A RESEARCH PROJECT REPORT ON A CRITICAL ANALYSIS OF FINANCIAL STATEMENTOF BSNL LTD

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF Master of Business Administration (2011-13) (MAHAMAYA TECHNICAL UNIVERSITY, NOIDA) BY MOHIT KUMAR ROLL NO: 1109470053 M.B.A. IInd YEAR (GIMT, GREATER NOIDA)

GALGOTIAS INSTITUTE OF MANAGEMENT & TECHNOLOGY. GREATER NOIDA.

PREFACE The research report is hard intends to reflect some of the basic issue covered under the A CRITICAL ANALYSIS OF FINANCIAL STATEMENT. The total aspects has been formulated and presented on the basic of idea and information gathered by this investigator during a shorter span of research i.e. an important portion of the MBA curriculum Leading to an opportunity for the participant to have a practical exposure of the content under the topic beyond what have already been studies during the classroom interaction. This report has been written in response to a comprehensive study, conducted on the A CRITICAL ANALYSIS OF FINANCIAL STATEMENT. The report mentions and evaluate the varies aspect , after a thorough analysis of the various facts stand figures, a set of recommendations has been given at the end of the report. We are confident that anyone who goes through the report will learn how much we have learnt & benefited during this period

ACKNOWLEDGEMENT For this Research project I am grateful to Ms. Deepti Tripathi, Faculty of Management Galgotias Institute of Management & Technology for being my Research Guide and giving me her valuable time and cooperation as and when required.

I would also like to thank all the respondents who took time out of their busy schedules to give interviews and fill questionnaires. It would have been an impossible task to complete without their esteemed help.

It was indeed a great experience carrying out the research. It provided me with a lot of learning related to Financial Statement with special reference to Ratio Analysis of financial statement.

Thank you

Mohit kumar

DECLARATION I, Mohit, hereby declare that the Research report entitled A CRITICAL ANALYSIS OF FINANCIAL STATEMENT. being submitted for the fulfillment of the requirement for the degree of Master of Business Administration is my own Endeavour and it has not been submitted any university or institute earlier for any degree/ diploma.

Date:

Place:

(MOHIT KUMAR)

TABLE OF CONTENTS Page no: PREFACE ACKNOWLEDGEMENT DECLARATION INTRODUCTION NATURE OF FINANCIAL MANAGEMENT OBJECTIVE OF ANALYSIS OF FINANCIAL STATEMENT RESEARCH METHODOLOGY FINANCIAL ANALYSIS BALANCE SHEET AS AT MARCH 31, 2010 CALCULATIONS AND INTERPRETATION OF RATIOS FINDINGS OF FINANCIAL SANCHAR NIGAM LTD. CONCLUSION: BIBLIOGRAPHY POSITION OF BHARAT 56 82 83 84 2 3 4 6 7 9 44 47

INTRODUCTION

NATURE OF FINANCIAL MANAGEMENT The team nature as applied to financial management refers to its relationship with the closely related fields of economics and accounting, its functions, scope and objectives. Financial management as an academic discipline, has undergone fundamental changes as regards its scope an coverage. In the early years of its evolution it was treated

synonymously with the raising of funds. In the current literature pertaining to this growing academic discipline, a broader scope so as to include, in addition to procurement of funds, efficient use of resources in universally recognized. Similarly, the academic thinking as regards the objective of financial management is also characterized by a change over the year. The object is to describe the evolving functions and objectives of financial management in the academic literature to serve as a background to a detailed account of its various facets in the discussions that follow subsequently.

FINANCIAL DECISION AREAS MODERN APPROACH OF FINANCIAL MANAGEMENT The modern approach views the term financial management in a broad sense and provides a conceptual and analytical framework for financial decision-making. According to it, the finance function covers both acquisition of funds as well as their allocation. Thus, apart from the issues involved in acquiring external funds, the main concern of financial management is the efficient and wise allocation of funds to various uses. Defined in a broad sense, it is viewed as an integral part of cover all management. The new approach is an analytical way of viewing the financial problems of a firm. The main contents of this approach are 1. 2. 3. What is the total volume of funds an enterprise should commit. What specific assets should an enterprises acquire. How should the funds required be financed?

