MAJOR PROJECT REPORT

On

THE AILING FINANCIAL HEALTH OF BSNL

FOR THE PARTIAL FULFILLMENT

Of

POST GRADUATE PROGRAMME IN MANAGEMENT (2019-2021)

SUBJECT: ACCOUNTING FOR MANAGERS

Submitted to: Submitted by:

PROF. ADITYA TRIPATHI 19BSP0026 - AASHI GARG
19BSP0086 - ABHISHEK KANDHARI
19BSP0624 - AYUSHI JAIN
19BSP1104 – HINAL AGARWAL
19BSP2049 – PULKIT GARG
 OBJECTIVES

The study covers the financial operations of “BHARAT SANCHAR NIGAM LIMITED” and is
conducted with the help of data obtained from the audited financial records.

These financial reports are the company’s annual reports pertaining to past 3 years from 2015-16 to
2017-18.

The objective of the report is to:

• Analyse the Financial Health of BSNL

• Analyse the financial changes over a period of 3 years
• To analyze the financial statements of the company by using financial tools.
• To evaluate the financial position of the company in terms of solvency, profitability, activity
and earnings ratios.

For this purpose, analysis of the following financial statements of BSNL is done:

 Profit & Loss Account

 Balance Sheet
 Statement of Cash Flows

METHODOLOGY

The methodologies used are:

 Quantitative Methodology - Quantitative research is based on the measurement of quantity

or amount. It is applicable to phenomena that can be expressed in terms of quantity.
 Analytical Methodology - In analytical research, the researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the material.

Data Type: Secondary Data

1) Descriptive Data: It is a summary of statistics that quantitatively describes or summarizes
features of collection of information.
2) Analytical Data: It is a collection of data that is used to support decision making and
research.

*For all amounts, Rs. In lakhs (unless stated otherwise)

 INTRODUCTION

Financial statement analysis is the process of analyzing a company's financial statements for
decision-making purposes. External stakeholders use it to understand the overall health of an
organization as well as to evaluate financial performance and business value. Internal constituents
use it as a monitoring tool for managing the finances.
The financial statements of a company record important financial data on every aspect of a
business’s activities.

There are three main financial statements that every company creates and monitors:
• INCOME STATEMENT: The income statement shows all items of income and expense for
arts or crafts business. It reflects a specific time period. So an income statement for the calendar
year-ending December 31 would contain all the information from January 1 to December 31.
Note that the normal accounting period for income statement is 12 months or year.
Income statements are also known as profit and loss account. The button line on an income
statement is income less expenses. If when income is more than expenses it is known as net
profit and when expense is more than income it is a net loss.

• BALANCE SHEET: Accounting is based upon a double entry system. For every entry into
the books there has to be an opposite and equal entry. The net effect of the entries is zero, which
results your books being balanced. The proof of this balancing act is shown in the balance sheet
when Asset = Liability + Equity.
The balance sheet shows the health of a business from day one to the date on the balance sheet.
Balance sheet are always dated on the late day of the reporting period. If you have been in
business since 1st January 2018 and your balance sheet is dated as of 31 December of the current
year the balance sheet will show the results of your operations from 1st January 2018 to
December 31, 2018.

• STATEMENT OF CASH FLOWS: The statement of cash flow shows the ins and outs of
cash during the reporting period. You may be thinking-well who needs that type of report? I
will just look at the check-book. Good point, unless you are reporting things that don’t
immediately affect cash such as depreciation, accounts receivable, accounts payable.
The statement of cash flows takes aspects of the income statement and balance sheet and kind
of crams them together to show cash sources and uses for the period.

USERS OF FINANCIAL STATEMENTS:

 Owners & Managers
 Employers
 Prospective Investors
 Financial Institutions
 Government Entities
 Vendors
 Media & General Public

*For all amounts, Rs. In lakhs (unless stated otherwise)

 BHARAT SANCHAR NIGAM LIMITED

Bharat Sanchar Nigam Limited (abbreviated BSNL) is an Indian state-

owned telecommunications company headquartered in New Delhi. It was incorporated on 15
September 2000 and assumed the business of providing telecom services and network management
from the erstwhile Central Government Departments of Telecom Services (DTS) and Telecom
Operations (DTO) as of 1 October 2000 on a going-concern basis.

It is the largest provider of fixed telephony and broadband services with more than 60% market
share, and is the fourth largest mobile telephony provider in India.

