Bharti Airtel Document Part 2

CHAPTER IV
4. ANALYSIS AND INTERPRETATION

4.1 RATIO ANALYSIS
4.1.1. COST OF EQUITY
Equity is the permanent capital for a firm. The company may raise equity capital
both internally and externally. It can rise internally by retained earnings and externally by
issuing new shares. When a company wants to raise funds by equity shares, their
expectations have to be evaluated and for that cost of equity is calculated.
Formula
Dividend per share
Cost of Equity =
100
Market price per share
20
TABLE NO 4.1.1
COST OF EQUITY
Year
Dividend
Market price
Cost of equity
per share
per share
(%)
2010-2011
719.51
3210.65
22.41
2011-2012
943.91
1494.89
63.26
2012-2013
1168.93
4397.79
26.57
2013-2014
1168.95
4914.95
23.78
2014-2015
709.77
4911.43
14.45
INTERPRETATION
The above table depicts the cost of equity capital in Bharti airtel during the study
period. The table reveals that the cost of equity capital was high in the year 2011-2012 with
63.26 % and low in the year 2014-2015 with 14.45 %. During the study period the market
price shows an increasing trend and hence the cost of equity is considerably reduced.
21
CHART NO 4.1.1
COST OF EQUITY
63.26%
70.00%
60.00%
50.00%
40.00%
26.57%
30.00%
23.78%
22.41%
14.45%
20.00%
10.00%
0.00%
2010-2011
2011-2012
2012-2013
22
2013-2014
2014-2015
4.1.2 COST OF DEBT

A company may raise debt in various ways. It may be in the form of debenture or
loan borrowed from financial or public institutions for a certain period of time at a specific
rate of interest. The debenture or bond may be issued at par, discount or premium. If forms
the basis for calculating cost of debt.
Formula
Interest
Cost of debt =
100
Total debt
23
TABLE NO 4.1.2
COST OF DEBT
Year
Interest
Total debt
Cost of debt
( in crores )
( in crores )
( in % )
2010-2011
929.03
18021.69
5.16
2011-2012
1489.50
26946.18
5.52
2012-2013
1848.19
25239.20
7.32
2013-2014
1686.27
28301.14
6.0
2014-2015
1925.42
23693.82
8.13
INTERPRETATION
The above table depicts the cost of debt in Bharti airtel. It was clear that the cost of
debt shows a fluctuating trend during the five years of the study period. The cost of debt
was high in the year 2014-2015 with 8.13% and low in the year 2010-2011 with 5.16%.
24
CHART NO 4.1.2
COST OF DEBT
8.13
9
7.32
8
7
5.52
6
5.16
5
4
3
2
1
0
2010-2011
2011-2012
2012-2013
25
2013-2014
2014-2015
4.1.3 WEIGHTED AVERAGE COST OF CAPITAL

The composite or overall cost of capital is the weighted average of the costs of
various sources of funds such as equity, debt, preference capital etc.
TABLE NO 4.1.3
WEIGHTED AVERAGE COST OF CAPITAL
Year
Cost of debt
Cost of equity
Overall Cost of
( in % )
(In %)
capital ( in % )
2010-2011
5.16
22.41
13.79
2011-2012
5.52
63.26
34.39
2012-2013
7.32
26.57
16.95
2013-2014
6.00
23.78
14.89
2014-2015
8.13
14.45
11.29
INTERPRETATION
The above table shows the weighted average cost of capital for five years in Bharti
airtel. It was maximum in the year 2011-2012 with 34.39 % and minimum in the year
2014-2015 with 11.29 %. During the five years of the study period the overall cost of
capital shows a fluctuating trend. In 2011-2012 the cost of debt was high and therefore
weighted average cost of capital was higher.
26
CHART NO 4.1.3
WEIGHTED AVERAGE COST OF CAPITAL
34.39%
35.00%
30.00%
25.00%
16.95%
20.00%
14.89%
13.79%
11.29%
15.00%
10.00%
5.00%
0.00%
2010-2011
2011-2012
2012-2013
27
2013-2014
2014-2015
4.1.4 DEBT EQUITY RATIO

The relationship between borrowed funds and owners capital is a popular measure
of the long term financial solvency of a firm. This relationship is shows by debt equity
ratio. This ratio was calculated to measure the relative claims of outsiders and the owners
against the firms assets. It indicates the relationship between the external equities (or)
outsiders fund and the internal equities (or) the shareholders funds.
Formula
Outsiders Funds
Debt equity Ratio =
Share Holders Funds
28
TABLE NO 4.1.4
DEBT EQUITY RATIO
Year
Long term debt

(in crores)
Shareholders fund
(in crores)
Ratio
(in times)
2010-2011
7305.84
9755.30
0.74
2011-2012
7305.92
13949.09
0.52
2012-2013
8872.14
27300.73
0.32
2013-2014
9592.14
30176.26
0.31
2014-2015
9712.14
36961.80
0.26
Average
0.43
INTERPRETATION
The above table reveals that the debt equity ratio of Bharti airtel was high in 20102011 with 0.74 times. According to the above table the company maintains debt equity
ratio as 0.43 on an average. It implies that every one rupee of outside liabilities of the firm
has two rupees of owners capital. In all the years of the study period equity is more than
debt and the ratio is satisfactory to the company.
29
CHART NO 4.1.4
DEBT EQUITY RATIO
0.8
0.74
0.7
0.52
0.6
0.5
0.32
0.4
0.31
0.26
0.3
0.2
0.1
0
2010-2011
2011-2012
2012-2013
30
2013-2014
2014-2015
4.1.5 CAPITAL GEARING RATIO

