ptcl..finanace report

7/27/2019 ptcl..finanace report

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CHAPTER 01

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Pakistan Telecommunication Company limited (PTCL) is a mega corporation and a leading

telecommunication authority in the state of Pakistan. The corporation provides and enforces

policies for the telephonic services nation-wide and is the backbone for countrys

telecommunication infrastructure despite arrival of a dozens other telecommunication

corporations. The corporation managed and operates around 2000 telephone exchanges across

the country, providing the largest fixed line network. Data and backbone services such as GSM,

CDMA, Broadband internet, IPTV wholesale are increasing parts of its business. It has 30,000

employees who are serving 5.7 million customers round the clock. It also has a strong position as

CDMA (Code division multiple access, a telecommunication technology) operator with 0.8

million V-fone customers. Till 2006, PTCL was fully owned by Government of Pakistan but in

2006, the government has reduced its share to 62% and sold 26% shares with management rights

to Etisalat (A UAE based telecommunications services provider) while the remaining 12% was

sold to general public (Rana, 2011). Once Etisalat has taken over the company, various changesoccurred. The company has been downsized by encouraging employees for voluntary separation

scheme and golden hand shake. Recruitment and selection process were changed and special

software were installed for billing and customer care. The brand logo is also changed to represent

the new face of the company that represent its focus on customer care and its aim of bringing

new technologies to the telecom sector of Pakistan (PTCL workers website, n.d.). The largest

sector of the telecommunication industry continuous to be made up of wired telecommunication

carriers. Establishment in these sectors mainly provides telephone service via wires and cables. It

offers both domestic and international services throughout Pakistan. Due to its significance and

enormous Finance department, the researcher decided to join PTCL for his research. This report

is based on eight weeks research in finance department of PTCL Peshawar city.

Privatization of PTCL and its impacts on financial health. By Noor Ahmed 1


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1.2 PURPOSE OF INTERNSHIP

The purpose of internship is to get field experience and know about the practical implication of

different financial transaction, public dealing and application of knowledge and class work and

finally to get MBA degree as well. Therefore the researcher spent the last 2-months in PTCL

office, situated in Peshawar city.

1.3 STATEMENT OF THE RESEARCH PROBLEM

Research report on any organization is a necessary element to get the MBA degree from any

university. Research is very important in any business and non business organization for the

solution of different problems, and for sake of excess knowledge and experience as well. This

report is based on privatization scenario and its impacts on PTCL financial performance and the

research discipline was;

Privatization of PTCL and Its Impacts On Financial Health.

1.4 OBJECTIVES OF THE RESEARCH

This research was conducted in PTCL revenue, finance related department, the research

objective was,

To study the financial performance and impacts of privatization on PTCLs financial

health.

To collect and analyze some data about it for the sake of understanding and to conclude

any helpful suggestion for further improvement in it.

To know the financial activities of PTCL that how it can be performed.

To calculate the financial ratios before and after the privatization for the purpose to know

about the financial performance of PTCL.

To analyze the financial ratios and give suggestions for the improvement of the company.

1.5 SIGNIFICANCE OF THE RESEARCH

Research provides a bridge between academics and the future work environment and

eliminates the gap between these two.



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Research is necessary for every graduate generally and for MBA students particularly.

Employers usually prefer those candidates for a job who have some prior experience and

knowledge in relevant work environment, research is the best way to gain the experience

and knowledge.

It increases confidence level of students and they have better opportunities of selection

for job in future.

Despites these major benefits of the research, it also help in the following areas.

It helps to build a strong practical base.

Enables the student to make a better decision about their career in future.

It provides an opportunity for organization to gain from the knowledge and abilities of

the internee who has knowledge about the latest technologies and business techniques.

It provides real world field experience to the internee.

It links the theoretical learning to the practical work environment.

It familiarizes students to the organizational environment.

It helps the organization to solve the problems.

It helps to increase our knowledge.

It paves the way for other researchers to work on the same topic.

The research at PTCL helped to gain some practical experience and real world organization

exposure. It provides a chance to compare the class work to the field work.

1.6 RESEARCH METHODOLOGY

The researcher would also like to mention some important information about his research

methodology and the activities performed for the purpose to prepare research report.

1.6.1 NATURE OF RESEARCH

The report of researcher is a descriptive form of research, in which the researcher focused and

worked in the revenue department of PTCL and its functioning to find convenient answers to the

research questions.



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1.6.2 SCOPE OF THE STUDY

The main focus of the report is on comparative financial performance of Pakistan

Telecommunication Company Limited before and after privatization and different operations inthe organization. The researcher totally focused on secondary data and limited the scope of study

to only Peshawar region office situated at Khyber Bazar Peshawar city.

1.6.3 TOOLS FOR DATA ANALYSIS

Annual reports are used as a tool of data analysis. MS Excel as a tool for data analysis and

creating graphs are also used in the report.

1.6.4 TYPES AND SOURCES OF DATA

In this study the researcher used secondary data. The secondary data was easily available in the

form of report, news papers, magazines, research papers of different scholars, and other PTCLs

official publications including their official website etc.

1.7 LIMITATIONS OF THE STUDY

This study has some limitations.

The major one is that it is based only on Peshawar region and do not cover the entire

PTCL organization.

Time was very short to do research work in a better manner.

Previous years data was not accessible.

The financial resources were scarce.

Limited human resource.

1.8 DELIMITATION OF THE STUDY

This study is delimited to Peshawar region and further delimitation to Khyber Bazar

Peshawar City Revenue Department but still the researcher has analyzed the over all

performance of PTCL before and after privatization through out the Pakistan by the use of

financial statements and internet.



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1.9 OUTLINE ORGANIZATION OF THE RESEARCH REPORT

This research report is consisting of six sections; the first one is the preliminary section. Next

four are the chapters of the main body while the last section is the appendices and annexure. The

outline preview of the report is given as under.

Preliminary section:

Title page

Approval sheet

Acknowledgment

Table of contents

Executive summary

Chapter one: Introduction to the report

Introduction and history of PTCL

Purpose of the research

Research questions

Areas of focus

Significance of research and report writing

Research methodology

limitations

Chapter two:

Introduction of the organization

N a t u r e o f b u s i n e s s

P T C L s s u b s i d i a r i e s

B u s i n e s s v o l u m e

S e r v i c e s

Privatization

Finance department



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Accounting system of the organization

Finance system of the organization

Mobilization of funds

Generation of funds

Sources of funds

Allocation of funds

Customer care & customer services

Department Revenue department

Related data

Chapter three: Data Analysis and Findings

Data Analysis and finding

Chapter four: Conclusion and recommendations

Conclusion

Recommendations

Annexure

Appendices



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REFERENCES

Irwin, R. (1985).Business research methods. New York: The books heaven.

Kothar, D. C. (2008).Research methodology: methods and techniques. New Delhi: New Age

International.

Kumar, R. (2008).Research Methodology. New Dehli: APH Publishing.

Pakistan Telecommunication Company Limited. (n. d.). Retrieved on september 10, 2012, Retrieved from

http://www.ptcl.com.pk/index_0.php

PTCL workers website. (n. d.). Retrieved on September 01, 2012, Retrieved from

http://www.ptclworkers.com/



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CHAPTER 02

INTRODUCTION OF THE ORGANIZATION

From the humble beginnings of Posts & Telegraph Department in 1947 and establishment of

Pakistan Telecommunication Company Limited, to this very day, ours is a story of commitment

and vision.

2.1 PAKISTAN POST & TELEGRAPH (P&T)

The postal and telecommunication services were performed by a single department known as

Pakistan Post & Telegraph (P&T). This department started its telephone service with only 12346

telephone lines and seven telegraph offices all over Pakistan. This department continued its

business up to 1962. The Government of Pakistan adopted the Government of India Telegraph

act 1885 to control and direct the activities of telecommunication.

2.2 PAKISTAN TELEGRAPH AND TELEPHONE DEPARTMENT (T&T)

Pakistan Telegraph and Telephone Department inherited a small telecommunication network

consisting of only 12,000 lines in 1947. It was the sole Department responsible for providing

telecommunication facilities to whole country. In fact postal services were also included in its

responsibilities. The Pakistan Postal Department was separated from Pakistan Telegraph and

Telephone Department in the year 1962. Like all other field of newly born nation, there was no

established system of telecommunication, available in the country. However the present system,

as well as new installations was managed by the T&T quiet efficiently.

