CONTENTS

PAGE NO:
CHAPTER: 1 1 -- 11

 INTRODUCTION TO THE STUDY

 NEED FOR THE STUDY
 OBJECTIVES OF THE STUDY
 METHODOLOGY OF THE STUDY
 LIMITATIONS OF THE STUDY

CHAPTER: 2 12 – 36

 INDUSTRY PROFILE
 COMPANY PROFILE

CHAPTER: 3 37 – 57

 THEORETICAL FRAMEWORK OF THE STUDY

CHAPTER: 4 58 - 72

 DATA ANALYSIS AND INTERPRETATION OF THE STUDY

CHAPTER: 5 73 - 80

 SUMMARY
 FINDINGS
 SUGGESTIONS

BIBLIOGRAPHY

ANNEXURES
 CHAPTER - 1

INTRODUCTION TO THE STUDY

NEED FOR THE STUDY
OBJECTIVES OF THE STUDY
METHODOLOGY OF THE STUDY
LIMITATIONS FO THE STUDY
 INTRODUCTION TO THE STUDY

Financial management may be defined as the area or function in an organization

which is concerned with profitability, expenses, cash and credit, so that the organization
may have the means to carry out its objective as satisfactorily as possible the latter often
defined as maximizing the value of the firm for stockholders. Financial managers (FM)
are specialized professionals directly reporting to senior management, often the financial
director (FD); the function is seen as 'Staff' and not 'Line'.

Financial Management is a vital activity in any organization. It is the process of

planning, organizing, controlling and monitoring financial resources with a view to
achieve organizational goals and objectives. It is an ideal practice for controlling the
financial activities of an organization such as procurement of funds, utilization of funds,
accounting, payments, risk assessment and every other thing related to money. In other
terms, Financial Management is the application of general principles of management to
the financial possessions of an enterprise. Proper management of an organization’s
finance provides quality fuel and regular service to ensure efficient functioning. If
finances are not properly dealt with an organization will face barriers that may have
severe repercussions on its growth and development.

Financial management is generally concerned with short term working capital

management, focusing on current assets and current liabilities, and managing
fluctuations in foreign currency and product cycles, often through hedging. The function
also entails the efficient and effective day-to-day management of funds, and thus
overlaps treasury management. It is also involved with long term strategic financial
management, focused on capital structure management, including capital raising, capital
budgeting (capital allocation between business units or products), and dividend policy
these latter, in large companies being more the domain of "corporate finance".

The basic financial statements i.e., the Balance Sheet and Profit & Loss A/c or
Income Statement of business reveals the net effect of various transactions on
operational and financial position of the company.  The balance sheet gives a summary
of the assets & liabilities of an undertaking at a particular point of time. 
           There are many transactions that take place in an undertaking and which do not
operate Profit & Loss A/c.  Thus another statement has to be prepared to show the
change in Assets & Liabilities from the end of one period of time to the end of another
period of time.  The statement is called a statement of changes in financial position or a
Funds Flow Statement.

         The Funds Flow Statement is a statement which shown the movement of funds
and is a report of financial operations of business undertaking.  In simple words it is a
statement of source and application of funds.

The growth of any organization depends on the overall performance such as

production, marketing human resource and financial performance of the organization.
The financial performance of any organization reflects the strength, weakness,
opportunities and threats of the organization with respect to profits earned, investment,
sales realization, turnover, return on investment, net worth of capital, efficient
management of financial resources and deliberate analysis of financial results are pre-
requisite for success of an enterprise.

In Finance, the term “FUND” refers to cash equivalent or to working capital and
all financial resources which are used in business. These total resources of a concern are
in form of men, material, money, place and equipment and others. In a broader meaning
the word “fund” refers to working capital. The working capital indicates the difference
between current assets and current liabilities. The term working capital may be Gross
working capital and net working capital. Finance is the life of every business enterprise.
A business undertaking at a given point of time can be viewed as a pool funds raised
from various sources like inventory and the source of internal financing the funds raised
from these sources are utilized.

The usefulness of developing certain financial statements as an aid to evaluate

past and / or present performance of a business concern is unquestionable and any
dispute. The income statement reports, the revenues earned, and expenses incurred or
outstanding…, the balance sheet conveys about the deployment of funds in various assets
and equities. The funds flow analysis is a modern technique of analyzing the movement
of funds of a concern. The funds flow statement shows the movement of funds between
two balance sheet dates. “The funds flow statement describes the sources from which
additional funds were derived and the use to which these funds were put”. Such a
statement is becoming more and more popular and is being increasingly published as part
of the annual accounts.

                A statement of changes in financial position should be included as an integral

part of financial statements. The statement of changes in financial position should be
presented for each period for which the income statement is prepared. It is very helpful
to improve the understanding of the operations and activities of an enterprise for the
reporting period.

                The concept of funds flow statement is new to all. While the balance sheet
enables to understand the position of an organization’s assets and liabilities at a given
moment of time, the profit and loss account explains the result of operations during that
period. Since accountancy is based on principles of double entry and all monetary
transactions have two effects, the position of various assets and liabilities presented in
the balance sheet is always subject to change. The balance sheet provides only a ‘static’
view of the business. The operational result provided by the P & L A/c is largely
influenced by the availability of funds needed when required.

Funds Flow Statement is a statement prepared to analyze the reasons for

changes in the Financial Position of a Company between 2 Balance Sheets. It shows
the inflow and outflow of funds i.e., Sources and Applications of funds for a
particular period. In other words, a Funds Flow Statement is prepared to know the
changes in the position of a company.

Funds Flow Statement analyses the Sources and Application of Funds of Long
Term nature and the Net Increase or Decrease in Long Term Funds will be reflected on
the Working Capital of the firm. Funds Flow Statement is more useful for Long Term
Financial Planning. Funds Flow Statement is based on the Financial analysis is the
process of identifying the financial strength and weakness of the firm by properly
establishing between the items of the balance sheet and profit and loss account. There are
various methods or techniques used in analysis financial statement such as comparative
statement, trend analysis, and common size statement, schedule of changes in working
capital, funds flow and Cash flow analysis, cost volume profit analysis and ratio analysis.
The basic transactions that take place in an undertaking and which do not operate by
profit and loss account. The statement has to prepare through profit and loss account.
 The another statement has to prepare to show the changes in the assets and
liabilities from the end of over period of time to the end of another period of time the
statement is called changes in the financial position or a funds flow statements. The
funds flow statement in a statement that shows the movement of funds and is a report of
the financial operation of the business undertaking.

It indicates various means by which funds were obtains during a period and the
way to which these funds were employed in simple words it is a statement of and
application of funds. Funds mean cash as blood is human body, finance is to business
action. As the balance sheet is static it does not show the movement of funds. It must be
remembered all the time that ultimately success or failure will depend on availability and
better utilization of funds given a particular situation. In order to get over this criticism a
statement of movement of funds is presented. This is variously known as “funds flow
analysis” statement of sources and application of funds where got where gone statement
etc., such a statement is becoming more and more popular and is being increasingly
published as a part of the annual accounts. All firms create manufacturing capacities for
production of goods. Some provide service to consumer. They sell their goods or
services to earn profit. They raise funds to acquire manufacturing and facilitate BSNL.

The success of any organization mainly depends upon four financial areas of
management, human resources every firm either the big or medium or small the needs
finance to carry on its operations and achieve its targets. Funds flow statement is an
important financial tool, which analyze the changes in financial position of a firm
showing the sources and application of its funds. It provides useful information about the
firm's operating, financing and investing activities during a particular period. The funds
flow statement helps in identifying the changes in level of current assets investment and
current liabilities financing. It also shows the relationship of net income to the change in
fund from business operation. It reports about past fund flow ad an aid to predict future
fund flow.
 The Funds Flow Statement helps in answering the following questions

 Why is there an imbalance existing between liquidity position and profitability

position of an enterprise?
 Why is the concern financially solid in spite of losses?
 Where the profits have gone?

The Funds Flow Statement analysis helps the management to test whether the
working capital has been effectively used or not and the working capital level is
adequate or inadequate for the requirements of the business. The Working Capital
Position helps the management in taking policy decisions regarding payment of
dividend etc.

The Funds Flow Statement Analysis helps the investors to decide whether the
company has managed the funds properly. It also indicates the  Credit Worthiness of a
company which helps the lenders to decide whether to lend money to the company or not. It
helps the management to take policy decisions and to decide about the financing policies and
Capital Expenditure for the future.
FUNDS FLOW STATEMENTS consists of Sources and Application of Funds
Sources of Funds - Items to be shown under the head Sources of Funds are as follows:-

1. Issue of Shares and Debentures for Cash- The total amount received from the
Issue of Shares or Debentures is to shown under this head. But, the Issue of bonus Shares
or Conversion of Debentures into Equity Shares or Shares issued to vendors shall not be
shown here as there is no inflow of Cash.
2. Long Term Loans- The amount received on raising Long Term Loans is shown
under this head. Short Term Loans are not to be shown here as their treatment has
already been done while preparing the Statement of Changes in Working Capital.
3. Sale of Investments and other Fixed Assets- the total amount received on the sale
of Investments and other Fixed Assets is to be shown under this head.
4. Funds from Operations - the funds generated from Operations as computed in
Step II are also required to be shown here.
5. Decrease in Working Capital - This would be the Balancing Figure of the
Statement and will come from change in Working Capital Statement.

Application of Funds: Items to be shown under Application of Funds are as

follows:-

1. Purchase of Fixed Assets and Investments- the Cash Payment made for purchase
of Fixed Assets and Investments is an application of Funds but if the purchase if made by
issue of shares or debentures, such a transaction will not constitute application of funds.
Similarly, if the purchases are on credit, these will not constitute fund applications.
2. Redemption of Debentures, Preference Shares and Repayment of Loan-  Payment
made including Premium (less: Discount) is to be taken as fund application
3. Payment of Dividend and Tax- Payment of Dividend and Tax are to be taken as
applications of fund if the provisions are excluded from Current Liabilities and Current
Provisions are added back to profit to determine the “Funds from Operations”
4. Increase in Working Capital- This would be the Balancing Figure of the
Statement and will come from change in Working Capital Statement.
 NEED FOR THE STUDY
The basic need of the study is to obtain an insight into the financial operations
of the concern. It analyses how the funds were obtained and used in the past. In this
sense, it is valuable tool for the finance manager for analyzing the past and future plans
of uses of funds in the past and take necessary corrective actions. Funds flow analysis of
flow of fund from current assets to fixed assets or current assets to long term liabilities or
vice versa, first-of-all, we make fund flow statement and then study it causes and effects
deeply and try to find many important fact and information which can be used in
business.

A fund flow statement provides a snapshot view of the flow of funds, allowing
financial managers to answer complicated questions about the credit worthiness of a
company, how a Company plan on replaying its loan, the total amount of funds
generated through regular business, how management allowed fund historically, the
results of historic fund allocation and how they are going to use funds in future. Funds
flow statement is an important financial tool, which analyze the changes in the financial
position of the firm showing the sources and applications of its funds. It’s provides
useful information about the firms operating, financing and investing activities during a
particular period. The funds flow statements helps in identifying the changes in the level
of current assets investment and current liabilities financing. It also helps in analyzing
the change in working capital level of a firm. It also shows the relationship of net income
to the change in the funds from business operations. It reports about past funds flow as
an aid to predict future fund flow. It helps in generate long term financing to satisfy the
investment in long term assets. It is also identifying the factor responsible for changes in
assets, liabilities and owner’s equity at two balance sheet date.

