65620799 UniverCell Project Finance

A Study on Financial Statement Analysis of UniverCell

INDUSTRIAL BACKGROUND

For the Indian Retail Industry, these are exciting times. An economic

recession or two notwithstanding, the Indian retail industry has been

growing at a fast clip. The current size of the overall retail market in India

is estimated to be about USD 400 billion ( Rs 18,00,000crores), and the

industry has been clocking healthy two digit growth rates over the last

many years. Currently, the Indian retail market is the fifth largest in the

world, and is one of the fastest growing among the emerging markets

category.

While the present scenario is exciting, the future seems to be still

brighter. It is expected that retail will contribute about 23% of the overall

GDP within the next three years, and the market size estimates vary

between USD 750 billion (Rs 35,00,000 crores) to a mind boggling USD

1.25 trillion (Rs 55,00,000 crores), depending upon which analyst you

want to believe. While these figures are understandably minded boggling,

these numbers are hiding a curious story which needs to be told.

To put things in proper perspective, I would again present a set of figures

about the biggest retailer in the world, Wal Mart. In fact, calling Wal

Mart a ‘retailer’ would be a huge understatement – many people believe it

is an industry in itself. Why? Here is why – Wal Mart 2009 turnover was

an estimated USD 400 billion dollars (approx), almost equal in size to the

WHOLE of Indian retail Industry. Another fact – The number of

employees in Wal Mart stores is around 1.3 million (13 lakhs), about

the size of the Indian Army!

DAYANANDA SAGAR COLLEGE OF ARTS, SCIENCE AND COMMERCE

http://indianblogger.com/malls-supermarkets-%E2%80%93-are-they-threats-to-indian-retail-industry/

http://indianblogger.com/understanding-economic-recession/



Indian Retail Sector

Like many other industries in India, the Indian retail sector is also

dominated by the unorganized sector. Almost every road that you take in

any Indian city or town, you will find a “general store” or a modest

“kirana shop” after every hundred steps or so! Retail is a big employer in

India – though the estimated numbers vary from 3 million (30 lakhs) to

somewhat unbelievable 60 million (6 crores) retailers! This makes it the

biggest in the world, if the sheer number of retailers is taken into account.

And it is in these huge numbers that the Indian unorganized retail

industry finds its protection. The government is of the view that the entry

of organized retail, especially the FDI led variety, will threaten these

numbers. The powerful traders unions across the country have also been

persistent against the entry of organized retailers and FDI into the sector.

Organized Retailers Still Insignificant Players

The organized sector, identified as malls/multiplexes/supermarkets is still

at a nascent stage, and is unlikely to prove a threat to the unorganized

sector for many, many years to come. The retail segment itself is growing

so fast that it will absorb any fresh additions to the supermarkets very

easily, and the unorganized sector will still continue to grow. Even

currently, the organized segment constitutes a very modest 7-8% of the

overall retail market. This alone proves that there is a long way to go for

organized retail, before it can even present itself as an alternative to small

traders.

Besides there are a number of reasons which clearly vouch for the fact

that India will continue to be dominated by small retailers for a long time

to come. Such as -






Even the biggest of domestic players in organized retail lack the

muscle and resources to cater to significant proportion of Indian

population. It takes a lot of time and money for an organized

retailer to show decent profits in Indian situations, and the weaker

ones will continue to fall by the wayside – remember Shubhiksha!

The bulk of future growth in retail will come from rural population,

which is a segment that organized retailers will not be able to cover

for a number of reasons – poor infrastructure, operational

difficulties, and remoteness of markets and the sheer size of the

Indian market.

Peculiarities of the Indian customers, which make it a very

‘unpredictable’ lot. Even for a large section of able and affluent

buyers, malls are mostly for ‘hanging out’ and family outings –

purchasing is still done at the friendly neighborhood kirana store.

And however much marketing gurus like to tout the “changing

mindset” and the “increased purchasing power” of the Indian

customer – the truth is – she still feels that supermarkets/malls are

expensive.

The biggest draw for organized retail all over the world has been

an innovative format – called the discount stores. These stores sell

grocery items at hugely discounted prices, for the simple reason

that high margins make such a move possible. In India, the margins

are already wafer thin, even at the retailer’s level. Therefore,

supermarkets will find it very hard to attract customers on the price

front – unless they are ready to bear huge losses for a long, long

time.



Despite of what the media and business leaders want us to believe,

the average Indian customer has very limited purchasing capacity.

Even the affluent buyers are not profligate spenders – we Indians

love to extract maximum ‘value for money’. Purchasing at the local

kiranawalla gives us valuable opportunity to bargain!

Most important of all, the smaller retailers, shopkeepers and

kiranawallas are learning very fast, and are willing to provide

exceptional customer service at no extra cost. For example, my

residence is about the same distance from the nearest supermarket,

and the nearest kirana store. I have to make a phone call to the

kirana shop, and the delivery boy will reach my place within 10

minutes, even if I order goods worth Rs 50. On the other hand, the

supermarket “undertakes to home deliver all purchases above Rs

2000 within 24 hours of purchase, within two kilometers!” Ahh,

the virtues of competition – customer is truly the king!





