Description
The documentation describes on Financial Management of Idea Cellular Ltd.
IDEA CELLULAR LTD.
FINANCIAL MANAGEMENT
FY BAF SEM II
-PRESENTED BYFORUM KAPADIA R.NO. 20
COMPARISON OF RATIOS
S.NO. TYPES OF RATIOS AS ON 31ST MARCH, 2009
3.08 : 1 3.06 : 1 1.32 % 0.64 : 1 0.64 : 1 28.14 % 28.14 % 11 % 10.13 % 71.85 % 422.22 TIMES 8.60 % 4.31 % 4.56 % 71.85 % 10.18 : 1 8.20 % 8.55 % 8.55 % 29.97 TIMES 0.4 MNTHS 0.78 TIMES 0.44 TIMES 3.42 14.66 3.06 : 1 0.34 : 1
AS ON 31ST MARCH, 2008
1.50 : 1 1.47 : 1 5.28 % 1.13 : 1 1.13 : 1 33.71 % 33.71 % 16.57 % 15.50 % 66.28 % 1.13 TIMES 9.37 % 4.78 % 4.12 % 66.28 % 138.02 : 1 11.12 % 21.08 % 21.08 % 33.92 TIMES 0.3 MNTHS 0.63 TIMES 0.52 TIMES 3.96 26.64 1.47: 1 0.51 : 1
1. 2. 3. 4. 5. 6. 7.
8. 9. 10.
11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.
CURRENT RATIO QUICK RATIO STOCK WORKING CAPITAL RATIO CAPITAL GEARING RATIO DEBT EQUITY RATIO GROSS PROFIT RATIO NET PROFIT RATIO I. OPERATING NET PROFIT RATIO II. NPBT III. NPAT OPERATING RATIO STOCK TURNOVER RATIO EXPENSE RATIO I. OFFICE & ADMINISTRATION II. SELLING & DISTRIBUTION III. FINANCE IV. OPERATING EXPENDITURE DEBT SERVICE RATIO RETURN ON CAPITAL EMPLOYED RETURN ON SHAREHOLDER’S FUND RETURN ON EQUITY SHARE CAPITAL DEBTORS TURNOVER RATIO DEBTORS COLLECTION PERIOD FIXED ASSETS TURNOVER RATIO TOTAL ASSETS TURNOVER RATIO EARNINGS PER SHARE PROFIT EARNING RATIO ACID TEST RATIO DEBT ASSET RATIO
ACKNOWLEDGEMENT
I would like to express my sincere thanks to Our Financial Management Professor, Mrs. Neha Bhatia for having given us this golden opportunity of analyzing one of the best companies of the Telecom sector, Idea Cellular. It has not only been an enriching experience to analyze the company’s balance sheet and profit and loss statement but a challenging one as well. It has a lot of practical applicability and once again I’m very much thankful to her.
RATIO ANALYSIS
Mere statistics presented in different financial statements do not reveal the true picture of the financial position of a firm. Properly analyzed and interpreted financial statements can provide valuable insights into a firm’s performance. To extract such information, a no. of tools are used for analysis. The most popular tool is Ratio Analysis. It is as follows :CURRENT RATIO – This is a liquidity ratio which measures the ability of the firm to meet its current liabilities from the current assets. The standard ratio is 2:1 but higher the better. Idea’s current ratio has improved to 3.08:1 as compared to last year’s 1.50:1. This is a good sign of stronger current assets of the company. QUICK RATIO – This ratio is also a liquidity ratio which helps to know the immediate obligations of the company. The standard ratio is 1:1. This year’s quick ratio of Idea Cellular Ltd. Is 3.06:1 which is strong enough to meet immediate liabilities. It has improved quite a lot from last year. STOCK WORKING CAPITAL RATIO – This ratio is used to find out the percentage of working capital blocked up in stock. Too much capital shouldn’t be blocked in stock. This efficiency ratio should be as low as possible. This year Idea’s ratio has improved by showing a considerable decrease of 3.96 % It has fallen to 1.32% which is excellent. CAPITAL GEARING RATIO – This ratio has fallen from 1.13:1 last year to 0.64:1 this year. It shows that funds bearing fixed return has decreased. DEBT-EQUITY RATIO – It is a solvency ratio to find out the relative contributions of creditors and owners to finance the business. It helps to find out the dependence on external as well as internal funds. The standard ratio is 2:1. It has regressed from last year’s 1.13:1 to 0.64:1 this year. The Owed fund has to be made more efficient. GROSS PROFIT RATIO – This is a profitability ratio. It is useful for intra-firm comparison to find out the % of profit after deducting direct expenses. This year gross profit ratio has decreased by 5.57% as
