8/6/2019 Ratio Analsys of Airtel
1/52
RATIO ANALYSIS OF STATE BANK OF INDIA(SBI)
A MINI PROJECT SUBMITTED TO JAWAHARLAL NEHRU TECHNOLOGICAL
UNIVERSITY, HYDERABAD IN PARTIAL FULFILLMENT FOR THE AWARD OF THEDEGREE OF MBA.
by
B.SHIVAJI
H.T.NO 10N81E0035
Under the guidance of
MR. SRI HARSHA
MR.LAKSHMA REDDY
MR.RAMA RAO
MR.SRAVAN KUMAR
DEPARTMENT OF BUSINESS ADMINISTRATION
SPHOORTHY ENGINEERING COLLEGE
NADARGUL(V),NEAR VANASTHALIPURAM,SAGAR ROAD
SAROORNAGAR(M),R.R(DIST)
8/6/2019 Ratio Analsys of Airtel
2/52
8/6/2019 Ratio Analsys of Airtel
3/52
ACKNOWLEDGEMENT
I am immensely indebted to SRI HARSHA REDDY, Head of the
department
Sphoorthy Management Studies to carry out this project work.
I am also thankful to my course director Prof T LAXMA REDDY, my heartful
thanks to my faculty guide SRAVAN KUMAR and RAMA RAO for his valuable
guidance and sustained interest in my project work.
I would like to acknowledge my sincere thanks to all my faculty members
for their valuable advices and suggestions.
B.SHIVAJI
8/6/2019 Ratio Analsys of Airtel
4/52
Agenda
S.NO CONTENTS P.NO
Chapter-I Introduction in generalobjectives of study
scope of the studyResearch Methodologylimitations
Chapter-II History of the companyFunctions of the companyinvestments of the companysavings of the companyInfra structure facilitiesNo. of employees / employee turn overCompetition of the companySuppliers of the companyCustomer of the companyprofitability of the company
Chapter-III Ratio Analysis techniques with formulae
Collection of Balance sheet & profit and loss account for last5 years from present
Chapter-IV Theoretical aspects of ratio analysis
Chapter-V Conclusion, suggestion, recommendation
8/6/2019 Ratio Analsys of Airtel
5/52
CHAPTER-I
8/6/2019 Ratio Analsys of Airtel
6/52
INTRODUCTION
Financial statement analysis is the calculation and comparison of ratios
which are derived from the information in a company's financial
statements. The level and historical trends of these ratios can be used to
make inferences about a company's financial condition, its operations and
attractiveness as an investment.
Financial statements are calculated from one or more p ieces of information from
a company's financial statements. For example, the "gross margin" is the gross
profit from operations divided by the total sales or revenues of a company,
expressed in percentage terms. In isolation, a financial ratio is a useless piece of
information. In context, however, a financial ratio can give a financial analyst
an excellent picture of a company's situation and the trends that are developing.
A statement gains utility by comparison to other data and standards. Taking our
example, a gross profit margin for a company of 25% is meaningless by itself. If
we know that this company's competitors have profit margins of 10%, we know
that it is more profitable than its industry peers which are quite favorable. If we
also know that the historical trend is upwards, for example has been increasing
steadily for the last few years, this would also be a favorable sign that
management is implementing effective business policies and strategies.
Financial statement analysis groups the ratios in to categories which tell us about
different facets of a company's finances and operations. An overview of some of
the categories of ratios is given below.
It is imperative to note the importance of the proper context for statement
analysis. Like computer programming, financial ratio is governed by the GIGO
law of "Garbage In...Garbage Out!" A cross industry comparison of the
leverage of stable utility companies and cyclical mining companies would be
8/6/2019 Ratio Analsys of Airtel
7/52
worse than useless. Examining a cyclical company's profitability ratios over less
than a full commodity or business cycle would fail to give an accurate long-
term measure of profitability.
Using historical data independent of fundamental changes in a company's
situation or prospects would predict very little about future trends. For example,
the historical ratios of a company that has undergone a merger or had a
substantive change in its technology or market position would tell very little
about the prospects for this company.
Credit analysts, those interpreting the financial ratios from the prospects of a
lender, focus on the "downside" risk since they gain none of the upside from an
improvement in operations. They pay great attention to liquidity and leverage
ratios to ascertain a company's financial risk. Equity analysts look more to the
operational and profitability ratios, to determine the future profits that will
accrue to the shareholder.
Although financial ratio analysis is well-developed and the actual ratios are
well-known, practicing financial analysts o ften develop their own measures for
particular industries and even individual companies. Analysts will often differ
drastically in their conclusions from the same ratio analysis.
8/6/2019 Ratio Analsys of Airtel
8/52
OBJECTIVES OF THE STUDY:
The main objectives of the present study are given below
To present an overall view of the Airtel company
To evaluate the financial performance of AIRTEL Company
To calculate various Financial Ratios and to analyze and comment on
the financial performance of AIRTEL COMPANY during 2006-2010
To offer suggestions to AIRTEL COMPANY for the improvement of
financial performance
8/6/2019 Ratio Analsys of Airtel
9/52
SCOPE OF THE STUDY:
The scope of the study is limited to collecting financial
data published in the annual reports of the company every year. The
analysis is done to suggest the possible solutions. The study is carried
out for 5 years (2006-2010).
