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Corporate Financial Analysis Report

BHARTI AIRTEL

Corporate Financial Analysis Report Bharti Airtel

Report Submitted By Group 2 – Batch 19 - B

Group Members:

1. AdeeyaPrabhakaran (FK-2181)2. AnirbanSarkar (FK-2053)3. JojiIssac P (FK-2167)4. Josna Joseph (FN-158)5. Keerthi T C (FK-2204)6. Krishna Chaitanya M (FN-171)7. Krishna Chandran R (FK-2070)8. Mirian Leah Roy (FN-141)9. G J SrinivasSai (FK-2196)10.VivekAvanoor (FO-75)11.Vineeth A (FN-120)

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TABLE OF CONTENT

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OBJECTIVE

The basic objective of doing the report is to analyse the financial statements of a Bharti Airtel, analyse the environment in which it is operating and evaluate its performance over the last three years and compare the performance with the industry peer groups. Hence a thorough Environment Industry & Company analysis is done to understand the external factors influencing the company. The financial report analyses and interprets using tools like comparative analysis, common size analysis and ratio analysis. Using these tools the performance of the company over the last three years is evaluated.

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Introduction To The Industry

The history of telecommunication industry started with the first public demonstration of Morse’s

electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham Bell filed his

patent application and the first telephone patent was issued to him on 7th of March. In 1913,

telegraph was popular way of communication. AT&T commits to dispose its telegraph stocks

and agreed to provide long distance connection to independence telephone system. In 1956,

the final judgment limited the Bell System to Common Carrier Communications and

Government projects but preserving the long-standing relationships between the manufacturing,

researches and operating arms of the Bell System. In this judgment AT&T retained bell

laboratories and Western Electric Company. This final judgment brought to a close the justice

departments seven –year-old antitrust suit against AT&T and Western Electric which sought

separation of the Bell Systems Manufacturing from its operating and research functions. AT&T

was still controlling the telecommunication industry.

In 1982 , AT&T was requested to divestiture its stock ownership in Western Electric;termination

of exclusive relationship between AT&T and Western Electric; divestiture by Western Electric of

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its fifty percent interest in Bell Telephone Laboratories, AT&T ‘s telecommunication research

and development facility, is a jointly owned subsidiary in which AT&T and Western Electric each

own 50% of the stock; separation of telephone manufacturing from provision of telephone

service and the compulsory licensing of patents owned by AT&T on a non-discriminatory basis.

It was telecommunication act of 1996 that true competition was allowed. The act of 1996

opened the market to all competitors. AT&T being the first telecommunication company paved

the road for the telecommunication industry as well as set the policy and standards for others to

follow.

Beginning of telecommunication in India

The era of telecommunication in India started from the year of 1851 with the initiative from govt.

of India near the city of Calcutta now known as Kolkata. However the rapid growth in telecom

industry came into picture after the year of 2002-03 onwards as the more number of service

providers came into existence. Since 2002-03 there is rapid change in the technology and

increase in numbers of subscribers in the Indian telecom industry till now. The following are the

milestones in the Indian telecom industry.

• 1851 First operational land lines were laid by the government near Calcutta.

• 1881 Telephone services introduced in India.

• 1883 Merger with postal system.

• 1923 Formation of Indian radio Telegraph Company.

• 1932 Merger of ETC and IRT into Indian Radio and Cable Communication Company.

• 1947 Nationalization of all foreign telecommunication companies to form the posts,

telephone and telegraph, a monopoly run by the government’s ministry of

communications.

• 1985 Department of telecommunication established an exclusive provider of domestic

and long-distance services that would be its own regulator.

• 1986 Conversion of dot into two wholly government – owned companies the VSNL for

international telecommunication and MTNL for services in metropolitan areas.

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• 1997 Telecom regulatory authority created.

Telecommunication is important not only because of its role in bringing the benefits of

communication to every corner of India but also in serving the new policy objectives of

improving the global competitiveness of the Indian economy and stimulating and attracting

foreign direct investment. Indian Telecom industry is one of the fastest growing telecom markets

in the world. In telecom industry, service providers are the main drivers; whereas equipment

manufacturers are witnessing growth and decline in successive quarters as sales is dependent

on order undertaken by the companies. Today the Indian telecommunications network with over

375 Million subscribers is second largest network in the world after China. India is also the

fastest growing telecom market in the world with an addition of 9- 10 million monthly

subscribers. The teledensity of the Country has increased from 18% in 2006 to 33% in

December 2008, showing a stupendous annual growth of about 50%, one of the highest in any

sector of the Indian Economy. The Department of Telecommunications has been able to

provide state of the art world-class infrastructure at globally competitive tariffs and reduce the

digital divide by extending connectivity to the unconnected areas. India has emerged as a major

base for the telecom industry worldwide. Thus Indian telecom sector has come a long way in

achieving its dream of providing affordable and effective communication facilities to Indian

citizens. As a result common man today has access to this most needed facility. The reform

measures coupled with the proactive policies of the Department of Telecommunications have

resulted in an unprecedented growth of the telecomsector. There is a cut-throat competition in

the Telecom industry as more and more advanced technology is developed in very short time.

Once the people get addicted to 2G technology by the time new players come up with latest

technology called 3G and EDGE. The thrust areas presently are:

• Building a modern and efficient infrastructure ensuring greater competitive environment

• With equal opportunities and level playing field for all stakeholders.

• Strengthening research and development for manufacturing, value added services.

• Efficient and transparent spectrum management

• To accelerate broadband penetration

• Universal service to all uncovered areas including rural areas.

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• Enabling Indian telecom companies to become global players.

Day by day, both the Public Players and the Private Players are putting in their resources and

efforts to improve the telecommunication technology so as to give the maximum to their

customers.

Recent things to watch in Indian telecom sector are:

• 3G and BWA auctions

• MVNO

• Mobile Number Portability

• New Policy for Value Added Services

• Market dynamics once the recently licensed new telecom operators start rolling out

• Services.

• Increased thrust on telecom equipment manufacturing and exports.

• Reduction in Mobile Termination Charges as the cost per line has substantially reduced

• Due to technological advancement and increase in traffic.

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

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the prices drastically down by making the mobile facility accessible to the urban middle class

population, and to a great extend in the rural areas. Even for small shopkeepers and factory

workers a phone connection is not an unreachable luxury. Major players in the sector are

• BSNL

• MTNL

• Reliance

• Bharti Teleservices

• Vodafone

• Tata Teleservices

• Idea

• Aircel

• Videocon

• MTS

With the growth of telecom services, telecom equipment and accessories manufacturing has

also grown in a big way. Indian Telecom sector, like any other industrial sector in the country,

has gone through many phases of growth and diversification. Starting from telegraphic and

telephonic systems in the 19th century, the field of telephonic communication has now

expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G

Technology in mobile phones. Day by day, both the Public Players and the Private Players are

putting in their resources and efforts to improve the telecommunication technology so as to give

the maximum to their customers.The wireless subscriber crossed the 261 million subscriber

mark at the end of the financial year in comparison to the subscriber base of 165.11 million at

the end of March, 2009. It added 95.9 million subscribers in the financial year 2008-09

registering an annual growth rate of about 58.12%. The total subscriber base of wireless

services has grown from 33.69 million in March, 05 to 261.07 million in March, 09 which is

shown in fig.

Growth of telecom industry in India

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Indian telecom industry continued to register significant growth in 2008-09. Indian telecom

network, with about 414 million connections in February 2009, is the third largest in the world,

while it is credited with the second largest wireless network in the world. At the current pace, the

target of 500 million connections by 2010 is well within reach. The Government of India has

reiterated its commitment to reach out to the remote and uncovered areas and to augment the

broadband facilities in rural areas.

Economic Survey 2008-09 Growth

Source: Department of Telecommunications

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Financial Year 2010

• FY10 saw the continuance of strong growth for the Indian telecom market, which

witnessed a 45% YoY increase in its subscriber base during the 12-month period. At the

end of March 2010, the country's total telecom subscriber base (fixed plus mobile) stood

at about 621 m. The tele-density level stood at about 53% by the end of the fiscal.

• Growth remained robust in the GSM mobile space. GSM added 87 m subscribers during

the year. After a strong 50% YoY increase in subscriptions during FY09, the GSM

industry recorded another good performance during FY10, growing subscriber base by

22% YoY to about 479 m.

