Imperial Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-7, 2016 ISSN: 2454-1362, http://www.onlinejournal.in

Financial Statements Analysis of & Reliance : 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, .Pin-code: 190023.

Abstract: India's 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 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 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

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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 evaluate 1. Ratio Analysis has been used for the financial statements”. Financial ratios are used purpose of the analysis of financial as a planning and control tool. Financial ratios statements of both the telecom analysis is used to evaluate the performance of companies under study. an organization. 2. Tabulation has been done in order to know the percentage change. 3. Graphs have been drawn in order to 3. Objectives Of the Study know the trend of ratios of both the companies under study. The study is based on the following objectives: -

1. To determine the financial position of 7. Financial Statements Analysis Idea Cellular & Reliance and Interpretation Of Data Communications Ltd. 2. To determine operational efficiency of According to Brigham and Houston both the companies by calculating (2009), financial analysis involves comparing Operating/Profitability ratios. the firm’s performance to that of other firms in 3. To determine the short term and long the same industry and evaluating trends in the term financial position of both the firm’s financial position over time. One rich companies with the help of Liquidity source of information for financial statement and Solvency ratios analysis is the audited financial statements. The 4. To determine the present performance financial statements are usually part of the with the help of past performance to annual report that listed companies submit to discover the positive and negative regulatory agencies such as Securities and points of both the companies. Exchange Commission and Stock Exchange 5. To give suggestions on the basis of entities. study results. There are six categories of ratios used in 4. Research Design financial statement analysis. They are: - A. Liquidity ratios, which measure a firm’s The study is empirical in nature. The ability to meet cash needs as they arise. present study is aimed to evaluate the B. Activity ratios, which measure the comparative Financial Statements Analysis of liquidity of specific assets and the Idea Cellular and Ltd. efficiency of managing assets. throughout the reference period starting from C. Leverage ratios, which measure the March 2010- 11 to March 2014- 2015. extent of a firm’s financing with debt relative to equity and its ability to cover 5. Data Collection interest and other fixed charges. D. Profitability ratios, which measure the Only secondary source of data were overall performance of a firm and its used in the project. Secondary data was efficiency in managing assets, collected from the following sources: liabilities, and equity. E. Solvency ratios, which measure a firm’s • Magazines ability to meet its long term obligations. • Journals F. Market value ratios, which bring in the • Annual reports of Idea cellular and stock price and give an idea of what Reliance telecom investors, think about the firm and its • Newspapers future prospects. • Internet. As we mentioned above six ratios but among them we are analyzing some 6. Statistical Tools and most important ratios.

Techniques Used A. Liquidity Ratios: A class of financial matrics that is used In order to achieve the objectives of the to determine a company’s ability to pay off study the analysis of financial statements has its short – term debts obligations.

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Generally, the higher the value of ratio, the considered to represent the most urgent debts, larger the margin of safety that company requiring retirement within one year or one possesses to cover short term debts operating cycle. The available cash resources to satisfy these obligations must come primarily 1. Current Ratio: from cash or the conversion to cash of other current assets. The ideal ratio is 2:1. The current The current ratio is a commonly used ratio formula is: measure of short-run solvency, the ability of the Current ratio= Current assets/Current firm to meet its debt requirements as they come liabilities due. Current liabilities are used as the denominator of the ratio because they are

Table 1: Table showing Current Ratio Profile & Percentage Change of Selected Telecommunication Companies

Date Company Current Ratio (times) % Change

Reliance Communications 0.68 *** March 2010- 11 Idea Cellular 0.49 ***

Reliance Communications 0.77 13.24 March 2011– 2012 Idea Cellular 0.53 8.16 Reliance Communications 0.69 -10.39 March 2012– 2013 Idea Cellular 0.52 -1.89 Reliance Communications 0.72 4.35 March 2013– 2014 Idea Cellular 0.42 -10.00 Reliance Communications 1.48 105.55 March 2014- 2015 Idea Cellular 0.39 -7.14

(Note: Percentage change = current year’s figure - Previous year figure/Previous year figure)

1.6 1.48 Current Ratio 1.4 Reliance 1.2 Communications 1 Current Ratio Idea 0.77 Cellular 0.8 0.72 0.69 0.68 0.6 0.52 0.53 0.49 0.39 0.42 0.4 0.2 0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Graph 1: Comparative analysis of Current ratio of selected companies