compared to last year. It shows that this year there have been higher direct expenses. NET PROFIT RATIO – Net profit before and after tax has fallen by 5.57% and 5.37% respectively this year. OPERATING RATIO – This ratio helps to find out the % of total operating cost to the sales. It has increased to 71.85% this year due to heavy operating expenses. STOCK TURNOVER RATIO – This efficiency ratio is used to find out the no. of times stock is called for in a year. It has risen drastically from almost nil to approximately 422 times. EXPENSE RATIO – Expenses such as Finance, Selling and Distribution, Office and Administration all have either remained the same or have increased because of which the total expense ratio has also increased. DEBT SERVICE RATIO – It is a solvency ratio to find out the company’s profitability ratio to pay its external liabilities. This ratio has fallen to 10.18:1 very much low as compared to the previous year. RETURN ON CAPITAL EMPLOYED –It indicates the return on total capital employed i.e. shareholder’s fund and borrowed fund. This has also shown negative growth as it has fallen from 11.12% to 8.20% RETURN ON EQUITY SHARE CAPITAL –It indicates the return on equity share capital. This has fallen remarkably by 12.53% which is not a good sign. This is so because this year Idea did not declare Dividend to the shareholders. RETURN ON SHAREHOLDER’S FUND – It indicates the return on owner’s fund. This remains the same as equity share capital because company has not announced preference dividend. DEBTORS TURNOVER RATIO –This ratio shows how efficient are customers in paying their dues in a year. It has improved by 3.95% as
compared to last year. They make their payments in 0.4 months almost the same as last year. FIXED ASSETS RATIO –Indicates efficiency in utilization of assets. It is very low in both the years – 0.63 and 0.78 respectively. Idea need to utilize and allocate its fixed assets more judiciously. TOTAL ASSETS RATIO – this ratio is also not very impressive. Better strategies need to be adopted to turn it positively so as to make considerable improvement in the companies financial position. EARNINGS PER SHARE –It is a valuation ratio to know the earnings available per equity share. EPS of Idea is consistent at 3.42 PROFIT EARNING RATIO –It indicates the no. of times the market price is higher or lower compared to the EPS. It has decreased by 11.98 times to last year’s 26.64 times. This means that if 1 Re is invested in shares of Idea then investors and shareholders will earn 14 times the money invested. ACID TEST RATIO –This ratio is calculated to know the firm’s ability to convert its current assets into cash i.e. liquidity so as to meet its current liabilities. The standard ratio is 1:1. This year it has risen 3 times previous year’s ratio which is very much favourable. DEBT ASSET RATIO –Total debt comprises of long term debt plus current liability. Total assets comprise of permanent capital plus current assets. It is determined to figure out the short term solvency of the company. It is very low and a miserable figure of 0.34 not at all supportive of the company’s financial position.
COMMENTS
? ? ? ? Gross revenue has increased from 67.4 bn in FY 08 to 101.5 bn in FY 09. It’s a 33% increase which is excellent. EBITDA margin has considerably increased from FY 05 to FY 09 consistently over the years. Net profit has been very much inconsistent in the last 5 years. Market price of Idea on BSE and NSE has been in the high range of 52-114 and low range 34-100. This stock has done consistently well although the Index has been going through its highs and lows. It has out performed both the indices from April 2008 to March 2009. ? ? ? ? ? Idea has a market capitalization of 66,857 million which has improved greatly in the past year spreading its network well across India. The loss carried forward from FY 08 to FY 09 has lowered by 10,000 mn. Total funds have increased by 78,882 mn this year. Cash and Bank balances if Idea Cellular Ltd. are very strong. Idea charges depreciation on its Assets on Straight Line Method on the basis of estimated economics lives of the asset as given in Schedule 4. ? ? ? ? ? Inventories are valued at cost or net realizable value, whichever is lower. Cost is determined on weighted average basis. Idea Cellular Ltd. pays the following taxes- Current Tax, Deferred Tax, MAT(Minimum Alternative Tax) and FBT(Fringe Benefit Tax). The company has made suitable provisions for Pension, Gratuity, Superannuity, VRS, ESOP’s and other employee benefits. At present, Idea is market leader in 23% wireless market and at second position in about 50% market. The company estimated CAPEX of Rs 6000 cr for FY 10 against 6500 cr in FY 09. This CAPEX for FY 10 does not include capex for 3G licenses.