• During FY10, India's mobile subscriber base grew by 49% YoY, from 392 m to 584 m,

while the fixed subscriber base declined by about 3%, from 37.9 m to about 36.9 m.

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Prospects

• As far as the fixed line business goes, the low penetration levels in the country and the

increasing demand for data based services such as the Internet will act as major

catalysts in the growth of this segment. The PSUs will however continue to retain their

dominant position. This is on account of high capital investments required in setting up a

nationwide network. As a result, the private sector players will have to rely on key

business centres and pockets of high urbanisation for their growth.

• Increasing choice and one of the lowest tariffs in the world have made the cellular

services in India an attractive proposition for the average consumer. The segment's

subscriber base has grown by over 49% YoY in FY10. As per Pricewaterhouse Coopers,

India's mobile subscriber base is expected to exceed 1 billion by 2014 and will be driven

by additions in the rural areas. India's rural tele-density for mobile subscribers currently

stands at 32.7%.

• During FY10, the Government completed the auction of 3G as well as the Broadband

Wireless Access (BWA) spectrum auctions. The final price for a pan India 3G spectrum

stood at a whopping '16,751 Crores. As a result, there was no single operator with a pan

India license. The maximum circles that an operator got 3G spectrum was for 13 circles.

For BWA, the final auction price for a pan India license was '12,848 Crores. There

emerged a new competitor in this field with Reliance backed Infotel being the only

operator to win a pan India BWA license.

• During the year the Telecom Regulatory Authority of India (TRAI) also proposed new

guidelines for charging spectrum fee and for mergers and acquisitions in the sector. On

the face of it these guidelines appear to be more detrimental for the sector rather than

helpful. If applied, these guidelines would increase the financial burden for the GSM

operators by making them pay higher spectrum charges as well as humongous fee for

holding higher quantities of spectrum. The guidelines also pose hurdles for mergers and

acquisition activities, which are essential for reducing the overheated competition in the

sector which currently has about 15 operators.

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• During the current fiscal, a lot of focus will be given to new policy initiatives in the

industry. The telecom regulator TRAI has set October 31st as the date for implementing

mobile number portability (MNP) which allows subscribers to switch networks without

changing the number. This would definitely lead to an increase in churn in the sector

with each operator vying for subscriber attention to their own networks. In addition to

this, the government is supposed to allocate 3G spectrum later during the year.

Therefore, by the end of this fiscal, the operators would start rolling out 3G services in

some circles at least.

An Introduction to the Company - Bharti Airtel

Incorporated on July 7, 1995, Bharti Airtel Ltd is a division of BhartiEnterprises. The businesses

of Bharti Airtel are structured into two main strategic groups - Mobility and Infotel. The Mobility

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business provides GSM mobile services in all23 telecommunications circles in India, while the

Infotel business group provides telephone services and Internet access over DSL in 15 circles.

The company complements its mobile, broadband, and telephone services with national and

international long-distance services. The company also has a submarine cable landing station

at Chennai, which connects the submarine cable connecting Chennai and Singapore. Bharti

Tele-Ventures provides end-to-end data and enterprise services to corporate customers by

leveraging its nationwide fibre-optic backbone, last mile connectivity in fixed line and mobile

circles, VSATs, ISPand international bandwidth access through the gateways and landing

station. Allof Bharti Tele-Ventures' services are provided under the Airtel brand.As of

September 2005, Bharti Tele-Ventures was the only company to providemobile services in all

23 telecom circles in India.By the end of October 2005, Bharti Tele-Ventures was serving more

than 14.74 million GSM mobile subscribers and 1.10 million broadband and telephone (fixed

line) customers.The equity shares of Bharti Tele-Ventures are currently listed on the

NationalStock Exchange of India Ltd (NSE) and the Stock Exchange, Mumbai (BSE). As of

September 30, 2005, the main shareholders of Bharti Tele-Ventures were: Bharti Telecom Ltd

(45.65%), a subsidiary of Bharti Enterprises;Singapore Telecom (15.69%), through its

investment division Pastel Ltd; and, Warburg Pincus (5.65%), through its investment company

Brentwood Investment Holdings Ltd). Other shareholders with more than a 1% stake were: Citi

Group Global Markets Mauritius Pvt Ltd (2.99%); Europacific Growth Fund (2.04%); Morgan

Stanley & Co International Ltd (1.93%); CLSA Merchant Bankers Ltd A/C Calyon (1.33%); Life

Insurance Corporation of India (1.34%); and, The Growth Fund of America Inc. (1.11%). Sunil

Bharti Mittal, the founder-chairman of Bharti Enterprises (which owns Airtel), is today, the most

celebrated face of the telecom sector in India. He symbolises the adage that success comes to

those who dream big and then work assiduously to deliver it. Sunil Bharti Mittal began his

journey manufacturing spare parts for bicycles in the late 1970s. His strong entrepreneurial

instincts gave him a unique flair for sensing new business opportunities. In the earlyyears,

Bharti established itself as a supplier of basic telecom equipment. His true calling came in the

mid-1990s when the government opened up the sector and allowed private players to provide

telecom services.Bharti Enterprises accepted every opportunity provided by this new policy to

evolve into India's largest telecommunications company and one of India's most respected

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brands. Airtel was launched in 1995 in Delhi. In the ensuing years, as the Airtel network

expanded to several parts of India, the brand came to symbolise the very essence of mobile

services. Product Airtel provides a host of voice and data products and services, including high-

speed GPRS services. Airtel also offers a wide array of 'post-paid' and 'prepaid' mobile offers,

with a range of tariff plans that target different segments. A comprehensive range of value-

added, customised services are part of the unique package from Airtel. The company's

products reflect a desire to constantly innovate. Some of these are reflected in the fact that

Airtel was the first to develop a 'single integrated billing system' Airtel comes to you from Bharti

Airtel Limited - a part of the biggest private integrated telecom conglomerate, Bharti Enterprises.

Bharti is the leading cellular service provider, with an all India footprint covering all 23 telecom

circles of the country. It has over 21 million satisfied customers. Bharti Enterprises has been at

the forefront of technology and has revolutionized telecommunications with its world class

products and services. Established in 1976, Bharti has been a pioneering force in the telecom

sector with many firsts and innovations to its credit. Bharti has many joint ventures with world

leaders like Singtel (Singapore Telecom); Warburg Pincus, USA; Telia, Sweden; Asian

infrastructure find, Mauritius; International Finance Corporation, USA and New York Life

International, USA. Bharti provides a range of telecom services, which include Cellular, Basic,

Internet and recently introduced National Long Distance. Bharti also manufactures and exports

telephone terminals and cordless phones. Apart from being the largest manufacturer of

telephone instruments in India, it is also the first company to export its products to the USA.

Airtel's journey to leadership began in Delhi in 1995. Since then, Airtel has established itself

across India in sixteen states covering a population of over 600 million people. Airtel will soon

cover the entire country through a process of acquisitions and green field projects. With a

presence in over 1,400 towns, Airtel today has the largest network capacity in the country. In

the last nine years Airtel has achieved many firsts and unique records: it was the first to launch

nationwide roaming operations, it was the first to cross the one million and the five million

customer marks. It was also the first to launch services overseas. There are other 'firsts'

credited to Airtel - many of them in the area of innovative products and services. Today, Airtel

innovates in almost everything that it presents to the market. An excellent example is Easy

Charge - India's first paperless electronic recharging facility for prepaid customers. As evidence

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of its fine record, Airtel has also been conferred with numerous awards. It won the prestigious

Techies Award for 'being the best cellular services provider' for four consecutive years between

1997 and 2000 - a record that is still unmatched. And in 2003, it received the Voice & Data

Award for being 'India's largest cellular service provider', amongst others. As part of its

continuingexpansion, Airtel has invested over Rs. 1,065 billion in creating a new telecom

infrastructure. In 2003/04, Bharti Tele-Ventures earned a gross profit of Rs. 16 billion on

revenues of Rs. 50 billion. Telecom giant Bharti Airtel is the flagship company of Bharti

Enterprises. The Bharti Group has a diverse business portfolio and has created global brands in

the telecommunication sector. Bharti has recently forayed into retail business as Bharti Retail

Pvt Ltd. under a MoU with Wal-Mart for the cash & carry business. It has successfully launched

an international venture with EL Rothschild Group to export fresh agri- products exclusively to

markets in Europe and USA and has launched Bharti AXA Life Insurance Company Ltd under a

joint venture with AXA, world leader in financial protection and wealth management. Airtel

comes to you from Bharti Airtel Limited, India’s largest integrated and the first private telecom

services provider with a footprint in all the 23 telecom circles. Bharti Airtel since its inception has

been at the forefront of technology and has steered the course of the telecom sector in the

country with its world class products and services. The businesses at Bharti Airtel have been

structured into three individual strategic business units (SBU’s) – Mobile Services, Airtel

Telemedia Services &Enterprise Services. The mobile business provides mobile & fixed

wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia

Services business offers broadband & telephone services in 94 cities. The Enterprise services

provide end-to-end telecom solutions to corporate customers and national &international long

distance services to carriers. All these services are provided under the Airtel brand. Bharti Airtel

is one of India's leading private sector providers of telecommunications services based on an

aggregate of 71.77 million customers as on June 2008, consisting of 69.38 million GSM mobile

customers and 2.39 Bharti Telemedia Customers. Bharti Airtel Limited, a group company of

Bharti Enterprises, is India’s leading integrated telecom services provider with an aggregate of

71.77 million customers as of end of June 2008, consisting of 69.38 million mobile customers.