Table 1 explains the Current Ratios and the period of five years. This graph shows the percentage change in Current Ratios of Reliance highest Ratio of both the companies (Reliance Communications Ltd and Idea Cellular from the Communication Ltd and Idea Cellular) in the financial year 2010-2011 to 2014-2015. Graph 1 year (2014-15) i.e., 1.48 and 0.53 in the year shows the distribution of current ratio over the (2011-12) with the increase in percentage change

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of 105.55% and 8.16% respectively. And the 2. Quick Ratio or Acid Test Ratio: lowest Ratio of both the companies (Reliance Quick ratio is an indicator of a Communication Ltd and Idea Cellular) was company’s short-term liquidity. It measures shown in the year (2010-11) i.e. 0.68 and 0.39 in current (short term) liquidity and position of the the year (2014-15), with the decrease in company. The analysis is done by weighing percentage change of 0% and -7.14% current assets of the company against the current respectively. This trend shows that the Current liabilities which result in the ratio that highlights Ratio of Reliance Communication has increased the liquidity of the company. The ideal ratio is in the current year (2014-15). It means if the 1:1 and is calculated as follows: current ratio is too high, then the company may Quick ratio = current assets – (cash not be efficiently using its Current Assets or its and equivalents + marketable short-term financing facilities. This may also securities + `accounts receivable) / indicate problems in working capital current liabilities management.

Table 2: Table showing Quick Ratio Profile & Percentage Change of Selected Telecommunication Companies

Date Company Quick Ratio (times) % Change Reliance Communications 1.01 *** March 2010- 11 Idea Cellular 0.52 *** Reliance Communications 1.19 17.82 March 2011– 2012 Idea Cellular 0.55 5.76 Reliance Communications 1.43 20.16 March 2012– 2013 Idea Cellular 0.55 0 Reliance Communications 1.23 -13.98 March 2013– 2014 Idea Cellular 0.46 -16.36 Reliance Communications 1.61 30.89 March 2014- 2015 Idea Cellular 0.39 -15.217

1.8 1.61 Quick Ratio Reliance 1.6 1.43 Communications 1.4 1.23 1.19 1.2 1.01 Quick Ratio Idea Cellular 1 0.8 0.55 0.55 0.52 0.6 0.39 0.46 0.4 0.2 0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Graph 2: Comparative analysis of Quick ratio of selected companies

Table 2 explains the Quick Ratios and the highest ratio of both the companies (Reliance the percentage change in Quick Ratios of Communication Ltd and Idea Cellular) was Reliance Communications and Idea Cellular shown in the year (2014-15) i.e. 1.61 and 0.55 in from the financial year 2010-2011 to 2014-2015. the year (2011-12), with the increase in Graph 2 shows the distribution of Quick Ratio percentage change 30.89% and 5.76% over the period of five years. This graph shows respectively and the lowest ratio of both the

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company’s (Reliance Communication Ltd and company's performance. Profitability is simply Idea Cellular) i.e. 1.01 in the year (2010-11) and the capacity to make a profit, and a profit is what 0.39 in the year (2014-15), with the decrease in is left over from income earned after you have percentage change of 0% and -15.217% deducted all costs and expenses related to respectively . This trend shows that the ratio of earning the income. The formulas that are being Reliance Communication Ltd. has increased in used in the Profitability Ratios can be used to the current year which means that the most judge a company's performance and to compare liquid assets of Idea Cellular Company exceed its performance against other similarly-situated its total debts. On the opposite side a quick ratio companies. of less than one indicates that a company would Some important profitability ratios have been not be able to repay all its debts by using its analyzed as under: - most liquid assets. 1. Operating Profit Margin ratio: Thus, we conclude that, generally a Operating Gross Profit Margin tells us higher Quick Ratio is preferable because it about the profitability of goods and services. It means greater liquidity. tells us how much it costs us to produce the product. It is calculated by dividing Gross Profit (GP) by Net Sales (NS) and multiplying the quotient by 100: B. Profitability Ratio:

A Profitability Ratio is a measure of • Gross Margin = Gross Profit/Net Sales * profitability, which is a way to measure a 100 o GM = GP / NS * 100 Table 3: Table showing Operating Profit Margin & Percentage Change of Selected Telecommunication Companies

Operating Profit Date Company % Change Margin (%) Reliance Communications 3.53 *** March 2010- 11 Idea Cellular 23.59 *** Reliance Communications 21.67 515.34 March 2011– 2012 Idea Cellular 25.20 6.82 Reliance Communications 24.21 11.72 March 2012– 2013 Idea Cellular 23.19 -7.97 Reliance Communications 16.25 -32.87 March 2013– 2014 Idea Cellular 27.78 19.79 Reliance Communications 15.33 -5.66 March 2014- 2015 Idea Cellular 30.92 11.30