(i) CIN U74899DL2000GOI107739

(ii) Registration Date 15th September 2000
(iii) Name of the Company Bharat Sanchar Nigam Limited
(iv) Category/Sub-category of the Wholly Owned Government Company
Company
(v) Address of the Registered Bharat Sanchar Bhawan, Harish Chandra
office and contact detailsMathur Lane, Janpath, New Delhi-110001.
H.C.Pant, CS & CGM(L) / PH; 23353395 /
Fax: 23353389 / Mail: hcpant@bsnl.co.in
(vi) Whether listed company Un-Listed
(VII) Name, Address and Contact INDUS PORTFOLIO PRIVATE
details of Registrar and LIMITED, MANAGER- SHR, G-65,
Transfer Agent, if any BALI NAGAR, NEW DELHI-110015.
PHONE 011-47671214/47671217 FAX
25449863

*For all amounts, Rs. In lakhs (unless stated otherwise)

 INCOME STATEMENT OF BSNL

Particulars For the year For the year For the year
st
ended 31 ended 31st ended 31st
March 2018 March 2017 March 2016
Revenue
Revenue from operations 2,266,778 2,840,373 2,838,086
Other income 240,286 312,971 403,046
Total revenue (I) 2,507,064 3,153,344 3,241,132

Expenses
License and spectrum fee 174,338 231,086 228,538
Employee benefits expense 1,483,724 1,571,545 1,536,915
Finance costs 4,831 14,679 58,487
Depreciation and amortization expense 583,158 633,042 720,560
Other expenses 1,135,104 1,182,313 1,182,548
Total expenses (II) 3,381,155 3,632,665 3,727,048

Loss before tax (I - II = III) (874,091) (479,321) (485,916)

Tax expense: (IV)

Current tax 80,429 - -
Fringe benefit tax 5,898 -

Loss for the year (III - IV = V) (799,560) (479,321) (485,916)

Other comprehensive income (VI)

Items that will not be reclassified to the

statement of profit and loss

Remeasurement of post-employment benefit (897) 717 (1,536)

obligation (net of tax)

Total other comprehensive income/ (897) 717 (1,536)

(expense) for the year, net of taxes (VI)

Total comprehensive income/ (800,182) (478,604) (487,452)

(expense) for the year (V + VI = VII)

Loss per equity share (INR) (15.99) (9.59) (9.72)

Basic and diluted (nominal value of shares INR
10 each)

*For all amounts, Rs. In lakhs (unless stated otherwise)

 ANALYSIS OF P&L OF BSNL

 Fluctuations in other income:

2016-2017 - 22.35% (Decrease)
2017-2018 – 23.22% (Decrease)

 Decrease in Total Revenue:

2016-2017 – 2.71%
2017-2018 – 20.5%

Losses incurred by BSNL over the years (Rs. In crores)

8234
7995

7019

4859 4793

2013-14 2014-15 2015-16 2016-17 2017-18

 The key reason for BSNL's downward spiral is intense competition with private players
like Reliance Jio and Bharti Airtel. Revenues in 2017-18, stood at Rs 27,818 crore, down
14% from the previous year. Losses, too, widened from Rs 4,500 crore in 2016-17 to Rs
7,995 crore in 2017-18.

BSNL has also been ailing because of high revenue-to-wage ratio as a large number of
government employees were transferred by the telecom department to the telecom PSU.

*For all amounts, Rs. In lakhs (unless stated otherwise)

 BALANCE SHEET OF BSNL

Particulars As at 31st As at 31st As at 31

st

March March March

2018 2017 2016
ASSETS
Non-current assets:
Property, plant and equipment 9,931,362 1,00,15,696 1,00,81,742
Capital work-in-progress 870,384 6,49,235 6,67,047
Intangible assets 697,230 7,55,004 8,06,646
Financial assets
(i) Investments - - -
(ii) Loans 583 870 1,414
(iii) Other financial assets 24,029 28,785 29,007
Deferred tax assets (net) - - -
Other non-current assets 85,184 65,422 69,651
Total non-current assets 11,608,772 1,15,15,012 1,16,55,507
Current assets:
Inventories 21,241 20,473 19,129
Financial assets
(i) Investments 20,000 20,000 20,000
(ii) Trade receivables 392,538 3,09,881 2,61,551
(iii) Cash and cash equivalents 75,782 3,38,737 1,02,572
(iv) Bank balances other than 138 126 -
(iii) above
(v) Loans 224 445 731
(vi) Other financial assets 919,938 7,22,212 10,04,268
Current tax assets (net) 119,650 38,669 5,42,981
Other current assets 86,708 1,38,285 2,06,647
Assets held for sale 34,517 - -
Total current assets 16,36,219 15,88,828 21,57,879
Total assets 13,279,508 1,31,03,840 1,38,13,386
EQUITY AND
LIABILITIES
Equity
Equity share capital 500,000 5,00,000 5,00,000
Other equity 8,466,967 92,67,424 97,46,028
Total equity 8,966,967 97,67,424 1,02,46,028
Liabilities
Non-current liabilities:
Financial liabilities