2.3 PAKISTAN TELECOMMUNICATION CORPORATION (PTC)

The erstwhile Telegraph and Telephone (T&T) Department was converted into a Statuary

Corporation on 15-12-1990. It has its own legal identity totally separated from Government of

Pakistan.



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R E - S T R U C T U R I N G O F P T C

The P.T.C. was further segregated into four separate units in 1996.

2.3.1 P.T.C.L.

2.3.2 P.T.A.

2.3.3 N.T.C.

2.3.4 F.A.B.

2.3.1 PAKISTAN TELECOMMUNICATION COMPANY LIMITED (PTCL)

PTCL was incorporated on December 31st 1995 and commenced business on January 1st 1996.

The idea behind this was to provide better services to its customers. This was established to

undertake the telecommunication business formally carried out by Ex-PTC. It was responsible

for carrying out all kinds of telecommunications activities in the country. It was required to look

after the existing telecom installations and their automation and development. It was also to

undertake development program in telecom field. All properties, assets, obligations and liabilities

of PTC were accordingly transferred to the PTCL on the 01-01-1996.

The P.T.C.L. is a prestigious organization and telecom services in the country are getting better

and better, since its incorporation.

2.3.2 PAKISTAN TELECOM AUTHORITY (PTA)

Pakistan Telecom Authority (PTA) was established in 1996. It falls under the preview of

Government of Pakistan. It issues licenses to various companies for carry out certain activities.

This authority is responsible to monitor the establishment of telecom related firms, companies,

the import of telecom equipments etc in the country. It is a regulatory body formed to

accomplish rules and regulations relating to the telecommunication matters.



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2.3.3 NATIONAL TELECOM CORPORATION (NTC)

It has been established for installation of telecommunication facilities to the Governmental

organizations. A portion of working lines was initially transferred to N.T.C. from the P.T.C.L.

but now they have established their network. They are totally independent in providing

telephones connections, their look after and generation of revenue there from.

2.3.4 FREQUENCY ALLOCATION BOARD (FAB)

This organization has been established to allocate Radio and Wireless telecom frequencies tovarious organizations/companies within the country. The latest development in this regard is that

F.A.B. is establishing Monitoring Stations in order to check the validity and legality of the

utilization of circuits.

2.4 VISION OF PTCL

The Pakistan Telecommunication Company limited is committed to provide best services to its

customer and to be a market leader in the sector for the region; they are striving to be a part of

the innovation and to be a unique telecom services provider. Its vision is

To be the leading Information and Communication Technology Service Provider in the region

by achieving customer satisfaction and maximizing shareholders' value'. (PTCL, n.d.).

2.5 MISSION OF PTCL

PTCL is working hard for the customer satisfaction; they want to fulfill their vision by having

An organizational environment that fosters professionalism, motivation and quality

An environment that is cost effective and quality conscious

Services that are based on the most optimum technology.

Quality and Time conscious customer service.

Privatization of PTCL and its impacts on financial health. By Noor Ahmed

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Sustained growth in earnings and profitability (PTCL, n.d.).

2.6 CORE VALUES

PTCL has some core values to which they give a lot of significance and they consider them as

the most important part of their business, these core values do not change from time to time or

from person to person rather they are the foundation of the companys culture. These core values

are:

Professional Integrity

Customer Satisfaction

Teamwork

Company Loyalty

Professional integrity: PTCL professional integrity guides all of its functions and decisions;

each of its decision is according to the business ethics, always for the best concern of its

customers and reflects its social responsibility.

Customer satisfaction: PTCL always value its customer, PTCL believes that customers are thecause of their success; they consider them as an important part of their business. The company is

always responsive to customers needs and wants and creates products accordingly. PTCL

welcomes customer feedback; this is considered an important input for value creation.

Teamwork:Teamwork is an important driving principle for the PTCL. Team building skills are

considered essential for individuals who want to join the company and that are why every

individual is highly motivated towards teamwork.

Company loyalty:Each employee and worker is loyal to the company and to his/her job; they

are committed to their duties and always take care of it. This is because of employees high

motivation towards their organization that PTCL is enjoying a large market share and high

growth rate even though there are huge competitors in the telecom sector in Pakistan (PTCL,

n.d.).


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2.7 BRIEF HISTORY

From the beginning of posts and telegraph department in 1947 and Telegraph Department in

1947 and establishment of Pakistan Telephone & TelegraphDepartment in 1962 PTCL has been

a major player in telecommunication in Pakistan. Despite having established a network of

enormous size PTCL working and policies having attached regular criticism from other smaller

operators and the civil society of Pakistan.

Pakistan telecommunication corporation (PTC) took over operations and functions from Pakistan

telephone and telegraph department under Pakistan telecommunication corporation Act 1991.

Government in 1991announced its plans to privatize PTCL, and in 1994 issued six million

vouchers exchangeable into 600 million shares of the would be PTCL in two separate

placements. Each had a par value of Rs. 10 per share. The vouchers were converted into PTCL

shares in mid- 1996 (Arif, 2009).

In 1995, Pakistan Telecommunication (Reorganization) ordinance formed the basis for PTCL

monopoly over basic telephony in the country. The provisions of the ordinance were lent

permanence in October 1996 through Pakistan Telecommunication (Reorganization) Act. The

same year Pakistan Telecommunication Company was formed and listed on all stock exchanges

of Pakistan.


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Table 2.1 Historical Background of PTCL

1947 Posts & Telegraph Department established

1962 Pakistan Telegraph & Telephone Department (T%T)

1990-91 Pakistan Telecom Corporation (PTC)

ALIS: 850,000 Waiting list: 900,000 Expansion Program of 900,000 lines initiated

(500,000 lines by Private Sector Participation

400,000 lines PTC/GOP own resources).

1995 About 5 % of PTC assets transferred to PTA, FAB & NTC.

1996 PTCL Formed listed on all Stock Exchanges of Pakistan

1998 Mobile & Internet subsidiaries established

2000 Telecom Policy Finalized

2003 Telecom Deregulation Policy Announced

2006 26 % Shares with management rights by Etisalat UAE through open bidding

2.8 NATURE OF BUSINESS

Pakistan Telecommunication Company Limited (PTCL) was incorporated in Pakistan on

December 31, 1995 and is listed on Karachi, Lahore and Islamabad stock exchanges. It was

established to undertake the telecommunication business firmly carried on by Pakistan

Telecommunication Corporation (PTC). The business was transferred to the company on January

1, 1996 under the Pakistan Telecommunication (Reorganization) Act, 1996 at which date PTCL

took over all the properties, rights, assets, obligations and liabilities of PTC except those

transferred to National Telecommunication Corporation (NTC) , Frequency Allocation Board

(FAB), Pakistan Telecommunication Authority (PTA) and Pakistan Telecommunication

Employees Trust (PTET). The company commenced business on January 1, 1996. The registered

office of the company is situated at Block-E, PTCL Headquarter, G-8/4 Islamabad.


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Pakistan Telecommunication Company Limited (PTCL) is the main provider of

Telecommunication services in Pakistan. It owns and operates a substantial part of the

telecommunication facilities and provides domestic and international telephone services andother communication facilities throughout Pakistan.

2.9 PTCLS SUBSIDIARIES

2.9.1 Pak Telecom Mobile Limited (PTML)

PTML is a wholly owned subsidiary of PTCL established to operate cellular Telephony under

the brand name of UFONE.

The companys performance during the current year has been very encouraging despite the stiff

competition in Pakistans cellular market especially after the emergence of two new international

players in the last quarter of the year. Throughout the year, UFONE pursued a growth strategy

and managed to almost double its revenue compared to last year. The company successfully

increased u-fones market share from 16% to 22%, a significant achievement. On June 30, 2005

the total number of subscribers of UFONE was 2.6 million versus 0.8 million at the same year.

During the year PTML successfully launched its Phase-IV network expansion project costing

more than US$ 160 million. UFONE now covers more than 200 cities and towns, prominent

highways and caters for international roaming with 135 operators worldwide.

UFONE recorded Revenue of Rs. 8,598 million for the year ended June 30, 2006 as compared to

Rs. 4,374 million for the previous year, an increase of 97%. Profit after tax increased from

Rs.776 million for the current year. Based on these results a dividend of Rs. 700 million was

declared by the Board of PTML.

2.9.2 PAK NET LIMITED

The fully owned subsidiary of PTCL owns the largest ISP network spread over 2,900

cities/locations with 43 POPs. It has extensive data transmission capabilities but has been

incurring losses due to poor business orientation and excessive overheads. During the year

Paknet recorded sales revenue of Rs. 213.9 million, which is 19% loser than last year. The


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company posted a loss of Rs. 42.2 million vs a loss of Rs. 111.5 million last year. The quantum

of loss is lower as compared to last year mainly due to reversal of provisions against doubtful

debts of Rs.44.1 million made in prior years and reversal of deferred tax asset of Rs. 34.9 millionin the last year.

