Critically analyze the Financial Management Functions

8/3/2019 Critically analyze the Financial Management Functions

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2nd AssignmentCritically Analyze The Financial Management Functions

ALLAMA IQBAL OPEN UNIVERSITY

(Department of Business Administration)

Assignment # 2

Financial Management (5535)

TOPIC:CRITICALLY ANALYZE THE FINANCIAL

MANAGEMENT FUNCTIONS

Submitted to:Sir Waqar Akbar

Submitted by:Ishtiaq Ahmed (0333-6824303)

AH-526270

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ACKNOWLEDGEMENT

All praises to Almighty Allah, the most Gracious, the most

Beneficent and the most Merciful, who enabled me to complete this

assignment.

I feel great pleasure in expressing my since gratitude to my teacher,

for his guidance and support for providing me an opportunity to

complete my Project.

My special thanks and acknowledgments to Mr. Zeeshan for

providing me all relative information, guidance and support to

compile the project.

I will keep my hopes alive for the success of given task to submit

this report to my honorable teacher Sir Waqar Akbar, whose

guidance; support and encouragement enable me to complete this

assignment.

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EXECUTIVE SUMMARY

The todays world moves at neck breaking speed & it calls for a

decisive action

Quantum Leap thinking

The financial management is generally concerned with

procurement, allocation and control of financial resources with a one

main goal of increase in shareholder wealth.

PTCL has a Profit oriented management and one of the most

profitable organization in the public sector. PTCL ha a big market

share and big service provider in Pakistan. But PTCL can generate

more profit by adding more products in product line and by

expanding its network in more areas. PTCL has to give special

attention on employees training and Motivation because there exist

a Resistance in the organization from the employees. PTCL must

have to control on debts because its harmful for the organization.

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Table of Contents

Table of Contents PageNo

Title page

Acknowledgement 02

Abstract 03

Table of contents 04

Introduction to the issue 05

Practical study of organization 08

Practical study of organization with respect to the

issue

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SWOT analysis 17

Recommendations 18

Conclusion 19

References 20

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Introduction to Topic

Meaning of Financial Management:Financial Management means planning, organizing, directing and

controlling the financial activities such as procurement and

utilization of funds of the enterprise. It means applying general

management principles to financial resources of the enterprise.

Scope/Elements:

1. Investment decisions: includes investment in fixed assets(called as capital budgeting). Investment in current assets is

also a part of investment decisions called as working capital

decisions.

2. Financial decisions: They relate to the raising of finance from

various resources which will depend upon decision on type of

source, period of financing, cost of financing and the returns

thereby.

3. Dividend decision: The finance manager has to take decision

with regards to the net profit distribution. Net profits are

generally divided into two:a. Dividend for shareholders- Dividend and the rate of it has

to be decided.

b. Retained profits- Amount of retained profits has to be

finalized which will depend upon expansion and

diversification plans of the enterprise.

Objectives of Financial Management:


procurement, allocation and control of financial resources of a

concern. The objectives can be:

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1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders which will

depend upon the earning capacity, market price of the share,

expectations of the shareholders?

3. To ensure optimum funds utilization. Once the funds areprocured, they should be utilized in maximum possible way at

least cost.

4. To ensure safety on investment, i.e., funds should be invested

in safe ventures so that adequate rate of return can be

achieved.

5. To plan a sound capital structure-There should be sound and

fair composition of capital so that a balance is maintained

between debt and equity capital.

Functions of Financial Management:

1. Estimation of capital requirements: A finance manager has

to make estimation with regards to capital requirements of the

company. This will depend upon expected costs and profits and

future programmes and policies of a concern. Estimations have

to be made in an adequate manner which increases earningcapacity of enterprise.

2. Determination of capital composition: Once the estimation

has been made, the capital structure have to be decided. This

involves short- term and long- term debt equity analysis. This

will depend upon the proportion of equity capital a company is

possessing and additional funds which have to be raised from

outside parties.

3. Choice of sources of funds: For additional funds to be

procured, a company has many choices like-

a. Issue of shares and debentures

b. Loans to be taken from banks and financial institutions

c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and demerits of

each source and period of financing.

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4. Investment of funds: The finance manager has to decide to

allocate funds into profitable ventures so that there is safety on

investment and regular returns is possible.

5. Disposal of surplus: The net profits decision has to be made

by the finance manager. This can be done in two ways:a. Dividend declaration - It includes identifying the rate of

dividends and other benefits like bonus.

b. Retained profits - The volume has to be decided which will

depend upon expansional, innovational, diversification

plans of the company.

