Financial ratio report


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Financial ratio report

  1. 1. 1
  2. 2. What Does Profitability Ratios Mean?A class of financial metrics that are used to assess a businesss ability togenerate earnings as compared to its expenses and other relevant costs incurredduring a specific period of time. For most of these ratios, having a higher valuerelative to a competitors ratio or the same ratio from a previous period is indicativethat the company is doing well. Some examples of profitability ratios are profit margin, returnon assets and return on equity. It is important to note that a little bit of backgroundknowledge is necessary in order to make relevant comparisons when analyzingthese ratios.IntroductionThis section of the tutorial discusses the different measures of corporate profitabilityand financial performance. These ratios, much like the operational performanceratios, give users a good understanding of how well the company utilized itsresources in generating profit and shareholder value.The long-term profitability of a company is vital for both the survivability of thecompany as well as the benefit received by shareholders. It is these ratios that cangive insight into the all important "profit".In this section, we will look at four important profit margins, which display the amountof profit a company generates on its sales at the different stages of an incomestatement. Well also show you how to calculate the effective tax rate of a company.The last three ratios covered in this section - Return on Assets, Return on Equity 2
  3. 3. and Return on Capital Employed - detail how effective a company is at generatingincome from its resources.Profit Margin AnalysisIn the income statement, there are four levels of profit or profit margins - gross profit,operating profit, pretax profit and net profit. The term "margin" can apply to theabsolute number for a given profit level and/or the number as a percentage of netsales/revenues. Profit margin analysis uses the percentage calculation to provide acomprehensive measure of a companys profitability on a historical basis (3-5 years)and in comparison to peer companies and industry benchmarks.Basically, it is the amount of profit (at the gross, operating, pretax or net incomelevel) generated by the company as a percent of the sales generated. The objectiveof margin analysis is to detect consistency or positive/negative trends in a companysearnings. Positive profit margin analysis translates into positive investment quality.To a large degree, it is the quality, and growth, of a companys earnings that drive itsstock price.Formulas: 3
  4. 4. Return On AssetsThis ratio indicates how profitable a company is relative to its total assets. The returnon assets (ROA) ratio illustrates how well management is employing the companystotal assets to make a profit. The higher the return, the more efficient management isin utilizing its asset base. The ROA ratio is calculated by comparing net income toaverage total assets, and is expressed as a percentage.Formula:Return on EquityThis ratio indicates how profitable a company is by comparing its net income to itsaverage shareholders equity. The return on equity ratio (ROE) measures how muchthe shareholders earned for their investment in the company. The higher the ratiopercentage, the more efficient management is in utilizing its equity base and thebetter return is to investors.Formula: 4
  5. 5. Return on Capital EmployedThe return on capital employed (ROCE) ratio, expressed as a percentage,complements the return on equity (ROE) ratio by adding a companys debt liabilities,or funded debt, to equity to reflect a companys total "capital employed". Thismeasure narrows the focus to gain a better understanding of a companys ability togenerate returns from its available capital base.By comparing net income to the sum of a companys debt and equity capital,investors can get a clear picture of how the use of leverage impacts a companysprofitability. Financial analysts consider the ROCE measurement to be a morecomprehensive profitability indicator because it gauges managements ability togenerate earnings from a companys total pool of capital.Formula: 5
  6. 6. Classification of RatiosBalance Sheet Ratio P&L Ratio Balance Sheet and Profit & Loss Ratio Financial Ratio Operating Ratio Composite Ratio • Current Ratio • Gross Profit Ratio • Fixed Asset • Quick Asset Ratio • Operating Ratio Turnover Ratio, • Proprietary Ratio • Expense Ratio Return on Total Debt Equity Ratio • Net profit Ratio Resources Ratio • Stock Turnover • Return on Own Ratio Funds Ratio, Earning per Share Ratio, Debtors’ Turnover RatioStructural ClassificationThis is a conventional mode of classifying ratios where the ratios are classified onthe basis of information given in the financial statements, i.e. balance sheet andprofit and loss account to which the determinants of the ratios belong. On this basis,all ratios are grouped as follows: 1. Balance Sheet Ratio: The components for computation of these ratios are draws from balance sheet. These ratios are called financial ratios. Examples of such ratios are: current ratio, liquid ratio, proprietary ratio, capital gear ratio, fixed assets ratio etc. 6
  7. 7. 2. Profit and Loss Account Ratios: The figures used for the calculation of these ratios are usually taken out from the profit and loss account. These ratios are also called ‘income statement ratios’. Examples of such ratios are: gross profit ratio, net profit ratio, operating ratio, expenses ratio, stock turnover ratio etc. 3. Balance Sheet and Profit & Loss Ratio: The information required for the computation of these ratios is normally drawn from both the balance sheet and profit and loss account. Examples of such ratios are: return on capital employed, return on owners’ fund, return on total investment, debtor’s turnover ratio, creditors turnover ratio, fixed assets turnover ratio, working capital turnover ratio etc.FUNCTIONAL CLASSIFICATIONNow-a-days, it is the most popular mode of classifying the ratios. Accordingly, theratios may be grouped on the basis of certain tests which satisfy the needs of theparties having financial interest in the business concern. For example, creditors orbanks have interest in the liquidity of the firm, debenture holders in the long-termsolvency and shareholders in the profitability of the firm. The ratios may be groupedas per different interests or objectives as under: 1. Liquidity Ratios: These ratios are used to measure the ability of the firm to meet its short-term obligations out of its short-term resources. Such ratios highlight short-term solvency of the firm. Examples of such ratios are: 7
  8. 8. I. Current Ratio II. Liquid or Quick Ratio III. Absolute Liquidity Ratio2. Activity or Efficiency Ratio: These ratios enable the management to measure the effectiveness or the usages at the command of the firm. Following ratios are included in this category: I. Stock Turnover Ratio II. Total Assets Turnover Ratio III. Fixed Assets Turnover Ratio IV. Current Assets Turnover Ratio V. Capital turnover Ratio3. Profitability Ratio: These ratios are intended to measure the end result of business operations i.e. profitability. Profitability is a measure of the ability to make a profit expressed in relation to the sales or investments, and as such the following ratios are computed in this category  Based on Sales I. Gross Profit Ratio II. Operating Ratio 8
  9. 9. III. Expenses Ratio IV. Operating Profit Ratio V. Net Profit Ratio  Based on Capital or Investments I. Return on Capital Employed II. Return on Net Worth or Shareholders’ Fund III. Return on Equity shareholders’ fund IV. Return on Total Assets 1. LIQUIDITY OR SHORT-TERM SOLVENCY RATIOSThese ratios play a key role in analyzing the short-term financial position of abusiness Liquidity refers to a firm’s ability to meet its current financial obligations asthey arise. Commercial banks and other short-term creditors i.e. suppliers of goodsand services are generally interested in such ratios. However, the management canuse these ratios to ascertain how efficiently it has utilizing the working capital. Someof the principal liquidity ratios are described below: I. Current ratio: 9
  10. 10. Current ratio is one of the important ratios used in testing liquidity of a concern. This is agood measure of the ability of accompany to maintain solvency over a short-run. This iscomputed by dividing the total current assets by the total current liabilities and isexpressed as: Current Assets Current ratio= ------------------------------ Current LiabilitiesThe current assets of a firm represent those assets, which can be in the ordinarycourse of business, converted into cash within one accounting year. The currentliabilities are defines as obligation maturing within a short period (usually oneaccounting year). Excess of current assets over current liabilities is known asworking capital and since these two (Current assets and current Liabilities) areused in current ratio therefore, this ratio is also know as working capital ratio.Idle Current Ratio: 2:1 II. QUICK RATIO 10
  11. 11. The solvency of the company is better indicated by quick Ratio. The fundamentalobject of calculating this Ratio is to enable the financial management of a companyto ascertain that would happen if current creditors press for immediate payment andeither not possible to push up the sales of closing or it is sold; a heavy loss is likelyto be suffered. This problem arises because closing stock is two steps away from thecash and their price is more or less uncertain according to market demand.The term quick assets includes all current assets expect inventories and prepaidexpenses. It shows the relationship of quick assets and current liabilities. The Ratiois calculated as following: Quick Assets Quick Ratio = ------------------------------- Current Liabilities III. ABSOLATE LIQUIDITY RATIOThe absolute liquid ratio is the ratio between absolute liquid assets and currentliabilities is calculated by dividing the liquid assets and current liabilities. Expressedin formula, the ratio is: 11