PTCL as the sole shareholder of Paknet is highly concerned with the poor performance of this

subsidiary and is currently undertaking a strategic review of this ISP subsidiary of determine the

future course of action

In spite of these subsidiaries there are following product lines.

Fixed Telephone ( Analog & Digital)

DSL ( Digital Subscriber Line)

IN Products (Pre-Paid Cards, Calling Cards, Apna Das Calling Card, Phone Bill Card

etc.)

PTCL Wireless.

2.9.3 MODERN SERVICES

DON'T DISTURB

WAKE UP CALL

CALL WAITING

HOTLINE

INTERNET AND E-MAIL SERVICE

DIGITAL LEASED LINES/CROSS CONNECT

CLI SERVICE

CALL FORWARDING ON BUSY TONE.


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CALL FORWARDING ON NO REPLY.

CALL FORWARDING UNCONDITIONAL (IMMEDIATE).

DOMESTIC CALL CENTERS

CO-LOCATION CENTER

TELEPLUS (ISDN / BRI)

CONFERENCE CALL

PTCL MESSAGING SERVICE

ABBREVIATED DIALING

TOLL FREE SERVICE 0800

PTCL MAILBOX

PREMIUM RATE SERVICE-0900

UNIVERSAL INTERNET NUMBER

INTERNATIONAL CALL CENTERS

2.10 REGION WISE SEGMENTATION OF PTCL

To provide efficient and smooth services to the subscribers, PTCL has been divided into almost

thirty-two Regions (Nine Development and twenty-three Maintenance Region ).

The Development Regions are normally responsible to accomplish the development and

expansion program of the company and after completing the lying of cable, installation, testing,

commissioning of equipment, they are liable to hand over the exchange, building, or other

installations to the concerned Maintenance Regions.


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These maintenance regions are further responsible for the look after, up keep and maintenance of

these assets. They are also required to initiate expansion proposals to meet the ever-increasing

demand of telephone connections.

The overall operations department has been divided into four wings; North, South, International

Communications and Information Technology Training & Research. Each of these wings is

headed by EVP. As PTCL is providing its services to its customers all over the country, its entire

network has been divided into fifteen regions. Each region is further divided into zones and

headed by director. Each director controls a number of divisional engineers.

2.11 BUSINESS VOLUME

Fixed line connections in the country are more than 5.4 million and the cellular connections are

12.7 millions

Currently there are 315 Payphone and over 51,000 Wireless Payphones

There are over 140 Data and Internet service providers (ISPs) to whom PTCL has provided

network infrastructure.

PTCL generated annual Revenue of over Rs. 11 billion from its private sector operating partners.

Table 2.2 The PTCLs performance against a key set of parameters

Parameters Value

Revenue Rs. (m) 55254

Profit after tax Rs. (m) 7428

Earning per share In Rupees 1.46


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Capital expenditure Rs.(m) 17080

Return on equity % 7.50

Ptcl annual report

2 . 1 2 SERVICES

2.12.1 Corporate Services

Fixed Line Telephone

Wireless Local Loop (WLL)

2.12.2 Consumer Services

DON'T DISTURB

WAKE UP CALL

CALL WAITING

HOTLINE

INTERNET AND E-MAIL SERVICE

DIGITAL LEASED LINES/CROSS CONNECT

CLI SERVICE

CALL FORWARDING ON BUSY TONE.

CALL FORWARDING ON NO REPLY.

CALL FORWARDING UNCONDITIONAL (IMMEDIATE).

DOMESTIC CALL CENTERS


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CO-LOCATION CENTER

TELEPLUS (ISDN / BRI)

CONFERENCE CALL

PTCL MESSAGING SERVICE

ABBREVIATED DIALING

TOLL FREE SERVICE 0800

PTCL MAILBOX

PREMIUM RATE SERVICE-0900

UNIVERSAL INTERNET NUMBER

INTERNATIONAL CALL CENTERS

2.13 ORGANIZATIONAL STRUCTURE

Organizational Structure describes the organizations formal framework or system of

communication and authority.

In other words, the organization structure sets forth each principal, management position and

helps to define authority, responsibility and accountability.

An organization chart is essential to the development of a cost system and cost reports which

indicates the responsibilities of individuals for implementing management plans.

In PTCL President / CEO is the head of major functional areas. i.e State management, Finance,

Technical, Operations, HR & Administration and Corporate affairs. So Senior Executive Vice

President who is the head of these units generally reports directly to the President.


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The main purpose of PTCL is allowing them to effectively and efficiently accomplish

organizational goals and objectives. Designing an appropriate structure means that managers

must decide how to coordinate work activities and efforts both vertically and horizontally.

Organization structure of PTCL can be described as having three components like any other

organizations:

1. Complexity

2. Formalization

3. Centralization

2.14 MAIN OFFICES

Chairman Corporate Headquarter, Block-E-, G-8/4, Islamabad

Director Commercial Accounts Nabha Road Lahore.

GM Offices in every Region.

SAO Offices.


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PRESIDENT

SEVP (Finance) SEVP (HR) SEVP(Marketing)

EVP (Finance) EVP (HR) EVP (Marketing)

GM GM GM


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Director Offices

Senior Engineer Offices.

Assistant Engineer/ AO Offices etc

2.15 PRIVATIZATION

Privatization is the process of selling government shares to private buyers. It is the process of

transferring of a business, enterprise or agency from the public sector to private sector.

2.15.1 Privatization process of PTCL

According to Malik (2011) The Government in 1991, announced its plans to privatize PTCL, and

in 1994 issued six million vouchers exchangeable into 600 million shares. Each had a par value

of Rs. 10 per share. These vouchers were converted into PTCL shares in mid- 1996. In 1995,

Pakistan Telecommunication (Reorganization) Ordinance formed the basis for PTCL monopoly

over basic telephony in the country. The provisions of the Ordinance were lent permanence in

October 1996 through Pakistan Telecommunication (Reorganization) Act. In the same year,

Pakistan Telecommunication Company Limited was formed and listed on all stock exchanges of

Pakistan. The Government of Pakistan sold 26% shares and control of the company to Etisalat in

2006. The Government of Pakistan retained 62% of the shares while the remaining 12% are held

by the general public. Since privatization, PTCL profit is declined(Arif, 2009).

2.15.2 Impact on Competition

With privatization of PTCL may competitors entered into the market and PTCLs market share is

day to day decreases, due to the following reasons: People switch toward cellular phones WLL

users switch toward wateen, world call and Tele Card because of better quality. Customer

services are better then PTCL

However it is in favor of PTCL that it still has almost monopoly in landline subscribers

2.15.3 Impact on Employment before Privatization:

PTCL has approx. 65000 employees before privatization. The main workforce of the PTCL is

unqualified and unskilled. About 50% employees are under graduate.


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After privatization the following decisions have taken by management; launch VSS (voluntarily

separation scheme), under this scheme PTCL has to pay a lump sum amount to employee who is

willing to leave. Step forward to facilitate equal employment opportunities.

2.16 FINANCE DEPARTMENT

2.16.1 ACCOUNTING SYSTEM OF THE ORGANIZATION

The accounting system of PTCL is to comply with requirements of companies ordinance, 1984

and approved Accounting standards comprise of such IASs as notified under the provision of the

companies ordinance 1984. International Accounting Standards (IAS), as applicable in Pakistan

in all respects. Wherever the requirements of the companys ordinance 1984 of directives issued

by the securities and exchange commission of Pakistan differ with the requirements of these

standards. Generally accounts are prepared and maintained on government pattern as well as

commercial pattern on accrual basis of bills receivable and bills payable and also are exhibited

the profit and loss account and balance sheet showing the assets and liabilities.

The revised cash account current (ACE-40) Performa is based on double entry system which

indicates the debit and credit under each head of account viz cash/bank shows the balance in

hand ceiling cash and direct payment and the closing balance. All Drawing and DisbursingOfficers furnish commercial accounts at Lahore, where all items are separated analyzed and

noted in necessary books for preparation of financial statements.

In the Accounting system of organization, proper books of Accounts have been kept by the

company as required by the companies ordinance, 1984.

The balance sheet and the profit and loss account together with the notes thereon have been

drawn up in conformity with the companies ordinance, 1984.

