chapter 4 finance and accounts

8/10/2019 Chapter 4 Finance and Accounts

1/24

4.1 Organization Structure of finance department

The finance department of a radio station set up is in- charge of handling the all revenues andexpenses in a controlled environment. The primary function this is to ensure that dues fromadvertisers are collected in a timely manner and similarly all payments like utilities, salary and

others are done on time.

It also handles all legal or financial matters relating to mobilizing funds from the market. Thefinance department additionally looks after departments like auditing and taxation.

4.2 Budgeting

Budget of a company is often compiled annually, but may not be a finished budget, usuallyrequiring considerable effort, is a plan for the short-term future, typically allows hundreds or

even thousands of people in various departments (operations, human resources, IT, etc.) to listtheir expected revenues and expenses in the final budget.

If the actual figures delivered through the budget period come close to the budget, this suggeststhat the managers understand their business and have been successfully driving it in the intendeddirection. On the other hand, if the figures diverge wildly from the budget, this sends an 'out ofcontrol' signal, and the share price could suffer.

Budget of the ENIL Company is mainly on advertising, radio show, other event and assets ofradio station.


2/24

4.3 Capital structure

The Capital Structure of Entertainment Network (India) Ltd. presents the Authorized Capital,Issued Capital, and Paid-Up Equity Capital of the company over the period.

Capital Structure - Entertainment Network (India) Ltd.

Period InstrumentAuthorized

Capital Issued Capital - P A I D U P -

From To (Rs. cr) (Rs. cr) Shares (nos) Face ValueCapital (Rs.

Cr)

2012 2013 Equity Share 120.0 47.7 47670415 10.0 47.7

2011 2012 Equity Share 120.0 47.7 47670415 10.0 47.7

2010 2011 Equity Share 120.0 47.7 47670415 10.0 47.7

2009 2010 Equity Share 120.0 47.7 47670415 10.0 47.7

2008 2009 Equity Share 120.0 47.7 47670415 10.0 47.7

2007 2008 Equity Share 120.0 47.7 47656060 10.0 47.7

2006 2007 Equity Share 120.0 47.6 47584575 10.0 47.6

2005 2006 Equity Share 120.0 47.6 47563665 10.0 47.6

2004 2005 Equity Share 120.0 117.0 116960000 10.0 117.0

4.4 Internal audit policies and financial control system

4.4.1. Report on the Financial Statements

1. We have audited the accompanying financial statements of Entertainment Network (India)Limited (the Company), which comprise the Balance Sheet as at March 31, 2013, and theStatement of Profit and Loss and Cash Flow Statement for the year then ended, and a summaryof significant accounting policies and other explanatory information, which we have signedunder reference to this report.

4.4.2. Managements Responsibility for the Financial Stateme nts

2. The Companys Management is responsible for the preparation of these financial statementsthat give a true and fair view of the financial position, financial performance and cash flows ofthe Company in accordance with the Accounting Standards referred to in sub-section (3C) ofsection 211 of the Companies Act, 1956 of India (The Act). This responsibility includes thedesign, implementation and maintenance of internal control relevant to the preparation and


3/24


4/24

(a) We have obtained all the information and explanations which, to the best of our knowledgeand belief, were necessary for the purpose of our audit;

(b) In our opinion, proper books of account as required by law have been kept by the Companyso far as appears from our examination of those books;

(c) The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by thisReport are in agreement with the books of account;

(d) In our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statementdealt with by this report comply with the Accounting Standards referred to in sub-section (3C) ofsection 211 of the Act;

(e) On the basis of written representations received from the directors as on March 31, 2013 andtaken on record by the Board of Directors, none of the directors is disqualified as on March 31,2013, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274of the Act.

Referred to in paragraph 7 of the Independent Auditors Report of even date to the members ofEntertainment Network (India) limited on the financial statements as of and for the year endedMarch 31, 2013

i. (a) The Company is maintaining proper records showing full particulars, including quantitativedetails and situation, of fixed assets.

(b) The fixed assets are physically verified by the Management according to a phased programme designed to cover all the items over a period of three years which, in our opinion, isreasonable having regard to the size of the Company and the nature of its assets. Pursuant to the

programme, a portion of the fixed assets has been physically verified by the Management duringthe year and no material discrepancies between the book records and the physical inventory have

been noticed.

(c) In our opinion, and according to the information and explanations given to us, a substantial part of fixed assets has not been disposed of by the Company during the year.

ii. The Company is in the business of rendering services, and consequently, does not hold anyinventory.

Therefore, the provisions of Clause 4(ii) of the said Order are not applicable to the Company.

iii. The Company has not granted/taken any loans, secured or unsecured, to companies, firms orother parties covered in the register maintained under Section 301 of the Act. Therefore, the

provisions of Clause 4(iii) [(b), (c) and (d) / (f) and (g)] of the said Order are not applicable tothe Company.


