Rcom Report

7/31/2019 Rcom Report

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Contents

OBJECTVE OF STUDY.7

EXECUTIVE SUMMARY8

CHAPTER 1 - INTRODUCTION ........................................................................................................ 9

1.1 Indian Telecom Sector...101.2 Indian Telecommunications at a glance.121.3About Reliance Communications131.4Mission: Excellence in Communication Arena141.5Reliance CommunicationsBusiness Mix.151.6Highlights - at a glance on consolidated basis161.7Corporate Information...171.8SWOT Analysis..18

CHAPTER 2 - FINANCIAL STATEMENTS...20

2.1Understanding Annual Reports......202.2Basis of Preparation of Financial Statements....222.3Balance Sheet of RCOM....232.4Profit & Loss Account of Rcom..24

CHAPTER 3 - RATIO ANALYSIS...26

LIQUIDITY & SOLVENCY RATIOS:o CURRENT RATIO....27o QUICK RATIO....27o DEBT EQUITY RATIO.28o LONG TERM DEBT EQUITY RATIO..29o INTEREST COVERAGE..30

TURNOVER / EFFICIENCY RATIOo ASSETS TURNOVER RATIO31o DEBTORS TURNOVER RATIO..32

PROFITABILITY RATIO BASED ON SALES:

o GROSS PROFIT MARGIN RATIO33o OPERATING PROFIT MARGIN33o NET PROFIT MARGIN..34


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BASED ON CAPITAL EMPLOYED:o RETURN ON NET WORTH.32o RETURN ON CAPITAL EMPOYED.33o RETURN ON ASSET...36

VALUATIONo EARNINGS PER SHARE (EPS) ..37o DIVIDENDS PAYOUT RATIO NET PROFIT.37o DIVIDENDS PAYOUT RATIO CASH PROFIT.38

CHAPTER 4 - CASH FLOW STATEMENT ...39

1.1 CASH FLOW ANALYSIS...39

CHAPTER 5 - CONCLUSION..40


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OBJECTIVE OF STUDY

The main objective of this study is to carry on brief study on Analysis of four year balance sheet of

Reliance Communications Ltd. through comparative balance sheet in Comparative Statement

through this we are able to get the difference of various assets and liabilities of the Reliance

Communications Limited.

Other objectives of this project are as follows:

To identify the various assets amount of the BSNL with respect to Annual Reports of the Reliance

Communications Ltd.

Comparative study of four year Annual reports.


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EXECUTIVE SUMMARY

This project is based on Balance Sheet and Profit & Loss accounts of the Reliance Communications

Limited. It is done to find out whether the RCOM are improving our capital structure or not.

Further, in this Project

Chapter 1 includes the Introduction of the sector and Company wherein we told about the

Objectives of the study and profile of the Reliance Communications Limited.

Chapter 2 includes the Financial Statements and basis of preparation of Financial Report wherein

we have discussed the Policy of Accounting and Finance Policy of RCOM.

Chapter 3 includes the Ratio Analysis wherein the Ratios of four consecutive years are analyzed.

Chapter 4 includes the Cash flow Analysis wherein the Cash flow Statements from 2008-2011 of

RCOM are analyzed, throwing light on the inflow and outflow of cash.

Chapter 5 represents the conclusion based on the annual report.


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CHAPTER 1INTRODUCTION

Reliance Communications Ltd. (commonly called RCOM) is an Indian broadband andtelecommunications company headquartered in Navi Mumbai, India. RCOM is the world's 16th

largest mobile phone operator with over 144 million subscribers. Established on 2004, a subsidiaryof the Reliance Group. The company has five segments: Wireless segment includes wirelessoperations of the company; broadband segment includes broadband operations of the company;Global segment include national long distance and international long distance operations of thecompany and the wholesale operations of its subsidiaries; Investment segment includes investmentactivities of the Group companies, and Other segment is consists of the customer care activities anddirect-to-home (DTH) activities.

Industry Telecommunications

Founded 2004

Founder(s) Dhirubai Ambani

Headquarters Navi Mumbai, Maharashtra, India

Products Fixed-line and mobile telephony, broadband and

fixed-line internet services, digital television, IT

and network services
http://en.wikipedia.org/wiki/File:Reliance_Communications_Logo.svg


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1.1 Indian Telecom SectorIntroduction

The telecom services have been recognized the world-over as an important tool for socio-economic

development for a nation. It is one of the prime support services needed for rapid growth andmodernization of various sectors of the economy. Indian telecommunication sector has undergone a

major process of transformation through significant policy reforms, particularly beginning with the

announcement of NTP 1994 and was subsequently re-emphasized and carried forward under NTP

1999. Driven by various policy initiatives, the Indian telecom sector witnessed a complete

transformation in the last decade. It has achieved a phenomenal growth during the last few years and

is poised to take a big leap in the future also.

