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A Study on Financial Statement Analysis of UniverCell

INDUSTRIAL BACKGROUND
For the Indian Retail Industry, these are exciting times. An economic recession or two notwithstanding, the Indian retail industry has been growing at a fast clip. The current size of the overall retail market in India is estimated to be about USD 400 billion ( Rs 18,00,000crores), and the industry has been clocking healthy two digit growth rates over the last many years. Currently, the Indian retail market is the fifth largest in the world, and is one of the fastest growing among the emerging markets category. While the present scenario is exciting, the future seems to be still brighter. It is expected that retail will contribute about 23% of the overall GDP within the next three years, and the market size estimates vary between USD 750 billion (Rs 35,00,000 crores) to a mind boggling USD 1.25 trillion (Rs 55,00,000 crores), depending upon which analyst you want to believe. While these figures are understandably minded boggling, these numbers are hiding a curious story which needs to be told. To put things in proper perspective, I would again present a set of figures about the biggest retailer in the world, Wal Mart. In fact, calling Wal Mart a retailer would be a huge understatement many people believe it is an industry in itself. Why? Here is why Wal Mart 2009 turnover was an estimated USD 400 billion dollars (approx), almost equal in size to the WHOLE of Indian retail Industry. Another fact The number of employees in Wal Mart stores is around 1.3 million (13 lakhs), about the size of the Indian Army!

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A Study on Financial Statement Analysis of UniverCell

Indian Retail Sector


Like many other industries in India, the Indian retail sector is also dominated by the unorganized sector. Almost every road that you take in any Indian city or town, you will find a general store or a modest kirana shop after every hundred steps or so! Retail is a big employer in India though the estimated numbers vary from 3 million (30 lakhs) to somewhat unbelievable 60 million (6 crores) retailers! This makes it the biggest in the world, if the sheer number of retailers is taken into account. And it is in these huge numbers that the Indian unorganized retail industry finds its protection. The government is of the view that the entry of organized retail, especially the FDI led variety, will threaten these numbers. The powerful traders unions across the country have also been persistent against the entry of organized retailers and FDI into the sector.

Organized Retailers Still Insignificant Players


The organized sector, identified as malls/multiplexes/supermarkets is still at a nascent stage, and is unlikely to prove a threat to the unorganized sector for many, many years to come. The retail segment itself is growing so fast that it will absorb any fresh additions to the supermarkets very easily, and the unorganized sector will still continue to grow. Even currently, the organized segment constitutes a very modest 7-8% of the overall retail market. This alone proves that there is a long way to go for organized retail, before it can even present itself as an alternative to small traders.

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A Study on Financial Statement Analysis of UniverCell Besides there are a number of reasons which clearly vouch for the fact that India will continue to be dominated by small retailers for a long time to come. Such as

Even the biggest of domestic players in organized retail lack the muscle and resources to cater to significant proportion of Indian population. It takes a lot of time and money for an organized retailer to show decent profits in Indian situations, and the weaker ones will continue to fall by the wayside remember Shubhiksha!

The bulk of future growth in retail will come from rural population, which is a segment that organized retailers will not be able to cover for a number of reasons poor infrastructure, operational difficulties, and remoteness of markets and the sheer size of the Indian market.

Peculiarities of the Indian customers, which make it a very unpredictable lot. Even for a large section of able and affluent buyers, malls are mostly for hanging out and family outings purchasing is still done at the friendly neighborhood kirana store. And however much marketing gurus like to tout the changing mindset and the increased purchasing power of the Indian customer the truth is she still feels that supermarkets/malls are expensive.

The biggest draw for organized retail all over the world has been an innovative format called the discount stores. These stores sell grocery items at hugely discounted prices, for the simple reason that high margins make such a move possible. In India, the margins are already wafer thin, even at the retailers level. Therefore,

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A Study on Financial Statement Analysis of UniverCell supermarkets will find it very hard to attract customers on the price front unless they are ready to bear huge losses for a long, long time.

Despite of what the media and business leaders want us to believe, the average Indian customer has very limited purchasing capacity. Even the affluent buyers are not profligate spenders we Indians love to extract maximum value for money. Purchasing at the local kiranawalla gives us valuable opportunity to bargain!

Most important of all, the smaller retailers, shopkeepers and kiranawallas are learning very fast, and are willing to provide exceptional customer service at no extra cost. For example, my residence is about the same distance from the nearest supermarket, and the nearest kirana store. I have to make a phone call to the kirana shop, and the delivery boy will reach my place within 10 minutes, even if I order goods worth Rs 50. On the other hand, the supermarket undertakes to home deliver all purchases above Rs 2000 within 24 hours of purchase, within two kilometers! Ahh, the virtues of competition customer is truly the king!

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A Study on Financial Statement Analysis of UniverCell

THEORETICAL BACKGROUND:
Introduction to finance
According to Gutham and Dougali, Business finance can be broadly defined as the activity concerned with planning, raising, controlling and administering of funds used in the business Finance studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time taking into account the risks entailed in the projects. The term Finance may thus incorporate any of the following: The study of money and other assets The management and control of those assets Profiling and managing project risks The science of managing money As a verb, to finance is to provide funds for business or for an individuals large purchases (car, home, etc)

Need for Finance


Finance is the activity concerned with planning, raising, controlling and administering of funds used in the business:
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A Study on Financial Statement Analysis of UniverCell

To purchase fixed assets such as land, building, machinery etc

To pay for purchase of raw materials, wages etc To replace existing assets or acquire new assets To hold stock of materials and finishing goods To expand the existing business

Finance function
Finance function includes: Investment decision Finance decision Dividend or Project allocation decision Liquidity decision

Introduction to Financial Management


By financial management we mean efficient use of economic resources namely capital funds. Financial management is concerned with the managerial decisions that result in the acquisition and financing of a short term and long term credits for the firm. Here it deals with the situations that require selection of specific assets or a combination of assets and the selection of specific problem of size and growth of an enterprise. Herein the analysis deals with the expected inflows and outflows of funds and their effect on managerial objectives. In short, financial management deals with Procurement of funds and their effective utilization in the business.
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A Study on Financial Statement Analysis of UniverCell So the analysis simply states two main aspects of financial management like procurement of funds and an effective use of funds to achieve business.

