNOVER RATIO 1.2 1 0.8 0.6 0.4 0.2 0 1 2 3 4 FIXED ASSETS TURNOVER RATIO

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
SALES

2005
58065.30

2006
63695.99 38183.09 1.67

2007
55820.70 40246.82 1.39

2008
55609.85
42211.83 1.32

WORKING CAPITAL 32644.68 WORKING CAPITAL 1.77

63

TURNOVER RATIO

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

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:-

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140000 120000 100000 80000 60000 40000 20000 0 2004-05 2005-06 2006-07 2007-08 SOURCES OF FUNDS NET BLOCK NET CURRENT ASSETS

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

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 10000 0 -10000 -20000 -30000 -40000 2004-05 2005-06 2006-07 2007-08 Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow from financing activities

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.

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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 BhartiAirtel, 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

 Companys 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.

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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 remuneration & benefit area. especially in the employees

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.

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Appendix

75

COMPARATIVE BALANCE SHEET FROM YEARS 2005 TO 2008

SOURCES OF FUNDS SHAREHOLDERS FUNDS SHARE CAPITAL RESERVE & SURPLUS DEFFERED TAX LIABILITY TOTAL APPLICATIONS OF FUNDS FIXED ASSETS GROSS BLOCK LESS: DEPRECIATION NET BLOCK (i) CAPITAL WORK-IN-PROGRESS (ii) INVESTMENTS (iii) CURRENT ASSETS, LOANS & ADVANCES INVENTORIES SUNDRY DEBTORS CASH & BANK BALANCES OTHER CURRENT ASSETS LOANS & ADVANCES 2005 6300 88669.73 4874.80 99844.53 2006 6300 96976.28 5634.57 2007 6300 103138.25 5704.08 2008 6300 106067.74 6116.27 118484.01

108910.85 115178.33

126652.06 135629.33 142522.52 71480.32 73526.51 77836.23 55171.74 8317.99 3710.12 1497.63 13069.84 18154.64 567.02 92039.48 62102.82 4818.00 3806.94 887.88 16494.59 25530.69 685.06 95679.78 64686.29 6270.57 3974.65 1866.04 17580.39 25173.98 849.84 101457.60

148541.50 82854.01 65687.49 5254.97 4187.24 1378.16 14151.03 20583.99 944.11 96462.99 133520.28

125328.61 139278.00 146927.85 LESS: CURRENT LIABILITES & PROVISIONS CURRENT LIABILITES PROVISIONS

47534.75 45149.18

47324.24 53770.67

50645.03 56036.00

40251.26 51057.19

92683.93 NET CURRENT ASSETS (W.C.) (IV) 32644.68

101094.91 106681.03 38183.09 40246.82

91308.45 42211.83

DEFFERED REVENUE EXPENDITURE (v) TOTAL ( i + ii+ iii+ iv + v) 99844.53 108910.85 115178.33

1142.48 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
SOURCES OF FUNDS SHAREHOLDERS FUNDS SHARE CAPITAL RESERVE & SURPLUS DEFFERED TAX LIABILITY

2005

2006

2007
6.354100199

2008

6.70 (81.38)

9.36 15.58

6.35 1.87

2.84 6.55

TOTAL

(13.6)

9.08

5.75

2.87

77

APPLICATIONS OF FUNDS FIXED ASSETS GROSS BLOCK LESS: DEPRECIATION

7.95 11.33 3.86 4.26 261.33

7.08 2.86 12.56 (42.07) 2.60

5.08 5.86 4.15 30.14 4.40

4.22 6.44 1.54 (16.19) 5.34

NET BLOCK (i)

CAPITAL WORK-IN-PROGRESS (ii) INVESTMENTS (iii) CURRENT ASSETS, LOANS & ADVANCES INVENTORIES SUNDRY DEBTORS CASH & BANK BALANCES OTHER CURRENT ASSETS LOANS & ADVANCES

(45.98) 77.54 (25.73) (90.13) .66

(40.71) 26.20 40.63 20.81 3.94

110.16 6.72 (1.39) 24.05 6.04 5.51

(26.14) (19.50) (18.23) 11.09 (4.92) (9.12)

(4.88) LESS: CURRENT LIABILITES & PROVISIONS CURRENT LIABILITES PROVISIONS

11.13

27.63 9.97

(.44) 19.09

6.98 4.24

(20.52) (8.88)

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

INCOME INCOME FROM SERVICES OTHER INCOME (a) EXPENDITURE EMPLOYEES REMUNERATION & BENEFITS REVENUE SHARING LICENCE FEES ADMN., OPERATING & OTHER EXP. DEPRECIATION INTEREST (b) PROFIT BEFORE TAX c=( a b) PROVISION FOR TAXATION PROVISION FOR DEFFERED TAXATION