5/24

iv. In our opinion, and according to the information and explanations given to us, there is anadequate internal control system commensurate with the size of the Company and the nature ofits business for the purchase of fixed assets and for the sale of services. Further, on the basis ofour examination of the books and records of the Company, and according to the information andexplanations given to us, we have neither come across, nor have been informed of, anycontinuing failure to correct major weaknesses in the aforesaid internal control system.

v. (a) According to the information and explanations given to us, we are of the opinion that the particulars of all contracts or arrangements that need to be entered into the register maintainedunder section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion, and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements and exceeding the value ofRupees Five Laths in respect of any party during the year have been made at prices which arereasonable having regard to the prevailing market prices at the relevant time.

vi. The Company has not accepted any deposits from the public within the meaning of Sections58A and 58AA of the Act and the rules framed there under.

vii. In our opinion, the Company has an internal audit system commensurate with its size and thenature of its business.

viii. We have broadly reviewed the books of account maintained by the Company in respect of products where, pursuant to the rules made by the Central Government of India, the maintenanceof cost records has been prescribed under clause (d) of sub-section (1) of Section 209 of the Act,and are of the opinion that, prima facie, the prescribed accounts and records have been made andmaintained. We have not, however, made a detailed examination of the records with a view todetermine whether they are accurate or complete.

ix. (a) According to the information and explanations given to us and the records of theCompany examined by us, in our opinion, the Company is regular in depositing undisputedstatutory dues, including provident fund, investor ed ucation and protection fund, employeesstate insurance, income tax, wealth tax, service tax, customs duty, excise duty and other materialstatutory dues, as applicable, with the appropriate authorities.

(b) According to the information and explanations given to us and the records of the Company

examined by us, there are no dues of income-tax, sales-tax, wealth-tax, service-tax, customsduty, and excise duty which have not been deposited on account of any dispute.

x. The Company has no accumulated losses as at the end of the financial year and it has notincurred any cash losses in the financial year ended on that date or in the immediately precedingfinancial year.


6/24

xi. As the Company does not have any borrowings from any financial institution or bank nor hasit issued any debentures as at the balance sheet date, the provisions of Clause 4(xi) of the Orderare not applicable to the Company.

xii. The Company has not granted any loans and advances on the basis of security by way of

pledge of shares, debentures and other securities. Therefore, the provisions of Clause 4(xii) ofthe Order are not applicable to the Company.

xiii. As the provisions of any special statute applicable to chit fund/ nidhi/ mutual benefit fund/societies are not applicable to the Company, the provisions of Clause 4(xiii) of the Order are notapplicable to the Company.

xiv. In our opinion, the Company is not dealing in or trading in shares, securities, debentures andother investments.

Accordingly, the provisions of Clause 4(xiv) of the Order are not applicable to the Company.

xv. In our opinion, and according to the information and explanations given to us, the Companyhas not given any guarantee for loans taken by others from banks or financial institutions duringthe year. Accordingly, the provisions of Clause 4(xv) of the Order are not applicable to theCompany.

xvi. The Company has not raised any term loans. Accordingly, the provisions of Clause 4(xvi) ofthe Order are not applicable to the Company.

xvii. The Company has not raised any loans on short term basis. Accordingly, the provisions ofClause 4(xvii) of the Order are not applicable to the Company.

xviii. The Company has not made any preferential allotment of shares to parties and companiescovered in the register maintained under Section 301 of the Act during the year. Accordingly, the

provisions of Clause 4(xviii) of the Order are not applicable to the Company.

xix. The Company has not issued any debentures during the year and does not have anydebentures outstanding as at the beginning of the year and at the year end. Accordingly, the

provisions of Clause 4(xix) of the Order are not applicable to the Company.

xx. The Company has not raised any money by public issues during the year. Accordingly, the

provisions of Clause 4(xx) of the Order are not applicable to the Company.xxi. During the course of our examination of the books and records of the Company, carried outin accordance withthe generally accepted auditing practices in India, and according to theinformation and explanations given to us, we have neither come across any instance of materialfraud on or by the Company, noticed or reported during the year, nor have we been informed ofany such case by the Management.


7/24

4.5 Accounting policies:

4.5.1 Basis of Accounting:

The financial statements comply in all material aspects with all the applicable accounting principles in India, the applicable accounting standards notified under the Companies(Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of theCompanies Act, 1956 ("The Act"). The financial statements are prepared under the historical costconvention on an accrual basis. The accounting policies have been consistently applied by theCompany and are consistent with those followed in the previous year.

All assets and liabilities have been classified as current or non-current as per the criteria set outin the Revised Schedule VI to the Act.

4.5.2. Use of Estimates:

The preparation of financial statements in accordance with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent liabilities as at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting

period. Actual results could differ from these estimates. Any revision to such accountingestimates is recognized prospectively in the accounting period in which such revision takes

place.

4.5.3 Revenue Recognition:

a. Revenue from radio broadcasting is recognized on an accrual basis on the airing of clientscommercials. The revenue that is recognised is net of service tax.

b. Revenue from short period events is recognised according to the completed performancemethod. Revenue from services provided over a longer term is recognised when the result of thetransactions can be determined with reliability and on the percentage completed basis.c. Dividend income on mutual fund units is accounted for when the right to receive the dividendis established by the Balance Sheet date.d. Interest income is recognised on a time proportionate basis taking into account the amountoutstanding and the rate applicable.e. Profit on sale of units of mutual funds is recognised at the time of redemption and isdetermined as the difference between the redemption price and the carrying value.

