Contents OBJECTVE OF STUDY…………………………………………………………………………………………………….……………7 EXECUTIVE SUMMARY………………………………………………………………………………………………………………8 CHAPTER 1 - INTRODUCTION ..................................................................................................

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1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Indian Telecom Sector………………………………………………………………………….………………..10 Indian Telecommunications at a glance………………………………………………….………………12 About Reliance Communications……………………………………………………………………………13 Mission: Excellence in Communication Arena…………………………………………………………14 Reliance Communications –Business Mix…………………………………….…………………………15 Highlights - at a glance on consolidated basis…………………………………………………………16 Corporate Information…………………………………………………………………………….…………..…17 SWOT Analysis……………………………………………………………………………………………………..…18

CHAPTER 2 - FINANCIAL STATEMENTS…………………………………………………………………….…………..…20
2.1 Understanding Annual Reports………………………………………..…………………………....………20 2.2 Basis of Preparation of Financial Statements………………………..……………………..…………22 2.3 Balance Sheet of RCOM……………………………………………………………………………..………..…23 2.4 Profit & Loss Account of Rcom………………………………………………..………………………………24

CHAPTER 3 - RATIO ANALYSIS………………………………………………………….…………………………………..…26  LIQUIDITY & SOLVENCY RATIOS: o CURRENT RATIO…………………………………………………………..………………………………..…27 o QUICK RATIO………………………………………………………………………………………..………..…27 o DEBT EQUITY RATIO………………………………………………………………………….………………28 o LONG TERM DEBT EQUITY RATIO………………………………………………..……………………29 o INTEREST COVERAGE…………………………………………………………………..……………………30  TURNOVER / EFFICIENCY RATIO o ASSETS TURNOVER RATIO…………………………………………………………………………………31 o DEBTORS TURNOVER RATIO…………………………………………………..…………………………32  PROFITABILITY RATIO  BASED ON SALES: o GROSS PROFIT MARGIN RATIO……………………………………………………………………33 o OPERATING PROFIT MARGIN………………………………………………………………………33 o NET PROFIT MARGIN………………………………………………………..…………………………34
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 BASED ON CAPITAL EMPLOYED: o RETURN ON NET WORTH…………………………………………………………………………….32 o RETURN ON CAPITAL EMPOYED………………………………………………….………………33 o RETURN ON ASSET……………………………………………………………………………….…..…36  VALUATION o EARNINGS PER SHARE (EPS) …………………………………………………………..…………………37 o DIVIDENDS PAYOUT RATIO NET PROFIT…………………………………………….………………37 o DIVIDENDS PAYOUT RATIO CASH PROFIT…………………………………………….……………38

CHAPTER 4 - CASH FLOW STATEMENT ……………..……………………………………………………….……………39 1.1 CASH FLOW ANALYSIS……………………………………………………………………..………………………….39

CHAPTER 5 - CONCLUSION …………………………………………………………………….……………………………….40

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OBJECTIVE OF STUDY

The main objective of this study is to carry on brief study on ―Analysis of four year balance sheet of Reliance Communications Ltd. through comparative balance sheet in Comparative Statement‖ through this we are able to get the difference of various assets and liabilities of the Reliance Communications Limited. Other objectives of this project are as follows: • To identify the various assets amount of the BSNL with respect to Annual Reports of the Reliance Communications Ltd. • Comparative study of four year Annual reports.

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It is done to find out whether the RCOM are improving our capital structure or not. in this Project Chapter 1 includes the Introduction of the sector and Company wherein we told about the Objectives of the study and profile of the Reliance Communications Limited. throwing light on the inflow and outflow of cash. Chapter 4 includes the Cash flow Analysis wherein the Cash flow Statements from 2008-2011 of RCOM are analyzed.EXECUTIVE SUMMARY This project is based on Balance Sheet and Profit & Loss accounts of the Reliance Communications Limited. 4 . Chapter 3 includes the Ratio Analysis wherein the Ratios of four consecutive years are analyzed. Chapter 5 represents the conclusion based on the annual report. Further. Chapter 2 includes the Financial Statements and basis of preparation of Financial Report wherein we have discussed the Policy of Accounting and Finance Policy of RCOM.

