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1. OBJECTIVES OF THE STUDY
Objective provides a frame work for optimum decision making. The various objectives of
studies are as follows:-
1) To know the financial position of the organization.
2) To know the management decision making policy.
3) To get the information about earning potential of this enterprise.
4) To know the capability of payment of interest or dividend analysis.
5) To know the trends of business, which helps us in as ascertaining whether the business is
progressive or not.
6) To find out the shortcoming of business.
7) The important objective of analysis is to make the comparative study with other firms.
8) To know the real worth of an enterprise.
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2. MTNL- AN OVERVIEW
MTNL was set up on 1st April 1986 by the Government of India to upgrade the quality of
telecom services, expend the telecom network, and introduce new services and to raise
revenue for telecom development needs of Indias key metros- Delhi, the political capital and
Mumbai, the business capital of India. . In the past 23 years, the company has taken rapid
strides to emerge as India's leading and one of Asia's largest telecom operating companies.
Besides having a strong financial base, MTNL has achieved a customer base of8.06 million
as on 31st March 2009.
The company has also been the forefront of technology induction by converting 100% of its
telephone exchange network into the state-of-art-digital mode. The government of India
currently holds 56.25% stake in the company. In the year 2003-04, the company's focus
would be not only consolidating the gains but also to focus on new areas of enterprise such as
joint ventures for projects outside India, entering into national long distance operation,
widening the cellular and CDMA-based WLL customer base, setting up internet and allied
services on an all India basis. While the market for fixed wire line phones is stagnating,
MTNL faces intense competition from the private playersBharti, Hutchison and Idea
Cellular, Reliance Infocommin mobile services.
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The major offerings of the company includes public call offices, global system for mobile
communications (GSM) cellular services, fixed-line access, integrated services digital
network (ISDN) services, mobile and fixed wireless services, code division multiple access
(CDMA) technology. In addition, it also offers call centers, internet, broadband, under the
brand names such as Dolphin, Garuda, Mtnlmail, Trump and Tri Band. The company
operations are located in India, Nepal and Mauritius. It is headquartered at New Delhi, India
and employs around 47,422 people.
The company provides welfare activities and benefits include: subsidized canteen facility,
holiday homes, crches, recreation and community centers, housing and medical facilities,
schooling, grant ofscholarships and group insurance for the employees.
CORPORATE OBJECTIVE
To expand customer base and services
To provide latest technology and services to the customers at affordable prices.
To achieve the highest level of customer satisfaction and delight
To diversify in other areas for providing telecom services at national and international
levels
To provide convergence of Telecom, Information Technology and related services
To improve productivity by training and redeployment of man-power.
To work for social benefits.
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VISION
Become a total solution provider company and to provide world-class telecom
services at affordable prices.
Become a global telecom company and to find a place in the Fortune 500
companies.
Enter into expend new services via, long distance, cellular mobile, W-CDMA,
Internet /broadband and IN services and development of telecom software.
Become the largest provider of private networks and lines.
Venture into other areas in India and abroad on the strength of our core competency.
MISSION
To remain market leader in providing world class Telecom and IT related services at
affordable prices and to become a global player.
S.W.O.T. Analysis of MTNL
STRENGTHS
No real Competition in core activity in the immediate future.
Highest market share in Delhi in terms of no. of landline connections.
Strong and talented workforce of 54000+.
High on cash.
Covers remotest corners of Delhi and Mumbai.
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3G services.
WEAKNESS
Poor Customer Services
o Poor quality of services and complaint handling.
o Tedious customer application processing.
o Erratic and faulty billing.
o Unfriendly payment facilities.
Slow on implementation.
Poor marketing.
Poor system maintenance
Poor employee motivation
OPPORTUNITIES
Limited mobility market.
Booming telecom sector.
Per capita income is increasing.
Staff strength.
THREATS
New private players.
Increasing foreign investments.
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Increasing no. of surrenders on landline connections.
Downward trend in tariffs.
FINANCE
91
n
The above bar chart shows the capital investment made by MTNL from the year 1988 to
2008.
MTNL has a strong financial base and has shown consistent improvement in performance
over the years. MTNL has achieved a customer base of 8.06 million.
MTNL possesses an impressive financial profile comprising Reserves and Surplus amounting
to Rs.112913.58 million and Fixed Assets worth Rs.78421.73 million as on 31.03.2008
corresponding figures for 31.03.2007 were Rs.109992.96 million and Rs.76094.53 million
respectively.
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MTNL was listed at the New York Stock Exchange on 6.11.2008.
The companys equities are considered as an excellent buy globally by Foreign Institutional
Investors, All-India Financial Institutions, Research Analysts, and Merchant Bankers etc.
Shareholding and Dividend
MTNL.s paid up Capital is Rs.6300 millions and the Govt. of India currently holds 56.25%
stake in the company. The company has been consistently paying dividend on the paid up
share capital of Rs.6300 millions for last many years. Final dividend of 40%(including 30%
interim dividend) is declared for the financial year 2007-08.
Capital Expenditure
The capital expenditure during 2007-08 was Rs 6.92 billion as against Rs.9.98 billion in
2006-07 and the capital expenditure for both the years was fully met by internal resources.
