1

A DESSERTATION REPORT

On

“FINANCIAL ANALYSIS” OF

Bharat Sanchar Nigam Limited

Aligarh (U.P.)

IN THE PARTIAL FULFILLMENT OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION

2008-2010 UNDER THE GUIDANCE OF: SUBMITTED BY: MR NEERAJ GOGIA MOHD AKRAM (LECTURER) MBA (FINANCE) III SEM

/

DEPARTMENT OF MANAGEMENT STUDIES SHIVDAN SINGH INSTITUTE OF TECHNOLGY AND MANAGEMENT

(AFFIALIATED TO UP TECHNICAL UNIVERSITY LUCKNOW) 2008-2010

2

ACKNOLEDGEMENT

I extend my sincere gratitude to Mr. Neeraj Gogia

, my project guide for successful completion of the project. He has been a great support and guide to me during the entire dissertation. He has helped me throughout, from choosing the project till completed the project report. This project given me more confidence about the subject various concept of financial analysis of BSNL.

My sincerest gratitude also extends to Mrs. Shagupta Perveen who has taken a keen interest in my project from time to time, and encouraged me to perform to the best of my ability. I am also thankful to my faculty members for there support and help for completion of the project. Thank you all for your time & guidance in helping me achieving my goal of completing this project to the best of my ability. Mohd Akram Roll No-0800770035.

MBA2008-10

3

DECLARATION

I, MOHD AKRAM, hereby declare that the project on DESSERTATION

REPORT ON FINANCIAL ANALYSIS OF BHARAT SANCHAR

NIGAM LIMITED (BSNL) is written by me under the guidance of Mr.

Neeraj Gogia. The empirical conclusion & findings in the project are based

on the data collected by me and the entire project is not a reproduction of

any other sources.

Signature

Name-MOHD AKRAM

4

CONTENTS

Objective of the Project 9 Research methodology 10 Telecom industry 12 Major players & competitors 13 Break of telecom industry 14 SWOT analysis of BSNL 26 Assignment profile 30 Data Analysis and Findings 44 Conclusion 70 Suggestions & Recommendations 75 Appendix 78 Bibliography 85

5

EXECUTIVE SUMMARY

This project is based on Balance sheet and profit and loss accounts of the Bharat Sanchar Nigam Limited. It is done to find out whether the BSNL are improving our Capital structure or not. Further, in this Project Chapter 1 includes the introduction of the company wherein I told about the Objectives of the study and profile of the Bharat Sanchar Nigam Limited . Chapter 2 includes the Research Methodology wherein I have discussed the Research Design and Various sources of the Data Collection. Chapter 3 includes the Data analysis and Findings wherein I have analyze the data Collected from the departmental records, project reports and web site records Chapter 4 represents the conclusion and the suggestions based on the departmental Records and project report.

6

Chapter 1

Introduction of BSNL

7

FINANCE

Finance is the life blood and nerve center of the business. As circulation

of blood is essential in the human body for maintain life, finance is a very

essential to smooth running of the business. In present time financial

managers are instrumental to a company’s success. Where as once the

financial manager was charged only with such routine taken as keeping

records, preparing financial reports, managing the company’s

Financial case position and occasionally in other activities. Now-a-days a financial

manager is supposed to perform the following function as:-

• Financial forecasting and planning.

• Acquisition of funds

• Investment of funds

• Helping in valuation decisions

• Maintaining proper liquidity

Financial statements present a mass of complex data in absolute monetary terms and revel little about the liquidity, solvency and profitability of the business. In financial analysis, the data given in financial statement is classified into simple groups and a

Comparison of various groups is made with one another to pin-point the stung points and

weaknesses of a business.

8

Significance of the study

Now the day analysis of financial statements has become of general interest various

parties are interested in the financial statements of a business due to various reasons. By

analyzing the financial statements each party can as retain whether his interest is safe or

not.

The significance of the financial statements analysis for different parties is as follow:-

Significance to management:-

The management can measure the effectiveness of the

own polices and decisions, determine the advisability of adopting new policies,

procedures and document to owners, the result of their managerial efforts.

Significance to investors:-

With the help of financial analysis investors and share

holders of the business can know about the earning capacity and the safety to their

investments in the business.

Significance for creditors:-

Financial analysis tells them whether companies have

sufficient assets and funds to pay off its creditors.

Significance for government

:- Government can judge, the basis of analysis of financial

statements, which industry is progressing on the desired lines and which industry need

the financial help.

Significance to financial institution:- With the help of financial statement analysis

financial institution can know the profit earning capacity of the business and its long term

solvency.

Significance to employees

:- Analysis of financial statements helps the employees in

determining the true profit of the business enterprise.

9

OBJECTIVE OF THE PROJECT BSNL and to comment on the growth or decline of BSNL. My main objective of the

study on this project was to analyze the Annual reports of

And to do this work I have done some calculations like-

(a) Ratio analysis.

(b) Cash flow statement

I have also shown the following (a) SWOT analysis of BSNL

(b) Break up of Indian telecom industry.

10

Chapter 2

Research Methodology

11

RESEARCH METHODOLOGY

Achieving accuracy in any research requires in depth study regarding the subject. As the

prime objective of the project is to compare & analyze the annual reports of the BSNL

and to comment on the growth or decline in BSNL, Primary & Secondary both data was

used wherever needed.

Sources of secondary data were:-

Used to obtain information on BSNL, its history, current policies, competitor’s policies,

procedures, etc. wherever required.

(a) Internet.

(b) Annual reports provided by BSNL.

(c) Other documents related to BSNL.

Sources of Primary data were:-

(a) Personal observation.

(b) Interview method.