4.5.4 Fixed assets and Depreciation:

Cost of fixed assets comprises purchase price, duties, levies and any directly attributable cost of bringing the asset to its working condition and location for the intended use.Borrowing cost directly attributable to fixed assets which take substantial period of time to getready forits intended use are capitalized to the extent they relate to the period till such assets areready to be put to use. Cost incurred on assets not ready for their intended use is disclosed asCapital Work-in-Progress.


8/24

a) Tangible assets:

Tangible fixed assets are stated at cost less accumulated depreciation and impairment losses, ifany. Depreciation on tangible fixed assets is provided on written down value method at the ratesand in the manner specified in Schedule XIV to the Act. The cost of leasehold improvements areamortised over the primary period of lease of the property. Leasehold land is not amortised sincethe term of lease is perpetual in nature. Tangible assets individually costing less than 5,000 aredepreciated fully in the year of purchase.

b) Intangible assets (other than Software):

Migration fees paid by the Company for existing licenses upon migration to Phase II of theLicensing policy and One Time Entry Fees paid by the Company for acquiring new licenses have

been capitalised as an asset. The migration fee capitalised is being amortised, with effect fromApril 1, 2005, equally over a period of ten years, being the period of the license. One Time EntryFees is amortised over a period of ten years, being the period of license, from the date ofoperationalization of the respective stations. Goodwill is amortised over a period of five years.

c) Software :

i. Software obtained initially together with hardware is capitalised along with the cost ofhardware and depreciated in the same manner as the hardware. All subsequent purchases ofsoftware licenses are treated as revenue expenditure and charged in the year of purchase.ii. Expenditure on Enterprise Software such as SAP and Sales CRM where the economic benefitis expected to be more than a year is recognised as Intangible Asset and amortised.

4.5.5. Foreign Currency Transactions:

Foreign currency transactions are recorded at the exchange rates prevailing on the date of thetransaction. Gains and losses arising out of subsequent fluctuations are accounted for on actual

payment or realization. Monetary items denominated in foreign currency as at the Balance Sheetdate are converted at the exchange rates prevailing on that day. Exchange differences arerecognised in the Statement of Profit and Loss.

4.5.6. Investments:

Investments that are intended to be held for not more than a year from the date of investment areclassified as Current investments. All other investments are termed as Long term investments.The portion of Long term investments which is expected to be realized within twelve monthsfrom the Balance Sheet date is classified as current investments.Investment in buildings that is not intended to be occupied substantially for use by, or in theoperations of the Company, have been classified as investment property. The same has beenclassified as long term investments. Investment property is carried at cost less accumulateddepreciation.


9/24

Current investments are carried at cost or fair value, whichever is lower. Long term investmentsare stated at cost. However, provision for diminution in value is made to recognize a declineother than temporary in the value of the long term investments.

4.5.7. Retirement Benefits:

a. Short Term Employee Benefits :The employees of the Company are entitled to leave encashment as per the leave policy of theCompany. The liability in respect of leave encashment which is expected to be encased / utilizedwithin twelve months after the Balance Sheet date is considered to be of short term nature.

b. Long Term Employee Benefits:

Defined Contribution Plans :The Company has Defined Contribution Plans for post-employment benefits such as ProvidentFund and Employees Pension Scheme, 1995. Under the Provident Fund Plan, the Company

contributes to a Government administered Provident Fund on behalf of its employees and has nofurther obligation beyond making its contribution.The Company contributes to a State Plan namely Employees Pension Scheme, 1995 and has nofurther obligation beyond making its contribution.The Companys contributions to the above funds are charged to revenue every year.

Defined Benefit Plans:The Company has a Defined Benefit Plan namely Gratuity and Leave Encashment for all itsemployees.The liabilities in respect of Leave Encashment which is expected to be encased / utilized aftertwelve months from the Balance Sheet date is considered to be long term in nature.Liability for Defined Benefit Plan is provided on the basis of valuations, as at the Balance Sheetdate, carried out by an independent actuary. The actuarial valuation method used by theindependent actuary for measuring the liability is the Projected Unit Credit Method. Actuariallosses / gains are recognised in the Statement of Profit and Loss in the year in which they arise.

C. Termination benefits are recognised as an expense as and when incurred.

4.5.8. Operating Leases:

Leases in which a significant portion of the risks and rewards of ownership are retained by thelesser are classified as operating leases. Payments made under operating leases are charged to theStatement of Profit and Loss on a straight-line basis over the period of the lease.

4.5.9 Earnings per share:

Basic earnings per share are calculated by dividing the net profit or loss for the periodattributable to equity shareholders by the weighted average number of equity shares outstandingduring the period. Earnings considered in ascertaining the Companys e arnings per share is thenet profit for the period after deducting preference dividends and any attributable tax thereto for


10/24

the period. The weighted average number of equity shares outstanding during the period and forall periods presented is adjusted for events, such as bonus shares, other than the conversion of

potential equity shares that have changed the number of equity shares outstanding, without acorresponding change in resources. For the purpose of calculating diluted earnings per share, thenet profit or loss for the period attributable to equity shareholders and the weighted average

number of shares outstanding during the period is adjusted for the effects of all dilutive potentialequity shares.