6. Management of cash: Finance manager has to make

decisions with regards to cash management. Cash is required

for many purposes like payment of wages and salaries,payment of electricity and water bills, payment to creditors,

meeting current liabilities, maintenance of enough stock,

purchase of raw materials, etc.

7. Financial controls: The finance manager has not only to plan,

procure and utilize the funds but he also has to exercise control

over finances. This can be done through many techniques like

ratio analysis, financial forecasting, cost and profit control, etc.

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Practical Study of theOrganization

Pakistan Telecommunication Company Ltd

Pakistan Telecommunication Company Limited (PTCL) is the largest

telecommunication company in Pakistan. The company providestelephony services nation-wide and is the backbone for country's

telecommunication infrastructure despite arrival of a dozen other

telecommunication companies, including giants like Telenor and

China Mobile. The company operates around 2000 telephone

exchanges across the country, providing the largest fixed line

network. Data and backbone services such as GSM, CDMA,

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Broadband Internet, and IPTV, wholesale are an increasing part of its

business. Originally fully owned by the Government of Pakistan, this

holding has since 2006 been reduced to 62%, when 26% of shares

and control was sold to Etisalat - and the remaining 12% to the

general public.

Company Profile

PTCL is all set to redefine the established boundaries of the

telecommunication market and is shifting the productivity frontier to

new heights. Today, for millions of people, we demand instant

access to new products and ideas. More importantly we want them

for their better living standards with increased values in this ever-shrinking globe of ours. We are setting free the spirit of innovation.

PTCL is going to be your first choice in the future as well, just as it

has been over the past six decades.

Business & Corporate Users:

For clear communication the first choice of business circles is PTCL

telephone for local, nationwide and international calling. Today

businesses can have 10-100 lines with modern day services to meettheir needs. Now you get options like Caller-ID, call-forwarding, call-

waiting, Call Barring, to name a few.

Other business specific services include:

0800-Toll free number, 0900-Preminum rate services, VPN-Virtual

Private Network, Audio Conference Service, Digital Cross Connect

(DXX), ISDN (Policy), Teleplus (ISDN/BRI), Digital Phone Facilities/

Modification Charges, UAN, UIN.

Nationwide Infrastructure:

We have the largest Copper infrastructure spread over every city,

town and village of Pakistan with over million installed lines. The

network has over 6 million PSTN lines installed across Pakistan with

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http://en.wikipedia.org/wiki/Government_of_Pakistanhttp://en.wikipedia.org/wiki/2006http://en.wikipedia.org/wiki/Etisalathttp://en.wikipedia.org/wiki/Government_of_Pakistanhttp://en.wikipedia.org/wiki/2006http://en.wikipedia.org/wiki/Etisalat


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more than 3 million working. Furthermore installed capacity of

broadband is more than 0.6 million ports spread across 318 cities

and town of the country.

EVO Wireless Broadband:

PTCL EVO 3G Wireless Broadband is Pakistans fastest wireless

internet which offers its customers superior 3G internet

experience. EVO Wireless Broadband is enabling the wireless

broadband revolution in Pakistan with flexibility to roam freely like

never before. PTCL EVO has revolutionized the way people connect

to the internet by offering true mobility. PTCL EVO is currently

offering its services in more than 18 cities on EV-DO technology

offering speeds up to 3.1 Mbps. PTCL EVO gives its customers the

advantage of nationwide roaming with seamless internet

connectivity across Pakistan. The coverage of EVO is not limited to

100 cities as EVO customers can enjoy CDMA-1X data rates of up to

153.6 Kbps at more than 1000 destinations across Pakistan.

The portable, small & stylish EVO USB device is a multipurposedevice which not only delivers fastest wireless internet but can also

be used for Voice Calls by inserting a Vfone SIM and for data storage

by inserting a standard Micro SD Card

Broadband Pakistan:

PTCL Broadband is the largest and the fastest growing Broadband

service in Pakistan. In less than three years of it launch, PTCL has

acquired approximately 668,376 Broadband customers in over 605

cities and towns across Pakistan, leading the proliferation and

awareness of Broadband services across Pakistan.

With its entry in this market segment, PTCL opened up a broadband

culture in Pakistan, where till a couple of years back there was very

little awareness in the country about broadband & high speed

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internet services. PTCL made the broadband technology affordable

by lowering the barriers to entry, by geographically bringing the

service within the reach of a common user across Pakistan and by

continuous improvements in customer care for the service.