Funds flow statement facilitates BSNL the work of gaining the financial health
of a concern. A firm requires investment in current assets for a smooth uninterrupted
production and sale. By making use of projected fund flow statement the adequacy or
inadequacy of working capital ever in advance and long term financial of the payment of
long term debts expansion of the business, allocation of resources etc. The major sources
of working capital are the firms’ net profit from operations. The ultimate success of a
company depends upon its ability to earn profit. However, the profit and loss account
contains certain items which do not affect working capital. Therefore, it is determining
amount of working capital from operations. The working capital flow or funds arises
when the net effect of a transaction is to increase or decrease the amount of working
capital. Normally, a firm will have some transactions that change net working capital and
some that will cause no change in net working capital include most of the item of the
profit and loss account and those business events which simultaneously affect both
current account and non-current balance sheet items.

On other hand, transactions which don't increase or decrease working capital

include those which effect only current accounts or non-current accounts. For the fast
growth and expansion, a form need larger amount of working capital. Therefore,
estimates of working capital on a long-term basis are also required.
 OBJECTIVES OF THE STUDY

The following are the objectives of the study of the Funds Flow Statement Analysis at
Sandhya Aqua Export Private Limited:

 To study the financial performance of Sandhya Aqua Export Private Limited

organization.
 To analyze the financial performance through Funds Flow Statements.
 To study the Funds Flow Statements and analyze the progress and profitability
performance of Sandhya Aqua Export Private Limited over the last 5 financial
years.
 To make a critical evaluation of FUNDS which are available and used for
operations.
 To offer suggestions based on the study.
 METHODOLOGY OF THE STUDY

. Methodology adopted is a collection of information in a systematic manner in

order to analyze and verify a phenomenon. The present study is an exclusive on Sandhya
Aqua Export Private Limited, to meet the formulated objectives. The collection of data
or information is done through principal sources. The information is collected through
primary and secondary sources during the course of the study. The same information was
utilized for computing various ratios after the analysis of which interpretations were
made.

PRIMARY SOURCES

The primary data is the data which is collected a fresh and for the first time and
thus happen to be original in chapter. Primary data can either through direct
communication with respondent in one form or through personal interviews. If you took
a trip to a trauma unit and interviewed burn survivors, the data collected in that phase of
your research would be primary data.
The data was collected through the following ways
 Personal interaction with concerned officials of the organization.
 Discussion with working employees.
 Direct conversation with the Chief Accounts Officer of the Finance department.

SECONDARY SOURCES

The secondary data is the data which have already been collected by someone else
and which have already been passed through the statistical process. The term is used in
contrast with the term secondary data. Secondary data is data gathered from studies,
surveys, or experiments that have been run by other people or for other research.
Most of the data used for the study is secondary in nature and has been collected as
 Annual reports of the company.
 Financial statements, auditor report, information vouchers of the organization.
 By referring text tools.

 By business magazines.
 LIMITATIONS OF THE STUDY

The following are the limitations of the study

 Due to cost and time constraint this study has been minimized to FUNDS FLOW
STATEMENT management aspects only.
 The study is purely based on the data available in the form of Annual Reports.
 During the period of the study some aspects of financial information is not
available because of confidentiality.
 The time is a major limitation. The whole study was conducted with- in a period
of 08 weeks.
 CHAPTER – 2

INDUSTRY PROFILE
COMPANY PROFILE
 INDUSTRY PROFILE
Introduction

Currently, India is the world’s second-largest telecommunications market with a

subscriber base of 1.16 billion and has registered strong growth in the last decade. The
Indian mobile economy is growing rapidly and will contribute substantially to India’s
Gross Domestic Product (GDP) according to a report prepared by GSM Association
(GSMA) in collaboration with Boston Consulting Group (BCG). In 2019, India
surpassed the US to become the second largest market in terms of number of app
downloads.
The liberal and reformist policies of the Government of India have been
instrumental along with strong consumer demand in the rapid growth in the Indian
telecom sector. The Government has enabled easy market access to telecom equipment
and a fair and proactive regulatory framework that has ensured availability of telecom
services to consumer at affordable prices. The deregulation of Foreign Direct Investment
(FDI) norms have made the sector one of the fastest growing and the top five
employment opportunity generator in the country.

History of Telecommunications Industry

Indian telecom sector is more than 165 years old. Telecommunications was first
introduced in India in 1851 when the first operational land lines were laid by the
government near Kolkata (then Calcutta), although telephone services were formally
introduced in India much later in 1881. Further, in 1883, telephone services were merged
with the postal system. In 1947, after India attained independence, all foreign
telecommunication companies were nationalized to from the Posts, Telephone and
Telegram (PTT), a body that was governed by the Ministry of Communication. The
Indian telecom sector was entirely under government ownership until 1984, when the
private sector was allowed in telecommunication equipment manufacturing only. The
government concretized its earlier efforts towards developing RandD in the sector by
setting up an autonomous body-Center for development of TELEMATICS (C-
DEPARTMENT OF TELECOMMUNICATIONS) in 1984 to develop state-of-the-art
telecommunication technology to meet the growing needs of the Indian
telecommunication network. The actual evolution of the industry started after the
government separated the department of posts and the departments of
telecommunication.

TELECOM COMMISSION

The Telecom Commission was set up by the Government of India vide notification
dated 11th April, 1989 with administrative and financial powers of the Government of
India to deal with various aspects of Telecommunications. The commission consists of a
Chairman, four full time members, who are ex-officio Secretary to the Government of
India in the Department of Telecommunications and four part time members who are
Secretaries to the Government of India of the concerned Departments.
The part time Members of Telecom Commission are
1. Secretary ( Department of Information Technology )
2. Secretary ( Finance )
3. Secretary ( Planning Commission ) and
4. Secretary (Industrial Policy Promotion).

The Telecom Commission and the Department of Telecommunications are

responsible for policy formulation, licensing, wireless spectrum management,
administrative monitoring of PSUs, research and development and
standardization/validation of equipment etc. The multi-pronged strategies followed by
the Telecom Commission have not only transformed the very structure of this sector but
have motivated all the partners to contribute in accelerating the growth of the sector.

TELECOM POLICIES
• National Telecom Policy, 1994
• New Telecom Policy, 1999
• Addendum to NTP, 1999
• National Numbering Plan, 2003
• Broadband Policy, 2004
• Amendment to Broadband Policy, 2004
• National Telecom Policy, 2012
• Office Memorandum regarding National Telecom Policy, 2012
• Office Memorandum No. 100-47/2012-STG_I dated 22.04.2013
• Investment Policy

Telecom Regulatory Authority of India

The Telecom Regulatory Authority of India (TRAI) is a statutory body set up by
the Government of India under section 3 of the Telecom Regulatory Authority of India
Act, 1997. It is the regulator of the telecommunications sector in India. It consists of a
Chairperson and not more than two full-time members and not more than two part-time
members.
Telecom Regulatory authority of India was established on 20 February 1997 by an
Act of Parliament to regulate telecom services and tariffs in India. Earlier regulation of
telecom services and tariffs was overseen by the Central Government. The current
Chairman of TRAI is Ram Sewak Sharma.
The main objective of this act was to establish TRAI and Telecom Dispute
Settlement Appellate Tribunal (TDSAT). The main purpose of both the institutions is to
regulate telecommunication services, adjudicate disputes, dispose appeals and protect the
interest of the service providers as well as consumers. It also aims to promote and ensure

orderly growth of the telecom sector. That is it encourages technological improvements

and provides efficiency and technical compatibility. For this TRAI establishes standards
for Quality of Services (QOS) and supervise how service providers share revenue. TRAI
is administered through a Secretariat headed by a secretary. All proposals are processed
by the secretary, who organises the agenda for Authority meetings (consulting with the
Chairman), prepares the minutes and issues regulations in accordance to the meetings.
 It conducts periodical surveys to ensure that telecom service providers are
acting in the best internet of consumers and are opening in compliance
with universal service obligations.
 Functions of TRAI are mentioned under section 11 act of the TRAI Act.
 TRAI’s functions are classified into four broad categories according to the
2000 Amendment Act that is on various issues it can make
recommendations, regulatory and general administrative functions, fixing
tariffs and rates for telecom services and any other functions entrusted by
the Central Government.

TRAI REGULATIONS

The following are some of the regulations of TRAI

 Interconnection issues (usage charges, agreement, revenues sharing).

 Quality of the telecom services.
 Consumer protection and re-dresser of grievance including unsolicited
commercial communication.
 Access to essential infrastructure like cable landing stations
 Mobile number portability.

Functions of TRAI
The main functions of TRAI are shown in the following diagram:

FUNCTIONS OF TRAI

 TRAI has the obligation to forward the recommendation to the Central Government
within 60 days from the date of the request for recommendation.
TRAI may also request for relevant information or documents from the Central
Government to make such recommendations and the Central Government has to furnish
such information within seven days from the date of the request.
 TRAI also has the power to notify in the official gazette the rates at which
telecommunication services are being provided in and outside India. TRAI shall ensure
transparently while exercising its powers and discharging its functions.
 TRAI under section 12 has the power to call for information and conduct
investigation. It also has got powers to issue directions under section 13.
 The Telecom Dispute Settlement Appellate Tribunal (Tribunal) is established under
section 14 of the Act. It is the sole dispute resolution body in the communication sector.

It can adjudicate upon any dispute between

 Licensor (Central Government) and a licensee.
 Two or more service providers.
  Between a service provider and a group of consumers.

Market Size
India ranks as the world’s second largest market in terms of total internet users.
The number of internet subscribers in the country increased at a CAGR of 21.36% from
FY16 to FY20 to reach 743.19 million in FY20. Total wireless data usage in India grew
9.35% quarterly to reach 22,854,131 TB in Q4FY20.
India is also the world’s second-largest telecommunications market. It is total
telephone subscriber base and density reached 1,177.97 million and 87.37%,
respectively, in FY20. Gross revenue of the telecom sector stood at Rs. 252,825,000
(US$ 35.87 billion) in FY20.Over the next five years, rise in mobile-phone penetration
and decline in data costs will add 500 million new internet users in India, creating
opportunities for new businesses.

BHARAT SANCHAR NIGAM LIMITED (BSNL) was incorporated on October1,

2000 by vesting with it the mandate of providing telecom services and network
management hit her to done by the Department of Telecom (DEPARTMENT OF
TELECOMMUNICATIONS), Government of INDIA. This was done in a context where
the telecom sector had been opened to the private sector beginning 1994. While initially
the sector was opened for one private operator per circle for fixed line and two private
players for cellular services, the number of private operators grew overtime. An
independent regulator, TRAI, was created in 1997. The telecom market took off from
early 2000s with change in telecom policies all owing greater pricing freedom and a
greater number of private operators competing to acquire consumers in each circle. Due
to the fast-changing technology, the scope of services increased from voice to mobile
Internet. Falling prices of technology and competition ensured that coverage expanded
prices fell and the consumer-base grew exponentially accompanied by intense rivalry in
the sector, shows the total subscribers of different operators from 2009-2018. Even
though the sector subsequently saw consolidation, a new competitive threat emerged
with the entry of Reliance Industries in the telecom sector under the “JIO” brand. With
competitive pricing, it has been able to acquire a large market share (close to being the
top). Because of intense rivalry, Idea decided to merge with Vodafone leaving three large
private players in Indian telecom sector Reliance, AIRTEL and Vodafone-Idea.
 BSNL is a technology-oriented company and provides all types of telecom
services namely telephone services on wire line, wireless local loop (WLL) and mobile,
broadband, internet, leased circuits and long-distance telecom service. The company has
been in the forefront of technology with 100% digital technology switching network.
BSNL’s nation-wide telecommunications network covers all district headquarters, sub-
divisional headquarters, the headquarters and almost all the block headquarters.