4.5.10 Income Taxes:

Tax expense comprises of Current and Deferred tax. Current income tax and deferred tax aremeasured based on the amount expected to be paid to the tax authorities in accordance with theIncome Tax Act, 1961.Minimum Alternate Tax (MAT) paid in accordance with tax laws which give rise to futureeconomic benefits in the form of adjustment to future income tax liability is considered as anasset, if there is convincing evidence that the Company will pay normal tax in future.

Accordingly, MAT is recognised as an asset in the Balance Sheet when it is probable that thefuture economic benefit associated with it will flow to the Company and the asset can bemeasured reliably.Deferred tax is recognised, subject to the consideration of prudence, on timing differences, beingthe difference between taxable incomes and accounting income that originate in one period andare capable of reversal in one or more subsequent periods. Deferred tax assets are recognisedonly to the extent that there is reasonable certainty that sufficient future taxable income will beavailable against which such deferred tax assets can be realized.

4.5.11. Impairment of Assets:

The Company assesses at each Balance Sheet date whether there is any indication that asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of theasset. If such recoverable amount of the asset or the recoverable amount of the cash generatingunit to which the asset belongs is less than its carrying amount, the carrying amount is reduced toits recoverable amount.The reduction is treated as an impairment loss and is recognised in the Statement of Profit andLoss. If at the Balance Sheet date there is an indication that a previously assessed impairmentloss no longer exists, the recoverable amount is reassessed and the asset is reflected at therecoverable amount.

4.5.12. Provisions and Contingent Liabilities:

The Company recognizes a provision when there is a present obligation as a result of a past eventthat probably requires an outflow of resources and a reliable estimate can be made of the amountof the obligation. Provisions are not discounted to its present date value and are determined

based on best estimates of the amount required to settle the obligation at the Balance Sheet date.These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.


11/24

A disclosure for a contingent liability is made when there is a possible obligation or a presentobligation that may, but probably will not; require an outflow of resources embodying economic

benefit. Where there is a possible obligation or a present obligation that the likelihood of outflowof resources is remote, no provision or disclosure is made.

4.5.13. License Fees:

As per the Frequency Module (FM) broadcasting policy, effective April 1, 2005 license fees arecharged to revenue at the rate of 4% of gross revenue for the period or 10% of Reserve OneTime Entry Fee (ROTEF) for the concerned city, whichever is higher. Gross Revenue for this

purpose shall mean revenue on the basis of billing rates inclusive of any taxes and withoutdeduction of any discount given to the advertiser and any commission paid to advertisingagencies. Barter advertising contracts shall also be included in the gross revenue on the basis ofrelevant billing rates. ROTEF means 25% of highest valid bid in the city.

4.6 Method to calculate depreciation

Depreciation on tangible fixed assets and intangible assets are provided on written down valuemethod at the rates and in the manner specified in Schedule XIV to the Act

4.7 Ratio analysisRatio analysis is a powerful tool for the interpretation of the financial statement. A ratio can bedefined as the indicated quotient of two mathematical expressions in financial analysis theratio is used as the benchmark for evaluating the financial position and performance of a firm.

4.7.1. Current Ratio:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Current Ratio 2.22 1.11 1.78 1.42 1.16 2.03 1.97 2.29 2.41 1.73


12/24

The current ratio represents a margin of safety for creditor. The higher the current ratio, thegreater the margin of safety; the larger amount of current assets in relation to current liabilities,the more firms ability to meet its current obligations. The current ratio of the ENIL reflects thesatisfactory current position of the firm. Current ratio of ENIL is decreased continuously after2004 but after 2004 it is increased. It may be interpreted to be sufficiently liquidity in ENIL.

4.7.2. Quick Ratio:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Quick Ratio 2.22 1.11 1.78 3.28 3.35 3.06 2.12 2.16 2.41 1.73

Quick Ratio is an indicator of company's short-term liquidity. It measures the ability to use itsquick assets (cash and cash equivalents, marketable securities and accounts receivable) to pay itscurrent liabilities.

If quick ratio is higher, company may keep too much cash on hand or have a problem collectingits accounts receivable. Higher quick ratio is needed when the company has difficulty borrowingon short-term notes. A quick ratio higher than 1:1 indicates that the business can meet its currentfinancial obligations with the available quick funds on hand. Quick ratio of ENIL is continually decreased after 2008 but it is also sufficient liquidity in the ENIL.

4.7.3. Debt Equity Ratio:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Debt Equity Ratio 0 0 0.13 0.36 0.62 0.35 0.1 0 0 0


13/24

The debt-to-equity ratio is a measure of the relationship between the capital contributed bycreditors and the capital contributed by shareholders. It also shows the extent to whichshareholders' equity can fulfil a company's obligations to creditors in the event of liquidation.

Debt-Equity ratio of ENIL is decreased continuously after 2008. Low debt-equity ratio implies agreater claim of owners than creditor.Low debt-to-equity ratios may also indicate that a companyis not taking advantage of the increased profits that financial leverage may bring.

