Financial Statements Analysis of Idea Cellular & Reliance
Total Page:16
File Type:pdf, Size:1020Kb
Imperial Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-7, 2016 ISSN: 2454-1362, http://www.onlinejournal.in Financial Statements Analysis of Idea Cellular & Reliance Telecommunications: A Comparative Study Sumaira Jan Lecturer, Commerce, J&K Higher Education Department. Alamdar Colony - B, (near Masjid Muhammadia), Lane no.: 03, (Friend’s Lane), Botashah Mohalla, Lal Bazar, Srinagar, Kashmir, Jammu & Kashmir, India.Pin-code: 190023. Abstract: India's telecommunication network is study being conducted to analyze the financial the second largest in the world based on the soundness of the companies. A general belief is total number of telephone users (both fixed and that a firm’s operating performance depends on mobile phone). It has one of the lowest call certain key financial factors viz., Liquidity, tariffs in the world enabled by the mega turnover, profit, asset utilization etc and the telephone networks and hyper-competition variables which are found in profit and loss among them. It has the world's third-largest account and balance sheet of a firm have a Internet user-base. According to the Internet direct or indirect relation with each other. In and Mobile Association of India (IAMAI), the order to measure the performance, ratios, the Internet user base in the country stood at 190 indicators, are normally used to identify the million at the end of June, 2013. Major sectors financial health of the firm. So the study of the Indian telecommunication industry are concentrates on empirical approach towards telephony, internet and television broadcast measuring financial soundness of the companies Industry in the country which is in an on-going operating under one of the most dynamic sector process of transforming into next generation in Indian economy to identify key financial network, employs an extensive system of modern attributes of telecom companies and their network elements such as digital telephone respective impact. exchanges, mobile switching centers, media gateways and signaling gateways at the core, Keywords - Idea Cellular, Reliance interconnected by a wide variety of transmission Telecommunications, Financial Statements systems using fibre-optics or Microwave radio Analysis, Liquidity, Profitability, Solvency, relay networks. Being a fastest growing sector, Market value ratios telecommunications in India is one of the sectors where innovation and intense competition is a 1. Introduction key to the progress of the industry. Therefore, long term survival of the different players in the India's telecommunication network is the second market is the toughest task. And this survival is largest in the world based on the total number of a complex matrix of different strategies and telephone users (both fixed and mobile action plans laid out by the companies from time phone). It has one of the lowest call tariffs in the to time. It is in this context this study titled world enabled by the mega telephone networks “Financial Statements Analysis of Selected and hyper-competition among them. It has the Telecommunication Companies: A Comparative world's third-largest Internet user-base. Study” is unique. In this study a formal effort is According to the Internet and Mobile made to assess and examine the competitive Association of India (IAMAI), the Internet user position of Idea cellular and Reliance Telecom base in the country stood at 190 million at the Company on the basis of financial statements end of June, 2013. Major sectors of the Indian analysis of both the companies. Financial telecommunication industry are telephony, statement analysis from the standpoint of internet and television broadcast Industry in the management relates to all of the questions raised country which is in an on-going process of by creditors and investors because these user transforming into next generation network, groups must be satisfied in order for the firm to employs an extensive system of modern network obtain capital as needed. In relation to the elements such as digital telephone growth and prosperity of telecom sector the exchanges, mobile switching centres, media gateways and signaling gateways at the core, Imperial Journal of Interdisciplinary Research (IJIR) Page 1468 Imperial Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-7, 2016 ISSN: 2454-1362, http://www.onlinejournal.in interconnected by a wide variety of transmission In relation to the growth and prosperity of systems using fibre-optics or Microwave radio telecom sector the study being conducted to relay networks. The access network, which analyze the financial soundness of the connects the subscriber to the core, is highly companies. A general belief is that a firm’s diversified with different copper-pair, optic-fibre operating performance depends on certain key and wireless technologies. DTH, a relatively financial factors viz., turnover, profit, asset new broadcasting technology has attained utilization etc and the variables which are found significant popularity in the Television segment. in profit and loss account and balance sheet of a The introduction of private FM has given a fillip firm have a direct or indirect relation with each to the radio broadcasting in India. other. By establishing a close relationship Telecommunication in India has greatly been between the variables, a firm can analyze its supported by the INSAT system of the country, financial performance in terms of liquidity, one of the largest domestic satellite systems in profitability, viability and sustainability. In order the world. India possesses a diversified to measure the performance, ratios, the communications system, which links all parts of indicators, are normally used to identify the the country by telephone, Internet, radio, financial health of the firm. So the study television and satellite. concentrates on empirical approach towards analyzing the comparative financial soundness Indian telecom industry underwent a high pace of the Idea Cellular and Reliance of market liberalisation and growth since the Telecommunications operating under one of the 1990s and now has become the world's most most dynamic sector in Indian economy to competitive and one of the fastest growing identify key financial attributes of telecom telecom markets. Telecommunication has companies and their respective impact. supported the socioeconomic development of India and has played a significant role to narrow 2. Literature Review down the rural-urban digital divide to some extent. It also has helped to increase the To identify ratios in peer-reviewed articles, transparency of governance with the introduction searches of academic databases using keywords of e-governance in India. The government has such as “financial management”, “Solvency”, pragmatically used modern telecommunication “profitability and liquidity” and “ratio analysis” facilities to deliver mass education programmes were undertaken. Articles published prior to for the rural folk of India. 1995 were excluded from the searches in order to ensure that only the most recent studies were Before starting the analysis of any company’s included. This exclusion was important because financial statements, it is necessary to specify of the many changes in telecom since 1995 and the objectives of the analysis. According to the likely lower relevance of articles prior to Fraser and Ormiston (2004), the objectives will these changes. Ratios were selected from the vary depending on the perspective of the articles if results showed that they were financial statement user and the specific statistically significant in explaining a dimension questions that are addressed by the analysis of of Telecom Companys financial performance, the financial statement data. such as profitability or financial distress. To identify ratios in industry publication, the Several perspectives include the creditor, the websites of various organizations were reviewed investor, and the management. Each of these Malhorta and McLeod, (1994) argued that the stakeholders would have to have questions that only way to assess future financial performance need to be answered. Creditor is usually is through the inclusion of subjective measures. concerned with the ability of an existing or prospective borrower to make interest and Beaver's (1966) contented that standard financial principal payments on borrowed funds. The ratios can predict the financial performance of investor usually attempts to arrive at an firms; many subsequent studies have attempted estimation of a company’s future earnings to demonstrate the predictive value of various stream in order to attach a value to the securities techniques for estimating actual business being considered for purchase or liquidation. performance. Lastly, financial statement analysis from the standpoint of management relates to all of the Ross et al., (2007) expressed most researchers questions raised by creditors and investors divide the financial ratios into four group’s i.e because these user groups must be satisfied in profitability, solvency, liquidity and activity order for the firm to obtain capital as needed. ratios. Lermack, (2003) the benefits of financial ratios analysis: Financial ratios are an important Page 1469 Imperial Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-7, 2016 ISSN: 2454-1362, http://www.onlinejournal.in and well-established technique of financial been done with the help of below mentioned analysis. Brigham and Ehrhardt (2010) stated the statistical tools. “financial ratios are designed to help