Status of Telecom Sector

The Indian Telecommunications network with 621 million connections (as on March 2010) is the

third largest in the world. The sector is growing at a speed of 45% during the recent years. This rapid

growth is possible due to various proactive and positive decisions of the Government and

contribution of both by the public and the private sectors. The rapid strides in the telecom sector

have been facilitated by liberal policies of the Government that provides easy market access for

telecom equipment and a fair regulatory framework for offering telecom services to the Indian

consumers at affordable prices. Presently, all the telecom services have been opened for private

participation. The Government has taken following main initiatives for the growth of the Telecom

Sector:

Liberalization

The process of liberalization in the country began in the right earnest with the announcement of the

New Economic Policy in July 1991. Telecom equipment manufacturing was delicensed in 1991 and

value added services were declared open to the private sector in 1992, following which radio paging,

cellular mobile and other value added services were opened gradually to the private sector. This has

resulted in large number of manufacturing units been set up in the country. As a result most of the

equipment used in telecom area is being manufactured within the country. A major breakthrough

was the clear enunciation of the governments intention of liberalizing the telecom sector in the

National Telecom Policy resolution of 13th May 1994.


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National Telecom Policy (NTP) 1994

In 1994, the Government announced the National Telecom Policy which defined certain important

objectives, including availability of telephone on demand, provision of world class services at

reasonable prices, improving Indias competitiveness in global market and promoting exports,attractive FDI and stimulating domestic investment, ensuring Indias emergence as major

manufacturing / export base of telecom equipment and universal availability of basic telecom

services to all villages. It also announced a series of specific targets to be achieved by 1997.

Telecom Regulatory Authority of India (TRAI)

The entry of private service providers brought with it the inevitable need for independent regulation.The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th

February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997,

to regulate telecom services, including fixation/revision of tariffs for telecom services which were

earlier vested in the Central Government.

TRAIs mission is to create and nurture conditions for growth of telecommunications in the country

in manner and at a pace, which will enable India to play a leading role in emerging global

information society. One of the main objectives of TRAI is to provide a fair and transparent policy

environment, which promotes a level playing field and facilitates fair competition. In pursuance of

above objective TRAI has issued from time to time a large number of regulations, orders and

directives to deal with issues coming before it and provided the required direction to the evolution ofIndian telecom market from a Government owned monopoly to a multi operator multi service open

competitive market. The directions, orders and regulations issued cover a wide range of subjects

including tariff, interconnection and quality of service as well as governance of the Authority.

The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a

Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the

adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute

between a licensor and a licensee, between two or more service providers, between a service

provider and a group of consumers, and to hear and dispose of appeals against any direction,

decision or order of TRAI.


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1.2 Indian Telecommunications at a glance

(As on 31st

March 2010)

Rank in world in network size 3r

Tele density (per hundred populations) 52.74

Telephone connection (In millions)

Fixed 36.95

Mobile 548.32

Total 621.28

Village Public Telephones inhabited(Out of 5,93,601 uncovered villages)

5,69,385

Foreign Direct Investment (inmillions) (from April 2000 till

March 2010)

4070

Licenses issued

Basic 2

CMTS 38

UAS 241

Infrastructure Provider I 219

ISP (Internet) 371

National Long distance 29

International Long Distance 24


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1.3 About Reliance Communications

Reliance Communications Limited is the flagship Company of Reliance Group, one of the leading

business houses in India.

Reliance Communications is Indias foremost and truly integrated telecommunications serviceprovider. The Company, with a customer base of 142 million as on March 31, 2011 including over2.5 million individual overseas retail customers, ranks among the Top 4 Telecom companies in theworld by number of customers in a single country. Reliance Communications corporate clienteleincludes over 35,000 Indian and multinational corporations including small and medium enterprisesand over 800 global, regional and domestic carriers.

Reliance Communications has established a pan-India, next generation, integrated (wireless andwireline), convergent (voice, data and video) digital network that is capable of supporting best-of-class services spanning the entire communications value chain, covering over 24,000 towns and600,000 villages.