  12. 12. Absolute liquidity Assets Absolute liquidity Ratio= -------------------------------------------- Current LiabilitiesThe term liquid assets include cash bank balance and marketable securities, ifcurrent liabilities are to pay at once, only balance of cash and bank and marketablesecurities will be utilized. Therefore, to measure the absolute liquidity of a business,this ratio is calculated.IDLE RATIO: 0.5:1The idle behind the norm is that if all creditors for demand for payment, at least 50%of their claim should be satisfied at once.The table shown on the next page reflects the absolute liquidity ratio TTSL. 2. ACTIVITY OR EFFICIENCY RATIOSThe funds of creditors and owners are invested in various assets to generate salesand profit. The better the management of these assets, the large the amount ofsales. Activity ratios enable the firm to know how efficiently these assets are 12
  13. 13. employed by it. These ratios indicate the speed with which assets are beingconverted or turned over into sales. Hence, these ratios are also known as ‘turnoverratios’ or ‘assets management ratios’. While calculating these ratios, a comparisonis made between sales and investment in various assets (stock, debtors, fixedassets etc.). As such, an activity ratio is the relationship between sales or costof goods sold and investment in various assets of the firm. It is important tonote that these ratios are always expressed as turnover or in number of times i.e.rate of turning over or rotation, also known as velocity. Several activity ratios can becalculated to judge the effectiveness of assets utilization. The following are theimportant and widely used ratios: i. STOCK TURNOVER RATIOEvery firm has to maintain a certain level of inventory of finished goods so as to beable to meet the requirements of the business. But the level of inventory shouldneither be too high nor too low. A too high inventory means higher carrying costs andhigher risk of stocks becoming obsolete whereas too low inventory may mean theloss of business opportunities. It is very essential to keep sufficient stock in business.Higher ratio indicates  Stock is sold out fast  Same volume of sales from less stock or more sales from same stocks 13
  14. 14.  Too high ratio shows stock outs or over trading  Less working capital requirementLower ratio reveals  Stock is sold at a slow speed  Same volume of sales from more stocks or less sales from same stocks  More working capital requirement  Too low ratios show obsolete stocks or under trading Cost of Goods Sold or SalesInventory (stock) Turnover Ratio: ----------------------------------------------- Average Inventory at costIt is always better to calculate Turnover Ratios on the basis of “Cost of GoodsSold”. If information regarding cost of goods sold is not available, only therethe “Sales” figure should be used as base. ii. TOTAL ASSETS TURNOVER RATIO:This ratio expresses the relationship between costs of goods sold or net sales andtotal assets or investments of a firm. It is also called ‘Total Investment TurnoverRatio’ and is calculated by using the following formulae: 14
  15. 15. Net Sales or Cost of Goods SoldTotal Assets Turnover Ratio= -------------------------------------------------------- Total AssetsInterpretation and Significance: This ratio indicates the number of times theassets are turned over in a year in relation to sales. A higher total assets turnoverratio indicates that assets are not properly utilized in comparison to sales. Thus,there is an over investment in assets. Extremely high ratio means over-trading in thebusiness. iii. FIXED ASSETS TURNOVER RATIOThis ratio expresses the relationship between fixed assets (less depreciation) andnet sales or cost of goods sold. Since investment in fixed assets is made for theultimate purpose of efficient sales, the ratio is used to measure the fulfillment of thatobjective. As such, investments are excluded from fixed assets as they do not affectsales. It is calculated by using the following formula: Sales or Cost of Goods SoldFixed Assets Turnover Ratio=------------------------------------------------------------- 15
  16. 16. Fixed Assets (less depreciation)Interpretation and Significance: This ratio measures the efficiency and profitearning capacity of the firm. The higher the ratio, the greater is the intensiveutilization of fixed assets. Lower ratio means under utilization of fixed asset andexcessive investment in these assets. As volume of sales depends on a variety offactors such as price, quality of goods, salesmanship, marketing etc. it is argued thatno direct relationship can be established between sales and fixed assets.Accordingly, it is not recommended for general use. iv. CURRENT ASSETS TURNOVER RATIOThis ratio expresses the relationship between current assets and net sales or cost ofgoods sold. It is calculated using the following formula: Sales or Cost of Goods SoldCurrent Assets Turnover Ratio=----------------------------------------------------- Current AssetsInterpretation and Significance: This ratio reflects the efficiency and capacity ofworking capital. It is a very useful technique for non-factoring units or those 16
  17. 17. manufacturing units requiring lesser working capital. On the basis of this ratio,efficiency or current assets and over or under investment in the firm is examined. v. CAPITAL TURNOVER RATIOThis ratio establishes the relationship between net sales or cost of goods sold andcapital employed. Capital employed is calculated either by deducting currentliabilities from total assets or by adding long-term loans in shareholders’ funds (sharecapital + reserves and surplus). Fictitious and non-trading assets are excluded fromassets. It is calculated using the following formulae: Sales or Cost of Goods SoldCapital Turnover Ratio: ------------------------------------------------------------- Capital EmployedInterpretation and Significance: The efficiency and effectiveness of theoperations are judged by comparing the sales or cost of sales with the amount ofcapital employed in the business and not with the assets held in the business.Therefore, this ratio is a better measurement of efficient use of capital employed.Efficient use of capital symbolizes profit earning capacity and managerial efficiencyof the business. A higher ratio indicates the quicker rotation of capital to generatehigher sales which leads to higher profitability. On the contrary a lower ratio willindicate that either the capital is not being used infinity to generate enough sales. 17
  18. 18. 3. PROFITABILITY RATIOSThe main objective of every business firm is to earn profit. It is possible only whenresources of the firm are effectively utilized. The firm’s ability to earn maximum profitby the best utilization of its resources is called profitability. Profit refers to theabsolute quantity of profit, whereas profitability refers to the ability to earn profit.Profit is an absolute measure of earning capacity and profitability is the relativemeasure of earning capacity. Profitability depends on quantum of sales, cost ofproduction and use of financial resources etc. The profitability of a firm can easily bemeasured by its profitability ratios. These ratios indicate overall managerialefficiency. There are two types of profitability ratios. First, profitability ratios based onsales: Second, profitability ratios based on capital and assets.  PROFITABILITY RATIOS BASED ON SALESFrom profit point of view, it is significant that adequate profit should be earned oneach unit of sales. If adequate profit is not earned on sales, there will be difficulty inmeeting the operating expenses and nod dividend will be paid to the shareholders.Therefore, following profitability ratios are calculated in relation to sales. These arealso called ‘General Profitability Ratios’. i. Gross Profit Ratio 18
  19. 19. This ratio expresses the relationship of gross profit on sales to net sales in terms ofpercentage. Expressed as a formula, the gross profit ratio is: Gross ProfitGross Profit Ratio= -------------------------- * 100 Net Sales Net Sales – Cost of Goods SoldGross Profit Ratio = ------------------------------------------ * 100 Net SalesInterpretation and Significance: This ratio measures the trading effectivenessand basic profit earning potentiality of a firm. The higher the ratio, the greater will bethe margin and that is why it is also called, ‘margin ratio’. An increase in the grossprofit ratio may be the result of one or all of the following:  Higher selling price but cost of goods remaining the same  Lower cost of goods sold but selling price remaining the same  Such combination of selling prices and costs where margin is more 19
  20. 20.  Increase in items of excess marginOn the contrary, a low gross profit ratio is the indication of the fact that – (1) profit aredeclining in comparison to sales, (2) production costs are much more due to inabilityto purchases raw material on reasonable terms, inefficient use of plant andmachinery and over investment. This low gross profit may also be the result ofreduction in selling price without a corresponding decline in cost of production.Therefore, a relatively low gross profit ratio is a danger signal and warrants adetailed analysis of the factors responsible for it. ii. Operating RatioThis ratio expresses the relationship between operating costs and net sales.Operating costs refer to cost of goods sold plus operating expenses. Expressed as aformula: Operating CostsOperating Ratio = --------------------------- * 100 Net Sales Cost of Goods Sold + Operating Expenses 20