The balance sheet, profit and loss account, cash flow statement and statement of changes in

equity together matches with approved accounting standards as applicable in Pakistan, and give

the information required by the companies ordinance 1984 in the manner so required and


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respectively give a true and fair view of the state of the companys affairs as at June 30 of every

year and of the profit, its cash flows and changes in equity for the year then ended.

2.16.2 FINANCE SYSTEM OF THE ORGANIZATION

The office of the Director General (Finance) controls all financial activities and system of PTCL.

All financing decisions, capital budgeting decisions and processing on real and financial assets

are major responsibilities of finance department of PTCL. Necessary future plans and projects

are analyzed and selected as per their positive results i.e; (Investment decision) installation of

new telephone exchanges and lines.

Lending and borrowing decisions are also made as per loans, interest rates, time period and

lending agencies and banks etc.

Necessary sanctions of write-off and depreciation rate are also issued by the finance department.

Finance department also plays a vital role in coordination, with dividend policy matters, internal

and external auditors and share registrars. Pensions, insurance, preparation of budget and

taxation dealings are also important factors of PTCL finance department.

2.16.3 USE OF ELECTRONIC DATA IN DECISION MAKING

Mostly offices of PTCL are well equipped with computers and EDP facilities.

Data is recorded on CDs and these CDs are sent to Finance department and Director Commercial

Accounts Lahore as cash accounts by regional heads. This data is fed in a main "SERVER" for

use of different sections in decision making. For example balances of General Provident Fund,

House Building Advance and Motor Cycle/Car Advances, Pay roll, etc are needed in pension

section to prepare final emoluments of a retiring employee. This requisite informations are taken

from this "SERVER" (Book & Budget Record Section) for necessary decision.

PTCL has a sound MIS System which helps all other departments in decision making and also to

preserve it for future needs. Recently, the organization provides a separate internet connection to

all its officers, so that they may connect to higher management regularly, keep their knowledge


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fresh about organization strategies/affairs and also for correspondence to other officers and

higher management.

2.16.4 MOBILIZATION OF FUNDS

PTCL purchases raw material from Erricson, Alcatel and AT&T, Italian, Sweden and American's

firms. It also borrows finance from internal and external sources. These raw material, finance

and human resources are put in together in different operational activities and revenue is earned.

After excluding the costs of different expenses from total revenue, profit or loss is framed for

one year. Then net profits are added in company's reserves. As this phenomenon mobilizes of

funds is a continuous process.

Cash Raw material

Revenue Operations

2.16.5 GENERATION OF FUNDS

Funds are mainly generated through

Services

Communicating activities.

Sales and Revenue Operations.

Line Rent.

Local and International calls.

Training given to other Organizations by the trained staff of PTCL

As per cash flow from operating activities, different expenses like taxation, depreciation

amortization, pension contribution funds, employees retirement benefits, write-offs and other

provisions are excluded to know the profit or loss of the company in a particular year.


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2.16.6 SOURCES OF FUNDS

Following are the major sources of funds of PTCL.

1. Issued, subscribed and paid up capital.

2. Long term and short term loans from different syndicates i.e; Citi Bank, ANZ Bank,

Bankers Equity Ltd etc

3. Income from operations

4. Funds from securities

5. Funds from Gross provident Funds

6. Income from its subsidiaries like CTI & Pak-Net etc.

7. International telephone represents revenue from foreign networks.

2.16.7 ALLOCATION OF FUNDS

In PTCL funds are allocated by a sound system of charts of accounts. All the Drawing and

Disbursing Officers are assigned their specific code-range through which necessary budgets and

grants are allocated. All the heads have also their code numbers which is easy to computerize.

2.16.8 NUMBER OF EMPLOYEES IN FINANCE DEPARTMENT

There are about 3600 employees working under the department of Finance. Which include

Senior Executive Vice President Finance, Executive Vice President Finance, General Manager

Finance, Senior Finance Officers, Director Finance and Account Officers, etc.


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Table 2.3 Number of employees in finance department

Senior Executive Vice President Finance 01

Executive Vice President Finance.

Accounts

Finance

Revenue

03

General Manager Finance /Director Finance/Chief Engineers 20

Senior Account Officers 75

Account Officers etc. 175

Assistant Director, Assistant, Clerks, etc 3600

2.17 CUSTOMER CARE & CUSTOMER SERVICES DEPARTMENT

PTCL has established its Customer Services Department at different levels the overview

of the said department is as follows.


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Table 2.4 customer care & customer services department

Corporate Customer Care Center Operation Region Level

Customer Services Centers Tehsil Level

Toll Free Help Lines For Complaint & Enquiry

Now we briefly introduce the functions of these:

Corporate Customer Care Center

To facilitate Corporate Customers PTCL has established Corporate Customer Care Centers at all

Operation Regional Head Quarter Level, in all the meager cities country wide. The Corporate

Customers can get their problems resolved under one roof in a one window environment by

dialing UAN 111-20 20 2. The Customer Relation Officers register the complaints & forward

these to the related office.

Customer Services Centers

To facilitate consumers PTCL has established Customer Services Centers at all Tehsil Level

cities/offices. Here the consumers can use Fax Facility, Voice Telephony forLocal/NWD/ISD

dialing. On divisional Offices Level duplicate phone bills may also be obtained from C.S.Cs.

Toll Free Help Lines

PTCL offers state-of-the-art call center network to its all type of valued customers for convenient

frequently asked Questions, Complaints regarding their services, T/No enquiry. The following

three Toll Free T/Numbers are available for this purpose.

a) 1236 (Service Activation)

This toll free No is used to change the tariff packages of land line, WLL (V-fone), PTCL phone n

net service activation, & for Broad Band customers. The service activation is electronically

ordered & activated within 24 hours through concerned department.

b) 17 (Telephone Directory)

This facility is also Tol Free & is used to obtain the telephone numbers of some specific

subscribers (College, Govt. offices, Private offices etc.). This is centralized & is being used as

Telephone Directory.

c) 18 (Land Line Complaints)


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To register the faulty Telephone complaints PTCL has established a Toll Free No 18 where a

computerized central node is used to register & rectify the consumer complaints for land line

numbers.

2.18 REVENUE DEPARTMENT

The revenue generated by the marketing department through selling the company

services/products is collected by the Revenue Department. The roles played by the Revenue

Department are following.

i. Bill Printing & Distribution.

ii. Issuance of Duplicate Bills.

iii. Error correction of Bills.

iv. Collection of defaulter amounts.

2.18.1 Bill Printing & Distribution

The printing is basically carried out by regional billing computer center at every regional

headquarter. These printed bills are handed over to Post Office after sorting & stapling by

the Assistant Revenue Officers staff at Distt level.

2.18.2 Issuance of Duplicate Bills

In case of missing or damaged bills received to customers the correction is also Revenue

departments responsibility. For this purpose the revenue office deputes its staff for each

Tehsil level PTCL office during the bill payment dates normally from 18 th to 30th of each

month.

2.18.3 Error Correction of Bills

In case of late payment or any other discrepancy due to missed collection by banks the

previous amount is also included in the new bill. The revenue office is responsible for

such kind of correction.

2.18.4 Collection of Defaulter Amounts

The amounts defaulted by the customers or the bad debts are also collected through

revenue department. Each Telecom Recovery Inspector (TRI) is assigned a target of bad


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debts collection on monthly bases. Now a days as incentive is also offered on more than

100% recovery each month.

RELATED DATA

2.19 Telecomm Sector of Pakistan and PTCL

Pakistan has well established telecom sector at present. In 1947, at the time of inception,

Pakistan has just 7000 telephone lines. Over the time, under different regimes lots of

developments have been taken place to bring this sector at par with world. Under the sectors

reforms different companies are allowed to work in Pakistan and new services like ISDN, DSL,

CDML, GPRS etc. are offered by PTCL and other mobile companies working in Pakistan. PTA

(Pakistan Telecom Authority) since 1994 holds the responsibility to regulate the telecom sector

in Pakistan. PTCL has been privatized by selling its 1.3 billions shares with management rights

to U.A.E based company Etisilat since 12 th April, 2006.

According to Akhtar (2009), Pakistans Telecom sector has been gearing up to secure its place in

fast developing era of new technologies. The government has been able to foster competition by

declaring the telecommunication sector as an industry since 2005. The drive towards competition

widened the scope for private and foreign ownership further through the deregulation policy

announced in July 2003. As a result of development, the contribution of telecom industry in

Gross Domestic Product reached 3% by the year 2007-2008. It is clear from Table 3 that since

2003, largest investment is made in cellular sector of telecom industry.