The three questions posed above cover between them the major financial problems of a firm. In other words, financial management, according to the new approach, is concerned with the solution of three major problems relating to the financial operations of a firm corresponding to the three questions, namely, investment, financing and dividend decisions. Thus, financial management, in the modern sense of the term, can be broken down into three major decisions as functions of finance. They are 1. 2. 3. The investment decision. The financing decision, and The dividend policy decision.

OBJECTIVE OF ANALYSIS OF FINANCIAL STATEMENT To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm. RATIO ANALYSIS: Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. MEANING OF RATIO: A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as so many times. As accounting ratio is an expres sion

relating two figures or accounts or two sets of account heads or group contain in the financial statements. MEANING OF RATIO ANALYSIS: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool. This technique is called cross-sectional analysis. Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group.
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OBJECTIVE OF RATIOS Ratio is work out to analyze the following aspects of business organizationA) Solvency1) Long term 2) Short term 3) Immediate B) Stability C) Profitability D) Operational efficiency E) Credit standing F) Structural analysis G) Effective utilization of resources H) Leverage or external financing FORMS OF RATIO: Since a ratio is a mathematical relationship between to or more variables / accounting figures, such relationship can be expressed in different ways as follows

A] As a pure ratio: For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1.
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B] As a rate of times: In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales are 2.5 times that of cash sales. C] As a percentage: In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000] STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industrys average ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.

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TYPES OF COMPARISONS The ratio can be compared in three different ways 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firms financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. The firms performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies. The cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm. 2] Time series analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress of the firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data\ 3] Combined analysis: If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results.
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For example, the ratio of operating expenses to net sales for firm may be higher than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes. The combined analysis as depicted in the above diagram, which clearly shows that the ratio of the firm is above the industry average, but it is decreasing over the years & is approaching the industry average. PRE-REQUISITIES TO RATIO ANALYSIS In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-requisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered. 1) The dates of different financial statements from where data is taken must be same. 2) If possible, only audited financial statements should be considered, otherwise there must be sufficient evidence that the data is correct.

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3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted. 4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks. 5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio must be related to each other, otherwise there is no purpose of calculating a ratio.

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CLASSIFICATION OF RATIO

BASED ON FINANCIAL STATEMENT

BASED ON FUNCTION

BASED ON USER

1] BALANCE SHEET RATIO 2] REVENUE STATEMENT RATIO 3] COMPOSITE RATIO

1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY RATIO 5] COVERAGE RATIO

1] RATIOS FOR SHORT TERM CREDITORS 2] RATIO FOR SHAREHOLDER 3] RATIOS FOR MANAGEMENT 4] RATIO FOR LONG TERM CREDITORS

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BASED ON FINANCIAL STATEMENT Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

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2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratios study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio. 3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios

BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios.

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2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios. 3] Activity ratios: It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios. 4] Profitability ratios: a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios b) It shows the relationship between profit & investment e.g. return on investment, return on equity capital. 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

BASED ON USER: 1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund, return on equity capital 3] Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

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Debt equity ratios, return on capital employed, proprietor ratios.

LIQUIDITY RATIO: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

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CURRENT RATIO Meaning: This ratio compares the current assests with the current liabilities. It is also known as working capital ratio or solvency ratio. It is expressed in the form of pure ratio. E.g. 2:1 Formula: Current assets Current ratio = Current liabilities

The current assests of a firm represents those assets which can be, in the ordinary course of business, converted into cash within a short period time, normally not

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exceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met, as originally contemplated, with in a year. Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current assets include cash and bank balances; inventory of raw materials, semi-finished and finished goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its short-term debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within approximately twelve months with liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is under utilizing its current assets. LIQUID RATIO: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1. The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value.
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Formula: Quick assets Liquid ratio = Quick liabilities Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments. CASH RATIO Meaning: This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities

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Since cash and bank balances and short term marketable securities are the most liquid assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:Meaning: Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per share are determined by dividing net profit by the number of equity shares. EPS measures the profits available to the equity shareholders on each share held.