India. a subsidiary of the Reliance Group. India Fixed-line and mobile telephony.CHAPTER 1 – INTRODUCTION Reliance Communications Ltd. broadband segment includes broadband operations of the company. digital television. Global segment include national long distance and international long distance operations of the company and the wholesale operations of its subsidiaries. Established on 2004. and Other segment is consists of the customer care activities and direct-to-home (DTH) activities. Investment segment includes investment activities of the Group companies. RCOM is the world's 16th largest mobile phone operator with over 144 million subscribers. Industry Founded Founder(s) Headquarters Products Telecommunications 2004 Dhirubai Ambani Navi Mumbai. Maharashtra. The company has five segments: Wireless segment includes wireless operations of the company. (commonly called RCOM) is an Indian broadband and telecommunications company headquartered in Navi Mumbai. broadband and fixed-line internet services. IT and network services 5 .

all the telecom services have been opened for private participation. Indian telecommunication sector has undergone a major process of transformation through significant policy reforms. A major breakthrough was the clear enunciation of the government’s intention of liberalizing the telecom sector in the National Telecom Policy resolution of 13th May 1994. It has achieved a phenomenal growth during the last few years and is poised to take a big leap in the future also. following which radio paging. 6 .1.1 Indian Telecom Sector Introduction The telecom services have been recognized the world-over as an important tool for socio-economic development for a nation. Status of Telecom Sector The Indian Telecommunications network with 621 million connections (as on March 2010) is the third largest in the world. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. This has resulted in large number of manufacturing units been set up in the country. The Government has taken following main initiatives for the growth of the Telecom Sector: Liberalization The process of liberalization in the country began in the right earnest with the announcement of the New Economic Policy in July 1991. The sector is growing at a speed of 45% during the recent years. cellular mobile and other value added services were opened gradually to the private sector. Telecom equipment manufacturing was delicensed in 1991 and value added services were declared open to the private sector in 1992. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. Driven by various policy initiatives. It is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. As a result most of the equipment used in telecom area is being manufactured within the country. Presently. particularly beginning with the announcement of NTP 1994 and was subsequently re-emphasized and carried forward under NTP 1999. the Indian telecom sector witnessed a complete transformation in the last decade.

orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom market from a Government owned monopoly to a multi operator multi service open competitive market. In pursuance of above objective TRAI has issued from time to time a large number of regulations. orders and regulations issued cover a wide range of subjects including tariff. the Government announced the National Telecom Policy which defined certain important objectives. 7 . including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. The TRAI Act was amended by an ordinance. ensuring India’s emergence as major manufacturing / export base of telecom equipment and universal availability of basic telecom services to all villages. TRAI’s mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace. to regulate telecom services. between two or more service providers.National Telecom Policy (NTP) 1994 In 1994. The directions. 1997. established with effect from 20th February 1997 by an Act of Parliament. including availability of telephone on demand. establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. provision of world class services at reasonable prices. called the Telecom Regulatory Authority of India Act. improving India’s competitiveness in global market and promoting exports. TDSAT was set up to adjudicate any dispute between a licensor and a licensee. decision or order of TRAI. which promotes a level playing field and facilitates fair competition. The Telecom Regulatory Authority of India (TRAI) was. It also announced a series of specific targets to be achieved by 1997. interconnection and quality of service as well as governance of the Authority. One of the main objectives of TRAI is to provide a fair and transparent policy environment. which will enable India to play a leading role in emerging global information society. Telecom Regulatory Authority of India (TRAI) The entry of private service providers brought with it the inevitable need for independent regulation. effective from 24 January 2000. between a service provider and a group of consumers. attractive FDI and stimulating domestic investment. and to hear and dispose of appeals against any direction. thus.

385 (Out of 5.2 Indian Telecommunications at a glance (As on 31st March 2010) Rank in world in network size 3rd Tele density (per hundred populations) 52.69.28 Village Public Telephones inhabited 5.601 uncovered villages) Foreign Direct Investment (in 4070 millions) (from April 2000 till March 2010) Licenses issued Basic 2 CMTS 38 UAS 241 Infrastructure Provider I 219 ISP (Internet) 371 National Long distance 29 International Long Distance 24 8 .95 Mobile 548.1.32 Total 621.93.74 Telephone connection (In millions) Fixed 36.