The term capital gearing is used to describe the relationship between equity share
capital including reserves and surplus to preference share capital and other fixed interest
bearing loans. If preference share capital and other fixed loans exceeds the equity share
capital including reserves. The firm is said to be highly geared and vice versa.
Formula
Capital gearing ratio =
Equity share capital + reserves & surplus

Long term debt
31
TABLE NO 4.1.5
CAPITAL GEARING RATIO
Year
Equity share capital +

reserves & surplus
( in crores )
Long term debt

( in crores )
Ratio
( in times )
2010-2011
9755.30
7305.84
1.3
2011-2012
13949.09
7305.92
1.9
2012-2013
27300.73
8872.14
3.0
2013-2014
30176.26
9592.14
3.1
2014-2015
36961.80
9712.14
3.8
INTERPRETATION
The above table reveals the capital gearing ratio in Bharti airtel capital gearing ratio
shows an increasing trend in the five years of the study period. Since equity capital (+)
reserves and surplus exceed the long term debt in all the years the company is said to be in
a low gear.
32
CHART NO 4.1.5
CAPITAL GEARING RATIO
3.80%
4.00%
3.50%
3.00%
3.10%
3.00%
1.90%
2.50%
2.00%
1.30%
1.50%
1.00%
0.50%
0.00%
2010-2011
2011-2012
2012-2013
33
2013-2014
2014-2015
4.1.6 RATIO OF FIXED ASSETS TO FUNDED DEBT

The ratio measures the relationship between the fixed assets and the funded debt
and is a very useful to the long term creditors. Funded debt includes debentures mortgage
loans, bonds and other long term loans.
Formula
Fixed assets
Ratio of fixed assets to funded debt =
Funded debt
34
TABLE NO 4.1.6
RATIO OF FIXED ASSETS TO FUNDED DEBT
Year
Fixed Assets
Funded Debt
Ratio
( in crores )
( in crores )
( in times )
2010-2011
9865.05
543.48
18.15
2011-2012
11640.56
535.98
21.71
2012-2013
12623.56
434.83
29.03
2013-2014
14482.22
428.03
33.83
2014-2015
16006.03
904.08
17.70
INTERPRETATION
The above table shows that the ratio of fixed assets to funded debt in Bharti airtel
The ratio shows an increasing the 2010-2011 to 2013-2014. But the minimum ratio was
2014-2015 with 17.70 in the five years study period. The table shows that the company has
very less funded debt in fixed assets during the later years of the study period.
35
CHART NO 4.1.6
RATIO OF FIXED ASSETS TO FUNDED DEBT
33.83
35
29.03
30
21.71
25
18.15
17.7
20
15
10
0
2010-2011
2011-2012
2012-2013
36
2013-2014
2014-2015
4.1.7 RATIO OF CURRENT LIABILITIES TO SHAREHOLDERS FUND

The ratio of current liabilities to shareholders fund establishes the relationship
between current liabilities and the shareholders funds indicates the amount of long - term
funds raised by the shareholders as against short term borrowings. Shareholders fund
consist of equity share capital, preference share capital, capital reserves, revenue reserves
and sinking funds.
Formula
Current liabilities
Ratio of current liabilities to shareholders fund =
Shareholders fund
37
TABLE NO 4.1.7
RATIO OF CURRENT LIABILITIES TO SHAREHOLDERS FUND
Year
Shareholders fund
( in crores )
Ratio
( in times )
2010-2011
Current liabilities
( in crores )
4552.39
9755.30
0.5
2011-2012
5389.22
13949.09
0.4
2012-2013
5748.58
27300.73
0.2
2013-2014
7932.16
30176.26
0.3
2014-2015
8906.29
36961.80
0.2
Average
0.3
INTERPRETATION
The above table shows that the ratio of current liabilities to shareholders fund in
Bharti airtel The ratio was same in the year 2012-2013 and 2014-2015 of the study period
with 0.2 times. The table shows that the company has less liability in shareholders fund
during the later years of the study period.
38
CHART NO 4.1.7
RATIO OF CURRENT LIABILITIES TO SHAREHOLDERS FUND
0.5
0.5
0.4
0.45
0.4
0.3
0.35
0.3
0.2
0.25
0.2
0.2
0.15
0.1
0.05
0
2010-2011
2011-2012
2012-2013
39
2013-2014
2014-2015
4.1.8 SHAREHOLDERS RATIO

