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Page 1: Financial Ratios idea
Page 2: Financial Ratios idea

Table of ContentsIntroduction 3

Representation of Financial Ratios 4

Gross Profit Margin 5

Operating Profit Margin 6

EBIT Margin 7

Net Profit Margin 8

Net Income to Total Asset 9

Total Asset Turnover Ratio 10

Earnings Per Share 11

Dividend Per Share 12

Current Ratio 13

Quick Ratio 14

Inventory Turnover Ratio 15

Debt Equity Ratio 16

Long Term Debt to Total Capital Ratio 17

Interest Cover 1

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Page 3: Financial Ratios idea

Introduction

Idea Cellular is a Aditya Birla Group company, known as India's first truly multinational corporation. It is India's third largest mobile operator with a revenue in excess of US$ 4 billion, a subscriber base of over 121 million and revenue market share of 15% in FY 2013.

Idea operates pan- India with its integrated GSM network offering 2G and 3G services. Idea has its own NLD and ILD operations and an ISP license. With a traffic of over 1.5 billion minutes a day it ranks among the top 10 country operators in the world.

Idea has a robust network coverage with over 100,000 2G and 3G cell sites, is spread across 55,000 towns. idea has an extensive customer service network with nearly 4,500 Idea outlet and over 7,000 call centre seats. Idea is the only operator in India to be ISO 9001:2008 certified across all its 22 service areas for its customer service delivery platform.

Idea has received recognition at national and international platforms for its path-breaking innovations in the field mobile telephony products and services. It has won awards like 'NDTV Business Leadership Award' for its telecom strategy in 2012, ET Telecom Awards 2012, for 'Customer Experience Enhancement' . It won the coveted 'Best Ad Campaign of the Year' for its 'Hunny Bunny' campaign at Telecom Awards 2012.

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Page 4: Financial Ratios idea

A Schematic Representation of Common Financial Ratios

4

Financial Ratios

Profitability

Margin on Sales

Gross Profit Margin

Operati ng Profit Margin

EBIT Margin

Net Profit Margin

Return on Investment

Net Income to Total Asset

Efficiency Total Asset Turn Over

Return per Share

Earning per Share

Dividend per Share

Solvency

Short term

Current Ratio

Quick Ratio

Inventory Turnover

Long term

Debt Equity

Long term Debt to Total Capital

Interest Cover

Page 5: Financial Ratios idea

1. Gross Profit Margin: It is the amount of surplus available after subtracting the COGS from total sales Revenue.

GPM= (Gross Profit x 100) / Sales

Gross Profit Margin FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 20.51 15.84 12.35 14.72 9.33Airtel 29.33 28.15 22.95 29.00 14.65MTNL -7.38 -128.47 -69.81 -99.21 -128.53

Tata Comm 11.36 5.46 5.47 6.86 7.25Reliance Communications 21.84 5.03 0.87 6 9.29

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-140.00

-120.00

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

Gross Profit Margin

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

GPM of Idea has been steadily decreasing and so with the industry except Airtel.

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Page 6: Financial Ratios idea

2. Operating Profit Margin: It is the reflection of the operation of a company or reflection of performance of the management.

Operation Profit= EBDIT-Depreciation

OPM= (Operating Profit x 100) / Sales

Operating Profit Margin

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13Idea Cellular Ltd. 31.63 27.37 23.59 25.20 23.19

Airtel 38.74 39.08 35.08 32.79 29.70

MTNL 8.29 -80.36 -31.44 -54.85 -85.45

Tata Comm 22.70 23.32 23.73 24.14 22.80

Reliance Communications 34.66 16.18 12.85 21.67 24.21

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

Operating Profit Margin

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Though Idea could not perform well in the GPM, but in OPM they have performed consistently whereas Airtel & MTNL had not performed up to the mark.

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Page 7: Financial Ratios idea

3. EBIT Margin: All the non-operating surplus or deficit is adjusted to the operating profit margin, to obtain the earnings before interest and taxes.

Earnings Before Interest and Tax Margin FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 20.02 15.53 12.29 14.71 9.32Airtel 29.12 28.04 22.76 18.29 14.19MTNL -6.32 -94.18 -65.20 -92.33 -118.65

Tata Comm 10.94 5.26 5.32 6.68 6.56Reliance Communications 20.91 4.75 0.82 5.62 8.16

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-140.00-120.00-100.00

-80.00-60.00-40.00-20.00

0.0020.0040.00

Earnings Before Interest and Tax Margin

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

EBIT margin has fallen for all the companies in this industry and Idea is not an exception.

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Page 8: Financial Ratios idea

4. Net Profit Margin: The profit after tax or net income is the overall surplus available out of the sales. This is also the amount available to the shareholders. This is influenced by three major factors: operating efficiency, financial efficiency and taxation. Net Profit Margin is also used to compare margins of various players in the same industry.