4.7.4. Long Term Debt Equity Ratio:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Long Term DebtEquity Ratio 0 0 0.13 0.26 0.4 0.29 0.07 0 0 0

In risk analysis a way to determine a company's leverage. The ratio is calculated by taking thecompany's long-term debt and dividing it by the total value of its preferred and common stock.The greater a company's leverage, the higher the ratio. Generally, companies with higher ratiosare thought to be more risky because they have more liabilities and less equity.
http://www.investinganswers.com/financial-dictionary/economics/capital-5749http://www.investinganswers.com/financial-dictionary/stock-market/equity-5038http://www.investinganswers.com/financial-dictionary/debt-bankruptcy/liquidation-1734http://www.investinganswers.com/financial-dictionary/debt-bankruptcy/leverage-61http://www.investinganswers.com/financial-dictionary/debt-bankruptcy/leverage-61http://www.investinganswers.com/financial-dictionary/debt-bankruptcy/liquidation-1734http://www.investinganswers.com/financial-dictionary/stock-market/equity-5038http://www.investinganswers.com/financial-dictionary/economics/capital-5749


14/24

Long Term Debt Equity Ratio of ENIL Company is reducing after 2008. It is indicated thatcompany do not want to take more interest rate risk.

4.7.5. Debtors Turnover Ratio:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Debtors TurnoverRatio 4.28 4 4.19 4.02 3.92 3.62 3.64 3.2 3.08 3.53

Debtor turnover ratio measures company's efficiency in collecting its sales on credit andcollection policies. The lower the ratio is the longer receivables are being held and the risk to not

be collected increases.

A debtors turnover ratio implies that the company should re-assess its credit policies in orderto ensure the timely collection of credit sales that is not earning interest for the firm. A ratio thatis low by industry standards will generally indicate that your business needs to improve its credit

policies and collection procedures.

Debtor turnover ratio of ENIL is maintained between 3.2 to 4.28 times.

4.7.6 Asset Turnover Ratio:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Asset Turnover Ratio 0.84 1.76 0.71 2.78 0.5 0.49 0.59 0.74 0.73 0.72


15/24

The total asset turnover ratio measures the ability of a company to use its assets to efficientlygenerate sales. This ratio considers all assets, current and fixed. Those assets include fixed assets,like plant and equipment, as well as inventory, accounts receivable, as well as any other currentassets.The lower the total asset turnover ratio as compared to historical data for the firm and industry

data, the more sluggish the firm's sales. This may indicate a problem with one or more of theasset categories composing total assets - inventory, receivables, or fixed assets. The small business owner should analyze the various asset classes to determine in which current or fixedasset the problem lies. The problem could be in more than one area of current or fixed assets.Total asset turnover ratio of the ENIL is not good. It is indicated company is not using its assetsvary well.

4.7.7. Gross Profit Margin (%):

Gross profit margin measures company's manufacturing and distribution efficiency during the production process. It is a measurement of how much from each dollar of a company's revenue isavailable to cover overhead, other expenses and profits.

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gross Profit Margin (%) -40.81 -16.15 30.49 27.1 10.01 4.69 10.01 19.24 22.64 21.42


16/24

The ideal level of gross profit margin depends on the industries, how long the business has beenestablished and other factors. Although, a high gross profit margin indicates that the companycan make a reasonable profit, as long as it keeps the overhead cost in control. A lowmargin indicates that the business is unable to control its production cost.

Gross profit margin of ENIL is continuously increased it is good indication for the company.

4.7.8. Net Profit Margin (%):

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net Profit Margin (%) -51.49 -23.66 24.77 17.11 6.83 1.24 7.65 18.59 18.05 19.04

Net profit margin is an indicator of how efficient a company is and how well it controls its costs.The higher the margin is, the more effective the company is in converting revenue into actual

profit.

Net profit margin of ENIL is continuously increased after 2005 excluding the year 2009 due toglobal crisis.

4.7.9. Earnings per Share:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Earnings Per Share -2.51 -1.53 6.2 6.11 3.4 0.61 3.75 10.95 11.85 14.2


17/24

Earnings per share (EPS) ratio measures how many dollars of net income have been earned byeach share of common stock. It is computed by dividing net income less preferred dividend bythe number of shares of common stock outstanding during the period. It is a popular measure ofoverall profitability of the company.

Earnings per Share of ENIL are increased after 2005 excluding the year 2009 due to global crisisother wise company is given good return on share.

4.7.10. Return on Capital Employed (%): Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Return On Capital

Employed (%) -56.64 -51.39 8.88 7.52 6.39 3.69 7.07 15.15 18.12 17.81

A higher value of return on capital employed is favourable indicating that the company generatesmore earnings per dollar of capital employed. A lower value of ROCE indicates lower


18/24

profitability. A company having less assets but same profit as its competitors will have highervalue of return on capital employed and thus higher profitability. ROCE OF the ENIL is increased up to 18.12% in 2012. ROCE of the ENIL is continuallyincreased after 2005 it is good indication for the company.