Bharti Airtel has been rated among the best performing companies in the world in the Business

Week IT 100 list 2007. Bharti Airtel is structured into three strategic business units - Mobile

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services, Telemedia services and Enterprise services. The mobile business provides mobile &

fixed wireless services using GSM technology across 23 telecom circles. The Telemedia

business provides broadband and telephone services in 94 cities and is foraying into the IPTV

and DTH segments. The Enterprise business provides end-to-end telecom solutions to

corporate customers and national and international long distance services to carriers. All these

services are provided under the Airtel brand. Airtel’s high-speed optic fibre network currently

spans over 78,540 kilometres covering all the major cities in the country. The company has two

international landing stations in Chennai that connects two submarinecable systems - i2i to

Singapore and SEA-ME-WE-4 to Europe.Company shares are listed on The Stock Exchange,

Mumbai (BSE) and The National Stock Exchange of India Limited (NSE).

Vision

By 2010 Airtel will be the most admired brand in India:

• Targeted by top talent

• Loved by more customers

• Benchmarked by more businesses

We at Airtel always think in fresh and innovative ways about the needs of our customers and

how we want them to feel. We deliver what we promise and go out of our way to delight the

customer with a little bit more

Mission

• Recruit & Maintain Calibre Working Staff

• Provides Customer Specific Software Solution

• Continues Improvement in Software Quality

• Not remain as Only Software Solution Provider, but be as Continues Service Provider

• To empower stakeholders in services and inventories to deal with associated

Quality Policy

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We will deliver error free service to our customer by doing our jobs rightand first time every

time.

Market share and revenues of the telecom companies

A total of 391.76 wireless subscribers were split between top wireless telecom operators. Bharti

Airtel leads the way with 93.92 million followed by Reliance (GSM + CDMA).

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Of the 391.76 wireless subscribers GSM has a market share of 76% and here is how they are

split:

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Introduction to Financial Analysis

Financial statements are a picture of a company's financial health. Outside investors and

stakeholders use financial statements to determine how well a business is doing and if they

should invest money into its operations. Most investors expect companies to have strong

financials to mitigate potential investment risk.The section of report embodies the calculation

and analysis of selected variables taken into reflection for the report purpose. The analysis uses

raw data available on the concerned website. The raw data encompasses Yearly Results,

balance sheet and income statement of the company. After calculation, analysis of individual

tool is being done. Analysis is performed by using software known as Microsoft Excel.

Income Statement

The income statement reports all sales, cost of goods (COGS) and expenses. A general

accounting rule is that COGS should be 75 percent or less of gross sales; expenses, 20 percent

or less; and income, 5 percent of gross sales. This general guideline ensures that companies

are not overpaying for COGS or other expenses listed on the income statement. A trend of

income statements (measured over months or quarters) should be reviewed to see if sales or

expenses are rising or falling throughout the previous periods.

Balance Sheet

The corporate balance sheet contains all assets and liabilities of a company. The assets should

be reviewed to see if large amounts of inventory or accounts receivable (A/R) are listed in the

asset section. High inventory indicates slow sales or obsolete goods still owned by the

company; large amounts of A/R indicate slow collections by the company, slowing down cash

flow. High liabilities mean that a company has several debt obligations that it must meet each

accounting period. If current liabilities are especially high, it means that the company is avoiding

payments to suppliers due to slow cash flow.

Cash Flows

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A cash flow statement fills in the gaps regarding the incomes statement and balance sheet

reviews; it shows how well a company generates cash flows from operations and financing

activities. Strong cash flows help a company pay for the goods and services it needs to run the

business. Sluggish cash flow indicates a company may have poor internal accounting

operations and is unable to collect cash or pay vendors on time.

Financial Ratios

Another way to review corporate financial statements is to use financial ratios to calculate how

well the company is performing. A few common financial ratios are as follows: Current ratio =

current assets / current liabilities. Measures how well a company can pay liabilities with only

short-term assets. A/R turnover = net sales / total accounts receivable. Measures how well a

company receives payment on A/R through the accounting period. Gross profit margin = gross

profit / total sales. Measures how much profit a company earns on sales for the accounting

period. Debt ratio = total debt / total assets. Measures how much leverage is used to purchase

operating assets.

Comparison

When using financial ratios, investors and stakeholders must compare an individual company's

ratios against competitors or industry standards. This comparison will indicate if a company is

operating at a level that will provide growth opportunities from future operations. If the numbers

are weak compared to the industry, the company may be forced out of its industry as an

inefficient producer in the marketplace.

Tools used for Analysis

• Ratio Analysis

• Comparative Analysis

• Common Size Analysis

The used of Financial analysis are the following:

(A) Management use of Ratio Analysis

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• Helps in Decision making

• Helps in Financial forecast and planning

• Helps in Communicating

• Helps in Co-ordination

• Helps in Control

(B) Utility to shareholders and investors

(C) Utility to Creditors

(D) Utility to Employees

(E) Utility to Government

Traditional ratio analysis, a process used for many years by many financial analysts and Project

Managers, looks at financial information in terms of liquidity, activity, profitability, and debt

management, considering each measurement by itself. This analysis method helps the analyst

develop an assessment of the company at the time of the statements analysed. Non-traditional

ratio analysis considers the relationships between financial data from an interpretive

perspective, permitting the analyst or Project Manager to make judgments or decisions related

to operations. Non-traditional ratio analysis recognizes that some information is as indicative of

future performance as it is of past performance.Financial analysis incorporates some of the

tools used by analysts and Project Managers to assess the financial status and the financial

condition of a company. Such analysis, utilizing financial ratios and analytical logic, provides

information for assessment and is used by a wide range of interested parties. Sources of

comparative information are identified and use of the analytical tools is explained in depth.

Everyone in business wishes they had a crystal ball and could anticipate future challenges and

opportunities, allowing them to take appropriate and effective Project Managerial action.

Through the careful application of the tools of financial analysis, the Project Manager can gain

insight that is close to that crystal ball.

Financial analysts, in conducting a financial analysis, generally compute and interpret several

ratios, which are drawn from financial statements, followed by a written interpretation of the

results of the computations. Ratios can be represented in one of the following

ways:Comparative analysis, often called cross-sectional analysis or industry analysis, may

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provide some meaningful benchmarks for performance. Trend analysis, also known as historical

Analysis, compares a company against itself over time. Ratios may be a combination of both of

the above. Ratios are grouped as follows:

Liquidity—assessing the ability to meet maturing obligations

Activity—assessing the effective utilization of assets

Profitability—assessing operating performance

Debt—assessing the management of borrowed funds, sometimes known as “coverage” ratios

Specifically, we will look at a group of ratios that have been described as Effect Ratios:[*] the

Current Ratio, the Quick Ratio, Net Working Capital, Accounts Receivable to Working Capital,

Inventory to Working Capital, Debt to Assets, Debt to Equity, Short-Term Debt to Equity, and

Short-Term Debt to Total Liabilities. We will also look at period-to-period change in these

measurements. These ratios highlight the application of financial analysis tools and the types of

information that such an analysis provides. As we will see, they also give the analyst or Project

Manager a good idea of where to look for additional information.