Objectives of Financial Management


Efficient Financial Management requires the existence of some objectives, which are as follows: Profit Maximization Wealth Maximization

Scope of financial management


Sound financial management is essential in all types of organizations whether it be profit or non profit. Financial Management is essential in a planned economy as well as in a capitalist setup as it involves efficient use of the resources. From time to time it is observed that many firms have been liquidated not because their technology was obsolete or because their products were not in demand or their labor was not skilled and motivated, but that there was not in demand or their labor was not skilled and periods, when a company make high profits there is also a fear of liquidation because of bad financial management. Financial management optimizes the output from the output from the given input of funds. In a country like India where resources are scarce and the demand for fund are many the need of proper financial management is requires. In case of newly started companies with a high

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A Study on Financial Statement Analysis of UniverCell growth rate it is more important to have sound financial management since finance alone guarantees their survival. Financial management is very important in case of non-profit organizations, which do not pay adequate attentions to financial management. However a sound system of financial management has to be cultivated among bureaucrats, administrators, engineers, educationalists and public at large.

FINANCIAL PERFORMANCE
Financial Performance is about knowing how the firm is doing and what its financial condition is. The stakeholders of a firm viz., shareholders, creditors, suppliers, managers, employees, tax authorities, and others are interested in broadly knowing about the firms financial conditions. Of course, their specific concern may differ. Trade creditors and short - term lenders are interested primarily in the short term liquidity of the firm and its ability to pay its dues in the next 12 months or so. Term lending institutions and debentures holders have a relatively longer time horizon and are concerned about the ability of the firm to service its debt over the next five to ten years. Long term shareholders and managers who want to make a career with the firm are interested in the profitability and growth of the firm over an extended period of time. To understand the financial performance and condition of a firm, its stakeholders look at their financial statements. The Balance Sheet The Profit and Loss Account

Analyzing Financial Performance


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A Study on Financial Statement Analysis of UniverCell Financial analysis depends primarily on financial statements to diagnose financial performance. If properly analyzed and interpreted, financial statement can provide valuable insights into a firms performance. Financial Statements, their uses and significance The two financial statements viz. the Balance Sheet and the Profit and Loss Account aid the understanding of a firms financial performance.

Balance Sheet
The Balance Sheet shows the financial condition of a business at a given point of time, in terms of assets and liabilities. Assets are classified into the following categories: fixed assets, investments, current assets, loans and advances and miscellaneous expenditures and losses. Liabilities are classified as follows: share capital, reserves and surplus, secured loans, unsecured loans, current liabilities and provisions. As per the Companies Act, the Balance Sheet of a company shall be in either the horizontal form or the vertical form.

Profit and Loss Account


The Profit and Loss Account technically is an adjunct to the balance sheet because it provides details relating to net profit, which represents the change in owners equity. Yet, in practice it is often considered to be more important than the Balance Sheet because the details of revenues and expenses provided in the Profit and Loss Account shed considerable light on the performance of the business. There is no prescribed standard format to make this account. However, the Companies Act does require that the information provided should be adequate to reflect a true and a fair picture of the operations of
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A Study on Financial Statement Analysis of UniverCell the company for the accounting period. The important items in the profit and Loss Account are: net sales, cost of goods sold, gross profit, operating expenses, operating profit, non-operating surplus/ deficit, profit before interest and tax, interest, profit before tax, tax, and profit after tax. Thus the Balance Sheet shows the financial position or condition of a firm at a given point of time. It provides a snapshot and may be regarded as a static picture. The income statement referred to in India or Profit and Loss Account reflects the performance of a firm over a period of time. With this background of Financial Performance, Financial Statement Analysis with special reference to Ratio Analysis is studied in depth as a main objective of the project under consideration. Note that the Companies Act requires that the Annual Report of the company, a public document that is sent to shareholders, contain the Balance Sheet, the Profit and Loss Account, the Directors report, and the Auditors report. Though not presently required by law, most companies present Fund Flow Statement and Cash Flow Statement as well in the Annual Report.

Meaning and concept of financial analysis


The term financial analysis also known as analysis and interpretation of financial statements, refer to the process of determining financial strength and weakness of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data. In word of Myers, Financial management analysis is largely a study of relationship among the various financial factors in a business as disclosed
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A Study on Financial Statement Analysis of UniverCell by a single set of statements, and a study of the trend of these as shown in a series of statements. In words of Metcalf and Titard, Analyzing financial statements is a process of evaluating the relationship between component parts of a financial statement to obtain a better understanding of a firms position and performance.

MEANINGS AND DEFINITIONS:


FINANCIAL STATEMENT Financial statements are those statements, which provide detailed information about the firms resources, assets, liabilities and profits and losses. ANALYSIS OF FINANCIAL STATEMENT Financial statement analysis is the process of critically examining and identifying the extent and reasons for the changes in assets, liabilities, owners capital, expenses and income in balance sheet and income statement of two dates INTERPRETATION OF FINANCIAL STATEMENT Interpretation is explaining the financial statement analysis in simple language, which may be understood by a layman. ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT According to Kennedy and Memulla, the analysis and interpretation of financial statement is to understand the significance and meaning of financial statement data so that a forecast may be made on the prospects
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A Study on Financial Statement Analysis of UniverCell for future earning, ability to pay interest and debts maturities (both current and long term) and probability of a sound dividend policy.