Unique offers that makes PTCLs Broadband unmatchable are

special packages for the student segment, FREE modem and

installation, Availability of Wi-Fi Modems, FREE dial up service for its

Broadband customers and FREE access to movies, music, classical

Pakistani dramas, cricket matches, online gaming, educational and

religious content on PTCLs entertainment portal BUZZ, (the access

to PTCL Buzz & Gaming lounge is exclusive to PTCL Broadband

subscribers). PTCL also offers multiple FREE personalized e-mailaccounts exclusively to its broadband users. In addition, PTCL

recently doubled its broadband speed for all its existing and new

customers at the same price, making 1 MB as its minimum offered

speed. For a connection you simply dial 0800 8 0800 or visit

www.ptcl.com.pk

History:

From the beginnings of Posts & Telegraph Department in 1947 and

establishment of Pakistan Telephone & Telegraph Department in

1962, PTCL has been a major player in telecommunication in

Pakistan. Despite having established a network of enormous size,

PTCL workings and policies have attracted regular criticism from

other smaller operators and the civil society of Pakistan.

Pakistan Telecommunication Corporation (PTC) took over operations

and functions from Pakistan Telephone and Telegraph Departmentunder Pakistan Telecommunication Corporation Act 1991. This

coincided with the Government's competitive policy, encouraging

private sector participation and resulting in award of licenses for

cellular, card-operated pay-phones, paging and, lately, data

communication services.

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Pursuing a progressive policy, the Government in 1991, announced

its plans to privatize PTCL, and in 1994 issued six million vouchers

exchangeable into 600 million shares of the would-be PTCL in two

separate placements. Each had a par value of Rs. 10 per share.

These vouchers were converted into PTCL shares in mid-1996.

In 1995, Pakistan Telecommunication (Reorganization) Ordinance

formed the basis for PTCL monopoly over basic telephony in the

country. The provisions of the Ordinance were lent permanence in

October 1996 through Pakistan Telecommunication (Reorganization)

Act. The same year, Pakistan Telecommunication Company Limited

was formed and listed on all stock exchanges of Pakistan

PTCL launched its mobile and data services subsidiaries in 2001 by

the name of Ufone and PakNet respectively. None of the brands

made it to the top slots in the respective competitions. Lately,

however, Ufone had increased its market share in the cellular

sector. The PakNet brand has effectively dissolved over the period of

time. Recent DSL services launched by PTCL reflect this by the

introduction of a new brand name and operation of the service being

directly supervised by PTCL.

As telecommunication monopolies head towards an imminent end,

services and infrastructure providers are set to face even bigger

challenges. The post-monopoly era came with Pakistans

Liberalization in Telecommunication in January 2003. On the

Government level, a comprehensive liberalization policy for

telecoms sector is in the offering.

In 2005 Government of Pakistan decided to sell 26 percent of thiscompany to some private corporation. There were three participants

in the bet for privatization of PTCL. Etisalat, an Abu Dhabi based

company was able to get the shares with a large margin in the bet.

Government's plan of privatizing the corporation was not welcomed

in all circles; countrywide protests and strikes were held by PTCL

workers. They disrupted phone lines of institutions like Punjab

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http://en.wikipedia.org/wiki/Privatizehttp://en.wikipedia.org/wiki/Pakistan%E2%80%99s_Liberalization_in_Telecommunicationhttp://en.wikipedia.org/wiki/Pakistan%E2%80%99s_Liberalization_in_Telecommunicationhttp://en.wikipedia.org/wiki/Etisalathttp://en.wikipedia.org/wiki/Privatizehttp://en.wikipedia.org/wiki/Pakistan%E2%80%99s_Liberalization_in_Telecommunicationhttp://en.wikipedia.org/wiki/Pakistan%E2%80%99s_Liberalization_in_Telecommunicationhttp://en.wikipedia.org/wiki/Etisalat


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University Lahore along with public sector institutions were also

blocked. Military had to take over the management of all the

exchanges in the country. They arrested many workers and put

them behind bars. The contention between Government and

employees ended with a 30% increase in the salaries of workers.