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Formula: NPAT Earning per share = Number of equity share The higher EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business DIVIDEND PER SHARE:Meaning: DPS shows how much is paid as dividend to the shareholders on each share held. Formula: Dividend Paid to Ordinary Shareholders Dividend per Share = Number of Ordinary Shares

DIVIDEND PAYOUT RATIO:Meaning: Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders.

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Formula: Dividend per share Dividend Pay out ratio = Earning per share *100

D/P ratio shows the percentage share of net profits after taxes and after preference dividend has been paid to the preference equity holders. GEARING

CAPITAL GEARING RATIO:Meaning: Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio.
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Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a concern.

PROFITABILITY These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.

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GROSS PROFIT RATIO:Meaning: This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit. Formula: Gross profit Gross profit ratio = Net sales * 100

NET PROFIT RATIO:Meaning: Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage. Formula: NPAT Net profit ratio = Net sales This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of
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* 100

production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm.

RETURN ON CAPITAL EMPLOYED:Meaning: The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized. Formula: NPAT Return on capital employed = Capital employed *100

FINANCIAL These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of
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investment in various assets. The important turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described below:

DEBTORS TURNOVER RATIO (DTO) Meaning: DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better it is for the organization.

Formula: Credit sales Debtors turnover ratio = Average debtors

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INVENTORY OR STOCK TURNOVER RATIO (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period. Formula: COGS Stock Turnover Ratio = Average stock ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories). FIXED ASSETS TURNOVER (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. Formula: Net sales Fixed assets turnover = Net fixed assets This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when
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the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).

PROPRIETORS RATIO: Meaning: Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company. In other words, Proprietary ratio determines as to what extent the owners interest & expectations are fulfilled from the total investment made in the business operation. Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the form of percentage. Total assets also know it as net worth. Formula: Proprietary fund Proprietary ratio = Total fund

OR Shareholders fund Proprietary ratio = Fixed assets + current liabilities

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STOCK WORKING CAPITAL RATIO: Meaning: This ratio shows the relationship between the closing stock & the working capital. It helps to judge the quantum of inventories in relation to the working capital of the business. The purpose of this ratio is to show the extent to which working capital is blocked in inventories. The ratio highlights the predominance of stocks in the current financial position of the company. It is expressed as a percentage. Formula: Stock Stock working capital ratio = Working Capital

Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of the working capital. This ratio also helps to study the solvency of a concern. It is a qualitative test of solvency. It shows the extent of funds blocked in stock. If investment in stock is higher it means that the amount of liquid assets is lower.

DEBT EQUITY RATIO: MEANING: This ratio compares the long-term debts with shareholders fund. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1
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Formula: Total long-term debt Debt equity ratio = Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the equity shareholders return through the use of debt. Leverage is also known as gearing or trading on equity. Debt equity ratio shows the margin of safety for long term creditors & the balance between debt & equity.

RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as return on proprietors equity or return on shareholders investment or investment ratio. This ratio indicates the relationship between net profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the concern is in managing the owners fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Formula: NPAT Return on proprietors fund = Proprietors fund
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* 100

CREDITORS TURNOVER RATIO: It is same as debtors turnover ratio. It shows the speed at which payments are made to the supplier for purchase made from them. It is a relation between net credit purchase and average creditors Net credit purchase Credit turnover ratio = Average creditors

Months in a year Average age of accounts payable = Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors.

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IMPORTANCE OF RATIO ANALYSIS: As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: 1] Liquidity position, 2] Long-term solvency, 3] Operating efficiency, 4] Overall profitability, 5] Inter firm comparison 6] Trend analysis.

1] LIQUIDITY POSITION: With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit analysis by bank & other suppliers of short term loans. 2] LONG TERM SOLVENCY: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The long-term
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solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power & operating efficiency. Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners consistent with the risk involved.

3] OPERATING EFFICIENCY: Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets. The various activity ratios measures this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets- total as well as its components. 4] OVERALL PROFITABILITY: Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the management is constantly concerned about overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken & all the ratios are considered together.