NATURE OF FINANCIAL STATEMENTS The American Institute of Certified Public Accountants States the nature of financial statement as Financial Statement are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the states of investment in the business and the results achieved during the period under the view. They reflect a combination of recorded facts, accounting principles and personal judgements. The following features explain the nature of financial statement: Recorded facts Conventions Postulates Personal Judgement

Recorded facts
The term recorded faces refers to the data which are taken out of accounting records. The records are maintained on the basis of actual cost data. The historical cost is the basis of recording various transactions. The figures of various accounts such as cash in hand, cash at bank, bills receivables, sundry debtors, land & building, furniture, are taken as per the figures recorded in the accounting books.
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A Study on Financial Statement Analysis of UniverCell

Conventions
Certain accounting conventions should be followed while preparing financial statements. The materiality convention is followed in dealing with small items like pencils, match box, postal stamps etc. These items are treated as expenditure in the year in which they are purchased even though they are assets in nature. The accounting conventions make financial statements more simple and realistic.

Postulates
The accountant follows certain basic assumption while making accounting records. One of the assumptions is the business entity concept. This means business and businessman are two separate persons. So if the businessman used any goods or cash from business, it will be treated as drawings. Another important assumption is that the concern is treated as a going concern. The other alternate to this assumption is that the concern is to be litigated. These assumptions are known as postulates.

Personal Judgement
Although during the preparation of financial statements certain accounting concepts, principles are followed, but still personal judgement of accountant plays an important role. The selection of depreciation method, period for writing off intangible assets is some of the examples where judgement of the accountant will play an important role in selecting the most appropriate course of action.

Objectives of financial analysis and interpretation

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A Study on Financial Statement Analysis of UniverCell To interpret the profitability of various business activities with the help of profit and loss account. To measure marginal efficiency of the firm To measure the short term solvency of the business To ascertain earning capacity in the future period To determine future potential of the concern To measure utilization of various assets during the period To compare operational efficiency of similar concerns engaged in the same industry

Procedure for analysis and interpretation


The technique of analysis is to be selected on the basis of objectives. The assumptions, principles, practices, etc., followed in the preparation of financial statements are to be ascertained. Additional data and information required has to be collected. The data and information required has to be presented in a logical sequence. The data is to be analyzed for making comparative statements for computation of ratios and for ascertaining average and for estimating trends. Facts gathered from analysis are to be interpreted by considering the general state of the market and economy also. The interpreted data and information has to be presented in a suitable form.

TYPES OF FINANCIAL ANALYSIS


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A Study on Financial Statement Analysis of UniverCell There are two broad categories or classifications of financial analysis, and these are made on the basis of:

Nature of the analyst or the material used; The modus operandi of the analysis..

1) According to the nature of the analyst and the material used:


a)

External Analysis:

It is the analysis made by those persons who are not connected with the organization. They do not have any access to the detailed records of the Company and have to depend mostly on the published statements. Such type of analysis is made by investors, credit agencies, Government agencies and research scholars. b) Internal Analysis: Internal analysis is made by those who have an access to the books of an account. They are members of the organization. Analysis of financial statement or financial data for managerial purpose is the internal type of analysis. The internal analysis provides more reliable results than the external analysis because all the important information is at his disposal. 2) According to the modus operandi of the analysis: a) Horizontal (dynamic) Analysis: This analysis is made to review and analyze financial statements of a number of years and therefore based on financial data taken from several years. This is very useful for long term trend analysis and planning. Comparative financial statement is an example of this type of analysis
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A Study on Financial Statement Analysis of UniverCell b) Vertical (static) Analysis : This analysis is made to review and analyze the financial statements of one particular year only. Ratio analysis of the financial year relating to a particular accounting year is an example of this type of analysis.

. Methods of devices of financial analysis A number of methods or devices are used to study the relationship between different statements. They are: Comparative Statement Trend analysis Common size statement Fund flow analysis Cash flow analysis

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A Study on Financial Statement Analysis of UniverCell Ratio analysis Cost profit volume analysis Each of the above tools can be explained as follows.

1.

Comparative Statement Analysis:

In this technique, the statements are prepared to examine and compare the assets and liabilities, incomes and expenses of the current year. These statements exhibit the magnitude and direction of changes in the operating results and financial status of an organization. It provides columns to indicate the changes in absolute terms and also in percentage terms.
2.

Common-size Statement Analysis:

In this technique, statements are prepared to examine the changes that have taken place year after year in relation to total assets, total liabilities and net sales i.e. each of assets is expressed as a percentage of total liabilities. Again in the Profit and Loss Account each item is expressed as a percentage of sales.

3. Trend Analysis:
It helps in identifying the direction in which the organization is moving. It involves the ascertainment of arithmetical relationship of each item of several years within the same item of the base year. Normally first year is taken as base year.
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A Study on Financial Statement Analysis of UniverCell


4.

Cash Flow Analysis:

It refers to the analysis of changes in the financial position (between two accounting period) of a firm in terms of cash. Cash Flow statement explains the changes in cash position between two accounting periods. The term cash in Cash Flow Analysis refers to the inflow and outflow of cash.

5. Funds Flow Statement :


Funds Flow Analysis is a new contribution to the science of accounting and has become an important tool of financial analysis. Funds Flow Analysis refers to analysis of changes in funds, which represent working capital. It is carried out by preparing a Funds Flow Statement.