The ratio established the relationship between shareholders fund to total assets of
the firm. Higher the ratio of the share of the shareholders in the total capital of the company
better is the long term solvency position of the company.
Formula
Shareholders fund
Shareholders ratio
=
Total Assets
40
TABLE NO 4.1.8
SHAREHOLDERS RATIO
Year
2010-2011
Shareholders fund
( in crores )
9755.30
Total Assets
( in crores )
12271.45
Ratio
( in times )
0.79
2011-2012
13949.09
23594.42
0.59
2012-2013
27300.73
45322.48
0.60
2013-2014
30176.26
58156.04
0.51
2014-2015
36961.80
63158.16
0.58
INTERPRETATION
The above table depicts the shareholders ratio of Bharti airtel during the study
period. The ratio was high in 2010-2011 with 0.79 times and low in 2013-2014 with 0.51
times. The ratio indicates that nearly 61% of the total assets are financed through
shareholders funds and remaining 39% were financed through outsiders.
41
CHART NO 4.1.8
SHAREHOLDERS RATIO
0.79
0.8
0.7
0.59
0.6
0.58
0.51
0.6
0.5
0.4
0.3
0.2
0.1
0
2010-2011
2011-2012
2012-2013
RATIO
42
2013-2014
2014-2015
4.1.9 FIXED ASSETS TURN OVER RATIO

The fixed assets turnover ratio indicates the velocity with which assets are turned
over in relation to sales. The ratio is supposed to measure the efficiency with which assets
are employed.
Formula
Net sales
Fixed Assets Turn Over Ratio =
Fixed Assets
43
TABLE NO 4.1.9
FIXED ASSETS TURN OVER RATIO
Year
2010-2011
Net Sales
( in crores )
17144.22
Fixed Assets
( in crores )
9865.05
Ratio
( in times )
1.7
2011-2012
19762.57
11040.56
1.8
2012-2013
22189.55
12623.56
1.8
2013-2014
26843.73
14482.22
1.9
2014-2015
26757.80
16006.03
1.7
Average
1.82
INTERPRETATION
The above table reveals that the fixed assets turnover ratio in Bharti airtel the ratio
was same in the 2011-2012 and 2012-2013 years of the study period with 1.8 times and the
first and last years of the study period 1.7 times. The table shows that on an average 1.82
times of investment are in fixed assets. Since the higher turnover ratio indicates the more
efficient management and better utilization of available fixed assets.
44
CHART NO 4.1.9
FIXED ASSETS TURN OVER RATIO
1.9
1.9
1.85
1.8
1.8
1.8
1.75
1.7
1.7
1.7
1.65
1.6
2010-2011
2011-2012
2012-2013
RATIO
45
2013-2014
2014-2015
4.1.10 RATIO OF RESERVES TO EQUITY CAPITAL

The ratio establishes the relationship between reserves and equity share capital. The
ratio indicates that how much profits are generally retained by the future growth. The term
reserve includes capital reserve, revenue reserves for contingencies etc.
Formula
Reserves
Ratio of Reserves to Equity Capital =
100
Equity share capital
46
TABLE NO 4.1.10
RATIO OF RESERVES TO EQUITY CAPITAL
Reserves & surplus Equity share capital
( in crores )
( in crores )
Year
Ratio
( in times )
2010-2011
21097.43
730.78
28.87
2011-2012
23501.15
730.79
32.16
2012-2013
36281.34
887.41
40.88
2013-2014
47307.02
959.41
49.31
2014-2015
51245.05
971.41
52.75
Average
40.79
INTERPRETATION
The above table depicts the ratio of reserves to equity capital in Bharti airtel. The
table shows that ratio was highest in the year 2014-2015 with 52.75 times and lowest in the
year 2010-2011 with 28.87. The table also indicates that an average ratio of 40.79 of equity
share capital was represented by reserves. Good amount of earning were retained as reserve
for future growth and expansion of business.
47
CHART NO 4.1.10
RATIO OF RESERVES TO EQUITY CAPITAL
52.75
60
49.31
50
40.88
32.16
40
28.87
30
20
10
0
2010-2011
2011-2012
2012-2013
RATIO
48
2013-2014
2014-2015
4.1.11 CAPITAL STRUCTURE OF BHARTI AIRTEL

(Proportion of debt and equity capital)
The capital structure is the combination or the proportion or different sources of
financing (debt and equity) to the total capitalization. It is the permanent financing of a
firm represented by long term debt plus preferred stock plus net worth. The main problem
in framing the capital structure is choosing the best mix of debt and equity.
49
TABLE NO 4.1.11
CAPITAL STRUCTURE OF BHARTI AIRTEL
Equity Capital
( in crores )
Debt Capital
( in crores )
Proportion of Debt
& Equity
( in times )
2010-2011
730.78
1516.26
95:46
2011-2012
730.79
952.49
87:66
2012-2013
887.41
892.79
74:73
2013-2014
959.41
962.19
72:75
2014-2015
971.41
607.86
60:97
Year
INTERPRETATION
The above table shows the proportion of debt and equity in the capital structure of
Bharti airtel during the first two years of the study period the company uses more debt
capital than the equity capital. But in last three years of study period the company used
more equity fund than the debt capital.
50
CHART NO 4.1.11
CAPITAL STRUCTURE OF BHARTI AIRTEL
100
95
Equity
87
90
97
debt
80
74
70
73
66
72
75
60
60
50
46
40
30
20
10
0
2009-2010
2010-2011
2011-2012
51
2012-2013
2013-2014
4.2 TREND ANALYSIS