2005
58065.30 2236.91 60302.21

2006
63695.99 3143.31 66839.30

2007
55820.70 4917.18 60737.88

2008
55609.85 5300.13 60909.98

14338.53 8383.14 5818.16 10166.21 8670.42 328.19 47704.65 12597.56 3020.00 580.32

16193.70 11822.79 6429.58 9749.57 5437.95 346.20 49979.79 16859.51 3753.71 759.77 4513.48 12346.03 841.25 11504.78 11504.78

18361.06 8781.99 4971.63 10228.34 5880.07 358.12 48581.21 12156.67 2566.90 105.51 2672.41 9484.26 94.47 9389.79 9389.79

19053.12 12263.19 4589.59 11579.15 6466.99 244.36 54196.40 6713.58 560.76 376.19 936.95 5776.63 (26.29) 5802.92 5802.92

(d) PROFIT AFTER TAX e=(cd) PRIOR PERIOD ADJUSTMENTS (f) PROFIT FOR THE YEAR g=(e-f) PROFIT AVAILABLE FOR APPROPRIATION

3600.32 8997.24 225.69 8771.55 8771.55

(The above figures are in rupees million)

79

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

PARTICULARS
INCOME INCOME FROM SERVICES OTHER INCOME (a) EXPENDITURE EMPLOYEES REMUNERATION & BENEFITS REVENUE SHARING LICENCE FEES ADMN, OPERATING & OTHER EXP. DEPRECIATION INTEREST (b) PROFIT BEFORE TAX c=( a b) PROVISION FOR TAXATION PROVISION FOR DEFFERED TAXATION (d) PROFIT AFTER TAX e=(cd) PRIOR PERIOD ADJUSTMENTS (f) PROFIT FOR THE YEAR g=(e-f) PROFIT AVAILABLE FOR APPROPRIATION

2005
(5.48) (9.92) (5.66)

2006
9.67 40.52 10.84

2007
(12.36) 56.43 (9.13)

2008
(.37) 7.78 0.28

4.12 (15.11) (12.44) 42.11 6.19 13.81 3.93 (30.10) (38.83) (27.08) (31.24) 186.55 (32.56) (32.56)

12.93 41.03 10.50 (6.75) (37.28) 5.48 4.76 33.83 24.29 30.92 25.36 37.22 272.74 31.16 31.16

13.38 (28.51) (22.94) 10.40 8.13 3.44 (2.79) (27.89) (31.61) (86.11) (40.79) (23.17) (88.77) (18.38) (18.38)

3.76 39.64 (7.68) 13.20 9.98 (31.76) 11.55 (44.77) (78.15) 256.54 (64.93) (39.09) (127.82) (38.19) (38.19)

80

Cash flow statement for the years (2005-2008)

Particulars Cash flow from operating activities Net profit before tax and ordinary items Adjustment for Prior period adjustment (net) Profit on sale of fixed assets Loss on sale of fixed assets Depreciation Compensation charged under VRS scheme Compensation paid under VRS scheme Interest cost Interest income Interest paid Operating cash profit before working capital changes Adjustment for Trade and other receivables Inventories Trade and other payables Cash generated from operations Direct taxes paid Net cash flow from operating activities Cash flow from investing activities Purchase of fixed assets (Including capital W.I.P) Sale of fixed assets Interest received Investment Net cash flow from investing activities Cash flow from financing activities Repayment of loans Dividend paid (including tax) Net cash flow from financing activities Net increase/decrease in cash and cash equivalents Cash and cash equivalents as at the beginning of the year Cash and cash equivalents as at the end of the year (6292.64) 24446.52 18153.88 7376.40 18154.64 25531.04 (357.06) 25531.04 25173.98 (4589.99) 25173.98 20583.99 12597.56 (198.37) (10.84) 89.86 8672.75 16859.51 (538.87) (7.67) 115.18 5437.95 12156.67 (12.85) (8.50) 208.08 5880.07 6713.58 55.22 (6.70) 94.27 6466.99 285.63 (1428.11) 244.36 (4009.42) (244) 8171.82 2005 2006 2007 2008

26.32 (1634.53) (21.83) 19520.92

346.20 (1748.11) (331.55) 20132.64

358.12 (2478.46) (360.68) 15742.46

8344.92 1275.11 15324.66 44465.61 (8326.70) 36138.92 (12061.94) 19.77 1319.35 (2683.35) (13406.17) (26190.38) (2835.00) (29025.38)

2556.44 609.74 4657.52 27955.99 (9695.26) 18260.73 (9336.65) 57.71 1694.74 (96.82) (7681.01) (5.43) (3198.23) (3203.67)

(3984.34) (978.17) 6079.08 16859.02 (4731.95) 12127.08 (10276.54) 79.24 2514.92 (167.72) (7850.10) (3.87) (4630.17) (4634.04)

(6315.88) 487.90 (5848.67) (3504.82) 5637.95 2133.13 (6595.37) 26.28 4010.92 (212.59) (2770.75) (1.40) (3950.97) (3952.37)

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.

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