12

Telecom Industry

India's telecom sector has shown massive upsurge in the recent years in all respects of

industrial growth. From the status of state monopoly with very limited growth, it has

grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an

essential necessity for the people of India. This changing phase was possible with the

economic development that followed the process of structuring the economy in the

capitalistic pattern. Removal of restrictions on foreign capital investment and industrial

de-licensing resulted in fast growth of this sector. At present the country's telecom

industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone

companies were present, fixed landlines were popular in most parts of the country.

With government of India setting up the Telecom Regulatory Authority of India, and

measures to allow new players country, the featured products in the segment came in to

prominence. Today the industry offers services such as fixed landlines, WLL, GSM

mobiles, CDMA and IP services to customers. Increasing competition among players

allowed the prices drastically down by making the mobile facility accessible to the urban

middle class population, and to a great extends in the rural areas. Even for small

shopkeepers and factory workers a phone connection is not an unreachable luxury. Major

13

players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchinson Essar, BPL,

Tata, Idea, etc.

14

PLAYERS

PUBLIC PLAYERS

BSNL

MTNL

PRIVATE PLAYERS

BHARTI AIRTEL RELIANCE TATA VODAFONE

IDEA SHYAM

HFCL

AIRCEL

SPICE

BPL

15

Break up of Telecom industry

16

MARKET SHARE OF PUBLIC AND PRIVATE PLAYERS

17

MTNL Financial Year 2007-08 and BSNL Financial Year 2007-08

18

Subscriber trend of MTNL in fixed line telephony

20

03-0

4

2004

-05

2005

-06

2006

-07

2007

-08

S1012345

MTNL(IN MILLIONS)

CONNECTIONS

SUBSCRIBER TREND IN MTNL IN FIXED LINE TELEPHONY

Series1

19

Subscriber trend of BSNL in fixed line telephony

fixedline in BSNL

05

1015202530354045

2003-04

2004-05

2005-06

2006-07

2007-08

BSNL (IN MILLIONS)

CO

NN

EC

TIO

N

Series1

20

Market shares of private players (18%) in fixed line telephony

21

Subscriber base of private players in fixed line telephony

Private Players in Fixed line

00.5

11.5

22.5

33.5

44.5

Tata Tele

servic

es

Reliance In

focom

Bharti

Airtel

HFCL

Shyam

2007-08 in millios

cone

ctio

ns

Series1

22

Market shares of public players in Indian mobile telephony

23

Subscriber trend of MTNL in mobile telephony

MOBILE TELEPHONY

00.5

11.5

22.5

33.5

2003-04

2004-05

2005-06

2006-07

2007-08

MTNL IN MILLIONS

CO

NN

EC

TIO

NS

Series1

24

Subscriber trend of BSNL in mobile telephony

MOBILE TELEPHONY

02

46

810

12

2003-04

2004-05

2005-06

2006-07

2007-08

BSNL IN MILLIONS

CO

NN

EC

TIO

N

Series1

25

Market shares of private players (78%) in mobile telephony

26

Subscriber base of private players in mobile telephony

02468

10121416

connection

TataTeleservices

RelianceInfocom

Bharti AirtelIdea cellularvodafoneothers

in millions

Private players in mobile

Series1

27

SWOT Analysis of BSNL

STRENGTHS

No real Competition in core activity in the immediate future.

Highest market share in Delhi in terms of no. of landline connections.

Strong and talented workforce of 54000+.

High on cash.

Covers remotest corners of all over the country.

3G services.

28

WEAKNESS

Poor Customer Services

o Poor quality of services and complaint handling.

o Tedious customer application processing.

o Erratic and faulty billing.

o Unfriendly payment facilities.

Slow on implementation.

Poor marketing.

Poor system maintenance

Poor employee motivation

29

OPPORTUNITIES

Limited mobility market.

Booming telecom sector.

Per capita income is increasing.

Staff strength.

30

THREATS

New private players.

Increasing foreign investments.

Increasing no. of surrenders on landline connections.

Downward trend in tariffs.

Decreasing customer loyalty and the advantage of decades of monopoly is eroding.

31

Assignment profile

32

RATIO ANALYSIS

Financial statement analysis is a judgmental process. One of the primary objectives is

identification of major changes in trends, and relationships and the investigation of the

reasons underlying those changes. The judgment process can be improved by experience

and the use of analytical tools. Probably the most widely used financial analysis

technique is ratio analysis, the analysis of relationships between two or more line items

on the financial statement. Financial ratios are usually expressed in percentage or times.

Generally, financial ratios are calculated for the purpose of evaluating aspects of a

company's operations and fall into the following categories:

• Liquidity ratios

•

measure a firm's ability to meet its current obligations.

• Profitability ratios

•

measure management's ability to control expenses and to earn

a return on the resources committed to the business.

• Leverage ratios measure the degree of protection of suppliers of long-term funds

and can also aid in judging a firm's ability to raise additional debt and its capacity

to pay its liabilities on time.

Efficiency, activity or turnover ratios

provide information about management's ability to control expenses and to earn a return on the resources committed to the business

33

LIQUIDITY RATIOS

Working Capital

Formula

Working capital compares current assets to current liabilities, and serves as the liquid

reserve available to satisfy contingencies and uncertainties. A high working capital

balance is mandated if the entity is unable to borrow on short notice. The ratio indicates

the short-term solvency of a business and in determining if a firm can pay its current

liabilities when due.

Current Assets

- Current Liabilities

Acid Test or Quick Ratio

Formula

A measurement of the liquidity position of the business. The quick ratio compares the

cash plus cash equivalents and accounts receivable to the current liabilities. The primary

difference between the current ratio and the quick ratio is the quick ratio does not include

inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio

will be lower than its current ratio. It is a stringent test of liquidity.