Characteristics of Financial Statements


The financial statements are prepared with a view to depict the financial position of a firm. An ideal financial statement has the following characteristics:

Depict the Financial PositionThe information contained in the financial statements should be such that a true & correct idea about the financial position of the firm is received. No material information should be withheld while preparing these statements.

Effective PresentationIt should be presented in simple manner to make it easily understandable. This characteristic enhances the utility of the statement.

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A Study on Financial Statement Analysis of UniverCell

RelevanceIt should be relevant to the objectives of the enterprise. The information that is irrelevant to the statements should be avoided; otherwise it will be difficult to make a distinction between what is relevant & what is not.

AttractiveIt should be prepared in such a way that important information is underlined so that it catches the eye of the leader.

EasinessIt should be easily prepared. The calculation work should be minimum, the size of the statement should be very large, and the columns used should be less. This enables saving time in preparing the statements & is easy for the person reading it as well.

Comparability It should be made in such a way that they can be compared to previous years statements. The statements can also be compared with the figures given in details will make it difficult to judge the working of the business.

Brief It should be given in brief. The reader will be able to form an idea about the figures more easily whereas figures given in details will make it difficult to judge the working of the business.
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A Study on Financial Statement Analysis of UniverCell Promptness It should be prepared & presented at the earliest possible. Immediately at the close of the Financial Year, statements should be ready.

Users of financial statements and the exact utility of the Finance Statements to the users
1. Shareholders or Owners The shareholders of a company are interested in the finance statements of the company with the view to ascertaining the profitability and the financial strength of the company, its prospects for future growth, and also the usefulness of the management to the company. 2. Financial Institutions and Commercial banks Financial institutions and commercial banks are interested in the financial statements of the borrowing concern to ascertain its short-term as well as long-term solvency and also its profitability. 3. Creditors Creditors (i.e., the suppliers of goods on credit) are interested in the financial statements of the purchasing concern to ascertain its short-term solvency or liquidity position (i.e., its ability to meet its current or shortterm liabilities out of its current or short-term assets). 4. Prospective Investors Prospective Investors are interested in the financial statements of a concern to ascertain its financial strength and future prospects.
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A Study on Financial Statement Analysis of UniverCell 5. Employees and Trade Unions The employees of a concern and the trade unions are interested in the financial statements of the concern to ascertain its profitability and ability to pay higher wages, bonus, etc. 6. Government The government is interested in the financial statements of a concern for the purpose of taxation and also for the purpose of regulating the activities of the concern. 7. Security or Investment Analysis Security or Investment is interested in the financial statements of a company to advise their clients whether to buy or sell the securities of that company.

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS


A financial statement analysis is a very important device but the person using this device must keep in mind its limitations of financial analysis. Its limitations are as follows: Historical in Nature of Financial Statement The basic nature of these statements is historical i.e. relating to the past period. Past can never be a precise index of the future and can never be 100 percentages helpful for future forecast and planning. Single year Analysis is not valuable and useful

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A Study on Financial Statement Analysis of UniverCell The analysis of these statements relating to a single year only will have limited use and value. It will not be advisable to depend fully on such analysis. The analysis should be extended to a number of years. Results may have different interpretations Different users may differently interpret the results or indications derived from the analysis of these statements. Example: a high current asset may suit the banker, a supplier of goods or short-term lender but it may be an index of insufficiency of management due to un-utilization of funds. Price level changes reduce the validity of the analysis The continuous and rapid changes in the value of money, in the present day economy also reduce the validity of analysis. Acquisition of assets at different level of prizes makes comparison useless as no meaningful conclusion can be drawn from a comparative analysis of such items relating to several accounting periods.

Shortcomings of tools of analysis:

There are different tools of analysis available to the analyst (i.e. trend analysis, ratio analysis, comparative statement).Which is to be used in a particular situation depends on the training and skills of the analyst. If wrong tool is used; it may give misleading results and may lead to wrong conclusions or inferences, which may be harmful to the interests of the business.

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A Study on Financial Statement Analysis of UniverCell

TITLE OF THE STUDY


The project has been undertaken with the aim of analyzing the financial health of UniverCell Telecommunications Ltd. for the purpose of analyzing the financial performance.

STATEMENT OF THE PROBLEM


Research is to study a subject in detail, specifically in order to discover new facts or test new ideas. It is to supply all the necessary facts and information for a particular aspect. As we know that todays economic scenario is highly competitive it becomes highly indispensable for a company to conduct a study on its financial position. This study will help the company in making new strategies to satisfy its customers and to its position in the local market. It will also help the company in assessing its strengths and weaknesses.

OBJECTIVIES OF THE STUDY


The purpose of financial analysis depends on the needs of the person who is analyzing these statements. These varying needs may be: a) To know the Earning Capacity or Profitability.
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A Study on Financial Statement Analysis of UniverCell b) To know the Financial Strength. c) To know the capability of payment of interest and dividend. d) To know the efficiency of management. e) To provide useful information's to the Management.

SCOPE OF THE STUDY


The study is in particular concerned with UniverCell

Telecommunications Limited and aimed of discovering strengths and weakness of the Company. This research seeks to investigate and constructively contribute to help the company in finding out the gray areas for the improvement in performance, the company to understand its own position over time, the managers to understand their attribution to the performance of the company.

NEED/PURPOSE OF THE STUDY


By such a study the company can detect its strength and weakness. It can compare itself as to what it is and where it is heading to in the future. It can further compare itself against the industry average. Such a study is of a great relevance and value to share holders, managers, investors, employees and government etc.

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A Study on Financial Statement Analysis of UniverCell

Research design used:


Ratio analysis- Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.

Data collection method:


Data is being collected from the secondary sources i.e from websites, journals and company book of financial records.