Reliance Communications owns and operates the worlds largest next generation IP enabledconnectivity infrastructure, comprising over 2,77,000 kilometers of fibre optic cable systems inIndia, USA, Europe, Middle East and the Asia Pacific region.


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1.4 Mission: Excellence in Communication Arena

To attain global best practices and become a world-class communication service providerguided by its purpose to move towards greater degree of sophistication and maturity.

To work with vigour, dedication and innovation to achieve excellence in service, quality,reliability, safety and customer care as the ultimate goal.

To earn the trust and confidence of all stakeholders, exceeding their expectations and makethe Company a respected household name.

To consistently achieve high growth with the highest levels of productivity. To be a technology driven, efficient and financially sound organisation. To contribute towards community development and nation building. To be a responsible corporate citizen nurturing human values and concern for society, the

environment and above all, the people.

To promote a work culture that fosters individual growth, team spirit and creativity toovercome challenges and attain goals.

To encourage ideas, talent and value systems. To uphold the guiding principles of trust, integrity and transparency in all aspects of

interactions and dealings.


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1.5 RELIANCE COMMUNICATIONSBUSINESS MIX

Wireless

Mobile(CDMA, GSM &

3G)

VAS (Mobile

World)

Wireless Data

Telecom

Infrastructure

Multi tenancy

towers

Pan-India

coverage

Backhaul

Home

DTH

IPTV

Enterprise

Internet DataCenter

Broadband

Leased Line

Office

Centrex

Other

businesses

Tech Services

Leveraging

Internal IT

Development

Capabilities

BPO

Expertise in

Telecom

BFSI, Utilities &

Media

Globalcom

Submarine

cable

Ethernet Data

services

GlobalManaged


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1.6 Highlights - at a glance on consolidated basis

1

1Rcom. Annual report


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1.7 CORPORATE INFORMATION

Board of Directors

Shri Anil Dhirubhai Ambani - Chairman

Prof. J. Ramachandran

Shri S. P. Talwar

Shri Deepak Shourie

Shri A. K. Purwar

Company Secretary and Manager

Shri Hasit Shukla (upto 31.05.2011)

Shri Prakash Shenoy (w.e.f. 01.06.2011)

Auditors

M/s. Chaturvedi & Shah

M/s. B S R & Co.

Registered Office

H Block, 1st Floor

Dhirubhai Ambani Knowledge City

Navi Mumbai 400 710

Maharashtra, India


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1.8 SWOT ANALYSIS

SWOT Analysis company profile is the essential source for top-level company data and information.

Reliance Communications Limited - SWOT Analysis examines the companys key business

structure and operations, history and products, and provides summary analysis of its key revenue

lines and strategy.

Reliance Communications (RCOM or the company) is an integrated communications service

provider in India. The company is part of the Reliance Anil Dhirubhai Ambani Group. RCOM

serves consumer, enterprise and carrier customers. It operates a full spectrum of wireless, wireline,

and long distance, voice, data, video and internet communication services. It also offers direct-to-

home (DTH) TV services under the brand, Big TV. The company also participates in submarine

cable network infrastructure, and owns, operates and develops telecom infrastructure, such as

wireless communications sites and towers. The company primarily operates in India, where it is

headquartered in Mumbai and employs 30,974 people. The company recorded revenues of

INR206,850.5 million ($4,366.6 million) during the financial year ended March 2010 (FY2010), a

decrease of 0.3% over 2009. The operating profit of the company was INR40,365 million ($852.1

million) in FY2010, a decrease of 30.6% over 2009.. Its net profit was INR46,550 million ($982.7

million) in FY2010, a decrease of 23% over 2009.

Strengths

Mobile Communications Arm of a Large, Well-Funded, Well-Connected and AmbitiousIndian Conglomerate

Economies of Scale From Large Subscriber Base Expertise in a Business Model That Allows It to Maintain High Profitability From Lower-

Yielding Subscribers

Weaknesses

Cost Structure Disadvantage With Subscribers Spread Across Two Different MobileNetworks

Low ARPU Compared With Competitors Weakness in Rural Markets Brand Positioning Limited Availability of Value-Added Services


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Opportunities

Aggressive Move Into the Rural Market Use Upcoming Mobile Number Portability as "Launching Pad" to Grab Market Share of

Higher ARPU Usersand Ramp Up Focus on Data Revenue

Overseas Investments Lease Spare Capacity on Its CDMA Network to Mobile Virtual Network Operators

Threats

Quicker Than Expected Slowing of Growth in the Indian Marketplace Mobile Number Portability Risks Accelerating Churn of Subscribers From CDMA to

GSM

New Competitors(2) PROBLEM BEING FACED

Lack of communication between retailers and distributor

Lack of proper distribution channel

Competitors


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CHAPTER 2 - FINANCIAL STATEMENTS

The financial statements have been prepared in compliance with the requirements of the CompaniesAct, 1956, and Generally Accepted Accounting Principles (GAAP) in India.The Groups consolidated financial statements have been prepared in compliance with the standardAS 21 on Consolidation of Accounts and presented in a separate section of the Annual Report.The Management Discussion and Analysis on Financial performance relates to consolidatedFinancial statements of the Company and its subsidiaries.