Securities + Cash + Marketable Accounts Receivable

Current Liabilities

34

Current Ratio

Assets to current liabilities. A business's current assets generally consist of cash,

marketable securities, accounts receivable, and inventories. Current liabilities include

accounts payable, current maturities of long-term debt, accrued income taxes, and other

accrued expenses that are due within one year..

provides an indication of the liquidity of the business by comparing the amount of current

Formula

Current Assets

Current Liabilities

35

Return on Capital Employed

PROFITABILITY RATIOS

This ratio reflects the overall profitability of the business. It is calculated by comparing

the profit earned and the capital employed to earn it.

Formula

Return on Capital Employed =

Capital Employed

Profit before Interest, Tax and dividend *100

This ratio reveals how profitably the proprietor’s funds have been utilized by the firm.

Return on shareholder’s funds

Formula

Net profit after interest & tax

total shareholder’s funds

Net profit ratio

This ratio shows the relationship between net profit and sales.

Net Profit Ratio = Net Profit

Net Sales

* 100

36

Earning Per Share

This ratio measures the profit available to the equity shareholders on a per share basis.

All profits left after payment of tax and preference dividend are available to equity

shareholders.

Formula

EPS =

No of equity shares

Net Profit – Dividend on Preference Shares

Dividend per Share

DPS is the dividend distributed to equity shareholders divided by the no. of equity shares.

Formula

DPS =

No. of Equity Shares

Dividend paid to Equity Shareholder

Dividend Payout Ratio

It measures the relationship between the earnings available to equity shareholders and the

dividend distributed among them.

Formula

DP =

EPS

DPS * 100

37

Earnings and Dividend Yield

This ratio is closely related to EPS and DPS. While the EPS and DPS are calculated on

the basis of the book value of shares, this ratio is calculated on the basis of the market

value of shares.

Formula

Earnings Yield = EPS

Market value per share

* 100

Dividend Yield = DPS

Market value per share

* 100

Price Earning Ratio

It is computed by dividing the market price of a share by the EPS.

Formula

PE Ratio =

EPS

market price of the share

38

Debt Equity Ratio

SOLVENCY RATIOS

This ratio explains the relationship between the long term debts and share holders funds.

Formula

Debt Equity Ratio =

Equity

Debt

Debt to Total Fund Ratio

This ratio is a variation of the Debt Equity Ratio and gives the same indication as the debt

equity ratio. In this ratio, debt is expressed in relation to total funds.

Formula

Debt Total Funds Ratio =

Equity + Debt

Debt

Proprietary Ratio

This ratio indicates the proportion of total assets funded by owners or shareholders.

Formula

Proprietary Ratio = Equity

Total Assets

Fixed Assets to Proprietor’s Funds Ratio

39

This ratio indicates the extent to which proprietor’s funds are sunk into fixed assets.

Fixed Assets to Proprietor’s Funds Ratio =

Formula

Proprietor’s Funds

Fixed Assets

40

EFFICIENCY RATIOS

Indicates the turnover in working capital per year. A low ratio indicates inefficiency,

while a high level implies that the company's working capital is working too hard.

Sales to Working Capital (Net Working Capital Turnover)

Formula

Net Sales

Average Working Capital

Total Asset Turnover

Measures the activity of the assets and the ability of the business to generate sales

through the use of the assets.

Formula

Net Sales

Average Total Assets

Measures the capacity utilization and the quality of fixed assets.

Fixed Asset Turnover

Formula

Net Sales

Net Fixed Assets

41

Comparative financial statements

In order to estimate the future leagues of a firm it is necessary to look into the past

performance for this purpose, it becomes essential to make comparative shady of its

financial statements for two or more years. There statements not only show the absolute

figures from one year to another. In addition there statements may also show the change

from one year to another in percentage firm.

Such comparative statements are of guest value in forming the opinion regarding the

process of the enterprises:-

• Make the data simpler and more understandable.

• It indicates the study points and weak points of the concern.

• It is also helpful in indicating the fund.

• It is helpful in comparison of firm’s performance with average performance of

industry.

Trend percentage is very useful in making comparative study of the financial statements

for a number of years. This indicates the direction on movement over a long time and

help in forming an opinion as whether favorable or unfavorable tendencies have

developed.

Trend analysis:-

42

CASH FLOW STATEMENT

A Cash flow statement is a statement showing inflows (receipt) and outflows

(payments). In other words it is a summary of sources and applications of cash during a

particular span of time. It analysis the reasons for changes in balance of cash between two

balance- sheets dates. The term “Cash” here stands fore cash and cash equivalents.

USES OF CASH FLOW STATEMENT

1. Useful for short-term financial planning.

2. Useful in preparing the cash budget.

3. Comparison with the cash budget.

4. Study of the trend of cash receipts and payments.

5. It explains the deviation of cash from earnings.

6. Helpful in ascertaining cash flow from various activities separately.

7. Helpful in making dividend decision.

43

LIMITATIONS OF CASH FLOW STATEMENT

1. It does not present true picture of the liquidity of the firm because liquidity does not depend upon

cash alone. 2. Judged by the cash flow statement.

3. It is prepared on the cash basis and hence ignores one of the basic concepts of

accounting, namely accrual concept.

44

Chapter 3

Data analysis &Finding

45

CURRENT RATIO

YEARS 2005 2006 2007 2008

CURRENT ASSETS

125328.61 139278 146927.85 133520.28

CURRENT LIABILITIES

92683.93 101094.81 106681.03 91308.45

CURRENT RATIO

1.35 1.38 1.38 1.46

An ideal current ratio should be 2:1. But in none of the years the company

has achieved this ratio, it has always remained below this ratio, so this indicates that the

short term financial position of the company is unsatisfactory and the company is not in a

position to pay its current liabilities in time.