Net Profit Margin FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 9.91 8.71 5.48 2.98 3.70Airtel 22.58 26.36 20.12 13.56 10.88MTNL 3.23 -61.40 -71.20 -113.39 -143.26

Tata Comm 13.25 14.47 4.38 4.08 11.20Reliance Communications 30.47 3.33 -5.4 1.31 4.86

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-160.00

-140.00

-120.00

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

Net Profit Margin

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Again, Net Profit Margin has also fallen for all the companies in the industry. MTNL, Reliance and Airtel’s margin had fallen drastically whereas Idea has a less steeper fall rate.

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Page 9: Financial Ratios idea

5. Net Income to Total Asset: The rate of profit the company is able to earn after meeting the cost of financing a portion of the total assets. This is the amount available to the shareholders, in relation to the total amount of resources used in the business.

Net income to total asset ratio= (Net Profit x 100) / Average Total Asset

Net Income to Total Assets FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 34.59 37.18 38.99 42.30 46.95Airtel 152.70 104.32 128.42 133.27 132.51MTNL 189.46 149.56 105.15 40.22 -44.26

Tata Comm 179.17 159.12 126.03 80.08 50.00Reliance Communications 250.43 244.66 233.26 217.53 160.57

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Net Income to Total Assets

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

In this field it is clearly visible that Idea has outperformed its rivals and except Airtel no one has performed nearly. It refers that, with given resource; Idea can generate best revenue among all the companies.

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Page 10: Financial Ratios idea

6. Total Asset Turnover Ratio: The total asset turnover ratio tries to relate sales to total assets used. The ratio assesses the efficiency of the use of total asset i.e. their ability to generate revenue

Total Asset Turnover Ratio= (Sales x 100) / Average Total Asset

Total Asset Turnover FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 0.60 0.83 0.97 1.19 1.29Airtel - 0.32 0.39 0.51 0.50MTNL 0.37 0.39 0.26 1.01 6.24

Tata Comm - 0.32 0.39 0.51 0.50Reliance Communications 0.24 0.17 0.17 0.15 0.17

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Total Asset Turnover

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Here we can see Idea is growing steadily. MTNL has performed exceptionally well when generating revenue on total asset but others are almost stagnant except Idea.

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Page 11: Financial Ratios idea

7. Earnings per Share: The most commonly used measure of expressing corporate earnings. This is computed by dividing the net income by the number of equity shares outstanding.

EPS= (Net Income) / Total number of Equity shares outstanding

Earnings Per Share FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 3.23 3.19 2.56 1.74 2.47Airtel 40.79 24.82 20.32 15.09 13.42MTNL 2.67 -48.63 -44.47 -65.23 -84.46

Tata Comm 18.10 16.95 5.70 6.01 19.03Reliance Communications 23.27 2.32 -3.67 0.76 3.02

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

Earnings Per Share

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Again Idea has been successful to retain investors’ confidence by producing steady return on the investment by maintaining stable EPS ratio. Airtel, MTNL, Reliance performed very badly but TATA performed quite consistently.

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Page 12: Financial Ratios idea

8. Dividend per Share: This is another important per share calculation. It shows the cash income available to the shareholder on each share. This is different from EPS as a certain amount of earning is retained with company as reserve and the other part is distributed as dividend among the shareholders.

Dividend per Share= (Dividend) / Total number of Equity shares outstanding

Dividends Per Share FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 0.30Airtel 2.00 1.00 1.00 1.00 1.00MTNL 1.00

Tata Comm 4.50 2.00 2.00 4.50Reliance Communications 0.8 0.85 0.5 0.25 0.25

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Dividends Per Share

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

While paying dividends, Tata and Airtel have a better track record than others in the industry. Idea never paid dividend in the history of last five years except the last year. It may be a reason that Idea wants to retain the earning to re invest, to tap the potential of Indian Telecommunication market.

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Page 13: Financial Ratios idea

9. Current Ratio: Current ratio measures the relationship of current assets with current liabilities. This is one of the most important Solvency ratios.

Current Ratio= (Current Assets) / (Current Liabilities)

Current Ratio FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 0.98 0.96 0.49 0.53 0.52Airtel 0.69 0.70 0.63 1.02 0.65MTNL 1.34 0.65 0.54 0.56 0.46

Tata Comm 1.31 2.01 1.92 1.34 1.33Reliance Communications 1.45 1.37 0.96 0.77 0.69

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130.00

0.50

1.00

1.50

2.00

2.50

Current Ratio

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Current ratio decreased for all the major companies in the sector. It has dropped drastically for Tata Communications and MTNL and Reliance. But somehow Airtel & Idea managed to control the fall in current ratio.