40 30.92 Operating Profit 27.78 30 24.21 25.2 Margin(%) Reliance 23.19 21.67 23.59 Communications 16.25 20 15.33 Operating Profit 10 3.53 Margin(%) Idea Cellular 0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Graph 3: Comparative analysis of Operating Profit Margin of selected companies

Table 3 explains the Operating Profit shows the distribution of Operating Profit Margin and the percentage change in Operating Margin over the period of 5 years. This graph Profit Margin ratios of Reliance shows the highest ratio of both the companies Communications Ltd and Idea Cellular from the (Reliance Communication Ltd and Idea Cellular) financial year 2010-2011 to 2014-2015. Graph 3 was shown in the year (2012-13) i.e. 24.21 %

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and 30.92 % in the year (2014-15), with the current year, which means higher the operating increase in percentage change of 11.72% and margin, the profitable a company’s core is. 11.30% respectively; and the lowest ratio of both the companies (Reliance Communication Ltd 2. Profit before Interest and Tax : and Idea Cellular) was shown in the year (2010- Profit or earnings before interest and 11) i.e. 3.53 % and 23.19 % in the year (2012- tax is an indicator of a company’s profitability 13) with the decrease in percentage change 0% calculated as revenue minus expenses excluding and -7.97% respectively. This trend shows that tax and interest. EBIT is also referred as the ratio of idea cellular is increasing in the “operating earnings”, “operating profit” and profit before interest and tax.

Table 4: Table showing profit before interest and tax& Percentage Change of Selected Telecommunication Companies

Profit before interest Date Company % Change and tax margin (%) Reliance Communications -8.77 *** March 2010- 11 Idea Cellular 12.29 *** Reliance Communications 5.62 -164.08 March 2011– 2012 Idea Cellular 14.71 19.69 Reliance Communications 8.16 45.19 March 2012– 2013 Idea Cellular 9.32 -36.64 Reliance Communications -1.85 -122.67 March 2013– 2014 Idea Cellular 12.07 29.50 Reliance Communications -2.55 37.83 March 2014- 2015 Idea Cellular 15.18 25.76

20 15.18 14.71 15 12.07 12.29 Profit Before Interest And Tax 9.32 Margin(%) Reliance 10 8.16 Communications 5.62 5 Profit Before Interest And Tax 0 Margin(%) Idea Cellular Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 -5 -2.55 -1.85 -10 -8.77

Graph 4: Comparative analysis of Profit before Interest and Tax Margin of selected companies

Table 4 explains the Profit before respectively. And the lowest ratio of both the Interest and Tax and the percentage change in companies (Reliance Communication Ltd and Profit before interest and tax of Reliance Idea Cellular) was shown in the year (2013-14) Communications Ltd. and Idea Cellular from the i.e,-1.85 % and 9.32 % in the year (2012-13), financial year 2010-2011 to 2014-2015. Graph 4 with the decrease in percentage change - shows the distribution of profit before interest 122.67% and -36.64% respectively. This trend and tax over the period of 5 years. This graph shows that ratio of Idea Cellular is increasing in shows the highest position of both the companies the current year. This indicator gives information (Reliance Communication Ltd and Idea Cellular) on a company’s earnings ability increase in was shown in the year (2012-13) i.e., 8.16 % and EBIT is mainly due to growth of net revenue, 15.18 % in the year (2014-15), with the increase good cost control and strong productivity and in percentage change 44.52% and 25.76%

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decrease in EBIT margin largely results from It is the percentage of revenue left after reduction in revenue and higher operating costs. all expenses have been deducted from sales. The measurement reveals the amount of profit that a 3. Net Profit Margin: business can extract from its total sales.