  21. 21. Operating Ratio = --------------------------------------------------------- * 100 Net SalesInterpretation and Significance: this ratio indicates the operational efficiencyand profit earning capacity of the business. It shows the percentage of net sales thatis absorbed by cost of goods sold and operating expenses. Therefore, the lower theoperating ratio, the higher the operating profit to recover non-operatingexpenses such as interest, divided etc. and vice-versa. While interpreting thisratio, it is important to note that changing management decisions may createpossible variations in expenses from year to year or firm to firm. An operating ratioranging between 75% and 85% is generally considered as standard formanufacturing firms.iii. Operating profit RatioThis ratio is also called Operating Profit Margin. It establishes the relationshipbetween operating profits and net sales. It is also defined as the ratio of profitbefore depreciation, interest and tax to total turnover. Operating profit means thenet profit arising from the normal operations and activities of the business withouttaking into account of extraneous transactions and expenses of purely financialnature. In other words, operating profit is calculated by sub-starting all directand indirect expenses relating to main business from net sales. This ratio iscalculated by using the following formulae: 21
  22. 22. Operating ProfitOperating profit Ratio = --------------------------- * 100 Net Sales Gross Profit – Operating ExpensesOperating Profit Ratio = ---------------------------------------------- * 100 Net SalesInterpretation and Significance: This ratio indicates the net profitability of themain business i.e. operating efficiency of a firm. In some firms, the profit from mainbusiness is very low; while the profit from secondary functions such as interest onbank deposits and dividend on shares etc. is so much that the net profit of the netprofit of the firm at the end is enhanced. In such a case, the operating profit ratioexplains that the efficiency of the firm is very low. Therefore, the higher the operatingratio, the better would be the operational efficiency of the firm. A higher operatingprofit ratio means that a firm has been able not only to increase its sales but alsobeen able to cut down its operating expenses.iv. Expenses ratio 22
  23. 23. Sometimes, it becomes imperative to analysis each component of cost of goods soldand operating expenses to find out how far the firm is able to save or over spend inrespect of different items of expenses. Therefore, to express the relationship of eachitem of cost of goods and operating expenses with sales, the expenses ratios arecomputed. These ratios reveal the relationship of different expenses to netsales. Important expenses ratios are calculated using the following formulae: Material consumedMaterial Consumed Ratio = ---------------------------------- * 100 Net Sales Manufacturing ExpensesManufacturing Expenses Ratio = ----------------------------------------------- * 100 Net Sales Administrative ExpensesAdministrative Expenses Ratio = ---------------------------------------------- * 100 Net Sales 23
  24. 24. Selling and Distribution Expenses Ratio = Selling and Distribution Expenses ------------------------------------------------------ * 100 Net Sales Finance ExpensesFinance Expenses Ratio = ------------------------------------- * 100 Net Sales Non-operating ExpensesNon-operating Expenses Ratio = ----------------------------------------------- * 100 Net SalesInterpretation and Significance: Expenses ratios reveal the managerial efficiencyand profit earning capacity of the firm. If these ratios are compared over a period of time with 24
  25. 25. the ratios of similar firm as well as with the previous ratios of the same firm, the saving orover spending of each item can be ascertained. While interpreting the expenses ratios, itshould be kept in view that certain fixed expenses would decrease as sales increase, butvariable expenses would remain constant. v. Net Profit RatioThis ratio measures the relationship between net profit and sales of a firm. Netprofit is the excess of revenue over expenses during a particular accounting period.The net profit ratio is determined by dividing the net profit by sales and expressed aspercentage. The formula used is as follows: Net Profit (After tax)Net Profit Ratio = -------------------------------- * 100 Net Sales Net Profit (before tax)Net Profit Ratio = --------------------------------- * 100 Net Sales 25
  26. 26. Interpretation and Significance: This ratio is the indication of overall profitabilityand efficiency of the business. It not only reveals the recovery of costs and expensesfrom to revenue of the period, but also to leave a margin of reasonablecompensation to the owners for providing capital at their risk. A high net profit ratiowould only means adequate returns to the owners. It also enables a firm to withstandin cut-throat competition when the selling price is falling or cost of production isrising. A low net profit ratio on the other hand, would only indicate inadequate returnsto the owners.  Profitability Ratios based on CapitalThis efficiency of an enterprise is judged by the amount of profits. But sometimes theconclusions drawn on the basis of profits to sales ratio may be misleading, as theamount of profit depends to a great extent upon the volume of investment in assetsor capital employed in the business. Therefore, the state of efficiency cannot bejudged by the volume of profits alone. This requires the calculation of ratio withreference to capital and assets to measure the real profitability. The importantcategories of such ratios are discussed below: • Return on capital EmployedThe primary objective of making investment in any business is to obtain adequatereturn on capital. Therefore, to measure the overall profitability of the firm, it is 26
  27. 27. essential to compare profit with capital employed. With this objective, return oncapital employed is calculated. It is also called` Return on investment’ (ROI).Thisratio expresses the relationship between profit and capital employed and iscalculated in percentage by dividing the net-profit by capital employed. Net profit (PBIT)Return on capital Employed= ---------------------------- * 100 Capital EmployedAlternatively, it can be calculated as:Return on Capital Employed = Assets Turnover * Profit Margin Sales Net Profit = ------------------- * -------------------- * 100 Total Sales SalesInterpretation and Significance: Since profit is the overall objective of abusiness enterprise, this ratio is a barometer of the overall performance of theenterprise. It measures how efficiently the capital employed in the business is beingused. In other words, it is also a measure how efficiently the capital employed in the 27
  28. 28. business. Even the performance of two dissimilar firms may be compared with thehelp of this ratio. Furthermore, the ratio can be used to judge the borrowing policy ofthe enterprise. If an enterprise having the ratio of return on investment 15% borrowsat 16%, it would indicate that it is borrowing at a rate higher than its earning. Thecomparisons of this ratio with that of similar firms and with industry average over aperiod of time would disclose as to how effectively the long-term funds provided byowners and creditors have been used. • Return on Net Worth This ratio expresses the percentage relationship between net profit (after interest and tax) and net worth or shareholders’ funds. This is also known as ‘Return on Proprietors’ funds’ it is used to ascertain the rate of return on resources provided by the shareholders. The ratio is calculated by using the following formula: Net Profit (after tax and interest)Return on Shareholders’ Fund = --------------------------------------------------- * 100 Shareholders’ Funds or Net WorthSignificance: This ratio measures the amount of earnings for each rupee that theshareholders alive invested in the company. The higher the ratio the more favorableis the interpretation of the company’s use of its resources contributed by theshareholders. This ratio can be composed with that of other units engaged in similaractivities as also with the industry on average. 28
  29. 29. • Return on Equity Shareholders’ fundsEquity shareholders are the real owners of a company. Therefore, the profitability ofa company from the owners’ stand point should be viewed in terms of return toequity shareholders. This ratio is calculated by dividing the profit available for equityshareholders by the equity shareholders’ funds. Expressed as a formula, the ratio is:Return on Equity Shareholders’ fund = Net Profit after tax – Preference Dividend ----------------------------------------------------------------------- * 100 Equity Shareholders’ fundsInterpretation and significance: This ratio is the best measure of a company’sprofit earning capacity. The higher the ratio, the better the performance andprospectus of the company. It provides adequate test to evaluate whether acompany has earned satisfactory return for its equity shareholders or not. Theadequacy of the return can be measured by comparing it with the return of theprevious year or of companies engaged in similar business or with the overallindustry average. The investors can decide to invest or not to invest in the equityshares of a company by comparing it with the normal rate of return in the market. 29
  30. 30. Due to issue of new shares or buy back of share during the year, the equity capitaland preference share capital of the company do not remain the same throughout theyear. Therefore, to calculate the amount of average shareholders’ fund which is onehalf of the opening and closing balance is used to calculate the – (1) Return on Networth and (2) Return on Equity shareholders’ Fund. In absence of opening balance,closing balance is used. • Return on Total AssetsProfitability can also be measured by establishing relationship between net profit andtotal assets. This ratio is computed by dividing the net profits after tax by total andtotal assets. This ratio is computed by dividing the net profits after tax by total fundsinvested or total assets. Total assets means all net fixed assets, current assets areincluded only when they have realizable value. Expressed as formula, the ratio is Net Profit after TaxReturn on Total Assets = ---------------------------- * 100 Total AssetsInterpretation and significance: This ratio measures the profitability ofinvestments which reflects managerial efficiency. The higher the ratio, the better isthe profit earning capacity of the firm or vice versa. But this ratio does not reveal theprofitability of different sources of funds used in purchasing the total assets. 30