As of April 2019, it had about 29.63-million-line basic telephone capacity, 1.39

million WLL capacity, 114.62 million GSM capacity, 31,611 fixed exchanges, 1,46,172
GSM BTSs, 95 Satellite Stations, 8,49,990 route kilometer (R Km) of OFC, 2,548 R Km
of microwave network.

BSNL is a government-owned mobile network provider, which makes it different

from most other networks which are privately-owned. It is the oldest network provider
and communications provider in India. It currently has over 100 million subscribers,
though its revenue has started to decline as private companies became a more popular
choice. It is actually the largest broadband and fixed telephony provider in the country,
and the fifth-largest mobile network provider.
One of the good things about BSNL is its wide coverage area. It covers large parts of
the country, having footprints nearly everywhere. It also offers low-priced 2G and 3G for
people who can’t afford 4G. The speed is not very good though. Private network
providers have the best speed.
BSNL’s website is also not as good as the other networks’. The design is outdated,
and it’s a little hard to find out where to recharge your SIM card.

BSNL Spectrum Bandwidth

INITIATIVE IN RURAL AREAS

The digital divide is going to further reduce with this innovative move of BSNL
– Digital Gram Se walks to deliver Bharat Fiber services, high speed optical fiber based
internet in rural sector. BSNL is encouraging local entrepreneurs in the rural areas to
partner with the Company and bridge this digital divide, using Company’s best
technologies delivering quality internet services even in remotest of corners of our
country. The local partners have started providing the Bharat fiber connections to the
rural homes, using Company’s network they shall be given revenue share for maintaining
the last mile connectivity to the customers. State governments are also being encouraged
to use this high speed platform for delivering the e-governance initiatives including e-
health, digital land records, e-medicine and all the possible ways of boosting the rural
economy. In Bharat fiber initiative, the customers are given speeds up to 200MBPS and
various options of daily data download ranging from 5GB to 50 GB per day are
available.
Workable or Effective Competition

The degree of competition and rivalry is an abstract idea, which has to be

translated into a set of operational criteria to judge and monitor the effectiveness of the
competition. In the context of telecom sector specifically, the factors that can inhibit and
promote competitive pressures have been discussed and identified in the literature. Some
of the prominent structural factors which can inhibit competitive pressures are:
● Switching cost faced by consumers
● Network effects – the value derived because of other customers
● Lack of information with the customers about the implications of their choice
● Entry barriers due to larger costs
● Licensing restrictions on substitutability
● Control of essential facilities;
● Exclusive rights on key technologies;
● Exclusive distribution rights; and
● Economies of scale and scope

The first two of can be taken care of regulations on number portability, improving
the ease of portability and comprehensive interconnections. Third one may be taken care
of by improved disclosures, measurements and simple to understand pricing plans. All
the others are supply side factors and the irrelevance depend upon the policies and
regulations under which entry, continuation or exists allowed. Of the factors listed above,
two are relevant for making an assessment on the question as to whether BSNL has
strategic any role in the sector. This is the only factor which implies that in the presence
of significant economies of scale and scope, it is optimal to have fewer ideologies.
CORPORATE SOCIAL RESPONSIBILITY

Being a service providing Company, the “CSR activities form part of the core
ethics of BSNL”. Owing to losses being incurred by the company since the year 2009-
10, no specific amount could be earmarked for CSR activities. The Company has
constituted the Corporate Social Responsibility Committee of the Board.

CORPORATE GOVERNANCE
Being the successor and assigns of central government departments, BSNL is
committed to good corporate governance as laid down in the relevant statutes.
HUMAN CAPITAL

Considering the immense value of the highly skilled employees, the HR and
Welfare policies of the organization revolve around their complete development.
Training and development of human resource is an important process of the organization.
To update the knowledge, skill sets of the workforce from time to time and for achieving
the overall objective of the organization.
MARKET SHARE
Telecommunications Services has emerged as one of the key drivers of the
country’s economy. Though the customer driven competitive market resulted in low
ARPU, BSNL was able to sustain its market share in terms of subscribers. At all India
level, BSNL’s Landline market share stood at 56.15% and the Mobile Segment at 9.97%.

Major players in the Mobile Phone Service Industry are listed below:

Landline service in India is primarily run by BSNL/MTNL and Reliance Info

Communication though there are several other private players too, such as Touchtel and
Tata Teleservices. Landlines are facing stiff competition from mobile telephones. The
competition has forced the landline services to become more efficient. The landline
network quality has improved and landline connections are now usually available on
demand, even in high density urban areas.
The breakup of wire line market share India as of February 2019 is given below:

BSNL market share reaches 10.63% on account of network expansions:

 BSNL operates in 20 out of 22 telecom circles across the country. As of March,
2018 its market share was 10.22%.

 The PSU is one of the two operators showing net edition of more than 9 Lac
subscribers.

COMPANY PROFILE
 Bharat Sanchar Nigam Limited popularly known as BSNL is an Indian state
owned telecommunications company, headquartered in Delhi, India. It was incorporated
by Department of Telecommunications, Ministry of Communications, Government of
India on 01st October, 2000. It provides mobile voice and internet services through its
nationwide telecommunications network across India with more than 60% of the market
share and 4th largest wireless telecommunications operator.

The name Bharat Sanchar Nigam Limited derives from Hindi, which

means Indian Communications Corporation Limited in English. Bharat Sanchar Nigam
Limited (BSNL) raised Rs. 8,500,000,000 (US$ 1.15 billion) via its maiden local bond
sale.
BSNL has installed Quality Telecom Network in the country and now focusing
on improving it, expanding the network, introducing new telecom services with ICT
applications in villages and winning customer’s confidence. Today, it has about 47.3
million line basic telephone capacity, 4million WLL capacity, 49.76 Million GSM
Capacity, more than 37382 fixed exchanges, 46565BTS, 3895 Node B ( 3G BTS), 287
Satellite Stations, 480196 R km of OFC Cable, 63730 R km of Microwave Network
connecting 602 Districts, 7330 cities/towns and 5.5 Lac villages. BSNL is the only
service provider, making focused efforts and planned initiatives to bridge the Rural-
Urban Digital Divide ICT sector. In fact there is no telecom operator in the country to
beat its reach with its wide network giving services in every nook and corner of country
and operates across India except Delhi and Mumbai. Whether its accessible areas of
glaciers and North-eastern region of the country. BSNL serves its customers with its
wide bouquet of telecommunication services.

  BSNL is an operator of India in all services in its license area. The company offers
vide ranging and most transparent tariff schemes designed to suite every customer.
BSNL cellular service, Cell One, has more than 52.09 million cellular customers,
garnering 16.96 percent of all mobile users in its area of operation as its subscribers. In
basic services, BSNL is miles ahead of its rivals, with 35.1 million basic phone
subscribers i.e. 85 per cent share of the subscriber base and 92 percent share in revenue
terms. BSNL has more than 2.5 Million WLL subscribers and 2.5 Million Internet
Customers who access internet through various modes viz. Dial-up, Leased line, DIAS,
Account less Internet (CLI). BSNL has been adjudged as number 1 ISP in the country.
 BSNL has a set up a multi-gigabit, multi-protocol convergent IP infrastructure that
provides convergent services like voice, data and video through Backbone and
Broadband Access Network. At present there are 0.6 million Data One broadband
customers. The company has vast experience in Planning, Installation, network
integration and maintenance of Switching and Transmission also has a world class ISO:
9000 certified Telecom Training Institute. Scaling new heights of success, the present
turnover of BSNL is more than Rs. 351820 Million with net profit to the tune of Rs.
99,390 Million for last financial year. The infrastructure asset on telephone alone is
worth about Rs. 630000 Million.

VISION
 Be the leading telecom service provider in India with global presence.
 Create a customer focused organization with excellence in customer care, sales
and marketing.
 Leverage technology to provide affordable and innovative telecom services or
products across customer segments.

MISSION
 Becoming the most believed, preferred and admired telecom brand.
 Generating value for all stakeholders – employees, shareholders, vendors and
business associates.
 To explore international markets for global presence.
 Changing policies and processes to enable transparent, quick and efficient
decision making.
 Providing reliable telecom services that are valued for money.

OBJECTIVES
 Accelerate the pace of expansion of mobile and data services with up-gradation
of technology.
  To improve customer care by reducing fault rate, upgrading Customer Service
Centers (CSCs) and introducing convergent billing.
 To become preferred service provider to the government for reliable and secure
service network to serve National Security Interests.
 Expanding the reach of fiber network near to the customer premises particularly
in apartment complexes through FTTH in order to meet the ever increasing
bandwidth requirement for both data and video applications.

Executives

 Pravin Kumar Purwar, Chairman/ Managing Director

 Naresh Kumar Gupta, Director, Consumer Fixed Access
 H C Pant, General Manager, Legal/Sec
 Rajeev Singh, General Manager, Corporate Accounts

Board Members
 Pravin Kumar Purwar
 Prof. Nachimuthu Balakrishnan
 Ajai Vikram Singh
 Shahbaz Ali
 Naresh Kumar Gupta
 Rita A Taeotia
 Dharshana Momaya Dabral
 Navneet Gupta

History
Bharat Sanchar Nigam Limited is the India's oldest communication company and its
history can be traced back to the British India. The foundation of telecom network in
India was laid by the British sometime in 19th century. During the British era, 1850; the
first telegraph line, was established between Calcutta and Diamond Harbor. The
British East India Company started using the telegraph in 1851 and till 1854 telegraph
lines were laid across the country. In 1854, the telegraph service was opened to the
public and the first telegram was sent from Mumbai to PUNE. In 1885, the Indian
Telegraph Act was passed by the British Imperial Legislative Council. After the
diversification of Post and Telegraph departments in 1980, the creation of Department of
Telecom eventually led to the emergence of the State owned telegraph and telephone
company which led to foundation of BSNL.

It continued the telegraph services in India until it shut down telegraph services
completely on 15 July 2013. After providing it for 160 years, BSNL discontinued its
telegraph service on 15 July 2013. It began delivering telegrams to the public in February
1855; this service was upgraded to a web-based messaging system in 2010 and had been
offered through 182 telegraph offices across India.

BSNL Departmental Organizational Structure

The departmental organizational structure of BSNL is as following

Products and Services
Telephone and Mobile

BSNL provides both fixed line telephones and mobile telephony service

on GSM and CDMA platforms.

BSNL Mobile
BSNL Mobile is a major provider of GSM network under brand name Cell
One all over India. It has wide network coverage in both urban and rural areas of India. It
has over 120.42 million customers across India.

BSNL Mobile offers prepaid, postpaid services and value-added services such as

Free Phone Service (FPH), India Telephone Card (Prepaid card), Account Card Calling
(ACC), Virtual Private Network (VPN), Tele-voting, premium Rate Service (PRM). It
also offers the IPTV which enables customers to watch television through the Internet
and Voice and Video over internet protocol.
 Based on the above conditions and from the current market scenario, most of these
do not seem to a big concern at this point in Indian telecom sector. However, at this point
of time the only factor that needs some close monitoring of alleged “predatory” pricing
by the most recent entrant and its consequences for the loss of rivalry in the sector over a
period of time. In the future, competition policy in the sector may need to examine
mergers more closely, especially when these reduce the number of market players to
three. In such cases there may be a need to specify remedies that do not harm consumer
welfare.