Practical Study of the Organizationwith respect to the Issue

Financial Management Functions of PTCL:

Estimation of capital requirements

Determination of capital composition

Choice of sources of funds

Investment of funds

Disposal of surplus

Management of cash

Financial controls

Analysis of Financial Management Functionsof PTCL:1. Analysis of Financial Statements

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Balance Sheet

As on June 30, 2011Particulars 2011 2010

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Cash

Marketable Securities

Accounts Receivable (net)

QUICK ASSETS

Inventory

Prepaid Assets

Other Current Assets

TOTAL CURRENT

ASSETS

Property, Plant &

Equipment

Intangible AssetsInvestment in Shares

Other Long-Term Assets

TOTAL ASSETS

Trade Payables

Other Current Liabilities

Long-Term Debt

Defferd tax

TOTAL LIABILITIES

Preferred Stock

Common Equity

Retained Earnings

TOTAL EQUITY

TOTAL LIABILITIES &

EQUITY

6,422,144,000

13,493,865,000

10,171,530,000

_______________

30,087,539,000

4,075,863,000

0

11,286,834,000

_______________

45,450,236,000

88,219,285,000

3,079,031,000

6,681,965,000

7,337,210,000_______________

150,767,727,00

0

_______________

24,922,197,000

5,270,581,000

17,866,468,000

2,949,770,000

_______________

51,009,016,000

0

83,613,704,000

16,145,007,000

_______________

99,758,711,000

_______________

150,767,727,00

0

_______________

11,906,448,000

21,017,790,000

10,760,974,000

_______________

43,685,212,000

5,201,991,000

0

5,333,038,000

_______________

54,220,241,000

87,567,351,000

3,320,670,000

5,607,439,000

3,332,378,000________________

154,048,079,000

________________

26,114,171,000

9,972,151,000

16,193,198,000

2,379,000,000

_______________

54,658,520,000

0

83,183,074,000

16,206,485,000

__________________

99,389,559,000

_______________

154,048,079,000

_______________

Pakistan Telecommunication LimitedIncome StatementAs on 30 June 2011

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Particulars Current Year Prior year

Net RevenueCost of Goods Sold

GROSS PROFIT

AdministrationSelling and MarketingOther OperatingExpensesDepreciationAmortizationOPERATING INCOMEInterest

INCOME BEFORETAXES

TaxesNET INCOME

62,309,173,000(38,258,711,000)

63,506,173,000(37,732,282,000)

24,050,462,000

(7,223,780,000)(2,142,324,000)

00

25,773,891,000

(8,935,261,000)(1,817,071,000)

(92,118,000)0

14,684,358,000(403,240,000)

14,929,441,000(908,524,000)

14,281,118,000(4,986,966,000)

14,020,917,000(4,869,732,000)

9,294,152,000 9,151,185,000

2. Analysis of Cash flow statements:

PTCLCash flow statement

For the year ended June 30, 2011Particulars Current period

Prior period

Opening cash

Operating

activities

Investing activities

Financing activities

Closing cash

31,702,352,000

(13,029,562,000)

(11,627,447,000)

(13,188,458,000)

19,916,009,000.0

0

14,889,524,0

00

(28,904,490,00

0)

(12,088,920,00

0)

(2,742,000.00)

31,702,352,0

00.00

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3. Ratio Analysis:

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SWOT Analysis

Strength: Profit Oriented Management

One of the Profitable Organization in the Public Sector

Big internet provider

Huge cable network in 360 cities

Weakness: Employees Resistance

Less creative

Lack of Corporate Social Responsibility

Opportunities: Can generate more profit by Service expansion in further areas

Employees Motivation

Can expand Business by Expansion in Wife Services 3G Technology

Threats: Negative Leverage Ratio

Naya Tell and other competitors

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Recommendation

Following are some recommendations for PTCL:

Should have to control on Debts.

Should have to train and motivate the employees

Should have to expand the Network.

Add more Products in the Product Line.

Should inject new Blood.

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Conclusion

I have conclude that,


procurement, allocation and control of financial resources with

a one main goal of increase in shareholder wealth.

PTCL has a Profit oriented management and one of the most

profitable organization in the public sector.

PTCL ha a big market share and big service provider in

Pakistan. But PTCL can generate more profit by adding more

products in product line and by expanding its network in more

areas.

PTCL has to give special attention on employees training and

Motivation because there exist a Resistance in the organization

from the employees.

PTCL must have to control on debts because its harmful for

the organization.

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Reference

Project report Critically Analyze the Financial Management

Functions

www.ptcl.com.pk

www.slideshare.com

http://www.google.com

http://www.wikkipedia.com
http://www.google.com/http://www.google.com/

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