THEORETICAL BACKGROUND:

Introduction to finance

According to Gutham and Dougali, “Business finance can be broadly

defined as the activity concerned with planning, raising, controlling and

administering of funds used in the business”

Finance studies and addresses the ways in which individuals, businesses

and organizations raise, allocate and use monetary resources over time

taking into account the risks entailed in the projects. The term “Finance”

may thus incorporate any of the following:

The study of money and other assets

The management and control of those assets

Profiling and managing project risks

The science of managing money

As a verb, “to finance” is to provide funds for business or for an

individual’s large purchases (car, home, etc)

Need for Finance

Finance is the activity concerned with planning, raising, controlling and

administering of funds used in the business:

To purchase fixed assets such as land, building, machinery etc

To pay for purchase of raw materials, wages etc

To replace existing assets or acquire new assets



To hold stock of materials and finishing goods

To expand the existing business

Finance function

Finance function includes:

Investment decision

Finance decision

Dividend or Project allocation decision

Liquidity decision

Introduction to Financial Management

By financial management we mean efficient use of economic resources

namely capital funds. Financial management is concerned with the

managerial decisions that result in the acquisition and financing of a short

term and long term credits for the firm. Here it deals with the situations

that require selection of specific assets or a combination of assets and the

selection of specific problem of size and growth of an enterprise. Herein

the analysis deals with the expected inflows and outflows of funds and

their effect on managerial objectives. In short, financial management

deals with Procurement of funds and their effective utilization in the

business.

So the analysis simply states two main aspects of financial management

like procurement of funds and an effective use of funds to achieve

business.



Objectives of Financial Management

Efficient Financial Management requires the existence of some

objectives, which are as follows:

Profit Maximization

Wealth Maximization

Scope of financial management

Sound financial management is essential in all types of organizations

whether it be profit or non profit. Financial Management is essential in a

planned economy as well as in a capitalist setup as it involves efficient

use of the resources. From time to time it is observed that many firms

have been liquidated not because their technology was obsolete or

because their products were not in demand or their labor was not skilled

and motivated, but that there was not in demand or their labor was not

skilled and periods, when a company make high profits there is also a fear

of liquidation because of bad financial management.

Financial management optimizes the output from the output from the

given input of funds. In a country like India where resources are scarce

and the demand for fund are many the need of proper financial

management is requires. In case of newly started companies with a high

growth rate it is more important to have sound financial management

since finance alone guarantees their survival.

Financial management is very important in case of non-profit

organizations, which do not pay adequate attentions to financial

management. However a sound system of financial management has to be



cultivated among bureaucrats, administrators, engineers, educationalists

and public at large.

FINANCIAL PERFORMANCE

Financial Performance is about knowing how the firm is doing and what

its financial condition is. The stakeholders of a firm viz., shareholders,

creditors, suppliers, managers, employees, tax authorities, and others are

interested in broadly knowing about the firm’s financial conditions. Of

course, their specific concern may differ. Trade creditors and short - term

lenders are interested primarily in the short – term liquidity of the firm

and its ability to pay its dues in the next 12 months or so. Term lending

institutions and debentures holders have a relatively longer time horizon

and are concerned about the ability of the firm to service its debt over the

next five to ten years. Long – term shareholders and managers who want

to make a career with the firm are interested in the profitability and

growth of the firm over an extended period of time.

To understand the financial performance and condition of a firm, its

stakeholders look at their financial statements.

The Balance Sheet

The Profit and Loss Account

Analyzing Financial Performance

Financial analysis depends primarily on financial statements to diagnose

financial performance. If properly analyzed and interpreted, financial

statement can provide valuable insights into a firm’s performance.

Financial Statements, their uses and significance



The two financial statements viz. the Balance Sheet and the Profit and

Loss Account aid the understanding of a firm’s financial performance.

Balance Sheet

The Balance Sheet shows the financial condition of a business at a given

point of time, in terms of assets and liabilities. Assets are classified into

the following categories: fixed assets, investments, current assets, loans

and advances and miscellaneous expenditures and losses. Liabilities are

classified as follows: share capital, reserves and surplus, secured loans,

unsecured loans, current liabilities and provisions. As per the Companies

Act, the Balance Sheet of a company shall be in either the horizontal form

or the vertical form.

Profit and Loss Account

The Profit and Loss Account technically is an adjunct to the balance sheet

because it provides details relating to net profit, which represents the

change in owners’ equity. Yet, in practice it is often considered to be

more important than the Balance Sheet because the details of revenues

and expenses provided in the Profit and Loss Account shed considerable

light on the performance of the business. There is no prescribed standard

format to make this account.

However, the Companies Act does require that the information provided

should be adequate to reflect a true and a fair picture of the operations of

the company for the accounting period. The important items in the profit

and Loss Account are: net sales, cost of goods sold, gross profit,

operating expenses, operating profit, non-operating surplus/ deficit, profit

before interest and tax, interest, profit before tax, tax, and profit after tax.

Thus the Balance Sheet shows the financial position or condition of a



firm at a given point of time. It provides a snapshot and may be regarded

as a static picture. The income statement referred to in India or Profit and

Loss Account reflects the performance of a firm over a period of time.

With this background of Financial Performance, Financial Statement

Analysis with special reference to Ratio Analysis is studied in depth as a

main objective of the project under consideration.

Note that the Companies Act requires that the Annual Report of the

company, a public document that is sent to shareholders, contain the

Balance Sheet, the Profit and Loss Account, the Director’s report, and the

Auditor’s report. Though not presently required by law, most companies

present Fund Flow Statement and Cash Flow Statement as well in the

Annual Report.

Meaning and concept of financial analysis

The term financial analysis also known as analysis and interpretation of

financial statements, refer to the process of determining financial strength

and weakness of the firm by establishing strategic relationship between

the items of the balance sheet, profit and loss account and other operative

data.

In word of Myers, “Financial management analysis is largely a study of

relationship among the various financial factors in a business as disclosed

by a single set of statements, and a study of the trend of these as shown in

a series of statements”.

In words of Metcalf and Titard, “Analyzing financial statements is a

process of evaluating the relationship between component parts of a



financial statement to obtain a better understanding of a firm’s position

and performance.”

MEANINGS AND DEFINITIONS:

FINANCIAL STATEMENT

Financial statements are those statements, which provide detailed

information about the firm’s resources, assets, liabilities and profits and

losses.