Assets have risen from Rs.9.79 billion in the year 1988-89 to Rs. 146.99 billion in the year
2007-08.
JOINT VENTURES
United Telecom Limited (UTL)
MTNL has formed a Joint Venture company in Nepal by the name of United Telecom Ltd.
(UTL) in collaboration with Telecom Consultants India Limited (TCIL), Videsh Sanchar
Nigam Limited (VSNL) and NVPL (Nepal Ventures Pvt. Ltd., a Nepalese Company) The
Company is operational since 10th October, 2001 for providing WLL based basic services in
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Nepal. In Nepal against the switching capacity of 50K, 21K telephone connections are
working.
MahanagarTelephone Mauritius Limited (MTML)
MTNL has set up its 100% subsidiary .Mahanagar Telephone Mauritius Limited. (MTML) in
Mauritius, for providing basic, mobile and international long distance services as 2nd.
Operator in Mauritius. Necessary licenses have been obtained in January 2004. MTML has
already started its ILD & CDMA based basic services in Mauritius. In Mauritius against the
switching capacity of 50K, 8K telephone connections are working.
MTNL-STPI IT Services Limited
MTNL-STPI IT Services Ltd. is a 50:50 Joint Venture between Software Technology Parks
of India (STPI) and Mahanagar Telephone Nigam Limited, (MTNL). The JV formed in 2006
combines the STPI.s rich experience as an ISP and MTNL track record of being Indias
leading telecom operating company to offer niche portal services to the Indian community.
The JV was formed to realize one of the 10-point agenda of MoC&IT, which are of extreme
importance to India for bringing about an all round economic development. The JV aims to
provide exclusive data center services, messaging services, business application services to
the identified sectors of economic activity and thereby also popularizing the .in domain in the
networked community across the world.
Millenium Telecom Limited (MTL)
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MTNL has restructured Millenium Telecom Ltd. (MTL) as a Joint Venture company of
MTNL and BSNL with 51% and 49% equity participation respectively. The company will
now be entering into new business stream of international long distance operations and will
be executing a project of submarine cable system, both east and west from India.
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3. INTRODUCTION OF THE PROJECT
Finance is the life blood and nerve center of the business. As circulation of blood is essential
in the human body for maintain life, finance is a very essential to smooth running of the
business. In present time financial managers are instrumental to a companys success. Where
as once the financial manager was charged only with such routine taken as keeping records,
preparing financial reports, managing the companys financial case position and occasionally
in other activities. Now-a-days a financial manager is supposed to perform the following
function as:-
Financial forecasting and planning.
Acquisition of funds
Investment of funds
Helping in valuation decisions
Maintaining proper liquidity
In relation to the companys overall valuation, all of this demands a broad outlook on an alert
creativity that will influence almost all facts of the enterprise. As the importance finance is
growing up in twenty first century, we cannot afford to ignore it.
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3.1 FINANCIAL STATEMENTS ANALYSIS
Financial statement presents a mass of complex data in absolute monetary terms and revel
little about the liquidity, solvency and profitability of the business. In financial analysis, the
data given in financial statement is classified into simple groups and a comparison of various
groups is made with one another to pin-point the stung points and weaknesses of a business.
Financial Statement analysis is largely a study of relationship among the financial factors in
a business by using single setup statements, and a study of trend of these factors as shown in
a series of statements.
The term financial statements include:
1. Analysis: Classification of data given in financial Statements in order to present in a
simplified manner.
2. Interpretation of Financial Statements: Explaining the meaning and significance of
data so simplified.
3.2 Significance of the study
Now the day analysis of financial statements has become of general interest various parties
are interested in the financial statements of a business due to various reasons. By analyzing
the financial statements each party can as retain whether his interest is safe or not.
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The significance of the financial statements analysis for different parties is as follow:-
Significance to management:- The management can measure the effectiveness of the own
polices and decisions, determine the advisability of adopting new policies, procedures and
document to owners, the result of their managerial efforts.
Significance to investors:- With the help of financial analysis investors and share holders of
the business can know about the earning capacity and the safety to their investments in the
business.
Significance for creditors:- Financial analysis tells them whether companies have sufficient
assets and funds to pay off its creditors.
Significance for government: - Government can judge, the basis of analysis of financial
statements, which industry is progressing on the desired lines and which industry need the
financial help.
Significance to financial institution:- With the help of financial statement analysis financial
institution can know the profit earning capacity of the business and its long term solvency.
Significance to employees:- Analysis of financial statements helps the employees in
determining the true profit of the business enterprise.
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4.RESEARCH METHODOLOGY
The first step was to analyze the financial statements and records of the company thoroughly.
Through my analysis of the past trends the financial statement had been condensed into
various heads which helped me in computing the data and calculating the ratios.
It was carefully examined and studied how various ratios are calculated and what is the
significance of each ratio. On the basis of the knowledge gained, the important ratios for
MTNL were calculated. The figures thus, extracted on calculating the ratios depicted a clear
picture of the companys solvency, liquidity, returns, etc. These ratios were thoroughly
analyzed and finally the results were interpreted.