In the current scenario, absent such a framework, the concern is dealing with
predatory pricing. Even from that perspective, and in case of emergence of a dominant
player, it is not obvious that BSNL-MTNL can play any meaningful role in such a
situation, due to their lack of innovation, high costs, very few relevant content
partnerships, and small and rapidly declining market shares as stated earlier. Based on
the analysis above, it is clear that in its current organizational and financial condition,
BSNL-MTNL cannot be an effective rival to the other players except through price-
based competition which has to be supported by the Government. We contend that given
the grave challenges facing BSNL at this time, the entity needs significant restructuring
in order to be able to face the competition existing in the sector.

The best case, thus, for BSNL-MTNL is that they can be an effective rival (in
terms of market share and costs) to other 3 private players and in the process helps in
building and retaining the competitive character of telecom sector. As argued earlier, this
will require considerable restructuring of BSNL with change in work culture to make it
more competitive and removal of ill-effects of legacy issues such as excess Man power,
bureaucratic in efficiencies, appropriate utilization of real estate and other 9 Resources
such as infrastructure to improve its cost effectiveness. Given that lot of the costs related
to man power and infrastructure ready committed, it is optimal to attempt revival of
BSNL-MTNL with a clear time-frame (5years) after which further role of BSNL as a
continuing entity can be envisaged.

BSNL Landline
BSNL Landline was launched in early 1990s. It was the only fixed-line telephone
serving for whole country before the New Telecom Policy was announced
by Department of Telecom in 1999. Only the Government-owned BSNL and MTNL
were allowed to provide land-line phone services through copper wire in India. BSNL
Landline is the largest fixed-line telephony in India. It has over 10.41 million customers
and 49.34% market share in India.

Internet
BSNL is the fourth largest ISP in India, with having presence throughout the
country. It also has the largest fiber-based telecom network in India around 7.5Lac
kilometers among the four operators in the country.

BSNL Broadband
BSNL Broadband provides telecom services to enterprise customers including
MPLS, P2P and Internet leased lines. It provides fixed line services and landline
using CDMA technology and its own extensive optical fiber network. BSNL
provides Internet access services through dial-up connections as prepaid, Net One as
Postpaid and Data One as BSNL Broadband.
This article is about the mobile network operator in India. For state
owned telecommunication corporation brand, see BSNL.

BSNL Broadband (formerly Data One) is an Indian Wire line Broadband

Operator, operated by the public enterprise BSNL. It provides both wired and wireless
broadband services as well as many value added services. BSNL Broadband launched its
services on 14th January, 2005 as Data One.

BSNL Broadband Wi-Fi modem
BSNL is commissioning a multi-gigabit, multi-protocol, IP infrastructure through
National Internet Backbone-II (NIB-II), that provides services through the same
backbone and broadband access network. The broadband service is available on digital
subscriber line technology (on the same wire that is used for old telephone service),
spanning 198 cities.

The services that are supported include always-on broadband access to the Internet for
residential and business customers, content-based services, video multicasting, video-on-
demand and interactive gaming, audio. In addition, video conferencing, IP
telephony, distance learning, messaging, multi-site MPLS VPNs with Quality of Service
guarantees. The subscribers are able to access the above services through Subscriber
Service Selection System (SSSS) portal.

The service is given through Multi Protocol Label Switching (MPLS) based IP

infrastructure. Layer 1 of the network consists of a high-speed backbone composed of 24
core routers connected with high-speed 2.0 G bit/s (STM-16) links.

Bharat Fiber
Bharat Fiber (FTTH) was launched in February 2019. It offers TV
over IP (IPTV), Video On-Demand, Audio On-Demand, Bandwidth On-Demand,
Remote Education, Video Conferencing Services, Interactive Gaming, Virtual Private
LAN services. BSNL said that, its huge optic fiber network provides fix access to deliver
high speed internet ranging from 256 k bits to 100 M bits.

IP services
BSNL Wing Services
On 16 August 2018, Bharat Sanchar Nigam Limited has launched "BSNL Wings
Services" in 22 telecom circles. In which, there is no need of SIM card or cable wiring as
is a VoIP service through an app. It offers unlimited free calling for one year throughout
India.

WINGS – THE INTERNET TELEPHONY (VOIP)

With the Sectoral Regulators clearance and the Licensors subsequent clarifications
on the Internet Telephony, BSNL has launched its Internet Telephony (VOIP) Service
with brand name “WINGS” to the customers. This service using Mobile Numbering
scheme is being provided using IP based access network of IMS.
NGN Core switches. To use the service, a customer needs to install a SIP client
(soft app) on any of its smart devices (laptop/smart mobile handset/tablet etc) having
internet which will act as SIP phone to make and receive calls from anywhere in India
and abroad with any party (landline/mobile). The subscriber uses its parent IMS core and
IP access network of any location for the voice service through BSNL “Wings”.

WIFI Hot Spots

As on May 2018, number of working Wi-Fi hotspots was 21682. This sector
witnessed a revenue growth of 174% over previous years (2016-17 Rs.50 Crores and
Rs.87 Crores in 2017-18).
Pursuant to the agreement signed with the USOF for providing 25,000 Wi-Fi
Hotspots at rural exchanges, the Company has already deployed 3900 Wi-Fi Hotspots
and another 1100 are under process.

BSNL My App

BSNL is the first in the domestic market to launch this facility for its customers
having Android & IOS platforms. With this app, the customers are able to access the 44
million Wi-Fi hotspots in more than 100 countries, with simple one time registration in
the BSNL My App platform.

MOBILE SEGMENT

Expansion of the Company’s mobile network is being carried out under recently
finalized Phase VIII.4 project. The project envisages to provide about 20,881 2G BTS,
22517 3G Node Bs and 10000 4G e-Node Bs with the aim to:-
 Replacing old equipment which are having high operational cost and AMC
 Addition of 3G capacities for increasing 3G foot prints
 Introduction of 4G services along with IMS for VoLTE functionality.

Roll out of 4G Services

Presently, BSNL is not having any spectrum for rollout of 4G network. Licensor
i.e. the Department of Telecommunications has been requested to allot additional 5 MHz
in 2100 MHz band in all LSA except Rajasthan where it is in 800 MHz band. However,
BSNL has plans to launch 4G services by utilizing available spectrum of 3G i.e., 2100
MHz by using combination of 2G + 4G in such cities/pockets where 3G network is not
so good, 4G devices (like Handsets, dongle etc) are expected to be in good numbers; The
interference from the neighboring 3G network of the Company (working on same 2100
MHz band) if any, is expected to be zero/minimal. There is potential of revenue
generation.

Administrative Services
BSNL vertical divisions
BSNL is primarily divided into three verticals

 BSNL - Consumer Fixed Access (CFA), wire line and broadband business
 BSNL - Consumer Mobility (CM), wireless business, primarily 3G GSM
services. WLL services which were widely deployed are being phased out
 BSNL - Enterprise Business, Enterprise customers on turnkey basis
 Other than these three verticals, there are electrical wings and civil wings which
take care of real estate monetization also.

BSNL horizontal divisions

Horizontally, BSNL is divided into a number of administrative units, variously
known as: telecom circles, metro districts, project circles and specialized units. It has 24
telecom circles, two metro districts, six project circles, four maintenance regions, five
telecom factories, three training institutions and four specialized telecom units. Each
circle is being headed by the Chief General Manager (CGM) who is an officer of Indian
Telecom Service (ITS). The organizational structure of BSNL is as follows: Chief
General Manager being the head of the Circle who is the officer of HAG+ level, assisted
by three or four Principal General Manager (PGM) who is the officer of grade HAG. The
districts over a circle is being headed by the designations as General Manager officer of
grade of SAG who looks over around two to four districts, while where the connections
are less and the smaller district is being headed by Telecom District Manager(TDM)
Officer of the grade of JAG and Telecom Divisional Engineer(TDE) officer of STS
grade, all the officers above the post of TDE (including TDE) are of Group A and they
are the officers of grade of Indian Telecom Service(ITS) directly or primitive. Then the
Group B consists of Additional Divisional Engineer, Sub Divisional Engineer and Junior
Telecom officer and then the organization has Group C and D employees.

Policy Decision on 4G Spectrum Allocation to BSNL

The issue of 4G spectrum allocation to BSNL has been pending for sometimes
with the Government of India. Given that its competitors have already rolled out 4G in
the regions serviced by them, it is essential that the government takes an immediate
decision on allocation of 4G spectrum to BSNL. It shows the spectrum holding by bands
to private operators and BSNL/MTNL. This clearly shows that the amount of spectrum
available with BSNL is far lower. Most of this is “non-liberalized” spectrum, making it
difficult for BSNL to offer 4G in the bands available. BSNL
did not get the spectrum in the 4G bands at the time of allocation to private bidders in
2010. Since, it is required to pay the highest bid for spectrum in each circle (other
operators), other than when spectrum is shared or traded, BSNL found the price to be too
high visa-visits financial situation. However, after JIO entry, any operator not having 4G
spectrum can effectively close its operations, as the data speeds and band widths
available with 4G coupled with very low prices initially offered by JIO, have lured many
2G and 3G subscribers to 4G. AIRTEL has plans to face all 2G and 3G subscribers and
use the vacated premier 900MHz band for 4G Along with this transition, AIRTEL has
also worked out advised employment strategy largely in partnership with KARBON for
low cost 4G handset. A harmonious handset device strategy is extremely important as
borne out by JIO’s strategy and introduction of low cost handsets. Vodafone-Idea had
similar plans
While BSNL was given spectrum in the 2500MHzband (a 4Gband), the ecosystem
was not well developed at that point in time. BSNL wanted to return that spectrum. It is
not clear why BSNL did not opt to use its 2100MHz spectrum for 4G. The ecosystem for
this band is well developed and is currently being used by various private operators.
While BSNL could claim delays in 4G spectrum allocation by DEPARTMENT OF
TELECOMMUNICATIONS effectively, it has shown little initiative in using its existing
spectrum for 4G. This indicates a lack of proactive approach to competition. BSNL has
significant spectrum in the 900 MHz band, but this is non-liberalized and due to existing
regulation cannot be used for 4G (Exhibit9) .This needs to be ‘converted’ to 4G spectrum
by paying an amount equal to that paid by the highest bidder in the previously held
auction.
From a cost-benefit point of view, the costs of 4G spectrum allocations are
1. The opportunity cost of spectrum
2. Incremental capital expenditure by BSNL for 4 role out and possibly
3. Inertial continuity (business as usual) of BSNL.
The benefits on the other hand, are
 a. Savings in the contribution from revenue (which will be lost eventually in the
absence of 4G);
b. Continued market presence of BSNL; and
c. Possibly improved morale of the BSNL employees.