8/6/2019 Ratio Analsys of Airtel
10/52
Research Methodology:
The data used for analysis and interpretation from annual
reports of the company which are the secondary forms of data
The project is presented by using tables, graphs and with their
interpretations
Secondary data:
Secondary data obtained from the annual reports, magazines
and web sites
8/6/2019 Ratio Analsys of Airtel
11/52
LIMITATIONS OF THE STUDY:
1. Many statements are calculated on the basis of the balance-sheet, profit
& loss account figures. These figures are as on the balance-sheet and p&l
account date only and may not be indicative of the year -round position.
2. Comparing the ratios with past trends and with competitors may not
give a correct picture as the figures may not be easily comparable due to
the difference in accounting policies, accounting period etc.
3. It gives current and past trends, but not future trends.
4. Impact of inflation is not properly reflected, as many figures are taken at
historical numbers, several years old.
5. There are differences in approach among financial analysts on how to
treat certain items, how to interpret ratios etc.
6. The ratios are only as good or bad as the underlying information used to
calculate them.
8/6/2019 Ratio Analsys of Airtel
12/52
Chapter-II
8/6/2019 Ratio Analsys of Airtel
13/52
History of the company:
Bharti Tele-Ventures was incorporated on July 7, 1995 as a company
with limited liability under the Companies Act, for promoting
telecommunications services. Bharti Tele-Ventures received certificate
for commencement of business on January 18, 1996. The Company was
initially formed as a wholly-owned subsidiary of Bharti Telecom Limited.
The chronology of events since Bharti Tele-Ventures was incorporated in1995 is as follows:
AirTel on December 16, 2003 announced the launch of expense tracker
service, which provides customers the option of tracking their day -to-day
expenses on a daily or monthly basis. To avail of this service, the
customer should register himself by sending EXP REG Your mail ID{gt}
to 3020. This service will allow a user to track expenses, while on the
move by sending an SMS. Each SMS sent to 3020 would cost Rs 3.
-AirTel launched a family pack for its post-paid customers in Chennai onJanuary 29. According to a press release, the family pack may have a
maximum of 10 members spread across the country. The combined
basic plan fixed charges/rental of all family members in the pack will
have to be equal to Rs 450 but less than Rs 1000 for the family 450
pack and above Rs 1000 for the family 1000 pack. The offerings under
family pack 450 include 15 free mobile to mobile STD minutes within the
family, 50 free local calling minutes to each family member, calls within
the family in same circle at 50 paise per minute, 25 free local SMS and
one subscription alert service free for 3 months.
-Bharti Tele-Ventures enters into a three year service agreement with
Ericsson
-Bharti Tele-Ventures (BTVL) has signed and received unified access
8/6/2019 Ratio Analsys of Airtel
14/52
service licence to provide GSM services in five circles including Uttar
Pradesh (East), West Bengal & Andaman Nicobar, Orissa, Bihar and
Jammu & Kashmir. The licence has been granted to Bharti Cellular Ltd
(BCL), the cellular arm and subsidiary of BTVL.
-Airtel announces the signing of the first-ever bilateral roaming
agreement between an Indian mobile service provider and its
counterpart in Pakistan. This facility will be available to pre-paid as well
as post-paid customers. AirTel's roaming agreement is with Mobilink, the
only GSM cellular service provider in Pakistan
Nokia Siemens Networks on Jan 3 declared that it has been awarded a
multi million euro contract from Bharti Airtel Ltd for deployment of a
single interactive voice response (IVR) platform across 23 circles. The
three-year turnkey contract comprises designing, planning, systemsintegration and optimisation services to raise overall customer
experience. The new IVR solution will enable Airtel to deliver services
such as voice SMS, televoting, call management services, caller ring
back tone and voice portal on a faster time-to-market basis and,
therefore, reduce OPEX costs.
- Bharti Airtel Ltd on February 13, 2008 has announced that it has
achieved the 60 million customer mark. This landmark has catapulted
Bharti Airtel into the club of top mobile operators in the world in terms ofsubscriber base. The 60 million customer base covers mobile as well as
fixed line and broadband customers.
- Bharti Airtel tied up with US-based Apple Inc to bring the popular GSM-
based iPhone in the country.
- Bharti Airtel Ltd has forged a technology alliance with Infosys
Technologies Ltd to launch its Direct-to-Home (DTH) television services.
Infosys, through its digital convergence platform, will offer a suite of
products including devices, application servers and interactive
applications for Airtel's DTH services.
- Gearing up for the roll out its 3G services soon, Bharti Airtel on Monday
said it has chosen Ericsson India, Nokia Siemens Networks and Huawei
8/6/2019 Ratio Analsys of Airtel
15/52
Technologies as network partners to launch the third generation mobile
services. All the three partners will plan, design, deploy and maintain a
state-of-the-art 3G HSPA (high speed packet access) network in 13
telecom circles of the total 22 for which Bharti Airtel has bagged the
licences for over Rs.12,000 crore.
ORGANISATION STRUCTURE OF THE COMPANY:
8/6/2019 Ratio Analsys of Airtel
16/52
INVESTMENTS OF THE COMPANY:
Bharti Airtel's profit continues to be weighed down by the cost of debt it took on
to make investments in 3G spectrum in India and to acquire the African
operations of Zain.
The company also blamed low margins on its African operations and tariff wars
in India for a 31 percent year-on-year decline in its net profit in the quarter
ended March 31.India's largest mobile operator reported on Thursday that its revenue for the
quarter was 162.6 billion Indian rupees (US$3.6 billion at the exchange rate on
the last day of the quarter), up 51 percent from the same quarter last ye ar. But
net profit fell to 14 billion rupees from 20 billion rupees in the same quarter last
year. While its Indian operations made profit of 18 billion rupees, its Africa
operations lost over 4 billion rupees.