Table 5: Table showing net profit margin & Percentage Change of Selected Telecommunication Companies

Date Company Net profit margin (%) % Change Reliance Communications -6.24 *** March 2010- 11 Idea Cellular 5.50 *** Reliance Communications 1.40 -122.43 March 2011– 2012 Idea Cellular 2.99 -45.63 Reliance Communications 5.53 295 March 2012– 2013 Idea Cellular 3.71 24.08 Reliance Communications 6.53 18.08 March 2013– 2014 Idea Cellular 6.46 74.12 Reliance Communications -1.42 -121.74 March 2014- 2015 Idea Cellular 8.98 39.00

10 8.98 6.536.46 5.53 5.5 Net Profit Margin(%) Reliance Communications 5 3.71 2.99 1.4 Net Profit Margin(%) Idea 0 Cellular Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 -1.42 -5 -6.24 -10 Graph 5: Comparative analysis of Net Profit Margin of selected companies

Table 5 explains the Net Profit Margin with the decrease in percentage change - and the percentage change in of Reliance 121.74% and -45.63% respectively. This trend Communications Ltd. and Idea Cellular from the shows that the ratio of idea cellular has been financial year 2010-2011 to 2014-2015. Graph 5 increased in the current year; the company with shows the distribution of net profit margin over high net profit margin indicates that a company the period of 5 years .This graph shows the is pricing its products correctly and is exercising highest position of both the companies (Reliance good cost control. Communication Ltd and Idea Cellular) was shown in the year (2013-14) i.e., 6.53 % and 4. Return on net worth: 8.98 % in the year (2014-15), with the increase in percentage change of 18.08% and 39% It means determination of the ratio of a respectively; and the lowest ratio of both the individual or business taxpayer’s income to companies (Reliance Communication Ltd and their overall net worth .In the business context, Idea Cellular) was shown in the year (2014-15) net worth is also known as book value or i.e., -1.42 % and 2.99 % in the year (2011-12) , shareholders’ equity.

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Table 6: Table showing Return on Net Worth Margin & Percentage Change of Selected Telecommunication Companies

Return on net worth Date Company % Change margin (%) Reliance Communications -1.57 *** March 2010- 11 Idea Cellular 6.87 *** Reliance Communications 0.34 -121.65 March 2011– 2012 Idea Cellular 4.46 -35.08 Reliance Communications 1.88 452.9 March 2012– 2013 Idea Cellular 5.83 30.71 Reliance Communications 2.32 23.40 March 2013– 2014 Idea Cellular 10.89 86.79 Reliance Communications -0.42 -118.10 March 2014- 2015 Idea Cellular 12.83 17.81

14 12.83

12 10.83 Return On Net Worth(%) Reliance 10 Communications

8 6.87 Return On Net 5.83 Worth(%) Idea 6 4.46 Cellular 4 2.32 1.88 2 0.34 0 -0.42Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 -2 -1.57 -4

Graph 6: Comparative analysis of Return on Net Worth of selected companies

Table 6 explains the Return on Net Worth 15) i.e., -0.42 % and 4.46 % in the year (2011- and the percentage change in Return on Net 12), with the decrease in percentage change of - worth of Reliance Communications and Idea 118.10% and -35.08% respectively. This trend Cellular from the financial year 2010-2011 to shows that the ratio of idea cellular has been 2014-2015. Graph 6 shows the distribution of increased in the current year. It indicates the return on net worth over the period of 5 years. company with the increase in the net worth This graph shows the highest ratio of both the indicates good financial health. companies (Reliance Communication and Idea Cellular) was shown in the year (2013-14) i.e., 5. Return on Assets including Revaluation: 2.32 % and 12.83 % in the year (2014-15), with Return on Assets is the ratio of annual the increase in percentage change of 23.40% and net income to average total assets of a business 17.81% respectively; and the lowest ratio of during a financial year. It measures efficiency of both the companies (Reliance Communication the company in using its assets to generate net and Idea Cellular) was shown in the year (2014- income .It is a Profitability Ratio.

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Table 7: Table showing Return on Assets including Revaluation & Percentage Change of Selected Telecommunication Companies

Return on Assets Date Company including Revaluation % Change (%) Reliance Communications 233.25 *** March 2010- 11 Idea Cellular 37.18 *** Reliance Communications 217.53 -6.75 March 2011– 2012 Idea Cellular 38.99 4.86 Reliance Communications 160.57 -26.18 March 2012– 2013 Idea Cellular 42.30 8.48 Reliance Communications 153.62 -4.32 March 2013– 2014 Idea Cellular 46.95 10.99 Reliance Communications 144.12 -6.18 March 2014- 2015 Idea Cellular 60.84 29.58

250 233.25 217.53 Return on Assets 200 Including Revaluations 160.57 Reliance Communications 144.12 153.62 150 Return on Assets 100 Including Revaluations 60.84 Idea Cellular 46.95 42.3 50 38.99 37.18