In addition to ratios and relationships within the two key financial statements, many ratios relate

an element of the Income Statement to an element of the Balance Sheet. These ratios are also

very valuable tools for assessing management and for identifying actions or situations that will

affect future results. Among these ratios is Return on Assets, Return on Equity, Average

Collection Period, Inventory Turnover, Fixed Asset Turnover, Total Asset Turnover, and Sales

to Net Worth.

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Comparative Analysis of Bharti Airtel

Comparative Analysis of Income Statement of Bharti Airtel for the years 2008-2010

Mar ' 10

Mar ' 09

Increase/Decreas

e in Amount

s

Increase/Decreas

e in Percent

age

Mar ' 09

Mar ' 08

Increase/Decrease in

Amounts

Increase/Decrease

in Percentag

e

Income

Operating income

35,609.54

34,048.32 1,561.22 4.59

34,048.32

25,761.11

8,287.21 32.17

Expenses

Material consumed 313.63

281.65 31.98

11.354518

281.65 33.85 247.8

732.0531758

Manufacturing

expenses

11,882.41

8,627.13 3,255.28

37.7330584

8,627.13

7,339.01 1288.12

17.55168613

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Personnel expenses

1,401.66

1,397.54 4.12

0.29480373

1,397.54

1,297.88 99.66

7.678675995

Selling expenses

2,404.91

2,210.43 194.48

8.79828812

2,210.43

1,842.51 367.92

19.96841265

Administrative

expenses

5,982.64

8,608.03 2,625.39

30.49931285

8,608.03

4,588.53 4019.5

87.59886064

Expenses capitalised 293.31

269.25 24.06

8.93593315

269.25 - - -

Cost of sales

21,691.93

20,855.54 836.39

4.01039724

20,855.54

15,101.78 5753.76 38.10

Operating profit

13,917.61

13,192.78 724.83

5.49414149

13,192.78

10,659.34 2533.44 23.77

Other recurring income

148.98235.9

9 87.0136.87020

636235.9

9266.9

1 30.92 11.58

Adjusted PBDIT

14,066.60

13,428.77 637.83

4.74972764

13,428.77

10,926.24 2502.53 22.90

Financial expenses 283.35

434.16 150.81

34.73604201

434.16

393.43 40.73 10.35

Depreciation

3,890.08

3,206.28 683.80

21.326896

3,206.28

3,166.58 39.7 1.25

Other write offs 207.84

178.82 29.02

16.2286098

178.82

266.07 87.25 32.79

Adjusted PBT

9,685.32

9,609.50 75.82

0.78901087

9,609.50

7,100.16 2509.34 35.34

Tax charges

1,177.87

321.78 856.09

266.048232

321.78

632.43 310.65 49.12

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Adjusted PAT

8,507.45

9,287.72 780.27

8.401093056

9,287.72

6,467.73 2819.99 43.60

Nonrecurring items 969.48

1,497.74

-2,467.22

164.7295258

1,497.74

162.87 1334.87 -819.59

Other non-cash

adjustments

50.78 46.15 4.6310.03250

27 46.15 60.67 -14.52 -23.93

Reported net profit

9,426.15

7,743.84 1,682.31

21.7244933

7,743.84

6,244.19 1499.65 24.02

Earnings before

appropriation

27,928.98

19,541.05 8,387.93

42.9246637

19,541.05

11,778.12 7762.93 65.91

Equity dividend 379.79

379.65 -0.14

-0.036876

07

379.65 - - -

Preference dividend - - - - - - - -

Dividend tax 64.54 64.52 -0.02

-0.030998

1464.52 - - -

Retained earnings

27,484.65

19,096.89 8,387.76

43.9221255

19,096.89

11,778.12 7318.77 62.14

Interpretation:

Operating income – 4% increase in 09-10

32% increase in 08-09

Operating profit - 5% increase in 09-10.

24% increase in 08-09.

Net profit - 22% increase in 09-10.


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Cost of Sales - 4% increase in 09-10.


While there has been marginal increase in operating income, operating profit and net profit in

2009-10, it is less than 2008-09. This is possibly because of entry of new players in mobile

connections in India. But what Airtel has done well is that they have reduced cost of sales,

which somewhat compensates the competitive pressure. Manufacturing expenses have also

increased due to their acquisition of Zain telecom in Africa. They have also acquired 60% stake

in Warid telecom in Bangladesh, and thus is expanding its business in Asia. Its wireless

operating margin would get negatively affected due to increase in spectrum charges in 3g, but

that is still uncertain. Depreciation charges increased a lot from 2009 to 2010, but considering

the company’s aggressive mode, these minor obstacles will not hinder them much. Overall, it is

a good but not the best performance by the market leader.

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Comparative Analysis of Balance Sheet of Bharti Airtel for the years 2008-2010

Mar ' 10

Mar ' 09

Increase/Decrease

Increase/Decrease in Percentag

e

Mar' 09

Mar ' 08

Increase/Decrease

Increase/Decrease In Percentag

e

Sources of funds

Owner's fund

Equity share capital

1,898.77

1,898.24

0.53 0.03 1,898.24

1,897.91

0.33 0.02

Share applica

tion money

186.09

116.22

69.87 37.55 116.22

57.63 58.59 101.67

Preference

share capital

- - - -

Reserves &

surplus

34,650.19

25,627.38

9,022.81 26.04 25,627.38

18,283.82

7,343.56 40.16

Loan funds

Secured loans

39.43 51.73 -12.3-

31.1945219

51.73 52.42 -0.69 -1.32

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Unsecured loans

4,999.49

7,661.92 -2662.43

-53.254031

9

7,661.92

6,517.92 1144 17.55

Total 41,773.97

35,355.48

6418.49 15.36480732

35,355.48

26,809.71

8545.77 31.88

Uses of funds

Fixed assets

Gross block

44,212.53

37,266.70 6,945.83 15.71

37,266.70

28,115.65 9,151.05 32.55

Less : revalua

tion reserve

2.13 2.13 0.00 0.00 2.13 2.13 0.00 0.00

Less : accumulated

depreciation

16,187.56

12,253.34 3,934.22 24.30

12,253.34

9,085.00 3,168.34 34.87

Net block

28,022.84

25,011.23 3,011.61 10.75

25,011.23

19,028.52 5,982.71 31.44

Capital work-

in-progre

ss

1,594.74

2,566.67 -971.93 -60.95

2,566.67

2,751.08 184.41 6.70

Investments

15,773.32

11,777.76 3,995.56 25.33

11,777.76

10,952.85 -824.91 7.53

Interpretation:

Reserves ans Surplus – 26% increase in 09-10.


Investments – 25% increase in 09-10


Secured loans – 31% decrease in 09-10

1.32% decrease in 08-09

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Unsecured loans – 53% decrease in 09-10

As obvious, reserves have decreased and investments have increased in 2010. The domestic

telecom sector has been negatively impacted due to irrational pricing, forcing telecom

operators

with strong balance sheets like Airtel, to go for acquisitions in emerging markets. Net block has

decreased from 31% to 10% increase over the years, also because of this. Investors, hence

have to take a long term perspective rather than short term gains. If a company has decided to

go global with emerging markets, then such fluctuations are bound to occur. But profit will come

in future. It is a strong balance sheet because they have paid their most of the loans in 09-10 as

compared to 08-09. Although unsecured loans have an increase in 08-09, but they decreased it

in 09-10, which shows the company has strong reserves to go for investments as well as pay

the due loans. Hence the company has a strong performance inspite of competitive pressure.

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Comparative Analysis of Balance Sheet of Airtel with Competitors

Bharti

Airtel

Reliance

Comm

Idea

Cellular

Tata

Comm

Spice

Comm

Mar '10 Mar '10 Mar '10 Mar '10 Mar '09

Sources Of Fund

Total Share Capital 1,898.77 1,032.01 3,299.84 285 689.93

Equity Share Capital 1,898.77 1,032.01 3,299.84 285 689.93

Share Application Money 186.09 0 44.45 0 0

Preference Share Capital 0 0 0 0 0

Reserves 34,650.19 49,466.88 8,112.95 6,995.78 -872.54

Revaluation Reserves 2.13 0 0 0 0

Net worth 36,737.18 50,498.89 11,457.24 7,280.78 -182.61

Secured Loans 39.43 3,000.00 5,988.61 1,281.76 1,219.59

Unsecured Loans 4,999.49 21,478.28 537.81 1,357.15 838.97

Total Debt 5,038.92 24,478.28 6,526.42 2,638.91 2,058.56

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Total Liabilities 41,776.10 74,977.17 17,983.66 9,919.69 1,875.95

Application Of Funds

Gross Block 44,212.53 39,838.17 22,834.40 6,820.94 3,244.11

Less: Accum.