The figures for the quarter ended March 31 are not, however, strictly
comparable to those in the same quarter last year, because they include the
results from Bharti Airtel's acquisition in June last year of Zain's operations in 15
countries in Africa.
The Africa operations of Zain were already los ing money when Bharti Airtelacquired them, said Kamlesh Bhatia, a principal research analyst at Gartner. The
company is putting together an organization to take advantage of the economies
of scale that the African and South Asian operations can bring to t he company,
he said.
Bhatia was, however, unwilling to forecast when Bharti Airtel would show profit
growth. The company still has to make some more investments in its operations,
he said. The company's management has the expertise in emerging markets
that will be required to turn around the operations in Africa, he added.
Bharti Airtel acquired its African operations for an enterprise value of $10.7
billion in June. It also paid 156 billion rupees for 3G and broadband wireless
licenses and spectrum in India. As a result of these investments, the company's
debt has soared to 599.5 billion rupees at the end of the quarter, from 23.9billion rupees in the same quarter last year.
Bharti Airtel's revenue from operations in India, Sri Lanka, and Bangladesh was
up by 11 percent from the same quarter last year.
In the company's fiscal year ended March 31, revenue at 594.6 billion rupees
was up 42 percent from a year earlier. The company said that profits had dipped
by 33 percent to 60.4 billion rupees.
8/6/2019 Ratio Analsys of Airtel
17/52
The company had 212 million mobile customers across 19 countries, but more
than 162 million of these customers came from India, where the company is
struggling with falling average revenue per user (ARPU). Competition among
operators has pushed down monthly ARPU by 12 percent to 194 rupees in the
quarter, from 220 rupees per month in the same quarter last year.
Airtel Africa had 44 million customers in 16 countries at the end of the quarter,
adding 2.1 million customers in the quarter.
The company has also rolled out 3G services in over 21 cities in India, but these
investments are unlikely to start earning large revenue for the company soon, as
the 3G market is still nascent in India, analysts said
Savings
Saving Deposit
In saving deposit, annual 7% interest is provided to the account-holderswith the facilities that is available in this type of accounts. The interest iscalculated on the daily balance and added to the concerned account atthe three/three. The holders of this account are supposed to maintainRs. 500/= as minimum balance.
Special Saving Deposit
In Special saving deposit, we are offering three saving account.
Airtel Saving Minimum Balance Rs. 5,000/-Interest 8.5%
Airtel Special SavingMinimum Balance Rs.25,000/- Interest 9.5%
Airtel PremiumSaving
Minimum Balance Rs.50,000/-
Interest 10 -12%
Recurring/Periodic Saving
In this saving account, save your amount for the fixed/certain period.After the maturity period, we will pay total interest with depositamount.It is simply a daily saving scheme.
Period Interest
3 Months 8.5%
6 Months 9.5%
1 Year 10.5%
2 Years 11.5%
3 Years 12.5%
8/6/2019 Ratio Analsys of Airtel
18/52
Fixed Deposit
As name suggests itself; the clients of this type of accounts are requiredto operate their accounts within specified period of time that they
mention the time of account opening in application form. As per theduration of accounts and time span for calculation of interest, ASCCL isproviding varieties of comparative attractive interest rates.
Period Monthly Quarterly Yearly On Maturity
1 Year 12% 13% - 16%
2 Years 13% 14% 15% 17%
3 Years 14% 15% 16% 18%
4 Years 15% 16% 17% 19%
4 Years 6Months
- - - Double
Senior Citizen Saving
Respecting to the spirit of Co-operative revolution of government ofNepal, Airtel Saving & Credit Co- Operative Ltd (ASCCL) is establishedunder the Co-Operative Act 2048, with the slogan "Customer Satisfactionwith Maximum Return" in 9 Chaitra 2066 B.S. With due respect to thespirit of co-operative revolution of the government of Nepal. Airtel
Saving & Credit Co- Operative Ltd (ASCCL) has been operating with no.of financial opportunities to its needy members & society as a wholeignoring cheap assurance of the market. In the contest of competitivemarket due to government's liberal and free economic policy along withpace of technological enhancement, our entrepreneurs are facing no. ofthreats. Considering the competition from any corner of the world ournational entrepreneurs are supposed to be provided varieties ofresources and facilities (if necessary) as far as possible to any sector ofthe economy. For this ASCCL is operating with modern computerized
system in the financial market with different schemes towards economicup-liftmen through entrepreneurial development on the belief ofTodays investment is tomorrow's return " like a cash cow by takingcorporate social responsibility (CSR) into account. Hence, ASCCL in itstrue sense is the peoples representative in Nepalese financial market.
To Serve is our ultimate goal. Taking the view in mind drops make sealets shake our hands for economic development through successful
8/6/2019 Ratio Analsys of Airtel
19/52
entrepreneurial development. For this, dont worry, we manage bloodi.e. fund for your business organization. You just come with your soundbusiness scheme (i.e. plan). We would like to draw your attentiontowards the belief of getting opportunity to serve through the habits ofdaily saving. Hence, it is the right times to shake our hands.
SavingsSaving Deposit
In saving deposit, annual 7% interest is provided to the account-holderswith the facilities that is available in this type of accounts. The interest iscalculated on the daily balance and added to the concerned account atthe three/three. The holders of this account are supposed to maintain
Rs. 500/= as minimum balance.
Recurring/Periodic SavingIn this saving account, save your amount for the fixed/certain period.
After the maturity period, we will pay total interest with depositamount.It is simply a daily saving scheme.