Comment

CURRENT RATIO

1.281.3

1.321.341.361.381.4

1.421.441.461.48

1 2 3 4

CURRENT RATIO

46

LIQUID RATIO

LIQUID RATIO

1.281.3

1.321.341.36

1.381.4

1.421.441.46

1 2 3 4

LIQUID RATIO

Comment

An ideal liquid ratio is 1:1.In all the years the company has shown a higher liquid ratio,

which is a very good indication of short tem financial position of a company.

YEARS 2005 2006 2007 2008 LIQUID ASSETS

123830.98 138390.12 145061.81 132142.12

CURRENT LIABILITIES

92683.93 101094.81 106681.03 91308.45

LIQUID RATIO

1.34 1.37 1.36 1.45

47

DEBT-EQUITY RATIO

YEARS 2005 2006 2007 2008 DEBT 4874.80 5634.57 5740.08 6116.27

EQUITY 94969.73 103276.28 112367.74 109438.25 DEBT-EQUITY

RATIO 0.05 0.545 0.051 0.06

DEBT-EQUITY RATIO

0

0.1

0.2

0.3

0.4

0.5

0.6

1 2 3 4

DEBT-EQUITY RATIO

Comment

Generally debt-equity ratio of 2:1 is considered safe. The lower the ratio the better it is for the long term lenders. In all the years this ratio has been below 2:1, which means that the company provides sufficient protection to long-term lenders

48

DEBT TO TOTAL FUND RATIO

YEARS 2005 2006 2007 2008 DEBT 4874.80 5634.57 5740.08 6116.27

DEBT+EQUITYY 99844.53 108910.85 118107.82 115554.52 DEBT TO TOTAL FUNDS RATIO

0.049 0.517 0.049 0.053

DEBT TO TOTAL FUNDS RATIO

0

0.1

0.2

0.3

0.4

0.5

0.6

1 2 3 4

DEBT TO TOTALFUNDS RATIO

Comment

Generally debt to total fund ratio of .67:1 is considered satisfactory. Good concerns keep

this ratio below 67% and we can see that in all the years this ratio has been kept below

67%, which is good from the long tem solvency point of view.

49

PROPRIETARY RATIO

YEARS 2005 2006 2007 2008 EQUITY 94969.73 103276.28 112367.74 109438.25

TOTAL ASSETS 96778.86 106182.04 116427.11 107999.75 PROPERITARY

RATIO 0.98 0.97 0.96 1.01

PROPERITARY RATIO

0.930.940.950.960.97

0.980.99

11.011.02

1 2 3 4

PROPERITARY RATIO

Comment A higher proprietary ratio is generally treated an indicator of a sound financial position

from long term point of view. In all the years this ratio is quite high which indicates that

the long tem financial position of the company is very sound

50

FIXED ASSETS TO PROPERITOR FUND RATIO

YEARS 2005 2006 2007 2008 FIXED

ASSETS 63489.73 62583.82 70956.86 70942.46

PROPERITOR’S FUNDS

94969.73 103276.28 112367.74 109438.25

FIXED ASSETS TO PROPERITOR FUND RATIO

0.67 0.61 0.63 0.65

FIXED ASSETS TO PROPERITOR FUND RATIO

0.580.590.6

0.610.620.630.640.650.660.670.68

1 2 3 4

FIXED ASSETS TO PROPERITOR FUNDRATIO

Comment

A fixed asset to proprietor’s fund ratio of 65% is considered ideal for the companies. The

lower the ratio the better it is for the long tem solvency of the business. In 2005 & 2008

51

this ratio is more than 65% while in 2006 & 2007 this ratio is less than 65%. . So we can

say that long term solvency of the company is better.

RETURN ON CAPITAL EMPLOYED

YEARS 2005 2006 2007 2008 PBIT & D 12925.75 17205.71 12514.79 6957.94

CAPITAL EMPLOYED

96134.41 100767.01 111203.68 113154.29

RETURN ON

CAPITAL EMPLOYED

13.4% 17.07% 11.25% 6.14%

RETURN ON CAPITAL EMPLOYED

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%

1 2 3 4

RETURN ON CAPITALEMPLOYED

Comment

52

In 2005 this ratio was 13.4% but it increased to 17.07% in 2006, than decreased to

11.25% in 2007 and again decreased to 6.14% in 2008. So we can say that the company

is not getting much return on its capital employed.

RETURN ON SHAREHOLDERS FUNDS

YEARS 2005 2006 2007 2008 PAIT 8997.24 12346.03 9484.26 5776.63

SHAREHOLDERSS FUNDS

94969.73 103276.28 109438.25 112367.74

RETURN ON SHAREHOLDERS

FUNDS

9.47% 11.95% 8.66% 5.14%

RETURN ON SHAREHOLDERS FUNDS

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1 2 3 4

RETURN ONSHAREHOLDERSFUNDS

Comment

53

In 2005 this ratio was 9.47% but it increased to 11.95% in 2006 than it decreased to

8.66% in 2007 and it further decreased to 5.14% in 2008. So we can say that the return on

shareholders funds is decreasing year by yea

EARNING PER SHARE

YEARS 2005 2006 2007 2008 PAIT & D 8771.55*10 11504.78*106 9389.79*106 5802.92*106 6

NO. OF EQUITY SHARES

63*10

7 63*107

63*10

7 63*107

EARNING PER SHARE

13.92 18.26 14.90 9.21

EARNING PER SHARE

02468

101214161820

1 2 3 4

EARNING PERSHARE

Comment:

54

In 2005 EPS was Rs.13.92 but it increased to Rs.18.26 in 2006 then it decreased to

Rs.14.90 in 2007 further decreased to Rs.9.21 in 2008. So we can say that EPS is

declining year by year.