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5] INTER FIRM COMPARISON: Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to remedial measures. This is made possible due to inter firm comparison & comparison with the industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter firm comparison would demonstrate the firms position vice-versa its competitors. If the results are at variance either with the industry average or with the those of the competitors, the firm can seek to identify the probable reasons & in light, take remedial measures. 6] TREND ANALYSIS: Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one.

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ADVANTAGES OF RATIO ANALYSIS Financial ratios are essentially concerned with the identification of significant accounting data relationships, 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 and forecasting. Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and solvency 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.

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LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. These limitations are described below: 1] Information problems Ratios require quantitative information for analysis but it is not decisive about analytical output . The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the companys current financial position. Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful for decision-making.

2] Comparison of performance over time When comparing performance over time, there is need to consider the changes in price. The movement in performance should be in line with the changes in price. When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology. Changes in accounting policy may affect the comparison of results between different accounting years as misleading.

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3] Inter-firm comparison Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis. Selective application of government incentives to various companies may also distort intercompany comparison. comparing the performance of two enterprises may be misleading. Inter-firm comparison may not be useful unless the firms compared are of the same size and age, and employ similar production methods and accounting 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.

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PURPOSE OF RATIO ANLYSIS: 1] To identify aspects of a businesses performance to aid decision making 2] Quantitative process may need to be supplemented by qualitative Factors to get a complete picture. 3] 5 main areas: Liquidity the ability of the firm to pay its way Investment/shareholders information to enable decisions to be made on the extent of the risk and the earning potential of a business investment Gearing information on the relationship between the exposure of the business to loans as opposed to share capital Profitability how effective the firm is at generating profits given sales and or its capital assets Financial the rate at which the company sells its stock and the efficiency with which it uses its assets

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ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative technique in the sense that it uses the same figure & information, which is already appearing in the financial statement. At the same time, it is true that what can be achieved by the technique of ratio analysis cannot be achieved by the mere preparation of financial statement. Ratio analysis helps to appraise the firm in terms of their profitability & efficiency of performance, either individually or in relation to those of other firms in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something, as the ratio all by them do not mean anything. This comparison may be in the form of intra firm comparison, inter firm comparison or comparison with standard ratios. Thus proper comparison of ratios may reveal where a firm is placed as compared with earlier period or in comparison with the other firms in the same industry. Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning & control. As the future is closely related to the immediate past, ratio calculated on the basis of historical financial statements may be of good assistance to predict the future. Ratio analysis also helps to locate & point out the various areas, which need the management attention in order to improve the situation. As the ratio analysis is concerned with all the aspect of a firms financial analysis i.e. liquidity, solvency, activity, profitability & overall performance, it enables the interested persons to know the financial & operational characteristics of an organisation & take the suitable decision.

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RESEARCH METHODOLOGY Data can be classified under the two main categories, depending upon the sources used for the collection purposes, i.e., Primary data and Secondary data. The validity and accuracy of final judgment is most crucial and depends heavily upon how well the data is gathered in the first place. The methodology adopted for data gathering also affects the conclusions drawn there from. Primary data: Primary data are those data, which are collected by the investigator himself for the purpose of a specific enquiry or study. Such data are original in character and are generated by surveys conducted by individuals or research institutions. Thus we can say that the data that is being collected for the first time is called primary data. Methods that can be used for collection of primary data are as follows: Direct personal observation: Under this method, the investigator presents himself personally before the informant and obtains first hand information. This method provides greater degree of accuracy. Telephone survey: Under this method the investigator, instead of presenting himself before the informants, contacts them on telephone and collects information from them. Indirect personal interview: Under this method, instead of directly approaching the informants, the investigator interviews several third persons who are directly or indirectly concerned with the subject matter of the enquiry and who are in possession of the requisite information. This method is highly suitable where the direct personal investigation is not practicable either because the informants are unwilling or reluctant to supply the information or where the information desired is complex or the study in hand is extensive.
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Secondary data: When a person uses data, which has already been collected by someone else, then such data is known as secondary data. Secondary data should be used with extra caution since someone else has collected it for his/her use. Before using such data the investigator must be satisfied with regard to the reliability, accuracy, adequacy and suitability of the data to the given problem under investigation. Methods that can be used for collection of secondary data are as follows: Published sources: There are a number of national organisations and international agencies, which collect and publish statistical data relating to business, trade, labour, price, consumption, production, etc. These publications of the various organisations are useful sources of secondary data. Unpublished sources: The records maintained by private firms or business houses who may not like to release their data to any outside agency are known as unpublished sources of collection of secondary data. Both Primary data collection methods and Secondary data collection methods have various advantages as well as limitations. Thus it would be prudent to use both these methods to ones advantage. Both Primary and Secondary data have been used in the thesis. More of secondary data has been used.