ANALYSIS OF FINANCIAL STATEMENT

Financial statement analysis is “the process of critically examining and

identifying the extent and reasons for the changes in assets, liabilities,

owner’s capital, expenses and income in balance sheet and income

statement of two dates”

INTERPRETATION OF FINANCIAL STATEMENT

Interpretation is explaining the financial statement analysis in simple

language, which may be understood by a layman.

ANALYSIS AND INTERPRETATION OF FINANCIAL

STATEMENT

According to Kennedy and Memulla, “the analysis and interpretation of

financial statement is to understand the significance and meaning of

financial statement data so that a forecast may be made on the prospects

for future earning, ability to pay interest and debts maturities (both

current and long term) and probability of a sound dividend policy”.



NATURE OF FINANCIAL STATEMENTS

The American Institute of Certified Public Accountants States the nature

of financial statement as “Financial Statement are prepared for the

purpose of presenting a periodical review of report on progress by the

management and deal with the states of investment in the business and

the results achieved during the period under the view. They reflect a

combination of recorded facts, accounting principles and personal

judgements”.

The following features explain the nature of financial statement:

Recorded facts

Conventions

Postulates

Personal Judgement

Recorded facts

The term recorded faces refers to the data which are taken out of

accounting records. The records are maintained on the basis of actual cost

data. The historical cost is the basis of recording various transactions. The

figures of various accounts such as cash in hand, cash at bank, bills

receivables, sundry debtors, land & building, furniture, are taken as per

the figures recorded in the accounting books.

Conventions

Certain accounting conventions should be followed while preparing

financial statements. The materiality convention is followed in dealing

with small items like pencils, match box, postal stamps etc. These items DAYANANDA SAGAR COLLEGE OF ARTS, SCIENCE AND COMMERCE


are treated as expenditure in the year in which they are purchased even

though they are assets in nature. The accounting conventions make

financial statements more simple and realistic.

Postulates

The accountant follows certain basic assumption while making

accounting records. One of the assumptions is the business entity

concept. This means business and businessman are two separate persons.

So if the businessman used any goods or cash from business, it will be

treated as drawings. Another important assumption is that the concern is

treated as a going concern. The other alternate to this assumption is that

the concern is to be litigated. These assumptions are known as postulates.

Personal Judgement

Although during the preparation of financial statements certain

accounting concepts, principles are followed, but still personal judgement

of accountant plays an important role. The selection of depreciation

method, period for writing off intangible assets is some of the examples

where judgement of the accountant will play an important role in

selecting the most appropriate course of action.

Objectives of financial analysis and interpretation

To interpret the profitability of various business activities with the

help of profit and loss account.

To measure marginal efficiency of the firm

To measure the short term solvency of the business

To ascertain earning capacity in the future period



To determine future potential of the concern

To measure utilization of various assets during the period

To compare operational efficiency of similar concerns engaged in

the same industry

Procedure for analysis and interpretation

The technique of analysis is to be selected on the basis of objectives. The

assumptions, principles, practices, etc., followed in the preparation of

financial statements are to be ascertained. Additional data and

information required has to be collected.

The data and information required has to be presented in a logical

sequence. The data is to be analyzed for making comparative statements

for computation of ratios and for ascertaining average and for estimating

trends. Facts gathered from analysis are to be interpreted by considering

the general state of the market and economy also.

The interpreted data and information has to be presented in a suitable

form.

TYPES OF FINANCIAL ANALYSIS

There are two broad categories or classifications of financial analysis, and

these are made on the basis of:

Nature of the analyst or the material used;

The modus operandi of the analysis..

1) According to the nature of the analyst and the material used:

a) External Analysis:



It is the analysis made by those persons who are not connected with the

organization. They do not have any access to the detailed records of the

Company and have to depend mostly on the published statements. Such

type of analysis is made by investors, credit agencies, Government

agencies and research scholars.

b) Internal Analysis:

Internal analysis is made by those who have an access to the books of an

account. They are members of the organization. Analysis of financial

statement or financial data for managerial purpose is the internal type of

analysis. The internal analysis provides more reliable results than the

external analysis because all the important information is at his disposal.

2) According to the modus operandi of the analysis:

a) Horizontal (dynamic) Analysis:

This analysis is made to review and analyze financial statements of a

number of years and therefore based on financial data taken from several

years. This is very useful for long –term trend analysis and planning.

Comparative financial statement is an example of this type of analysis

b) Vertical (static) Analysis :

This analysis is made to review and analyze the financial statements of

one particular year only. Ratio analysis of the financial year relating to a

particular accounting year is an example of this type of analysis.



.

Methods of devices of financial analysis

A number of methods or devices are used to study the relationship

between different statements. They are:

Comparative Statement

Trend analysis

Common size statement

Fund flow analysis

Cash flow analysis

Ratio analysis

Cost profit volume analysis

Each of the above tools can be explained as follows.

1. Comparative Statement Analysis:



In this technique, the statements are prepared to examine and compare the

assets and liabilities, incomes and expenses of the current year. These

statements exhibit the magnitude and direction of changes in the

operating results and financial status of an organization. It provides

columns to indicate the changes in absolute terms and also in percentage

terms.

2. Common-size Statement Analysis:

In this technique, statements are prepared to examine the changes that

have taken place year after year in relation to total assets, total liabilities

and net sales i.e. each of assets is expressed as a percentage of total

liabilities. Again in the Profit and Loss Account each item is expressed as

a percentage of sales.

3. Trend Analysis:

It helps in identifying the direction in which the organization is moving.

It involves the ascertainment of arithmetical relationship of each item of

several years within the same item of the base year. Normally first year is

taken as base year.

4. Cash Flow Analysis:

It refers to the analysis of changes in the financial position (between two

accounting period) of a firm in terms of “cash”. Cash Flow statement

explains the changes in cash position between two accounting periods.