In the analysis of financial information, trend analysis is the presentation of
amounts as a percentage of a base year. Trend analysis is taking past data and using it to
project future results. Trend analysis is one of the tools for the analysis of the companys
monetary statements for the investment purposes. Investors use this analysis tool a lot in
order to determine the financial position of the business. In a trend analysis, the financial
statements of the company are compared with each other for the several years after
converting them in the percentage. In the trend analysis, the sales of each year from the
2010 to 2015 will be converted into percentage form in order to compare them with each
other.
Formula of calculating trends
Formula for converting the figures:
In order to convert the figures into percentages for the comparison purposes, the
percentages are calculated in the following way:
Trend analysis percentage = (figure of the previous period figure of the current
period)/total of both figures
52
4.2.1 CURRENT ASSET
In accounting, a current asset is any asset reasonably expected to be sold,

consumed, or exhausted through the normal operations of a business within the current
fiscal year or operating cycle (whichever period is longer). Typical current assets include
cash, cash equivalents, short-term investments, accounts receivable, stock inventory and
the portion of prepaid liabilities which will be paid within a year. On a balance sheet,
assets will typically be classified into current assets and long-term assets. The current ratio
is calculated by dividing total current assets by total current liabilities. It is frequently used
as an indicator of a company's liquidity, its ability to meet short-term obligations
53
TABLE NO 4.2.1
CURRENT ASSETS
Year
Current Assets
Trend Percentage
(in Rs)
(in %)
2010-2011
11,462.73
2011-2012
10,585.30
0.03
2012-2013
12,995.20
0.10
2013-2014
13,136.00
0.005
2014-2015
16,159.20
0.10
INTERPRETATION
Current asset during 2010-2011, 2011-2012, 2012-2013, 2013-2014 and 20142015 was 1, 0.03, 0.10, 0.005 & 0.10 respectively.
54
CHART 4.2.1
CHART SHOWING OF CURRENT ASSETS
1.00%
1.00%
Current Assets
0.80%
0.60%
0.40%
0.10%
0.10%
0.20%
0.03%
0.01%
0.00%
2010-2011
2011-2012
2012-2013
Year
55
2013-2014
2014-2015
4.3 COMPARATIVE BALANCE SHEET

The excess of current assets over current liabilities is referred to as the companys
working capital. The difference between the working capital for two given reporting
periods is called the change in working capital. Changes in working capital is included in
cash flow from operations because companies typically increase and decrease their current
assets and current liabilities to fund their ongoing operations. When a company increases
its current assets, its a cash outflow.
The company has to sell out money to buy the extra assets. Likewise, when a
company increases its current liabilities, its a cash inflow. The impact of working capital
changes are reflected in a firms cash flow statement. Specifically, the operating cash flow
section of the cash flow statement details changes in its shorter-term working capital
needs. A positive working capital figure (current assets are greater than current liabilities)
means a cash inflow for the period measured.
In contrast, a negative working capital position means the firm has spent more cash
out than it brought in managing its working capital, or commitments, within a year.
Analyzing changes in working capital can be important for any business, but is especially
important for firms with seasonal or erratic cash flow needs.
Most of the time, a
companys working capital is simply a core part of its daily operations. But it can indicate
financial problems, especially when working capital runs in the negative for an extended
period of time.
56
TABLE NO 4.3.1
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR 20112012
PARTICULARS
2011
2012
INCREASE
DECREASE
(in Rs)
(in Rs)
(in Rs)
(in Rs)
CURRENT ASSETS
INVENTORIES
48.39
213.90
165.51
--
SUNDRY DEBTORS
3,182.48
5,492.90
2310.42
--
CASH AND BANK BALANCE
2,578.63
957.50
--
1621.13
LOANS AND ADVANCES
5,653.23
3,921.00
--
1732.23
TOTAL CURRENT ASSETS
11,462.73
10,585.30
--
877.43
CURRENT LIABILITIES
15,169.23
31,351.10
16181.87
--
TOTAL CURRENT LIABILITIES
16,482.52
31,469.10
14986.58
--
TOTAL ASSETS
53,022.59 113,788.60
60766.01
--
57
TABLE NO 4.3.2
PARTICULARS
2012
2013
INCREASE
DECREASE
(in Rs)
(in Rs)
(in Rs)
(in Rs)
--
83.1
CURRENT ASSETS
INVENTORIES
213.90
130.80
5,492.90
6,373.50
880.6
--
957.50
2,030.00
1072.5
--
3,921.00
4,460.90
539.9
--
10,585.30
12,995.20
2409.9
--
CURRENT LIABILITIES
31,351.10
29,450.50
--
1900.6
31,469.10
29,579.50
--
1889.6
12531.4
--
SUNDRY DEBTORS
LOANS AND ADVANCES
TOTAL ASSETS
113,788.60 126,320.00
58
TABLE NO 4.3.3
PARTICULARS
2013
2014
INCREASE
DECREASE
(in Rs)
(in Rs)
(in Rs)
(in Rs)
--
19.9
CURRENT ASSETS
INVENTORIES
130.80
110.90
SUNDRY DEBTORS
6,373.50
6,782.40
408.9
--
2,030.00
1,607.80
--
422.2
LOANS AND ADVANCES
4,460.90
4,634.90
174
--
12,995.20
13,136.00
140.8
--
CURRENT LIABILITIES
29,450.50
32,055.30
2604.8
--
29,579.50
32,232.10
2652.6
--
--
582.4
TOTAL ASSETS
126,320.00 125,737.60
59
TABLE NO 4.3.4
PARTICULARS
2014
2015
INCREASE
DECREASE
(in Rs)
(in Rs)
(in Rs)
(in Rs)
31.3
--
CURRENT ASSETS
INVENTORIES
110.90
142.20
SUNDRY DEBTORS
6,782.40
6,244.10
--
538.3
1,607.80
4,980.80
3373
--
LOANS AND ADVANCES
4,634.90
4,792.10
157.2
--
13,136.00
16,159.20
3023.2
--
CURRENT LIABILITIES
32,055.30
35,728.60
3673.3
--
32,232.10
35,901.10
3669
--
19853.5
--
TOTAL ASSETS
125,737.60 145,591.10
60
4.4 LEVERAGE ANALYSIS