Fixed DepositAs name suggests itself; the clients of this type of accounts are requiredto operate their accounts within specified period of time that theymention the time of account opening in application form. As per theduration of accounts and time span for calculation of interest, ASCCL isproviding varieties of comparative attractive interest rates.
8/6/2019 Ratio Analsys of Airtel
20/52
No. of employees / employee turn over
In a human resources context, turnoverorstaff turnoverorlabour
turnoveris the rate at which an employergains and loses employees.
Simple ways to describe it are "how long employees tend to stay" or"the rate of traffic through the revolving door." Turnover is measured
for individual companies and for their industry as a whole. If an
employer is said to have a high turnover relative to its competitors, it
means that employees of that company have a shorter average
tenure than those of other companies in the same industry. High
turnover may be harmful to a company's productivity if skilled workers
are often leaving and the worker population contains a high
percentage of novice workers.
In the U.S., for the period of December 2000 to November 2008, theaverage total non-farm seasonally adjusted monthly turnover rate was
3.3%.[1] However rates vary widely when compared over different
periods of time or different job sectors. For example, during the period
2001-2006, the annual turnover rate for all industry sectors averaged
39.6% before seasonal adjustments,[2] during the same period the
Leisure and Hospitality sector experienced an average annual rate of
74.6%.[3]
Model [8]
Thomas suggests that there tends to be a higher level ofstress with
people who work with or interact with a narcissist, which in turn
increases absenteeism and staff turnover.[9]
8/6/2019 Ratio Analsys of Airtel
21/52
[edit]Investments
Alternatively, low turnover may indicate the presence of employee
'investments' (also known 'side bets')[10]
in their position: certain
benefits may be enjoyed while the employee remains employed with
the organization, which would be lost upon resignation (e.g. healthinsurance, discounted home loans, redundancy packages, etc.). Such
employees would be expected to demonstrate lower intent to leave
than if such 'side bets' were not present.
[edit]
How to prevent turnover
Employees are important in any running of a business; without them
the business would be unsuccessful. However, more and more
employers today are finding that employees remain for approximately
23 to 24 months, according to the 2006 Bureau of Labor
Statistics[citation needed]
. The Employment Policy Foundation states it
costs a company an average of $15,000 per employee, including
separation costs, paperwork, unemployment; vacancy costs, including
overtime or temporary employees and replacement costs including
advertisement, interview time, relocation, training and decreased
productivity when colleagues depart. Providing a stimulating
workplace environment, which fosters happy, motivated and
empowered individuals, lowers employee turnover and absentee
rates.[11]
Promoting a work environment that fosters personal and
professional growth promotes harmony and encouragement on all
levels, so the effects are felt company wide.[11]
Continual training and reinforcement develops a work force that is
competent, consistent, competitive, effective and
efficient.[11]
Beginning on the first day of work, providing the individual
with the necessary skills to perform their job is important. [12] Before the
first day, it is important the interview and hiring process expose newhires to an explanation of the company, so individuals know whether
the job is their best choice.[13]
Networking and strategizing within the
company provides ongoing performance management and helps build
relationships among co-workers.[13]
It is also important to motivate
employees to focus on customer success, profitable growth and the
company well-being .[13]
Employers can keep their employees informed
8/6/2019 Ratio Analsys of Airtel
22/52
and involved by including them in future plans, new purchases, policy
changes, as well as introducing new employees to the employees
who have gone above and beyond in meetings. [13] Early engagement
and engagement along the way, shows employees they are valuable
through information or recognition rewards, making them feelincluded.
[13]
When companies hire the best people, new talent hired and veterans
are enabled to reach company goals, maximizing the investment of
each employee.[13]
BhartiAirtel
IdeaCellular
RelianceComm
TataComm
TataTeleservice
Mar '10 Mar '10 Mar '10 Mar '10 Mar '10
Sources Of Funds
Total Share Capital 1,898.77 3,299.84 1,032.01 285.00 1,897.20
Equity Share Capital 1,898.77 3,299.84 1,032.01 285.00 1,897.20
Share Application Money 186.09 44.45 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves34,650.1
98,112.95 49,466.88 6,995.78 -2,563.53
Revaluation Reserves 2.13 0.00 0.00 0.00 0.00
Networth36,737.1
811,457.24 50,498.89 7,280.78 -666.33
Secured Loans 39.43 5,988.61 3,000.00 1,281.76 2,300.43
Unsecured Loans 4,999.49 537.81 21,478.28 1,357.15 1,309.00
Total Debt 5,038.92 6,526.42 24,478.28 2,638.91 3,609.43
Total Liabilities41,776.1
017,983.66 74,977.17 9,919.69 2,943.10
BhartiAirtel
IdeaCellular
RelianceComm
TataComm
TataTeleservice
Mar '10 Mar '10 Mar '10 Mar '10 Mar '10
Application Of Funds
Gross Block44,212.5
322,834.40 39,838.17 6,820.94 5,574.14
Less: Accum. Depreciation16,187.5
67,907.34 9,225.69 2,316.14 2,070.32
Net Block28,024.9
714,927.06 30,612.48 4,504.80 3,503.82
Capital Work in Progress 1,594.74 462.58 1,683.52 386.15 196.91
8/6/2019 Ratio Analsys of Airtel
23/52
Profitability of the airtel company
Free res(Rs crore)
Ratios
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Per share ratios
Adjusted EPS (Rs) 22.40 48.93 34.08 21.20 10.60
Adjusted cash EPS (Rs) 33.19 66.76 52.16 34.34 18.84
Reported EPS (Rs) 24.82 40.79 32.90 21.27 10.62
Reported cash EPS (Rs) 35.61 58.63 50.99 34.41 18.86
Dividend per share 1.00 2.00 - - -
Operating profit per share (Rs) 36.65 69.50 56.16 38.28 21.32
Book value (excl rev res) per share (Rs) 96.24 145.01 106.34 60.17 7.76
Book value (incl rev res) per share (Rs.) 96.25 145.02 106.35 60.18 7.77
Net operating income per share (Rs) 93.77 179.37 135.73 94.16 59.45
One of the main methods used by technical analysts to forecasting
Investments15,773.3
22,755.13 31,898.60 2,501.30 120.00
Inventories 27.24 46.70 298.34 1.25 6.40
Sundry Debtors 2,104.98 430.12 1,738.63 632.29 264.12
Cash and Bank Balance 54.89 129.13 81.92 102.90 22.98
Total Current Assets 2,187.11 605.95 2,118.89 736.44 293.50Loans and Advances 6,276.12 3,533.15 17,886.79 4,042.38 301.05
Fixed Deposits 761.86 151.31 0.26 7.96 0.00
Total CA, Loans & Advances 9,225.09 4,290.41 20,005.94 4,786.78 594.55
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 12,183.2 4,313.76 5,836.53 2,084.67 1,466.05
8/6/2019 Ratio Analsys of Airtel
24/52
security prices is by the recognition of patterns and trends of security
prices, and the easiest way to spot patterns and trends is through the
use of charts. In fact, the use of charts is so prevalent, that technical
analysts are often called chartists. Originally, charts were drawn by
hand, but most charts nowadays are drawn by computer.