The term “cash” in Cash Flow Analysis refers to the inflow and outflow

of cash.

5. Funds Flow Statement :



Funds Flow Analysis is a new contribution to the science of accounting

and has become an important tool of financial analysis. Funds Flow

Analysis refers to analysis of changes in funds, which represent working

capital. It is carried out by preparing a Funds Flow Statement.

Characteristics of Financial Statements

The financial statements are prepared with a view to depict the financial

position of a firm. An ideal financial statement has the following

characteristics:

Depict the Financial Position-

The information contained in the financial statements should be

such that a true & correct idea about the financial position of the

firm is received. No material information should be withheld while

preparing these statements.

Effective Presentation-

It should be presented in simple manner to make it easily

understandable. This characteristic enhances the utility of the

statement.

Relevance-

It should be relevant to the objectives of the enterprise. The

information that is irrelevant to the statements should be avoided;

otherwise it will be difficult to make a distinction between what is

relevant & what is not.

Attractive-



It should be prepared in such a way that important information is

underlined so that it catches the eye of the leader.

Easiness-

It should be easily prepared. The calculation work should be

minimum, the size of the statement should be very large, and the

columns used should be less. This enables saving time in preparing

the statements & is easy for the person reading it as well.

Comparability

It should be made in such a way that they can be compared to

previous year’s statements. The statements can also be compared

with the figures given in details will make it difficult to judge the

working of the business.

Brief

It should be given in brief. The reader will be able to form an idea about

the figures more easily whereas figures given in details will make it

difficult to judge the working of the business.

Promptness

It should be prepared & presented at the earliest possible. Immediately at

the close of the Financial Year, statements should be ready.

Users of financial statements and the exact utility of the

Finance Statements to the users



1. Shareholders or Owners

The shareholders of a company are interested in the finance statements of

the company with the view to ascertaining the profitability and the

financial strength of the company, its prospects for future growth, and

also the usefulness of the management to the company.

2. Financial Institutions and Commercial banks

Financial institutions and commercial banks are interested in the financial

statements of the borrowing concern to ascertain its short-term as well as

long-term solvency and also its profitability.

3. Creditors

Creditors (i.e., the suppliers of goods on credit) are interested in the

financial statements of the purchasing concern to ascertain its short-term

solvency or liquidity position (i.e., its ability to meet its current or short-

term liabilities out of its current or short-term assets).

4. Prospective Investors

Prospective Investors are interested in the financial statements of a

concern to ascertain its financial strength and future prospects.

5. Employees and Trade Unions

The employees of a concern and the trade unions are interested in the

financial statements of the concern to ascertain its profitability and ability

to pay higher wages, bonus, etc.

6. Government



The government is interested in the financial statements of a concern for

the purpose of taxation and also for the purpose of regulating the

activities of the concern.

7. Security or Investment Analysis

Security or Investment is interested in the financial statements of a

company to advise their clients whether to buy or sell the securities of

that company.

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

A financial statement analysis is a very important device but the person

using this device must keep in mind its limitations of financial analysis.

Its limitations are as follows:

Historical in Nature of Financial Statement

The basic nature of these statements is historical i.e. relating to the

past period. Past can never be a precise index of the future and can

never be 100 percentages helpful for future forecast and planning.

Single year Analysis is not valuable and useful

The analysis of these statements relating to a single year only will

have limited use and value. It will not be advisable to depend fully on

such analysis. The analysis should be extended to a number of years.

Results may have different interpretations

Different users may differently interpret the results or indications

derived from the analysis of these statements. Example: a high

current asset may suit the banker, a supplier of goods or short-term



lender but it may be an index of insufficiency of management due to

un-utilization of funds.

Price level changes reduce the validity of the analysis

The continuous and rapid changes in the value of money, in the

present day economy also reduce the validity of analysis. Acquisition

of assets at different level of prizes makes comparison useless as no

meaningful conclusion can be drawn from a comparative analysis of

such items relating to several accounting periods.

Shortcomings of tools of analysis:

There are different tools of analysis available to the analyst (i.e. trend

analysis, ratio analysis, comparative statement).Which is to be used in

a particular situation depends on the training and skills of the analyst.

If wrong tool is used; it may give misleading results and may lead to

wrong conclusions or inferences, which may be harmful to the

interests of the business.

TITLE OF THE STUDY



The project has been undertaken with the aim of analyzing the financial

health of “UniverCell Telecommunications Ltd.” for the purpose of

analyzing the financial performance.

STATEMENT OF THE PROBLEM

Research is to study a subject in detail, specifically in order to discover

new facts or test new ideas. It is to supply all the necessary facts and

information for a particular aspect.

As we know that today’s economic scenario is highly competitive it

becomes highly indispensable for a company to conduct a study on its

financial position. This study will help the company in making new

strategies to satisfy its customers and to its position in the local market. It

will also help the company in assessing its strengths and weaknesses.

OBJECTIVIES OF THE STUDY

The purpose of financial analysis depends on the needs of the person

who is analyzing these statements. These varying needs may be:—

a) To know the Earning Capacity or Profitability.

b) To know the Financial Strength.

c) To know the capability of payment of interest and dividend.

d) To know the efficiency of management.

e) To provide useful information's to the Management.

SCOPE OF THE STUDY



The study is in particular concerned with ‘UniverCell

Telecommunications Limited’ and aimed of discovering strengths and

weakness of the Company. This research seeks to investigate and

constructively contribute to help the company in finding out the gray

areas for the improvement in performance, the company to understand its

own position over time, the managers to understand their attribution to

the performance of the company.

NEED/PURPOSE OF THE STUDY

By such a study the company can detect its strength and weakness. It can

compare itself as to what it is and where it is heading to in the future. It

can further compare itself against the industry average. Such a study is of

a great relevance and value to share holders, managers, investors,

employees and government etc.