2.1 UNDERSTANDING ANNUAL REPORTS

Investment capital is always moving between different markets, industries, and nations. The goal ofaccounting information is to provide economic decision makers with useful information, accordingto Williams, Haka, Bettner, and Carcello (2006, p. 670).

Users of financial statements determine market and financial trends within a company and in theexternal business environment through the use of financial statements. Different users use financialstatements differently and address different needs, such as data providing investors on whether theyshould buy or sell certain companies stocks. In the examination of HCLT annual reports for 2005 to2009, the researcher needs to use general tools of analysis, such as ratios, financial leverage,examine the cost of capital and other financial incentives for the company.

Financial analysis can be classified into four categories:

1. External Analysis: It is conducted by those persons who do not have access to the detailed recordof the enterprise and therefore have to depend on published accounts and directors and auditors

reports. Such type of analysis is performed by investors, government agencies and research scholars.

2. Internal Analysis: It is conducted by the management for the reason that the management wishesto know the financial position and operational efficiency of the organization. The important featureof this analysis is that as the management has access to all information relating to the organization sothe analysis is more detailed, extensive and correct.

3. Horizontal Analysis: This analysis is made to review and analyse financial statements for anumber of years and are, therefore, based on financial data taken for those years. It is time seriesanalysis. It is useful for long-term trend analysis and planning.

4. Vertical Analysis: This analysis is made to review and analyse the financial statements of oneyear only. Such analysis is called Static analysis as it is frequently used for referring to ratiosdeveloped for one date or for one accounting period. Such an analysis is useful in comparing theperformance of several companies of the same type or divisions or departments of one enterprise.


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Techniques

A financial analyst can adopt the following tools and techniques for analysis of the financialstatements:

1. Comparative Financial Statements: These are statements in which figures for two or moreperiods are placed side by side along with change in figures in absolute and percentage terms to

facilitate comparison. Both profit and loss account and balance sheet are prepared in the form ofcomparative financial statements.

2. Common-Size Financial Statement: These statements express figures of a financial statementand percentage of a common base. In the profit and loss account the sale figure is assumed to be 100and all figures are expressed as a percentage of sales. Similarly the balance sheet the total of assetsor liabilities is taken as 100 and all the figures are expressed as percentage of total.

3. Trend Percentages: They are immensely helpful in making comparative study of the financialstatements for several years. The method of calculating trend percentages involves the calculation ofpercentage relationship that each item bears to the same item in the base year. A year, usually the

earlier year is taken as base year. Each item of base year is taken as 100 and on that basis thepercentages for each of the items of each of the years are calculated.

4. Ratio Analysis: This expresses the relationship between two accounting figures taken fromfinancial statements of an accounting period in the form of a ratio.

5. Funds Flow Statement: They show changes in working capital position. It shows the source anduses of the working capital.

6. Cash Flow Statement: They show changes in cash position from one accounting period toanother. It defines the sources from which cash was received and the purpose for which it was used.

Limitations:

Analysis of financial statements helps the interested parties to ascertain the strength and weakness ofthe enterprise, but at the same time it suffers from certain limitations. Since financial analysis isbased on Financial Statements thus the limitations of Financial Statements are carried on to FinancialAnalysis, thus limitations of financial analysis is same as financial statements.


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2.2 Basis of Preparation of Financial Statements

The Financial Statements are prepared under historical cost convention and fair valuation underscheme approved by the High Court, in accordance with the generally accepted accounting

principles (GAAP) in India and provisions of the Companies Act, 1956 read with the Companies(Accounting Standards) Rules, 2006 (Accounting Standard Rules) as well as applicablepronouncements of the Institute of Chartered Accountants of India (the ICAI).

A) Depreciation/ Amortisation Policy(i) Depreciation on Fixed Assets is provided on Straight Line Method at the rates and in the mannerprescribed in Schedule XIV to the Companies Act, 1956 except in case of the following assets whichare depreciated as given below.