4.1RESEARCH DESIGN
Research Design is the first and foremost step in Methodology adopted and undertaking
research study. It is the overall plan for the collection and analysis data in the research
project. Thus it is an organized, systematic, approach to be formulation implementation and
control of research project.
In fact a well planned and well balanced research design guards against collection of
irrelevant data and achieves the result in the best possible way.
4.2 NATURE AND SOURCES OF DATA
The main purpose or objective of this study is to undertake the financial appraisal of MTNL,
To attain this objective, time series and cross section data are collected on the basis of
universe. The basic sources of data are as under:-
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1) Annual reports of MTNL which are recast and presented in a condensed form. The
statement showing total costs under various heads have also been prepared.
2) Some information has been collected through formal as well as informal discussion with
various department heads.
Data are bricks with which the researcher has to make a house. While the quality of research
finding depend on the data. The adequacy of appropriate data in turn depends upon proper
method of data collection. A number of methods are at the disposal of the researcher of
which one has to select the most appropriate one for visualizing the research objectives.
Thus he has to see the method adopted is compatible with the resources and research study.
a) PRIMARY DATA: Data which are collected fresh and for the first time and thus happens
to be original in character. Primary data are gathered for specific purposes.
b) SECONDARY DATA: Data that are collected from primary data i.e. they are already
exist somewhere. For the purpose of our study we collected both the data.
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5.0 RATIO ANALYSIS
It is an analytical technique of interpreting financial statements. These are the quantitative
relationships between two figures for their comparative analysis.
Ratios simplify and summarize a long array of accounting data to provide useful information
regarding the liquidity, solvency, perfectibility etc.
Advantages of Ratio Analysis:-
It helps the reader in giving tongue to the heaps of figures given in financial statements.
1) It is helpful in analysis of financial statements.
2) It is helpful in simplification of accounting data.
3) It is helpful in comparative study.
4) It is helpful in locating the weak spots of the business.
5) It gives estimates about the trend of the business.
6) It discloses the liquidity, solvency and profitability of an enterprise.
7) It indicates the financial soundness of the business.
Classification of Ratios:-
A. Liquidity Ratios
B. Activity Ratios
C. Leverage or Capital structure Ratios
D. Profitability Ratios
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A. Liquidity Ratio:
Liquidity refers to the ability of the firm to meet its current liabilities. It is also called short
term solvency ratio. This ratio establishes the relationship between cash and other current
assets to current obligations which provide a quick measure of liquidity. It is very necessary
to strike a proper balance between high liquidity and lack of liquidity.
It includes
Current ratio
Liquid / Acid test / Quick ratio
B. Activity or Turnover Ratio:-
Funds of creditors and owners are invested into various assets to generate sales and profits.
The better the management of assets the larger the amount of sales. Turnover ratios are
employed to evaluate the efficiency with which the firm manages and utilizes its assets. They
indicate the speed with which assets are being converted into sales. This ratio involves a
relationship between sales and assets. A proper balance between sales and assets generally
reflects that assets are managed well. Several turnover ratios can be calculated to judge the
effectiveness of asset utilization.
It includes
Inventory/Stock turnover ratio
Debtors/Receivables turnover ratio
Average collection period
Creditors/Payable turnover ratio
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Working capital turnover ratio
Fixed assets turnover ratio
Over and under trading
C. Leverage or Capital Structure Ratios
The short term creditors like bankers and suppliers of raw material are more concerned with
the firms current debt paying ability. On the other hand long term creditors like debenture
holders, financial institutions etc are more concerned with the firms long term financial
strength. Infact a firm should have a strong short as well as long term financial position. To
judge the long term financial position of the firm financial leverage are calculated. These
ratios indicate mix of funds provided by owners and lenders. As a general rule there should
be an appropriate mix of debt and owners equity in financing the firms assets.
It includes
a) Debt Equity Ratio
b) Debt to total funds
c) Proprietary Ratio
d) Fixed Assets to proprietors Fund
e) Interest Coverage ratio.
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D. Profitability Ratios:
It tells:
i. Is the firm earning adequate profits?
ii. What is the rate of gross profit & net profit on sales?
iii. What is the rate of return on capital employed in the firm?
iv. What is the rate of return on proprietors funds?
v. What is the earning per share?
It includes
Gross profit ratio
Net profit ratio
Operating ratio
Expense ratio
Return on shareholders investment or net worth
Return on equity capital
Return on capital employed (ROCE) ratio
Dividend yield ratio
Dividend payout ratio
Earnings Per Share Ratio
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Limitation of Ratio Analysis:
Ratio analysis is a very important tool of financial analysis, the ratio analysis suffers from a
number of limitations that are:
Ratios are calculated on the basis of data given in profit & loss A/c and Balance
Sheet. Therefore they will be only as current the accounting data in which they are
based.
If the different firm adopt different accounting policies then the comparisons it is not
possible among them.
Ratio analysis becomes effective due to change in price level.
The analyst should not merely rely on a simple ratio.
Same companies in order to cover up their bad financial position in cost to window
dressing i.e. showing better position then they really has.