Reliance Communications has established a pan-India. covering over 24.5 million individual overseas retail customers. 2011 including over 2.000 kilometers of fibre optic cable systems in India. with a customer base of 142 million as on March 31. ranks among the Top 4 Telecom companies in the world by number of customers in a single country.77. data and video) digital network that is capable of supporting best-ofclass services spanning the entire communications value chain. convergent (voice.1. The Company.000 towns and 600. integrated (wireless and wireline).000 villages. Europe. one of the leading business houses in India. Middle East and the Asia Pacific region. comprising over 2. regional and domestic carriers. USA. Reliance Communications is India’s foremost and truly integrated telecommunications service provider. next generation. 9 .000 Indian and multinational corporations including small and medium enterprises and over 800 global. Reliance Communications owns and operates the world’s largest next generation IP enabled connectivity infrastructure. Reliance Communications corporate clientele includes over 35.3 About Reliance Communications Reliance Communications Limited is the flagship Company of Reliance Group.

efficient and financially sound organisation. the environment and above all. To earn the trust and confidence of all stakeholders. talent and value systems. the people. To promote a work culture that fosters individual growth. To encourage ideas. reliability.4           Mission: Excellence in Communication Arena To attain global best practices and become a world-class communication service provider – guided by its purpose to move towards greater degree of sophistication and maturity. exceeding their expectations and make the Company a respected household name. To uphold the guiding principles of trust. safety and customer care as the ultimate goal. quality. 10 . To be a technology driven. dedication and innovation to achieve excellence in service. team spirit and creativity to overcome challenges and attain goals. To work with vigour.1. To contribute towards community development and nation building. integrity and transparency in all aspects of interactions and dealings. To consistently achieve high growth with the highest levels of productivity. To be a responsible corporate citizen nurturing human values and concern for society.

5 RELIANCE COMMUNICATIONS – BUSINESS MIX Wireless • Mobile (CDMA. GSM & 3G) • VAS (Mobile World) • Wireless Data • Fixed Telecom Infrastructure • Multi tenancy towers • Pan-India coverage • Backhaul • Support Globalcom • Submarine cable • Ethernet Data services • Global Managed Network Enterprise • Internet Data Center • Broadband • Leased Line • Office Centrex • MPLS & VPN Home • DTH • IPTV Other businesses Tech Services • Leveraging Internal IT Development Capabilities BPO • Expertise in Telecom BFSI. Utilities & Media Retail 11 .1.

Annual report 12 .1.6 Highlights .at a glance on consolidated basis 1 1 Rcom.

7 CORPORATE INFORMATION Board of Directors Shri Anil Dhirubhai Ambani .2011) Shri Prakash Shenoy (w.f. P. J.e. Talwar Shri Deepak Shourie Shri A. 1st Floor Dhirubhai Ambani Knowledge City Navi Mumbai 400 710 Maharashtra. Registered Office H Block.05.06.2011) Auditors M/s.Chairman Prof. Purwar Company Secretary and Manager Shri Hasit Shukla (upto 31. 01. B S R & Co. India 13 . Ramachandran Shri S. Chaturvedi & Shah M/s.1. K.

Big TV. history and products. Well-Funded.1 million) in FY2010. Strengths  Mobile Communications Arm of a Large. The company primarily operates in India. enterprise and carrier customers. The company also participates in submarine cable network infrastructure. where it is headquartered in Mumbai and employs 30.974 people. a decrease of 30. The company is part of the Reliance Anil Dhirubhai Ambani Group.365 million ($852.. The operating profit of the company was INR40. It operates a full spectrum of wireless. Its net profit was INR46. RCOM serves consumer.SWOT Analysis examines the company’s key business structure and operations.5 million ($4.550 million ($982. data. wireline. voice. Reliance Communications Limited . Reliance Communications (RCOM or ―the company‖) is an integrated communications service provider in India. and owns. Well-Connected and Ambitious Indian Conglomerate  Economies of Scale From Large Subscriber Base  Expertise in a Business Model That Allows It to Maintain High Profitability From LowerYielding Subscribers Weaknesses  Cost Structure Disadvantage With Subscribers Spread Across Two Different Mobile Networks  Low ARPU Compared With Competitors  Weakness in Rural Markets  Brand Positioning  Limited Availability of Value-Added Services 14 . and provides summary analysis of its key revenue lines and strategy.3% over 2009.366. a decrease of 23% over 2009. It also offers direct-tohome (DTH) TV services under the brand. The company recorded revenues of INR206. a decrease of 0. and long distance.6 million) during the financial year ended March 2010 (FY2010).8 SWOT ANALYSIS SWOT Analysis company profile is the essential source for top-level company data and information. such as wireless communications sites and towers.1. video and internet communication services.850.7 million) in FY2010.6% over 2009. operates and develops telecom infrastructure.