4.4.1 FINANCIAL LEVERAGE
The use of long term fixed interest bearing debt and preference share capital along
with equity share capital is known as financial leverage or trading on equity. Here the
owners equity is used as the base to raise debt and the supplier has limited participation
in the company profits.
Formula:
Earnings Before Interest and Tax
Financial Leverage =
Earnings Before Interest and Tax (-) Interest
61
TABLE NO 4.4.1
FINANCIAL LEVERAGE
Year
EBIT
EBT
Financial leverage
(in crores)
(in crores)
(in crores)
2010-2011
6168.99
5239.96
1.2
2011-2012
7751.15
6261.65
1.2
2012-2013
8914.55
7066.36
1.3
2013-2014
9231.88
7315.61
1.3
2014-2015
9139.72
7214.30
1.3
INTERPRETATION
The above table reveals that the financial leverage in Bharti airtel shows an
increasing trend during the years 2012-2013 to 2014-2015. In the last three years of the
study period there was no change in financial leverage with 1.3 times. Thus it can be
concluded that high rate of financial leverage indicates a high interest outflow and
consequently higher borrowings.
62
CHART NO 4.4.1
FINANCIAL LEVERAGE
1.3
1.3
1.3
1.3
1.28
1.26
1.24
1.22
1.2
1.2
2010-2011
2011-2012
1.2
1.18
1.16
1.14
2012-2013
2013-2014
Financial leverage ( in times)
63
2014-2015
4.4.2 OPERATING LEVERAGE

Operating leverage refers to the relationship between firms sales revenue and its
earnings before interest and tax. Operating leverage results from the operating cost of a
firms income. The operating cost may be fixed cost, variable cost, semi - variable cost.
The firms will employ assets in such a way that their revenues are sufficient to cover all
fixed and variable cost.
Formula:
Contribution
Operating leverage =
Operating profit
Where,
Contribution = Sales variable cost
64
TABLE NO 4.4.2
OPERATING LEVERAGE
Year
2010-2011
Contribution
(in crores)
11144.22
EBIT
(in crores)
9139.72
Operating leverage
(in times)
1.2
2011-2012
13762.57
9231.88
1.5
2012-2013
16189.55
8914.55
1.8
2013-2014
20843.73
7751.15
2.7
2014-2015
20757.80
6168.99
3.4
Average
2.12
INTERPRETATION
The above table depicts the operating leverage in Bharti airtel during the five years
of the study period. It was clear that the operating leverage shows an increasing trend in the
year 2010-2011 to 2014-2015. On an average operating leverage implies that every %
change in sales will result in EBIT in the reduction of sales.
65
CHART NO 4.4.2
OPERATING LEVERAGE
3.4
3.5
2.7
3
2.5
1.8
1.5
2
1.2
1.5
1
0.5
0
2010-2011
2011-2012
2012-2013
2013-2014
Operating leverage(in times)
66
2014-2015
4.4.3. COMBINED LEVERAGE

The operating and financial leverage constitutes combined leverage. The combined
leverage represents the effects of a given change in the sales revenue on EPS. It affects the
total risk of the firm. The firm which has high degree of operating leverage should have
low financial leverage.
Formula
Combined leverage = Operating Leverage Financial Leverage
67
TABLE NO 4.4.3
COMBINED LEVERAGE
Year
Operating leverage
Financial leverage
Combined leverage
(in times)
2010-2011
1.2
1.2
1.4
2011-2012
1.5
1.2
1.8
2012-2013
1.8
1.3
2.3
2013-2014
2.7
1.3
3.5
2014-2015
3.4
1.3
4.4
INTERPRETATION
The above table reveals that the combined leverage was high in the 2014-2015 with
4.4 times in Bharti airtel. In the past years of the study period it shows an declining trend. It
is clearly understood that the overall risk is does not reduced in the years of the study
period by decreasing equity capital in its finance structure.
68
CHART NO 4.4.3
COMBINED LEVERAGE
4.4
3.5
4.5
4
2.3
3.5
3
2.5
1.8
1.4
2
1.5
1
0.5
0
2010-2011
2011-2012
2012-2013
2013-2014
COMBINED LEVERAGE
69
2014-2015
4.5 FORTUNE 500 BRAND ANALYSIS

Bharti Airtel, a leading mobile service provider in India is Bharti Enterprises'
flagship company. According to Forbes Global 2000 list, Bharti Airtel, India's pioneering
private telecommunication service provider, is ranked #826. This integrated telecom
service provider operates three strategic business units covering 23 telecommunication
circles. These three strategic businesses are mobile business, enterprise business, and
Airtel telemedia business. Their mobile business comprising fixed wireless and mobile
services is spread over 23 telecom circles, whereas their Airtel telemedia business
provides telephone and broadband services to clients in 94 cities.
International
and
domestic
long
distance
services
and
end
to
end
telecommunication solution for companies are included in Airtel enterprise business.