Research design used:



Ratio analysis- Financial ratio analysis is the calculation and comparison

of ratios which are derived from the information in a company's financial

statements. The level and historical trends of these ratios can be used to

make inferences about a company's financial condition, its operations and

attractiveness as an investment.

Data collection method:

Data is being collected from the secondary sources i.e from websites,

journals and company book of financial records.

Source of data:

The study of financial performance of UniverCell Telecommunications

Limited includes only secondary data.

Journals

Magazines

Internet

Newspapers

UniverCell’s website

Limitations of the Study:



1) Predictability-

Financial statements reflect the past; they do not predict the future. They

do not predict changes in sales due to increased research and marketing.

They do not forecast the impacts on profitability from the entry and exit

of competitors. The statements also provide no direct way of assessing

whether recent performance trends -- such as sales and profit growth --

will continue and for how long.

2) Reliability-

It is often difficult to assess the reliability of financial statements. For

example, the accompanying notes -- usually included at the end of the

statements -- contain details that may not be readily apparent on the

financial statements. This could lead to potential risks being overlooked:

Enron turned into a disaster because research analysts missed the

potential impact of its off-balance sheet holdings. Company may

characterize a major customer loss as a delayed order rather than a loss or

cancellation in order to buy time to find a replacement customer.

Company often release unaudited statements, which are, by definition,

less reliable than audited statements. However, even an audited and

publicly disclosed financial statement is no guarantee of a

company's health because company can routinely run into trouble.

3) Comparability-

The financial statements of industry peers are usually compared to

evaluate investment trade-offs. However, these comparisons may prove

difficult because of differences in accounting methods, such as different

fiscal year ends--a fiscal year can start on Jan. 1 or the first of some other

month -- and different inventory valuation methods. The method


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determines the cost of goods (an income statement item) and the

inventory (a balance sheet item) amounts, making financial statement

comparisons difficult when company use different inventory valuation

methods.

4) Other Limitations-

Financial statements do not provide all the answers: For example, they

cannot quantify the financial impact of senior management changes. The

competitive environment is difficult to assess from financial statements:

For example, there is usually no information on how many competitors

were bidding on specific contracts.

Chapter Scheme:

1. General Introduction

This chapter explains the different financial Strategies adopted by

UniverCell in Bangalore. It also gives a theoretical background of the

various aspects of the selected problems.

2. Introduction to the problem

This chapter deals about analyzing the problem area of the UniverCell to

get a clear cut idea about the financial position and the ways of how the

financial pattern of UniverCell is.

3. Research Design



This chapter deals with the methodology in the approach of the study. It

includes all the framing of objectives to fieldwork and analysis, and gives

a detailed description of the research design.

4. Company Profile

This chapter reveals the detailed information about the company along

with the important people, employees, products and services.

5. Data Analysis and Interpretation

This chapter deals with the ratio analysis as the secondary source of data

as there is no primary data for this.

6. Findings

This chapter is all about what is being analysis from the previous chapter

along with the derivations from the ratios.

7. Recommendations & Conclusions

This chapter deals with the suggestions for the financial position of the

company using the ratios.



Sathish Babu, FOUNDER,

UniverCell

Telecommunications

Landscape of the Telecom market

In the early days the Indian Mobile Retailing industry was highly

fragmented with no organized retail players. Mobile handsets were

expensive (an average price of USD 500 per handset), with the grey

market players dominating the market. There were no branded

showrooms to showcase an entire range of products.

The Entrepreneur

Mr. D. Sathish Babu founded UniverCell in November, 1997, selling post

paid mobile connections as a Skycell Teleshop (now AirTel Connect).

Studying the buying behavior of his customers, Sathish understood that

what consumers really wanted was to make intelligent and informed

shopping decisions in an ambience that combined both comfort and a

high degree of service.

In February 2000, using savings and some capital from family, Sathish

opened Chennai's first large-format mobile retail store in an upscale

location in Chennai, India. Since then, Sathish and UniverCell have been

cresting the wave of the Indian mobile revolution from the retailing front,

growing and evolving to become India's largest mobile retailer and one of

India's best known brands.



A strong believer in mind share, Sathish Babu has consistently promoted

the UniverCell brand through the various mass media available to him.

Using a clever mix of targeted advertising campaigns and promotions

aimed at localities as well as generations, UniverCell is well entrenched

in the hearts and minds of the Indian consumer. One can see and feel its

presence through its large format retail outlets as well as in print,

television, cinema, special event promotions, billboards and FM radio.

Determined to take UniverCell and mobile phone retailing to the heights

of excellence, Sathish constantly looks to incorporate innovative modern

retailing concepts into his own organization. The series of core

improvements initiated five years ago has now resulted in a world-class

retailing organization that is powered as much by technology as by its

people. The foundation for growth well in place, UniverCell has its sights

on replicating its success Pan India. These same investments in

technology and processes have earned UniverCell the ISO 9000-2001

certification (March 2004) for quality management systems.

Strong relationships with all the manufacturers, the e-portal @

www.univercell.in and wap.univercell.in, its pan Indian presence,

UniverCell has been able to leverage efficiencies of scale, providing the

highest levels of service and options to consumers. UniverCell presenting

a single face to its customers assures the same level of support

(warranties, service, etc) from every single outlet across the country.



The UniverCell Workforce

The ability to attract, develop and retain a spirited, motivated and

committed workforce is one of the key reasons for UniverCell's success.

In keeping with the mobile generation, the average age of a UniverCell

employee is 24, evenly distributed between girls and boys. From a team

of five it has now grown to an organization with over 1500 employees.