  31. 31. Technically, this ratio suffers from the drawback that the interest paid to the creditorsis excluded form the net profit, whereas the real return on the total assets is the netoperating earnings. Therefore, to consider real earning, interest on long-term loansshould be added back to profit after tax. Thus, return on total assets should becomputed on the following revised formula: Net Profit after tax + InterestReturn on Total Assets = -------------------------------------------- * 100 Total AssetsNote: In any view profit is earned on total assets of the business during the year andthese assets may increase or decrease during the year. Therefore, average amountof the total assets should be used in calculating this ratio. 31
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  33. 33. 2.0 SCOPE OF THE STUDYStudies due with the details that affect the profit of the company along withthat the financial ratios will the help us to know the financial position andliquidity of the company .some more reasons are as follows- 33
  34. 34. • The profile provides detailed financial ratios for the past five years as well as interim ratios for the last five interim periods for major companies.• Examines key information about company for business intelligence.• Financial ratios presented for major public companies include revenue trends, profitability, growth, margins and returns, liquidity and leverage, financial position and efficiency ratios.• The companys core strengths and weaknesses and areas of development or decline are analyzed and presented objectively. Business, strategic and operational aspects are taken into account.• Opportunities available to the company are sized up and its growth potential assessed. Competitive and/or technological threats are highlighted.• The profile contains valuable and critical company information business structure and operations, the company history, major products and services, 34
  35. 35. prospects, key competitors, key employees, executive biographies, importantlocations and subsidiaries. 35
  36. 36. “Ratio analysis” is a technique of analysis and interpretation of financial. It is aprocess of establishing and interpretation various ratios for helping in making moremeaning decision. The ratio analysis is the most powerful tool of financial analysis.Analysis of ratio provides dues to the financial position of a concern. There are thepointers or indicates of financial strength, soundness, position or weakness of anenterprise. One can draw conclusions about the exact financial position of a concernwith the help of ratios. 36
  37. 37. The topic was chosen to analyses the performance in terms of short term solvencyand profitability position of "TATA TELESERVICES LTD”Yet another factor, which efforts the useless of ratio is that there is difference ofopinion regarding the various concepts used to compute the ratios. Different firmsmay use the terms in different senses of the same firm may interpret and see themdifferent at different situation.Even though the ratios suffer from serious limitation, the analyst should not becarried away by it’s over simplified nature. Easy computation with high degree ofprecision, Nevertheless there are important tool of financial analysis the reliabilityand significance attached to ratio will largely depend upon the equity of data onwhich they are based. 37
  38. 38. OverviewThe global reach and industry expertise of Tata Communications drives and deliversa new world of communications. The company leverages its Tata Global Network,vertical intelligence and leadership in emerging markets to deliver value-driven,globally managed solutions.Tata Communications is a leading global provider of a new world of communications.With a leadership position in emerging markets, Tata Communications leverages itsadvanced solutions capabilities and domain expertise across its global and pan-India 38
  39. 39. network to deliver managed solutions to multi-national enterprises, service providersand Indian consumers.The Tata Global Network includes one of the most advanced and largest submarinecable networks, a Tier-1 IP network, with connectivity to more than 200 countriesacross 400 PoPs, and nearly 1 million square feet of data center and colocationspace worldwide.Tata Communications depth and breadth of reach in emerging markets includesleadership in Indian enterprise data services, leadership in global international voice,and strategic investments in operators in South Africa (Neotel), Sri Lanka (TataCommunications Lanka Limited), and Nepal (United Telecom Limited).Tata Communications Limited is listed on the Bombay Stock Exchange and theNational Stock Exchange of India and its ADRs are listed on the New York StockExchange. (NYSE: TCL)INTRODUCTIONTata Teleservices Limited spearheads the Tata Group’s presence in the telecomsector. The Tata Group had revenues of around USD 70.8 billion in Financial Year2008-09, and includes over 90 companies, over 363,039 employees worldwide andmore than 3.5 million shareholders. 39
  40. 40. Incorporated in 1996, Tata Teleservices is the pioneer of the CDMA 1x technologyplatform in India. It has embarked on a growth path since the acquisition of (India) Ltd [renamed Tata Teleservices (Maharashtra) Limited] by the TataGroup in 2002. It launched mobile operations in January 2005 under the brand nameTata Indicom and today enjoys a pan-India presence through existing operations inall of India’s 22 telecom Circles. The company is also the market leader in the fixedwireless telephony market. The company’s network has been rated as the ‘LeastCongested’ in India for five consecutive quarters by the Telecom RegulatoryAuthority of India through independent surveys.Tata Teleservices Limited now also has a presence in the GSM space, through itsjoint venture with NTT DOCOMO of Japan, and offers differentiated products andservices under the TATA DOCOMO brand name. TATA DOCOMO arises out of theTata Group’s strategic alliance with Japanese telecom major NTT DOCOMO inNovember 2008. TATA DOCOMO has received a pan-India license to operate GSMtelecom services—and has also been allotted spectrum in 18 telecom Circles. Thecompany has rolled out GSM services in 17 of India’s 22 telecom Circles in the quickspan of less than a year. The company plans to launch pan-India operations by theend of FY 2010-11.TATA DOCOMO marks a significant milestone in the Indian telecom landscape, andhas already redefined the very face of telecom in India, being the first to pioneer theper-second tariff option—part of its ‘Pay for What You Use’ pricing paradigm. Tokyo-based NTT DOCOMO is one of the world’s leading mobile operators—in theJapanese market, the company is the clear market leader, used by over 50 per centof the country’s mobile phone users. 40
  41. 41. Tata Teleservices operates under five different brands— Tata Indicom (CDMAservices), Tata DOCOMO (GSM services), Virgin Mobile, Tata Walky (which is thebrand for fixed wireless phones), Tata Photon (the company’s brand that provides avariety of options for wireless mobile broadband access) and T24. TTSL recentlyentered into a strategic partnership agreement with Indian retail giant Future Groupto offer mobile telephony services under a new brand name—T24—on the GSMplatform. The exciting new brand was unveiled in February and it has commencedthe GSM operations under the brand name T24 in Andhra Pradesh and will roll outservices in other circles shortly.Today, Tata Teleservices Ltd, along with Tata Teleservices (Maharashtra) Ltd,serves nearly 70 million customers in more than 450,000 towns and villages acrossthe country, with a bouquet of telephony services encompassing Mobile Services,Wireless Desktop Phones, Public Booth Telephony and Wire line Services.In December 2008, Tata Teleservices announced a unique reverse equity swapstrategic agreement between its telecom tower subsidiary, Wireless TT Info-ServicesLimited, and Quippo Telecom Infrastructure Limited—with the combined entitykicking off operations with 18,000 towers, thereby becoming the largest independententity in this space—and with the highest tenancy ratios in the industry. Today, thecombined entity has a portfolio of nearly 35,000 towers.TTSL’s bouquet of telephony services includes mobile services, wireless desktopphones, public booth telephony, wireline services and enterprise solutions.Over the last few months, Tata Teleservices’ industry-best and innovative offeringshave gained industry-wide recognition and the Year 2010 saw TTSL add many 41
  42. 42. notable accolades to its name. TTSL was named The Best Emerging MarketsCarrier by Telecom Asia, and received 8 awards at the World HRD Conference,including 5th Best Employer in India. The company also received 3 awards at theTelecom Operator Awards 2010 from; Best Company, CEO of the Year andBest Quality of Service, and Business Standard award for ‘Most Innovative Brand ofthe Year’.Tata CommunicationsWe at Tata communications apart of the Tata family take pride in sharing the set offive core values of the family: integrity, understanding, excellence, unity andresponsibility. These values, which have been part of the Groups beliefs andconvictions from its earliest days, continue to guide and drive the business decisionsof Tata companies. The Group and its enterprises have been steadfast anddistinctive in their adherence to business ethics and their commitment to corporatesocial responsibility. This is a legacy that has earned the Group the trust of manymillions of stakeholders in a measure few business houses anywhere in the worldcan match.Corporate Governance in substance rather than form is what the company believesin and actively implements. To implement this, a high level Corporate Governancecouncil has been formed to ensure that the best practices of Corporate Governanceare adopted.We believe in fairness in words, actions and deeds with all our stakeholders. 42