CASH FLOW ANALYSIS
? Net profit after tax is almost the same. ? Cash flow from FOREX has doubled. ? Interest received has been 4 times as compared to FY 08. ? There has been a huge loss on disposal of fixed assets. ? Net cash from operating activities has reduced by 7,500 mn. ? There has been a planned investment in fixed assets, intangible assets, shares, sale proceeds etc. that has resulted in a 20,000 mn increase in net cash flow from investing activities. ? There have been heavy financing charges due to which there was a lot of cash outflow from financial operations.
CONCLUSION
? Overall, Idea has done really well and there is considerable growth in certain segments. It has a lot of future prospects. ? Idea has not declared dividend either for its Equity or Preference shareholders because of which its returns on equity and shareholders fund has been very low. ? Idea Cellular needs some major investments immediately for expansion as new operators have entered the wireless battle. ? Idea needs to opt strategies to lower its operating expenditure which has doubled this year. ? Thus, Idea Cellular Ltd. has shown positive growth in lacking areas and consistency in expenditure. There has been regression in certain areas which can be improved for the next financial year. There is lots of scope for improvement but a certainly good performance this year. Idea will very soon become the most successful telecom companies in India and a major in networks.
BIBLIOGRAPHY
? WEBSITES: www.google.com www.ideacellular.com
? BOOKS: Financial Markets Beginner’s Module I by NCFM
INDEX
ACKNOWLEDGEMENT BALANCE SHEET AS ON 31ST MARCH, 2009 PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2009 SCHEDULES CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2009 COMPARISON OF RATIOS RATIO ANALYSIS COMMENTS CASH FLOW ANALYSIS CONCLUSION BIBLIOGRAPHY
doc_771246531.docx
The documentation describes on Financial Management of Idea Cellular Ltd.
IDEA CELLULAR LTD.
FINANCIAL MANAGEMENT
FY BAF SEM II
-PRESENTED BYFORUM KAPADIA R.NO. 20
COMPARISON OF RATIOS
S.NO. TYPES OF RATIOS AS ON 31ST MARCH, 2009
3.08 : 1 3.06 : 1 1.32 % 0.64 : 1 0.64 : 1 28.14 % 28.14 % 11 % 10.13 % 71.85 % 422.22 TIMES 8.60 % 4.31 % 4.56 % 71.85 % 10.18 : 1 8.20 % 8.55 % 8.55 % 29.97 TIMES 0.4 MNTHS 0.78 TIMES 0.44 TIMES 3.42 14.66 3.06 : 1 0.34 : 1
AS ON 31ST MARCH, 2008
1.50 : 1 1.47 : 1 5.28 % 1.13 : 1 1.13 : 1 33.71 % 33.71 % 16.57 % 15.50 % 66.28 % 1.13 TIMES 9.37 % 4.78 % 4.12 % 66.28 % 138.02 : 1 11.12 % 21.08 % 21.08 % 33.92 TIMES 0.3 MNTHS 0.63 TIMES 0.52 TIMES 3.96 26.64 1.47: 1 0.51 : 1
1. 2. 3. 4. 5. 6. 7.
8. 9. 10.
11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.
CURRENT RATIO QUICK RATIO STOCK WORKING CAPITAL RATIO CAPITAL GEARING RATIO DEBT EQUITY RATIO GROSS PROFIT RATIO NET PROFIT RATIO I. OPERATING NET PROFIT RATIO II. NPBT III. NPAT OPERATING RATIO STOCK TURNOVER RATIO EXPENSE RATIO I. OFFICE & ADMINISTRATION II. SELLING & DISTRIBUTION III. FINANCE IV. OPERATING EXPENDITURE DEBT SERVICE RATIO RETURN ON CAPITAL EMPLOYED RETURN ON SHAREHOLDER’S FUND RETURN ON EQUITY SHARE CAPITAL DEBTORS TURNOVER RATIO DEBTORS COLLECTION PERIOD FIXED ASSETS TURNOVER RATIO TOTAL ASSETS TURNOVER RATIO EARNINGS PER SHARE PROFIT EARNING RATIO ACID TEST RATIO DEBT ASSET RATIO
ACKNOWLEDGEMENT
I would like to express my sincere thanks to Our Financial Management Professor, Mrs. Neha Bhatia for having given us this golden opportunity of analyzing one of the best companies of the Telecom sector, Idea Cellular. It has not only been an enriching experience to analyze the company’s balance sheet and profit and loss statement but a challenging one as well. It has a lot of practical applicability and once again I’m very much thankful to her.