The UniverCell Customers

There are 200,000 people buying UniverCell handsets every month. This is the highest of any

retailer in India. One out of every three handsets sold in the market is from UniverCell. Its

current customer base stands at 10 million. This includes numerous celebrities and other

high profile customers as well as many of the top corporate organizations in the country.

The UniverCell Differentiators

UniverCell having the first mover advantage has pioneered its

way through the mobile industry.

The first mobile retailer to provide Bill & warranty on every

purchase

The first mobile retailer to implement 'Touch Feel' concept

Exchange offers

Easy Installments-0% interest, quick loan approvals

Knowledgeable staff-groomed in customer service and soft skills

Best After Sales Service



Quality Management process ISO 9000-2001 certified

One stop shop for mobile needs

Mobile phone e-shop, www.univercell.in

Mobile version of website wap.univercell.in

Short code service SMS 55050

Door step delivery

Ratio

It is the mathematical relationship between two quantities in the form of a

fraction or percentage.



Ratio analysis

It is essentially concerned with the calculation of relationships which

after proper identification and interpretation may provide information

about the operations and state of affairs of a business enterprise.

The analysis is used to provide indicators of past performance in terms of

critical success factors of a business. This assistance in decision-making

reduces reliance on guesswork and intuition and establishes a basis for

sound judgment.

1) Current Ratio

The current ratio is a financial ratio that measures whether or not a firm

has enough resources to pay its debts over the next 12 months. It



compares a firm's current assets to its current liabilities. It is expressed as

follows:

Significance / Uses:

The current ratio is an indication of a firm's market liquidity and

ability to meet creditor's demands.

If current liabilities exceed current assets, then the company

may have problems meeting its short-term obligations.

Ideal Ratio:

The ideal ratio of 2:1 is considered to be satisfactory.

Calculation of Current Ratio:

Analysis:

Table 1



Current Ratio (Rs in Lakhs)

Particulars 2010 2009 2008

Current Assets 1,095.48 868.02 891.74

Current Liabilities 284.11 280.66 72

Current Ratio 3.85583049 3.092781 12.38528

Interpretation-

This table shows that the current ratio of the company is above the ideal

ratio. It was highest in the year 2008 and then due to recession in 2009 it

decreased from 12.39 to 3.09 which show that the growth rate of current

assets is less than the growth rate of current liabilities.

Graph 1



Inference-

The company does not shows a ideal ratio of 2:1 which is an indication

that the company is not-liquid and does not have the ability to pay its

current obligation in time as and when they become due. The company’s

Current Ratio was above the ideal ratio 2:1 in all the 3 years.

2) Quick Ratio



It is also known as acid test or liquid ratio. It is calculated by dividing

quick assets by liquid liabilities. Quick assets include all current assets

minus stock and prepaid expenses. Liquid liabilities include all current

liabilities minus bank overdraft.

Significance / Uses :

The quick ratio is very useful in measuring the liquidity position

of a firm. That is the ability of a concern to meet its short-term

obligations out of its quickly realizable assets.

It is used as a complimentary ratio to the current ratio

Ideal ratio:

The ratio of 1:1 is considered ideal.

Calculation of Quick Ratio:



Analysis:

Table 2

Quick Ratio (Rs in Lakhs)


Quick Assets 1025.6371 777.4282 821.52


Quick Ratio 3.61 2.77 11.41

Interpretation-

This table shows that the quick ratio is higher than the ideal ratio for all

the three years as it was 11.41 in the year 2008 which is the highest of all

three years.



Graph 2

Inference-

From the above ratio it is clear that current assets are more than current

liability in all the three years. This shows that the company is not well

concerned about their current asset management.

3) Absolute Liquid Ratio



It is the relationship between cash and near cash items. Inventory and

debtors are excluded from current assets.

Ideal ratio:

The ideal ratio is 0.75:1.

Calculation of Absolute Liquid Ratio:

Analysis:



Table 3

Absolute Liquid Ratio (Rs in Lakhs)


Absolute Liquid Assets 345.56 345.79 593.23


Absolute Liquid Ratio 1.21628947 1.23206 8.239306

Interpretation-

This table shows the absolute liquid ratio for the last three years it’s

constantly decreasing from 8.23 to 1.21 in the year 2010.



Graph 3

Inference-

There is an increase in the ratio in 2008 which show that the absolute

liquid assets are adequate to pay its current liabilities in time. This is a

good sign for the firm as the company is capable of meeting its short-term

obligations. Ratio has fallen down in the year 2009 and 10.



4) Working Capital Turnover Ratio

It is directly related to sales, current assets. It indicates the velocity of the

utilization of net working capital. This ratio indicates the number of times

the working capital is turned over in the course of the year.

Working Capital = Current assets – Current liabilities

Significance/Uses

A high working capital turnover ratio shows the efficient utilization

of working capital in generating sales. A low ratio, on the other

hand, may indicate excess of net working capital. This ratio thus

shows whether working capital is efficiently utilized or not.

This ratio is considered better than stock turnover ratio as it shows

the utilization of the entire working capital whereas stock turnover

ratio indicates only the turnover of stock which is only a part of the

working capital.

Calculation of Working Capital Turnover Ratio



Analysis:

Table 4

Working capital turnover

ratio

(Rs. in Lakhs)


Working Capital 811.37 587.36 819.74

Net sales 1,965.11 1,608.28 1,216.44

Working capital turnover

ratio

2.42196532 2.73815 1.483934

Interpretation-

This table shows the working capital turnover ratio and from the table we

can see that it is 2.42 times for the year 2010 and it increased from 1.48 in

2008. So we can derive from the table that the working capital is

efficiently being managed.



Graph 4

Inference-

A higher working capital turnover shows that there is low investment in

working capital and there is more profit. Here the company working

capital is favourable as there is less amount of capital outlay in terms of

working capital and the ratio has increased from 1.48 in the year 2008 to

2.42 in 2010.