*For all amounts, Rs. In lakhs (unless stated otherwise)

 (i) Borrowings 1,654,348 10,62,657 12,48,972
(ii) Other financial liabilities 181,781 1,38,770 92,964
Provisions 91,204 95,099 79,754
Other non-current liabilities 65,097 1,02,842 24,533
Total non-current liabilities 1,992,430 13,99,368 14,46,223
Current Liabilities:
Financial liabilities
(i) Borrowings 30,910 59,613 2,83,672
(ii) Trade Payables 782,989 5,92,993 6,85,060
(iii) Other financial Liabilities 698,476 7,91,388 7,00,056
Other Current Liabilities 806,579 4,92,259 4,28,327
Provisions 1,157 795 24,020
Total Current Liabilities 2,320,111 19,37,048 21,21,135
Total Liabilities 4,312,541 33,36,416 35,67,358
Total equity & liabilities 13,279,508 1,31,03,840 1,38,13,386

Analysis of observations:
 Change in total current liabilities
2016-2017 – 8.68% (Decrease)
2017-2018 – 19.78 % (Increase)

 Total long term debt

2016-2017 – 14.92% (Decrease)
2017-2018 – 55.68% (Increase)

 Changes in Trade payables

2016-2017 - 13.44% (Decrease)
2017-2018 – 32.04% (Increase)

 Changes in non-current assets

2016-2017 – 1.21% (Decrease)
2017-2018 – 0.814% (Decrease)

 Changes in Current Assets

2016-2017 – 26.37% (Decrease)
2017-2018 – 2.98% (Increase)

*For all amounts, Rs. In lakhs (unless stated otherwise)

 STATEMENT OF CASH FLOWS OF BSNL

2018 2017 2016

A. Cash flows from operating activities.
Profit/ (loss) before tax (873816) (479321) (4,85,916)
Adjustments for:
Depreciation and amortisation expense 583158 633042 7,20,560
Finance costs 936 6,788 54,339
Unwinding of discount on decommissioning liabilities 3895 7,891 4,148
Interest income (7497) (50,350) (1,50,530)
Profit on sale of property, plant and equipment (net) (12796) (7,006) (4,626)
Capitalisation of overheads (92481) (63,913) (24,821)
Write off and losses other than bad debts 24904 21,511 22,074
Bad-debt provision other than services 487 547 567
Write off of unrecovered service tax/ GST 2515 4,967 3,348
Bad-debt written off 25159 37,047 70,334
Provision for doubtful debts and disputed bills 19642 28,462 23,546
Excess liabilities written back no longer required (151624) (195,062) (1,99,999)
Grant in aid (net) (37745) 78,311 (3,964)
Operating cash flows before working capital changes (515,263) 22,914 29,060
(Increase)/Decrease in loans (current and non-current) (127,458) 830 1,381
(Increase)/Decrease in trade receivables 507 (113,839) (1,22,757)
(Increase)/Decrease in inventories (768) (1,344) 249
(Increase)/Decrease in other financial assets (193,324) 124,400 3,23,174
(Increase)/Decrease in other assets 28,168 64,977 (19,103)
Increase/(Decrease) in trade payables 189,996 (92,067) (1,44,897)
Increase/(Decrease) in other financial liabilities 69,854 329,074 1,84,329
Increase/(Decrease) in provisions 5,297 (17,356) (64,618)
Increase/(Decrease) in other liabilities 286,414 36,907 19,848
Cash from operating activities (256,577) 354,497 2,06,666
Wealth tax paid - - (73)
Net income tax refund (paid) (6,450) 504,312 (34,531)
Net cash generated from/(used in) operating activities (A) (263,027) 858,809 172,062