RATIO ANALYSIS
Mere statistics presented in different financial statements do not reveal the true picture of the financial position of a firm. Properly analyzed and interpreted financial statements can provide valuable insights into a firm’s performance. To extract such information, a no. of tools are used for analysis. The most popular tool is Ratio Analysis. It is as follows :CURRENT RATIO – This is a liquidity ratio which measures the ability of the firm to meet its current liabilities from the current assets. The standard ratio is 2:1 but higher the better. Idea’s current ratio has improved to 3.08:1 as compared to last year’s 1.50:1. This is a good sign of stronger current assets of the company. QUICK RATIO – This ratio is also a liquidity ratio which helps to know the immediate obligations of the company. The standard ratio is 1:1. This year’s quick ratio of Idea Cellular Ltd. Is 3.06:1 which is strong enough to meet immediate liabilities. It has improved quite a lot from last year. STOCK WORKING CAPITAL RATIO – This ratio is used to find out the percentage of working capital blocked up in stock. Too much capital shouldn’t be blocked in stock. This efficiency ratio should be as low as possible. This year Idea’s ratio has improved by showing a considerable decrease of 3.96 % It has fallen to 1.32% which is excellent. CAPITAL GEARING RATIO – This ratio has fallen from 1.13:1 last year to 0.64:1 this year. It shows that funds bearing fixed return has decreased. DEBT-EQUITY RATIO – It is a solvency ratio to find out the relative contributions of creditors and owners to finance the business. It helps to find out the dependence on external as well as internal funds. The standard ratio is 2:1. It has regressed from last year’s 1.13:1 to 0.64:1 this year. The Owed fund has to be made more efficient. GROSS PROFIT RATIO – This is a profitability ratio. It is useful for intra-firm comparison to find out the % of profit after deducting direct expenses. This year gross profit ratio has decreased by 5.57% as
compared to last year. It shows that this year there have been higher direct expenses. NET PROFIT RATIO – Net profit before and after tax has fallen by 5.57% and 5.37% respectively this year. OPERATING RATIO – This ratio helps to find out the % of total operating cost to the sales. It has increased to 71.85% this year due to heavy operating expenses. STOCK TURNOVER RATIO – This efficiency ratio is used to find out the no. of times stock is called for in a year. It has risen drastically from almost nil to approximately 422 times. EXPENSE RATIO – Expenses such as Finance, Selling and Distribution, Office and Administration all have either remained the same or have increased because of which the total expense ratio has also increased. DEBT SERVICE RATIO – It is a solvency ratio to find out the company’s profitability ratio to pay its external liabilities. This ratio has fallen to 10.18:1 very much low as compared to the previous year. RETURN ON CAPITAL EMPLOYED –It indicates the return on total capital employed i.e. shareholder’s fund and borrowed fund. This has also shown negative growth as it has fallen from 11.12% to 8.20% RETURN ON EQUITY SHARE CAPITAL –It indicates the return on equity share capital. This has fallen remarkably by 12.53% which is not a good sign. This is so because this year Idea did not declare Dividend to the shareholders. RETURN ON SHAREHOLDER’S FUND – It indicates the return on owner’s fund. This remains the same as equity share capital because company has not announced preference dividend. DEBTORS TURNOVER RATIO –This ratio shows how efficient are customers in paying their dues in a year. It has improved by 3.95% as
compared to last year. They make their payments in 0.4 months almost the same as last year. FIXED ASSETS RATIO –Indicates efficiency in utilization of assets. It is very low in both the years – 0.63 and 0.78 respectively. Idea need to utilize and allocate its fixed assets more judiciously. TOTAL ASSETS RATIO – this ratio is also not very impressive. Better strategies need to be adopted to turn it positively so as to make considerable improvement in the companies financial position. EARNINGS PER SHARE –It is a valuation ratio to know the earnings available per equity share. EPS of Idea is consistent at 3.42 PROFIT EARNING RATIO –It indicates the no. of times the market price is higher or lower compared to the EPS. It has decreased by 11.98 times to last year’s 26.64 times. This means that if 1 Re is invested in shares of Idea then investors and shareholders will earn 14 times the money invested. ACID TEST RATIO –This ratio is calculated to know the firm’s ability to convert its current assets into cash i.e. liquidity so as to meet its current liabilities. The standard ratio is 1:1. This year it has risen 3 times previous year’s ratio which is very much favourable. DEBT ASSET RATIO –Total debt comprises of long term debt plus current liability. Total assets comprise of permanent capital plus current assets. It is determined to figure out the short term solvency of the company. It is very low and a miserable figure of 0.34 not at all supportive of the company’s financial position.