Opportunities  Aggressive Move Into the Rural Market  Use Upcoming Mobile Number Portability as "Launching Pad" to Grab Market Share of Higher ARPU Users — and Ramp Up Focus on Data Revenue  Overseas Investments  Lease Spare Capacity on Its CDMA Network to Mobile Virtual Network Operators Threats  Quicker Than Expected Slowing of Growth in the Indian Marketplace  Mobile Number Portability Risks Accelerating Churn of Subscribers From CDMA to GSM  New Competitors (2) PROBLEM BEING FACED • Lack of communication between retailers and distributor • Lack of proper distribution channel • Competitors 15 .

670). ―The goal of accounting information is to provide economic decision makers with useful information. 4. government agencies and research scholars. examine the cost of capital and other financial incentives for the company. Different users use financial statements differently and address different needs. and Carcello (2006. Financial analysis can be classified into four categories: 1.FINANCIAL STATEMENTS The financial statements have been prepared in compliance with the requirements of the Companies Act. It is time series analysis. Vertical Analysis: This analysis is made to review and analyse the financial statements of one year only. Internal Analysis: It is conducted by the management for the reason that the management wishes to know the financial position and operational efficiency of the organization. such as data providing investors on whether they should buy or sell certain companies’ stocks. Such analysis is called Static analysis as it is frequently used for referring to ratios developed for one date or for one accounting period. p. the researcher needs to use general tools of analysis. External Analysis: It is conducted by those persons who do not have access to the detailed record of the enterprise and therefore have to depend on published accounts and director’s and auditors reports.CHAPTER 2 . Horizontal Analysis: This analysis is made to review and analyse financial statements for a number of years and are. 16 .‖ according to Williams. 2. 1956. therefore. Such an analysis is useful in comparing the performance of several companies of the same type or divisions or departments of one enterprise. and Generally Accepted Accounting Principles (GAAP) in India. The important feature of this analysis is that as the management has access to all information relating to the organization so the analysis is more detailed. financial leverage. 2. such as ratios. It is useful for long-term trend analysis and planning. The Management Discussion and Analysis on Financial performance relates to consolidated Financial statements of the Company and its subsidiaries. industries.1 UNDERSTANDING ANNUAL REPORTS Investment capital is always moving between different markets. 3. Such type of analysis is performed by investors. based on financial data taken for those years. Users of financial statements determine market and financial trends within a company and in the external business environment through the use of financial statements. Haka. In the examination of HCLT annual reports for 2005 to 2009. extensive and correct. Bettner. The Group’s consolidated financial statements have been prepared in compliance with the standard AS 21 on Consolidation of Accounts and presented in a separate section of the Annual Report. and nations.

Each item of base year is taken as 100 and on that basis the percentages for each of the items of each of the years are calculated. but at the same time it suffers from certain limitations. 17 . It defines the sources from which cash was received and the purpose for which it was used. Since financial analysis is based on Financial Statements thus the limitations of Financial Statements are carried on to Financial Analysis. 4. It shows the source and uses of the working capital. Funds Flow Statement: They show changes in working capital position. A year. 2. Similarly the balance sheet the total of assets or liabilities is taken as 100 and all the figures are expressed as percentage of total. Ratio Analysis: This expresses the relationship between two accounting figures taken from financial statements of an accounting period in the form of a ratio. The method of calculating trend percentages involves the calculation of percentage relationship that each item bears to the same item in the base year. thus limitations of financial analysis is same as financial statements. Cash Flow Statement: They show changes in cash position from one accounting period to another. 5. Limitations: Analysis of financial statements helps the interested parties to ascertain the strength and weakness of the enterprise.Techniques A financial analyst can adopt the following tools and techniques for analysis of the financial statements: 1. Both profit and loss account and balance sheet are prepared in the form of comparative financial statements. In the profit and loss account the sale figure is assumed to be 100 and all figures are expressed as a percentage of sales. Comparative Financial Statements: These are statements in which figures for two or more periods are placed side by side along with change in figures in absolute and percentage terms to facilitate comparison. Common-Size Financial Statement: These statements express figures of a financial statement and percentage of a common base. 6. usually the earlier year is taken as base year. 3. Trend Percentages: They are immensely helpful in making comparative study of the financial statements for several years.