Charts are graphical displays of price information of securities over
time. Often, such charts also show volume. Besides allowing the
technical analyst to easily spot patterns and trends, the main benefits
of charts are the concise presentation of price and volume information
over a period of time, which can be used by fundamentalists to study
how the market has reacted to specific events. Market volatility can
also be easily gleaned from charts. Charts also help technical analysts
to decide on entrance and exit points, and at what prices to placestops to reduce risk.
The main chart types used by technical analysts are the line chart, bar
chart, candlestick chart, and point-and-figure charts. Charts can also
be displayed on an arithmetic or logarithmic scale. The types of charts
and the scale used depends on what information the technical analyst
considers to be most important, and which charts and which scale best
shows that information.
Chart Scales: Arithmetic And Logarithmic
Most charts display price intervals on the vertical axis and time
intervals on the horizontal axis. A chart based on the arithmetic
scale (aka linear scale) shows the same distance between equal
price differences. So if a chart had $10 price intervals, then each
interval is the same length on the vertical axis. So a $10 stock that
increased by $10 would be plotted up by the same amount as a $100
stock that increased by $10, even though the $10 stock doubled in
price while the $100 stock only increased by 10%.
6-month bar chart of Citigroup using the arithmetic scale, where the gridlines
are equally spaced and represent the same price increments.
8/6/2019 Ratio Analsys of Airtel
25/52
The logarithmic scale (aka semi-logarithmic scale) usespercentages as the primary unit rather than absolute differences. On a
logarithmic scale, a $10 stock increasing by $10 would plot higher than
a $100 stock rising by $10. Hence, a chart based on a logarithmic
scale presents price change information more accurately than a chart
based on an arithmetic scale. A chart based on the logarithmic scale
can also cover a wider range of prices than a chart of the same size
based on the arithmetic scale. However, if the price range displayed in
the graph is narrow, then there is little difference between the 2
scales.
6-month bar chart of Citigroup using the logarithmic scale. Note that the
gridlines are drawn closer together at higher prices, and that the price
difference between gridlines also increases at higher prices.
8/6/2019 Ratio Analsys of Airtel
26/52
BigCharts - Interactive Chart
Line Charts
Line charts are the simplest form of charts depicting price changes
over an interval of time. Usually, only the closing price is graphed,
depicted by a single point. The series of these points constitutes a
linehence, the name. However, intraday price changes can also be
plotted, either by plotting each trade, or by selecting the last price of a
given interval, such as an hour or 15 minutes. Because line graphs are
simple, it is easier to compare the prices of multiple securities or
indexes on the same graph.
The line chart also shows trends the best, which is simply the slope of
the line.
1-month line chart of Exxon-Mobil Corporation.
8/6/2019 Ratio Analsys of Airtel
27/52
BigCharts - Interactive Chart
http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=xom&time=8
Bar Charts
One of the basic tools of technical
analysis is the bar chart, where the open, close, high, and low prices
of stocks or other financial instruments are embedded in bars which
are plotted as a series of prices over a specific time period. Bar chartsallows traders to see patterns more easily. In other words, each bar is
actually just a set of 4 prices for a given day, or some other time
period, that is connected by a bar in a specific wayhence, it is often
referred to as a price bar.
A price bar shows the opening price of the financial instrument, which
8/6/2019 Ratio Analsys of Airtel
28/52
is the price at the beginning of the time period, as a left horizontal line,
and the closing price, which is the last price for the period, as a right
horizontal line. These horizontal lines are also called tick marks.
Thehigh price is represented by the top of the bar and the low
price is depicted by the bottom of the bar.
1-month bar chart of Exxon-Mobil Corporation.
BigCharts - Interactive Chart
http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=xom&time=8
Candlestick Charts
Another type of chart used in technical
analysis is the candlestick chart, so called because the main
component of the chart representing prices looks like a candlestick,
8/6/2019 Ratio Analsys of Airtel
29/52
with a thick body, called the real body, and usually a line extending
above and below it, called the upper shadow and lower shadow,
respectively. The top of the upper shadow represents the high price,
while the bottom of the lower shadow represents the low price.