DIVIDEND PER SHARE

YEARS 2005 2006 2007 2008

DIVIDEND PAID TO EQUITY

SHAREHOLDERS

2835*10 2835*106 6 2835*10 6 2520*10 6

NO. OF EQUITY SHARES

63*10

7 63*107

63*10

7 63*107

DIVIDEND PER SHARE

4.5 4.5 4.5 4

DIVIDEND PER SHARE

3.73.83.9

44.1

4.24.34.44.54.6

1 2 3 4

DIVIDEND PERSHARE

55

Comment:

DPS remained constant at Rs.4.5 from 2005 to 2007 but it declined to Rs.4 in 2008. So

we can say that DPS earned by the shareholders in these years has not varied much.

DIVIDEND PAYOUT RATIO

YEARS 2005 2006 2007 2008

DPS Rs. 4.5 Rs 4.5 Rs 4.5 Rs. 4

EPS Rs.13.92 Rs. 18.26 Rs. 14.90 Rs. 9.21 DIVIDEND PAYOUT

RATIO 32.33 24.64 30.20 43.43

.

DIVIDEND PAYOUT RATIO

05

101520253035404550

1 2 3 4

DIVIDENDPAYOUT RATIO

56

Comment

:

In year 2005 the d/p ratio was 32.33% but, in 2006 it decreased to 24.64% then in 2007 it

increased to 30.20% and it further increased to 43.43% in 2008. This increasing trend

indicates that shareholders are in a good position.

EARNING YIELD RATIO

YEARS 2005 2006 2007 2008 EPS 18.26 13.92 14.90 9.21

Market value/share 10 10 10 10 Earning yield 139.20 182.60 149 92.10

Earning yield

020406080

100120140160180200

1 2 3 4

Earning yield

Comment

57

In year 2005 this ratio was 139.2% but it increased to 182.6% then it decreased to 149%

and further decreased to 92.1% in 2008. So we can say that after 2008 this ratio has

continuously declined.

DIVIDEND YIELD RATIO

YEARS 2005 2006 2007 2008 DPS 4.5 4.5 4.5 4

Market value/share

10 10 10 10

DIVIDEND yield 45 45 45 40

DIVIDEND yield

3738394041

4243444546

1 2 3 4

DIVIDEND yield

58

Comment

This ratio has remained constant at 45% from 2005 to 2007 but it declined to 40% in

2008. So we can say that this ratio has not varied much in these four years.

PRICE EARNING RATIO

YEARS 2005 2006 2007 2008

MARKET PRICE OF SHARE

10 10 10 10

EPS 18.26 13.92 14.90 9.21

PRICE EARNING RATIO

.718 .547 .671 .108

59

PRICE EARNING RATIO

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1 2 3 4

PRICE EARNINGRATIO

Comment

In 2005 this ratio was 0.718 but it declined to 0.547 in 2006 then it increased to 0.671 in

2007 then it declined to 0.108 in 2008. So we can say that this ratio has been fluctuating

little bit from 2005 to 2007 but it drastically decreased in 2008.

NET PROFIT RATIO

PBT

YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85

PBT 16859.51 12597.56 12156.67 6713.58

PBT RATIO 21.70 26.47 21.77 12.07

60

PBT RATIO

0

5

10

15

20

25

30

1 2 3 4

PBT RATIO

Comment

In 2005 this ratio was 21.7% but it increased to 26.47% in 2006 then declined to 21.775

in 2007 and further declined to 12.07% in 2008. A decline in this ratio indicates decline

in the overall efficiency and profitability of the business.

PAT

YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85

PAT 12346.03 8997.24 9484.26 5776.63

PAT RATIO 15.50 19.38 16.99 10.38

61

PAT RATIO

0

5

10

15

20

25

1 2 3 4

PAT RATIO

Comment:

In 2005 this ratio was 15.50% but it increased to 19.38% in 2006 then decreased to

16.99% in 2007 and further decreased to 10 .38 % in 2008. A decline in this ratio

indicates decline in the overall efficiency and profitability of the business.

STOCK TURNOVER RATIO

YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85

AVERAGE STOCK 1192.755 2135.185 1376.96 1622.10

STOCK TURNOVER RATIO

27.19 53.40 40.53 34.28

62

STOCK TURNOVER RATIO

0

10

20

30

40

50

60

1 2 3 4

STOCKTURNOVERRATIO

Comment

In 2005 this ratio was 27.19 times but, it increased to53.4 times in 2006 then decreased to

40.53 times in 2007 and then further decreased to 34.28 times in 2008. So we can say that

after 2006 this ratio has declined continuously which shows that the speed with which the

stock is turned into sales is declining.

FIXED ASSETS TURNOVER RATIO

YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85

NET FIXED ASSETS 62102.82 55171.74 64686.29 65687.49

FIXED ASSETS TURNOVER RATIO

1.05 1.025 0.86 0.85

63

FIXED ASSETS TURNOVER RATIO

0

0.2

0.4

0.6

0.8

1

1.2

1 2 3 4

FIXED ASSETSTURNOVER RATIO

Comment:

In 2005 this ratio was 1.05 times but, it decreased to 1.025 times in 2006 then decreased to 0.86 times in 2007 and further decreased to 0.85 times in 2008. A continuous decline in this ratio indicates that the fixed assets are not efficiently utilized.