Source of data:
The study of financial performance of UniverCell Telecommunications Limited includes only secondary data. Journals Magazines Internet
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A Study on Financial Statement Analysis of UniverCell Newspapers

UniverCells website

Limitations of the Study:


1)

Predictability-

Financial statements reflect the past; they do not predict the future. They do not predict changes in sales due to increased research and marketing. They do not forecast the impacts on profitability from the entry and exit of competitors. The statements also provide no direct way of assessing whether recent performance trends -- such as sales and profit growth -will continue and for how long.
2)

Reliability-

It is often difficult to assess the reliability of financial statements. For example, the accompanying notes -- usually included at the end of the statements -- contain details that may not be readily apparent on the financial statements. This could lead to potential risks being overlooked: Enron turned into a disaster because research analysts missed the potential impact of its off-balance sheet holdings. Company may characterize a major customer loss as a delayed order rather than a loss or cancellation in order to buy time to find a replacement customer. Company often release unaudited statements, which are, by definition,
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A Study on Financial Statement Analysis of UniverCell less reliable than audited statements. However, even an audited and publicly disclosed financial statement is no guarantee of a company's health because company can routinely run into trouble.
3)

Comparability-

The financial statements of industry peers are usually compared to evaluate investment trade-offs. However, these comparisons may prove difficult because of differences in accounting methods, such as different fiscal year ends--a fiscal year can start on Jan. 1 or the first of some other month -- and different inventory valuation methods. The method determines the cost of goods (an income statement item) and the inventory (a balance sheet item) amounts, making financial statement comparisons difficult when company use different inventory valuation methods.
4)

Other Limitations-

Financial statements do not provide all the answers: For example, they cannot quantify the financial impact of senior management changes. The competitive environment is difficult to assess from financial statements: For example, there is usually no information on how many competitors were bidding on specific contracts.

Chapter Scheme:
1. General Introduction This chapter explains the different financial Strategies adopted by UniverCell in Bangalore. It also gives a theoretical background of the various aspects of the selected problems.
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A Study on Financial Statement Analysis of UniverCell 2. Introduction to the problem This chapter deals about analyzing the problem area of the UniverCell to get a clear cut idea about the financial position and the ways of how the financial pattern of UniverCell is.

3. Research Design This chapter deals with the methodology in the approach of the study. It includes all the framing of objectives to fieldwork and analysis, and gives a detailed description of the research design. 4. Company Profile This chapter reveals the detailed information about the company along with the important people, employees, products and services. 5. Data Analysis and Interpretation This chapter deals with the ratio analysis as the secondary source of data as there is no primary data for this.
6.

Findings

This chapter is all about what is being analysis from the previous chapter along with the derivations from the ratios. 7. Recommendations & Conclusions This chapter deals with the suggestions for the financial position of the company using the ratios.
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A Study on Financial Statement Analysis of UniverCell

Sathish Babu, FOUNDER, UniverCell Telecommunications


Landscape of the Telecom market
In the early days the Indian Mobile Retailing industry was highly fragmented with no organized retail players. Mobile handsets were expensive (an average price of USD 500 per handset), with the grey market players dominating the market. There were no branded showrooms to showcase an entire range of products.

The Entrepreneur
Mr. D. Sathish Babu founded UniverCell in November, 1997, selling post paid mobile connections as a Skycell Teleshop (now AirTel Connect). Studying the buying behavior of his customers, Sathish understood that what consumers really wanted was to make intelligent and informed

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A Study on Financial Statement Analysis of UniverCell shopping decisions in an ambience that combined both comfort and a high degree of service. In February 2000, using savings and some capital from family, Sathish opened Chennai's first large-format mobile retail store in an upscale location in Chennai, India. Since then, Sathish and UniverCell have been cresting the wave of the Indian mobile revolution from the retailing front, growing and evolving to become India's largest mobile retailer and one of India's best known brands. A strong believer in mind share, Sathish Babu has consistently promoted the UniverCell brand through the various mass media available to him. Using a clever mix of targeted advertising campaigns and promotions aimed at localities as well as generations, UniverCell is well entrenched in the hearts and minds of the Indian consumer. One can see and feel its presence through its large format retail outlets as well as in print, television, cinema, special event promotions, billboards and FM radio. Determined to take UniverCell and mobile phone retailing to the heights of excellence, Sathish constantly looks to incorporate innovative modern retailing concepts into his own organization. The series of core improvements initiated five years ago has now resulted in a world-class retailing organization that is powered as much by technology as by its people. The foundation for growth well in place, UniverCell has its sights on replicating its success Pan India. These same investments in technology and processes have earned UniverCell the ISO 9000-2001 certification (March 2004) for quality management systems. Strong relationships with all the manufacturers, the e-portal @ www.univercell.in and wap.univercell.in, its pan Indian presence,
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A Study on Financial Statement Analysis of UniverCell UniverCell has been able to leverage efficiencies of scale, providing the highest levels of service and options to consumers. UniverCell presenting a single face to its customers assures the same level of support (warranties, service, etc) from every single outlet across the country.

The UniverCell Workforce


The ability to attract, develop and retain a spirited, motivated and committed workforce is one of the key reasons for UniverCell's success. In keeping with the mobile generation, the average age of a UniverCell employee is 24, evenly distributed between girls and boys. From a team of five it has now grown to an organization with over 1500 employees.

The UniverCell Customers


There are 200,000 people buying UniverCell handsets every month. This is the highest of any retailer in India. One out of every three handsets sold in the market is from UniverCell. Its current customer base stands at 10 million. This includes numerous celebrities and other high profile customers as well as many of the top corporate organizations in the country.