(a) Telecom Electronic Equipments - 18 years(b) Furniture, Fixtures and Office Equipments - 10 years(c) Customer Premises Equipments - 3 years(d) Vehicles - 5 years(e) Ducts and Cables - 18 years

(ii) Leasehold Land is depreciated over the period of the lease term.

(iii) Intangible assets, namely Telecom Licenses and Brand Licence are amortised equally overthe period of Licenses. IRC and Software are amortised from the date of acquisition orcommencement of commercial services, whichever is later. The life of amortisation of the intangibleassets are as follows.

(a) Telecom Licenses - 12.5 to 20 years(b) Brand License - 10 years(c) Indefeasible Right of Connectivity - 15, 20 years(d) Software - 5 years(iv) Depreciation on additions is calculated pro rata from the following month of addition.

B) Inventories of Stores and SparesInventories of stores and spares are accounted for at cost, determined on weighted average basis ornet realisable value, whichever is less.


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2.3 BALANCE SHEET OF RCOM

BALANCE SHEET IN RS.CRORE

Mar '11 Mar '10 Mar '09 Mar '0812 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 1,032.01 1,032.01 1,032.01 1,032.01Equity Share Capital 1,032.01 1,032.01 1,032.01 1,032.01Share Application Money 0.00 0.00 0.00 0.00Preference Share Capital 0.00 0.00 0.00 0.00Reserves 47,112.47 49,466.88 50,658.31 23,808.02Revaluation Reserves 0.00 0.00 0.00 0.00Networth 48,144.48 50,498.89 51,690.32 24,840.03

Secured Loans 15,226.02 3,000.00 3,000.00 950.00

Unsecured Loans 16,226.72 21,478.28 27,903.61 19,336.43Total Debt 31,452.74 24,478.28 30,903.61 20,286.43

Total Liabilities 79,597.22 74,977.17 82,593.93 45,126.46

Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 40,904.17 39,838.17 37,941.15 21,576.32Less: Accum. Depreciation 12,063.27 9,225.69 6,533.38 4,688.69Net Block 28,840.90 30,612.48 31,407.77 16,887.63

Capital Work in Progress 9,907.66 1,683.52 3,643.86 7,117.56Investments 32,102.13 31,898.60 31,364.75 13,844.14

Inventories 306.11 298.34 253.14 201.22Sundry Debtors 1,969.25 1,738.63 1,482.22 1,093.21Cash and Bank Balance 3,813.21 81.92 534.89 192.65Total Current Assets 6,088.57 2,118.89 2,270.25 1,487.08Loans and Advances 13,065.25 17,886.79 23,272.50 17,028.20Fixed Deposits 0.00 0.26 0.26 0.01Total CA, Loans & Advances 19,153.82 20,005.94 25,543.01 18,515.29Deffered Credit 0.00 0.00 0.00 0.00Current Liabilities 7,551.94 5,836.53 5,774.74 7,214.31

Provisions 2,855.35 3,386.84 3,590.72 4,023.85Total CL & Provisions 10,407.29 9,223.37 9,365.46 11,238.16Net Current Assets 8,746.53 10,782.57 16,177.55 7,277.13

Miscellaneous Expenses 0.00 0.00 0.00 0.00Total Assets 79,597.22 74,977.17 82,593.93 45,126.46

Contingent Liabilities 1,958.61 3,274.83 6,555.82 4,392.73Book Value (Rs) 233.26 244.66 250.43 120.35


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2.4 PROFIT & LOSS ACCOUNT OF RCOM

PROFIT & LOSS IN RS.CRORE

Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mthsIncome

Sales Turnover 12,129.77 13,554.60 15,086.66 14,792.05Excise Duty 0.00 0.00 0.00 0.00Net Sales 12,129.77 13,554.60 15,086.66 14,792.05Other Income 484.25 2,455.17 4,148.13 520.53Stock Adjustments 0.00 0.00 0.00 0.00Total Income 12,614.02 16,009.77 19,234.79 15,312.58

Expenditure

Raw Materials 64.92 50.39 29.95 15.15Power & Fuel Cost 159.79 144.27 138.32 91.76Employee Cost 608.07 672.39 754.56 858.65Other Manufacturing Expenses 9,102.95 7,850.49 5,837.25 4,052.45Selling and Admin Expenses 0.00 1,974.73 2,197.84 2,622.58Miscellaneous Expenses 1,772.15 668.90 898.81 978.17Preoperative Exp Capitalised 0.00 0.00 0.00 0.00Total Expenses 11,707.88 11,361.17 9,856.73 8,618.76