15. (iii) Intangible assets. 20 years (d) Software . (a) Telecom Licenses . in accordance with the generally accepted accounting principles (GAAP) in India and provisions of the Companies Act.18 years (ii) Leasehold Land is depreciated over the period of the lease term. A) Depreciation/ Amortisation Policy (i) Depreciation on Fixed Assets is provided on Straight Line Method at the rates and in the manner prescribed in Schedule XIV to the Companies Act.2. B) Inventories of Stores and Spares Inventories of stores and spares are accounted for at cost.10 years (c) Customer Premises Equipments .2 Basis of Preparation of Financial Statements The Financial Statements are prepared under historical cost convention and fair valuation under scheme approved by the High Court.18 years (b) Furniture. namely Telecom Licenses and Brand Licence are amortised equally over the period of Licenses. 1956 read with the Companies (Accounting Standards) Rules. The life of amortisation of the intangible assets are as follows. 18 . 2006 (Accounting Standard Rules) as well as applicable pronouncements of the Institute of Chartered Accountants of India (the ICAI). whichever is later. (a) Telecom Electronic Equipments .5 years (iv) Depreciation on additions is calculated pro rata from the following month of addition.3 years (d) Vehicles . Fixtures and Office Equipments .12. 1956 except in case of the following assets which are depreciated as given below.5 years (e) Ducts and Cables . IRC and Software are amortised from the date of acquisition or commencement of commercial services.5 to 20 years (b) Brand License . whichever is less.10 years (c) Indefeasible Right of Connectivity . determined on weighted average basis or net realisable value.

43 20.593.903.364.56 13.48 15.838.844.01 1.74 79.000.032.658.21 192.238.16 7.25 3.032.226.93 6.84 9.00 27.452.82 250.498.66 32.00 49.738.61 30.478.643.005.17 Mar '10 12 mths Mar '09 12 mths 1.00 51.86 31.223.22 534.46 16.46 4.13 306.37 10.407.533.336.22 1.01 0.032.214.14 1. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA.887.808.597.00 48.74 3.43 21.01 0.886.89 2.118.08 17.00 23.977.065.683.941.855.00 5.52 31.03 950.286.144.83 244.63 81.00 79.907.20 0.14 201.29 0.82 0.478.487.032.28 24.79 0.226.11 1.72 31.00 0.840.00 21.01 0.2.43 45.94 2.117.00 0.29 8.77 3.00 82.46 Mar '08 12 mths 40.543.365. Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) Mar '10 12 mths 1.55 0.00 19.690.274.53 3.63 7.15 6.093.47 0.72 9.57 13.01 0.25 0.00 19.26 39.898.94 0.00 47.00 45.69 16.392.612.551.466.61 233.21 6.782.597.65 1.270.26 20.00 50.277.407.958.02 16.032.000.50 0.688.576.813.593.01 1.225.66 37.32 4.01 0.57 0.00 50.73 120.60 298.17 12.482.00 5.92 2.22 1.88 0.01 1.61 82.31 0.177.26 25.35 19 .31 4.85 11.515.126.153.386.93 Mar '09 12 mths Mar '08 12 mths 1.53 0.35 10.3 BALANCE SHEET OF RCOM BALANCE SHEET IN RS.32 3.977.00 24.34 1.102.22 Mar '11 12 mths Application Of Funds Gross Block Less: Accum.774.028.590.555.063.032.969.27 28.89 3.17 9.746.032.48 1.02 0.01 1.904.00 7.903.00 74.112.25 23.272.032.01 18.836.90 9.38 31.00 7.89 17.00 0.28 74.088. CRORE Mar '11 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 1.00 0.840.13 0.75 253.17 3.126.023.69 30.