The UniverCell Differentiators


UniverCell having the first mover advantage has pioneered its way
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A Study on Financial Statement Analysis of UniverCell through the mobile industry. The first mobile retailer to provide Bill & warranty on every purchase The first mobile retailer to implement 'Touch Feel' concept Exchange offers Easy Installments-0% interest, quick loan approvals Knowledgeable staff-groomed in customer service and soft skills Best After Sales Service Quality Management process ISO 9000-2001 certified One stop shop for mobile needs

Mobile phone e-shop, www.univercell.in

Mobile version of website wap.univercell.in Short code service SMS 55050 Door step delivery

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A Study on Financial Statement Analysis of UniverCell

Ratio
It is the mathematical relationship between two quantities in the form of a fraction or percentage.

Ratio analysis
It is essentially concerned with the calculation of relationships which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgment.

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A Study on Financial Statement Analysis of UniverCell

1) Current Ratio
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed as follows:

Significance / Uses:

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands.

If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations.

Ideal Ratio:
The ideal ratio of 2:1 is considered to be satisfactory.

Calculation of Current Ratio:

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 1
Current Ratio Particulars Current Assets Current Liabilities Current Ratio 2010 1,095.48 284.11 3.85583049 2009 868.02 280.66 3.092781 (Rs in Lakhs) 2008 891.74 72 12.38528

InterpretationThis table shows that the current ratio of the company is above the ideal ratio. It was highest in the year 2008 and then due to recession in 2009 it decreased from 12.39 to 3.09 which show that the growth rate of current assets is less than the growth rate of current liabilities.

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A Study on Financial Statement Analysis of UniverCell

Graph 1

InferenceThe company does not shows a ideal ratio of 2:1 which is an indication that the company is not-liquid and does not have the ability to pay its current obligation in time as and when they become due. The companys Current Ratio was above the ideal ratio 2:1 in all the 3 years.

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A Study on Financial Statement Analysis of UniverCell

2) Quick Ratio
It is also known as acid test or liquid ratio. It is calculated by dividing quick assets by liquid liabilities. Quick assets include all current assets minus stock and prepaid expenses. Liquid liabilities include all current liabilities minus bank overdraft.

Significance / Uses:
The quick ratio is very useful in measuring the liquidity position of a firm. That is the ability of a concern to meet its short-term obligations out of its quickly realizable assets. It is used as a complimentary ratio to the current ratio

Ideal ratio:
The ratio of 1:1 is considered ideal.

Calculation of Quick Ratio:

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 2
Quick Ratio Particulars Quick Assets Current Liabilities Quick Ratio 2010 1025.6371 284.11 3.61 2009 777.4282 280.66 2.77 (Rs in Lakhs) 2008 821.52 72 11.41

InterpretationThis table shows that the quick ratio is higher than the ideal ratio for all the three years as it was 11.41 in the year 2008 which is the highest of all three years.

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A Study on Financial Statement Analysis of UniverCell

Graph 2

InferenceFrom the above ratio it is clear that current assets are more than current liability in all the three years. This shows that the company is not well concerned about their current asset management.

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A Study on Financial Statement Analysis of UniverCell

3) Absolute Liquid Ratio


It is the relationship between cash and near cash items. Inventory and debtors are excluded from current assets.

Ideal ratio:

The ideal ratio is 0.75:1.

Calculation of Absolute Liquid Ratio:

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 3
Absolute Liquid Ratio Particulars 2010 2009 345.79 280.66 1.23206 (Rs in Lakhs) 2008 593.23 72 8.239306

Absolute Liquid Assets 345.56 Current Liabilities Absolute Liquid Ratio 284.11 1.21628947

InterpretationThis table shows the absolute liquid ratio for the last three years its constantly decreasing from 8.23 to 1.21 in the year 2010.

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A Study on Financial Statement Analysis of UniverCell

Graph 3

InferenceThere is an increase in the ratio in 2008 which show that the absolute liquid assets are adequate to pay its current liabilities in time. This is a good sign for the firm as the company is capable of meeting its short-term obligations. Ratio has fallen down in the year 2009 and 10.

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A Study on Financial Statement Analysis of UniverCell

4) Working Capital Turnover Ratio


It is directly related to sales, current assets. It indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of the year. Working Capital = Current assets Current liabilities

Significance/Uses
A high working capital turnover ratio shows the efficient utilization of working capital in generating sales. A low ratio, on the other hand, may indicate excess of net working capital. This ratio thus shows whether working capital is efficiently utilized or not. This ratio is considered better than stock turnover ratio as it shows the utilization of the entire working capital whereas stock turnover ratio indicates only the turnover of stock which is only a part of the working capital.

Calculation of Working Capital Turnover Ratio

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 4
Working capital turnover ratio Particulars Working Capital Net sales 2010 811.37 1,965.11 2009 587.36 1,608.28 2.73815 2008 819.74 1,216.44 1.483934 (Rs. in Lakhs)

Working capital turnover 2.42196532 ratio

InterpretationThis table shows the working capital turnover ratio and from the table we can see that it is 2.42 times for the year 2010 and it increased from 1.48 in 2008. So we can derive from the table that the working capital is efficiently being managed.

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A Study on Financial Statement Analysis of UniverCell

Graph 4

InferenceA higher working capital turnover shows that there is low investment in working capital and there is more profit. Here the company working capital is favourable as there is less amount of capital outlay in terms of working capital and the ratio has increased from 1.48 in the year 2008 to 2.42 in 2010.