Patterns are formed both by the real body and the shadows.Candlestick patterns are most useful over short periods of time, and
mostly have significance at the top of an uptrend or the bottom of a
downtrend, when the patterns most often signify a reversal of the
trend.
While the candlestick chart shows basically the same information as
the bar chart, certain patterns are more apparent in the candlestick
chart. The candlestick chart emphasizes opening and closing prices.
The top and bottom of the real body represents the opening andclosing prices. Whether the top represents the opening or closing price
depends on the color of the real bodyif it is white, then the top
represents the close; black, or some other dark color, indicates that
the top was the opening price. The length of the real body shows the
difference between the opening and closing prices. Obviously, white
real bodies indicate bullishness, while black real bodies indicate
bearishness, and their pattern is easily observable in a candlestick
chart.
1-month candlestick chart of Exxon-Mobil Corporation.
8/6/2019 Ratio Analsys of Airtel
30/52
BigCharts - Interactive Chart
http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=xom&time=8
Point-And-Figure Charts
Point-and-figure charts list only significant price information as
columns of X's and O's without regard to time, so that trends,
resistance and support levels are more apparent. Although time is
depicted on the horizontal axis, the units of time are determined by
when the trend changes.
There are several ways of constructing point-and-figure charts, but all
are based on box size, which is the minimum price differential
necessary before a price is recorded as an X or an O. Columns of X's
show an uptrend, and O's show a downtrend. Generally, closing price
differentials are used. There is no high, low, opening, or closing prices
recorded, since only the change in price greater than the box size is
recorded as an X if the price differential is up or as an O if it is down.
Each consecutive X is recorded in the same column above the previous
X until the price reverses by more than the box size, then a new
column is started by recording an O in a box below and to the right of
the highest X in the previous column. O's are added downward with
each price decrease greater than the box size until the downtrend
reverses to an uptrend, starting a new column where the 1st X is
placed in the box above and to the right of the last O in the previous
column.
For example, if the box size is considered to be 1 point, then if XYZ
stock rises from 10 to 11, it is recorded as an X because the price rose
by at least 1 dollar. If the stock rose only $.50, then it would not be
recorded since the price increment was not at least the box size of 1dollar. If the price increased by at least 1 dollar the next day, then
another X would be recorded above the previous one in the same
column. If the next day, the price declined by $.25, then nothing
would be recorded, since the change is less than the box size. If on the
following day, the price declined by more than 1 dollar, then a new
8/6/2019 Ratio Analsys of Airtel
31/52
column ofO's would be started with the 1st O recorded 1box below
the top Xof the adjacent column. Each time the price declined by
more than the box size, then another O would be placed below the last
O of the column. When the stock rises by more than the box size, then
a new column of X's would be started, with the 1st X placed 1boxabove the bottom Oof the adjacent column. Note that, except for the
first and last columns, each X column is flanked by O columns, and
vice versa.
The construction of point-and-figure charts simplifies the drawing of
trend lines, and support and resistance levels, which is why point-and-
figure charts are ideal for detecting trends, and determining support
and resistance levels.
Point-and-figure chart of Intel Corporation. In this chart, the X's aregreen and
theO's arered, which increases theircontrast, making patterns moreapparent.
This seems to be the most common type of point-and-figure chart, butkeep in mind there are several variations that differ significantly from
the above description.
8/6/2019 Ratio Analsys of Airtel
32/52
8/6/2019 Ratio Analsys of Airtel
33/52
Net Block 13,006.88 19,305.63 19,030.65 25,013.36 28,024.97
Capital Work in Progress 2,341.25 2,375.82 2,751.08 2,566.67 1,594.74
Investments 719.70 705.82 10,952.85 11,777.76 15,773.32
Inventories 17.74 47.81 56.86 62.15 27.24
Sundry Debtors 1,076.17 1,418.52 2,776.46 2,550.05 2,104.98
Cash and Bank Balance 201.81 239.11 200.86 153.44 54.89
Total Current Assets 1,295.72 1,705.44 3,034.18 2,765.64 2,187.11
Loans and Advances 1,937.54 3,160.02 5,103.13 5,602.83 6,276.12
Fixed Deposits 105.61 541.35 302.08 2,098.16 761.86
Total CA, Loans & Advances 3,338.87 5,406.81 8,439.39 10,466.63 9,225.09
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 6,735.36 9,809.83 12,400.38 13,832.49 12,183.25
Provisions 537.44 1,232.84 1,961.95 634.40 658.75
Total CL & Provisions 7,272.80 11,042.67 14,362.33 14,466.89 12,842.00
Net Current Assets -3,933.93 -5,635.86 -5,922.94 -4,000.26 -3,616.91
Miscellaneous Expenses 7.94 2.66 0.20 0.09 0.00
Total Assets 12,141.84 16,754.07 26,811.84 35,357.62 41,776.12
Contingent Liabilities 4,740.34 7,615.04 7,140.59 4,104.25 3,921.50
Book Value (Rs) 38.71 60.19 106.34 145.01 96.24
8/6/2019 Ratio Analsys of Airtel
34/52
Chapter-IV
8/6/2019 Ratio Analsys of Airtel
35/52
8/6/2019 Ratio Analsys of Airtel
36/52
been said that business seeds money to make more money. However it is also
true that money budgets more money only when it is properly managed.
Financial statement:
A Financial statement is an organized collection of data according to logical
and consistent accounting procedures. It is purpose is to convey an
understanding of some financial aspects of a business firm.