31 1.49 1.00 11.45 8.66 29.00 120.148.65 4.79 608.00 8.60 -757.25 2.93 9.06 20.253.361.707.00 16.27 672.455.00 14.00 1.554.77 0.618.24 8.00 9.855.00 -2.77 484.00 233.554.02 Mar '10 12 mths 13.153.52 1.00 165.980.60 2.78 0.95 138.102.802.00 3.640.229.00 244.197.11 0.640.32 754.78 0.00 3.81 0.29 6.00 1.53 15.59 1.05 0.086.11 1.129.974.79 Mar '08 12 mths 14.772.27 23.13 0.856.378.44 29.27 2.73 668.14 178.193.14 20.009.17 0.96 0.00 12.00 15.14 20.00 19.07 9.404.95 0.25 0.393.31 20.67 9.614.883.823.640.43 4.394.00 1.27 12.086.2.933.00 154.90 0.640.15 0.06 1.60 1.32 17.20 17.59 478.622.00 11.224.00 175.31 0.693.35 20 Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earnings Per Share (Rs) Equity Dividend (%) Book Value (Rs) 421.980.03 2.00 -757.82 870.66 0.792.00 15.27 -3.62 0.052.11 728.76 858.05 5.24 0.80 26.850.77 Mar '09 12 mths 15.66 0. CRORE Mar '11 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 12.586.173.45 2.39 144.12 28.43 15.99 0.99 11.843.17 Mar '10 12 mths 2.51 0.488.15 91.82 1.511.73 Mar '09 12 mths 5.17 0.291.52 0.26 .76 Mar '08 12 mths 6.84 3.56 5.93 11.53 0.58 64.84 898.127.837.00 250.92 159.00 13.67 10.05 520.234.76 1.648.129.39 7.291.64 4.369.642.27 16.883.00 6.792.66 2.310.00 103.88 Mar '11 12 mths 50.826.66 4.00 12.77 1.58 978.00 6.61 0.603.4 PROFIT & LOSS ACCOUNT OF RCOM PROFIT & LOSS IN RS.89 906.312.60 0.

helps managers invest in areas where the risk adjusted return is maximum. such as turnover ratios and leverage and profitability ratios. LIMITATIONS: Ratio analysis has its limitations. 21 .RATIO ANALYSIS Companies use calculations between different sets of data on the annual report to determine the short-term financial health and long-term financial health of the firm.  Ratio analysis helps in the assessment of the liquidity. ratio analysis can provide useful and reliable information if relevant data is used for analysis. Similarly. They do not indicate Future trends and they do not consider economic conditions CONCLUSION: Ratio analysis has a major significance in analysing the financial performance of a company over a period of time. The advantages of ratio analysis can be summarized as follows:  Ratios facilitate conducting trend analysis.CHAPTER 3 . which is important for decision making and forecasting. It should be compared with the base year ratio or standard ratio. operating efficiency.  Ratios are calculated on the basis of past financial statements. Inter-firm comparison may not be useful unless the firms compared are of the same size and age. per unit costs. profitability and solvency of a firm. which give the decision-maker insights into the financial performance of a company. ADVANTAGES: Financial ratios are essentially concerned with the identification of significant accounting data relationships. ―A ratio is a simple mathematical expression of the relationship of one item to another‖. Decisions affecting product prices.  Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. such as the cost of goods sold. not qualitative information. Ratios also provide the changes in a company caused by internal and external factors often not displayed in individual financial statement information. the computation of which is difficult as it involves the selection of a base year and the determination of standards. In spite of its limitations.  The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm. volume or efficiency have an impact on the profit margin or turnover ratios of a company. Understanding the inter-relationships among the various ratios. comparisons can be distorted by changes in the price level. These limitations are described below:  A ratio in isolation is of little help.  Ratios provide only quantitative information.  Even within a company. and employ similar production methods and accounting practices. decisions affecting the amount and ratio of debt or equity used have an effect on the financial structure and overall cost of capital of a company.

Even the quick ratio has been decreasing therefore company’s position is not as good as it was in 2009. YEAR CURRENT RATIO 2008 1.5 1 0. YEAR QUICK RATIO 2008 1.81 22 . QUICK RATIO: Quick Ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. CURRENT RATIO: Current ratio is a liquidity ratio that shows company’s ability to clear short-term obligations.70 2010 2.84 Current Ratio 3 2.63 2009 2.14 2011 1.5 2 1. Company is not doing well as the ratio is decreasing over the years i.72 2010 2.e. the financial health of company is decreasing since 2009.17 2011 1.5 0 2008 2009 2010 current ratio 2011 2.RATIO ANALYSIS  LIQUIDITY & SOLVENCY RATIOS: 1.65 2009 2.