0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Graph 7: Comparative analysis of Return on Assets including Revaluations of selected companies

Table 7 explains the Return on Assets that the higher values of return on assets are including Revaluations and the percentage more profitable. change in Return on Assets including Revaluations of Reliance Communications and C. Solvency ratios: Idea Cellular from the financial year 2010-2011 A key metric used to measure an enterprise’s to 2014-2015. Graph 7 shows the distribution of ability to meet its debt and other obligations. The Return on Assets over the period of 5 years. This solvency ratio indicates whether a company’s graph shows the highest ratio of both the cash is sufficient to meet its short term and companies (Reliance Communication and Idea long term liabilities. Cellular) was shown in the year (2010-11) i.e., 233.25 % and 60.84 % in the year (2014-15), 1. Debt to Equity: with the increase in percentage change of 0% and 29.58% respectively; and the lowest ratio of The Debt to Equity ratio is a financial ratio both the companies (Reliance Communication indicating the relative proportion of shareholders and Idea Cellular) was shown in the year (2014- equity and debt used to finance a company’s 15) i.e.,144.12 % and 37.18 % in the year (2010- assets. The Debt to Equity ratio measures the 11), with the decrease in percentage change of - riskiness of a company’s financial structure. 6.18% and 0% respectively . The trend shows

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Table 8: Table showing Debt to Equity& Percentage Change of Selected Telecommunication Companies

Debt Equity Ratio Date Company % Change (times) Reliance Communications 0.48 *** March 2010- 11 Idea Cellular 0.86 *** Reliance Communications 0.62 29.16 March 2011– 2012 Idea Cellular 0.79 -8.13 Reliance Communications 0.92 48.38 March 2012– 2013 Idea Cellular 0.80 1.26 Reliance Communications 0.96 4.34 March 2013– 2014 Idea Cellular 1.14 42.5 Reliance Communications 0.76 -20.83 March 2014- 2015 Idea Cellular 0.74 -35.08

1.2 1.14 Debt to Equity Ratio 0.96 0.92 1 0.86 Reliance Communications 0.76 0.8 0.79 0.8 0.74 0.62 Debt to Equity Ratio Idea 0.6 0.48 Cellular 0.4

0.2

0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

Graph 8: Comparative analysis of Debt to Equity Ratio of selected Companies

Table 8 explains the Debt to Equity better than Reliance as it shows that its ratio has ratio and the percentage change in Debt to equity been increased in previous year (2013-14), as the ratios of Reliance Communications and Idea company with higher Debt to Equity ratio Cellular from the financial year 2010-2011 to indicates that more creditor financing (bank 2014-2015. Graph 8 shows the distribution of loans) is used than investor financing Debt Equity Ratio over the period of 5 years. (shareholders). This graph shows that the highest ratio of (Reliance Communication and Idea Cellular) 2. Long Term Debt Equity Ratio: was shown in the year (2013-14) i.e.0.96 and in It expresses the relationship between the year (13-14) i.e., 1.14, with increase in long term capital contributions of creditors as percentage change of 4.34% and 42.5% related to that contributed by owners (investors). respectively. And the lowest ratio of both the As opposed to debt to equity, long term debt to companies was shown in the year of (2010-11) equity expresses the degree of protection i.e. 0.48 (Reliance communication) and 0.74 in provided by the owners for the long term (2014-15) (Idea cellular), with the decrease in creditors percentage change of 0% and -35.08% respectively .Thus, the trend shows that Idea is

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Table 9: Table showing Long Term Debt to Equity& Percentage Change of Selected Telecommunication Companies

Long term Debt equity Date Company % Change ratio (times) Reliance Communications 0.28 *** March 2010- 11 Idea Cellular 0.72 *** Reliance Communications 0.52 85.714 March 2011– 2012 Idea Cellular 0.67 -6.94 Reliance Communications 0.69 32.69 March 2012– 2013 Idea Cellular 0.75 11.94 Reliance Communications 0.73 5.797 March 2013– 2014 Idea Cellular 1.10 46.66 Reliance Communications 0.72 -1.369 March 2014- 2015 Idea Cellular 0.73 -33.63

1.2 1.1 Long Term Debt Equity Ratio Reliance 1 Communications 0.720.73 0.73 0.75 0.72 0.8 0.69 0.67 Long Term Debt Equity Ratio Idea 0.6 0.52 Cellular

0.4 0.28 0.2

0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11

.