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It is an archival study so it must proceed with the following steps : Study of financial system of BSNL. Collection of data pertaining to Financial Analysis. Tabulation of the above data. Graphical representation of above data. Analyzing the ratio on the basis of datas. Graphical representation of the various ratio. Study & results (Interpreting the above data)

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FINANCIAL ANALYSIS OF BSNL BALANCE SHEET AS AT MARCH 31, 2012

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CALCULATIONS AND INTERPRETATION OF RATIOS

1] CURRENT RATIO: Formula: Current Ratio = Current assets Current Liabilities (All figures in Rs. Million) Years 2010-2011 2011-2012 Current assets 5,374,788 5,805,843 Current liabilities 2,182,777 2,346,109 Ratios 2.46 2.47

Current Ratio

2.47 2.468 2.466 2.464 Values 2.462 2.46 2.458 2.456 2.454 2010-2011 2011-2012 Years

Series1

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ANALYSIS: In BSNL company the current ratio is 2.47:1 in 2011-2012. It means that for one rupee of current liabilities, the current assets are 2.47 rupees are available to the them. In other words the current assets are 2.47 times the current liabilities. Almost 2 years current ratio is same but current ratio in 2011-2012 is bit higher, which makes company more sound. The consistency increase in the value of current assets will increase the ability of the company to meets its obligations & therefore from the point of view of creditors the company is less risky. The available working capital with the company is in increasing order. 2010-2011 3,192,011 2011-2012 3,459,734 The company has sufficient working capital to meets its urgency/ obligations. A company has a high percentage of its current assets in the form of working capital, cash that would be more liquid in the sense of being able to meet obligations as & when they become due. From this working capital, the company meets its day-to-day financial obligations. Thus, the current ratio throws light on the companys ability to pay its current liabilities out of its current assets. The BSNL has a very good liquidity position of company.

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2] LIQUID RATIO: Formula: Quick assets Liquid ratio = Current liabilities (Current Assets-Inventories = Liquid Assets) Years 2010-2012 2011-2012 Liquid Assets 5,131,941 5,483,837 Current liabilities 2,182,777 2,346,109 Ratios 2.32 2.33

Liquid Ratio

2.33 2.328 2.326 2.324 Values 2.322 2.32 2.318 2.316 2.314 2010-2012 2011-2012 Years

Series1

ANALYSIS: The liquid or quick ratio indicates the liquid financial position of an enterprise. Almost in both years the liquid ratio is same, which is better for the company to meet the urgency. The liquid ratio of the BSNL has increased from 2.32 to 2.33 in 2011-2012. Day to day solvency is more sound for company in 2011-2012 over the year 2010-2011.

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This indicates that the dependence on the short-term liabilities & creditors are less & the company is following a conservative working capital policy. Liquid ratio of Company is favorable because the quick assets of the company are more than the quick liabilities. The liquid ratio shows the companys ability to meet its immediate obligations promptly

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3] PROPRIETORY RATIO: Formula: Proprietary fund Proprietary ratio = Total Fund

OR Shareholders fund Proprietary ratio = Fixed assets + current liabilities

YEAR Proprietary fund Total fund Proprietary ratio

2010-2011 8,694,802 7,976,167 109

2011-2012 8,812,825 7,815,958 112

Proprietary Ratio
113 112 Values 111 110 112 109 108 107 2010-2011 Years 2011-2012 109 Series1

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ANALYSIS: The Proprietary ratio of the company is 112% in the year 2011-2012. This shows that the contribution by outside to total assets is more than the owners fund. This Proprietary ratio of the Company shows an upward trend for the last 2 years. As the Proprietary ratio is favorable the Companys long-term solvency position is sound.