  43. 43. TATA GROUP PROFILETata Communications Limited along with its global subsidiaries (TataCommunications) is a leading global provider of the new world of communications.The company leverages its Tata Global Network, vertical intelligence and leadershipin emerging markets, to deliver value-driven, globally managed solutions to theFortune 1000 and mid-sized enterprises, service providers and consumers.The Tata Communications portfolio includes transmission, IP, converged voice,mobility, managed network connectivity, hosted data center, communicationssolutions and business transformation services to global and Indian enterprises &service providers as well as, broadband and content services to Indian consumers.The Tata Global Network encompasses one of the most advanced and largestsubmarine cable networks, a Tier-1 IP network, connectivity to more than 200countries across 400 PoPs and more than one million square feet data centerspace. Tata Communications serves its customers from its offices in 80 cities in 40countries worldwide. Tata Communications has a strategic investment in SouthAfrican operator Neotel, providing the company with a strong anchor to build anAfrican footprint.The number one global international wholesale voice operator and number oneprovider of International Long Distance, Enterprise Data and Internet Services inIndia, the company was named "Best Wholesale Carrier" at the WorldCommunications Awards in 2006 and was named the "Best Pan-Asian Wholesale 43
  44. 44. Provider" at the 2007 Capacity Magazine Global Wholesale TelecommunicationsAwards for the second consecutive year.Becoming the leading integrated provider to drive and deliver a new world ofcommunications, Tata Communications became the unified global brand for VSNL,VSNL International, Teleglobe, Tata Indicom Enterprise Business Unit and CIPRISon February 13, 2008.Tata Communications Ltd. is a part of the $62.5 billion Tata Group; it is listed on theBombay Stock Exchange and the National Stock Exchange of India and its ADRsare listed on the New York Stock Exchange (NYSE: TCL).Tata is a rapidly growing business group based in India with significant internationaloperations. Revenues in 2007-08 are estimated at $70.8 billion USD , of which 61per cent is from business outside India. The Group employs around 350,000 peopleworldwide. The Tata name has been respected in India for 140 years for itsadherence to strong values and business ethics.The business operations of the Tata Group currently encompass seven businesssectors: communications and information technology, engineering, materials,services, energy, consumer products and chemicals. The Groups 27 publicly listedenterprises have a combined market capitalization of some $60 billion, among thehighest among Indian business houses, and a shareholder base of 3.2 million. Themajor companies in the Group include Tata Steel, Tata Motors, Tata ConsultancyServices (TCS), Tata Power, Tata Chemicals, Tata Tea, Indian Hotels and TataCommunications. 44
  45. 45. The Groups major companies are beginning to be counted globally. Tata Steelbecame the sixth largest steel maker in the world after it acquired Corus. TataMotors is among the top five commercial vehicle manufacturers in the world and hasrecently acquired Jaguar and Land Rover. TCS is a leading global softwarecompany, with delivery centers in the US, UK, Hungary, Brazil, Uruguay and China,besides India. Tata Tea is the second largest branded tea company in the world,through its UK-based subsidiary Tetley. Tata Chemicals is the worlds second largestmanufacturer of soda ash. Tata Communications is one of the worlds largestwholesale voice carriers.In tandem with the increasing international footprint of its companies, the Group isalso gaining international recognition. Brand Finance, a UK-based consultancy firm,recently valued the Tata brand at $11.4 billion and ranked it 57th amongst the Top100 brands in the world. Business week ranked the Group sixth amongst the"Worlds Most Innovative Companies" and the Reputation Institute, USA, recentlyrated it as the "Worlds Sixth Most Reputed Firm."Founded by Jamsetji Tata in 1868, the Tata Groups early years were inspired by thespirit of nationalism. The Group pioneered several industries of national importancein India: steel, power, hospitality and airlines. In more recent times, the Tata Groupspioneering spirit has been showcased by companies like Tata Consultancy Services,Indias first software company, which pioneered the international delivery model, andTata Motors, which made Indias first indigenously developed car, the Indica, in 1998and recently unveiled the worlds lowest-cost car, the Tata Nano, for commerciallaunch by end of 2008. 45
  46. 46. The Tata Group has always believed in returning wealth to the society it serves.Two-thirds of the equity of Tata Sons, the Tata Groups promoter company, is heldby philanthropic trusts which have created national institutions in science andtechnology, medical research, social studies and the performing arts. The trusts alsoprovide aid and assistance to NGOs in the areas of education, healthcare andlivelihoods. Tata companies also extend social welfare activities to communitiesaround their industrial units. The combined development-related expenditure of theTrusts and the companies amounts to around 4 per cent of the Groups net profits.Going forward, the Group is focusing on new technologies and innovation to drive itsbusiness in India and internationally. The Nano car is one example, as is the Ekasupercomputer (developed by another Tata company), which in 2008 is ranked theworlds fourth fastest. The Group aims to build a series of world class, world scalebusinesses in select sectors. Anchored in India and wedded to its traditional valuesand strong ethics, the Group is building a multinational business which will achievegrowth through excellence and innovation, while balancing the interests of itsshareholders, its employees and wider society.Our Culture 46
  47. 47. Our PeopleOur global office holds talent from six continents. Our vast pool of expertise in thecommunications and technology sectors embody our commitment to conduct ethicaland sustainable business. Tata Communications continues a tradition of developingand deploying innovative solutions for existing and emerging markets worldwide. Ourinternational team reflects the dynamic and diverse market Tata Communicationsserves.Our ValuesService and business at Tata Communications is guided by a commitment to ethicaland responsible conduct. • Integrity: Trust travels We must conduct our business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny. • Understanding: Open the world We must be caring, show respect, compassion and humanity for our colleagues and customers around the world, and always work for the benefit of the communities we serve. 47
  48. 48. • Flexibility: Act agile We work to create, design and grow in an environment that supports our customers and people with adaptive thinking and action.• Excellence: Go the distance We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide.• Unity: Journey as one we must work cohesively with our colleagues across the Group and with our customers and partners around the world, building strong relationships based on tolerance, understanding and mutual cooperation.• Responsibility: Advance life 48
  49. 49. We must continue to be responsible, sensitive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.Purpose • At the Tata Group their purpose is To improve the quality of life of the communities they serve. • They do this through leadership in sectors of national economic significance, to which the Group brings a unique set of capabilities. • This requires them to grow aggressively in focused areas of business. • Their heritage of returning to society what they earn evokes trust among consumers, employees, shareholders and the community. • The Tata name is a unique asset representing leadership with trust . 49
  50. 50. CEO managing director Srinath Narasimhan Managing Director, CEO Tata CommunicationsSrinath Narasimhan is the Managing Director and CEO of Tata Communications(formerly VSNL), part of the $62.5 billion Tata Group.Mr. Srinath has over 20 years experience within the Tata Group, having held variouspositions in project management, sales and marketing, as well as significantcorporate functions in several Tata companies. Mr. Srinath has been responsible forspearheading new projects in high-technology areas such as process automationand control, computers and telecommunications and was an instrumental figure earlyin the launch of the Tata Groups CDMA services.Mr. Srinath previously served as Executive Assistant to the Chairman for TataIndustries, a position he held until 1992. He worked with a strategic team to set upTata Information Systems, which later became Tata IBM. Throughout his tenurehere, he accepted a number of assignments in sales and marketing.In 1998, Mr. Srinath returned to Tata Industries as General Manager, Projects andworked with Tata Teleservices in this capacity for a year. In 1999, he moved to 50
  51. 51. Hyderabad as Chief Operating Officer responsible for all the operations of TataTeleservices. In late 2000, Mr. Srinath took over as Chief Executive Officer of TataInternet Services, a position he held until February 2002, when he moved to VSNLas Director (Operations). He subsequently became Executive Director for VSNL.In 2006, Mr. Srinath was honored with the Telecom Asia CEO of the Year award inrecognition of his role in transforming VSNL from a domestic monopoly to a majorglobal telecommunications company in just four years. During this time, VSNLsbusiness model was reinvented and the company entered several new businesses,both in India and abroad.Mr. Srinath holds a degree in Mechanical Engineering from the Indian Institute ofTechnology, Chennai and an MBA from the Indian Institute of Management, Kolkata,specializing in marketing and systems. 51