Depreciation16,187.56 9,225.69 7,907.34 2,316.14 1,522.31

Net Block 28,024.97 30,612.48 14,927.06 4,504.80 1,721.80

Capital Work in Progress 1,594.74 1,683.52 462.58 386.15 103.56

Investments 15,773.32 31,898.60 2,755.13 2,501.30 0.05

Inventories 27.24 298.34 46.7 1.25 6.44

Sundry Debtors 2,104.98 1,738.63 430.12 632.29 52.02

Cash and Bank Balance 54.89 81.92 129.13 102.9 53.41

Total Current Assets 2,187.11 2,118.89 605.95 736.44 111.87

Loans and Advances 6,276.12 17,886.79 3,533.15 4,042.38 297.29

Fixed Deposits 761.86 0.26 151.31 7.96 179.19

Total CA, Loans &

Advances9,225.09 20,005.94 4,290.41 4,786.78 588.35

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Deferred Credit 0 0 0 0 0

Current Liabilities 12,183.25 5,836.53 4,313.76 2,084.67 523.18

Provisions 658.75 3,386.84 137.76 174.67 14.64

Total CL & Provisions 12,842.00 9,223.37 4,451.52 2,259.34 537.82

Net Current Assets -3,616.91 10,782.57 -161.11 2,527.44 50.53

Miscellaneous Expenses 0 0 0 0 0

Total Assets 41,776.12 74,977.17 17,983.66 9,919.69 1,875.94

Interpretation:

Intense pressure from competitors especially from Reliance, in terms of net worth and

the amount of reserves. But in terms of debt and liabilities pay off to assets, Airtel still

maintains its top position. Hence its aggressive expansion strategy will make it difficult

for other players to catch up with it.

Comparative Analysis of Income Statement of Airtel with Competitors

35 | P a g e


Bharti

Airtel

Reliance

Comm

Idea

Cellular

Tata

Comm

Spice

Comm

Mar '10 Mar '10 Mar '10 Mar '10 Mar '09

Sales Turnover 35,609.54 13,554.60 11,850.24 3,218.04 1,580.48

Excise Duty 0 0 0 0 0

Net Sales 35,609.54 13,554.60 11,850.24 3,218.04 1,580.48

Other Income 1,118.46 2,455.17 383.83 359.95 56.93

Stock Adjustments -34.91 0 0 0 0.02

Total Income 36,693.09 16,009.77 12,234.07 3,577.99 1,637.43

Expenditure

Raw Materials 278.72 50.39 0.02 11.56 0.58

Power & Fuel Cost 0 144.27 942.27 0 135.78

Employee Cost 1,401.66 672.39 561.17 418.44 83.66

Other Manufacturing

Expenses11,882.41 7,850.49 5,187.63 1,592.11 532.67

Selling and Admin

Expenses6,856.42 1,974.73 1,823.48 265.01 449.97

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Miscellaneous Expenses 1,482.39 668.9 91.58 180.31 498.41

Preoperative Exp

Capitalised-293.31 0 0 0 0

Total Expenses 21,608.29 11,361.17 8,606.15 2,467.43 1,701.07

Operating Profit13,966.34 2,193.43 3,244.09 750.61 -120.57

PBDIT 15,084.80 4,648.60 3,627.92 1,110.56 -63.64Interest 283.35 1,253.84 982.44 251.02 405.88PBDT 14,801.45 3,394.76 2,645.48 859.54 -469.52

Depreciation 3,890.08 1,511.24 1,366.61 574.73 372.57

Other Written Off 207.84 0 184.59 0 178.49

Profit Before Tax 10,703.53 1,883.52 1,094.28 284.81 -1,020.58

Extra-ordinary items -50.78 0 91.61 304.53 6.64

PBT (Post Extra-ord

Items)10,652.75 1,883.52 1,185.89 589.34 -1,013.94

Tax 1,177.87 1,404.59 115.08 106.16 1.28

Reported Net Profit 9,426.15 478.93 1,053.66 483.18 -1,019.56

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Total Value Addition 21,329.56 11,310.78 8,606.12 2,455.87 1,700.49

Preference Dividend 0 0 0 0 0

Equity Dividend 379.79 175.44 0 0 0

Corporate Dividend Tax 64.55 29.14 0 0 0

Per share data

(annualised)

Shares in issue (lakhs) 37,975.30 20,640.27 32,998.38 2,850.00 6,899.25

Earnings Per Share (Rs) 24.82 2.32 3.19 16.95 -14.78

Equity Dividend (%) 20 17 0 0 0

Book Value (Rs) 96.24 244.66 34.59 255.47 -2.65

Interpretation:

Airtel beats its competitors by a long margin when it comes to sales turn over. This has resulted

in a huge gain in total income since excise duty was zero for all companies. However, due to its

huge employee base, its employee expenses are also the highest. Hence, its total expenses

38 | P a g e


have also reported the highest among its competitors. But since its net profit is way ahead from

other players due to its huge customer base, so Airtel maintains its number one position in

telecom sector in India. Also, earnings per share has a very good value of Rs 24, which beats

the others comfortably. So, although expenses have increased but still the market share is very

good.

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Com mon Size Analysis of Bharti Airtel

The common-size statement is a financial document that is often utilized as a quick and easy

reference for the finances of a corporation or business. Unlike balance sheets and

other financial statements, the common-size statement does not reflect exact figures for each

line item. Instead, the structure of the common size statement uses a common base figure, and

assigns a percentage of that figure to each line item or category reflected on the document.

A company may choose to utilize financial statements of this type to present a quick snapshot

of how much of the company’s collected or generated revenue is going toward each operational

function within the organization. The use of a common-size statement can make it possible to

quickly identify areas that may be utilizing more of the operating capital than is practical at the

time, and allow budgetary changes to be implemented to correct the situation.

The common size statement can also be a helpful tool in comparing the financial structures and

operation strategies of two different companies. The use of percentages in the common size

statements removes the issue of which company generates more revenue, and brings the focus

on how the revenue is utilized within each of the two businesses. Often, the use of a common-

size statement in this manner can help to identify areas where each company is utilizing

resources efficiently, as well as areas where there is room for improvement.

40 | P a g e

http://www.wisegeek.com/what-is-a-corporation.htm

http://www.wisegeek.com/what-are-financial-statements.htm


Common Size Analysis of Income Statement of BhartiAirtel from 2008 to 2010

31-Mar-10(12)

31-Mar-09(12)

31-Mar-08(12)

Profit / Loss A/C Rs mn %OI Rs mn %OI Rs mn %OI

Net Sales (OI) 356095.41 100.00 340142.90 100.00 257035.10 100.00

Material Cost 0.00 0.00 0.00 0.00 0.00 0.00

Increase Decrease Inventories 203.22 0.06 124.05 0.04 338.50 0.13

Personnel Expenses 14371.32 4.04 14336.41 4.21 13341.85 5.19

Manufacturing Expenses 157121.92 44.12 151721.48 44.61 99228.29 38.60

Gross Profit 184398.94 51.78 173960.96 51.14 144126.45 56.07

Administration Selling and Distribution Expenses

45881.01 12.88 42262.13 12.42 37596.00 14.63

EBITDA 138517.93 38.90 131698.83 38.72 106530.45 41.45

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Depreciation Depletion and Amortisation

40979.21 11.51 33850.99 9.95 34326.53 13.35

EBIT 97538.72 27.39 97847.84 28.77 72203.92 28.09

Interest Expense -5679.98 -1.60 21483.82 6.32 6077.57 2.36

Other Income 3773.79 1.06 5251.35 1.54 3599.07 1.40

Pre-tax Income 106992.49 30.05 81615.37 23.99 69725.42 27.13

Provision for Tax 12730.94 3.58 4176.98 1.23 7283.50 2.83

Extra Ordinary and Prior Period Items Net

0.00 0.00 0.00 0.00 0.00 0.00

Net Profit 94261.55 26.47 77438.38 22.77 62441.92 24.29

Adjusted Net Profit 94261.55 26.47 77438.38 22.77 62441.92 24.29

Dividend - Preference 0.00 0.00 0.00 0.00 0.00 0.00

Dividend - Equity 3797.89 1.07 3796.48 1.12 0.00 0.00

Interpretation:

Although manufacturing expenses have increased over the years due to expansion from 08-10,

Airtel has managed to report 26% profits of net sales in 2010, as compared to 24% in 2008 and

22% in 2009. This is good for the company as it means that it has successfully managed to

increase its customer base profitably. Manufacturing expenses have increased from 38% to

44%, due to high prices, but that is compensated by net profit. Interest expense has lessened

which is a good sign. Overall, the income statements for three years account for a gradual

improvement in the performance of the company.