B. Cash flows from investing activities

Acquisition of property, plant and equipment (743,332) (483,765) (3,86,331)
Proceeds from sale of property, plant and equipment 141,920 66,583 92,354
Interest received 7,574 208,117 7,556
Proceeds from / (investment in) deposits with banks (10) (17) 63
Net cash generated from/(used in) investing activities (B) (593,848) (209,082) (2,86,357)

C. Cash flows from financing activities

Interest paid (936) (6,550) (54,400)
Repayment of short term borrowings (net) - (283,672) (3,49,199)
Proceeds from/(repayment) of long term loans (net) 623,559 (182,951) 4,98,988
Net cash generated from/(used in) financing activities (C) 622,623 (473,173) 95,389

Net increase/(decrease) in cash & cash equivalents (A+B+C) (234,252) 176,553 (18,907)
Cash and cash equivalents at the beginning of the year 279,124 102,571 1,21,478
Cash and cash equivalents at the end of the year 44,872 279,124 1,02,571

*For all amounts, Rs. In lakhs (unless stated otherwise)

 ANALYSIS OF CASH FLOWS OF BSNL

Cash generated from/ (used in) different activities

1,000,000
858,809 2015-16 2016-17 2017-18
800,000
622,623
600,000

400,000

172,062
200,000
95,389

-200,000
-209,082
-263027 -286,357
-400,000

-473,173
-600,000
-593,848

-800,000
operating activities investing activities financing activities

FINDINGS:

 BSNL has been reporting losses consecutively although it has been generating cash from its
operating activities. It was only in 2018 that the company used cash in operating activities.
 BSNL has been using cash in its investing activities. In the year 2018, the cash used in this
activity increased by 184% i.e. from Rs.2,09,082 in 2017 to Rs.5,93,848 in 2018.
 There has been a significant decrease in cash and cash equivalents in 2018.
 Finance cost has been decreasing.
 BSNL is selling its old fixed assets at an increasing rate. This can be determined by looking at
the increase in profit on sales of property, plant and equipment and decrease in depreciation and
amortization expense.
 The company has been acquiring new fixed assets at an increasing rate. While it used cash
Rs.3,86,331 in the year 2016, it used Rs.4,83,765 and Rs.7,43,332 in the year 2017 and 2018
respectively.
 The proceeds from sale of old fixed assets increased by 11.3%.

*For all amounts, Rs. In lakhs (unless stated otherwise)

 RATIO ANALYSIS

“LIQUIDITY RATIOS”: Liquidity ratios measure the ability of the firm to meet its current
obligations. A firm should ensure that it does not suffer from lack of liquidity, and it does not have
excess liquidity as well. The failure of the company to meet its obligations due to its lack of liquidity,
will result in poor creditworthiness, loss of creditors’ confidence, or even in legal tangles resulting
in the closure of the company.

A very high degree of liquidity is also bad as idle assets earn nothing. The firms fund will be
unnecessarily tied up in current assets. Therefore it is necessary to strike a proper balance between
high liquidity and lack of liquidity.

(I) Current Ratio: Current Assets / Current Liabilities

Year Current assets Current liabilities Ratio

2015-2016 2157879 2121135 1.02

2016-2017 1588828 1937048 0.82

2017-2018 1636219 2320111 0.71

As a conventional rule, a current ratio of 2:1 or more is considered satisfactory.

(II) Quick Ratio: Quick Assets / Current Liabilities

Year Quick assets Current liabilities Ratio

2015-2016 2138750 2121135 1.01

2016-2017 1568355 1937048 0.81

2017-2018 1614978 2320111 0.70

This is also known as acid test ratio. The ratio of 1:1 is considered to represent a satisfactory current
financial condition.

*For all amounts, Rs. In lakhs (unless stated otherwise)

“ACTIVITY/TURNOVER RATIOS”: Activity ratio highlights the activity and the operational
efficiency of the business concern. The better management of assets is, the larger will be the amount
of sales.

Activity ratio measures the relationship between the sales and assets. Turnover ratios are employed
to evaluate the efficiency with which the firm manages and utilizes its assets.