Table 2.5 Telecom Investment

Telecom Investment

(US $ million)

Cellular LDI LL WLL Total

2003-04 666.1 6.4 - 162.7 835.2

2004-05 1,158.10 35.1 2.3 277.3 1,472.80

2005-06 1,420.90 50.5 0.3 259.4 1,731.10

2006-07 2,584.50 602.8 40.6 747 3,974.80

2007-08 2,337.70 403.9 342.1 52.8 3,136.40


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2008-09 1,229.75 276.75 57.37 82.11 1,646.98

Jul 09- Dec 09 625.72 446.24 6.79 30.02 1,108.77

Ref: http://www.pta.gov.pk/index.php?option=com_content&task=view&id=1413&Itemid=687

From the beginnings of Posts & Telegraph Department in 1947 and establishment of Pakistan

Telephone & Telegraph Department in 1962, Pakistan Telecommunication Corporation (PTC)

took over operations and functions from Pakistan Telephone and Telegraph Department under

Pakistan Telecommunication Corporation Act 1991. Pursuing a progressive policy, the

Government in 1991, announced its plans to privatize PTCL, and in 1994 issued six million

vouchers exchangeable into 600 million shares. Each had a par value of Rs. 10 per share. These

vouchers were converted into PTCL shares in mid- 1996. In 1995, Pakistan Telecommunication

(Reorganization) Ordinance formed the basis for PTCL monopoly over basic telephony in the

country. The provisions of the Ordinance were lent permanence in October 1996 through

Pakistan Telecommunication (Reorganization) Act. In the same year, Pakistan

Telecommunication Company Limited was formed and listed on all stock exchanges of Pakistan.

The Government of Pakistan sold 26% shares and control of the company to Etisalat in 2006.

The Government of Pakistan retained 62% of the shares while the remaining 12% are held by the

general public. Since privatization, PTCL profit is declined. Following are the financial

highlights of PTCL since its privatization.

Table 2.6 Financial Highlights of PTCL since it Privatization

Description Unit 2011 2010 2009 2008 2007 2006 2005

Revenue Rs.(m) 55254 57,175 59,239 66,336 71,068 79,411 87,356

Profit/Loss

BeforeTax

Rs.(m) 11414 14,281 14021 -4463 23744 30974 39296

Profit/LossAfter Tax

Rs.(m) 7428 9294 9151 -2825 15639 20777 26606

Total Assets Rs.(m) 15252

0

15076

8

154048 140104 152821 152240 136078

Source: Annual reports of PTCL


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Financially too, PTCLs performance was enviable. In 2005, the year of its privatization, PTCL

posted revenues of 84 billion rupees, with earnings before interest, tax and depreciation of 54

billion rupees and a net profit of 27 billion rupees. While the sector boomed worldwide andcompanies in other countries bought licenses in foreign markets and acquired newer technologies

to retain and gain subscribers, due to the governments short-sighted policies, PTCL was

prevented from using these earnings to make strategic investments abroad.

Six years after privatization, not only has the government failed to recover the full price from

Etisalat ($800 million is still outstanding), but in various payments and opportunity cost, it has

paid back almost all the amount it received from Etisalat (Technical fee, opportunity cost of

delayed payments, redundancy payments).

As for the predictions that were made six years ago of a glorious future under Etisalat,

unfortunately PTCLs fortunes have declined rather than improve. In the four years prior to

privatization, profits after tax grew from about 18 billion to over 27 billion rupees, a rate

equivalent to 11 per cent per annum. In the six years post-privatization, earnings fell to almost

eight billion rupees (at a negative growth of 18 per cent per annum). Similarly, the profit margin

declined from an average of 71 per cent over the four years prior to privatization, to 47 per cent

over the six years since (based on an average EBITDA of 50 billion versus 43 billion) and

continues to fall. This magnitude of change is unprecedented in the telecommunication sector,

whether in Pakistan or internationally. Etisalat does not seem too worried, perhaps because the

parent company can always skim the top line rather than the bottom when one has control of the

board.

Etisalat cannot blame the decline on the reduction in fixed line operations. While this trend is

real, however, fixed line customers for Pakistani competitors such as NTC and WorldCall grew

over the same period. Moreover, PTCLs financial performance has compared unfavorably with

international peers. Also, while PTCL and Etisalat like to trumpet the success of Ufone, it has

lost its position as number two in the mobile market to Telenor, which despite launching nearly

five years after Ufone is 20 per cent larger in revenue terms than Ufone (based on 12 months

data as of June 2011).


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No wonder, then, that six years after privatization, the market value of PTCL shares has declined

from 358 billion rupees in June 2005 to 53 billion rupees in December 2011 a loss of 225-

billion-rupee to the government of Pakistan and the minority investors of PTCL, who togetherstill own 74 per cent of the shares. The share has dipped below its Rs10 par value and also trades

well below its book value of Rs19.27 per share, indicating the low faith that the market places on

the current management.

These losses incurred by the shareholders are in sharp contrast to Etisalat and its employees

based in Pakistan, who have awarded themselves excessive financial packages. Despite the sharp

decline in profitability, the CEO of PTCL (an Etisalat appointee) increased his financial package

to Rs 96m per annum one of the highest in the country.

Meanwhile, PTCLs service continues to plumb new depths. Network maintenance and

operation, as well as customer care, have suffered severely. Many of the best linesmen and other

technical hands took up the offer of golden handshakes and left. Hundreds of thousands of

connections have been lost as a result and many are non-functional. As a result, getting your

telephone line repaired can take forever.

PTCL, whose talented engineers helped set up networks for several global companies (including

Etisalat) is now simply an insignificant part of a foreign companys global business the

strategy is simply to milk PTCL to pay for itself. In its own huge market, Pakistan does not have

a single national operator. (Munir, 2012).


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REFERENCES

1] Akhtar, M.H. (2009). The Impact of Macroeconomic Factors and Policy Issues on Telecom Sector

Performance in Pakistan, An Econometric Analysis, Pakistan Journal of Social Sciences. 29(2), 163-

174.

2]Arif, M. F. (2009).PTCL. Lahore: New Lahore Books.

3] Malik, M.S.(2011). Unions and Management: A Case Study of Pakistan Telecommunication

Corporation, Pakistan Journal of Social Sciences (PJSS) Vol. 31, No. 1 (June 2011), pp. 193.

4] Pakistan Telecommunication Company Limited. (n. d.). Retrieved on September 10, 2012, Retrieved

from: http://www.ptcl.com.pk/index_0.php

5] PTCL workers website. (n. d.). Retrieved on October 01, 2012, Retrieved from

http://www.ptclworkers.com/

6] Munir, K.A.(2012, march 13).PTCL privatization, A lesson for policymakers, Retrieved on October

15,2012, Retrieved from: http://www.tribune.com/Privatization of PTCL A lesson for policymakers

The Express_Tribune.htm


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CHAPTER - 03

DATA ANALYSIS AND FINDINGS

PTCL has been privatized by selling its 1.3 billions shares with management rights to U.A.E

based company Etisalat since 12th April, 2006. Therefore the researcher wants to analyze the

financial performance and the ratio analysis as well. Here is explained the horizontal and vertical

analysis and ratio analysis in detail for seven years from 2005 to 2011 that how privatization

impact the financial position of PTCL. This can be read from bellow.

3.1 RATIO ANALYSIS:

Horizontal and vertical analyses compare one figure to another within the same category. It is

also essential to compare figures from different types and categories. This is accomplished

through Ratio Analysis.

Ratios may be classified in many ways. Different kinds of ratios are selected for different type of

situations.

BALANCE SHEET RATIOS

These ratios are also called financial ratios. The items of these ratios are drawn from the balance

sheet.

PROFIT & LOSS ACCOUNT RATIOS

These ratios are also called operating ratios. The components used for the calculation are taken

from profit & loss account statement i.e. Gross Profit Margin Ratio, Stock Turnover Ratio etc.

INTER-STATEMENT OR COMBINED RATIOS

The information required for the computation of these ratios is normally drawn from both

Balance Sheet and Profit & Loss Account. For Example: Net profit to fixed assets, Debtors

turnover ratios etc.

The company uses the following ratios in order to arrive at definite conclusion concerning

liquidity and solvency.


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3.1.1 GROSS PROFIT MARGIN

The gross profit margin shows the percentage of each rupee left over after the business has paid

for its goods. The highest the gross profit earned the better. Gross profit equals net sales less cost

of goods sold.