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Common Size Analysis of Balance Sheet of Bharti Airtel for the years 2008-2010

31-Mar-10 %BT 31-Mar-09 %BT 31-Mar-08 %BT

Equity Capital 18987.65 3.48 18982.40 3.87 18979.07 4.87

Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00

Share Capital 18987.65 3.48 18982.40 3.87 18979.07 4.87

Reserves and Surplus 346523.22 63.44 256295.07 52.19 182859.52 46.89

Loan Funds 50389.23 9.23 77136.47 15.71 65703.42 16.85

Current Liabilities 121799.93 22.30 131179.82 26.71 119090.69 30.54

Provisions 6587.54 1.21 6344.00 1.29 2098.76 0.54

Current Liabilities and Provisions 128387.48 23.51 137523.82 28.00 121189.45 31.08

Total Liabilities and Stockholders’ Equity (BT)

546181.02 100.00 491099.93 100.00 389946.48 100.00

Tangible Assets Net 258471.17 47.32 230440.88 46.92 168836.10 43.30

Intangible Assets Net 21778.47 3.99 19692.71 4.01 21470.38 5.51

Net Block 280249.64 51.31 250133.58 50.93 190306.48 48.80

Capital Work In Progress Net 15947.36 2.92 25666.69 5.23 27510.79 7.06

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Fixed Assets 296197.00 54.23 275800.28 56.16 217817.26 55.86

Investments 157733.19 28.88 117777.58 23.98 109528.53 28.09

Inventories 272.44 0.05 621.51 0.13 568.61 0.15

Accounts Receivable 21049.77 3.85 25500.49 5.19 27764.57 7.12

Cash and Cash Equivalents 8167.41 1.50 22516.03 4.58 5029.39 1.29

Other Current Assets 663.74 0.12 1197.13 0.24 997.27 0.26

Current Assets 30153.37 5.52 49835.15 10.15 34359.84 8.81

Loans & Advances 62097.46 11.37 44414.95 9.04 28238.82 7.24

Miscellaneous Expenditure Other Assets

0.00 0.00 0.87 0.00 2.03 0.00

Total Assets (BT) 546181.02 100.00 491099.93 100.00 389946.48 100.00

Interpretation:

Short Term Solvency: By comparing the current Asset and Current Liabilities of the company it

appears that the company is not able to pay the day to day obligations. But from the Reserve

(Rs 34650.19 Crores) has increased to 82.94% of Total Assets with the company. The

company may use this reserve to pay the day to day obligations.The debt (Secured &

Unsecured Loans) is decreasing; this may be due to the fact that the company is able to

generate cash through the sale of services. From the increase in the Reserve fig., it may be

assumed that the Airtel is making huge profits.

Long Term Solvency: While comparing the fixed Asset and the Long Term Liabilities, as long as

the Airtel makes profit the company is able to attract more shareholders. Company is

decreasing or selling some of the fixed assets, this may be due to the efficient use of Indus

Towers.Company shows a negative balance in the Current Asset but while comparing the

44 | P a g e


performance from 2008 to 2010, the Airtel is able to have a good position in Current Assets in

the year 2010.

The overall profitability of Airtel is better when comparing the previous years, this may be due to

the Sales of services, increase in customer base (an increase of 65%), reduction in operating

expenses by the use of Indus Tower ( sharing the towers with other major players) etc.

45 | P a g e


Common size Analysis Balance Sheet of Bharti Airtel with Idea for the year 2010

Bharti Airtel Idea CellularMar '10 % Mar '10 %12 mths 12 mths

Sources of FundsTotal Share Capital 1,898.77 3,299.84

Equity Share Capital 1,898.77 4.55 3,299.84 18.35Share Application Money 186.09 0.445 44.45 0.247Preference Share Capital 0 0

Reserves 34,650.19 82.94 8,112.95 45.11Revaluation Reserves 2.13 0

Net worth 36,737.18 87.93 11,457.24 63.71Secured Loans 39.43 0.094 5,988.61 33.3

Unsecured Loans 4,999.49 11.96 537.81 2.99Total Debt 5,038.92 12.06 6,526.42 36.29

Total Liabilities 41,776.10 99.9 17,983.66 100Mar '10 Mar '1012 mths 12 mths

Application of FundsGross Block 44,212.53 105.83 22,834.40 126.97

Less: Accum. Depreciation 16,187.56 38.75 7,907.34 43.96Net Block 28,024.97 67.08 14,927.06 83

Capital Work in Progress 1,594.74 3.81 462.58 2.57Investments 15,773.32 37.76 2,755.13 15.32Inventories 27.24 0.065 46.7 0.259

Sundry Debtors 2,104.98 5.04 430.12 2.39Cash and Bank Balance 54.89 0.132 129.13 0.71

Total Current Assets 2,187.11 5.23 605.95 3.36Loans and Advances 6,276.12 15.02 3,533.15 19.64

Fixed Deposits 761.86 1.82 151.31 0.84Total CA, Loans & Advances 9,225.09 22.08 4,290.41 23.86

Deferred Credit 0 0

46 | P a g e


Current Liabilities 12,183.25 29.16 4,313.76 23.98Provisions 658.75 1.57 137.76 0.767

Total CL & Provisions 12,842.00 30.74 4,451.52 24.71Net Current Assets -3,616.91 -8.66 -161.11 -0.896

Miscellaneous Expenses 0 0Total Assets 41,776.12 100 17,983.66 100

Contingent Liabilities 3,921.50 9.38 1,960.75 10.9Book Value (Rs) 96.24 0.23 34.59 0.192

Interpretation:

Share capital of Idea is more than Airtel, but Airtel has more Reserves than Idea. This is

because the introduction of new circles has caused an overshoot in the expense of Idea,

thereby reducing the profit. Short Term Solvency of Airtel when compared to Idea is poor as

Idea can pay the day to day obligations, but both service sectors lack to cover the current

liabilities.Idea has more fixed Assets than Airtel this may be due to the introduction of new

circles to provide better services to the exiting/ new customers.

47 | P a g e


RATIO ANALYSIS

Ratio analysis is the powerful tool of financial statements analysis. A ratio is defined as the

indicated quotient of two mathematical expressions and as the relationship between two or

more things. The absolute figures reported in the financial statement do not provide meaningful

understanding of the performance and financial position of the firm. Ratio helps to summaries

largequantities of financial data and to make qualitative judgment of the firm’s financial

performance.

Ratio analysis helps to appraise the firms in the term of their profitabilityand efficiency of

performance, either individually or in relation to other firmsinsame industry. Ratio analysis is

one of the best possible techniques availabletomanagement to impart the basic functions like

planning and control. As futureis closely related to the immediately past, ratio calculated on the

basis historicalfinancial data may be of good assistance to predict the future. E.g. On the

basisof inventory turnover ratio or debtor s turnover ratio in the past, the level ofinventory and

debtors can be easily ascertained for any given amount of sales.Similarly, the ratio analysis

may be able to locate the point out the various ariaswhich need the management attention in

order to improve the situation. E.g. Current ratio which shows a constant decline trend may be

indicate the need forfurther introduction of long term finance in order to increase the

liquidityposition. As the ratio analysis is concerned with all the aspect of the firm’sfinancial

analysis liquidity, solvency, activity, profitability and overallperformance, it enables the

interested persons to know the financial andoperational characteristics of an organization and

take suitable decision.

Current Ratio:

Current Ratio is the indicator of the firm’s commitment to meet its short-term liability. Current

Assets mean assets that will either be used up or converted into cash within a year’s time.

Current liabilities mean liabilities payable within a year or during the operating cycle, whichever

is longer.

48 | P a g e


Year Ratio (Times)

2008 0.57

2009 0.69

2010 0.72

Interpretation:

There is no hard or fast rule, conventionally, a current ratio of 2:1 (current assets twice the

current liabilities) is considered satisfactory. The logic underlying the convention rule is that

even with a dropout of 50% in value of current assets a firm can meet its obligations, i.e., 50%

margin of safety is assumed to be sufficient to ward off the worst situation. Generally the levels

of current ratio vary from industry to industry depending on specific industry characteristics.