Mar '11 Mar '10 Mar '09 Mar '08


Operating Profit421.89 2,193.43 5,229.93 6,173.29

PBDIT 906.14 4,648.60 9,378.06 6,693.82Interest 178.11 1,253.84 1,153.24 870.05PBDT 728.03 3,394.76 8,224.82 5,823.77Depreciation 2,855.62 1,511.24 1,933.51 1,843.66Other Written Off 0.00 0.00 0.00 0.00Profit Before Tax -2,127.59 1,883.52 6,291.31 3,980.11Extra-ordinary items 1,369.60 0.00 0.00 0.00PBT (Post Extra-ord Items) -757.99 1,883.52 6,291.31 3,980.11Tax 0.00 1,404.59 1,488.64 1,393.66Reported Net Profit -757.99 478.93 4,802.67 2,586.45

Total Value Addition 11,642.96 11,310.78 9,826.78 8,603.61Preference Dividend 0.00 0.00 0.00 0.00Equity Dividend 103.20 175.44 165.12 154.80Corporate Dividend Tax 17.14 29.14 28.06 26.31Per share data (annualised)

Shares in issue (lakhs) 20,640.27 20,640.27 20,640.27 20,640.27Earnings Per Share (Rs) -3.67 2.32 23.27 12.53

Equity Dividend (%) 10.00 17.00 16.00 15.00Book Value (Rs) 233.26 244.66 250.43 120.35


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CHAPTER 3 - RATIO ANALYSIS

Companies use calculations between different sets of data on the annual report to determine theshort-term financial health and long-term financial health of the firm. Ratios also provide thechanges in a company caused by internal and external factors often not displayed in individualfinancial statement information, such as the cost of goods sold. A ratio is a simple mathematical

expression of the relationship of one item to another.

ADVANTAGES:

Financial ratios are essentially concerned with the identification of significant accounting datarelationships, which give the decision-maker insights into the financial performance of a company.The advantages of ratio analysis can be summarized as follows:

Ratios facilitate conducting trend analysis, which is important for decision making andforecasting.

Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability andsolvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. The comparison of actual ratios with base year ratios or standard ratios helps the

management analyze the financial performance of the firm.

LIMITATIONS:

Ratio analysis has its limitations. These limitations are described below:

A ratio in isolation is of little help. It should be compared with the base year ratio or standardratio, the computation of which is difficult as it involves the selection of a base year and thedetermination of standards. Inter-firm comparison may not be useful unless the firmscompared are of the same size and age, and employ similar production methods andaccounting practices.

Even within a company, comparisons can be distorted by changes in the price level. Ratios provide only quantitative information, not qualitative information. Ratios are calculated on the basis of past financial statements. They do not indicate Future

trends and they do not consider economic conditions

CONCLUSION:

Ratio analysis has a major significance in analysing the financial performance of a company over aperiod of time. Decisions affecting product prices, per unit costs, volume or efficiency have animpact on the profit margin or turnover ratios of a company. Similarly, decisions affecting theamount and ratio of debt or equity used have an effect on the financial structure and overall cost ofcapital of a company.

Understanding the inter-relationships among the various ratios, such as turnover ratios and leverageand profitability ratios, helps managers invest in areas where the risk adjusted return is maximum. Inspite of its limitations, ratio analysis can provide useful and reliable information if relevant data isused for analysis.


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RATIO ANALYSIS

LIQUIDITY & SOLVENCY RATIOS:1. CURRENT RATIO:

Current ratio is a liquidity ratio that shows companys ability to clear short-term obligations.

Company is not doing well as the ratio is decreasing over the years i.e. the financial health of

company is decreasing since 2009.

YEAR 2008 2009 2010 2011

CURRENTRATIO

1.65 2.72 2.17 1.84

2. QUICK RATIO:Quick Ratio measures the ability of a company to use its near cashor quick assets to

extinguish or retire itscurrent liabilitiesimmediately. Even the quick ratio has beendecreasing therefore companys position is not as good as it was in 2009.

YEAR 2008 2009 2010 2011

QUICK RATIO 1.63 2.70 2.14 1.81

0

0.5

1

1.5

2

2.5

3

20082009

20102011

Current Ratio

current ratio


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3. DEBT EQUITY RATIO:Debt Equity Ratio is a measure of a company's financial leverage calculated by dividing itstotal liability by stockholders' equity. It indicates what proportion of equity and debt thecompany is using to finance its assets. It has declined in 2010 which means that company isfinancing its growth with little debt. In the year 2011, the debt ratio increased again.