4.7.11. Return on Net worth (%):

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Return On Net Worth(%) -56.85 -53.2 11.17 9.9 5.21 0.92 5.38 13.6 12.83 13.47

ROE indicates how well the firm has used the resources. In fact, this ratio is one of the mostimportant relationships in financial analysis. The earning of a satisfactory return is mostdesirable objective of the business.

Company is using its assets to generate revenues it is unable to capitalize its advantage intohigher return on equity due to its lower financial leverage. Company can improve by using itstotal assets more effectively in generating sales and company can improve by raising some debt.

ROE of ENIL Company is highest 13.47 % in 2013. It is continuously increased after 2009. Itknows that ENIL is slowly and gradually using its assets good.


19/24

4.8.1. Common size Balance Sheet

(Rs in Crs)

YearMar13

Mar12

Mar11

Mar10

Mar09

Mar08

Mar07

Mar06

Mar05

Mar04

SOURCES OF FUNDS : Share Capital 47.67 47.67 47.67 47.67 47.67 47.66 47.58 47.56 116.96 116.96Reserves Total 454.63 392.54 336.03 283.82 265.95 262.92 246.07 216.18 -83.26 -65.34Equity Share Warrants 0 0 0 0 0 0 0 0 0 0Equity Application Money 0 0 0 0 0 0 0 0 0 0

Total Shareholders Funds 502.3 440.21 383.7 331.49 313.62 310.58 293.65 263.74 33.7 51.62

Secured Loans 0 0 0 10 20 115.25 31.8 0 0 0Unsecured Loans 0 0 0 23.43 90.07 78 75 35 0 0.09

Total Debt 0 0 0 33.43 110.07 193.25 106.8 35 0 0.09

Other Liabilities 4.69 3.82 2.91 0 0 0 0 0 0 0

Total Liabilities 506.99 444.03 386.61 364.92 423.69 503.83 400.45 298.74 33.7 51.71

APPLICATION OF FUNDS : Gross Block 367.34 367 367.55 365.95 366.45 361.62 275.33 254.88 39.91 40.05Less : Accumulated Depreciation 246.99 217.27 187.53 154.16 117.57 77.99 45.91 27.97 15.64 10.3Less:Impairment of Assets 0 0 0 0 0 0 0 0 0 0

Net Block 120.35 149.73 180.02 211.79 248.88 283.63 229.42 226.91 24.27 29.75Lease Adjustment 0 0 0 0 0 0 0 0 0 0Capital Work in Progress 0 0.09 0.05 1.11 2.05 4.55 56.77 9.85 0 0Investments 317.83 185.03 93.1 40.03 39.03 42.03 6.52 34.25 6.3 1.74

Current Assets, Loans &Advances

Inventories 0 0 0 0 0 0 0 0 0 0Sundry Debtors 99.41 92.24 103.8 68.2 58.57 68.05 48.01 35.27 20.83 16.69Cash and Bank 12.24 44.33 15.61 24.25 11.65 12.09 10.55 3.94 1.67 2.05

Loans and Advances 21.43 23.33 35.86 65.63 85.12 135.21 87.24 27.64 10.33 17.82

Total Current Assets 133.08 159.9 155.27 158.08 155.34 215.35 145.8 66.85 32.83 36.56

Less : Current Liabilities and ProvisionsCurrent Liabilities 54.8 52.22 50.4 50.15 26.22 43.65 29.41 34.6 28.75 15.5Provisions 24.14 8.95 11.52 2.84 2.8 2.52 11.02 4.52 0.95 0.87Total Current Liabilities 78.94 61.17 61.92 52.99 29.02 46.17 40.43 39.12 29.7 16.37 Net Current Assets 54.14 98.73 93.35 105.09 126.32 169.18 105.37 27.73 3.13 20.19

Miscellaneous Expenses notwritten off 0 0 0 0 0 0 0 0 0 0.03

Deferred Tax Assets 9.13 6.53 10.97 28.52 29.14 22.49 12.83 0 0 0Deferred Tax Liability 12.79 16.32 19.82 21.62 21.73 18.05 10.46 0 0 0 Net Deferred Tax -3.66 -9.79 -8.85 6.9 7.41 4.44 2.37 0 0 0Other Assets 18.33 20.24 28.94 0 0 0 0 0 0 0

Total Assets 506.99 444.03 386.61 364.92 423.69 503.83 400.45 298.74 33.7 51.71

Contingent Liabilities 0 0 1.53 70.6 26 52.04 47.64 55.94 44.48 44.48


20/24

4.8.2. Fund Flow:

(Rs in Crs)

Year 13-Mar 12-Mar 11-Mar 10-Mar 9-Mar 8-Mar 7-Mar 6-Mar 5-Mar 4-Mar

Sources of funds

Cash profit 97.39 86.25 85.58 54.46 42.49 48.27 47.02 41.8 0 0Increase in equity 0 0 0 0 0.01 0.08 0.02 0 0 0Increase in other networth 0 0 0 0 0.12 0.66 0.81 269.97 0.01 0Increase in loan funds 0.87 0.91 0 0 0 86.45 71.8 35 0 0Decrease in gross block 0.78 0.51 0 1.44 0 0 0 0 0.14 0Decrease in investments 0 0 0 0 3 0 27.73 0 0 22.5Decrease in workingcapital 40.37 4.26 0 21.74 39.89 0 0 0 17.06 4.29Others 0 0 0 0 0 0 0 0 0.03 0.03