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4] STOCK WORKING CAPITAL RATIO: Formula: Stock Stock working capital ratio = Working Capital

YEAR Stock Working Capital Stock working capital ratio

2010-2011 242,847 3,192,001 7.6

2011-2012 322,006 3,459,734 9.3

Stock Working Capital Ratio

9.3 7.6 8 6 Values 4 2 0 2010-2011 Years 2011-2012

10

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ANALYSIS: This ratio shows the extend of funds blocked in stock. The amount of stock is increasing from the year 2010-2011 to 2011-2012. This increase in stock does not affect the growth of Working capita It shows that the solvency position of the company is sound. 5] CAPITAL GEARING RATIO: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus

YEAR Pref. Capital Equity capital & reserves & surplus Capital gearing ratio

2010-2011 750,000 8,062,825 9.3

2011-2012 750,000 7,944,802 9.4

Capital Gearing Ratio

9.4 9.38 9.36 9.34 Values 9.32 9.3 9.28 9.26 9.24

9.4

9.3

2010-2011 Years

2011-2012

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ANALYSIS: Gearing means the process of increasing the equity shareholders return through the use of debt. Capital gearing ratio is a leverage ratio, which indicates the proportion of debt & equity in the financing of assets of a company. For the year 2010-2011 to 2011-2012 Capital gearing ratio is all most same which indicates, near about 10% of the fund covering the secured loan position. It means that during the year 2011-2012 company has not borrowed more secured loans for the companys expansion.

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6] DEBT EQUITY RATIO: Formula: Total long term debt Debt equity ratio = Total shareholders fund

YEAR Long term debt Shareholders fund Debt Equity Ratio

2010-2011 678,971 8,812,825 0.07

2011-2012 469,940 8,694,802 0.05

Debt Equity Ratio

0.08 0.07 0.06 0.05 Values 0.04 0.03 0.02 0.01 0

0.07 0.05

2010-2011 Years

2011-2012

ANALYSIS: The debt equity ratio is important tool of financial analysis to appraise the financial structure of the company. It expresses the relation between the external equities

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& internal equities. This ratio is very important from the point of view of creditors & owners. The rate of debt equity ratio is decreased from 0.07 to 0.05 during the year 20102011 to 2011-2012. This shows that with the decrease in debt, the shareholders fund also decreased. This shows long-term capital structure. The lower ratio viewed as favorable from long term creditors point of view.

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7] GROSS PROFIT RATIO: Gross profit Gross profit ratio = Net sales * 100

YEAR Gross profit Net sales Gross profit Ratio

2010-2011 815,381 3,461,621 23.55

2011-2012 445,155 3,235,953 13.75

ANALYSIS: The gross profit is the profit made on sale of services. It is the profit on turnover. In the year 2010-2011 the gross profit ratio is 23.55%. It has decresed to 13.75% in the year 2011-2012 due to decrease in sales with corresponding decrease in sales of sevices. The net sales and gross profit is continuously decreasing from the year 2010-2011 to 2011-2012.

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8] ADMINISTRATIVE, OPERATING, AND OTHER EXPENSES RATIO: Formula: COGS+ administrative expenses +operating expenses+other expenses Operating ratio = Net Sales YEAR COGS + Operating expenses Net sales Operating ratio 2010-2011 1,091,628 3,461,621 31.53% 2011-2012 1,111,675 3,235,953 34.35% *100

Net s

Administrative, Operating and Other Expense Ratio

35 34 Values 33 32 31 30 2010-2011 Years 2011-2012 31.53 34.35

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ANALYSIS: The operating, administrative, expense ratio shows the relationship between costs of activities & net sales. Ratios over a period of 2 years, when compared it indicate the change in the operational efficiency of the company. The operating ratio of the company has increased. This is due to increase in the cost of services sold, which in 2010-2011 was 31.53%, & in 2011-2012 it is 34.35%. The cost has increased in 2011-2012 as compared to 2010-2011, indicate positive trend in operational performance.

