NORTH EASTERN REGIONAL INSTITUTE OF

MANAGEMENT

PROJECT REPORT ON

MEASUREMENT OF PERFORMANCE BY USING DIFFERENT

ACCOUNTING RATIOS

Partha Pratim Mahanta

SUBMITTED BY

MBA 2nd

Sem (B)

SUBMITTED TO

Reshma Tiwari Faculty, NERIM

CONTENTS

TOPIC PAGE NO.

1. OBJECTIVES AND METHODOLOGIES 1

2. BHARTI AIRTEL LTD. 2

3. INTRODUCTION OF THE PROJECT 3

4. BALANCE SHEET (As at March 31, 2011) 4

5. PROFIT AND LOSS A/C (For the year ending March 31, 2011) 5

6. LIQUIDITY RATIOS 6

7. LEVERAGE RATIOS 7

8. ACTIVITY RATIOS 8

9. PROFITABILITY RATIOS 9-10

10. CONCLUSION AND FINDINGS 11

OBJECTIVES OF THE PROJECT

To enable us to complete the accounting ratios in real business

situations.

To develop the competence of reading accounting data and interpret

the information.

To analyse the financial statements of business firms and to derive

meaningful information there from.

To know the performance and financial position of “Bharti Airtel” by

using accounting ratios.

METHODOLOGY

Surfing Internet

Using library Books, Journal and Magazines.

Study of Annual Reports

1

BHARTI AIRTEL LIMITED

AIRTEL is an Indian telecommunications company that operates in 19 countries across South

Asia, Africa and the Channel Islands. It operates a GSM network in all countries, providing

2G or 3G services depending upon the country of operation. Airtel is the fifth largest telecom

operator in the world with about 230.8 million subscribers across 19 countries at the end of

June 2011. It is the largest cellular service provider in India, with over 169.18 million

subscribers as of June 2011. Airtel is the 3rd largest in-country mobile operator by subscriber

base, behind China Mobile and China Unicom.

Airtel is the largest provider of mobile telephony and second largest provider of fixed

telephony in India, and is also a provider of broadband and subscription television services. It

offers its telecom services under the Airtel brand and is headed by Sunil Bharti Mittal. Bharti

Airtel is the first Indian telecom service provider to achieve this Cisco Gold Certification. To

earn Gold Certification, Bharti Airtel had to meet rigorous standards for networking

competency, service, support and customer satisfaction set forth by Cisco. The company also

provides land-line telephone services and broadband Internet access (DSL) in over 96 cities

in India. It also acts as a carrier for national and international long distance communication

services. The company has a submarine cable landing station at Chennai, which connects the

submarine cable connecting Chennai and Singapore.

The company is structured into four strategic business units - Mobile, Telemedia, Enterprise

and Digital TV. The mobile business offers services in 18 countries across the Indian

Subcontinent and Africa. The Telemedia business provides broadband, IPTV and telephone

services in 89 Indian cities. The Digital TV business provides Direct-to-Home TV services

across India. The Enterprise business provides end-to-end telecom solutions to corporate

customers and national and international long distance services to telcos.

2

INTRODUCTION TO THE PROJECT

The project work is to make observations on the performance and financial position of Bharti

Airtel Limited on the basis of Income Statements and Balance Sheet for the two years, i.e;

2009-2010 and 2010-11.

Income Statements and Balance sheets for two years are extracted in the report and are used

for the purpose of the project.

The project work is planned and executed by calculating following ratios:

1. Liquidity Ratios : These are the ratios which measures the short-term solvency

or financial position of a firm. These ratios are calculated to comment upon the short-

term paying capacity of a concern of the firm’s ability to meet its current obligation.

2. Long-term Solvency or Leverage Ratios: Long-term solvency ratios convey a

firm’s ability to meet the interest cost and repayments schedules of its long-term

obligations.

3. Activity Ratios : Activity ratios are calculated to measure the efficiency with

which the resources of a firm have been employed. These ratios are also called

turnover ratios because they indicate the speed with which assets are being turnover

into sales.

4. Profitability Ratios : These ratios measures the results of business operations or

overall performance and effectiveness of the firm.

3

Particulars 2011 2010

Sale of Goods 380,158 356,095

EXPENDITURE

Access Charges 49872 44,357

Networking Operating 85,712 74,467

Cost of Good Sold 161 203

Personnel 14,512 15,305

Sales and Marketing 31,802 24,049

Administrative and Other 21,353 22,401

Total Expenditure (203,412) (180,782)

Profit before other Income 176,746 175,313

Profit after other Income (89,488) (68,320)

Profit before Tax 87,258 106,993

Tax Expenses (10,089) (12,731)

Profit after Tax 77169 94,262

Appropriation (10,134) (14,505)

Profit after Appropriation 67,035 82,757

Profit brought forward 267,785 185,028

Profit Carried to Balance Sheet 334,820 267,785

Profit & Loss A/cRs. Millions

LIQUIDITY RATIOS

1. Current Ratio : Current Assets

Current Liabilities

Year 2010 = 93,299

129,435 = 0.72:1

Year 2011 = 129,492

154,239 = 0.84:1

2. Acid Test Ratio : Liquid Assets

Current Liabilities

Year 2010 = 93,027

129,435 = 0.72:1

Year 2011 = 129,148

154,239 = 0.84:1

3. Cash Ratio :

Cash + Bank Balances + Marketable securities

Current Liabilities

Year 2010 = 71,313

129,435 = 0.55:1

Year 2011 = 104,375

154,239 = 0.68:1

Notes : Loans and advances (under the Current Assets, Loans and

Advances) are considered as short term investment.

