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RATIO ANALYSIS OF AIRTEL

Submitted to Presented byDr. Nandita Mishra Ankit Singh Kumar Ishan Lalit Chaudhary Mahvish

Company overview• Largest Private Integrated Telecom

Company in India• 3rd Largest Wireless Operator in

the World• Largest & Fastest Growing

Wireless Operator in India• Largest Telecom Company listed

on Indian Stock Exchange

WHAT IS RATIO ANALYSIS?• Ratio Analysis is a form

of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas.

• Ratios are categorized in long term ratios and short term ratios , Turnover ratios and profitability ratios.

A. LIQUIDITY RATIOIt is used for test the short-term payment ability

of the firm.

It has 3 categories :1. Current Ratio2. Liquid Ratio3. Absolute Ratio

1. Current Ratio It is the ratio of current assets and current liabilities.

Current Ratio= Current Assets / Current Liabilities

Current Ratio= 114057/278918 = 0.40/1

• Interpretation: Ideal ratio should be 2:1 of current ratio but the ratio is .40:1

• Recommendation: Company should increase its assets so it can invest cash in

investments.

• 2. Liquid Ratio

Liquid Ratio = (Current Assets- Inventory- prepaid expenses) / Current Liability

Liquid Ratio= (114057-53)/278918 = 0.40:1

• Interpretation: The ideal difference between ratio and liquid ratio should be

1.5:1and our is 0.40:1

• Recommendation: Company have to start selling its stock so that company get

some cash.

• 3. Absolute Ratio

Absolute Ratio = (Cash & Bank + Marketable Securities) / Current Liabilities

Absolute Ratio = 521/2278918 = 0.001:1

• Interpretation: Ideally in absolute ratio cash & current liabilities should be 1:1 and our

company has ratio 0.001:1

• Recommendation: Company need cash so it can give discount to debtors and get cash soon .

B. SOLVENCY RATIO

It is defined as the ratio which test the ability of concern to meet long – term obligation.

It categorize in 3 further Ratios:1. Debt - Equity Ratio2. Fixed Assets to Net Worth Ratio3. Capital Gearing Ratio.

1. Debt-Equity Ratio: It is expressed as the ratio of Debt to Equity. Debt-Equity Ratio= Debt/Equity Debt Equity Ratio = 496002/844468

= 0.58:1Interpretation: Ideally insider’s fund & outsider’s fund should be equal

i.e. 1:1 but company ratio is 0.58:1

Recommendation: Company’s outsider fund is less so there is less risk. If company want to take earning company have to take

risk because No Risk then No Profit.

• 2.Fixed assets to Net worth ratio:

Fixed assets to Net worth ratio = Fixed Assets/Net worth Fixed assets to Net worth ratio =956111/844468 = 1.13:1

• Interpretation: The fixed assets networth is not good in condition which is

not satisfactory in nature. Ideal ratio is 1:1 and our ratio is 1.13:1

• Recommendation: Company is not in good condition. So company should

increase fixed assets.

• 3.Capital Gearing Ratio: CGR = (Debt + Preference Share)/Equity CGR = 496002/844468 = 0.58:1

Interpretation: capital gearing ratio of company is ungeared which implies that the

company is costly company. • Recommendation: company should decrease the equity shares and increase its debt.

C. PROFITABILITY RATIO

This ratio helps in test the profit of the company means it tests the how much profit a company earns.

This Ratio is categorizes in 3 parts:1. Gross Profit Ratio2. Net Profit Ratio3. Return on Fixed Assets

1. Gross Profit Ratio: It is expressed as the ratio of Gross profit to Net sales Gross Profit Ratio = (Gross Profit/ Net Sales)X 100

= (100398/617858 )x100= 16.24%

Interpretation & Recommendation:More the Gross profit ratio more financially

company will become strong

2. Return on Fixed Assets It is expressed as the ratio of Profit after tax(PAT) to

Total Assets Return on Total Assets = (Profit after Assets/ Average

Total Assest )x100 Return on Total Assets =

( 75465/1441812.5)x100= 5.24%

Interpretation & Recommendation:

More the percentage of ratio is better for Company.

3. Net Profit Ratio

NPR=(Net Profit/Sales)100 = (75465/603002)100 = 12.515%

Interpretation & Recommendation:

More the percentage of ratio is better for Company.

4.TURNOVER RATIO

This ratio Analysis whether sales is going good or not .

It is categorizes in 3 further ratio:1. Inventory Turnover Ratio2. Fixed Asset Turnover Ratio3. Debtor Turnover Ratio

1. Inventory Turn Over Ratio

• Inventory Turnover Ratio= Cost of sales/ Average inventory.

Inventory Turnover Ratio = 373/73.5=5.075 times

Interpretation: Inventory ratio says that how much time is taken to

convert into sales.Recommendation:The time taken for holding of inventory is fine but if it

will increase this can be creates problem.

2. Fixed Asset Turn Over Ratio

Fixed Asset Turnover Ratio = Sales or cost of sales/ fixed assets or Net Block.

= 603002/1505381 =.401 Times

Interpretation & Recommendation: More the ratio is better for the company.

3. Total Asset Turn Over Ratio TATOR= Sales/Total Asset = 603002/1619388 = 0.373 times

Interpretation & Recommendation: More the ratio is better for the company.

SWOT Analysis

STRENGTHS• Renowned Telecom

company: With its 19+ years of rich experience in telecom industry this MNC had travelled far to become world’s 3rd largest telecom operator overseas with operations in nearly 20 countries.

• High Brand Equity: It is one of the pioneer brands in telecommunication having a high brand recall and with a whopping subscriber base.

Weaknesses• Outsourced

Operations: Outsourcing operations helped Airtel in lowering its cost. But on the other hand, they are running the risk of being dependent on some other companies which may affect its operations.

• High Debt: With its acquisitions turning out to bad investment, and credit being high and margins being low, Airtel group is under high debt.

Opportunities

• Strategic Partnership: Partnering with smart phone companies is going to be a smart strategy as far as MNP (mobile number portability in India) is concerned. This will ensure fixed cash flows in the future and a higher customer base.

• Market Development: With fierce competition in the telecom industry & shrinking margins, venturing out in new markets/developing economies will prove fruitful for the company.

Threats

• Government Regulatory Framework: With the auction of spectrum & change in the government policies on a regular basis, it is a potential threat to the stability & existence of this industry thereby affecting the players.

• Competition: Price war in the home market and declining margins due to this is adversely affecting the overall business of the group.

THANK YOU