Table 3.1 Gross profit margin

Years 2011 2010 2009 2008 2007 2006 2005

Ratio in % 24.3 32.9 36.3 43.7 45.4 43.7 52.5

Figure 3.1: Gross Profit Margin

52.5

43.7 45.4 43.7

36.332.9

24.3

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011

GPM

INTERPRETATION

The PTCL is constantly showing decreasing gross profit margin ratio. During the year 2005 its

gross profit margin has maximum value i.e. 52.5% and decreasing year after year till 2011,

which is 24.3.

3.1.2 NET PROFIT MARGIN

The ratio of net Profit after tax to net sales is called the Net profit margin. It indicates the

profitability generated from revenue and hence is an important measure of operating

performance. The formula for net profit margin is,

NPM= net income/net sales revenue

Table 3.2 Net Profit Margin

Years 2005 2006 2007 2008 2009 2010 2011


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Ratio in % 30.35 26.16 22.01 -4.26 15.45 16.26 13.44

Figure 3.2: Net Profit Margin

30.35

26.16

22.01

-4.26

15.45 16.2613.44

-5

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011

NPM

INTERPRETATION

PTCLs net profit margin ratio decreases gradually. During the year 2008 company has shown a

lowest value of net profit margin, which is -4.26.

RETURN ON INVESTMENT

Return on investment (ROI) is a key, but rough, measure of percentage. ROI shows the extent

through which earnings are achieved on the investment made in the business.

There are basically three types of ratios that evaluate the return on investment. These are:

3.1.3 RETURN ON OPERATING ASSETS

The return on total assets (ROA) shows the efficiency with which management has used its

available resources to generate income. It shows the return on investment. This ratio is also in

percentage amount.

Formula is: Return on assets= Net Income / Total Assets

Table 3.3 RETURN ON OPERATING ASSETS

Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 16.51 13.64 10 -2 5.9 6.7 4.8

Figure 3.3: RETURNS ON OPERATING ASSETS


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CHAPTER-04

16.51

13.64

10

-2

5.9 6.74.8

-5

0

5

10

15

20

2005 2006 2007 2008 2009 2010 2011

ROOA

INTERPRETATION

PTCL has shown a dramatic decrease in its Return on total assets ratio. This means that PTCL do

not effectively using its all available assets to generate revenue. During the year 2005, this ratio

is highest and is 16.51% which is decrease gradually among the analysis years.

3.1.4 RETURN ON EQUITY

ROE measures the overall performance of the business. ROE shows the earning power of the

shareholders equity invested in the business. This ratio is also in percentage.

Table 3.4 RETURNONEQUITY

Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 24.28 20.22 14.45 -2.71 9.28 9.33 7.5

Figure 3.4: RETURN ON EQUITY

24.28

20.22

14.45

-2.71

9.28 9.337.5

-5

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011

ROE

INTERPRETATION


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This ratio tells us the earning power on shareholders book value investment. This ratio is also

decreases year after year and it is not a good news for PTCL. The highest ratio is in 2005 which

is 24.28, while 2011 have 7.50.LIQUIDITY RATIOS

Liquidity is a companys ability to cover or pay shortterm obligations. Liquidity is essential to

conducting business activity, particularly in times of adversity, such as when business is shut

down by strike or when operating losses ensue due to an economic recession etc. Liquidity ratios

are static in nature as of year-end. Therefore, it is important for management to look at expected

future cash flows. If future cash outflows are expected to be high relative to inflows, the liquidity

position of the company is go down.

3.1.5 CURRENT RATIO

Current ratio is equal to current assets divided by current liabilities. This ratio is used to measure

the ability of an enterprise to meet its current liabilities out of current assets. The formula can be

written as:

Current Assets= Total Current Assets/Total Current Liabilities

Table 3.5 CURRENT RATIO

Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 2.78 1.66 2.19 1.18 1.5 1.51 1.39

Figure 3.5: CURRENT RATIO

2.78

1.66

2.19

1.18

1.5 1.51 1.39

0

0.5

1

1.5

2

2.5

3

2005 2006 2007 2008 2009 2010 2011

CR

INTERPRETATION


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By comparing the results of analysis years it is known that for each 1 rupee in liability the

company have 2.78 up to 1.39 times in current assets. Which show a decrease in the ratio. 2005

has 2.78 and 2011 has 1.39.

3.1.6 QUICK RATIO

The quick ratio, also known as the acid-test ratio is strongest test of liquidity. In it more liquid

current assets are divided by current liabilities. It can be written as:

Quick Ratio = Current Assets-Inventory/Current Liabilities

Table 3.6 QUICK RATIO

Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 1.74 1.54 2.03 1.58 1.63 1.37 1.27

Figure 3.6: QUICK RATIO

1.741.54

2.03

1.58 1.631.37 1.27

0

0.5

1

1.5

2

2.5

2005 5006 5007 2008 2009 2010 2011

QR

INTERPRETATION

By comparing the figures of analysis years, the ratio are declining from 2005 up to 2011 but

2007 has highest value of 2.03.

3.1.7 DEBTORS TURNOVER RATIO

The relationship of net sales to total debt is known as the Debtors Turnover Ratio.

Table 3.7 DEBTORS TURNOVER RATIO

Years 2005 2006 2007 2008 2009 2010 2011


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CHAPTER-04

Ratio in % 4.9 4.76 4.86 5.35 4.91 5.48 5.71

Figure 3.7: DEBTORS TURNOVER RATIO

4.94.76

4.86

5.35

4.91

5.48

5.71

4.2

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

2005 2006 2007 2008 2009 2010 2011

DTOR

INTERPRETATION

Table shows the values of debtors turnover ratios of the organization. The value of this ratio is

increasing and decreasing from 2005 up to 2011 alternatively. And there is increase as compare

to whole years.

3.1.8 FIXED ASSETS TURNOVER

The relationship of net sales to total assets is known as the Fixed Asset Turnover. It shows the

efficiency of firm about the utilization of assets.

Table 3.8 FIXED ASSETS TURNOVER

Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 0.98 1.04 0.89 0.81 0.74 0.75 0.75

Figure 3.8: FIXED ASSETS TURNOVER


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CHAPTER-04

0.981.04

0.890.81

0.74 0.75 0.75

0

0.2

0.4

0.6

0.8

1

1.2

2005 2006 2007 2008 2009 2010 2011

FATO

INTERPRETATION

Table shows the values of fixed asset turnover ratios of the organization. The value of this ratio

is gradually decreasing every year from 2006 up to 2011.

LEVERAGE RATIO

Leverage ratio shows the reliance of the company on debt financing. Leverage equivalent to

solvency or long-term debt. Solvency is a companys ability to meet its long-term obligations as

they become due. An analysis of solvency concentrates on the long-term financial and operating

structure of the business. The degree of long-term debt in the capital structure is also considered.

Further, solvency is dependent upon profitability since in the long run firm will not be able to

meet its debts unless it is profitable. These ratios help in measuring the financial contribution ofthe owners compared with that of the creditors, also the risk of debt financing.

3.1.9 DEBT / EQUITY RATIO

The debt to equity ratio is a significant measure of solvency since the high degree of debt in

capital structure makes difficult for organizations. Excessive debt will result in less financial

flexibility .Debt to equity ratio equals to total liabilities divided by equity.

Table 3.9 DEBT / EQUITY RATIO

Years 2005 2006 2007 2008 2009 2010 2011Ratio in % 0.39 0.14 0.13 0.16 0.16 0.17 0.21

Figure 3.9: DEBT / EQUITY RATIO


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CHAPTER-04

0.39

0.14 0.130.16 0.16 0.17

0.21

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2005 2006 2007 2008 2009 2010 2011

D/ ER

INTERPRETATION

This ratio shows that how much amount of financing is provided by creditors against Re.1

provided by shareholders. This ratio tells that creditors provide less worth against shareholders in

coming years of analysis.

3.1.10 TOTAL ASSET TURNOVER

This ratio shows the relationship of sales to assets. It shows the efficiency of the firm about the

utilization of assets. The total asset turnover ratio is useful in evaluating a companys ability to

use its asset base efficiently to generate revenue. A low ratio may be due to many factors, and it

is important to identify the underlying reasons.