Comments : The current ratio 0.72 in 2010 does not show the good liquidity

position as it is much below than the standard norms of 2:1. In the year 2011, it increases to

0.84, although this ratio also does not show the good liquidity position. Again, the standard

norms of acid test ratio are 1:1. In 2010 it shows a ratio of 0.72:1 and it increases in 2011 to

0.84:1. This ratio shows a satisfactory liquidity position. The cash ratio also shows a

satisfactory result, as in both the year it is the above of the standard norms of 0.5:1. The

financial position of the company is quite satisfactory.

6

LONG-TERM SOLVENCY OR LEVERAGE RATIOS

1. Debt Equity Ratio : Outsider ′ s Funds

Shareholder ′ s Funds

Year 2010 = 50,389

367,372 = 0.14:1

Year 2011 = 118,975

441,116 = 0.27:1

2. Proprietory Ratio : Shareholder ′ s Fund

Total Assets

Year 2010 = 367,372

417,794 × 100 = 87.93%

Year 2011 = 441,116

565,367 × 100 = 78.02%

3. Total Assets to Debt Ratio : Outsider ′ s Fund

Total Assets × 100

Year 2010 = 50,389

417,794 × 100 = 12.06%

Year 2011 = 118,975

565,367 × 100 = 21.04%

Comments : Debt equity ratio indicates that the proportion of funds provided by

long-term lenders in comparison to the funds provided by the owners is only 0.14 in 2010.

This portion has further increases to 0.27 in 2011. It shows that the long-term solvency

position of the company is very sound. The proprietory ratio in 2010 and 2011 are 87.93%

and 78.02% respectively. Although, in 2011 this goes decrease but this ratio shows the better

long-term solvency position. This fact is also supported by total assets to debt ratio. It

indicates that the proportion of assets financed through long-term loans is only 12.06% in the

year 2010 and it has increases to 21.04% in the year 2011.

7

ACTIVITY RATIOS

1. Stock Turnover Ratio : Cost of Good Sold

Average Stock

Year 2010 = 203

272 = 0.75 times

Year 2011 = 161

308 = 0.52 times

Notes : Closing Inventory of 2010 will be treated as the Opening Inventory.

Hence, Average Stock = 272 + 344

2 = 308

2. Debtors Turnover Ratio : Sales

Average Debtors

Year 2010 = 356,095

21,050 = 16.92 times

Year 2011 = 380,158

22,404 = 16.97 times

Notes : Closing Debtors of 2010 will be treated as the Opening Debtors.

Hence, Average Debtors = 21,050 + 23,758

2 = 22,404

Comment : Stock turnover ratio has dropped from 0.75 times to 0.52 times. It

indicates that the company is not rapidly turning the stock into sales. Unsaleable items have

been purchased which are included in the stock of the company. Debtors turnover ratio has

increased from 16.92 times to 16.97 times. It indicates that the company’s policy relating to

collection of debts and selection of customers for credit sales is quite satisfactory.

8

PROFITABILITY RATIO

1. Gross Profit Ratio : Gross Profit

Sales × 100

Year 2010 = 175,313

356,095 × 100 = 49.23 %

Year 2011 = 176,746

380,158 × 100 = 46.49 %

2. Operating Ratio : Cost of Goods Sold +Operating Expenses

Sales × 100

Year 2010 = 203+24,049+22401

356,095 × 100 = 13.10 %

Year 2011 = 161 + 31,802+21,353

380,158 × 100 = 14.02 %

3. Net Profit Ratio : Net Profit after tax

Sales × 100

Year 2010 = 94,262

356,095 × 100 = 26.47 %

Year 2011 = 77,169

380,158 × 100 = 20.30 %

4. Return on Equity (ROE) : Net Profit after tax

Shareholder ′ s Funds × 100

Year 2010 = 94,262

367,372 × 100 = 25.66 %

Year 2011 = 77,169

441,116 × 100 = 17.49 %

9

5. Earning Per Share (EPS) : Net Profit after tax

No .of Equity Shares

Year 2010 = 94,262

3798 = Rs. 24.82

Year 2011 = 77,169

3798 = Rs. 20.32 %

Comment : Gross profit ratio has declined from 49.23 % in 2010 to 46.49 % in

2011, which reflects a decrease in sales price of goods sold without corresponding decrease

in cost of sales.

Operating ratio has increase by 0.92 % in 2011 in respect to 2010. Increasing of operating

ratio has resulted in lower margin of profit in sales.

Net profit ratio has also decline from 26.47 % to 20.30 % in 2011, which is an indication of

decreasing in the overall efficiency and profitability of the firm.

Return on equity (ROE) has also declining from 25.66 % to 17.49 % in 2011, which indicates

that shareholder’s funds are not being utilized more efficiently.

Earning per share (EPS) has also decline from Rs. 24.82 in 2010 to Rs. 20.32 in 2011, which

indicates that overall profitability of the company is declining. This ratio also indicates that

market price of Bharti Airtel Ltd shares is likely to be decrease in the upcoming year.

10

CONCLUSION AND FINDINGS

From the comparative study of various Accounting Ratios for 2010 and 2011 of “Bharti

Airtel”, we found the following results, whose enable us to know the performance and the

financial position of the company:

1. The Liquidity Ratio is not so impressive in 2011. Though, the short-term solvency or

financial position of a “Bharti Airtel” is quite satisfactory in 2011.

2. The long-term solvency position of the company is very sound, as the Leverage ratio

has improved in 2011 as comparative to 2010.

3. The company’s policy relating to collection of debts and selection of customers for

credit sales is quite satisfactory, as Activity Ratio is in sound position in 2011.

4. The Profitability Ratio of “Bharti Airtel” shows that the profit of the company goes

declining in 2011 as compared to 2010.

5. The overall profitability and financial position of Bharti Airtel has goes in declining

stage in 2011.

11