WORKING CAPITAL TURNOVER RATIO

YEARS 2005 2006 2007 2008 SALES 63695.99 58065.30 55820.70 55609.85

WORKING CAPITAL 38183.09 32644.68 40246.82 42211.83

WORKING CAPITAL

1.77 1.67 1.39 1.32

64

TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

00.20.40.60.8

11.21.41.61.8

2

1 2 3 4

WORKINGCAPITALTURNOVERRATIO

Comment

In 2005 this ratio was 1.77 times but it declined to 1.67 times in 2006 and again declined

to 1.39 times in 2007 and further declined to 1.32 times in 2008. A continuous decline in

this ratio indicates that the working capital has not been efficiently utilized.

The four year comparative analysis is as follow:-

65

0

20000

40000

60000

80000

100000

120000

140000

2004-05 2005-06 2006-07 2007-08

SOURCES OF FUNDS

NET BLOCK

NET CURRENT ASSETS

Comment

Net working capital increased in 2006 with a very large amount then decreased in 2007

and further decreased in 2008.

Net block increased in 2006 with large amount and decreased in 2007 and further

decreased in 2008.

Sources of funds increased in 2006 with large amount and decreased in 2007 and further

decreased in 2008.

66

0

20000

40000

60000

80000

PROFITBEFORE TAX

PROFITAFTER TAX

INCOME EXPENDITURE

2004-05

2005-06

2006-07

2007-08

Comment

PAT increased significantly in 2006 but it decreased drastically in 2007 and further

decreased in 2008.

PBT increased with large amount in 2006 then decreased with large amount in 2007 and

then increase with a small amount in 2008.

Total expenditure increased in 2006 but decreased in 2007 and finally increased in

2008.

Total income increased in 2006 but decreased in 2007 and finally increased in 2008.

67

ANALYSIS OF CASH FLOW STATEMENT

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

2004-05 2005-06 2006-07 2007-08

Cash flow from operatingactivitiesCash flow from investingactivitiesCash flow from financingactivitiesCash flow from financingactivities

Comment

Investing activities include the purchase and sale of long term assets not held for resale.

Cash flow from the investing activities discloses the expenditure incurred for resources

intended to generate future income and cash flows. These activities have been increasing

year by year.

Operating activities are the main revenue generating activities of the enterprise, as they

include cash flows from those transactions and events which enter into the ascertainment

of net profit or loss of the enterprise.

Operating activities are decreasing year by year.

Financing activities are the activities that result in change in capital and borrowings of

the enterprise. In 2006 these activities have increased to a large extent then, it decreased

by some amount in 2007 after that in 2008 it has improved a little bit.

68

Chapter 4

Conclusion and Suggestions

69

Conclusion

70

FROM 1986 of its establishment to 2008, in these 22 years company has shown many

faces, threw out this journey. At one time BSNL had a monopoly in the market. But now

this nirvana company is facing a very tough competition from the giants like Bharti-

Airtel, Reliance comm.., Idea cellular, Hutch- essar etc.

Now I will give some conclusions which I derived during the analysis of financial

statements:-

Out the past four years, in 3 years BSNL recorded a decrease in profit and in 2

years a decrease in income, but the expenditure has continuously increased.

These are the years where telecom sector emerge as a fastest growing sector of

economy. And in same years BSNL fail to gain more income.

Although the income figure is continuously falling but there is no impact shown

on expenditure side, it is continuously increasing over the years. This is the main

cause of reduction in profits.

In the year 2007-08 BSNL current assets fell with a huge margin due to this year

poor performance. After this year company has shown a growth in current assets

but not sufficient to fulfill the short-term requirements. In the year 2007-08 fixed assets found significant growth with 12.56% which is a

good sign for long term prospect. But increase in fixed assets during last two

years is not sufficient.

71

Company’s current ratio fell very short of the ideal, which shows an inadequate

margin of safety to the creditors, company has no sufficient cash to pay its

liabilities. Due to Shortage of working capital in the business, company is

trading out of its resources.

The capital employed ratio is not very high. It shows the ineffective and

inefficient utilization of capital. So there is need to use the capital in a better way

to gain maximum profit in the long term.

Except the year 2005-06, in all other years the Debt equity ratio is very low

which shows that the money which is invested in the company by outsiders is

very low. Means out of 1rs to the owners only Rs. 0.06 is invested by the

outsiders this year, which shows lack of interest in investing money by outsiders

in the company.

After three years in a row, in year 2007-08, there is decrease in dividend because

of pressure of previous years poor performance. It is not easy to understand that

the company is not cutting the expenditure but cutting the dividend.

Decreasing Earning per Share shows reduction in the market price of BSNL

shares. Company is losing the faith of shareholders. Earning per share is

continuously decreasing so as the profit of shareholders. And in the year 2007-08

it has fallen quite dramatically.

Employee remuneration & benefits area is a area of major concern because

there is no impact of profit or loss on this area and expenditure on employee is

simultaneously rising.

BSNL net profit ratio is not a handsome ratio. So the low net profit ratio indicates

inadequate return.

72

So, these are the drawbacks that have come from the analysis of financial

statements. From this we can say that the company fails to have a good financial

management, in all fields. Accept the year 2005-06 in rest 3 years the condition is

miserable. Along with the financial statements I have observed many things during

the 8 weeks stay in the organization. These are:-

Definitely company is suffering with the problem of overstaffing. 54000 employees

work in BSNL, which increases the expenditure. Even though in FMS where I

worked have 35 employees but according to me 20 are more than enough for that

department.

The average age of employees is much higher, you will hardly found any young

face in BSNL, and the average age of BSNL employees is around 35-40. So lack of

young talent.