Ratios are affected by personal ability and biasness.
Ratio above is not adequate for proper conclusion.
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6.0 ANALYSIS & INTERPRETATIONS
1. Current Ratio
Formulae
Current Ratio = Current Assets
Current liabilities
Current assets include cash and those assets which can be easily converted into cash within a
short period of time, generally, one year, such as marketable securities or readily realizable
investments, bills receivables, sundry debtors, inventories, work in progress, prepaid
expenses.
Current liabilities are those obligations which are payable within a short period of tie
generally one year and include outstanding expenses, bills payable, sundry creditors, bank
overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc.
Years 2004 2005 2006 2007 2008
Current assets 139278 146958.9 133520.2 141996.8 141616.5
Current liabilities 101094.9 106712.1 91308.46 97810.11 97551.22Ratio 1.377695 1.377153 1.462299 1.45176 1.451715
All the figures are in million
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Current Ratio
1.32
1.34
1.36
1.38
1.4
1.42
1.44
1.46
1.48
2004 2005 2006 2007 2008
Years
Ratios
Current R
Comment
This ratio is used to assess the short term financial position of the business. In
other words it is an indicator of the firms ability to meet its short term obligations. A
relatively high current ratio is an indication that the firm is liquid and has the ability to pay its
current obligations in time and when they become due. On the other hand, a relatively low
current ratio represents that the liquidity position of the firm is not good and the firm shall
not be able to pay its current liabilities in time without facing difficulties. An ideal current
ratio should be 2:1. But in none of the years the company has achieved this ratio, it has
always remained below this ratio, so this indicates that the short term financial position of the
company is unsatisfactory and the company is not in a position to pay its current liabilities in
time.
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2. Liquid Ratio
Formulae
Liquid Ratio = Liquid assets
Current liabilities
Liquid assets mean current assets minus inventories (stock) and prepaid expenses.
Current liabilities are those obligations which are payable within a short period of tie
generally one year and include outstanding expenses, bills payable, sundry creditors, bank
overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc.
Years 2004 2005 2006 2007 2008
Liquid assets 138390.1 145092.9 132142.1 139744.6 140009.5
Current liabilities 101094.9 106712.1 91308.46 97810.11 97551.22
Ratio 1.368913 1.359667 1.447205 1.428733 1.435241
All the figures are in million
Liquid Ratio
1.3
1.32
1.34
1.36
1.38
1.4
1.42
1.44
1.46
2004 2005 2006 2007 2008
Years
Ratios
Liquid R
Comment
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The liquid ratio is very useful in measuring the liquidity position of a firm. It measures the
firm's capacity to pay off current obligations immediately and is more rigorous test of
liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Liquid
ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories
and prepaid expenses as a part of current assets. Usually a high liquid ratio an indication that
the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the
other hand a low liquidity ratio represents that the firm's liquidity position is not good. An
ideal liquid ratio is 1:1. In all the years the company has shown a higher liquid ratio, which is
a very good indication of short term financial position of a company.
3. Debtors Turnover Ratio
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Formulae
Debtors turnover ratio = SalesAverage Debtors
The average debtor is calculated by adding the debtors in the beginning and at the end of the
year and dividing it by two.
Years 2004 2005 2006 2007 2008
Sales 63695.99 55820.7 55609.85 49093.18 47225.17
Avg. debtors 14782.22 17056.78 15865.71 12794.06 9534.995
Ratio 4.308961 3.272641 3.505034 3.837187 4.952826
All the figures are in million
Debtors Turnover Ratio
0
1
2
3
4
5
6
2004 2005 2006 2007 2008
Years
Ratios
Debtors Turnover R
Comment
This ratio indicates the number of times debtors turnover each year. The higher the values of
debtors turnover the more efficient is the management of credit. Higher ratios indicate that
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debts are being collected more quickly. Prompt collections of debts will release funds which
may then be put to some other use. Similarly, low debtors turnover ratio implies inefficient
management of debtors. This ratio was 4.30 times in 2004 which decreased to 3.27 in 2005
but after that it increased year after year and reached to 4.95 times in 2008 which is better for
the company as now debts are being collected more quickly by the company.
4. Inventory Turnover Ratio
Formulae
Inventory Turnover Ratio = Cost of goods sold
Average inventory
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Cost of goods sold means sales minus gross profit.
Average inventory is calculated by adding the stock in the beginning and at the end of the
year and dividing it by two.
Years 2004 2005 2006 2007 2008
Cost of goods sold 37431.47 32929.61 37684.92 47881.54 34353.07
Avg. inventory 1192.755 1376.96 1622.1 1795.47 1909.915
Ratio 31.38236 23.91472 23.23218 26.66797 17.9867
All the figures are in million
Inventory turnover ratio
0
510
15
20
25
30
35
2004 2005 2006 2007 2008
Years
Ratio
Inventory turnover r
Comment
This ratio indicates whether stock has been efficiently used or not. The purpose of this ratio
is to check up whether only the required minimum amount has been invested in stock. High
ratio indicates efficient management of inventory because more frequently the stocks are
sold, the lesser amount of money is required to finance the inventory. A low inventory
turnover ratio indicates an inefficient management of inventory. A low inventory turnover
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implies over-investment in inventories, dull business, poor quality of goods, stock
accumulation, accumulation of obsolete and slow moving goods and low profits as compared
to total investment. Now, in 2004 this ratio was 31.38 times then it decreased to 23.9 times in
2005 then it remains almost constant in 2006 then it increased in 2007 but decreased in 2008
as this ratio declined continuously which shows that the speed with which the stock is turned
into sales is declining, expect in 2007.