5) Total Assets Turnover Ratio

The total asset turnover ratio provides a measure of overall investment

efficiency by aggregating the joint impact of both short and long term

assets. Lower total assets turnover indicate longer shelf life for inventory

and slower collection of receivables, assuming cash balances and short

term investments are not usually high .This indicates a cut back in

demand for a firm’s product or sales to customers whose ability to pay is

uncertain

Significance / Uses

It establishes a relationship among the total sales made by the business

concern and the total assets hold by the company. It helps in keeping a

track on the application of the owner’s fund. It reflects the potential

liquidity of the company.

Calculation of total Asset Turnover Ratio



Analysis:

Table 5

Total assets turnover

ratio

(Rs in lakhs)


Total Assets 2,116.16 1,802.84 1,338.95

Fixed Assets 1020.68 934.81 447.21

Total assets turnover

ratio

0.48232648 0.518521 0.334001

Interpretation-

This table shows the total assets turnover ratio and from the table we can

see that it is 0.48 for the year 2010 and it increased from 0.33 in 2008.



Graph 5

Inference-

It has been observed that the total asset turnover ratio for the year 2008 is

0.33 times, 0.51 times for the year 2009 and 0.48 times for the year 2010.

The ratios indicate that the assets of the company’s were properly utilized

in past 3 years.



6) Net Profit Ratio

It establishes a relationship between net profit and sales. It indicates the

firm’s capability to face adverse economic conditions such as price

competition, low demand etc.

Significance / Uses

Net Profit Margin Ratio measures the overall efficiency of

production, administration, selling, financing and pricing and tax

management.

Net Profit Margin Ratio provide a valuable understanding of the

cost and profit structure of the firm and enable us to identify the

sources of business efficiency or inefficiency.

The ratio indicates the quantum of profit earned by a concern, and

indicates the firm’s capacity to face adverse economic conditions

such as price competition, low demand, etc.

Calculation Of Net Profit Ratio



Analysis:

Table 6

Net Profit Ratio (Rs in Lakhs)


Net Profit(PAT) 274.34 248.82 187.12

net sales 1,965.11 1,608.28 1,216.44

Net Profit Ratio 13.9605416 15.47119 15.38259

Interpretation-

This table shows the net profit ratio and from the table we can see that it

is 13.96 for the year 2010, 15.47 in 2009 and 15.38 in 2008.



Graph 6

Inference-

Higher is the profit better is the profitability. The ratio is favourable in all

the three years. But the company net profit has fallen down in the year

2010 as compared to 2008 and 2009.

7) Operating profit Ratio DAYANANDA SAGAR COLLEGE OF ARTS, SCIENCE AND COMMERCE


This ratio establishes the relationship between operating profit on one

hand and the sales on the other. In other words, it measures the profit in

per unit of sales done.

Significance/Uses

It is the yardstick to measure the efficiency with which a business is

operated. It shows the percentage of profit being made.

A high operating profit ratio is considered favorable as it leaves a high

margin of profit to meet non-operating expenses. A lower operating profit

ratio is considered a bad sign.

Calculation of Operating profit Ratio



Analysis:

Table 7

Operating profit ratio (Rs in Lakhs)


Operating profit 525.54 335.51 245.64

net sales 1,965.11 1,608.28 1,216.44

Operating profit ratio 26.7435411 20.86142 20.19335

Interpretation-

This table is shows the operating profit ratio and in the year 2008 it was

20.19 and in 2009 it was 20.86 and in 2010 it was 26.74



Graph 7

Inference-

Higher is the ratio better is the profitability. The ratio is favourable in all

the three years. But the company operating profit has fallen down in the

year 2008 and 2009 as compared to 2010.

8) Current Assets turnover Ratio



A balance sheet account that represents the value of all assets that

are reasonably expected to be converted into cash within one year in the

normal course of business. Current assets include cash, accounts

receivable, inventory, marketable securities, prepaid expenses and other

liquid assets that can be readily converted to cash. Current Assets

Turnover ratio shows the productivity of the company's current assets.

Significance/Uses

A higher Current Assets Turnover Ratios indicates the frequent use

of current assets in sales and marketing efforts.

Its shows the productivity of the company’s current asset.

Calculation of Current Assets Turnover Ratios



Analysis:

Table 8

Current Assets turnover Ratio (Rs. In Lakhs)


Current Assets 1,095.48 868.02 891.74

Net sales 1,965.11 1,608.28 1,216.44

Current Assets turnover Ratio 1.7938346 1.852814 1.36412

Interpretation-

This table shows current assets turnover ratio in which in the year 2008 it

was 1.36 and in the year 2009 it was 1.85 and in the year 2010 it was

1.79.



Graph 8

Inference-


the three years. And the company has maintained a constant ratio in all

the three years.

9) Fixed assets Turnover Ratio DAYANANDA SAGAR COLLEGE OF ARTS, SCIENCE AND COMMERCE


A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio

measures a company's ability to generate net sales from fixed-asset

investments - specifically property, plant and equipment (PP&E) - net of

depreciation.

Significance/Uses

A higher fixed-asset turnover ratio shows that the company has been

more effective in using the investment in fixed assets to generate

revenues.

Calculation of Fixed asset turnover ratio

Analysis:



Table 9

Fixed assets Turnover

Ratio

(Rs in Lakhs)


Net sales 1,965.11 1,608.28 1,216.44

Fixed assets 1020.68 934.81 447.21

Fixed assets Turnover

Ratio

1.9252949 1.720435 2.720064

Interpretation-

This table shows fixed assets turnover ratio and it shows that in the year

2008 it was 2.72 in the year 2009 it was 1.72 and in the year 2010 it was

1.92.



Graph 9

Inference-


the three years. But the company’s ratio has shown a gradual change in

all the three years.