The costs and benefits are further discussed in detail:

Costs
1 Opportunity Cost of Spectrum-
To analyze this, we look at the current spectrum bands i.e.800MHz,
900MHz, 1800MHz, 2100MHz, 2300MHz and 2500MHz for 4G. As per the
TRAI recommendations on Pricing of Spectrum Dated August1, 2018, the only
available bands in which BSNL could get Minimum 5MHz spectrum across all
LSAs is 700MHz and 2100MHz (other Than Rajasthan). For Rajasthan, BSNL
has requested 5MHz in the 800MHz band. Exhibit 10 gives the comparative
aspects of the three feasible bands for 4G: 700MHz, 2100MHz and 2300MHz
and the associated issues. In the current state of the telecom sector, most
bidders are not willing to participate in auctions as their financial health is poor.
They are also concerned about the high reserve prices in the TRAI
Recommendations. For example, out of the 360MHz put up for auction in
October2016 in the 2100 MHz band, 85MHz was sold in 12LSA as per TRAI
Recommendations While the above based on the usual license period of 20
years, It is not necessary that BSNL may be allocated 4G spectrum for the 20
year period, right at the beginning. The allocation could be an on standard
contingent allocation for 5 years to be extended only if BSNL is able to
transform itself for a meaningful or competitive role. Given the above, there is
little opportunity cost for the government for the next three to five years. Since
the 2100 MHz band has better coverage characteristics than the 2300MHz band
in which many of the operators have their 4G services. So there may be demand
for this band when auctions are held in the future.
2 Incremental Capital Expenditure by BSNL for 4G Roll-out-
BSNL has submitted to DEPARTMENT OF TELECOMMUNICATIONS that
capital exchange required for the existing 80,000 2G and 3G sites to be
upgraded to 4G and for additional 20,000 towers that BSNL intends to deploy
for4G would be around Rs11000Crores. BSNL should be asked to do tower
 sharing and use managed service operation stored capital exchange. This is
what all private operators do.
3 Inertial continuity (business-as-usual) of BSNL –
This cannot be quantified and can only be managed with appropriate
performance and measures.

Benefits
i) Savings in the contribution from revenue (which will be lost eventually in the
absence of 4G). This will cease to be relevant as after 2-3 years without 4G, BSNL or
any other operator would have the only very low end subscribers, from whom much
lower revenues are expected. Without 4G, there is very little data revenue. Enterprises,
seeking complete solutions would also seek 4G services as an integral part of the vendor
offering.

ii) Continued Market Presence of BSNL- As highlighted above, this is contingent on

it getting 4G spectrum but under strict performance guidelines.

iii) Possibly Improved Morale of the BSNL Employees- This will contribute in case
the above points materialize. Thus, sustainability of BSNL without giving it 4G spectrum
is not foreseen. The market shares and financial health of BSNL is already very poor. If
BSNL has to be revived, any further loss of market share due to non- allocation of 4G
would make it almost impossible for BSNL to be able to sustain in the future to the
extent any meaningful role of BSNL is envisaged in the future with a market-wide role,
allocation off 4G spectrum is imperative. Non-allocation factor, may make BSNL
virtually de function next few years as far mobile services are concerned.

Mergers and Acquisitions

On 24 October 2019, the Government of India announced revival package

for BSNL and MTNL which includes monetizing assets, raising funds, TD-
LTE spectrum, voluntary retirement scheme for employees. Apart from
package, Ministry of Communications decided to merge MTNL with Bharat Sanchar
Nigam Limited. Pending this, MTNL will be subsidiary of BSNL.
Controversies

Cyber Attack
In July 2017, BSNL had a cyber attack which affected south India,
especially Karnataka, when a malware affected Telco's broadband network using a
modem having default passwords. This virus reportedly affected 60,000 modems and
blocked internet connectivity. Later BSNL issued an advisory notice to its broadband
customers, urging them to change their default router username and passwords.

In the wake of the fifth-generation (5G) network security apprehensions, Chinese

players such as ZTE and HUAEWI are under intense scrutiny worldwide while
homegrown vendors also blame Finish Nokia and Swedish Ericsson for sourcing
components from China to produce cost-effective alternatives to competitors.
Lately, the Centre has formed an empowered technology group (ETG), headed by
principal scientific advisor, K Vijay Raghawan to advice on technology and equipment
procurement strategy with a focus on designation in the wake of heightened concerns
around telecom networks security. The former top official argued that in case a public-
sector company won't give access to local gear makers then India would not become self-
reliant, and domestic firms would never get an opportunity to prove their capabilities.

BSNL should not alone be subjected to conditions that are not applicable to private
sector service providers, and norms arising out of security apprehensions.
The Indian makers and suppliers of telecom network products have reacted sharply to the
BSNL's recent letter to the telecom department alleging that the prices offered by local
firms were uncompetitive, and were up to 89% higher as against the prices offered by
multinational vendors. "As a matter of fact, there has been no case where any of the
domestic companies ever defaulted on supplies or product quality, and are cost-friendly
too. Their capacity and production are though dependent upon orders they receive"
following Prime Minister Narendra Modi's clarion call in May to kick start the Aatma
Nirbhar Bharat Abhiyaan (self-reliant India campaign) to combat the Covid-19
pandemic-induced economic slowdown, the demand for the fair play by public sector
companies from homegrown companies, has sharpened. "There has to be an alignment
between government policies and supplies to public-owned companies. Domestic
companies are much competitive and even supplying products worldwide, and they
should be allowed in line with the prestigious Preference to Make in India (PMI) policy,"
Anand Agarwal, group chief executive of Sterlite Technologies Limited (STL) said
BSNL owes Rs 3,500 Crores to domestic vendors, according to the Delhi-based Telecom
Equipment and Services Export Promotion Council (TEPC) that represents Vihaan
Networks, Himachal Futuristic Communications, Tejas Networks.

CHAPTER - 3

THEORETICAL FRAMEWORK OF THE

STUDY
 THEORETICAL FRAMEWORK OF THE STUDY

INTRODUCTION

The Balance Sheet and Profit and loss account (or) income statement of business
reveals the net effect of the various transaction on the operational and financial position
of the assets and liabilities of an undertaking at particular point of time. It reveals the
financial status of the company.
The assets side of a balance sheet shows of deployment of resources of an
undertaking while the liabilities side indicates its obligation i.e., the manner in which
these resources were obtained. The profit and loss account reflects the results of the
business operations for a period of time. It contains a summary expenses incurred, and
the revenue realized in an accounting period.
Both these statements provide the essential basis information on the financial activities of
a business. The balance sheet gives a static view of the resource (liabilities) of a business and
uses (assets) to which these resources have been put at a certain point of time.
The funds flow statement in a statement which shows the movement of funds and
is a report of the financial operations of the business undertaking. Indicates various
means by which funds were obtained during a particular period and the way to which
these funds were employed. In simple words, “IT IS A STATEMENT OF SOURCES
OF FUNDS AND APPLICATIONS OF FUNDS”.

SOURCES OF FUNDS

The typical sources of working capital are summarized below:

Funds from operations, adjusted net income, sale of non-current assets.
 Sale of non-current assets,
 Sale of intangible assets like goodwill, patents, trademarks etc.,
 Sale of long-term investments like shares, bonds, debentures etc.,
 Sale of tangible assets like land, buildings, plant or equipment.
Fund means WORKING CAPITAL, which in turn means the excess of Current Assets
over Current Liabilities.

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

APPLICATIONS OF FUNDS
The uses to which funds are put are called application of funds.
Following are some of the purposes for which funds may be used:
(a) Purchase of fixed assets – Purchase of fixed assets, such as land, buildings, plant,
machinery, etc., results in decrease in current assets. This is an example of a transaction
between current asset and non-current asset. Hence, there will be flow of funds (i.e.,
current asset, cash reduces and non-current asset, fixed assets increases).
(b) Payment of dividends – Payment of dividends results in decrease of a fixed liability,
and therefore, it affects funds.
(c) Payment of fixed liabilities – Payment of debentures and redemption of preference
shares result in reduction of working capital, and result in outflow of funds.
(d) Payment of tax liability – Provision for taxation is generally taken as an appropriation
of profits and not as an application of funds. But if tax is paid in the current year, it
results in flow of funds.
Specimen of Report forms of Funds Flow Statement

Sources of Funds
Funds from operations
Issue of share capital
Raising of long term loans
Receipts from partly paid shares
Sales of non current ( fixed ) assets
Non - trading receipts, such as dividends received
Sale of Investments (long term)
Decrease in Working Capital (as per the schedule of changes in working capital)

Applications on uses of Funds

Funds host in operations
Redemption of preference share capital
Redemption of debentures
Repayment of Long term loans
Purchases of non - current assets
Purchase of long term investments
Non - trading payments
Payment of tax
Increase in working capital ( as per schedule of changes in working capital )
There are 2 types of Inflows of Funds
1. Long Term Funds raised by Issue of Shares, Debentures or Sale of Fixed Assets,
2. Funds generated from Operations.

FUNDS FROM OPERATIONS

The major source of working capital is the firm’s net profit from operations. The
ultimate success of a company depends upon its ability to earn profits. However, the
profits and loss account contains certain items, which do not effect working capital.
Therefore, in determining the amount of working capital from operations, the figure of
net profit as shown in the profit and loss account should be adjusted. The expenses items,
which do not involve working - capital should be added to net profits.

MEANING AND CONCEPT OF FUNDS

Funds Flow Statement is a method by which we study changes in the financial

position of a business enterprise between beginning and ending financial statements
dates. It is a statement showing sources and uses of funds for a period of time.

“A statement of sources and application of funds is a technical device designed to

analyze the changes in the financial condition of a business enterprise between two
dates.”

In the words of Anthony “The funds flow statement describes the sources from
which additional funds were derived and the use to which these sources were put.”

I.C.W.A. in Glossary of Management Accounting terms defines Funds Flow

Statement as “a Statement prospective or retrospective, setting out the sources and
applications of the funds of an enterprise. The purpose of the statement is to indicate
clearly the requirement of funds and how they are proposed to be raised and the efficient
utilization and application of the same.” Thus, funds flow statement is a statement which
indicates various means by which the funds have been obtained during a certain period
and the ways to which these funds have been used during that period. The term ‘funds’
used here means working capital, i.e., the excess of current assets over current liabilities.
 Funds flow statement is called by various names such as Sources and Application
of Funds; Statement of Changes in Financial Position; Sources and Uses of Funds;
Summary of Financial Operations: Where came in and Where gone out Statement;
Where got, Where gone Statement; Movement of Working Capital Statement; Movement
of Funds Statement; Funds Received and Disbursed Statement; Funds Generated and
Expended Statement; Sources of Increase and Application of Decrease; Funds Statement,
etc.

The term funds have been defined in a number of ways:

In a narrow sense, it means cash only and a funds flow statement prepared on this
basis is called CASH FLOW STATEMENT. Such a statement enumerates net effects of
the various business transactions on cash and takes into account receipts and
disbursements of cash. In a popular sense, the term “FUNDS” means working capital
i.e., the excess of current Assets over current liabilities. The working capital concept of
funds has emerged due to the fact at total resources of a business are invested partly in
fixed assets in the form of fixed liabilities and partly kept in the form of liquid or near
liquid as working capital.
The narrow concept of funds i.e., cash on working capital concept fails to reveal
the changes in the total financial resources of a business, some significant items such as
purchases of building in exchange of shares, which do not directly affect cash on
working capital are not revealed from the analysis based on these concepts However the
concept of funds of working capital is the most popular one in this chapter and funds
flow statements as a statement of sources and application of funds. In a broader sense,
the term funds refer to many values in whatever it may exist. Here funds means all
resources used in business whether in the form of men, material, machinery, money and
others.