5. Asset Turnover Ratio
Formulae
Asset Turnover Ratio = SalesCapital employed
Capital Employed = Fixed assets + Investments + Working capital
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Years 2004 2005 2006 2007 2008
Sales 63695.99 55820.7 55609.85 49093.18 47225.17
Capital employed 108910.9 115178.3 117341.5 209158 122487
Ratio 0.584845 0.484646 0.473914 0.234718 0.385552
All the figures are in million
Asset Turnover Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2004 2005 2006 2007 2008
Years
Ratios
Asset Turnover R
Comment
This ratio measures the efficiency and profit earning capacity of the concern. Higher the
ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization
of fixed assets. This ratio is been declining continuously year after year from 2004 to 2007
which means, that fixed assets are not efficiently utilized but in 2008 there is little increase in
the ratio which shows MTNL is now using their assets efficiently.
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6. Working Capital Turnover Ratio
Formulae
Working Capital Turnover Ratio = Sales
Working capital
Working capital means current assets minus current liabilities.
Years 2004 2005 2006 2007 2008
Sales 63695.99 55820.7 55609.85 49093.18 47225.17
Working capital 38183.09 40246.82 42211.83 44186.71 44065.31
Ratio 1.668173 1.386959 1.3174 1.111039 1.071709
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All the figures are in million
Working Capital Turnover Ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2004 2005 2006 2007 2008
Years
Ratios
Working Capital Turn
Ratio
Comment
The working capital turnover ratio measures the efficiency with which the working capital is
being used by a firm. A high ratio indicates efficient utilization of working capital and vice
versa. As we can see from the table that working capital is continuously decreasing from 1.66
times to 1.07 times in years 2004 to 2008 which indicates that the working capital has not
been efficiently utilized. In other words firm is not effective in using their short term funds.
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7. Proprietary Ratio
Formulae
Proprietary ratio = Shareholders Fund
Total Assets
Shareholder's funds or net worth include equity share capital, (preference share capital) and
all reserves and surplus belonging to shareholders.
Total assets include fixed assets and current assets.
Years 2004 2005 2006 2007 2008
Shareholders fund 108910.9 115178.3 118484 122497.8 124078.7
Total assets 210005.8 221859.4 208650 218051.9 220038.3
Ratio 0.518609 0.51915 0.56786 0.561783 0.563896
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All the figures are in million
Proprietary Ratio
0.49
0.5
0.51
0.52
0.53
0.54
0.55
0.56
0.57
0.58
2004 2005 2006 2007 2008
Years
Ratios
Proprietary R
Comment
This ratio throws light on the general financial position of the company. Higher the ratio or
the share of shareholders in the total capital of the company better is the long-term solvency
position of the company. A low proprietary ratio will include greater risk to the creditors. A
ratio below 50% may be alarming for the creditors since they may have to loose in the event
of companys liquidation but this ratio is more than 50% in all the years which means it
provides safety to the creditors.
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8. Fixed Asset To Proprietary Fund Ratio
Formulae
Fixed Asset To Proprietary Fund Ratio = Fixed AssetsProprietors Fund
Proprietor fund include equity share capital, (preference share capital) and all reserves and
surplus belonging to shareholders.
Years 2004 2005 2006 2007 2008
Fixed assets 70727.76 74931.51 75129.7 76094.53 78421.73Proprietor fund 108910.9 115178.3 118484 122497.8 124078.7
Ratio 0.64941 0.65057 0.634091 0.621191 0.632032
All the figures are in million
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Fixed Assets To Proprietary Fund Ratio
0.605
0.61
0.615
0.62
0.625
0.63
0.635
0.640.645
0.65
0.655
2004 2005 2006 2007 2008
Years
Ratio Fixed Assets To Proprie
Fund Ratio
Comment
The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed
assets. Generally, the purchase of fixed assets should be financed by shareholder's equity
including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies
that owners funds are more than fixed assets and a part of the working capital is provide by
the shareholders. When the ratio is more than the 100%, it implies that owners funds are not
sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the
fixed assets. This ratio by 60 to 65 percent is considered to be a satisfactory and if we saw in
the table the ratio lies between 60 to 65 percent in all the years.
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9. Fixed Asset Ratio
Formulae
Fixed Asset Ratio = Shareholders fund + long term loans
Net fixed assets
Shareholder's funds or net worth include equity share capital, (preference share capital) and
all reserves and surplus belonging to shareholders.
Years 2004 2005 2006 2007 2008
Shareholders fund + long term
loans
108910.
9
115178.
3 118484
122497.
8 124078.7
Net fixed assets
70727.7
6
74931.5
1
75129.