Also firm differs from the industry ratio because of its policy. In Bharti Airtel Limited, the current

ratio is 0. 72 times i.e. the current asset is less than current liabilities. The current liability is high

because of sundry creditors. This is due to strategic partner.

Chart showing the Current Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

49 | P a g e


Quick Ratio:

The Quick ratio is also termed as “Acid-Test Ratio”. This ratio is ascertainedby comparing the

liquid assets (i.e., assets which are immediately convertible in to cash without much loss) to

current liabilities. Prepaid expenses and stock are not taken as liquid assets. This may be

expressed as:

Quick Ratio = Liquid Assets

-----------------------

Current Liabilities

Year Ratio (Times)

2008 0.55

2009 0.65

2010 0.72

50 | P a g e


Interpretation:

Generally Quick Ratio of 1:1 is considered satisfactory as a firm can easily meet all current

claims. It varies from industry to industry depending on specific industry characteristics. Also

differ from the industry ratio because of its policy.In Bharti Airtel Limited, the Quick Ratio is

below the standard no of 1:1 in all the years during the period of study (2008 – 2010). It is

because of strategic partnership with Ericsson.

Chart showing the Quick Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Gross Profit Ratio:

These ratios express the relationship between gross profit and net sales.

Gross Profit= Sales – Cost of goods sold (Including Operating Expenses) – Depreciation –

Amortization

Gross Profit

Gross Profit Ratio = -------------------- X 100

Net Sales

Year Percentage

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2008 29.08

2009 29.33

2010 27.97

Interpretation:

In interpreting the gross profit ratio at is important to observe any trend, but in making

comparison between companies at is vital to appreciate that the gross profit ratio varies

considerably from industry to industry. In telecom Gross profit is very high considering Low

operating cost and high depreciation on capex led by them. Gross profit of 45-50% is highest

among all the industries. In Bharti Airtel, the Gross Profit Ratio is high during the year 2008 and

low during the year 2010. As major expense is towards depreciation which is fixed cost.

Company will loss more with decrease in business. It is visible from above trend. Gross Profit

ratio will increase with increase in business due to benefit of scale. In interpreting the gross

profit ratio at is important to observe any trend, but in making comparison between companies

at is vital to appreciate that the gross profit ratio varies considerably from industry to industry. In

telecom Gross profit is very high considering Low operating cost and high depreciation on

capex led by them. Gross profit of 45-50% is highest among all the industries. In Bharti Airtel,

the Gross Profit Ratio is high during the year 2008 and low during the year 2010. As major

expense is towards depreciation which is fixed cost. Company will loss more with decrease in

business. It is visible from above trend. Gross Profit ratio will increase with increase in business

due to

benefit of scale.

Chart showing the Gross Profit Ratio of Bharti Airtel Limited for the year ended 2008– 2010

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Net Profit Ratio:

This ratio helps in determining the efficiency with which affairs of the businessare being

managed. An increase in ratio over previous period indicates improvement in the operational

efficiency of the business provided the gross profit ratio is constant.

Net Profit after tax

Net Profit Ratio = --------------------------------- X 100

Net Sales

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Year Percentage

2008 23.99

2009 22.58

2010 26.40


Interpretation:

In interpreting the Net Profit Ratio at is important to bear in mind that suchratio varies from firm

to firm. When we compare the gross and the net profit margins we can gain a good impression

of their non-production and non-directcosts such as administration, marketing and finance

costs. The Net Profit Ratio provides clear picture of how efficiently the firm maintains control

over its total expenses. The Net Profit Ratio of Bharti Airtel Limited is high during the year 2010

&low during the year 2008. The net profit ratio has gone up to 26.40% in 2010 compared to

2008 & 2009, respectively. It indicates the efficiency of the management in increasing the profit.

As mentioned above the benefit is for increase in scale of business. Fixed cost will get observed

over more revenue hence there will be increase in Net profit ration with increase in revenue.

Chart showing the Net Profit Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Operating Ratio:

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This ratio is complementary of Net Profit Ratio. In case Net Profit is 20 %, it means Operating

Ratio is 80 %.

Cost of goods sold + Operating Expenses

Operating Ratio = --------------------------------------------------------------------- X 100

Net Sales

Year Percentage

2008 41.37

2009 38.74

2010 38.89

Interpretation:

Operating Ratio monitor the various expenses incurred related to sales. A highoperating ratio

would indicate low profitability, while a low ratio is an indication for high profitability. The

Operating Ratio should be low to leave a portion of sales to give fair return to the investors. The

smaller the ratio, the greater the organization's ability to generate profit if revenues decrease.

When using this ratio, however, investors should be aware that it doesn't take into account debt

repayment or expansion Bharti Airtel Limited has 60 % margin on operating expenses. The

Operating Ratio is 41.37 % in 2008 which is less than the margin. This shows the Airtel has well

managed the operating cost.

Chart showing the Operating Ratio of Bharti Airtel Limited for the year ended 2008– 2010

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Debtor Turnover Ratio:

Debtors constitute an important constituent of current assets and therefore the quality of

debtors to a great extent determines a firm’s liquidity. Debt collection period indicates the extent

to which the debts have been collected in time. It gives the average debt collection period.

Sales

Debtor Turnover Ratio = --------------------------------

Closing Debtors

Year Ratio (Times)

2008 12.28

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2009 12.78

2010 15.73

Interpretation:

Receivable Turnover Ratio which indicates the number of times that theaverage outstanding net

receivables is turned over, or converted into cash through collections during the year.

Receivables turnover is the period required for one complete cycle; from the time receivables

are recorded through collection, to the time new receivables are recorded. On the other hand, a

longer credit period granted to creditors would adversely affect the firm’s liquidity position. The

debtor turnover ratio has increased in all the years during the period under study. Though it has

increased, still with the growth in the business &receivables, it indicates that the company’s

strength in debtor management. The operation of debtors is through channel partners in post-

paid. The debtor is zero in prepaid operation because they are paid through demand draft. The

operation of prepaid is through Distributors – Retailers – Customers.

Chart showing the Debtors Turnover Ratio of Bharti Airtel Limited for the year ended 2008 –

2010

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Inventory Turnover Ratio:

This ratio is also known as stock turnover ratio establishes the relation between the cost of

goods sold during the year and average inventory held during the year. It calculates as follows:

Cost of goods sold

Inventory Turnover Ratio = -------------------------------

Average Inventory

Year Ratio (Times)

2008 453.06

2009 547.83

2010 1307.05

Interpretation:

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The liquidity of inventories is measured by the number of times per year thatinventory is

converted into cost of goods sold. Hence it is a device to measure the efficiency of the inventory

management. Inventory turnover ratio rates vary tremendously by the nature of the business.

In Bharti Airtel Limited, average inventory holding period is one day. In telecom inventory will

only include sim inventory which will be nominal incomparison to revenue. . Capex inventory will

be grouped under fixed assets. Inventory analysis clearly indicates the trend.

Chart showing the Inventory Turnover Ratio of Bharti Airtel Limited for the yearended 2008 –

2010

Fixed Assets Turnover Ratio:

A high fixed assets turnover ratio indicates efficient utilization of fixed assetsin generating sales.

A firm whose plant and machinery are old may show higher fixed assets turnover ratio than the

firm which has purchased them recently.

Sales

Fixed Assets Turnover Ratio = --------------------------------

Net Fixed Asset

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Year Ratio (Times)

2008 1.03

2009 1.00

2010 0.81

Interpretation:This ratio measures the efficiency in utilization of fixed assets. The ratio ofsales to fixed assets

measures the turnover of plant and machinery. A high fixed assets turnover ratio indicates

efficient utilization of fixed assets in generating sales. There has been constant decrease in

fixed assets turnover ratio of Bharti Airtel Limited though absolute figure of sales have down up.

There is an decrease year after year. In 2010, it has increased by 19 %. The sales include the

capital work in not progress. It means decrease in the investment in fixed assets has brought

about commensurate loss.