Service, which is the main task, is also an area of concern, means BSNL is quite

infamous for its bad service. The network as well as the connectivity is not good.

The other companies like Airtel, Tata indicom, Reliance, idea, Hutch are making

profits as well as rapidly increasing their customers. But BSNL fails to generate

speedy growth in fastest growing market.

Not using new technology or working towards 3 G phones means high speed

streaming video, gaming, video messaging, and even mobile TV.

BSNL have one of the best plans for subscribers but it fails to aware customer about

all of them. So there is desperately need of extensive advertising.

73

Suggestion & recommendations

74

The study has provided with the useful data from the respondents. There has a lot

to be recommended. Following are the recommendations:

There should be increase in investment of BSNL. So that could be earned more profit. Because, if investment will be high than profit will be earned high.

There should be improved the working process of BSNL. Because working

Process of BSNL is take more time. Departments of BSNL do not have good coordination. So there should be

Good coordination in departments of BSNL. If coordination will have good in Departments, than there will not has to face any problem in proper work.

Time to time, there should be provided training of employee. So that they

could take information about the new technology of them proper working Process.

There should be good communication between each departments of BSNL.

There should be computerized work in BSNL. But also at this time, paper

Work are continue to see in many department.

Use better & high tech methods of advertising, so that more & more subscriber attract towards BSNL.

Should try to decrease expenditure especially in the employee’s

remuneration & benefit area. Should increase the service quality as well as better customer care service.

Should work towards 3 G phones, means high speed streaming video,

gaming, video messaging, and even mobile TV.

75

Appendix

76

COMPARATIVE BALANCE SHEET FROM YEARS 2005 TO 2008

(The above figures are in rupees million)

SOURCES OF FUNDS SHAREHOLDER’S FUNDS

SHARE CAPITAL RESERVE & SURPLUS

DEFFERED TAX LIABILITY

2005

6300 88669.73 4874.80

2006

6300 96976.28 5634.57

2007

6300 103138.25 5704.08

2008

6300 106067.74 6116.27

TOTAL 99844.53 108910.85 115178.33 118484.01

APPLICATIONS OF FUNDS FIXED ASSETS GROSS BLOCK

LESS: DEPRECIATION 126652.06 71480.32

135629.33 73526.51

142522.52 77836.23

148541.50 82854.01

NET BLOCK (i) 55171.74 62102.82 64686.29 65687.49

CAPITAL WORK-IN-PROGRESS (ii) INVESTMENTS (iii)

CURRENT ASSETS, LOANS & ADVANCES INVENTORIES

SUNDRY DEBTORS CASH & BANK BALANCES OTHER CURRENT ASSETS

LOANS & ADVANCES

8317.99 3710.12

1497.63 13069.84 18154.64 567.02

92039.48

4818.00 3806.94

887.88

16494.59 25530.69 685.06

95679.78

6270.57 3974.65

1866.04 17580.39 25173.98 849.84

101457.60

5254.97 4187.24

1378.16 14151.03 20583.99 944.11

96462.99

125328.61 139278.00 146927.85 133520.28

LESS: CURRENT LIABILITES & PROVISIONS

CURRENT LIABILITES PROVISIONS

47534.75 45149.18

47324.24 53770.67

50645.03 56036.00

40251.26 51057.19

92683.93 101094.91 106681.03 91308.45

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

32644.68 38183.09 40246.82 42211.83

DEFFERED REVENUE EXPENDITURE (v)

1142.48

TOTAL ( i + ii+ iii+ iv + v) 99844.53 108910.85 115178.33 118484.01

77

STATEMENT SHOWING PERCENTAGE INCREASE OR

DECREASE IN THE BALANCE SHEETS FROM 2005 TO 2008

PARTICULARS 2005 2006 2007 2008

SOURCES OF FUNDS SHAREHOLDER’S FUNDS

SHARE CAPITAL RESERVE & SURPLUS

DEFFERED TAX LIABILITY

6.70 (81.38)

9.36 15.58

6.354100199

6.35 1.87

2.84 6.55

TOTAL (13.6) 9.08 5.75 2.87

78

APPLICATIONS OF FUNDS FIXED ASSETS GROSS BLOCK

LESS: DEPRECIATION

7.95 11.33

7.08 2.86

5.08 5.86

4.22 6.44

NET BLOCK (i) 3.86 12.56 4.15 1.54

CAPITAL WORK-IN-PROGRESS (ii)

INVESTMENTS (iii) CURRENT ASSETS, LOANS &

ADVANCES INVENTORIES

SUNDRY DEBTORS CASH & BANK BALANCES OTHER CURRENT ASSETS

LOANS & ADVANCES

4.26 261.33

(45.98) 77.54

(25.73) (90.13)

.66

(42.07) 2.60

(40.71) 26.20 40.63 20.81 3.94

30.14 4.40

110.16 6.72

(1.39) 24.05 6.04

(16.19) 5.34

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

(4.88) 11.13 5.51 (9.12)

LESS: CURRENT LIABILITES & PROVISIONS

CURRENT LIABILITES PROVISIONS

27.63 9.97

(.44) 19.09

6.98 4.24

(20.52) (8.88)

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

(38.94) 16.96 5.40 4.88

TOTAL (i + ii+ iii+ iv ) (13.61) 9.08 5.75 2.87

79

COMPARATIVE PROFIT & LOSS ACCOUNT FROM 2005 TO 2008

PARTICULARS 2005 2006 2007 2008 INCOME

INCOME FROM SERVICES OTHER INCOME

58065.30 2236.91

63695.99 3143.31

55820.70 4917.18

55609.85 5300.13

(a) 60302.21 66839.30 60737.88 60909.98

EXPENDITURE EMPLOYEE’S REMUNERATION &

BENEFITS REVENUE SHARING

LICENCE FEES ADMN., OPERATING & OTHER EXP.