The term financial statement is generally refers to two basic statements.
Income statement
Balance sheet of cover business may also prepare
Statement of retained earnings
Statement showing the changes in financial position
III.2 TECHNIQUES OF FINANCIAL ANALYSIS:
Financial analysis techniques are
8/6/2019 Ratio Analsys of Airtel
37/52
Comparative financial statements
Common size financial statements
Trend percentage
Funds flow analysis
Cash flow analysis
Cup analysis (cost volume profit)
Ratio analysis
Working capital managemen
III.3 CLASSFICATION OF RATIOS:
A ratio is an arithmetical relationship between two figures. Financial
ratio analysis is a study of ratios between various items or groups of
items n financial statements. Financial ratios are classified into five
types.
1. Liquidity ratios.
2. Leverage ratios.
3. Turnover ratios.
4. Profitability ratios.
5. Valuation ratios.
8/6/2019 Ratio Analsys of Airtel
38/52
I. Liquidity ratios:
Liquidity refers to the ability of a firm to meet its obligations in
the short run usually one year. Liquidity ratios are generally based on
the relationship between current assets and current liabilities. The
important liquidity ratios are: current ratio, acid test ratio and cash
ratio.
1. Current ratio:
A very popular ratio, current ratio is defined as:
Current assets
Current Ratio = -------------------------------
Current liabilities
Current assets include cash, marketable securities, debtors, investors, loans
and advances and pre-paid expenses. Current liabilities that are expected to
mature in the next twelve months. These comprise loans; secured or
8/6/2019 Ratio Analsys of Airtel
39/52
unsecured those are due in the next twelve months and current liabilities
and provisions.
The current ratio measures the ability of the firm to meet its
current liabilities- current assets get converted into cash n the operating
cycle of the firm and provide the funds needed to pay current liabilities.
Apparently, the higher the current ratio, the greater the short term
solvency. However, in interpreting the current ratio the composition of
current assets must not be overlooked. A firm with a high proportion of
current assets in the form of cash and debtors is more liquid than one with
a high proportion of current assets in the form of inventories even though
both the firms have the same current ratio.
The general norm for current ratio in India is 1.33. Internationally it is
2.
2. Acid-test ratio:
Also called the quick ratio, the acid-test ratio is defined as:
Quick assets
Acid-test Ratio = -----------------------------
Current liabilities
Quick assets are defined as current assets excluding inventories.
8/6/2019 Ratio Analsys of Airtel
40/52
The acid-test ratio is a fairly stringent measure of liquidity. It is based on
those current assets which are highly liquid-inventories are excluded from
the numerator of this ratio because inventories are deemed to be least
component of current assets.
3. Cash ratio:
Because cash and bank balances and short term marketable securities
are the most liquid assets of a firm, financial analysis look at cash ratio,
which is defined as:
Cash and bank balances + Current investments
Cash ratio = --------------------------------------------------------------------
Current liabilities
Clearly, the cash ratio is perhaps the most stringent measure of liquidity.
II. Leverage ratios:
Financial leverage refers to the use of debt finance. While debt
capital is a cheaper source of finance, it is also a riskier source of finance.
Leverage ratios help in assessing the risk arising from the debt capital. Two
types of ratios are commonly used to analyze financial leverage: structural
8/6/2019 Ratio Analsys of Airtel
41/52
ratios and coverage ratios. Structural ratios are based on the proportions of
debt and equity in the financial structure of the firm. The important
structural ratios are debt-equity ratio and debt-assets ratio Coverage ratios
show the relationship between debt servicing commitments and the
sources for meeting these burdens. The important coverage ratios are:
interest coverage ratio, fixed charges ratio, and debt service coverage ratio.
1. Debt-equity ratio:
The debt-equity ratio shows the relative contributions of creditors andowners. It is defined as:
Debt
Debt-equity ratio = ---------------
Equity
The numerator of this ratio consists of all debt, short-term as well as
long-term, and denominator consists of net worth plus preference capital.
In general, the lower the debt-equity ratio, the higher the degree of
protection enjoyed by the creditors.
8/6/2019 Ratio Analsys of Airtel
42/52
2. Debt-asset ratio:
The debt-assets ratio measure the extent to which borrowed funds
supports the firm assets. It is defined as:
Debt
Debt-assets ratio = -------------
Assets
The numerator of this ratio includes all debt, short-term as well as long-
term, and the denominator of this ratio is the total of all assets.
3. Interest coverage ratio:
Also called the times interest earned, the interest coverage ratio is
defined as:
Profit before interest and taxes
Interest coverage ratio = ----------------------------------------------
8/6/2019 Ratio Analsys of Airtel
43/52
Interest
Note that profit before interest and taxes is used in the numerator ofthis ratio because of the ability of a firm to pay interest is not affected by
tax payment, as interest on debt funds is a tax-deductible expense. A high
interest coverage ratio means that the firm can easily meet its interest
burden even if profit before interest and taxes suffer a considerable
decline. A low interest coverage ratio may result in financial embarrassmen t
when profit before interest and taxes decline. This ratios is widely used by
lenders to assets a firms debt capacity. Further, it is a major determinant of
bond rating.
Though widely used, this ratio is not a very appropriate measure of
interest coverage because the source of interest payment is cash flow
before interest and taxes not profit before interest and taxes. In view of
this, we may use a modified interest coverage ratio.