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9] NET PROFIT RATIO Formula: NPAT Net profit ratio = Net sales * 100

YEAR NPAT Net sales Net profit ratio

2010-2011 780,587 3,461,621 0.22

2011-2012 300,939 3,235,953 0.09

Net Profit Ratio

0.25 0.2 Values 0.15 0.1 0.05 0 2006-2007 Years 2007-2008 0.22 0.09

ANALYSIS: The net profit ratio of the company is low in both years but the net profit is in decreasing order. it has been observe that the from 2011-2012 to 2010-2011 the net profit is decreased i.e. in 2011-2012 it is decreased by 0.13 in 2010-2011.

Profitability ratio of company shows considerable decrease. It is a clear index of cost control, managerial efficiency & sales promotion.
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10] RETURN ON CAPITAL EMPLOYED: Formula: NPAT Return on capital employed = Capital employed *100

YEAR NPAT Capital employed Return on capital employed

2010-2011 780,587 9,373,773 8.32

2011-2012 300,939 9,282,765 3.24

Return on Capital Employed Ratio

10 8 6 Values 4 2 0

8.32

3.24

2010-2011 Years

2011-2012

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ANALYSIS: The return on capital employed shows the relationship between profit & investment. Its purpose is to measure the overall profitability from the total funds made available by the owner & lenders. The return on capital employed of Rs.5 indicate that net return of Rs.5 is earned on a capital employed of Rs.100. this amount of Rs.5 is available to take care of interest, tax,& appropriation. The return on capital employed is show-increasing trend, i.e. from 8.32 to 3.24. All of sudden in 2010-2011 the return on capital employed decreased from 8.32 to 3.24. This indicates a lower profitability on each rupee of investment & has a low scope to attract large amount of fresh fund.

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11] EARNING PER SHARE: Formula: NPAT Earnings per share = Number of equity share *100

YEAR NPAT No. of equity share Earning per share

2010-2011 701,615 5,000,000,000 14.03

2011-2012 221,967 5,000,000,000 4.44

*Note: less: pref. dividend including tax

Earning Per Share

16 14 12 Values 10 8 6 4 2 0 2010-2011 Years 2011-2012 4.44 14.03

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ANALYSIS: Earnings per share is calculated to find out overall profitability of the company. Earnings per share represents the earning of the company whether or not dividends are declared. The Earning per share is 4.44 means shareholder gets Rs. 4.44 for each share of Rs. 10/-. In other words the shareholder earned Rs. 4.44 per share. The net profit after tax of the company is decreasing. Therefore the shareholders earning per share is decreased from 2010-2011 to 2011-2012 by 14.03 to 4.44. This shows it is continuous capital reduction per unit share by 14.03 to 4.44. This is not very beneficial for the investors to invest in the company.

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12] DIVIDEND PAYOUT RATIO: Formula: Dividend per share Dividend Payout ratio = Earning per share * 100

YEAR Dividend per share Earning per share Dividend payout ratio

2010-2011 14.03 -

2011-2012 1.05 4.44 23.64

Dividend Payout Ratio

23.64

25 20 15 Values 10 5 0 2010-2011 Years 0

2011-2012

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ANALYSIS: In the year 2010-2011 and 2011-2012 the Dividend pay out ratio is 0.0 and 23.64 respectively. The company has not earned more profit in the year 2010-2011 hence the company has not declared dividend in the year 2010-2011. However the company has declared more dividends in the year 2011-2012 as the company has sufficient profit. From this one can say that the company is more conservative for expansion.

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13] CASH RATIO: Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities

YEAR

2010-2011

2011-2012 4,055,158 2,346,109 1.73

Cash + Bank + Marketable securities 3,745,296 Total current liabilities Cash ratio 2,182,777 1.71

Cash Ratio
1.735 1.73 1.725 Values 1.72 1.715 1.71 1.705 1.7 2006-2007 Years 2007-2008 1.71 1.73

ANALYSIS: This ratio is called as super quick ratio or absolute liquidity ratio. In the year 2010-2011 the cash ratio is 1.71 & then it is increased to 1.73 in the year 2011-2012. This shows that the company has sufficient cash, bank balance, & marketable securities to meet any contingency.