Quick ratio 3 2.1 0 2008 2009 2010 2011 DEBT EQUITY RATIO 23 .5 0.5 1 0.3 0. DEBT EQUITY RATIO: Debt Equity Ratio is a measure of a company's financial leverage calculated by dividing its total liability by stockholders' equity.48 2011 0.60 2010 0.9 0. It indicates what proportion of equity and debt the company is using to finance its assets.5 0 2008 2009 2010 2011 Quick ratio 3.2 0.7 0.65 DEBT EQUITY RATIO 0.5 2 1. It has declined in 2010 which means that company is financing its growth with little debt. the debt ratio increased again.82 2009 0.6 0. YEAR DER 2008 0.8 0.4 0. In the year 2011.

25 0.05 0 2008 2009 2010 2011 LT DER 24 .44 2010 0.38 2011 .15 0.4.1 0.4 0. YEAR LTDER 2008 0.45 0.45 LT DER 0.3 0.35 0. LONG TERM DEBT EQUITY RATIO It is a ratio that indicates what proportion of debt a company has relative to its assets.2 0.5 0.48 2009 0. Low ratio here means company has low debts when compared to its assets.

36 2011 1. the more the company is burdened by debt expense. The lower the ratio. YEAR INTEREST COVERAGE 2008 5.12 2010 1.16 INTEREST COVERAGE 6 5 4 3 2 1 0 2008 2009 2010 2011 INTEREST COVERAGE 25 .5 or lower.01 2009 4. When a company's interest coverage ratio is only 1. which is the current scenario from 2010 onwards. its ability to meet interest expenses may be questionable. INTEREST COVERAGE: The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt.5.

net of depreciation .specifically property. plant and equipment . TURNOVER/ EFFICENCY RATIO: 6.77 2009 0.76 2010 0. ASSET TURN OVER RATIO: The asset turnover ratio measures a company's ability to generate net sales from asset investments .6 0.3 0.7 0.8 0.4 0.1 0 2008 2009 2010 2011 ASSET TURN OVER RATIO 26 .2 0.5 0.Since it has been decreasing over the years it means that company is becoming less effective in using investments in assets to generate revenue.63 2011 0. YEAR ATR 2008 0.30 ASSET TURN OVER RATIO 0.

7.72 2010 8.18 DEBTORS TURNOVER RATIO 16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 DEBTORS TURNOVER RATIO 27 .61 2009 11.42 2011 7. DEBTORS TURNOVER RATIO: YEAR DTR 2008 15.

 PROFITABILITY RATIO:  BASED ON SALES: 1. but the company’s Gross profit margin has been decreasing rapidly since 2009 which is affecting the health of the company. YEAR OPM 2008 41. A healthy operating margin is required for a company to be able to pay for its fixed costs.66 2010 16.84 2010 5.03 2011 0. YEAR GPMR 2008 29.18 2011 12. Gross profit margin serves as the source for paying additional expenses and future savings.87 GROSS PROFIT MARGIN RATIO 30 25 20 15 10 5 0 2008 2009 2010 2011 GROSS PROFIT MARGIN RATIO 2. Higher the margin.73 2009 34.85 28 .26 2009 21. Higher the margin better it is. GROSS PROFIT MARGIN RATIO: It is a financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. OPERATING PROFIT MARGIN: Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages. etc. raw materials. such as interest on debt. better it is for company but RCL’s margin has been decreasing every year.

OPERATING PROFIT MARGIN 45 40 35 30 25 20 15 10 5 0 2008 2009 2010 2011 OPERATING PROFIT MARGIN 3. NET PROFIT MARGIN: It tells about how effective company in controlling cost is. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss.33 2011 -6.47 2010 3. In 2011. RCL suffered losses as its net profit margin is negative.00 NET PROFIT MARGIN 35 30 25 20 15 10 5 0 -5 -10 2008 2009 2010 2011 NET PROFIT MARGIN 29 . YEAR NPM 2008 17.45 2009 30.