Profit before interest and taxes + depreciation
----------------------------------------------------------------
Debt interest
8/6/2019 Ratio Analsys of Airtel
44/52
III. Turnover ratios:
Turnover ratios, also referred to as activity ratios or assets
management ratios, measure hoe efficiently the assets are employees by a
firm. These ratios are based on the relationship between the level of
activity, represented by sales or cost of goods sold, and levels of various
assets. The important turnover ratios are: inventory turn over, average
collection period, receivables turnover, fixed assets turnover, and total
assets turnover.
1. Inventory turnover:
The inventory turnover, or stock turnover, measures how fast the
inventory is moving through the firm and generating sales. It is defined as:
Cost of goods sold
Inventory turnover ratio = ------------------------------
Average inventory
8/6/2019 Ratio Analsys of Airtel
45/52
The inventory turnover reflects the efficiency of inventory
managements. The higher the ratio, the more efficient the management of
inventories and vice-versa. However, this may not always be true. A high
inventory turnover may be caused by a low level of inventory which may
result in frequent stock outs and loss of sales and customer goodwill.
Notice that as inventories tend to change over the year, we use the
average of the inventories at the beginning and end of the year. In general,averages may be used when a flow figure is related to a stock figure.
2. Debtor turnover:
This ratio shows how many times receivable turnover accounts
during the year. It is defined as:
Net credit sales
Debtors turnover = -----------------------------------------
Average accounts receivable
Obviously, the higher the debtors turnover the greater the efficiency of
credit management.
8/6/2019 Ratio Analsys of Airtel
46/52
3. Average collection period:
The average collection period represents the number of days worth
of credit sales that is locked in debtors. It is defined as:
Average debtors
Average collection period = --------------------------------------
Average daily credit sales
If the figure for credit sales is not available, one may have to make do
with the net sales figure.
Note that the average collection period and the accounts receivable
turnover are related as follows:
365
Average collection period = ------------------------------------------
Accounts receivable turnover
8/6/2019 Ratio Analsys of Airtel
47/52
The average collection period may be compared with the firms credit
terms to judge the efficiency of credit management.
4. Fixed assets turnover:
This ratio measures sales per rupee of investment n fixed assets It is
defined as:
Net Sales
Fixed assets turnover = ------------------------------------
Average net fixed assets
This ratio is supposed to measure the efficiency with which fixed assets
is employed a high ratio indicates a high degree of efficiency in asset
utilization and a low ratio reflects inefficient use of assets. However, in
interpreting this ratio, one caution should be Bourne in mind. When the
fixed assets turnover tends to be high because the denominator of the ratio
is very low.
5. Total assets turnover:
Akin to the output-capital ratio in economic analysis, the total assets
turnover is defined as:
8/6/2019 Ratio Analsys of Airtel
48/52
Net Sales
Total assets turnover = -----------------------------
Average total assets
This ratio measures hoe efficiently assets are employed overall.
IV.Profitability ratios:
Profitability reflects the final result of business operations. There
are two types of profitability ratios.
1. Profit margins ratios and
2. Rate of return ratios
Profit margin ratios show the relationship between profit and sales. The
two popular profit margin ratios are: gross profit margin ratio and net profit
margin ratio. Rate of return ratios reflect the relationship between profit
and investment. The important rate of return measures is; return on total
assets, earning power and return on equity.
1. Gross profit margin ratio:
8/6/2019 Ratio Analsys of Airtel
49/52
The gross profit margin ratio is defined as:
Gross profit
Gross profit ratio = ---------------------
Net sales
Gross profit is defined as the difference between net sales and cost of
goods sold.
This ratio shows the margin left after meeting manufacturing
costs. It measures the efficiency of production as well as pricing. To analyze
the factors underlying the variation in gross profit margin the proportion of
various elements of cost of sales may study in detail.
2. Net profit margin ratio:
The net profit margin ratio is defined as:
Net profit
Net profit ratio = --------------------
Net Sales
This ratio shows the earnings left for shareholders as a percentage of
net sales. It measures the overall efficiency of production, administration,
8/6/2019 Ratio Analsys of Airtel
50/52
selling, financing, pricing and tax management. Jointly considered, the gross
and net profit margin ratios provide a valuable understanding of the cost and
profit structure of the firm and enable the analyst to identify the sources of
business efficiency or inefficiency.
3. Return on total assets:
A commonly used rate of return measure, the return on total assets
also called return on capital employed or return on investment id defined as:
Net income (Profit)
Return on total assets ratio = ------------------------------
Average total assets
The net income to total assets ratio is supposedly a measure of how
efficiency the capital is employed. Though widely used, this is an odd measure
because the numerator measures the return to shareholders (equity and
preference) and the denominator represents the contribution of shareholders
as well as creditors.
8/6/2019 Ratio Analsys of Airtel
51/52
To ensure internal consistency, the following variant of return on total
assets may be employed:
Net income + Interest
-------------------------------
Average total assets
4. Return on Equity:
A measure of great interest to shareholders, the return on equity is
defined as:
Equity earning
Return on Equity ratio = --------------------------
Average net worth
The numerator of this ratio is equal to profit after tax less preference
dividends. The denominator includes all contributions made by equity
shareholders (paid-up capital = reserve and surplus). This ratio is also called
the return on net worth.
8/6/2019 Ratio Analsys of Airtel
52/52
The return on equity measures the profitability of equity invested in the
firm. It is regarded as a very important because it reflects the productivity
of the ownership capital employed in the firm. It is influenced by several
factors: earning power, debt-equity ratio, average cost of debt funds and
tax rate.
In judging all the profitability measures it should be borne in the mind
that the historical valuation of assets imparts an upward bias to profitability
measures during an inflationary period. This happens because the
numerator of these measures represents current values whereas the
denominator represents historical values.