Total Inflow 139.41 91.93 85.58 77.64 85.51 135.46 147.38 346.77 17.24 26.82

Application of funds

Cash loss 0 0 0 0 0 0 0 0 12.59 23.31Decrease in networth 0.81 0 0 0 0 0 0 69.4 0 0Decrease in loan funds 0 0 30.52 76.64 83.18 0 0 0 0.09 0.83Increase in gross block 0 0 0.54 0 2.33 34.07 67.37 224.82 0 2.68Increase in investments 132.8 91.93 53.07 1 0 35.51 0 27.95 4.56 0Increase in workingcapital 0 0 1.45 0 0 65.88 80.01 24.6 0 0Dividend 4.77 0 0 0 0 0 0 0 0 0Others 1.03 0 0 0 0 0 0 0 0 0

Total Outflow 139.41 91.93 85.58 77.64 85.51 135.46 147.38 346.77 17.24 26.82

4.8.3. Cash Flow:

13-Mar 12-Mar 11-Mar 10-Mar 9-Mar 8-Mar 7-Mar 6-Mar 5-MarCash Flow SummaryCash and Cash Equivalents atBeginning of the year 44.33 15.61 16.5 11.65 12.09 8.45 1.49 1.67 2.05

Net Cash from Operating Activities 86.16 112.91 51.41 94.89 109.92 -53.77 15.22 22.84 4.03 Net Cash Used in InvestingActivities -118.23 -84.19 -17.75 1.57 -12.9 -21.58 -81.68 -255.68 -4.12

Net Cash Used in FinancingActivities -0.02 0 -34.55 -83.86 -97.46 78.99 73.42 232.66 -0.29

Net Inc/(Dec) in Cash and CashEquivalent -32.09 28.72 -0.89 12.6 -0.44 3.64 6.96 -0.18 -0.38

Cash and Cash Equivalents at Endof the year 12.24 44.33 15.61 24.25 11.65 12.09 8.45 1.49 1.67


21/24

4.8.4. Profit & Loss:

YearMar13(12)

Mar12(12)

Mar11(12)

Mar10(12)

Mar09(12)

INCOME :

Sales Turnover 338.39 301.43 279.96 230.13 228.28

Excise Duty 0 0 0 0 0

Net Sales 338.39 301.43 279.96 230.13 228.28

Other Income 16.97 11.52 17.41 3.6 6.54

Stock Adjustments 0 0 0 0 0

Total Income 355.36 312.95 297.37 233.73 234.82

EXPENDITURE :

Raw Materials 0 0 0 0 0

Power & Fuel Cost 10.57 9.08 8.17 8.26 9.06

Employee Cost 73.55 62.86 56.44 47.22 51.79

Other Manufacturing Expenses 9.92 8.2 7.41 7.3 6.7

Selling and Administration Expenses 134.98 120.99 94.71 86.23 99.57

Miscellaneous Expenses 5.16 -0.39 22.26 22.24 11.25

Less: Pre-operative Expenses Capitalised 0 0 0 0 0

Total Expenditure 234.18 200.74 188.99 171.25 178.37

Operating Profit 121.18 112.21 108.38 62.48 56.45

Interest 0.02 0 1.12 7.23 14.4

Gross Profit 121.16 112.21 107.26 55.25 42.05

Depreciation 31.72 32.46 33.6 36.98 40.09

Profit Before Tax 89.44 79.75 73.66 18.27 1.96

Tax 27.9 22.3 5.69 0 0

Fringe Benefit tax 0 0 0 -0.1 2.02

Deferred Tax -6.13 0.94 15.76 0.5 -2.97

Reported Net Profit 67.67 56.51 52.21 17.87 2.91

Extraordinary Items 2.35 0.63 7.84 0.17 1.08Adjusted Net Profit 65.32 55.88 44.37 17.7 1.83

Adjst. below Net Profit 0 0 0 0 0

P & L Balance brought forward 204.02 147.51 95.3 77.43 74.52

Statutory Appropriations 0 0 0 0 0

Appropriations 5.58 0 0 0 0

P & L Balance carried down 266.11 204.02 147.51 95.3 77.43

Dividend 4.77 0 0 0 0

Preference Dividend 0 0 0 0 0

Equity Dividend % 10 0 0 0 0

Earnings Per Share-Unit Curr 14.03 11.85 10.95 3.75 0.61

Earnings Per Share(Adj)-Unit Curr

Book Value-Unit Curr 105.37 92.35 80.49 69.54 65.79


22/24

4.9 Banks associated

HDFC bank associated with the Entertainment network India ltd.

4.10 Financial Highlights

Entertainment network India ltd is part of a fast growing industry the FICCI-KPMG reportstates that FM radio will continue to be the fastest growing segment of the Indian media sector,

behind only the Internet, growing at a 5-year CAGR of over 16%.Entertainment network India ltd is in excellent financial condition. It reported an EBITDA of Rs.104 crores and PAT of Rs. 68 crores in FY13. Its a matter of pride that ENIL has fared better than the radio industry. ENILs operatingrevenues (not including other income) have grown by 12.3% during FY13, reaching 338.4crores. ENILs profitability has been strong with PAT growing by 19.8% to 67.7 crores. ENILhas ` 322.5 crores of free cash and cash equivalents in its books. It generated 100.1 crores of cashflow during FY13.