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14] RETURN ON PROPRIETORS FUND: Formula: NPAT Return on proprietors fund = Proprietors fund * 100

YEAR NPAT Proprietors fund Return on proprietors fund

2010-2011 780,587 8,694,802 8.98

2011-2012 300,939 8,812,825 3.42

Return on Proprietor's Fund Ratio

10 8 6 Values 4 2 0 2010-2011 Years 2011-2012 3.42 8.98

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ANALYSIS: Return on proprietors fund shows the relationship between profits & investments by proprietors in the company. In the year 2010-2011 the return on proprietors fund is 8.98% it means the net return of Rs. 9 approximately is earned on the each Rs. 100 of funds contributed by the owners. During the year the rate of return on proprietors fund is in decreasing order. The return on proprietors fund during the year 2010-2011 to 2011-2012 is decreased from 8.98% to 3.42%. It shows that the company has lower returns available to take care of dividends, large transfers to reserve etc. & has a low scope to attract large amount of fresh fund from owners.

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15] RETURN ON EQUITY: Formula: NPAT Return on equity share capital = No. of equity share * 100

YEAR NPAT No. of equity share Return on equity share capital

2010-2011 701,615 5,000,000,000 1403.23

2011-2012 221,967 5,000,000,000 443.94

Return on Equity Ratio

2403.23

2500 2000 1500 Values 1000 500 0

443.94

2010-2011 Years

2011-2012

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ANALYSIS: This ratio shows the relationship between profit & equity shareholders fund in the company. It is used by the present / prospective investor for deciding whether to purchase, keep or sell the equity shares. In the year 2010-2011 the return on proprietors fund is 1403.23%, which means the net return of Rs. 1400(approx), is earned on the each Rs.100 of the funds contributed by the equity shareholders. The rate of return on equity share capital is decreased from 1403.23% to 443.94% during the year 2010-2011 to 2011-2012. This shows that the company has a lower returns available to take care of high equity dividend, large transfers to reserve, & also company has a low scope to attract large amount to fresh funds by issue of equity share & but also company has a good price for equity shares in the BSE.

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FINDINGS OF FINANCIAL POSITION OF BHARAT SANCHAR NIGAM LTD. After going through the various ratios, I would like to state that: The short-term solvency of the company is quite satisfactory. Immediate solvency position of the company is also quite satisfactory. The company can meet its urgent obligations immediately. Credit policies are effective. Over all profitability position of the company is quite satisfactory.. The company is paying promptly to the suppliers/investors. The return on capital employed is satisfactory. The management should take good care and speed up the movement of stock and services. Effective selling technique or service modification may be adopted to face the competitors and to improve the financial position of the company by taking appropriate decisions.

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CONCLUSION: The focus of financial analysis is on key figures contained in the financial statements and the significant relationship that exits. The reliability and significance attach to the ratios will largely on hinge upon the quality of data on which they are best. They are as good for as bad as the data it self. Financial ratios are a useful by product of financial statement and provide standardized measures of firms financial position, profitability and riskiness. It is an important and powerful tool in the hands of financial analyst. By calculating one or other ratio or group of ratios he can analyze the performance of a firm from the different point of view. The ratio analysis can help in understanding the liquidity and short-term solvency of the firm, particularly for the trade creditors and banks. Long-term solvency position as measured by different debt ratios can help a debt investor or financial institutions to evaluate the degree of financial risk. The operational efficiency of the firm in utilizing its assets to generate profits can be assessed on the basis of different turnover ratios. The profitability of the firm can be analyzed with the help of profitability ratios. However the ratio analyses suffers from different limitations also. The ratios need not be taken for granted and accepted at face values. These ratios are numerous and there are wide spread variations in the same measure. Ratios generally do the work of diagnosing a problem only and failed to provide the solution to the problem.

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BIBLIOGRAPHY BOOKS / JOURNALS Khan & Jain Financial Management. L.M.Prasad Financial Management. Annual reports or annual statement of BSNL. Broachers of BSNL WEBSITE www.bsnl.co.in www.economictimes.com .

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