Concept of Flow of Funds:

The term fund has been defined and understood by different experts in different
ways. Broadly, the term “fund” refers to all the financial resources of the company. On
the other extreme, “fund” refers to cash only. However, the most acceptable meaning of
fund is working capital. Working capital is the excess of current assets over current
liabilities. Therefore, flow statement funds are referred as working capital.
 The flow of funds refers to transfer of economic values from one asset or equity to
another. When funds mean working capital, flow of funds refers to movement of funds
which cause a change in working capital of the organization. If any transaction results in
the increase in working capital, it is said to be source or inflow of funds; and if it results
in the decrease of working capital, it is said to be an application or out flow of funds.
Therefore, it should be noted that the flow of funds occurs when a transaction
change on account of non-current account and on the other a current account and vice-
versa. It emerges from the above that fund flow refers to the changes in the fund (i.e.,
working capital) by a business transaction.
There is always a flow of fund (change in working capital) by those
business transactions that
i. Increase the current assets but do not bring any change/increase in current
liability or vice versa.
ii. Decrease the current assets but do not bring any decrease in current liabilities and
vice versa.
If current assets and current liabilities do change in the same direction and by the same
quantum, then only totals of current assets and current liabilities change but the
difference between the two, i.e., working capital remains the same and hence there would
be no flow of fund in such circumstances.
This statement supplies an efficient method for the financial manager in order to assess
a. Growth of the firm,
b. Its resulting financial needs and
c. To determine the best way to finance those needs.
In particular, funds flow statements are very useful in planning intermediate and long-
term financing.
OBJECT OF PREPARING A FUND FLOW STATEMENT

The main purpose of preparing a Fund Flow Statement is as following:

a. It reveals clearly the important items relating to sources and applications of funds
of fixed assets, long-term loans including capital. It also informs how far the
assets derived from normal activities of business are being utilized properly with
adequate consideration.
b. Secondly, it also reveals how much out of the total funds is being collected by
disposing of fixed assets, how much from issuing shares or debentures, how
much from long term or short-term loans and how much from normal operational
activities of the business.
c. Thirdly, it also provides the information about the specific utilization of such
funds, i.e., how much has been applied for acquiring fixed assets, how much for
repayment of long term or short-term loans as well as for payment of tax and
dividend etc.
d. Lastly, it helps the management to prepare budgets and formulate the policies that
will be adopted for future operational activities.

PARTIES INTERESTED IN FUNDS FLOW STATEMENT

The following parties are interested

a) Shareholders: They are interested in knowing how much is available for the
payment of dividend and the position of their investment in the company.
b) Short-Term Creditors (including bankers): They are interested in having an idea
of the risk which may be involved in granting credit to the company.
c) Management: Management is interested in knowing the trend of different forms
of financing and their utilization so that they can prepare budgets and estimates.
They are also interested in knowing whether the working capital has been
properly utilized.
d) Investors: They are interested in knowing whether any investment can be made in
the company and if so, what should be the expected rate of return.
These are the main parties that are actually interested in Funds Flow Statements.
How to Prepare a Fund Flow Statement?
The Following steps are to be followed carefully while preparing a ‘Fund Flow
Statement’
First Step: Ascertain the amount of Working Capital for the two consecutive years
from the respective Balance Sheets and determine the schedule of changes in Working
Capital which will result in either a decrease or an increase in Working Capital.
Second Step: Open all other non-current assets and non-current liabilities accounts by
taking their respective opening and closing balances.
Third Step: Consider the adjustment given in the problem (by Double Entry Principle)
one by one.
Fourth Step: Close the accounts one by one which may result either in an item of
Sources of Funds or an item of Applications of Funds or close the remaining accounts by
transferring to Adjusted Profit and Loss Account.

PROFORMA AND STEPS FOR PREPARATION OF FUNDS FLOW

STATEMENT

Steps to Follow For Preparing Funds Flow Statement:

1. Following are the steps need to follow in preparation of funds flow statement
Determine whether the working capital will increase or decrease in the near
future. Determine the adjustments required to be made to net income.

2. Determine the increase or decrease for each non-current account of the balance
sheet. Analyze considering changes to decide whether the working capital will
increase (as a source) or decrease (utilize).

3. Ensure that the difference between the total of all sources including those from
operations and the total of all uses calculates equals to the change found in
working capital in Step 1.

4. It is clear from the above discussion that transactions which involve current
assets or current liabilities on the one hand and non-current (fixed) assets and/or
non-current (long term) liabilities on the other hand will result in flow of funds.
The list of current and non-current accounts is give below in the
following tables:
The FUNDS FLOW STATEMENT is shown as in following figure: 1
The STATEMENT OF CHANGES IN WORKING CAPITAL is shown as
following:

figure: 2
Preparation of Fund Flow Statement:

Generally, two comparative balance sheets - one at the beginning and the other at the
end of the period are used for preparing a fund flow statement. In addition, a summarized
income statement comprising non-fund or ‘non-operating’ items and a statement of
retained earnings or at least material information from these statements are required in
order to find out fund from operations. Additional information regarding change in non-
current accounts like plant and machinery, building, share capital, debentures etc., if
available, will sharpen the firm's financial profile as revealed by the fund flow statement.

The fund flow analysis involves the preparation of two statements:

1. Statement or Schedule of Changes in Working Capital and

2. Statement of Sources and Application of funds.

1. Statement or Schedule of Changes in Working Capital: The primary purpose of a fund

flow statement is to explain the net change in working capital, it will be better to prepare
first the schedule of changes in working capital before preparing a fund flow statement.
The Schedule or Statement of changes in working capital is a statement that compares
the change in the amount of current assets and current liabilities on two balance sheet
dates and highlights its impact on working capital.

2. Fund Flow Statement: After preparing the schedule of changes in working capital, the
next step is to prepare the Fund Flow Statement to find out the different sources and
applications of funds. While preparing this statement the emphasis is given on the
changes in the fixed assets and fixed liabilities. The statement may be prepared either in
‘T form’ or in ‘Vertical form’.

Notes:

1. Either of the two will appear in the Fund Flow Statement.

2. Either of the two will appear in the Fund Flow Statement.

3. Payment of dividend and tax will appear as an application of funds only when
these items are appropriation of profits and not current liabilities
FUNDS FLOW STATEMENT AND INCOME STATEMENT

The difference between the Funds Flow Statement and the Income Statement (i.e., Profit
and Loss Account) are enumerated below:

 An Income Statement reveals the results of the operation for a particular period in
the form of profit or loss i.e., how much has been earned by a firm and how the
same has been incurred. Funds Flow Statement, on the other hand, expresses the
requirement of financial resources in order to operate the business activities i.e.,
what are the possible sources from which funds can be raised and the application
for the same.
 While preparing an Income Statement, only revenue items i.e., revenue receipts
and revenue expenditures are taken into consideration for the purpose of
ascertaining the results of the operation whereas for preparing Funds Flow
Statement both transactions, whether capital or revenue, are taken into
consideration.
 In a Funds Flow Statement, both the sides viz, sources of Funds and application
of Funds must be equal. But in an Income Statement there is always a difference
which is known as profit (if credit side exceeds debit side) or loss (if debit side
exceeds credit side).
 Funds Flow Statement can predict the financial health of an enterprise very well
in an efficient manner since it incorporates all the items, whereas an income
statement even fails to predict the true financial position since non-fund items
(depreciation, write off item etc.,) are included here. Thus, we are to consider
them from different angles since both of them present different functions. They
are rather complementary to each other and not a substitute for the other.

SOME PRACTICAL HINTS FOR FUNDS FLOW STATEMENT

The following matters (adjustments) require special attention while preparing the Funds
Flow Statement:
(1) Provision for Taxation: Provision for taxation may be treated in the following
two ways
(a) Treated as an appropriation profit: Under this treatment, the amount of tax,
which should be provided out of profit, is to be debited to Profit and Loss Account,
whereas the actual amount of tax which is to be paid is to be shown as an application in
the ‘Statement of Sources and Applications of Funds’.
(b) Treated as a charge against profit: Under this treatment, provision for taxation
is to be treated simply as a current liability, and. therefore, no adjustment is necessary
either in Profit and Loss Account or the ‘Statement of Sources and Applications of
Funds’ as an application.
(a) Either: It can be treated as Current liabilities and as such, they will be deducted from
the total current assets while computing ‘Changes in Working Capital’
(b) Or: The amount for the year 1995 (i.e. 1st year) is to be shown as an ‘Application of
Funds’ and the amount for the year 1996 (i.e., 2nd year) is too recorded in the debit side
of the Profit and Loss Account.
(c) When the amount of Provision for Taxation is given both in the liabilities side of the
Balance Sheet and also in the adjustment by way of additional information.

(2) Interim Dividend:

In case of Interim Dividend, however, the same should always be adjusted against Profit
and Loss A/c (Adjusted). In other words, Interim Dividend should appear in the debit
side of P and L (Adjusted) A/ c and the same will be shown as Application of Funds’
since it is an item of appropriation of profit

(3) Write offs:

The following items should be written off against Profit and Loss Account (Adjusted):
Goodwill, Preliminary Expenses, Discount on Issue of Shares and Debentures,
Advertisement Expenses A/c etc.

(4) Provision for Depreciation:

It may be treated in the following two ways:
a. Either it may be considered as a source of fund.
b. Or, it may be adjusted against Profit and Loss (Adjusted) A/c in order to find out
the adjusted trading profit, (the latter method is followed in this volume).
It is quite interesting to note that if the Provision for Depreciation account is not given
in the liabilities side of the Balance Sheet or the same, if not, is deducted from the fixed
asset from the assets side of the Balance Sheet, i.e., if it is given in the adjustment, the
treatment will, however, be changed. Because, fixed asset are given at written down value.

Purchase and Sale of fixed assets and profit or loss on sale thereon:
When any fixed asset (i.e., Plant and Machinery, Land and Building, Furniture and
Fittings etc.) is acquired or purchased, the same is treated as an ‘Application of Funds’.
Similarly, when the same is sold, it is an item of ‘Source of Fund’. But, usually the asset
is sold either at a profit or at a loss (i.e., profit, when selling price is more than the WDV
of the asset and loss in the opposite case.)
The profit or loss on sale so made, is to be adjusted against Profit and Loss
(Adjusted) Account for ascertaining Trading profit. The amount of depreciation for this
purpose should also be taken into consideration.
Provision against Current Asset : Sometimes provisions are to be made against the
anticipated losses on current assets, e.g. Provision for Bad and Doubtful debts, Provision
of loss on stock or allowance for inventory loss. It can be treated in the following three
ways:
a) Either, the amount of such provision (say. provision for bad debt) may directly be
deducted from the asset concerned, (here, from Sundry Debtors) while
calculating the schedule of changes in working capital i.e., net amount is to be
shown in the statement. Or, the current assets should be shown at its gross
amount and the amount of such provision may be added with the current
liabilities and thereafter the same will be deducted from the total current assets
while computing the schedule of changes in working capital. Whatever method
we follow the amount of increase or decrease in working capital will be the same.
b) Provision may also be treated as an internal reserve or surplus. Thus, the amount
of such provision will not appear in the schedule of changes in working capital,
while finding out the increase or decrease in working capital.
 c) The current asset may be shown at its gross value. A separate Provision for Bad
Debt Account will be opened and the balancing figure will either be transferred to
the debit side of Profit and Loss (Adjusted) Account or added back to Net Profit
for the current year after debiting the provision in order to determine the funds
from operation.