Graph 9: Comparative analysis of long term Debt to Equity ratio of selected Companies

Table 9 explains the Long Term Debt to increased in Idea cellular in the previous year Equity ratio and the percentage change in long i.e., 2013-14. This shows that the Idea company term Debt to equity ratios of Reliance with a high long term debt to equity is Communications Ltd and Idea Cellular from the considered to be highly leveraged. financial year 2010-2011 to 2014-2015. Graph 9 shows the distribution of long term debt equity ratio over the period of 5 years. The highest ratio of both the companies of (Reliance D. Market value ratios Communication Ltd and Idea Cellular)was Market value is the value of a company shown in the year of (2013-14)i.e. 0.73 and 1.1 according to the stock market. Market value in the year (2013-14) , with the increase in is calculated by multiplying a company’s percentage change of 5.797% and 46.66 % shares outstanding by its current market respectively And the lowest ratio of both the price. companies was shown in the year of (2010-11) i.e,0.28 and 0.67 in the year of (2010-11), with 1. Earnings Per Share: the decrease in percentage change of 0% and - 6.94% respectively .The trend shows that ratio is The Earnings per Share Ratio measure the amount of a company’s net income that is Imperial Journal of Interdisciplinary Research (IJIR) Page 1479

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theoretically available for payment to the holders of its common stock. Table 10: Table showing Earning per share & Percentage Change of Selected Telecommunication Companies

Earnings per share Date Company % Change (Rs) Reliance Communications -3.67 *** March 2010- 11 Idea Cellular 2.56 *** Reliance Communications 0.06 -101.63 March 2011– 2012 Idea Cellular 1.74 -32.03 Reliance Communications 3.02 4933.3 March 2012– 2013 Idea Cellular 2.47 41.95 Reliance Communications 3.57 18.21 March 2013– 2014 Idea Cellular 5.09 106.07 Reliance Communications -0.62 -117.336 March 2014- 2015 Idea Cellular 7.81 53.43

10 7.81 Earning per share 8 Reliance Communications 6 5.09 3.57 Earning per share 4 3.02 2.47 2.56 Idea Cellular 1.74 2 0.76 0 Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 -2 -0.62

-4 -3.67 -6

Graph 10: Comparative analysis of earning per share of selected Companies

Table10 explains the long term Earning in the year (2011-12) (Idea cellular), with the Per Share Ratio and the percentage change in decrease in percentage change of -117.336% and Earning Per Share ratios of Reliance -32.03% respectively. The trend shows that the Communications Ltd and Idea Cellular from the ratio of idea has been increased in the current financial year 2010-2011 to 2014-2015. Graph year 2014-15; this means that Idea Cellular with 10 shows the distribution of Earnings Per Share a high Earning Per Share Ratio is capable of ratio over the period of 5 years. The highest ratio generating a significant dividend for investors. of both the companies (Reliance Communication Ltd and Idea Cellular) was shown in the year (2013-14) i.e., Rs 3.57 and Rs 7.81 in the year (2014-15), with the increase in percentage 8. Conclusion change of 18.21 % and 53.43% respectively. And the lowest ratio of both the companies was Being a fastest growing sector, shown in the year (2014-15) i.e., Rs - telecommunication in India is one of the sectors 0.62(Reliance communications Ltd) and Rs 1.74