Chart showing the Fixed Assets Turnover Ratio of Bharti Airtel Limited for the yearended 2008

– 2010

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Debt Equity Ratio:

The Debt Equity Ratio is determined to ascertain the soundness of the long term financial

policies of thecompany. It is also known as “External – Internal” Equity Ratio. It may be

calculated as follows:

External Equity

Debt Equity Ratio = -------------------------------

Shareholders Fund

Year Ratio (Times)

2008 0.33

2009 0.28

2010 0.14

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Interpretation:

Either too high or too low a ratio may be disadvantageous. Too high suggests that

management is not taking advantages of opportunities to maximize its profit

through borrowings. Too low suggests undue exposure to risks of bankruptcy and to

a fixed burden of interest expenses in the event of period of relatively low profit. As

a rule of thumb, debt equity ratio of less than 1 is taken as acceptable, but this is

not based on any scientific analysis. In Bharti Airtel Limited, the Debt Equity Ratio is

almost close to 1 which is good for company. The debt is 0.92 times in total equity.

The management has taken advantage of the opportunities to maximize profit

through borrowings.

Chart showing the Debt Equity Ratio of Bharti Airtel Limited for the year ended

2008 – 2010

Earnings perShare:

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The profitability of the firm from the point of view of ordinary shareholders can be measured in

terms of number of equity shares. This is known as Earningsper Share. It is calculated as

follows:

Net Profit after Tax

Earnings per Share = -----------------------------------------------

No. of Equity Shares outstanding

YearEarnings Per Share (Amount in

Rs)

2008 32.9

2009 40.79

2010 24.82

Interpretation:

This is well known and widely used indicator of profitability because it can easily be compared

to the previous EPS figure. The earnings per share represent average amount of net income

earned by single equity share. Earnings per share are generally considered to be the single

most important variable in determining a share's price. It is also a major component of the price-

to-earnings valuation ratio. The Earnings Per Share of Bharti Airtel Limited is has been

consistently increasing in 2009and it decreased in 2010. This shows the equity share capital is

being effectively used in 2009 but not in 2010. This is also getting impacted with No-dividend

policy of Bharti. Bharti has never declared dividend so shareholder is not getting benefited with

the deprecation in EPS.

Chart showing the Earnings Per Share of Bharti Airtel Limited for the year ended 2008 – 2010

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Findings in Ratios:-

• The current ratio is 0. 72 times i.e. the current asset is less than current liabilities. The

current liability is high because of sundry creditors.

• Quick Ratio of 1:1 is considered satisfactory as a firm can easily meet allcurrent claims.

It varies from industry to industry depending on specificindustry characteristics. Also

differ from the industry ratio because of itspolicy.In Bharti Airtel Limited, the Quick Ratio

is below the standard noof 1:1 in all the years during the period of study (2008 – 2010).

• The Net Profit Ratio of Bharti Airtel Limited is high during the year2010 & low during the

year 2008. The net profit ratio has gone up to26.40% in 2010 compared to 2008 & 2009,

respectively. It indicates theefficiency of the management in increasing the profit. As

mentionedabove the benefit is for increase in scale of business.

• The debtor turnover ratio has increased in all the years during the periodunder study.

Though it has increased, still with the growth in thebusiness & receivables, it indicates

that the company’s strength in debtormanagement. The operation of debtors is through

channel partners inpost-paid.

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• There has been constant decrease in fixed assets turnover ratio of BhartiAirtel Limited

though absolute figure of sales have down up. There is andecrease year after year. In

2010, it has increased by 19 %. The salesinclude the capital work in not progress. It

means decrease in theinvestment in fixed assets has brought about commensurate loss.

• The Debt Equity Ratio is almost close to 1 which is good for company.The debt is 0.92

times in total equity. The management has takenadvantage of the opportunities to

maximize profit through borrowings.

• The Earnings Per Share of Bharti Airtel Limited is has been consistentlyincreasing in

2009and it decreased in 2010. This shows the equity sharecapital is being effectively

used in 2009 but not in 2010.

Ratio Analysis of Bharti Airtel with Competitors

Debt-Equity Ratio:

Interpretation:

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The data in Table reveals that IDEA has achieved the highest Debt-Equity Ratio every year for

the data taken for the period of 2007 to 2009 and is followed by RELIANCE between 2008-09.

TATA alone has registered the lowest ratio. Even the three year average Debt-Equity Ratio of

IDEA is significantly higher (1.656667) than that of RELIANCE (0.6166667), AIRTEL (0.406667)

and TATA (0.11). Thus, it is inferred that IDEA has the least proportion of debt fund in its total

capital and hence is the most efficient telecommunication company among all other companies.

IDEA has the highest portion of its self-owned funds in the capital structure followed by

RELIANCE, AIRTEL and TATA.

Long Term Debt-Equity Ratio

Interpretation:

The data in Table reveals that IDEA has achieved the highest Long Term Debt-Equity Ratio

every year for the data taken for the period of 2007 to 2009 and is followed by RELIANCE

between 2008-09. TATA alone has registered the lowest ratio. Even thethree year average

Long Term Debt-Equity Ratio of IDEA is significantly higher (1.323333) than that of RELIANCE

(0.45666667), AIRTEL (0.376667) and TATA (0.066667). Thus, it is inferred that IDEA has the

least proportion of debt fund in its total capital and hence is the most efficient

66 | P a g e


telecommunication company among all other companies. IDEA has the highest portion of its

self-owned funds in the capital structure followed by RELIANCE, AIRTEL and TATA.

Current Ratio:

Interpretation:

The data in Table reveals that RELIANCE has achieved the highest Current Ratio every year

for the data taken for the period of 2007 to 2009 and is followed by TATA, IDEA and

AIRTEL.AIRTEL alone has registered the lowest ratio. Even the three year average Current

Ratio of RELIANCE is significantly higher (1.423333) than that of TATA (1.273333), IDEA

(0.753333) and AIRTEL (0.52). Hence we can say that RELIANCE has enough resources to

pay its debts over the next 12 months as compared with the other companies.

Fixed Asset Ratio:

Interpretation:

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The data in Table reveals that AIRTEL has achieved the highest Average Fixed AssetRatio for

the data taken for the period of 2007 to 2009 and is followed by TATA, RELIANCE and IDEA.

The three year average Fixed Asset Ratio of AIRTEL is significantly higher (0.926667) than that

of TATA (0.773333), RELIANCE (0.73) and IDEA (0.626667). The table shows that AIRTEL has

shown increase in the Fixed Asset Ratio year by year as compared to any other sample

company. Moreover RELIANCE has year by year decrease in its Fixed Asset Ratio. It means

that AIRTEL has less money tied up in fixed assets and RELIANCE has over-invested in plant,

equipment, or other fixed assets. However the changes in this ratio for IDEA and TATA shows

that they are not efficient to use their fixed assets.

EPS (Earnings per Share):

Interpretation:

The data in Table reveals that AIRTEL has achieved the highest Average EPS for thedata taken

for the period of 2007 to 2009 and is followed by RELIANCE, TATA and IDEA. The three year

average EPS of AIRTEL is significantly higher (31.54) than that of RELIANCE (14.963333),

TATA (14.3133333) and IDEA (3.04333333). However both AIRTEL and RELIANCE has shown

constant growth in EPS respectively between years 2007 to 2009 which is shown in the table.

The EPS of IDEA is the lowest in all years as well as its average is the lowest as compared with

other sample companies. The higher the ratio means the better is the share price of the

company and the shareholders can earn more from their shares. Hence the AIRTEL is more

efficient than other companies.

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MAJOR FINDINGS:

• The average Debt-Equity Ratio of IDEA is significantly higher (1.656667) thanthat of

RELIANCE (0.6166667), AIRTEL (0.406667) and TATA (0.11).

• Average Long Term Debt-Equity Ratio of IDEA is significantly higher (1.323333)than

that of RELIANCE (0.45666667), AIRTEL (0.376667) and TATA(0.066667).

• The average Current Ratio of RELIANCE is significantly higher (1.423333) thanthat of

TATA (1.273333), IDEA (0.753333) and AIRTEL (0.52).

• The average Fixed Asset Ratio of AIRTEL is significantly higher (0.926667) thanthat of

TATA (0.773333), RELIANCE (0.73) and IDEA (0.626667).

• The average EPS of AIRTEL is significantly higher (31.54) than that ofRELIANCE

(14.963333), TATA (14.3133333) and IDEA (3.04333333). Hencemaking AIRTEL one of

the most efficient companies in the terms of generatingearnings.

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REFERENCES

1. www.moneycontrol.com

2. www.airtel.in

3. www.equitymaster.com

4. www.angelsecurities.in

5. www.icicidirect.com

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