According to fortune 500, Bharti airtel is placed at the position 12. Fortune 500 selects
the company based on their revenue. Bharti airtels annual revenue for the year 2014 was
80,922.30. During the year 2013 Bharti airtel was at the position 11with annual revenue
of 71770.10. Even though the annual revenue increases, its position has been dropped
down in fortune 500 list.
TABLE NO 4.5
BRAND ANALYSIS
Year
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
Position
16
14
12
11
12
Revenue
37504.46
41951.93
59601.80
71770.10
80922.30
70
CHART NO 4.5.1
CHART SHOWING POSITION OF BHARTI AIRTEL IN FORTUNE 500
16
16
14
14
12
12
12
11
10
8
6
4
2
0
2010-2011
2011-2012
2012-2013
2013-2014
Position in Fortune 500
71
2014-2015
CHART NO 4.5.2
CHART SHOWING ANNUAL REVENUE OF BHARTI AIRTEL IN LAST 5
YEARS
90000
80922.30
71770.10
80000
70000
59601.80
60000
37504.46
50000
41951.93
40000
30000
20000
10000
0
2010-2011
2011-2012
2012-2013
2013-2014
Annual revenue
72
2014-2015
4.6 SWOT ANALYSIS

Strengths
Weaknesses
Cost advantage
Bad communication
Effective communication
Low R&D
Online growth
Not innovative
Loyal customers
Not diversified
Market share leadership
Strong management team
Strong brand equity
Strong financial position
Supply chain
Reputation management
Opportunities
Threats
Acquisitions
Competition
Financial markets (raise money
Economic slowdown
through debt, etc)
External changes (government,
Emerging markets and expansion
politics, taxes, etc)
abroad
Innovation
Takeovers
Maturing categories, products, or

services
Price wars
DETAILED SWOT ANALYSIS

Bharti Airtel is the worlds third largest mobile service provider by subscribers
after China Mobile and Vodafone with over 270 million global customers. It is also
Indias biggest wireless telecom operator both by subscribers and revenue. Those numbers
came in at 193.5 million and Rs. 113 billion ($1.8 billion) respectively after the end of
latest quarter. Again, these figures are just for Airtels mobile services in India.
73
The telco also provides mobile telephony services in 20 other Asian and African
countries. Given the challenging (but improving) telecom sector sentiment in India, it is
worthwhile to discuss a Strengths, Weaknesses, Opportunities, and Threats (SWOT)
analysis for the company.
STRENGTHS
Biggest mobile service provider in worlds second largest telecom market
Mobile phone subscriptions now follow the normal population trends around the
world. With about 870 million wireless subscriptions, India ranks second after China in
the wireless market. Airtel has a 22.2% share of that market.
Well-established nationwide infrastructure
Airtel has been in the market for 18+ years and thus has towers and backhaul all
over the country. This is a major advantage. Deployment of new technologies or
increasing capacity at times requires software and minimal hardware upgrade. Having
infrastructure already on the ground makes that process much faster and smoother.
Secondly, it is easier to capture new customers if a telco already has a network in place.
High brand equity
Airtel is among Indias most visible brands omnipresent in most parts of the nation
through television, print and various other forms of advertising. Celebrity endorsements
and innovative advertising that understand the pulse of market are some of the assets of
the Airtel brand.
74
Superior overall network quality and reliability

Bharti Airtel (along with Vodafone) runs one of the better mobile networks in
India. They have nationwide penetration and although there is no dearth of consumer
complaints regarding dropped calls and slow data against Airtel, it still offers a higher
quality telecom service experience as compared to most other telcos.
WEAKNESSES
High competition in the telecom market
Airtel, like all other service providers in India, has been adversely affected by the
extreme price competition. Although the average voice call rates have gone up recently,
they were as low as Rs. 0.6/min. (1 cent/min.) a few years ago. The story is similar with
data and 3G tariffs. As a result, the company has been reporting declining profits for many
years. ARPU had been decreasing too although it is showing signs of bottoming out now.
Debt and finances
According to their latest quarterly report, Airtel is burdened by $9.7 billion in net
debt, which is a lot of money when converted to rupees. How can Airtel repay this debt is
the question? Possibilities include stake and equity sale or spike in revenue. Depreciating
rupee is also an issue since it results in foreign exchange losses and increases the financing
cost.
Africa acquisitions and operations
Airtel acquired Zains Africa business for $9 billion in 2010. Since then, it has
struggled to turn around those operations reporting repeated losses from the continent.
75
While the Africa operation has widened the companies geography, it continues to
be a drag on its balance sheet.
Late adoption of 3G and advanced wireless technologies
Due to various regulatory uncertainties and delayed spectrum auctions, India and
Airtel were late to the 3G party. 3G services were launched by Airtel only in early 2011.
The data tariffs were high, speeds were unsatisfactory and customer acceptance of 3G was
slow. The company lacks nationwide 3G license with spectrum in 13 out of 22 telecom
service areas. Airtels LTE network for mobile broadband is still confined to only 4 cities
in India.
OPPORTUNITIES
LTE
The whole wireless world is moving towards LTE. LTE for mobile broadband can
be a good solution for India where fixed broadband penetration is otherwise low. Airtel
has taken the lead with this version of LTE in 4 cities, but deployment needs to catch up
pace. Despite a weak LTE ecosystem in India, Airtel should portray itself as the embracer
of that technology. It must pursue the device manufacturers to produce LTE capable
phones for India and then take the lead in the deployment of LTE for cellular networks
too.
Untapped voice market
Despite many believing that the voice market in India is close to saturation,
hundreds of millions remain without a phone.
76
Recently, VLR (Visitor Location Register) numbers released by the regulator