COMMENTS
? ? ? ? Gross revenue has increased from 67.4 bn in FY 08 to 101.5 bn in FY 09. It’s a 33% increase which is excellent. EBITDA margin has considerably increased from FY 05 to FY 09 consistently over the years. Net profit has been very much inconsistent in the last 5 years. Market price of Idea on BSE and NSE has been in the high range of 52-114 and low range 34-100. This stock has done consistently well although the Index has been going through its highs and lows. It has out performed both the indices from April 2008 to March 2009. ? ? ? ? ? Idea has a market capitalization of 66,857 million which has improved greatly in the past year spreading its network well across India. The loss carried forward from FY 08 to FY 09 has lowered by 10,000 mn. Total funds have increased by 78,882 mn this year. Cash and Bank balances if Idea Cellular Ltd. are very strong. Idea charges depreciation on its Assets on Straight Line Method on the basis of estimated economics lives of the asset as given in Schedule 4. ? ? ? ? ? Inventories are valued at cost or net realizable value, whichever is lower. Cost is determined on weighted average basis. Idea Cellular Ltd. pays the following taxes- Current Tax, Deferred Tax, MAT(Minimum Alternative Tax) and FBT(Fringe Benefit Tax). The company has made suitable provisions for Pension, Gratuity, Superannuity, VRS, ESOP’s and other employee benefits. At present, Idea is market leader in 23% wireless market and at second position in about 50% market. The company estimated CAPEX of Rs 6000 cr for FY 10 against 6500 cr in FY 09. This CAPEX for FY 10 does not include capex for 3G licenses.
CASH FLOW ANALYSIS
? Net profit after tax is almost the same. ? Cash flow from FOREX has doubled. ? Interest received has been 4 times as compared to FY 08. ? There has been a huge loss on disposal of fixed assets. ? Net cash from operating activities has reduced by 7,500 mn. ? There has been a planned investment in fixed assets, intangible assets, shares, sale proceeds etc. that has resulted in a 20,000 mn increase in net cash flow from investing activities. ? There have been heavy financing charges due to which there was a lot of cash outflow from financial operations.
CONCLUSION
? Overall, Idea has done really well and there is considerable growth in certain segments. It has a lot of future prospects. ? Idea has not declared dividend either for its Equity or Preference shareholders because of which its returns on equity and shareholders fund has been very low. ? Idea Cellular needs some major investments immediately for expansion as new operators have entered the wireless battle. ? Idea needs to opt strategies to lower its operating expenditure which has doubled this year. ? Thus, Idea Cellular Ltd. has shown positive growth in lacking areas and consistency in expenditure. There has been regression in certain areas which can be improved for the next financial year. There is lots of scope for improvement but a certainly good performance this year. Idea will very soon become the most successful telecom companies in India and a major in networks.
BIBLIOGRAPHY
? WEBSITES: www.google.com www.ideacellular.com
? BOOKS: Financial Markets Beginner’s Module I by NCFM
INDEX
ACKNOWLEDGEMENT BALANCE SHEET AS ON 31ST MARCH, 2009 PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2009 SCHEDULES CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2009 COMPARISON OF RATIOS RATIO ANALYSIS COMMENTS CASH FLOW ANALYSIS CONCLUSION BIBLIOGRAPHY
doc_771246531.docx