7
76094.5
3 78421.73
Ratio 1.53986
1.53711
5
1.5770
6 1.60981 1.582198
All the figures are in million
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Fixed Asset Ratio
1.5
1.52
1.54
1.56
1.58
1.6
1.62
2004 2005 2006 2007 2008
Years
Ratios
Fixed Asset R
Comment
This ratio is important to ascertain the proper investments of funds from the point of view of
long term financial soundness. It is also another aspect of long term financial policy. This
ratio indicates as to what extent fixed assets are financed out of long term solvency. The ideal
ratio should be more than 1, which is there in all the years. This means the firm has invested
their funds properly from the point of view of long term financial soundness.
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10. Net Margin
Formulae
Net margin = Net Profit
Sales
Net profit means net income after payment of interest and income tax.
Years 2004 2005 2006 2007 2008
Net profit 11504.78 9389.79 5802.92 6817.36 5868.91
SALES 63695.99 55820.7 55609.85 49093.18 47225.17
Ratio 0.18062 0.168213 0.104351 0.138866 0.124275
All the figures are in million
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Net Margin
0
0.02
0.04
0.06
0.08
0.1
0.12
0.140.16
0.18
0.2
2004 2005 2006 2007 2008
Years
Ratios
Net Ma
Comment
Net margin is used to measure the overall profitability and hence it is very useful to
proprietors. The ratio is very useful as if the net margin is not sufficient, the firm shall not be
able to achieve a satisfactory return on its investment. This ratio also indicates the firm's
capacity to face adverse economic conditions such as price competition, low demand, etc.
Obviously, higher the ratio the better is the profitability. In 2004 this ratio was 18.06% then
it decreased to 16.82% in 2005 then it declined again in 2006 to 10.43% but there is slight
increase in 2007 but it decreased again in 2008. A decline in this ratio indicates decline in the
overall efficiency and profitability of the business.
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11. Gross Margin
Formulae
Gross Margin = Gross profit or EBIT
Sales
Years 2004 2005 2006 2007 2008
EBIT 17205.71 12514.79 6957.94 7946.94 6344.31
SALES 63695.99 55820.7 55609.85 49093.18 47225.17
Ratio 0.270122 0.224196 0.125121 0.161875 0.134342
All the figures are in million
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Gross Margin
0
0.05
0.1
0.15
0.2
0.25
0.3
2004 2005 2006 2007 2008
Years
Ratios
Gross Ma
Comment
Gross margin may be indicated to what extent the selling prices of goods per unit may be
reduced without incurring losses on operations. It reflects efficiency with which a firm
produces its products. As the gross margin is found by deducting cost of goods sold from net
sales, higher the gross margin better it is. There is no standard gross margin for evaluation.
However, the gross margin earned should be sufficient to recover all operating expenses and
to build up reserves after paying all fixed interest charges and dividends. Gross margin is
decreasing which is serious matter for the company as it is used to determine the selling price
so that there is adequate gross profit to cover the operating expenses, fixed charges etc of the
company.
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12. Operating Expense Ratio
Formulae
Operating expense ratio = Operating Expenses
Sales
Operating expenses includes property taxes, property management fees, insurance, wages,
utilities, repairs and maintenance, supplies, advertising, attorney fees, accounting fees, trash
removal, pest control, etc.
Years 2004 2005 2006 2007 2008
Operating expenses 9749.57 10228.34 11579.15 9462.86 11222.19
Sales 63695.99 55820.7 55609.85 49093.18 47225.17
Ratio 0.153064 0.183236 0.208221 0.192753 0.237632
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All the figures are in million
Operating Expense Ratio
0
0.05
0.1
0.15
0.2
0.25
2004 2005 2006 2007 2008
Years
Ratios
Operating Expense R
Comment
The Operating Expense Ratio is usually viewed as a measurement of management
efficiency. This is because management usually has greater control over operating expenses
than they do over revenues. The operating expense ratio is an indicator of how efficiently a
property is being managed. The lower the operating expense ratio, the greater the profit for
the investor or investors. As we can see in the above table this ratio is increasing from
15.30% (2004) to 20.82%(2006) & then it falls in 2007 but again increase in 2008 which is
unfavorable for the firm since it will leave a small amount of operating income to meet
interests, dividend etc.
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13. Return On Equity
Formulae:
Return on equity = Net Profit
Net worth
Net profit means net income after payment of interest and income tax.
Net worth includes equity share capital, (preference share capital) and all reserves and
surplus belonging to shareholders.
Years 2004 2005 2006 2007 2008
Net profit 11504.78 9389.79 5802.92 6817.36 5868.91Net worth 108910.9 115178.3 118484 122497.8 124078.7
Ratio 0.105635 0.081524 0.048976 0.055653 0.0473
All the figures are in million
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Return On Equity
0
0.02
0.04
0.06
0.08
0.1
0.12
2004 2005 2006 2007 2008
Years
Ratios
Return On Eq
Comment
This ratio is one of the most important ratios used for measuring the overall efficiency of a
firm. As the primary objective of business is to maximize its earnings, this ratio indicates the
extent to which this primary objective of businesses being achieved. This ratio is of great
importance to the present and prospective shareholders as well as the management of the
company. As the ratio reveals how well the resources of the firm are being used, higher the
ratio, better are the results. The inter firm comparison of this ratio determines whether the
investments in the firm are attractive or not as the investors would like to invest only where
the return is higher. In 2004 this ratio was 10.5% then it decreased to 8.15% in 2005 than it
decreased to 4.89% in 2006 but then it increased slightly to 5.56% in 2007 and again
decreased to 4.73 in 2008, So we can say that the return on shareholders funds is decreasing
year by year.