  52. 52. History 52
  53. 53. Milestones1868 • The TATA Group was founded byJamsetji Nusserwanji Tata in the mid 19th century, a period when India had just set out on the road to gaining independence from British rule.1874 • The Central India Spinning, Weaving and Manufacturing Company is set up, marking the Groups entry into textiles.1902 • The Indian Hotels Company is incorporated to set up the Taj Mahal Palace and Tower, Indias first luxury hotel, which opened in 1903.1907 • The Tata Iron and Steel Company (now Tata Steel) is established to set up Indias first iron and steel plant in Jamshedpur. The plant started production in 1912. 53
  54. 54. 1910 • The first of the three Tata Electric Companies, The Tata Hydro-Electric Power Supply Company, (now Tata Power) is set up.1911 • The Indian Institute of Science is established in Bangalore to serve as a centre for advanced learning.1912 • Tata Steel introduces eight-hour working days, well before such a system was implemented by law in much of the West.1917 • The Tata’s enter the consumer goods industry, with the Tata Oil Mills Company being established to make soaps, detergents and cooking oils.1932 • Tata Airlines, a division of Tata Sons, is established, opening up the aviation sector in India. 54
  55. 55. 1939 • Tata Chemicals, now the largest producer of soda ash in the country, is established1945 • Tata Engineering and Locomotive Company (renamed Tata Motors in 2003) is established to manufacture locomotive and engineering products. • Tata Industries is created for the promotion and development of hi-tech industries.1952 • Jawaharlal Nehru, Indias first Prime Minister, requests the Group to manufacture cosmetics in India, leading to the setting up of Lakme.1954 • Indias major marketing, engineering and manufacturing organisation, Voltas, is established.1962 55
  56. 56. • Tata Finlay (now Tata Tea), one of the largest tea producers, is established. • Tata Exports is established. Today the company, renamed Tata International, is one of the leading export houses in India.1968 • Tata Consultancy Services (TCS). Indias first software services company, is established as a division of Tata Sons.1970 • Tata McGraw-Hill Publishing Company is created to publish educational and technical books. • Tata Economic Consultancy Services is set up to provide services in the field of industrial, marketing, statistical and techno-economic research and consultancy.1984 • Titan Industries – a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO) – is set up to manufacture watches.1991 56
  57. 57. • Tata Motors rolls out its millionth vehicle. (The two-million mark was reached in 1998 and the third million in 2003.)1995 • Tata Quality Management Services institutes the JRD QV Award, modelled on the Malcolm Baldrige National Quality Value Award of the United States, laying the foundation of the Tata Business Excellence Model.1996 • Tata Teleservices (TTSL) is established to spearhead the Groups foray into the telecom sector. • Tata Indicom delivers cellular services through its CDMA mobile telephony platform. It has pre-paid and post-paid options, enhanced through tie-ups for handsets with leading manufacturers.1998 • Tata Indica – Indias first indigenously designed and manufactured car – is launched by Tata Motors, spearheading the Groups entry into the passenger car segment.1999 • The new Tata Group corporate mark and logo are launched. 57
  58. 58. 2000 • Tata Tea acquires the Tetley Group, UK. This is the first major acquisition of an international brand by an Indian business group.2001 • Tata AIG – a joint venture between the Tata Group and American International Group Inc (AIG) – marks the Tata re-entry into insurance. • (The Groups insurance company, New India Assurance, was nationalized in 1956). • The Tata Group Executive Office (GEO) is set up to design and implement change in the Tata Group and to provide long-term direction.2002 • The Tata Group acquires a controlling stake in VSNL, Indias leading international telecommunications service provider. • Tata Consultancy Services (TCS) becomes the first Indian software company to cross one billion dollars in revenues. • Titan launches Edge, the slimmest watch in the world. • Idea Cellular, the cellular service born of a tie-up involving the Tata Group, the Birla Group and AT&T, is launched. 58
  59. 59. • Tata Indicom, the umbrella brand for telecom services from the Tata Teleservices stable, starts operations.2003 • Tata Motors launches CityRover – Indicas fashioned for the European market. The first batch of CityRovers rolled out from the Tata Motors stable in Pune on September 16, 2003.2004 • Tata Motors acquires the heavy vehicles unit of Daewoo Motors, South Korea. • TCS goes public in July 2004 in the largest private sector initial public offering (IPO) in the Indian market, raising nearly $1.2 billlion.2005 • Tata Steel acquires Singapore-based steel company NatSteel by subscribing to 100 per cent equity of its subsidiary, NatSteel Asia . • VSNL acquired Tyco Global Network, making it one of the worlds largest providers of submarine cable bandwidth. • Tata Sons completes 60 years of Tata operations in the US. • The Taj takes over management of The Pierre, NY . • Taco acquires Wundsch Weidinger, Germany. 59
  60. 60. • Tata Steel acquires stake in Carborough Down Coal Project, Queensland, Australia • VSNL acquires Teleglobe International Holdings, Bermuda • TCS acquires Sydney-based Financial Network Services (FNS) • Tata Motors passenger vehicle sales cross one-million mark • TCS acquires leading BPO firm Comicrom in Chile. • The Indian Hotels Company acquires hotel run by Starwood, Sydney. • Tata Steel acquires Millennium Steel, Thailand. • Tata Chemicals acquires controlling stake in Brunner Mond Group, UK. • Tata launched gold plus ,a new jewellery range.2006 • Tata Credit Card launched • Foundation stone for the Tata Medical Centre unveiled in Kolkata • TCS launches India’s largest e-governance initiative, MCA-21 • Tata Steel ranked world’s best steel maker for the third time by World Steel Dynamics • Tata Coffee acquires US-based Eight OClock Coffee • Tatas join hands with Indigene Pharmaceuticals to build a global biopharmaceutical company • Tata Sky satellite television service launched across the country • Tata Steel begins construction of R670 million Ferrochrome plant in South Africa 60
  61. 61. • Tata Group acquires 30-per cent stake in Glacéau • VSNL rebrands SNO as Neotel in South Africa2007 • In a giant leap, Tata Steels acquisition of the Anglo-Dutch steel major Corus has vaulted the former to the fifth position from 56th in global steel production capacity.2008 • Vsnl, Vsnl international and Teleglobe unite as tata communication.2009 • Tata Communication and tyco telecommunication complete TGN-Intra Asia system. Tata in communication sactor 1. Broadband services (Tata Indicom) 2. Telecommunications (Tata Indicom) 61
  62. 62. • Tata Teleservices and VSNL, through their common brand Tata Indicom, offer a complete range of telecom solutions for business needs. Tata Indicom is the world leader in fixed wireless services.They are providing:  Fixed-wire phone connections  Web conferencing  Centrex (central exchange)Consultancy • Management consultancy (Tata Economic Consultancy Services, Tata Strategic Management Group) Corporate SustainabilityWorking for the disadvantaged sections of the society is a way of life at the TataGroup. As Mr. JRD Tata believed, “society is an important stakeholder in thedevelopment of any organization”. Social Responsibility has been central to the corevalues of the Tata group for over a century now—and Tata companies have not onlybeen proactive on compliance with regulatory requirements, but have also had afarsighted vision in ensuring sustainability of business processes; restoration ofbiodiversity; and conserving wildlife where possible. 62
  63. 63. Keeping in tune with the changing business, environmental and social scenarios, theTata Group has adopted the term ‘Corporate sustainability’ instead of CorporateSocial Responsibility. Sustainable livelihoods are the demand of all social initiativesin the Group. Tata Teleservices Ltd is a responsible corporate citizen, and strives togive back to the community it operates in. The main objective behind the CSinitiatives of TTSL is to use telecom to impact the life of the underprivileged sectionsof society. The company Endeavour’s to make a positive contribution to thecommunity by supporting a wide range of socio-economic, educational and healthinitiatives. Keeping in mind the Tata Group guidelines and the objective mentionedabove, we have identified and implemented many CS initiatives since 2006-end.Toward the end of 2008, with the then new TTSL Corporate Sustainability teamhaving come on board, Tata Teleservices Limited began the process of joining theselect few Tata Group companies that had put together their CS Big Picture. Underthe guidance of the Tata Council for Community Initiatives, TTSL began work on this,and the ‘Big Picture’ was put together in mid-2008. Under the TTSL Big Picture (seeimage below), Education and Environment were identified as the two primary pillarsfor CS@TTSL, with all projects and activities stemming from there.That having been said, it was also decided that rather than put a stop to all the goodwork that many of TTSL’s 20 Circle offices were doing (but which were not aligned tothe Big Picture), the CS team would let these carry on for the cause of continuity inthe target communities, slowly bringing them under the pillars identified—the processof Big Picture Alignment at TTSL, thus, began. 63