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A Study on Financial Statement Analysis of UniverCell

5) Total Assets Turnover Ratio


The total asset turnover ratio provides a measure of overall investment efficiency by aggregating the joint impact of both short and long term assets. Lower total assets turnover indicate longer shelf life for inventory and slower collection of receivables, assuming cash balances and short term investments are not usually high .This indicates a cut back in demand for a firms product or sales to customers whose ability to pay is uncertain

Significance / Uses
It establishes a relationship among the total sales made by the business concern and the total assets hold by the company. It helps in keeping a track on the application of the owners fund. It reflects the potential liquidity of the company.

Calculation of total Asset Turnover Ratio

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 5
Total assets turnover ratio Particulars Total Assets Fixed Assets 2010 2,116.16 1020.68 2009 1,802.84 934.81 0.518521 2008 1,338.95 447.21 0.334001 (Rs in lakhs)

Total assets turnover 0.48232648 ratio

InterpretationThis table shows the total assets turnover ratio and from the table we can see that it is 0.48 for the year 2010 and it increased from 0.33 in 2008.

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A Study on Financial Statement Analysis of UniverCell

Graph 5

InferenceIt has been observed that the total asset turnover ratio for the year 2008 is 0.33 times, 0.51 times for the year 2009 and 0.48 times for the year 2010. The ratios indicate that the assets of the companys were properly utilized in past 3 years.

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A Study on Financial Statement Analysis of UniverCell

6) Net Profit Ratio


It establishes a relationship between net profit and sales. It indicates the firms capability to face adverse economic conditions such as price competition, low demand etc.

Significance / Uses
Net Profit Margin Ratio measures the overall efficiency of production, administration, selling, financing and pricing and tax management. Net Profit Margin Ratio provide a valuable understanding of the cost and profit structure of the firm and enable us to identify the sources of business efficiency or inefficiency.

The ratio indicates the quantum of profit earned by a concern, and indicates the firms capacity to face adverse economic conditions such as price competition, low demand, etc.

Calculation Of Net Profit Ratio

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 6
Net Profit Ratio Particulars Net Profit(PAT) net sales Net Profit Ratio 2010 274.34 1,965.11 13.9605416 2009 248.82 1,608.28 15.47119 (Rs in Lakhs) 2008 187.12 1,216.44 15.38259

InterpretationThis table shows the net profit ratio and from the table we can see that it is 13.96 for the year 2010, 15.47 in 2009 and 15.38 in 2008.

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A Study on Financial Statement Analysis of UniverCell

Graph 6

InferenceHigher is the profit better is the profitability. The ratio is favourable in all the three years. But the company net profit has fallen down in the year 2010 as compared to 2008 and 2009.

7) Operating profit Ratio


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A Study on Financial Statement Analysis of UniverCell This ratio establishes the relationship between operating profit on one hand and the sales on the other. In other words, it measures the profit in per unit of sales done.

Significance/Uses
It is the yardstick to measure the efficiency with which a business is operated. It shows the percentage of profit being made. A high operating profit ratio is considered favorable as it leaves a high margin of profit to meet non-operating expenses. A lower operating profit ratio is considered a bad sign.

Calculation of Operating profit Ratio

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 7
Operating profit ratio Particulars Operating profit net sales Operating profit ratio 2010 525.54 1,965.11 26.7435411 2009 335.51 1,608.28 (Rs in Lakhs) 2008 245.64 1,216.44

20.86142 20.19335

InterpretationThis table is shows the operating profit ratio and in the year 2008 it was 20.19 and in 2009 it was 20.86 and in 2010 it was 26.74

Graph 7
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A Study on Financial Statement Analysis of UniverCell

InferenceHigher is the ratio better is the profitability. The ratio is favourable in all the three years. But the company operating profit has fallen down in the year 2008 and 2009 as compared to 2010.

8) Current Assets turnover Ratio

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A Study on Financial Statement Analysis of UniverCell A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. Current Assets Turnover ratio shows the productivity of the company's current assets.

Significance/Uses
A higher Current Assets Turnover Ratios indicates the frequent use of current assets in sales and marketing efforts. Its shows the productivity of the companys current asset.

Calculation of Current Assets Turnover Ratios

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A Study on Financial Statement Analysis of UniverCell

Analysis:
Table 8

Current Assets turnover Ratio Particulars Current Assets Net sales Current Assets turnover Ratio 2010 1,095.48 1,965.11 1.7938346 2009 868.02 1,608.28 1.852814

(Rs. In Lakhs) 2008 891.74 1,216.44 1.36412

InterpretationThis table shows current assets turnover ratio in which in the year 2008 it was 1.36 and in the year 2009 it was 1.85 and in the year 2010 it was 1.79.

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A Study on Financial Statement Analysis of UniverCell

Graph 8

InferenceHigher is the ratio better is the profitability. The ratio is favourable in all the three years. And the company has maintained a constant ratio in all the three years.

9) Fixed assets Turnover Ratio


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A Study on Financial Statement Analysis of UniverCell A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E) - net of depreciation.

Significance/Uses
A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.

Calculation of Fixed asset turnover ratio

Analysis:
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A Study on Financial Statement Analysis of UniverCell

Table 9

Fixed assets Turnover Ratio Particulars Net sales Fixed assets 2010 1,965.11 1020.68 2009 1,608.28 934.81 1.720435

(Rs in Lakhs)

2008 1,216.44 447.21 2.720064

Fixed assets Turnover 1.9252949 Ratio

InterpretationThis table shows fixed assets turnover ratio and it shows that in the year 2008 it was 2.72 in the year 2009 it was 1.72 and in the year 2010 it was 1.92.

Graph 9
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A Study on Financial Statement Analysis of UniverCell

InferenceHigher is the ratio better is the profitability. The ratio is favourable in all the three years. But the companys ratio has shown a gradual change in all the three years.