Table 3.10 TOTAL ASSET TURNOVERYears 2005 2006 2007 2008 2009 2010 2011

Ratio in % 0.53 0.52 0.46 0.47 0.38 0.38 0.36

Figure 3.10: Total Asset Turnover


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CHAPTER-04

0.53 0.52

0.46 0.47

0.38 0.38 0.36

0

0.1

0.2

0.30.4

0.5

0.6

2005 2006 2007 2008 2009 2010 2011

TATO

INTERPRETATION

Individually this ratio tells us that how much rupees are earned by the business when one rupee

is invested in the business. In 2005 this ratio is 0.53 which is decreases gradually to 0.36 in 2011.

3.1.11 EARNINGS PER SHARE

Earnings per share indicate the amount of earnings for each common share held. Earnings per

share are useful indicator of the operating performance of the company.

Table 3.11 Earnings Per Share

Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 5.63 4.07 3.07 -0.55 1.79 1.82 1.46

Figure 3.11: Earnings Per Share

5.63

4.07

3.07

-0.55

1.79 1.821.46

-1

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011

EPS

INTERPRETATION


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The firms earning per share are generally of interest to present or prospective stockholders and

management. The Earning per Share (EPS) represent the number of rupees earned on behalf of

each outstanding share of common stock. They are closely watched by the investing public areconsidered an important indicator of corporate success. The value of EPS is maximum in 2005

and minimum in 2008. And this value decrease gradually from 2005 to 2011.

3.1.12 DIVIDEND PAYOUT RATIO

Indicates the percentage of each Rupee earned that is distributed to owners in the form of cash,

calculated by dividing the firm cash dividend per share by its earning per share

Table 3.12 Dividend Payout Ratio

Years 2005 2006 2007 2008 2009 2010 2011Ratio in % 57.91 122.73 65.22 0 83.6 96.3 120.15

Figure 3.12: Dividend Payout Ratio

57.91

122.73

65.22

0

83.696.3

120.15

0

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011

DPO

INTERPRETATION

Creditors and investors use the following ratios to see if the company has adequate cash flow for

invest or dividend. There exists a rise in percentage in every year from 2006 to 2011. But

decrease in 2007 and zero in 2008. After 2008 again rise up to 120.15 in 2011.

3.1.13 TIME INTEREST EARNED RATIO

The times interest earned ratio measures the interest paying ability of firm. The higher the value

of this ratio, the better able the firm is to fulfill its interest obligations.

Table3.13 Time Interest Earned Ratio


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Years 2005 2006 2007 2008 2009 2010 2011

Ratio in % 87.35 93.07 47.54 -4.26 16.43 36.42 56

Figure 3.13: Time Interest Earned Ratio

87.3593.07

47.54

-4.26

16.43

36.42

56

-20

0

20

40

60

80

100

2005 2006 2007 2008 2009 2010 2011

TIER

INTERPRETATION

The highest value was in 2006 i.e. 93.07 and lowest in 2007 even in negative. After 2008 the

value starts towards increase up to 56.00.

3.1.14 HORIZONTAL ANALYSIS / INTERPRETATION

Horizontal analysis is used to evaluate the trend in accounts over the years. This helps in

disclosing changes on the items in financial statements over the years. In horizontal analysis, any

one year is taken as base year and all items are compared with corresponds items in base year.

Horizontal analysis of PTCL under the discussion and provides the information about the

organization where it stands in its financial status from 2006 to 2011. Whether it improving its

position or not, all this is known through this analysis.

During this analysis 2006 is taken as base year and all other year figures are compared with this

base year.

Table 3.14 Statement of financial position: Regular in (million)

Year ended June 30 Unit 2011 2010 2009 2008 2007 2006


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Share capital Rs.(m) 51000 51000 51000 51000 51000 51000

Reserves Rs.(m) 47262 48769 48390 46888 59913 54475

Shareholders equity Rs.(m) 98292 99769 99390 97888 110913 105475

EBITDA Rs.(m) 15656 22006 23454 4863 31657 39610

Working capital Rs.(m) 10991 15257 18134 17689 29113 19893

Current assets Rs.(m) 39012 45450 54220 39603 53561 50168

Total assets Rs.(m) 152520 150768 154048 140104 152821 152240

Non current liabilities Rs.(m) 26207 20816 18572 17646 17460 16489

Source, PTCL, Annual report 2011, pre_accountsportion.pdf

Table 3.15 Indexed (%) statement of financial position

2011 2010 2009 2008 2007 2006Statement of financial positionShare capital and reserves 93.2 94.6 94.2 92.8 105.2 100.0Non current liabilities 158.9 126.2 112.6 107.0 105.9 100.0Current liabilities 92.6 99.7 119.2 81.2 80.8 100.0

100.2 99.0 101.2 92.0 100.4 100.0Non current assets 111.2 103.2 97.8 95.5 97.2 100.0Current assets 77.8 90.6 108.1 84.9 106.8 100.0

100.2 99.0 101.2 92.0 100.4 100.0

ANALYSIS

SHAREHOLDERS EQUITY & LIABILITIES

By comparing the data from 2006 to 2011, it is clear that reserves are increasing in 2007

i.e,105.2% with respect to base year 2006, but after 2007 the value is decreased as compared to

2006 and go down to 93.2% in 2011 . The reason is that the capital of the company remains same

during this year and the noncurrent liabilities also increases in analysis years and it reached to

158.9% in 2011, reserves decrease therefore the value of profit also decrease during the comingyear, which affects the overall value of 2011.

Non current liabilities are increasing during the analysis years with respect to base year. During

the years, Suppliers credit, deferred taxation and long term security deposits are increased, which


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affects the overall value of this year.

TOTAL ASSETS

The overall value of fixed assets decreases with respect to base year. The value of Property,

Plant, and Equipment during these years decreases but the value of Capital work in progress

increased during 2006-10 and 2011.

The overall value of the long term investment and loans increased with respect to base year

2006.

The overall Current Assets decreased during the year 2008, 2010 & 2011, but increase during the

year 2006-07 and 2009.

Hence overall situation is not as good as compared to base year. The total assets during the years

2006 and 2011 almost same but low during the year 2008 and high during the year 2009.

Table 3.16 Indexed (%) statement of comprehensive income

2011 2010 2009 2008 2007 2006Statement of comprehensive income

Revenue 69.6 72.0 74.6 83.5 89.5 100.0Cost of services 93.5 85.8 84.4 83.5 86.8 100.0Gross profit 38.7 54.2 62.0 83.5 93.0 100.0Administrative and general expenses 132.3 127.7 160.3 194.1 216.6 100.0Selling and marketing expenses 132.1 124.1 105.2 104.2 85.7 100.0Voluntary separation scheme 0.4 100.0 Non operating income 200.4 131.2 109.1 101.1 141.6 100.0Operating profit 37.1 46.9 47.7 (11.5) 77.5 100.0Finance cost 61.7 119.9 270.1 252.1 151.7 100.0Profit / (loss) before tax 36.8 46.1 45.3 (14.4) 76.7 100.0Taxation 39.1 48.9 47.8 (16.1) 79.5 100.0

Profit for the year 35.8 44.7 44.0 (13.6) 75.3 100.0Other comprehensive income for the year 100.0

Total comprehensive income for the year 35.9 44.7 44.0 (13.6) 75.3 100.0

PROFIT & LOSS ACCOUNT


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From horizontal income statement, it is clear that revenue of the company is decreasing in the

coming years with respect to base year 2006. This increase in value of revenue shows that

company is going in backward direction and showing poor results for investors and stockholders.Operating cost is increasing with respect to base year with the passage of time.

Comparison shows that operating profit is decreased every year with respect to base year. In

2006 Profit after tax was maximum but in 2007 this decrease from 100% to 75.3%, and during

the year 2008 it go in loss of 13.6%, while in 2011 the profit was 35.8%. The overall value of

Profit is decreasing during the analysis years as compare to base year. Maximum profit occurs

during the base year 2006 but it reduces its value in coming years.

3.1.15 VERTICAL ANALYSIS / INTERPRETATION

In vertical analysis, a significant item on a financial statement is used as a base value, and all

other items on the financial statement are compared to it. Vertical analysis is used to disclose the

internal structure of an enterprise.

In performing vertical analysis for the balance sheet, total assets and Total Equity & Liabilities

are assigned 100 percent. Each account is then expressed as a percentage of these values. In

profit and loss account, Revenue is given the value of 100 percent and all other items are

evaluated in comparison to this Revenue. All this is done for the purpose of evaluating financial

position of PTCL.