  64. 64. TATA Business Excellence ModelTata Business Excellence Model is a framework which helps companies to achieveexcellence in their business performance. This is the chosen model by the TATAgroup to help in building globally competitive organizations across TATA Groupcompanies. TBEM is based on the Malcolm Balridge National Quality Award Modelof the U.S.The Criteria have three important roles in strengthening competitiveness: • To help improve organizational performance practices, capabilities, and results • To facilitate communication and sharing of best practices information among all organizations within TATA Group. • To help in guiding organizational planning and opportunities for learningTBEM Criteria is designed to help organizations use an integrated approach toorganizational performance management that results in • Delivery of ever-improving value to customers and stakeholders, contributing to organizational sustainability • Improvement of overall organizational effectiveness and capabilities • Organizational and personal learningThe Criteria are built on the following set of 11 Interrelated Core Values andConcepts: • Visionary Leadership 64
  65. 65. • Customer-driven Excellence • Organizational and Personal Learning • Valuing Employees and Partners • Agility • Focus on the Future • Managing for Innovation • Management by Fact • Social Responsibility • Focus on Results and Creating Value • Systems PerspectiveThe Core Values and Concepts are embodied in seven Categories, as follows: • Leadership • Strategic Planning • Customer and Market Focus • Measurement, Analysis, and Knowledge Management • Work force Focus • Process Management • Business ResultsThe TBEM criteria are the operational details of the Core Values, applied to thedifferent facets of a Business organization.The 7 Criteria Categories are divided into 18 items and 32 Areas to AddressThe TBEM framework has the following characteristics 65
  66. 66. • Focus on Business results • Non-prescriptive and Adaptable • Maintains System Perspective • Supports Goal based diagnosisTBEM instills a process centric approach in an organization as a means to achievethe chosen Business GoalsTata Teleservices Limited as a part of the TATA Group has adopted the TATABusiness Excellence model as an intricate part of its operation structure and uses itto grow from strength to strength, keeping Operational excellence and Businessresults in focus.Vision Deliver a new world of communications to advance the reach and leadership of our customers.Commitment Invest in building long-lasting relationships with customers and partners and lead the industry in responsiveness and flexibility. 66
  67. 67. Strategy Build leading-edge IP-leveraged solutions advanced by our unmatched global infrastructure and leadership in emerging markets.Communication on Progress Year: 2009-2010Tata Teleservices Limited (TTSL) is leading the way for Tata Group‟s presence inthe telecom sector. Incorporated in 1996, Tata Teleservices is the pioneer of CDMA1x technology in India, and after launching mobile operations in January 2005 underthe brand name Tata Indicom, today now enjoys a pan-India presence, with existingoperations in India‟s 22 telecom circles. The company also leads the market in fixedwireless telephony, and for the last five consecutive quarters, the company‟snetwork has been rated the “Least Congested” by the Telecom Regulatory Authorityof India.Now TTSL also has a presence in GSM space, thanks to its November 2008strategic alliance with Japan‟s NTT DOCOMO. The joint venture now offers 67
  68. 68. differentiated products and services under the TATA DOCOMO brand name. TATADOCOMO marks a significant milestone in Indian telecom, redefining the industrywith its innovative per-second tariff option, or “Pay for What You Use” pricingparadigm. TTSL‟s bouquet of telephony services includes mobile, wireless desktop,public booth, wireline and enterprise solutions. Four brands comprise TataTeleservices Limited: Virgin Mobile, Tata Walky (fixed wireless phones), Tata Photonfamily (different options of wireless mobile broadband access), and T24 (GSMmobile services, through a strategic partnership with Indian company Future Group).In December 2008, Tata Teleservices announced a unique reverse equity swapstrategic agreement between its telecom tower subsidiary, Wireless TT Info-ServicesLimited (WTTISL), and Quippo Telecom Infrastructure Limited (QTIL). Kicking offoperations with 18,000 towers, this combined entity has become the largestindependent entity in telecom, with the highest tenancy ratios in the industry.Today, the WTTISL and QTIL partnership has a portfolio of around 35,000 towers.Currently, Tata Teleservices Ltd, combined with Tata Teleservices (Maharashtra)Ltd, serves nearly 65 million customers in over 420,000 towns and villages acrossthe country, providing top-quality telephony services.Tata Communications’ strategic focusOver the next two to three years, Tata Communications will focus on: • Redefining "wholesale" from a commodity, low value business to a partnership-driven, value-enhancing one 68
  69. 69. • Expanding access networks in India including rolling out wireless (WiMAX) networks for business and consumes• Rapidly grow its global enterprise segment with catalyst services including Telepresence, media and entertainment solutions, Ethernet and cloud computing• Achieving global benchmarks in customer services and operations• Creating at least one new "home market" in addition to India and South Africa COMPANY NAME 69
  71. 71. RESEARCH METHODOLOGYThe study is made on the basis of secondary data. The annual report by the firmswas of great help collection the necessary information. In addition to this, thepersonal of “TATA TELESERVICES LTD” were very co-operative in forwarding thenecessary information as and when required.5.1 METHODOLOGY ADOPTEDUNIVERSE OF THE STUDY-:A research design is the arrangement of conditions for collection and analysis ofdata in a manner that aims to combine relevance to the research purpose witheconomy in procedure. Research design is a plan that specifies the sources and 71
  72. 72. types of information relevant to the research problem. It is a strategy specifyingwhich approach will be used for gathering and analyzing the data. In fact researchdesign is the conceptual structure within which research is conducted. It constitutesthe blue print for the collection, measurement and analysis of data.Types of Research Design:-Research Design is mainly of three types:-1. Exploratory Research:-2. Descriptive Research or Conclusive Research:-3. Experimental Research or empirical researchThe research undertaken by me in this project is empirical research. Theresearch methodology adopted for the project can be stated as follows:-In order to do the research successfully and fulfill the objective of the research, theprime thing was to study the entire balance sheet and P & L accounts of differentyears of TATA TELESERVICES LTD. I had done that by collecting the requiredinformation through firm’s manual and data available on internet. After that a detailed and systematic report was then prepared.SAMPING SIZEArea covered for this study has been taken as TATA TELESERVICES LTD. Samplesize for this study which is taken by me is approx 75 people’s .It has been so takenby the researcher because it was convenient for her to approach the site easily.Also, the research has been carried over the topic. Finance ratio analysis because itclearly prescribes the strengths and weakness of company and its financial value. 72
  73. 73. SAMPLING METHODSampling is the process of selecting units (e.g. people, organizations) from apopulation of interest so that by studying the sample we may fairly generalize ourresults back to the population from which they were chosen.The difference between non probability and probability sampling is that nonprobability sampling does not involve random selection and probability samplingdoes.We can divide non probability sampling methods into two broad types: accidental orpurposiveMost sampling methods are purposive in nature because we usually approach thesampling problem with a specific plan in mind.This research analysis has not been carried over any types of sampling because thedata is strictly of secondary type and does not count in any types of samplingmethod.The study is made on the basis of secondary data. The annual reports by the firmswere of great help collection the necessary information. In addition to this, thepersonal of “TATA TELESERVICES LTD” were very co-operative in forwarding thenecessary information as and when required. 73
  74. 74. Data require for this project is mainly two type’s i.e. primary data & secondary dataand I also use the Graphs in analysis of ratio which help to understand to every one.Tools for data collectionData require for this project is mainly tow type’s i.e. primary data & secondary data and Ialso use the Graphs in analysis of ratio which help to understand to every one. • Primary Data: - Those are collected fresh and the time and this happens to be original in character. The primary data were collected through personal interaction with the manager and official of the firm. • Data is collected from telephone enquiries. • Concert with the expertise. • Data is collected from survey. • Secondary Data: - Secondary data means data is already available i.e. they refer the data which have already been collected and analyzed by someone else, then he has to look into various 74
  75. 75. sources form whose he can obtain them, usually the publications technical trade journalbooks, Magazines, Net and Reports of company etc.• Data is collected from past year records.• Data is collected from my guide.• Data is collected from GOOGLE. 75
  76. 76. 5.3 OBJECTIVES OF THE STUDYThe objectives of this project are as under:1. To compare the financial ratio from last 5 year of “TATA TELESERVICES LTD.” 76
  77. 77. 2. To analyze the profitability ratio of “TATA TELESERVICES LTD.”3. To check the liquidity position of “TATA TELESERVICES LTD.”4. To gain insight into long tern solvency of “TATA TELESERVICES LTD.”5. To know the financial Position of the Company by calculating the ratio analysis of “TATA TELESERVICES LTD.” 77