10) Inventory Turnover Ratio


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A Study on Financial Statement Analysis of UniverCell Inventory Turnover ratio, is simply the turnover of the company divided by its stocks. It should always be compared against the average price of the ratio for the sector.

Significance/Uses

A low Inventory Turnover suggest poor sales and/or high investment in inventory - which is non-profitable and risky.

A high ratio implies either strong sales or ineffective buying.

Calculation of Inventory turnover ratio

Analysis:
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A Study on Financial Statement Analysis of UniverCell

Table 10
Inventory Turnover Ratio Particulars Cost of Goods Sold Average Stock Inventory Turnover Ratio 2010 1,439.58 2009 1,272.75 (Rs in Lakhs) 2008 970.81 56.01904 17.33

50.3878194 72.52137 28.57 17.55

Interpretation
This table shows inventory turnover ratio and here it is seen that in the year 2008 it was 17.33 in the year 2009 it was 17.55 and in the year 2010 it was 28.57.

Graph 10
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A Study on Financial Statement Analysis of UniverCell

Inference
Higher ratio indicates that more sales are being produced by a unit of investment in stocks. There is an increase in all the three years since it means that the investment in stock is leading to higher sales.

11) Debtors Turnover ratio


Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the
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A Study on Financial Statement Analysis of UniverCell number of times average debtors (receivable) are turned over during a year.

Significance/Uses

Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors are turned over a year.

The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are.

Similarly,

low

debtors

turnover

ratio

implies

inefficient

management of debtors or less liquid debtors.

Calculation of Debtors turnover ratio

Analysis:

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A Study on Financial Statement Analysis of UniverCell

Table 11
Debtors Turnover ratio Particulars Net sales Sundry Debtors Debtors Turnover ratio 2010 1,965.11 530.24 3.70607649 2009 1,608.28 321.77 4.998229 (Rs in Lakhs) 2008 1,216.44 199.15 6.10816

Interpretation
This table shows debtors turnover ratio and it is seen that in the year 2008 it was 6.10 in the year2009 it was 4.99and in the year 2010 it was 3.07.

Graph 11

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A Study on Financial Statement Analysis of UniverCell

Inference
Higher is the ratio better is the profitability as it indicates that debts are being collected more from promptly. The ratio is falling down from the year 2008 to 2010. It indicates inefficiency in collection of debts.

12) Gross Profit Ratio


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A Study on Financial Statement Analysis of UniverCell Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.

Significance/Uses

Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations.

It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is

Calculation of Gross profit ratio

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A Study on Financial Statement Analysis of UniverCell

Analysis
Table 12

Gross Profit Ratio Particulars Gross profit Net sales Gross Profit Ratio 2010 500.77 1,965.11 25.4830518 2009 323.75 1,608.28 20.1302

(Rs in Lakhs) 2008 242.85 1,216.44 19.96399

Interpretation
This table shows gross profit ratio and it is seen that in the year 2008 it was 19.96, in 2009 it was 20.13 and in the year 2010 it was 25.48.

Graph 12
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Inference
Higher is the ratio better is the profitability. The ratio is favourable in all the three years. It shows a good sign of the company.

FINDINGS
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A Study on Financial Statement Analysis of UniverCell


1)

From the study it is revealed that the current ratio of the firm in each of the three years is more than the ideal ratio of 2:1.This shows that the company is managing its current assets properly.

2)

The ideal ratio for quick ratio is 1:1.The Company is satisfying the ideal value in each of the three years.

3)

The ideal ratio for absolute liquid ratio is .75:1. The company has maintained a favourable ratio in all the 3 years.

4)

The working capital turnover ratio increased from the year 2008 which shows that working capital has been effectively managed.

5) The asset turnover ratio was not favourable in all the three years.
6)

There is a satisfactory result in net profit in all the 3 years which had a positive effect on the company. Net profit was constant in the year 2008 and 2009 and there was a slight fall in 2010.

7)

Operating profit was constant in the year 2008 and 2009, but there is an increase in the year 2010 which is a good sign for the company.

8)

The current asset turnover ratio is favourable in all the three years. And the company has maintained a constant ratio in all the three years.

9)

The fixed asset turnover ratio is favourable in all the three years. But the companys ratio has shown a gradual change in all the three years.

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A Study on Financial Statement Analysis of UniverCell 10) Inventory turnover ratio shows a better performance over the

3 years. There is a huge increase in the year 2010 which is good for the company.
11)

Higher is the debtor turnover ratio better is the profitability

as it indicates that debts are being collected more from promptly. The ratio is falling down from the year 2008 to 2010. It indicates inefficiency in collection of debts.
12)

The gross profit ratio is favourable in all the three years with

an average around 22. It shows a good sign of the company.

RECOMMENDATIONS
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A Study on Financial Statement Analysis of UniverCell

UniverCell needs to do efficient cash and inventory management which contributes a lot towards any companys profitability.

UniverCell is having a great positive sign of stable performer; the company should maintain this in future also by managing its resources very thoughtfully so that it exists in a long term.

The company should much not depend upon the loans as payment in future can be a problem.

The company should go for an IPO if it wants to run in the market for a long time and to inject fresh capital.

Company debtor is increasing year by year according to the debtors turnover ratio which shows inefficiency in debt collection; therefore which it be managed by the company and should be concerned about collection of debts.

CONCLUSIONS
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A Study on Financial Statement Analysis of UniverCell

From the above study it is revealed that the company overall performance is good in all the three years.

Company net profit has also shown a good result over all the three years which reflects the sound financial position of the company. Company working capital is effectively managed all the 3 years. Finally, the company is doing a great financial management and it is beneficial for the company in future.

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