(I) Fixed Assets Turnover Ratio: Net Sales / Net Fixed Assets

Year Net sales Net fixed assets Ratio

2015-2016 3241132 10167828 0.32

2016-2017 3153344 10137658 0.31

2017-2018 2507064 10045434 0.25

*Net Fixed Assets = Total fixed Assets – Accumulated Depreciation

It indicates the firm’s ability to generate sales per rupee of investment in fixed assets. In general,
higher the ratios, the more efficient is the management and utilization of fixed asset and vice versa.

(II) Current Assets Turnover ratio: Net Sales / Avg. Current Assets

Year Net sales Avg. current assets Ratio

2015-2016 3241132 2157879 1.50

2016-2017 3153344 1588828 1.985

2017-2018 2507064 1636219 1.53

A high current assets turnover ratio indicates the capability of the organization to achieve maximum
sales with the minimum investment in current assets. Higher the current ratio better will be the
situation.

(III) Working Capital Turnover Ratio: Turnover / Working Capital

*For all amounts, Rs. In lakhs (unless stated otherwise)

 Year Turnover Working capital Ratio

2015-2016 3241132 36744 88.21

2016-2017 3153344 (348220) (9.06)

2017-2018 2507064 683892 3.67

*Working capital = Current assets – Current liabilities

It measures how well a company is utilizing its working capital to support a given level of sales. A
high turnover ratio indicates that management is being extremely efficient in using a firm's short-
term assets and liabilities to support sales. Conversely, a low ratio indicates that a business is
investing in too many accounts receivable and inventory assets to support its sales, which could
eventually lead to an excessive amount of bad debts and obsolete inventory write-offs.

*For all amounts, Rs. In lakhs (unless stated otherwise)

 “PROFITABILITY RATIOS”: Profitability ratio is used to evaluate the company’s ability to
generate income as compared to its expenses and other cost associated with the generation of income
during a particular period. This ratio represents the final result of the company.

(I) Net Profit Ratio = Net profit / Turnover * 100

Year Net Profit Turnover Ratio

2015-2016 (485916) 3241132 (14.99%)

2016-2017 (479321) 3153344 (15.20%)

2017-2018 (799560) 2507064 (31.89%)

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit
after all costs of production, administration, and financing have been deducted from sales, and
income taxes recognized.

(II) Operating Profit Ratio = Profit before tax / Turnover * 100

Year Profit before tax Turnover Ratio

2015-2016 (485916) 3241132 (14.99%)

2016-2017 (479321) 3153344 (15.20%)

2017-2018 (874091) 2507064 (34.87%)

Operating Profit Ratio is a profitability or performance ratio used to calculate the percentage of
profit a company produces from its operations, prior to subtracting taxes and interest charges. Higher
operating profit ratio enables the firm to meet interest, income tax dividends and retain profits for
expansion.

(III) Return on Equity = Net Income / Shareholder’s Equity * 100

Year Net Income Shareholder’s Equity Ratio

2015-2016 (485916) 10246028 (4.74%)

*For all amounts, Rs. In lakhs (unless stated otherwise)

 2016-2017 (479321) 9767424 (4.91%)

2017-2018 (799560) 8966967 (8.92%)

Return on equity (ROE) is a measure of financial performance calculated by dividing net income
by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt,
ROE could be thought of as the return on net assets.

*For all amounts, Rs. In lakhs (unless stated otherwise)

 CONCLUSION

 The state-run telecom operator BSNL has kept one thing quite consistent – its loss making
ability.
 The company has been posting losses for last nine years in a row and seems to be happy about
it. In fact it improves upon its losses year on year.

From the P&L balances of the company, it seems to be concluded that the overall revenue (income)
along with the other expenses has decreased from the year 2015-16 to 2017-18 and hence running
in the shortage of enough funds to efficiently run the business of the company as the sources of its
revenue fall down, therefore resulting in the cut down in the profits.

The study “financial statement analysis” at BSNL is done by using some widely accepted tools
and techniques. Within the constraints I believe that the study served its purpose. It is understood
that financial statements of BSNL is worsening especially regarding their operating income.
The reason for such financial distress is not only the marginal efficiency, but also the huge
competition in the industry. Other changing socio-economic variables are also affecting the
performance of the company. BSNL needs to bring in large amount of changes especially in
marketing as a measure to increase the market share as well as revenue. It is evident that BSNL as
a prestigious company has well brand image among the customers and can overcome the present
situation easily by adopting efficient management techniques.

THE END

*For all amounts, Rs. In lakhs (unless stated otherwise)