TRAI, showed that around 730 million out of the total 870 million are active connections.
Given many people in India use multiple SIMs, it is safe to say that mobile phone
penetration in the country is less than 50%. The opportunity for Airtel is huge, especially
in the rural segment.
3G and data revenue
Airtels 3G subscribers constitute less than 5% of its total subscriber base. Apart
from getting new 3G customers to join Airtel, there is immense room for growth within its
existing customers. The operator should be more aggressive in marketing the benefits of
high speed data access on phone. Simultaneously, it must ensure faster and consistent data
speeds on its network.
Mergers and Acquisitions
Unfortunately, the M&A rules in India are yet to formally declared although recent
media reports have suggested that companies may be allowed to merge as long as their
market share in every circle is less than 50%. Airtel with a market share of 22.2% should
be good to acquire smaller telcos to reduce competition and add subscribers and spectrum.
Such acquisitions will incur huge spectrum costs, but it could be well worth it in the long
term.
77
THREATS
Unfriendly regulatory environment
The telecom industry in India has been plagued by a hostile and unstable
regulatory scenario. This has adversely affected the industry sentiment and the wireless
service providers. While some clarity has begun to emerge, many guidelines are far from
certain. Airtel has not remained untouched from this chaos. And this threat would
continue to linger for the next few years.
Spectrum Auctions and Reframing
Government of India and TRAI kept a high reserve price for 3G, BWA and the
recent 1800 MHz auction. Airtel had spent Rs. 123 billion ($2.7 billion per rupee to dollar
conversion back then) for 3G airwaves. Since the returns are slow due to low tariffs,
buying the spectrum at high price is detrimental for the telcos. Reframing 900 MHz is
another terrible idea which would negatively impact Airtels finances, given that it will
have to repurchase those airwaves to continue 2G operations.
Mobile Number Portability
MNP gives the customer independence to change the service provider while
retaining the number. With similar tariffs across various telcos and satisfaction with the
current service provider being low, consumers are willing to jump ship. The larger
incumbent operators are losing millions of customers to the newer players who attract
these customers with their freebies and innovative offers. Some of the points mentioned
above also apply to big incumbent telcos in India like Vodafone and Idea. But let us not
forget that Airtel has been a torchbearer of the Indian wireless industry. If it intends to
remain in that position, a SWOT analysis like this one will help.
78
CHAPTER V
FINDINGS, SUGGESTIONS & CONCLUSION
5.1 FINDINGS
The analysis of capital and financial structure of the selected sample units showed
the following result.
Financial Leverage shows an increasing trend in all five years of the study period
(Table 1). This indicates that a high rate of financial Leverage was due to high
interest out flow and consequently higher borrowings.
The Operating Leverage has been increased from 1.2 to 3.4 in the five years of the
study period (Table 2). This indicates that the company had lightly used its fixed
operating cost.
The combined leverage shows an increasing trend during the five years of the study
period (Table 3). This indicates that the total risk is increasing year by year.
The cost of equity was higher in 2nd year of the study period and lower in last 3
years of the study period (Table 4). This indicates that the market price was very
high. So the cost of equity was very low in 2nd year 2011-2012.
Cost of debt shoes a fluctuating trend during five years of the study period
(Table 5). Because of Interest charge for debt. The cost of debt was maximum in
the year 2014-2015.
Weighted average cost of capital shows a fluctuating trend during the five years of
the study period (Table 6). Since the cost debt had been increased to a grated
extent in 2011-2012 and weighted average cost of capital was higher in the period.
79
Debt equity ratio shows a fluctuating trend during the five years of the study period
(Table 7). However equity is more than debt in all the years. So the ratio is
satisfactory to the company.
Capital gearing ratio shows an increasing trend during the five years of the study
period (Table -8). This ratio indicates that the company is said to be in a low gear.
Ratio of fixed assets to funded debt also shows a fluctuating trend during the five
years of the study period (Table 9). This indicates that the company reduced the
usage of debt fund in the later years of the study period.
Ratio of current liability to proprietors funds shows a decreasing trend in the last
three years of the study period (Table 10). This ratio reveals that the company has
used more equity funds than the debt funds in the later years of the study
Shareholders ratio shows a decreasing trend during the five year of the study period
(Table 11). The ratio indicates that nearly 61% of assets are financial through
shareholders funds and remaining through outsiders.
Fixed assets turnover ratio shows an increasing trend during the study period
(Table 12). The higher turnover ratio indicates the more efficient management
and better utilized of available fixed assets.
Ratio of reserves to equity capital shows an increasing trend during the five years of
the study period (Table 13). This ratio indicates that fair amounts of earning were
retained for future expansion.
The capital structure of Bharti airtel. Reveals that the debt capital proportion had
increased in the later years of the study period (Table - 14).
80
5.2 SUGGESTIONS
The following are some of the suggestion offered by the researcher to Bharti airtel.,
The company has to no change its debt equity proposition by introducing more
equity fund rather than paying high rate of interest on debt.
In future the company can use equity capital for long term obligations and debt
capital for the short term obligations as equity capital is best suitable for long run
and debt capital is best suited for activities.
Capital gearing ratio and ratio of reserves to equity capital should be maintained at
the same level.
The financial decision of the company should be shaped in such a way, that it
should support the companys capital structure.
81
5.3 CONCLUSION
Financing the firms assets is a very crucial problem in every business and as a
general rule there should be proper mix of debt and equity capital in financing the firms
assets. Firms with unplanned capital structure can prosper in short run but face difficulties
in mobilizing additional funds and increasing the value of the business in the long run.
Equity and debt are the two principal source of finance of the companies. Making
an appropriate debt and equity mix in capital structure is an important financial decision in
every business enterprises. Therefore every company should try to formulate and maintain
optimum capital structure.
This has prompted the researcher to make an analysis of capital structure in Bharti
airtel limited which is taken as a sample unit for the present study. The data required for the
study was collected from the Dion global solutions limited database.
The collected data were analyzed with the help of selected financial ratios and
statistical tools like arithmetic mean and correlations analysis. Based on the findings of the
study suitable a suggestion is also offered by researcher for the selected sample unit.
The researcher hopes that the present study will provide better idea for conducting
further research in the same area in near future.
82
BIBLIOGRAPHY
BOOKS
Mukherjee & Hanif
Corporate Accounting
Tata McGraw-Hill Education,
2005.
S.N. Maheswari
Principles of management
Accounting,
Sultan Chand & sons
New Delhi, 1996.
JOURNALS
Thomson Reuters Journal Citation Reports
ICFAI journal of Applied Economics
WEB SOURCES
www.airtel.in/
http://en.wikipedia.org/wiki/Bharti_Airtel
http://www.moneycontrol.com/india/stockpricequote/telecommunicationsservice/b
hartiairtel/BA08
http://www.nseindia.com/live_market/dynaContent/live_watch/get_quote/GetQuot
e.jsp?symbol=BHARTIARTL
83