Table 3.17 Vertical Analysis: Common sized (%)

2011 2010 2009 2008 2007 2006

Statement of financial position

Share capital and reserves 64.4 66.2 64.5 69.9 72.6 69.3

Non current liabilities 17.2 13.8 12.1 12.6 11.4 10.8

Current liabilities 18.4 20.0 23.4 17.5 16.0 19.9

Total 100.0 100.0 100.0 100.0 100.0 100.0

Non current assets 74.4 69.9 64.8 69.6 65.0 67.0

Current assets 25.6 30.1 35.2 30.4 35.0 33.0

Total 100.0 100.0 100.0 100.0 100.0 100.0


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Statement of comprehensive income:

Revenue 100.0 100.0 100.0 100.0 100.0 100.0

Cost (75.7) (67.1) (63.7) (56.3) (54.6) (56.3)

Gross profit 24.3 32.9 36.3 43.7 45.4 43.7

Administrative and general expenses (13.3) (12.5) (15.1) (16.3) (17.0) (7.0)

Selling and marketing expenses (4.1) (3.7) (3.1) (2.7) (2.1) (2.2)

Voluntary separation scheme (0.2) (36.1)

Non operating income 14.2 9.0 7.2 6.0 7.8 4.9

Operating profit 21.0 25.7 25.2 (5.4) 34.1 39.4

Finance cost (0.4) (0.7) (1.5) (1.3) (0.7) (0.4)

Profit / (loss) before tax 20.7 25.0 23.7 (6.7) 33.4 39.0

Taxation (7.2) (8.7) (8.2) 2.5 (11.4) (12.8)

Profit / (loss) for the year 13.4 16.3 15.4 (4.3) 22.0 26.2

Other comprehensive income for the year 0.1

Total comprehensive income for the year 13.5 16.3 15.4 (4.3) 22.0 26.2

Source, PTCL, vertical analysis, Annual report 2011, pre_accountsportion.pdf

ANALYSIS

SHAREHOLDERS EQUITY & LIABILITIES

By comparison it is clear that Share capital & Reserves are increasing from 69.3% to 72.6%

during the year 2006 to 2007 and then decrease its percentage value from 2007 to 2011. During

the period Reserves are decreasing every year, Capital percentage decrease its value i.e.

significant difference existing here. The profit is maximum in 2006 that is 26.2% as compared to

total Equity & Liability and this value decrease year after year even 2008 show loss of 4.3%.

Non current liabilities are also increasing every year from 2006 to 2011 i.e. 10.8% to 17.2%.

When we analysis its individual values, it is clear that Suppliers credit is increasing significantly

but the other values like Deferred taxation , Retirement benefits, Security deposits have mixed

affect. In different years its %age values are different. But overall liabilities are increasing.


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Current liabilities in base year 2006 are 19.9% of the total assets, its value decrease in 2007 to

16.0%, then increase in 2011and rise 18.4%. When we study individual item in Current

liabilities, it shows that Interest & Markup accrued increases.

TOTAL ASSETS

Vertical Balance Sheet shows the %age of Fixed Capital with respect to total Assets. This value

is 67 % in 2006; its value decrease to 65% in 2007 then increase to 69.6% in 2008 then reduce to

64.8% in 2009 and again rise to 74.4 in 2011. All other items have a mixed affect.

Vertical Balance Sheet shows the %age values of current assets during the year 2006-2011 with

respect to total assets. This value is 33% in 2006, 35.00%in 2007, 30.4% in 2008 (a decrease of

4.6% as compared to 2007) 35.2% in 2009 (a rise of 4.6% as compared to 2008) and again

decrease to 30.1% in 2010, and 25.6 in 2011.

By comparing it shows that maximum current assets are 35.2 % in 2009 and minimum current

assets are25.6 in 2011. When we study the items involved in current assets, it is clear that items

have a decrease in %age of values in 2011.

PROFIT & LOSS ACCOUNT

During the vertical analysis of Profit and Loss Account Revenue is taken as 100% and all other

items are compared with respect to this Revenue.

Operating profit is maximum 29.4% in 2006 and decrease to 21.00% during the years 2006-11,

but minimum in 2008 even in negative amount with respect to base value of Revenue. Company

earns maximum Operating profit of 39.4% in 2006. During this year the Operating cost was

minimum. Company faced loss of 5.4% in 2008. During this year the Operating cost was

maximum. This shows that operating cost & Operating profit are inversely to each other.

Company earns maximum profit in 2006 which is 26.2% of the total revenue. A decline in profit

up to 13.4% exists during the year 2011. This shows the poor condition of the company during

this year. During this decline the Earning per share during this year also decrease from 4.07 to

1.46.


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3.2 FINDINGS

1: The gross profit margin showing a constant decrease during the analysis years. In 2005

its value is 25.5 and in 2011 its value is 24.3. This decrease is due to more expenses, andsales revenue is decreases due to huge defaulter amounts with subscribers.

2: The net profit margin is also decreasing and is unfavorable for the company profitability.

In 2005 net profit margin is 30.35 and in 2011 it is 13.44. it is due to decrease in revenue

and increase in expenses.

3: The return on operating assets is decreasing during the analysis years from 16.51 to 4.8 in

2011. It is due to privatization and mismanagement of assets.

4: Return on equity ratio is decreased from 24.28 in 2005 to 7.50 in 2011 while 2008 has

negative value.

5: The current ratio decreases as the current liabilities increases against current assets. 2005

has the current ratio 2.78 and 2011 has 1.39.

6: The quick ratio is decreases from 2005 to 2011 i.e, 1.78 to 1.27 respectively. It is due to

increase in liabilities against more liquid assets.

7: The overall value of debtors turnover ratio is increasing during the analysis years. It is

due increase in net sales of the company.

8: The debt to equity ratio is decreases in first three years of analysis and then increases up

to last year of analysis. It means the creditors provide more finance against shareholders

in last analysis years.

9: Total assets turnover ratio shows a decrease in the underlying years of analysis. In 2005

this ratio is 0.53 while in 2011 this ratio is 0.36. This ratio is unfavorable for the company

performance.

10: Earning per share ratio is decreases during the underlying years and its value is 5.63 in

2005 and 1.48 in 2011, while 2008 has negative value of (0.55).

11: Time interest earned ratio is the companys ability to pay their interest. In 2005 this ratio

is 87.35 which is decrease to -4.26 during 2008 and again increased to 56.00 in 2011.

12: The overall horizontal analysis shows that the company is in bad condition for its stock

holders and the persons interested in this organization. The company is in running in

profit situation. There is decrease in profit in the next coming years. In 2006, the


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company gets maximum profit while in 2011; there is decrease in the value of profit as

compared to base year. The reason behind this is the uncertainty in the process of

privatization scenario, increase in the operating cost, decrease in inappropriate profit,increase in payables, increase in capital work in progress, less new investment and loans

etc.

13: The overall vertical analysis shows that during the year 2006 the company earns

maximum profit during this year the E.P.S was also maximum.

In this year the Operating cost was minimum and its Operating profit was maximum as

compared to other years.


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CONCLUSION AND RECOMMENDATIONS

4.1 CONCLUSION

Privatizations of PTCL have both positive and negative impacts. Some negative impacts

are; the number of subscribers is decreases year to year because of increase in debts, lack

of link between different departments, mismanagement of allocation of assets, poor

quality of services, old technology and high prices. PTCL is in the process of layoff and

provide a huge sum for this purpose while competitors have skilled personnel and offers

attractive packages. Therefore the organization faces with decrease in maximum of

financial ratios.

After analyzing the financial ratios it is clear that maximum or overall ratios are declining

e.g. gross profit margin shows a constant decrease during the analysis years. This

decrease is due to more expenses. The net profit margin even all profitability ratios are

declining with the passage of time. The leverage ratios are increasing due to high debts

from creditors. The activity ratios are almost go down during the specified years. The

overall vertical analysis shows that during the year 2006 the company earns maximum

profit during this year the E.P.S was also maximum.

In this year the Operating cost was minimum and its Operating profit was maximum as

compared to other years.

Beside these negative impacts PTCL also have some positive impacts; PTCL introduce

new technology in some areas and improved customer services.

The very important things which I learnt are, like any other basic sphere of modern socio-

industrial activities, Telecommunication is a main and important field for the

development of any country. The staff of organization is highly qualified and their

behavior is friendly.

4.2 RECOMMENDATIONS

I recommend PTCL to


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1: There exist a huge amount of outstanding bills to be collected from defaulters. The

company should frame tight and effective policies to ensure the collection of its

outstanding bills. The revenue officers should provide incentives and bonuses onachieving the determined target of revenue collections.

2: Net profit margin can be be improved by reducing cost and increasing sales. Reudcing

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