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14. Return on Investment
Formulae
Return on Investment = EBITCapital Employed
Capital Employed = Fixed assets + Investments + Working capital
Years 2004 2005 2006 2007 2008
EBIT 17205.71 12514.79 6957.94 7946.94 6344.31
Capital employed 108910.9 115178.3 117341.5 209158 122487
Ratio 0.15798 0.108656 0.059296 0.037995 0.051796
All the figures are in million
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Return On Investment
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
2004 2005 2006 2007 2008
Years
Ratios
Return On Investm
Comment
The ROI (return on investment) means how much profit or cost saving is realized. The
overall ROI for an enterprise is sometimes used as a way to grade how well a company is
managed. This ratio helps in judging performance efficiency of dissimilar industries. This
ratio measures how effectively the sources entrusted to the business are being used. This ratio
is decreasing year after year which shows the earning power of the net assets of the business
is decreasing.
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15. Earning per share
Formulae
Earning Per Share = Net Profit
Number of Shares
Net profit means net income after payment of interest and income tax.
Years 2004 2005 2006 2007 2008
Net profit 11504.78 9389.79 5802.92 6817.36 5868.91
No. of shares 630 630 630 630 630
Ratio 18.26156 14.90443 9.210984 10.82121 9.31573All the figures are in million
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Earning Per Share
0
2
4
6
8
10
12
1416
18
20
2004 2005 2006 2007 2008
Years
Ratios
Earning Per S
Comment
The earnings per share is a good measure of profitability and when compared with EPS of
similar companies, it gives a view of the comparative earnings or earnings power of the firm.
EPS ratio calculated for a number of years indicates whether or not the earning power of the
company has increased. EPS shows the profitability of the firm on per share basis. In 2004
EPS was Rs.18.26 then it decreased to Rs.14.90 in 2005 then it again decreased to Rs.9.21 in
2006 but then it increased to Rs.10.82 in 2007 and then decreased to 9.31 in 2008, So we can
say that EPS is declining year by year.
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16. Dividend Per Share
Formulae
Dividend per Share = Dividend
Numbers of shares
Years 2004 2005 2006 2007 2008
Dividend 2835 2835 2520 2520 2520
No. of shares 630 630 630 630 630
Ratio 4.5 4.5 4 4 4 All the figures are in million
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Dividend Per Share
3.7
3.8
3.9
4
4.1
4.2
4.3
4.4
4.5
4.6
2004 2005 2006 2007 2008
Years
Ratios
Dividend Per S
Comment
The net profits after taxes belong to shareholders. But the income which they really receive is
the amount of earnings distributed as cash dividends. Therefore a large number of present
and potential investors may be interested in DPS. DPS remained constant at Rs.4.5 from
2004 to 2005 but it declined to Rs.4 from 2006 to 2008. So we can say that DPS earned by
the shareholders in these years has not varied much.
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17. Payout Ratio
Formulae
Payout Ratio = Dividend per Share
Earning per Share
Years 2004 2005 2006 2007 2008
DPS 4.5 4.5 4 4 4
EPS 18.26 14.9 9.21 10.82 9.32
Ratio 0.24644 0.302013 0.434311 0.369686 0.429185
All the figures are in million
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Payout Ratio
0
0.05
0.1
0.15
0.2
0.25
0.3
0.350.4
0.45
0.5
2004 2005 2006 2007 2008
Years
Ratios
Payout R
Comment
The payout ratio is the indicators of the amount of earnings that have been ploughed back in
the business. The lower the payout ratio, the higher will be the amount of earnings ploughed
back in the business and vice versa. A lower payout ratio means a stronger financial position
of the company. The payout ratio also indicates how well earnings support the dividend
payments, the lower the ratio, the more secure the dividend because smaller dividends are
easier to pay out than larger dividends. The payout ratio between 40-60% is considered
satisfactory as it allows a good portion of the profits to be paid to the shareholder as well as
allowing for some of the profits to be plowed back into the company to create more internal
growth. In year 2004-2005 this ratio was less than 40% but now it is more than 40% which is
a good sign.
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18. Price Earning Ratio
Formulae
Price earning ratio = Market Value of ShareEarning Per Share
Years 2004 2005 2006 2007 2008
Market value of share 10 10 10 10 10
EPS 18.26 14.9 9.21 10.82 9.32
Ratio 0.547645 0.671141 1.085776 0.924214 1.072961
All the figures are in million
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Price Earning Ratio
0
0.2
0.4
0.6
0.8
1
1.2
2004 2005 2006 2007 2008
Years
Ratios
Price Earning R
Comment
The ratio is calculated to make an estimate of appreciation in the value of a share of a
company and is widely used by investors to decide whether or not to buy shares in a
particular company at a particular market price. Generally, higher the price earning ratio the
better it is. If the P/E ratio falls, the management should look into the causes that have
resulted into the fall of this ratio. If we saw MTNL share value is increasing year after year
as its ratio is increasing since from 2004 to 2008.