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CHAPTER IV

4. ANALYSIS AND INTERPRETATION

4.1.2 COST OF DEBT

4.1.3 WEIGHTED AVERAGE COST OF CAPITAL

4.1.4 DEBT EQUITY RATIO

Long term debt

4.1.5 CAPITAL GEARING RATIO

Equity share capital + reserves & surplus

Equity share capital +

Long term debt

4.1.6 RATIO OF FIXED ASSETS TO FUNDED DEBT

4.1.7 RATIO OF CURRENT LIABILITIES TO SHAREHOLDERS FUND

4.1.8 SHAREHOLDERS RATIO

4.1.9 FIXED ASSETS TURN OVER RATIO

4.1.10 RATIO OF RESERVES TO EQUITY CAPITAL

4.1.11 CAPITAL STRUCTURE OF BHARTI AIRTEL

4.2 TREND ANALYSIS

4.2.1 CURRENT ASSET

In accounting, a current asset is any asset reasonably expected to be sold,

4.3 COMPARATIVE BALANCE SHEET

Most of the time, a

CASH AND BANK BALANCE

LOANS AND ADVANCES

TOTAL CURRENT ASSETS

TOTAL CURRENT LIABILITIES

TOTAL CURRENT ASSETS

TOTAL CURRENT LIABILITIES

CASH AND BANK BALANCE

LOANS AND ADVANCES

TOTAL CURRENT ASSETS

TOTAL CURRENT LIABILITIES

CASH AND BANK BALANCE

LOANS AND ADVANCES

TOTAL CURRENT ASSETS

TOTAL CURRENT LIABILITIES

4.4 LEVERAGE ANALYSIS

Financial leverage ( in times)

4.4.2 OPERATING LEVERAGE

Operating leverage(in times)

4.4.3. COMBINED LEVERAGE

4.5 FORTUNE 500 BRAND ANALYSIS

telecommunication solution for companies are included in Airtel enterprise business.

Position in Fortune 500

4.6 SWOT ANALYSIS

Market share leadership

Strong management team

Strong brand equity

Strong financial position

Financial markets (raise money

through debt, etc)

External changes (government,

Emerging markets and expansion

politics, taxes, etc)

Maturing categories, products, or

DETAILED SWOT ANALYSIS

Superior overall network quality and reliability

Recently, VLR (Visitor Location Register) numbers released by the regulator

Mukherjee & Hanif

Thomson Reuters Journal Citation Reports

ICFAI journal of Applied Economics

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