YEAR 2008 2009 2010 2011

DER 0.82 0.60 0.48 0.65

0

0.5

1

1.5

2

2.5

3

2008 2009 2010 2011

Quick ratio

Quick ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2008 2009 2010 2011

DEBT EQUITY RATIO

DEBT EQUITY RATIO


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4. LONG TERM DEBT EQUITY RATIOIt is a ratio that indicates what proportion of debt a company has relative to its assets. Low

ratio here means company has low debts when compared to its assets.

YEAR 2008 2009 2010 2011

LTDER 0.48 0.44 0.38 .45

0

0.05

0.1

0.15

0.2

0.250.3

0.35

0.4

0.45

0.5

2008 2009 2010 2011

LT DER

LT DER


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5. INTEREST COVERAGE:The interest coverage ratio is used to determine how easily a company can pay interestexpenses on outstanding debt. The lower the ratio, the more the company is burdened by debt

expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meetinterest expenses may be questionable, which is the current scenario from 2010 onwards.

YEAR 2008 2009 2010 2011

INTERESTCOVERAGE

5.01 4.12 1.36 1.16

0

1

2

3

4

5

6

2008 2009 2010 2011

INTEREST COVERAGE

INTEREST COVERAGE
http://www.investopedia.com/terms/i/interestcoverageratio.asphttp://www.investopedia.com/terms/i/interestcoverageratio.asp


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TURNOVER/ EFFICENCY RATIO:

6. ASSET TURN OVER RATIO:The asset turnover ratio measures a company's ability to generate net sales from asset

investments - specifically property, plant and equipment - net of depreciation .Since it hasbeen decreasing over the years it means that company is becoming less effective in using

investments in assets to generate revenue.

YEAR 2008 2009 2010 2011

ATR 0.77 0.76 0.63 0.30

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2008 2009 2010 2011

ASSET TURN OVER RATIO

ASSET TURN OVER RATIO


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7. DEBTORS TURNOVER RATIO:YEAR 2008 2009 2010 2011DTR 15.61 11.72 8.42 7.18

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011

DEBTORS TURNOVER RATIO

DEBTORS TURNOVER RATIO


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PROFITABILITY RATIO: BASED ON SALES:

1. GROSS PROFIT MARGIN RATIO:It is a financial metric used to assess a firm's financial health by revealing the proportionof money left over from revenues after accounting for the cost of goods sold. Gross

profit margin serves as the source for paying additional expenses and future savings.

Higher the margin better it is, but the companys Gross profit margin has been

decreasing rapidly since 2009 which is affecting the health of the company.

YEAR 2008 2009 2010 2011

GPMR 29.26 21.84 5.03 0.87

2. OPERATING PROFIT MARGIN:Operating margin is a measurement of what proportion of a company's revenue is left

over after paying for variable costs of production such as wages, raw materials, etc. A

healthy operating margin is required for a company to be able to pay for its fixed costs,

such as interest on debt. Higher the margin, better it is for company but RCLs margin

has been decreasing every year.

YEAR 2008 2009 2010 2011

OPM 41.73 34.66 16.18 12.85

0

5

10

15

20

25

30

2008 2009 2010 2011

GROSS PROFIT MARGIN RATIO

GROSS PROFIT MARGIN RATIO


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3. NET PROFIT MARGIN:It tells about how effective company in controlling cost is. A low profit margin indicatesa low margin of safety: higher risk that a decline in sales will erase profits and result in anet loss. In 2011, RCL suffered losses as its net profit margin is negative.

YEAR 2008 2009 2010 2011

NPM 17.45 30.47 3.33 -6.00

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011

OPERATING PROFIT MARGIN

OPERATING PROFIT MARGIN

-10

-5

0

5

10

15

20

25

30

35

2008 2009 2010 2011

NET PROFIT MARGIN

NET PROFIT MARGIN


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BASED ON CAPITAL EMPLOYED:1. RONW( RETURN ON NET WORTH):

RONW has been steadily decreasing here. It is a basic ratio that tells a shareholder what

he is getting out of his investment in the company. Here it shows that companys

efficiency and quality of its management has been decreasing steadily.