Trading Profit (i.e., Funds from operation):

It is the most regular and significant source of fund. It is the largest source of fund in
the long run. The payment of dividends, repayment of loan, purchase of fixed asset etc.
must depend upon this source. We know that sales are the result of inflow of funds in the
form of cash or accounts receivables but cost of goods sold along with the other
operating expenses cause outflow of funds at the same time by reducing cash and bank
balance. So, the net effect of operation will be a source of fund (or inflow of funds) when
sales revenue exceeds the cost of goods sold and operating expenses (outflow of funds)
during the period and vice versa in the opposite case.

Trading profit can be ascertained under the following two methods:

(a) Add. Back Method; and
(b) Direct Method.
These are explained as following;
(a) Add-Back Method:
Most of the annual reports follow this method and compute the ‘finds from operation’
simply by adjusting the figures relating to earnings for the items which do not affect the
funds although they are included in Profit and Loss Account.
(b) Direct method:
The direct method is one of two accounting treatments used to generate a cash flow
statement. The statement of cash flows direct method uses actual cash inflows and
outflows from the company's operations, instead of modifying the operating section from
accrual accounting to a cash basis. Accrual accounting recognizes revenue when it is
earned versus when the payment is received from a customer.
SIGNIFICANCE OF FUNDS FLOW STATEMENT
The following are the uses, significance or benefits of funds flow statement:
1. The financial resources of the company are analyzed in detail and disclose the changes
made between the two balance sheet dates.

2. It gives an answer to the question of there is an inadequate liquid cash position in spite
of business making more and more profits.

3. It shows the extent funds were received the ways of usage for a specific period.

4. It shows the possibility of paying more dividend than current earnings or paying
normal dividend in the presence of net loss for the period.

5. The cost of capital of the business can be computed on the basis of the sources of
funds flow statement.

6. It shows the usage of earned profits of the current year.

7. The sources of previous year funds flow statement may act as a guide for getting funds
for future requirements.

8. Sometimes, the company has high liquid cash position even though, there is a net loss
for the specific period. The reason for such position is find out through funds flow
statement.

9. The application of funds can provide a basis for selection of investment proposals or
future capital expenditure decisions.

10. The overall credit worthiness of the company can find out on seeing the funds flow
statement.

11. The strength and weakness of financial position of the company are identified on
seeing the funds flow statement.

12. It helps the management to allot the inadequate resources to meet the requirements of
business at productive level.

13. It highlights the financial consequences of business operation.

14. It tests the effective use of working capital by the management during a particular
period.

15. It helps the management to frame or change the financial policy of the company.

16. It suggests ways to improve working capital position of the company.

Uses and Importance of Funds Flow Statement
A funds flow statement is an essential tool for the financial analysis and is of
primary importance to the financial management. Now-a-days, it is being widely used by
the financial analysts, credit granting institutions and financial managers.

The basic purpose of a funds flow statement is to reveal the changes in the working
capital on the two balance sheet dates. It also describes the sources from which
additional working capital has been financed and the uses to which working capital has
been applied.

Such a statement is particularly useful in assessing the growth of the firm, its
resulting financial needs and in determining the best way of financing these needs. By
making use of projected funds flow statements, the management can come to know the
adequacy or inadequacy of working capital even in advance. One can plan the
intermediate and long-term financing of the firm, repayment of long-term debts,
expansion of the business, allocation of resources, etc.

The uses or importance of funds flow statement can be well followed from its various
uses given below:

1. It Helps in the Analysis of Financial Operations:

The financial statements reveal the net effect of various transactions on the
operational and financial position of a concern. The balance sheet gives a static view of
the resources of a business and the uses to which these resources have been put at a
certain point of time. But it does not disclose the causes for changes in the assets and
liabilities between two different points of time.

The funds flow statement explains causes for such changes and also the effect of
these changes on the liquidity position of the company. Sometimes a concern may
operate profitably and yet its cash position may become more and worse. The funds flow
statement gives a clear answer to such a situation explaining what has happened to the
profits of the firm.

2. It throws light on Many Perplexing Questions of general interest which

otherwise may be difficult to be answered, such as:
 Why were the net current assets lesser in spite of higher profits and vice-versa?
 Why more dividends could not be declared in spite of available profits?

 How was it possible to distribute more dividends than the present earnings?
 What happened to the net profit? Where did they go?
 What happened to the proceeds of sale of fixed assets or issue of shares,
debentures, etc.?
 What are the sources of the repayment of debt?
 How was the increase in working capital financed and how will it be financed in
future?

3. It Helps in the Formation of a Realistic Dividend Policy:

Sometimes a firm has sufficient profits available for distribution as dividend but yet
it may not be advisable to distribute dividend for lack of liquid or cash resources. In such
cases, a funds flow statement helps in the formation of a realistic dividend policy.

4. It Helps in the Proper Allocation of Resources:

The resources of a concern are always limited and it wants to make the best use of
these resources. A projected funds flow statement constructed for the future helps in
making managerial decisions. The firm can plan the deployment of its resources and
allocate them among various applications.

5. It Acts as a Future Guide:

A projected funds flow statement also acts as a guide for future to the management.
The management can come to know the various problems it is going to face in near
future for want of funds. The firm’s future needs of funds can be projected well in
advance and also the timing of these needs. The firm can arrange to finance these needs
more effectively and avoid future problems.

6. It Helps in Appraising the Use of Working Capital:

A funds flow statement helps in explaining how efficiently the management has
used its working capital and also suggests ways to improve working capital position of
the firm.
7. It Helps Knowing the Overall Creditworthiness of a Firm:

The financial institutions and banks such as State Financial Institutions, Industrial
Development Corporation, Industrial Finance Corporation of India, Industrial
Development Bank of India, etc. all ask for funds flow statement constructed for a
number of years before granting loans to know the creditworthiness and paying capacity
of the firm. Hence, a firm seeking financial assistance from these institutions has no
alternative but to prepare funds flow statements.

Limitations of Funds Flow Statement

The funds flow statement has a number of advantages however it has certain limitations
also, which are listed below:
 1. It should be remembered that a funds flow statement is not a substitute of an income
statement or a balance sheet. It provides only some additional information as regards
changes in working capital.

2. It cannot reveal continuous changes.

3. It is not an original statement but simply are-arrangement of data given in the

financial statements.

4. It is essentially historic in nature and projected funds flow statement cannot be

prepared with much accuracy.

5. Changes-in .cash-are more important and relevant for financial management than
the working capital.
 CHAPTER - 4

DATA ANALYSIS AND

INTERPRETATION OF THE STUDY
 DATA ANALYSIS AND INTERPRETATION

Statement showing changes in Working Capital for the year 2015 - 2016

Table 4.1(a) (Rs.in Lakhs)

 Table 4.1(b)
Funds flow statement for the year 2016
(Rs. In Lakhs)
Sources of Amount Application of Amount
Funds Funds

Sale of fixed assets 158243 Purchase of fixed 410660

assets

Issue of shares 500000 Payment of Tax 35202

Long term 5619 Funds utilized in 662237

Borrowings operations

Decrease in 444237
Working Capital

Total 1108099 Total 1108099

Flow of Funds
Funds Flow analysis

Sources
Application
Net Working capital

Interpretation

From the above data, it is observed that the total current assets of BSNL
organization for the financial year 2015-2016 are recorded as Rs. 1968889
and the total current liabilities are recorded as Rs. 1858039. Thus, the
negative working capital therefore obtained is Rs. 110850. The funds from
operations utilized are Rs. 662237. This thereby shows that the organization
needs gear up in procuring funds that helps to decrease the negative working
capital.
 Table - 4.2 (a)

Statement showing working capital changes for the year 2016-2017

(Rs. In Lakhs)
 Table 4.2(b)
Funds flow statement for the year 2017

(Rs. in lakhs)
Sources of funds Amount Application of funds Amount

Sale of fixed assets 92354 Purchase of fixed assets 386331

Issue of shares 500000 Payment of tax 34531

Long term 504610 Increase in working capital 311476

borrowings

Funds utilized in 364626

operations

Total 1096964 Total 1096964

Flow of Funds

Funds Flow Analysis

Sources
Application
Net working capital
Interpretation
From the above calculated data, it is noticed that the current liabilities for
the year 2016-2017 are Rs. 197038 and the current assets are calculated as
Rs. 1588828. The increase in the working capital is observed as Rs. 311476.
The change in the working capital when compared to the previous year data
is Rs. 200626. The funds utilized in the operations are Rs. 364626.
Statement showing changes in Working Capital for the year 2017-2018
Table 4.3(a) (Rs. In Lakhs)

Particulars As on 31st As on 31st Increase Decrease

March 2017 March 2018
Current Assets

Inventories 20473 21241 768

Financial assets

(i)Investments 20000 20000 -

(ii)Trade receivables 309881 392538 82657

(iii)Cash and cash 338737 75782 262865

equivalents
(iv)Bank balances other 126 138 12
than (iii) above
(v) Loans 445 224 221

(vi)Other financial 722212 920213 198001

assets
Current tax assets(net) 38669 119650 80981

Other current assets 138285 86708 51577

Total Current Assets(A) 1588828 1636494 47666

Current Liabilities

Financial liabilities

(i)Borrowings 59613 30910 28703

(ii)Trade payables 592993 782989 189996

(iii)Other financial 791388 698476 92912

liabilities
Other current liabilities 492259 806579 314320

Provisions 795 1157 362

Total Current 1937048 2320111 383063

Liabilities(B)
Working Capital (A-B) 348220 683617

Net increase in working 335397 430819

capital
Total 683617 683617 867097 867097

Table 4.3(b)
 Funds flow statement for the year 2018
(Rs. in lakhs)
Sources of funds Amount Application of funds Amount

Sale of fixed assets 66583 Purchase of fixed assets 483765

Issue of shares 500000 Payment of tax 504312

Long term 329657 Payment of Long term 182951

borrowings borrowings
Funds generated from 614325 Increase in working 339537
operations capital

Total 1510565 Total 1510565

Flow of Funds

Funds Flow Analysis

Sources
Application
Working capital
Interpretation
From the above data, it is observed that the current assets of the
organization are recorded as Rs. 1636494. The current liabilities are
observed as Rs. 2320111. Hence the working capital is negative Rs.
683617. The net change in the working capital is Rs. 335397. Thus, there is
a significant change in the working capital of Rs. 28601. Here, the funds
generated from operations are calculated at Rs. 614325. The company
procured some funds which thereby lead to improve the working capital for
the financial assistance of the organization.
 Table 4.4 (a)
Statement showing Working Capital changes for the year 2018-2019
(Rs. In Lakhs)
st st
Particulars As on 31 As on 31 Increas Decreas
March 2018 March 2019 e e
Current Assets
Inventories 21241 81310 60069
Financial assets
(i)Investments 20000 20000 -
(ii)Trade receivables 392538 392871 333
(iii)Cash and cash 75782 72607 3175
equivalents
(iv)Bank balances other 138 2420 2282
than (iii) above
(v)Loans 224 99 125
(vi)Other financial assets 920213 748171 172042
Current tax assets(net) 119650 97573 22077
Other current assets 86708 347608 260900
Assets held for sale 34517 29850 4667
Total Current Assets(A) 1671011 1792509 121498
Current Liabilities
Financial liabilities
(i)Borrowings 30910 318634 287724
(ii)Trade payables 782989 1293480 510491
(iii)Other financial 698476 1106739 408263
liabilities
Other current liabilities 806579 851647 45068
Provisions 1157 2430 1273
Total Current 2320111 3572930 1252819
Liabilities(B)
Working Capital (A-B) 649100 1780421
Net increase in working 1131321 1311633
capital
Total 1780421 1780421 1513719 1513719
 Table 4.4 (b)