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where innovation and intense competition is a key to the progress of the industry. 4. The companies can increase Market Share Ratio through innovation,  While reaching to the conclusion strengthening customer relationships, portion we came to know that Current smart hiring practices and acquiring Ratio of Reliance Communication is competitors. better than Idea Cellular.  In Quick Ratio, we came to know the liquidity position of Idea Cellular is 10. References: better than Reliance Communication.  In Debt Equity Ratio the Idea Cellular is [1] Beaver, W. H., “Financial Ratios as better than Reliance Communication to Predictors of Failure”, Journal of Accounting pay its debts. Research, supplement, 1996, PP 71-127.  Again the Long Term Debt Ratio of Idea [2] Bhattacharya, Asish. K., Introduction to cellular is better than Reliance Financial Statement Analysis, Elsevier, New Communication showing that the Idea , 1st edition, Chapter -03, Ratio Analysis, cellular with a high Long Term Debt to (2007), PP 32-45. Equity is considered to be highly [3] Brigham, E.F. and Ehrhardt, M.C., leveraged. “Financial Management Theory and Practice”,  Earnings Per Share Ratio (EPS) shows 13th Ed. South-Western Cengage Learning, that the ratio of idea has been increased Mason, OH, (2010), ISBN: 1439078106, 1184. this means that Idea Cellular with a high [4] Foster, George, “Financial Statement Earning Per Share Ratio is capable of Analysis”, Prentice-Hall, Englewood Cliffs, generating a significant dividend for 1986. investors as compare to Reliance [5] Kothari, C.R., “Research methodology” Communication Ltd. New Age International, New Delhi, 1997, [6] Lermack, H., “Steps to a basic company financial analysis”, Philadelphia University, 9. Suggestions Philadelphia, USA, 2003. [7] Ramamurthy C.G, “Research methodology” As from the analysis we come up with Dreamtech Press India , New Delhi, 2006. following suggestions:- [8] Ross, S., et al, “Financial management fundamentals in Malaysia”’ McGraw-Hill, 1. As the low values for the Liquidity Malaysia, 2007. Ratios indicates that a firm may have [9] Sharma R.K., Management Accounting difficulty in meeting current obligations. Principles and Practice, Kalyani Publishers, Thus, it is better for them to increase Ludhiana, 1998. their liquidity ratio by using long term [10] Vijayalakshmi, B. & Sailaja, M. N., financing rather than cash on hand to “Financial Health Of Selected Companies In acquire inventory or selling unnecessary Telecom Sector: A Comparative Study”, Arth assets. Prabhand: A Journal Of Economics And Managemen,t Vol.2(8), 2013. 2. A Profitability Ratio is a measure of profitability, which is a way to measure a company's performance. Profitability is simply the capacity to make a profit. The WEBSITES firms can improve their profits by improving customers demand and • www.wkipedia.org minimizing costs help increase in • www.ideacellular.com profitability ratios. • www.Reliancecommunications.com • www.moneycontrol.com 3. The companies can make Solvency • www.ndtvprofit.com Ratios more secure either by paying off • http/:mobigyaan.com/telecom/Indian- debt or increasing the amount of telecom-Industry earnings retained in the business until • http://www.moneycontrol.com/financial after balance sheet date. As the higher s/reliancecommunications/ratios/RC13# ratio indicates a possible overuse of RC13 leverage, and it may indicate potential problems meeting the debt payments.

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• http://www.moneycontrol.com/financial • Mhz (Megahertz) s/ideacellular/profit-loss/IC8#IC8 • IAMAI (Internet and Mobile • http://en.wikipedia.org/wiki/Financial_r Association of India) atio • INSAT (Indian National Satellite System) • TDSAT (Telecom Disputes Settlement ABBREVIATIONS Appellate Tribunal ) • NTP (New Telecommunications • RCOM (Reliance Communications) Policy) • TRAI ( Telecom Regulatory Authority • GSM ( Global System for Mobile) of India) • LTE ( Long Term Evolution) • RIL’s (Reliance India Limited)

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Annexure-I

TELECOM REGULATORY AUTHORITY Punjab,,,Orissa,Tamil Naidu OF INDIA And North East.