The Company is well resourced to participate in Phase 3 bidding. ENILs strong revenue performance has helped its revenue market share grow to 33-35% of the private FM industry.Considering the consistent good performance of the Company year-on-year and the strong cash

position as on date, the Board of Directors have recommended a maiden dividend of 10% i.e. 1/- per equity share of 10/-.

4.11 Share of firm in the industry

Strongest player in the segment; The Times group advantage : ENIL enjoys marketleadership in the radio space with revenue share of 33-35%. The Times Group network helps

bring in advertisements given its association with 25000+ advertisers. The company has one ofthe strongest balance sheets in the industry with debt free status, cash of `300cr in its books.These factors will be important in expanding reach with more stations during the Phase-IIIAuctions.

The KPMG FICCI M&E 2013 report suggests a 16.6% CAGR in radio ad spend over 2012-2017. Radio is devoid of subscription revenues and depends upon ad spends. If radio advertisingwere to rise to half the global standards of 0.9xGDP, ENIL and the industry have potential togrow 4x.

TV ad-time restrictions and Elections to add to growth: TRAI regulations restrict TV Adtimes to 10min of external ads. Some channels have already implemented this with a resultantsharp rise in ad rates given lower inventory. Hence, lower budget advertisers have shifted tocheaper mediums on TV, print and even radio. Radio will be a key beneficiary if this is fullyimplemented. Election advertising in the 4 recent state elections through Radio boosted revenuesand should add to revenues in view of the upcoming Central elections.


23/24

Phase-III auctions will drive growth beyond 2016 : Phase-III auctions are expected to becompleted in 2014. Phase 3 will allow expansion to 100 stations. Given the cash on books andstrong cash flow generation, ENIL will be able to easily fund the capex for Phase-III. Phase-IIIwill allow strong growth beyond 2016, but will entail a one time large investment for the license,migration fee and capex.

Valuations & View : ENIL will grow its revenues and PAT at 12% and 19% CAGR over FY13-FY15E. Growth beyond FY15E will depend upon Phase-III auctions which will be a key triggerin FY15E.

4.12 Recent financial performance

Market Data (As on Thursday, April 03, 2014 ) Price (Rs) 390.1 52 W H/L(Rs) 442 / 198.1Lat. EPS(Rs) 18.43 Lat. P/E 21.17

Mkt. Cap.(Rs Cr) 1859.61 Lat.Eqty (Rs Cr) 47.67Lat. BV(Rs) 105.37 Div. Yield (%) 0.26

We can see here share price of the ENIL is 390.1 as on Thursday, April 03, 2014. It is almostnearer to 52 week. It can be said that ENIL is given good return in share market. It is alsoincreased P/E ratio and Dividend yield of the company.

We can see here graph of the ENIL and SENSEX and can be given conclusion that ENIL isgiven more return than SENSEX .

4.13 Comparison with industry

Radio has made a comeback in the lifestyles of Indians. Radio has the reputation of being the

oldest and the cheapest medium of entertainment in India. The radio industry has beencompletely reshaped by the various private players that entered the sector after the governmentallowed foreign investment into the segment and opened the licenses to the private players.

The Indian government has already given 338 licenses for FM radio channels in 91 big and smalltowns and cities. The current size of the radio market is India is Rs 300 crores and is expected toachieve the highest growth rate of 32 per cent in coming years. The quality of the sound and themusic has improved significantly with the emergence and use of satellite radio. The audience


24/24

profile has also shifted to the high-income group. Local advertising, lower amount of moneyspent by the companies to advertise on radio is an added attractiveness for the players. All IndiaRadio (AIR) - the national service provider owned and operated by the Ministry of Informationand Broadcasting under the Government of India - is the largest player in the industry.

To exploit the true potential of this sector, frequency modulation (FM) radio needs to step up its penetration to at least 300 stations in 100 cities, which would further attract an investment ofUS$ 899,160 per radio station frequency, the total additional investment required has beenestimated at US$ 247.3 million, according to industry sources.

Radio, like other sectors, was affected by the recession too. However, it is expected to grow at aCAGR of 16 per cent over 2010-14 and reach a size of Rs 1, 640 crore by 2014. WhereEntertainment network India ltd is growing at a 5-year CAGR of over 16%. Entertainmentnetwork India ltd is in excellent financial condition. It reported an EBITDA of Rs. 104 croresand PAT of Rs. 68 crores in FY13.

Its a matter of pride that ENIL has fared better than the radio industry. ENILs operatingrevenues (not including other income) have grown by 12.3% during FY13, reaching 338.4crores. ENILs profitability has been strong with PAT growing by 19.8% to 67.7 crores. ENILhas ` 322.5 crores of free cash and cash equivalents in its books. It generated 100.1 crores of cashflow during FY13.

chapter 4 finance and accounts

Documents