the better.80 2010 1. Here it shows that company’s efficiency and quality of its management has been decreasing steadily. It is expressed in the form of a percentage.41 2009 9. RONW( RETURN ON NET WORTH): RONW has been steadily decreasing here.29 2010 0. YEAR RONW 2008 10. Return on Capital Employed ratio also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets.97 2011 1.65 2009 4. It is a basic ratio that tells a shareholder what he is getting out of his investment in the company. BASED ON CAPITAL EMPLOYED: 1. and the higher the percentage. ROCE ( RETURN ON CAPITAL EMPOYED): It indicates the efficiency and profitability of a company's capital investments. YEAR ROCE 2008 9.57 RONW 12 10 8 6 4 2 0 2008 -2 2009 2010 2011 RONW 2.94 2011 -1.03 30 .

43 2010 244.26 RETURN ON ASSET 300 250 200 150 100 50 0 2008 2009 2010 2011 RETURN ON ASSET 31 .66 2011 233. the more efficient management is in utilizing its asset base YEAR ROA 2008 120.35 2009 250. RETURN ON ASSET: The return on assets (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return.ROCE 10 9 8 7 6 5 4 3 2 1 0 2008 2009 2010 2011 ROCE 3.

YEAR EPS 2008 12. VALUATION:  EPS (EARNINGS PER SHARE): It tells how much profit was generated on a per share basis.32 2011 -3.00 2009 4.40 2010 2.02 2010 42.71 2011 -- 32 . Earnings per share has decreased over the years i. company’s growth in earnings has plummeted down over the years.53 2009 11.e.67 EPS 14 12 10 8 6 4 2 0 -2 -4 2008 2009 2010 2011 EPS  DIVIDENDS PAYOUT RATIO NET PROFIT: YEAR DPR NET PROFIT 2008 7.

86 2010 10.27 2011 5.DPRNP 45 40 35 30 25 20 15 10 5 0 2008 2009 2010 2011 DPRNP  DIVIDENDS PAYOUT RATIO CASH PROFIT YEAR DPR CASH PROFIT 2008 14.73 DPRCP 16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 DPRCP 33 .38 2009 2.

32 -5868.87 6234.80 -11263. CRORE Mar '11 12 mths Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents -859.87 -7650.88 4339.18 Mar '09 12 mths 4815.47 3813. The net cash used in financing activities was reduced too much in the financial year 2010.1 CASH FLOW ANALYSIS The PBT decreased drastically from March 2009 to March 2011.25 639.64 82.40 192.74 81.12 3731. 34 .CASH FLOW STATEMENT OF RCOM CASH FLOW IN RS.47 1043.75 -2046.66 4.57 845.15 Mar '08 12 mths 2604.51 725. The net cash used in investment activities was much more in 2010 as compared to rest of the years taken in sample.54 6405.94 5807.58 205.09 2982.21 Mar '10 12 mths 619.66 -485.32 2240.CHAPTER 4 .07 1884.46 567.56 -2800. The cash flow from operating activities also decreased in 2011 as in comparison to 2009.

its ARPU has continuously slid and is the lowest among peers.000 crore. RCom had three years of anaemic growth in revenues and witnessed a steep decline in profitability. So I conlclude it’s not wise to invest in RCom. 2 Money control.000 crore. Reliance Communications (RCom) leads the way in underperformance. Apart from eroding realisations and average revenues per user (ARPU). prima facie with statistical data to prove my theory. which was subsequently called off was not taken too kindly by the markets. In the near-term. The failed deal with GTL Infrastructure saw the tower business of RCom commanding an enterprise value of Rs 50. huge payouts and piled up debt as a result of 3G license payout as well as continuing capex in 2010 posed severe challenges. First. especially in the listed space. The company has recently reduced the pace of subscriber additions and has also hiked tariffs. as it strives to improving realisations. it was the global slowdown in 2008. thus affecting margins. the company also grapples with stiff interest outgo on its debt.com 35 . Despite offering both GSM and CDMA services. The bid to sell its tower arm (Reliance Infratel) to GTL Infrastructure. the sale or an IPO of Reliance Infratel seem to be the best bet to shore up cash and reduce the interest burden of RCom. then the hyper tariff war happened in 2009 and finally. 2 The overhang of the 2G investigations too is not helping matters for the stock.CHAPTER 5 .CONCLUSION Among the top telecom players. in order to reduce its net debt of over Rs 32.