  78. 78. 78
  79. 79. SAMPLES & TOOLSSamples used in the profitability of TATA TELESERVICES LTD. companyare following:  Profit & Loss account of the unit for the years 2005-06 to 2009-10.  Balance Sheet of the unit for the years 2005-06 to 2009-10.  Various schedules relevant to the Profit & Loss account and Balance Sheet.The tools used in the profitability of TATA TELESERVICES LTD.Company are following:  Comparative Balance Sheet.  Comparative Profit and Loss Account.  Various standards ratio. 79
  80. 80. TOOLS OR TECHNIQUES OF FINANCIAL STATEMENTS ANALYSISFinancial statements indicate certain absolute information about assets, liabilities,equity, revenues, expenses and profit or loss of an enterprise. Various techniquesare applied for analyzing the financial statements.Following tools and techniques for analysis of the statements: 1. Comparative Balance sheet Statements: Comparative Financial Statements are theStatements in which figures for two or more periods are placed side by side alongwith change in figures in absolute and percentage form to facilitate comparison. BothIncome Statement and Position Statement are prepared in the form of comparativeFinancial Statements. 2. Comparative profit and loss account Statement: It expresses all figures of financialstatements as percentage of common base. In the P&L account the sale figure isassumed to be 100 and all figures are expressed as a percentage of sales. 3. Ratio Analysis: It expresses the relationship between two financial variables taken from financial statements of an accounting period in the form of ratios. 80
  81. 81. COMPARATIVE BALANCE SHEETThe comparative balance sheet analysis is the study of the trend of the same items,groups of items and computed items in two balance sheets of the unit on differentdates. The changes in periodical balance sheet items reflect the conduct of abusiness. The changes can be observed by the comparison of the balance sheet atthe beginning and at the end of a period and these changes can help in forming anopinion about the progress of a unit.Comments and Interpretations of Comparative Balance sheet: • The working capital has decreased by Rs. 21.16crore in compare to the last years. In the year 2010 ,2009,2008,2007,and 2006 is Rs. 196.96crore ,218.07crore,125.00 cr ,203.17 crore ,and 175.08 crore respectively This is mainly due to increase the current liability in the current year. • Reserve & surplus, which is having only current year profit, has increased by Rs. 298.01 crore with respect to previous year. • Intangible assets have decreased by Rs. 29.84Lakh. This is due to prior year impact of delaying capitalization on computer software. 81
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  83. 83. Area covered for this study has been taken as TATA TELESERVICES LTD in NEWDELHI. It has been so taken by the researcher because it was convenient for her toapproach the site easily.Also, the research has been carried over the topic. Finance ratio analysis because itclearly prescribes the strengths and weakness of company and its financial value. 83
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  85. 85. Particular 2009-2010 2008-2009Telecom Revenue 2069.10 1941.68Other income 208.71 112.28Total Income 2277.81 2053.96Expenditure 1737.30 1460.78Earnings Before Interest,Depreciation, Tax 540.51 593.18Finances Treasury Charges (Net) 317.62 304.78Depreciation 520.89 446.79Loss Before Tax 298.00 158.39Wealth Tax & Fringe Benefit Tax 0.01 1.21Loss After Tax 298.01 159.60Profit and Loss (Rs. in crores)Interpretation: The total revenue grew by 10.90% to Rs. 2,277.81 Cr. During theyear, the Company consolidated its position in the market by increasing its share ofnew additions in the wireless market (i.e. fixed wireless and mobile). The subscriberbase grew by 73% to cross 13 million, mainly through the very successful launch ofGSM services by the company, The change in interconnect regime with reduced 85
  86. 86. termination charges and competitive pressures which pulled down the tariffs resultedin lower Average Revenue per User (ARPU) compared to the previous year.Operating expenses increased by 18.93%, mainly due to costs associated with thelaunch and operations of GSM services. The Company reported a positive EBIDTAof Rs. 540.51 Cr., as compared to the previous year’s EBIDTA of Rs. 593.18 Cr.,despite the costs associated with the launch of GSM services.Market Capture and Net Profit compare with other company’s Market Cap. Net Profit (Rs. cr.)Bharti Airtel 131,603.41 9,426.16Reliance Comm 28,875.74 478.93Idea Cellular 23,719.92 1,053.66Tata Comm 7,828.95 483.18Spice Comm 3,929.12 -1,015.22TataTeleservice 3,803.88 -298.01MTNL 3,442.95 -2,514.87Tulip Telecom 2,596.23 249.58 86
  87. 87. market capture Bharti Airtel Reliance Comm Idea Cellular Tata Comm Spice Comm TataTeleservice MTNL Tulip Telecom 2% 4% 2% 2% 1% 11% 14% 64%Interpretation: Bharti Airtel is the big competitor of TATA TELESERVICES,1.85% capture in market which is too small compare to the other tele companies,TATA TELESERVICES try to give more innovation in to their product and services ithelp to increases their sale and profitability of the company.Current ratio and Quick ratioParticular 2006 2007 2008 2009 2010Current ratio 0.15 0.24 0.19 0.18 0.14Quick ratio 0.29 0.37 0.45 0.56 0.40 87
  88. 88. Current ratio Quick ratioInterpretation: Traditionally a current ratio of 2:1 is considered to be a satisfactoryratio. On the basis of this traditional rule , if the current ratio is 2 or more, it meansthe firm is adequately liquid and has the ability to meets it current obligation but ifthe current ratio is less than two it means the firm has difficulties in meeting itscurrent obligations. The logic behind this rule is that even if the value of currentassets becomes half, the firm can still meet its short term obligations. Here thecurrent ratio in the year 2010 is 0.14:1 that is more than the last years2006,2007,2008,2009 ratio which is 0.15:1, 0.24:1, 0.19:1 and 0.18:1 respectively.It indicates rs. of quick assets available for each rs. Of current liability tradionally aquick ratio of 1:1 is considered to be a satisfactory ratio but hear in the year 2010quick ratio is 0.40:1 is decreased to compared to the last year ratio 0.56:1 and thisdecreased due to cheques in hand. 88
  89. 89. Operating Profit MarginParticular 2006 2007 2008 2009 2010OperatingProfit 11.23 20.54 23.75 28.27 22.27Margin Operating Profit Margin 30 25 20 15 Operating Profit Margin 10 5 0 2006 2007 2008 2009 2010 Interpretation: This ratio indicates an average operating cost incurred on a sale of goods worth Rs.100.Lower the ratio, greater is the operating profit to cover the non- operating expenses, to pay dividend and to create reserves and vice versa. Here the operating ratio in year 2010, 2009, 2008, 2007, and 2006 are 22.27%, 28.27, 23.75, 20.54 and 11.23 respectively. in the year 2010 4% more in compare last year 2009. 89
  90. 90. This change is due to increase the sale because of operational efficiency of the company. Operating ratios increases year to year which is good for the company. Gross Profit MarginParticular 2006 2007 2008 2009 2010Gross Profit 0.58 10.61 -1.98 6.32 -1.28Margin Gross Profit Margin 12 10 8 6 4 Gross Profit Margin 2 0 2006 2007 2008 2009 2010 -2 -4 Interpretation: Gross profit ratio of 2006 to 2010 are0.58%,10.61%,-1.98,6.32% and-1.28% .i.e. fluctuate during year so it indicate the profit earning of the company is not so good negative ratios shows the poor performance of the company. higher the ratio, the more efficient the production and purchase management. This change due to change in government policy because of government fix the prices of the raw material of the company and in this year it gives the more margin of profit on sale and that’s why this ratio increases. 90
  91. 91. Net Profit MarginParticular 2006 2007 2008 2009 2010Net Profit -49.31 -21.81 -7.07 -7.80 -13.44MarginInterpretation: This ratio is the indication of overall profitability and efficiency ofthe business. high net profit ratio would only means adequate returns to the owners.It also enables a firm to withstand in cut-throat competition when the selling price isfalling or cost of production is rising .the ratio in the year 2010 , 2009,2008,2007,and 2006 are -49.31%, -21.81%,-7.07,-7.08% and -13.44% respectively it showsloss of the company. 91
  92. 92. Return On InvestmentParticular 2006 2007 2008 2009 2010Return On -21.48 -8.21 1.44 5.09 -0.73Investment Return On Investment - - Return on Investment - - - Interpretation: The ratio can be used to judge the borrowing policy of the enterprise. If an enterprise having the ratio of return on investment 15% borrows at 16%, it would indicate that it is borrowing at a rate higher than its earning. The comparisons of this ratio with that of similar firms and with industry average over a period of time would disclose as to how effectively the long-term funds provided by owners and creditors have been used. 92
  93. 93. Inventory Turnover RatioParticular 2006 2007 2008 2009 2010Inventory --- 641.35 769.00 1012.25 345.37TurnoverRatio Interpretation: It indicates the speed with which the inventory is converted into sales. in general, a high ratio indicates efficient performance since an improvement in the ratio shows that either the same volume of sales has been maintained with a lower investment in stocks, or the volume of sales has increased without any increase in the amount of stocks. However, too high ratio and too low ratio call for further investigation. A too high ratio may be the result of very low inventory levels, which may result in frequent stock-out, and thus the firm may incur high stock out costs. On the other hand, a too low ratio may be the result of excessive inventory levels: slow moving or obsolete inventory and thus the firm may incur high carrying 93