The Telecom Regulatory Authority of IDEA WI-FI India (TRAI) is the independent regulator of the telecommunications business in India. TRAI Smart Wi-Fi HUB is a compact & portable / was established on February 20, 1997 by an Act W-fi Modem, small enough to fit comfortably in of Parliament to regulate telecom services and one’s palm. The one key design of Smart Wi-Fi tariffs in India. Earlier regulation of telecom Hub blends elegance and practicality to provide services and tariffs was overseen by the Central 3G data connectivity with one touch and enables Government. on the move, IDEA personal Wi-Fi zone Smart Wi-Fi Hub enables internet sharing with TRAI's mission is to create and nurture 10 devices, gives freedom from wires and conditions for growth of telecommunications in software installation & external power IDEA India to enable the country to have a leading role since it comes with powerful 1500Mah battery. in the emerging global information society. IDEA 3G SMART PHONE COMPANY PROFILE OF IDEA Cellular Idea Cellular has launched two dual-SIM 3G IDEA were incorporated as Birla smartphones the Magna and Magna L - priced at Communications Limited on March 14, 1995 Rs. 4,999 and Rs. 6,250 respectively. and granted a certificate of commencement of business on August 11, 1995. IDEA registered Both the Idea Magna and Idea Magna office was in , . L smartphones run Android 4.4 KitKat out-of- the-box and support 3G connectivity - the Services of Idea Cellular in India highlight features of the new smartphones. Idea operates in all circles of India . Its network is present in 395363 villages and 4000 census IDEA NETSETTER towns and 367272 non-census towns and villages , covering approximately 70.2% of the Idea Cellular has launched a new version of its country population as of march 2015.Idea is 2nd 3G dongle called the Idea NetSetter. This new largest operator in rular India with 1.167 million dongle supports speeds up to 21.6Mbps and will users as of april 2015 be available for Rs 2,160 in Idea’s 3G circles, which includes Maharashtra, , Madhya Idea is the 2nd most valued brand according to an Pradesh, , , and annual survey conducted by Brand Finance and . The Economic times 2010. As mentioned above, the new Net Setter Some services provided by Idea Cellular are functions on Idea’s HSPA network and supports :- download speeds of up to 21.6Mbps and upload speeds of up to 5.76Mbps. It is compatible with 3G devices running on Windows 8, Windows 8.1, Windows RT, Linux and Mac and is also Consumers can now avail 3G services in regions backward compatible on EDGE and GPRS. that include Chandigarh, Ludhiana, Nawanshahr, Additionally, it has an in-built microSD card slot Jagraon, Malerkotla and Nabha. With this for cards with up to 32GB of storage. launch, Idea expanded its 3G footprint to 28 Indian states. COMPANY PROFILE OF RELIANCE TELECOMMUNICATIONS Idea to launch 4g services in 750 towns across Reliance Communications Limited is 10 circles by the first half of 2016. The circles the flagship Company of Reliance Anil include Maharashtra, Goa ,AndraPardesh, DhirubhaiAmbani Group, India's third largest , Chhattisgarh, Kerala, business house. The company is India's largest private sector information and communications

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company, with over 100 million subscribers. demanded by government. Reliance has also They have established a pan-India, high- added two sets of spectrum-800 Mhz in 10 capacity, integrated (wireless and wireline), circles and additional 1800 Mhz in six circles, to convergent (voice, data and video) digital boost its 4G services with stable voice calling network, to offer services spanning the entire service. infocomm value chain. On March 27, 2015

Services of Rcom in India RCOM DATA CARD

3G • Wireless broadband for laptops and desktops Network offers you the best coverage, tariff • plans and speed wherever you go. No more lags Download speeds up to 3.1 Mbps and or buffering and messages get delivered upload speeds up to 1.8 Mbps instantly!Managing Reliance mobile account • Simply plug and play from anywhere is also extremely easy. Recharge, • Connectivity across 24,000 towns and 6 pay bills, activate Value Added Services and do lacs villages, as well as along major lots more with handset. highways, railway routes, airport lounges and remote locations in India 4G

RIL’s telecom has pan-India 4G spectrum. Reliance WI-POD “RCom becomes India’s first and only operator with nationwide footprint of contiguous 800/850 Features: MHz spectrum. RCom operations now future- • Superior indoor internet coverage at 800 Mhz proofed across all circles for most advanced LTE • Consistent data speeds technology at most optimal cost,” the company • Connects multiple users simultaneously said in a statement. • Storage support with Micro SD However, RCom spectrum holding in 800 Mhz • Max 6 Users on WIFI in some parts of the country cannot be used to • Micro SD slot offer 4G service as the matter is sub-judice or to start 4G service using those airwaves it will have • Powered by USB Port to pay one-time spectrum fee of Rs 173 crore • Muti OS support IDEA V/S RCOM

ACCORDING TO TELECOM REGULATORY AUTHORTY OF INDIA

Rank Operator's Name Technology Subscribers Ownership Market Share in crores (10m)

1 Airtel GSM EDGE 23.14 (May Bharti 22.74% HSPA+TD-LTE 2015) [1] Enterprises (68%) (September (32%) 2014)

2 Idea Cellular GSM EDGE 15.9 (May 20.50% HSPA+ 2014)[1] (September 2014)

3 India GSM EDGE 17.3 (September Vodafone 18.69% HSPA+ 2014)[1] Group (100%) (September 2014) 4 Reliance CDMA2000 13.4 (September Reliance 11.84%

Communications EVDO REV. B 2014) ADAG (67%) (September GSM EDGE Public (26%) 2014) HSDPA HSPA+ WiMAX 5 BSNL GSM EDGE HSDPA HSPA+ 8.67 (September State-owned 9.32% CDMA2000 2014)[1] (September EVDO REV. 0 2014) WiMAX Source: Wikipedia

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COMPETITORS ANALYSIS

Source: Telecom Regulatory Authority of India (TRAI)

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