DEPRECIATION INTEREST

14338.53 8383.14 5818.16 10166.21 8670.42 328.19

16193.70 11822.79 6429.58 9749.57 5437.95 346.20

18361.06 8781.99 4971.63 10228.34 5880.07 358.12

19053.12 12263.19 4589.59 11579.15 6466.99 244.36

(b) 47704.65 49979.79 48581.21 54196.40 PROFIT BEFORE TAX c=( a –b) 12597.56 16859.51 12156.67 6713.58

PROVISION FOR TAXATION PROVISION FOR DEFFERED TAXATION

3020.00

580.32

3753.71

759.77

2566.90

105.51

560.76

376.19

(d) 3600.32 4513.48 2672.41 936.95 PROFIT AFTER TAX e=(c–d) 8997.24 12346.03 9484.26 5776.63

PRIOR PERIOD ADJUSTMENTS (f) 225.69 841.25 94.47 (26.29) PROFIT FOR THE YEAR g=(e-f) 8771.55 11504.78 9389.79 5802.92

PROFIT AVAILABLE FOR APPROPRIATION

8771.55

11504.78

9389.79

5802.92

(The above figures are in rupees million)

80

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

PARTICULARS 2005 2006 2007 2008

INCOME INCOME FROM SERVICES

OTHER INCOME

(5.48) (9.92)

9.67 40.52

(12.36) 56.43

(.37) 7.78

(a) (5.66) 10.84 (9.13) 0.28

EXPENDITURE EMPLOYEE’S REMUNERATION &

BENEFITS REVENUE SHARING

LICENCE FEES ADMN, OPERATING & OTHER EXP.

DEPRECIATION INTEREST

4.12 (15.11) (12.44) 42.11 6.19 13.81

12.93 41.03 10.50 (6.75) (37.28)

5.48

13.38 (28.51) (22.94) 10.40 8.13 3.44

3.76 39.64 (7.68) 13.20 9.98

(31.76)

(b) 3.93 4.76 (2.79) 11.55 PROFIT BEFORE TAX c=( a –b) (30.10) 33.83 (27.89) (44.77)

PROVISION FOR TAXATION PROVISION FOR DEFFERED TAXATION

(38.83) 24.29

30.92 (31.61) (86.11)

(78.15) 256.54

(d) (27.08) 25.36 (40.79) (64.93) PROFIT AFTER TAX e=(c–d) (31.24) 37.22 (23.17) (39.09)

PRIOR PERIOD ADJUSTMENTS (f) 186.55 272.74 (88.77) (127.82) PROFIT FOR THE YEAR g=(e-f) (32.56) 31.16 (18.38) (38.19)

PROFIT AVAILABLE FOR APPROPRIATION (32.56) 31.16 (18.38) (38.19)

81

Cash flow statement for the years (2005-2008)

Particulars 2005 2006 2007 2008

Cash flow from operating activities

Net profit before tax and ordinary items 12597.56 16859.51 12156.67 6713.58 Adjustment for Prior period adjustment (net)

(198.37)

(538.87)

(12.85)

55.22

Profit on sale of fixed assets (10.84) (7.67) (8.50) (6.70)

Loss on sale of fixed assets 89.86 115.18 208.08 94.27 Depreciation 8672.75 5437.95 5880.07 6466.99 Compensation charged under VRS scheme 285.63

Compensation paid under VRS scheme (1428.11) Interest cost 26.32 346.20 358.12 244.36 Interest income (1634.53) (1748.11) (2478.46) (4009.42) Interest paid (21.83) (331.55) (360.68) (244) Operating cash profit before working capital changes

19520.92 20132.64 15742.46 8171.82

Adjustment for Trade and other receivables

8344.92

2556.44

(3984.34)

(6315.88)

Inventories 1275.11 609.74 (978.17) 487.90 Trade and other payables 15324.66 4657.52 6079.08 (5848.67) Cash generated from operations 44465.61 27955.99 16859.02 (3504.82) Direct taxes paid (8326.70) (9695.26) (4731.95) 5637.95 Net cash flow from operating activities 36138.92 18260.73 12127.08 2133.13 Cash flow from investing activities Purchase of fixed assets (Including capital W.I.P)

(12061.94) (9336.65) (10276.54) (6595.37)

Sale of fixed assets 19.77 57.71 79.24 26.28 Interest received 1319.35 1694.74 2514.92 4010.92 Investment (2683.35) (96.82) (167.72) (212.59) Net cash flow from investing activities (13406.17) (7681.01) (7850.10) (2770.75) Cash flow from financing activities Repayment of loans (26190.38) (5.43) (3.87) (1.40) Dividend paid (including tax) (2835.00) (3198.23) (4630.17) (3950.97)

Net cash flow from financing activities (29025.38) (3203.67) (4634.04) (3952.37)

Net increase/decrease in cash and cash equivalents (6292.64) 7376.40 (357.06) (4589.99)

Cash and cash equivalents as at the beginning of the year

24446.52 18154.64 25531.04 25173.98

Cash and cash equivalents as at the end of the year 18153.88 25531.04 25173.98 20583.99

82

Bibliography

83

Bibliography

• Management Accounting Shashi K. Gupta & R.K. Sharma • Financial Management I.M. Pandey. • Research Paper: Financial Analysis Hampton John J. Financial Decision Making, Second Ed p.75 • Web sites o www.bsnl.co.in o www.google.com o www.mpbsnl.com • Annual Reports of BSNL 2006-2008.

84