YEAR 2008 2009 2010 2011

RONW 10.41 9.29 0.94 -1.57

2. ROCE ( RETURN ON CAPITAL EMPOYED):It indicates the efficiency and profitability of a company's capital investments. Return on

Capital Employed ratio also indicates whether the company is earning sufficient revenues

and profits in order to make the best use of its capital assets. It is expressed in the form of

a percentage, and the higher the percentage, the better.

YEAR 2008 2009 2010 2011

ROCE 9.65 4.80 1.97 1.03

-2

0

2

4

6

8

10

12

2008 2009 2010 2011

RONW

RONW


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3.

RETURN ON ASSET:

The return on assets (ROA) ratio illustrates how well management is employing the

company's total assets to make a profit. The higher the return, the more efficient

management is in utilizing its asset base

YEAR 2008 2009 2010 2011

ROA 120.35 250.43 244.66 233.26

0

1

2

3

4

5

6

7

8

9

10

2008 2009 2010 2011

ROCE

ROCE

0

50

100

150

200

250

300

2008 2009 2010 2011

RETURN ON ASSET

RETURN ON ASSET
http://www.investopedia.com/terms/r/returnonassets.asphttp://www.investopedia.com/terms/r/returnonassets.asp


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VALUATION: EPS (EARNINGS PER SHARE):

It tells how much profit was generated on a per share basis. Earnings per share has

decreased over the years i.e. companys growth in earnings has plummeted down over the

years.

YEAR 2008 2009 2010 2011

EPS 12.53 11.40 2.32 -3.67

DIVIDENDS PAYOUT RATIO NET PROFIT:YEAR 2008 2009 2010 2011

DPR NETPROFIT

7.00 4.02 42.71 --

-4

-2

0

2

4

6

8

10

12

14

2008 2009 2010 2011

EPS

EPS


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DIVIDENDS PAYOUT RATIO CASH PROFITYEAR 2008 2009 2010 2011

DPR CASHPROFIT

14.38 2.86 10.27 5.73

0

5

10

15

20

25

30

35

40

45

2008 2009 2010 2011

DPRNP

DPRNP

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011

DPRCP

DPRCP


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CHAPTER 4 - CASH FLOW STATEMENT OF RCOM

CASH FLOW IN RS.CRORE

Mar '11 Mar '10 Mar '09 Mar '08


Net Profit Before Tax-859.51 619.47 4815.07 2604.09

Net Cash From OperatingActivities

725.56 1043.88 1884.87 2982.80

Net Cash (used in)/fromInvesting Activities

-2800.94 4339.32 -7650.54 -11263.87

Net Cash (used in)/from Financing

Activities 5807.12 -5868.66 6405.25 6234.75Net (decrease)/increase In Cash

and Cash Equivalents3731.74 -485.46 639.58 -2046.32

Opening Cash & Cash Equivalents 81.47 567.64 205.57 2240.40

Closing Cash & Cash Equivalents 3813.21 82.18 845.15 192.66

4.1 CASH FLOW ANALYSIS

The PBT decreased drastically from March 2009 to March 2011. The cash flow from operating

activities also decreased in 2011 as in comparison to 2009. The net cash used in investment

activities was much more in 2010 as compared to rest of the years taken in sample. The net cash

used in financing activities was reduced too much in the financial year 2010.


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CHAPTER 5 - CONCLUSION

Among the top telecom players, especially in the listed space, Reliance Communications (RCom)leads the way in underperformance.

First, it was the global slowdown in 2008, then the hyper tariff war happened in 2009 and finally,huge payouts and piled up debt as a result of 3G license payout as well as continuing capex in 2010posed severe challenges.

Apart from eroding realisations and average revenues per user (ARPU), the company also grappleswith stiff interest outgo on its debt, thus affecting margins. Despite offering both GSM and CDMAservices, its ARPU has continuously slid and is the lowest among peers.

RCom had three years of anaemic growth in revenues and witnessed a steep decline in profitability.

2

The overhang of the 2G investigations too is not helping matters for the stock.

The bid to sell its tower arm (Reliance Infratel) to GTL Infrastructure, which was subsequentlycalled off was not taken too kindly by the markets.

In the near-term, in order to reduce its net debt of over Rs 32,000 crore, the sale or an IPO ofReliance Infratel seem to be the best bet to shore up cash and reduce the interest burden of RCom.The failed deal with GTL Infrastructure saw the tower business of RCom commanding an enterprisevalue of Rs 50,000 crore.

The company has recently reduced the pace of subscriber additions and has also hiked tariffs, as itstrives to improving realisations.

So I conlclude its not wise to invest in RCom, prima facie with statistical data to prove my

theory.

Rcom Report

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