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Page 14: Financial Ratios idea

10.Quick Ratio: Quick ratio or acid test ratio is another important solvency ratio. It is computed by taking assets, which are quick to be converted into cash and dividing them by the current liabilities. As a practical simplification, it is usual practice to subtract the inventories from the current assets, to arrive at the quick assets.

Quick Ratio= (Current Asset-Inventory) / Current Liabilities

Quick Ratio FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 1.31 0.86 0.52 0.55 0.55Airtel 0.65 0.67 0.73 0.75 1.37MTNL 1.25 0.65 0.72 0.66 0.58

Tata Comm 1.52 2.08 2.01 1.32 1.45Reliance Communications 2.7 2.14 1.81 1.19 1.43

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130.00

0.50

1.00

1.50

2.00

2.50

3.00

Quick Ratio

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Looking on the quick ratios of the companies, we can observe it fell for everyone. The aggressive marketing and predatory pricing caused the companies to reduce their quick ratio. Here Idea is no exception of the industry trend.

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Page 15: Financial Ratios idea

11. Inventory Turnover Ratio: Inventory turnover tries to assess the velocity with which inventories are covered to revenue. Inventories represent resources of the firm invested for the purpose of facilitating operations. Excess inventory represents a wasteful use of resources.

Inventory Turnover= (Cost of Goods Sold) / (Average Inventory)

Inventory Turnover

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13Idea Cellular Ltd. 230.69 253.76 293.64 364.10 404.39

Airtel 547.83 1307.05 1105.17 1296.07 21595.67

MTNL - - - 33.54 41.84

Tata Comm - - - 9092.82 1054.55

Reliance Communications - - - 33.77 37.06

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

Inventory Turnover

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

In this field Airtel has performed exceptionally well. They managed the inventory in the best manner whereas others have not performed well. Idea also seems a bad performer to utilize inventories to convert into revenue.

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Page 16: Financial Ratios idea

12.Debt-equity Ratio: Creditors have prior claims on the assets of the company and to that extent, the owners’ equity form the extent of margin of safety for the lenders’ claims. If a debt is used successfully the returns to shareholders would also increase.

Total Debt to Equity= (Current Liabilities+ Long term Liabilities) / (Net Worth)

Debt Equity Ratio FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 0.67 0.57 0.86 0.79 0.80Airtel 0.28 0.14 0.23 0.29 0.24MTNL 1.12 3.80

Tata Comm 0.34 0.36 0.32 0.13 0.12Reliance Communications 0.6 0.48 0.65 0.62 0.92

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130.000.501.001.502.002.503.003.504.00

Debt Equity Ratio

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Debt-equity ratio is a great indicator for any company, higher the debt, the company is more leveraged. MTNL performed extremely badly whereas others including Idea managed to maintain a steady Debt Equity ratio.

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Page 17: Financial Ratios idea

13.Long Term Debt to Total Capital Ratio: This measures the relationship long-term debt bears to the owner’s total investment.

Long Term Debt to Total Capital= (Long term Liabilities) / (Net Worth)

Long-Term Debt Equity Ratio FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 0.54 0.57 0.72 0.67 0.75Airtel 0.26 0.12 0.17 0.17 0.18MTNL 0.38 2.76

Tata Comm 0.26 0.35 0.29 0.12 0.08Reliance Communications 0.44 0.38 0.46 0.52 0.69

FY08-09 FY09-10 FY10-11 FY11-12 FY12-130.00

0.50

1.00

1.50

2.00

2.50

3.00

Long-Term Debt Equity Ratio

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Except Tata every company has fallen to a long term debt severely. MTNL has performed the worst. Idea, Reliance and Airtel couldn’t reduce the long term debt equity ratio and Idea somehow increased the ratio, which is not a good symptom.

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Page 18: Financial Ratios idea

14. Interest Cover: This ratio measures the relationship of earnings before interest and taxes to be fixed interest commitment. Larger the cover, greater is the safety of the lender’s interest. Alternately, it also shows the risk in case of the firm’s earnings decrease.

Interest Cover= (EBIT) / (Interest Expense)

Interest Cover FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

Idea Cellular Ltd. 2.55 3.56 5.00 2.72 2.58Airtel 46.28 85.82 27.92 5.98 4.91MTNL 127.65 -1095.89 -5.11 -3.25 -3.49

Tata Comm 1.31 -0.66 -0.12 0.14 0.33Reliance Communications 4.12 1.36 1.16 1.12 1.32

FY08-09 FY09-10 FY10-11 FY11-12 FY12-13

-1,200.00

-1,000.00

-800.00

-600.00

-400.00

-200.00

0.00

200.00

Interest Cover

Idea Cellular Ltd.AirtelMTNLTata CommReliance Communications

Airtel is the best performer among the industry players, though its interest cover decreased steadily. Idea and Reliance managed to be steady whereas Tata seems to a bit shaky. MTNL is again the worst performer in the industry.

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