10) Inventory Turnover Ratio

Inventory Turnover ratio, is simply the turnover of the company divided

by its stocks. It should always be compared against the average price of

the ratio for the sector.

Significance/Uses

A low Inventory Turnover suggest poor sales and/or high

investment in inventory - which is non-profitable and risky.

A high ratio implies either strong sales or ineffective buying.

Calculation of Inventory turnover ratio



Analysis:

Table 10

Inventory Turnover Ratio (Rs in Lakhs)


Cost of Goods Sold 1,439.58 1,272.75 970.81

Average Stock 50.3878194 72.52137 56.01904

Inventory Turnover Ratio 28.57 17.55 17.33

Interpretation

This table shows inventory turnover ratio and here it is seen that in the

year 2008 it was 17.33 in the year 2009 it was 17.55 and in the year 2010

it was 28.57.



Graph 10

Inference

Higher ratio indicates that more sales are being produced by a unit of

investment in stocks. There is an increase in all the three years since it

means that the investment in stock is leading to higher sales.

11) Debtors Turnover ratio DAYANANDA SAGAR COLLEGE OF ARTS, SCIENCE AND COMMERCE


Debtors turnover ratio or accounts receivable turnover ratio indicates the

velocity of debt collection of a firm. In simple words it indicates the

number of times average debtors (receivable) are turned over during a

year.

Significance/Uses

Accounts receivable turnover ratio or debtors turnover ratio

indicates the number of times the debtors are turned over a year.

The higher the value of debtors turnover the more efficient is the

management of debtors or more liquid the debtors are.

Similarly, low debtors turnover ratio implies inefficient

management of debtors or less liquid debtors.

Calculation of Debtors turnover ratio

Analysis:



Table 11

Debtors Turnover ratio (Rs in Lakhs)


Net sales 1,965.11 1,608.28 1,216.44

Sundry Debtors 530.24 321.77 199.15

Debtors Turnover ratio 3.70607649 4.998229 6.10816

Interpretation

This table shows debtors turnover ratio and it is seen that in the year 2008

it was 6.10 in the year2009 it was 4.99and in the year 2010 it was 3.07.



Graph 11

Inference

Higher is the ratio better is the profitability as it indicates that debts are

being collected more from promptly. The ratio is falling down from the

year 2008 to 2010. It indicates inefficiency in collection of debts.



12) Gross Profit Ratio

Gross profit ratio (GP ratio) is the ratio of gross profit to net

sales expressed as a percentage. It expresses the relationship between

gross profit and sales.

Significance/Uses

Gross profit ratio may be indicated to what extent the selling prices

of goods per unit may be reduced without incurring losses on

operations.

It reflects efficiency with which a firm produces its products. As

the gross profit is found by deducting cost of goods sold from net

sales, higher the gross profit better it is

Calculation of Gross profit ratio



Analysis

Table 12

Gross Profit Ratio (Rs in Lakhs)


Gross profit 500.77 323.75 242.85

Net sales 1,965.11 1,608.28 1,216.44

Gross Profit Ratio 25.4830518 20.1302 19.96399

Interpretation

This table shows gross profit ratio and it is seen that in the year 2008 it

was 19.96, in 2009 it was 20.13 and in the year 2010 it was 25.48.



Graph 12

Inference


the three years. It shows a good sign of the company.



FINDINGS

1) From the study it is revealed that the current ratio of the firm in

each of the three years is more than the ideal ratio of 2:1.This

shows that the company is managing its current assets properly.

2) The ideal ratio for quick ratio is 1:1.The Company is satisfying the

ideal value in each of the three years.

3) The ideal ratio for absolute liquid ratio is .75:1. The company has

maintained a favourable ratio in all the 3 years.

4) The working capital turnover ratio increased from the year 2008

which shows that working capital has been effectively managed.

5) The asset turnover ratio was not favourable in all the three years.

6) There is a satisfactory result in net profit in all the 3 years which

had a positive effect on the company. Net profit was constant in the

year 2008 and 2009 and there was a slight fall in 2010.

7) Operating profit was constant in the year 2008 and 2009, but there

is an increase in the year 2010 which is a good sign for the

company.

8) The current asset turnover ratio is favourable in all the three years.

And the company has maintained a constant ratio in all the three

years.

9) The fixed asset turnover ratio is favourable in all the three years.

But the company’s ratio has shown a gradual change in all the

three years.



10) Inventory turnover ratio shows a better performance over the

3 years. There is a huge increase in the year 2010 which is good for

the company.

11) Higher is the debtor turnover ratio better is the profitability

as it indicates that debts are being collected more from promptly.

The ratio is falling down from the year 2008 to 2010. It indicates

inefficiency in collection of debts.

12) The gross profit ratio is favourable in all the three years with

an average around 22. It shows a good sign of the company.

RECOMMENDATIONS



UniverCell needs to do efficient cash and inventory management

which contributes a lot towards any company’s profitability.

UniverCell is having a great positive sign of stable performer; the

company should maintain this in future also by managing its resources

very thoughtfully so that it exists in a long term.

The company should much not depend upon the loans as payment in

future can be a problem.

The company should go for an IPO if it wants to run in the market for

a long time and to inject fresh capital.

Company debtor is increasing year by year according to the debtors

turnover ratio which shows inefficiency in debt collection; therefore

which it be managed by the company and should be concerned about

collection of debts.

CONCLUSIONS



From the above study it is revealed that the company overall

performance is good in all the three years.

Company net profit has also shown a good result over all the three

years which reflects the sound financial position of the company.

Company working capital is effectively managed all the 3 years.

Finally, the company is doing a great financial management and it

is beneficial for the company in future.


65620799 UniverCell Project Finance

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Transcript of 65620799 UniverCell Project Finance