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19. Dividend Yield Ratio
Formulae
Dividend yield ratio = Dividend Per ShareMarket Value of Share
Years 2004 2005 2006 2007 2008
DPS 4.5 4.5 4 4 4
Market value of share 10 10 10 10 10
Ratio 0.45 0.45 0.4 0.4 0.4
All the figures are in million
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Dividend Yield Ratio
0.37
0.38
0.39
0.4
0.41
0.42
0.43
0.44
0.45
0.46
2004 2005 2006 2007 2008
Dividend Yield R
Comment
Share holders are real owners of a company and they are interested in real sense in the
earnings distributed and paid to them as dividend. This ratio helps as intending investor
knows the effective return he is going to get on the proposed investment. As this ratio
remains same in 2004 to 2005 at 45 percent but there is a decline in this ratio to 40 percent in
2006 but then again it remains constant till 2008 which means the return which the investors
get on his investment has not varied much.
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7. Findings
According to the industry standards current ratio of the company remains low every
year which shows the company is not in a position to pay its current liabilities in time.
MTNL is maintaining a high liquid ratio which is a very good indication of short term
financial position of a company.
Debtors turnover ratio increasing which is better for the company as now debts are
being collected more quickly by the company.
Stock turnover ratio is declining continuously decline which shows that the speed
with which the stock is turned into sales is declining.
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Assets turnover ratio is low which means there is under-utilization of fixed assets in
MTNL.
Working capital turnover ratio is decreasing which indicates that the working capital
has not been efficiently utilized.
Proprietary ratio is more than 50% in all the years which means it provides safety to
the creditors.
Fixed Asset To Proprietary Fund Ratio lies between 60-65% which is considered to
be a satisfactory according to company standards.
Fixed Asset Ratio shows that the firm has invested their funds properly.
Net margin indicates decline in the overall efficiency and profitability of the business.
Gross margin is decreasing which is serious matter for the company.
Operating expense ratio is increasing which is unfavorable for the firm since it will
leave a small amount of operating income to meet interests, dividends etc.
Return on equity shows return on shareholders fund is decreasing year by year.
ROI is decreasing year after year which shows the earning power of the net assets of
the business is decreasing.
Earning per share is declining year by year.
Dividend per share shows that dividend earned by the shareholders in these years has
not varied much.
Price earning ratio MTNL share value is increasing year after year as its ratio is
increasing.
Dividend yield ratio shows the return which the investors get on his investment has
not varied much.
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8. Conclusions
Being a government undertaking MTNL has proved its efficiency over the years and has
emerged as a market leader inspite of the stiff competition from private players and
a bundle full of government restrictions and regulations.
It is ranked as a NAV RATAN company by the Government of India. It is
continuously increasing its operations and coming out with new products to meet the
consumer needs.
MTNL is good profits making firm and its efficiency is increasing over the years.
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In MTNL there is strong need of an effective Management Information System (MIS),
which could help improving its current position. An effective MIS is demanded from
an organization.
Due to competition it is becoming increasingly difficult to increase profits.
The image of the company as against its competitors may be hampering the growth of its
profit.
Spending on long terms and fixed assets which help in revenue generation is low.
9.Suggestions
MTNL as it was operating few years back is now in a different world of competition.
There are so many good players which are eating its market share slowly. There is only
one way to gain or even retain it current market which is to be more innovative.
It is the right time to cut down the employees force by giving them voluntary retirement
or by any other method and give chance to young guns.
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MTNL in a world, where its competitors are announcing new schemes everyday, has to
come out of the image of a government undertaking. It should move according to the
need of the hour.
In order to increase profits MTNL should consider cost cutting especially as it spends
1/3rd of its earnings on its employees and 1/5 th on the Administration expenses.
MTNL should fasten up its collection from its customers. It has come out with some
good schemes like Advance payment of Bill and it is offering 5% interest on the advance
deposited with it by the customers.
It needs few more schemes which could motivate the customers to pay early or even in
time.
It is recommended that MTNL should try to change its image in the market from that of
Public sector undertaking to that of an efficient company.
MTNL should increase the amount of spending on its long term and fixed assets which
will help it in providing better services thereby increasing its market share.
10. Bibliography
Printed literature
Annual general reports of MTNL
Function specification of WFMS
Book of financial management by I M Pandey ninth edition
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Book of financial statements by Ashwinpaul C. Sondhi third edition
Websites
www.mtnl.net.in
www.trai.gov.in
www.bol.nei.in
www.nseindia.com
http://www.mtnl.net.in/http://www.trai.gov.in/http://www.bol.nei.in/http://www.nseindia.com/http://www.mtnl.net.in/http://www.trai.gov.in/http://www.bol.nei.in/http://www.nseindia.com/