FUNDS FLOW STATEMENT FOR THE YEAR 2019

(Rs. In lakhs)
Sources of Funds Amount Application of Amount
Funds
Sale of fixed assets 34517 Purchase of Fixed 115578
assets

Long term 318634 Payment of tax 80429

borrowings

Issue of Shares 500000 Payment of long 287724

term borrowings

Funds generated 761901 Increase in working 1131321

from operations capital

Total 1615052 Total 1615052

Flow of funds

Funds flow analysis

1 2

3
Interpretation
From the above data, it is observed that the current assets of the year 2019
are Rs. 1792509 and the current liabilities are recorded at Rs. 3572930.
Hence the working capital is Rs. 1780421. There is a significant change in
the working capital of Rs. 1131321.the funds generated from operations are
calculated at Rs. 761901. There is a raise in the working capital when
compared to the previous year data at Rs. 795924.
 Statement showing changes in Working Capital for the year 2019-2020
Table 4.5(a) (Rs. In Lakhs)
st st
Particulars As on 31 As on 31 Increase Decrease
March March
2019 2020
Current Assets

Inventories 81310 140813 59503

Financial assets
(i)Investments 20000 -
(ii)Trade receivables 486057 502219 16162
(iii) Cash and cash 62236 212574 150338
equivalents
(iv)Bank balances 12791 24645 11854
other than (iii) above
(v)Loans 99 47 52
(vi)Other financial 784633 1721678 937045
assets
Current tax assets(net) 97573 44669 52904
Other current assets 347608 389944 42336
Assets held for sale 29850 649372 619522
Total Current 1922157 3685961 1763804
Assets(A)
Current Liabilities
Financial liabilities
(i)Borrowings 318634 212647 105987
(ii) Lease Liabilities - 78794
(iii)Trade payables 1293480 1467447 173967
(iv)Other financial 1111890 2780830 1668940
liabilities
(v)Other current 975728 1059714 83986
liabilities
(vi) Provisions 2936 29803 26867
Total Current 3702668 5629235 1926567
Liabilities(B)
Working Capital (A-B) 1780511 1943274
Net increase in 162763 3631577
working capital
Total 1943274 1943274 3790520 3790520
Table 4.5(b)
FUNDS FLOW STATEMENT FOR THE YEAR 2020
(Rs. In Lakhs)
Sources of Funds Amount Application of Amount
Funds
Sale of Fixed Assets 649372 Purchase of Fixed 682782
assets
Long term borrowings 423587 Payment of tax -
Issue of Shares 500000 Payment of long term 105987
borrowings
Increase in Working 162763
capital
Funds utilized from 621427
operations
Total 1572959 Total 1572959

Flow of Funds

Interpretation
From the calculations above, the current assets are recorded at Rs. 3685961
and the current liabilities are observed at Rs. 5629235. This shows the
working capital at Rs. 1943274. There is a raise in the working capital when
compared to the previous year data is observed at Rs. 162763. This shows
that the company is financially performing well and utilizing the funds
optimally. The funds thus, utilized from the operations are Rs. 621427.
 CHAPTER – 5

 FINDINGS
 SUGGESTIONS
 SUMMARY
 SUMMARY
The purpose of this chapter is to outline the summary findings and conclusion of
the study on the basic of the analysis of the data presented in the foregoing chapters. In
this efforts are made to draw conclusions based on the finding of the study. Further some
appropriate suggestions are made of the basis of conclusions which are worth of
consideration by the management and policy makers of BSNL, to improve the financial
performance of the company.

The funds flow statement is a statement which shows the movement of funds and
is a report of the financial operations of the business undertaking. Indicates various
means by which funds were obtained during a particular period and the way to which
these funds were employed. In the current state, BSNL can be an effective rival to the
other players only through aggressive price based competition which has to be supported
by the Government.

The narrow concept of funds i.e., cash on working capital concept fails to reveal
the changes in the total financial resources of a business, some significant items such as
purchases of building in exchange of shares, which do not directly affect cash on
working capital are not revealed from the analysis based on these concepts However the
concept of funds of working capital is the most popular one in this chapter and funds
flow statements as a statement of sources and application of funds. In a broader sense,
the term funds refer to many values in whatever it may exist. Here funds means all
resources used in business whether in the form of men, material, machinery, money and
others.

Financial analysis is the process of identifying the financial strength and

weakness of the firm by properly establishing between the items of balance sheet and
profit and loss account.. There are various methods or techniques used in analysis
financial statement such as comparative statement, trend analysis, common-size
statement, schedule of changes in working capital, funds flow and cash flow analysis,
cost volume profit analysis and ratio analysis. The basic transactions that takes place in
undertaking and which do not operate through profit and loss account. The statement
has to prepare through profit and loss account. The another statement has to prepare to
show the changes in the assets and liabilities from the end of cover period of time to the
end of another period of time the statement is called changes in the financial position or
a funds flow statement. The funds flow statement is a statement which shows the
movement of funds and is a report of the financial operation of the business
undertaking.
The company has a negative working capital balance of Rs. 444237 when
compared between the years of 2015 and 2016. The funds utilized during this year are
Rs. 662237. The company has maintained a positive working capital balance of
Rs.311476 when compared between the years of 2016 and 2017. Funds utilized during
this period are Rs. 364626. The organization has maintained a positive working capital
balance of Rs. 335397 when compared between the years of 2017 and 2018. The funds
generated during this period are of worth Rs. 614325. The organization has maintained
a positive working capital balance of Rs. 1131321 when compared between the years of
2018 and 2019. The funds are generated in this period are of worth Rs. 761901.The
company has maintained a positive working capital balance of Rs. 162763 when
compared between the years of 2019 and 2020. The company utilized the funds from
operations of worth Rs. 621427.
The challenges facing BSNL can be classified into three major heads:

1. Technological/Market: These include the rapid evolution of technology (5G,

IOT), fast evolving consumer needs of data consumption, changing demographics
patterns and increasing role of content driving businesses. Such a combination of
technology/market characteristics requires organizations to have agility, build
partnerships, reduce costs, and be innovative. On all these dimensions BSNL has
significant challenges. The mechanism for responding to the challenges is not
elaborated as it is included in the part on organizational challenges.

2. Policy Environment: Since BSNL is 100% government owned, it is often subject

to the delays and decisions made by the government. For example, while the
Government has transferred its liabilities (i.e., workforce) to BSNL, the transfer of
Land and building assets are yet to be completed. There seems to be a lot of
confusion surrounding the ownership of the land and building assets.
3. Organizational Challenges: These are specific to the systems and processes
adopted by BSNL. These relate to delays in procurement due to its own
inefficiencies and the need to follow guidelines for public procurement
centralization of deployment of tariff plans, leading to inflexibility in service
offerings; poor linkage of performance with incentives, frequent transfers etc.
 FINDINGS
Primary findings
1. The company has a negative working capital balance of Rs. 444237 when
compared between the years of 2015 and 2016. The funds utilized during this year
are Rs. 662237.
2. The company has maintained a positive working capital balance of Rs.311476
when compared between the years of 2016 and 2017. Funds utilized during this
period are Rs. 364626.
3. The company has maintained a positive working capital balance of Rs. 335397
when compared between the years of 2017 and 2018. The funds generated during
this period are of worth Rs. 614325.
4. The company has maintained a positive working capital balance of Rs. 1131321
when compared between the years of 2018 and 2019. The funds are generated in
this period are of worth Rs. 761901.
5. The company has maintained a positive working capital balance of Rs. 162763
when compared between the years of 2019 and 2020. The company utilized the
funds from operations of worth Rs. 621427.
The changes in working capital and funds thus generated or utilized were referenced
from available data, annual reports of BSNL.

Secondary findings
1. Department of Telecommunications should work closely with BSNL to identify
all lands and buildings that have not yet been transferred to BSNL. Though the
land valuation as has been done so far in 2015 was around Rs 6000 Crores
(maybe 7000-8000 Crores at most), the land and real estate not required by
BSNL- for telecom operations need to be not only monetized to finance revival of
BSNL but also will put this real estate for more efficient usage. This needs to be
done with in a six month period.
2. Maximizing value of the released real estate may not only require support from
the Government for land use change but also an independent entity specializing in
real estate development. The amount assessed as of now, however, does not look
 significant enough to help finance BSNL revival completely.
3. VRS scheme: A VRS scheme is brought in for all employees in the age group of
50 or more years.
4. Reduction of Retirement Age: The reduction of retirement age to 58years.The
average age of BSNL workforce is above 55years. If the retirement age is brought
down to58years, the Reduction of workforce that may be achieved will be about
33,568 employees.
5. The employee benefits expense of BSNL in 2016-17 was about Rs.15,715 Cr The
employee strength of BSNL in the same year was1,96,448 (from BSNL annual
report 2016-17). This implies, per employee cost is about Rs.8lakhs (as per 2016-
17 figures). The total saving due to reduction of retirement age to 58 years over
the next six years will be about Rs13,895.44 Cr.
 SUGGESTIONS
The following are the suggestions given based on the study:

1. Accelerate the Operation of BSNL Tower Corporation Limited (BTCL).This

company is not totally operational as BSNL has not transferred all the towers to
it. While having a separate company will bring in the required efficiencies, it
also gave BSNL an opportunity to do a variety of projects under it. Since this is
an Infrastructure company, it is not subject to the 8% revenue share charges. This
is a flexibility that could be easily exploited by BSNL.

2. Create a Separate Fiber Infrastructure Division: Given that in spirit it is a

network infrastructure company. There could be a rationale for setting up this
as a separate company, but given the time it would take to setup the company,
for the short term, we are suggesting, creation of a Fiber Infrastructure Division
under BTCL. Given the projected growth of Broadband, optical fiber network is
a valuable asset for any telecom service company. Increasingly, FTTH is an
important source of new services, as homes start to use mobile broadband, smart
TVs and other devices. However, BSNL has not been able to leverage this as set
to its full potential. In order to release this potential, BSNL should create a
separate fiber infrastructure division. This should be done with focus and
efficiently and not allowed to languish as was the case for the tower company.
This division, like the tower company should work with third parties, including
state governments. This should be done over a time frame of six months.

3. Create a Project Division: This should be a part of the BTCL. There could be a
Rationale for setting up this as a separate company, but given the time it would
take to setup the company, for the short term, we are suggesting, creation of a this
organization should undertake projects of strategic importance to the nation such
as deploying rural services, creating a network for armed forces, connecting hilly
areas. The projects would be funded by the organizations that require such
services. Relevant staff from BSNL should be transferred to this division. This
will further bring down the human resource costs to BSNL. Having a separate
 division will bring in the transparency of efficiencies in project execution, costs

4. and outputs. This would also allow BSNL project bids to be more competitive as
the projects under this division would not be subject to the 8% revenue share.
5. Reduction of Retirement Age: The reduction of retirement age to 58years.The
average age of BSNL workforce is above 55years.
6. If the retirement age is brought down to 58years, the Reduction of workforce that
may be achieved will be about 33,568employees (17142+16426).
7. The employee benefits expense of BSNL in 2016-17 was about Rs.15,715 Cr The
employee strength of BSNL in the same year was 1,96,448 (from BSNL annual
report 2016-17). This implies, per employee cost is about Rs.8lakhs (as per 2016-
17 figures). The total saving due to reduction of retirement age to 58 years over
the next six years will be about Rs. 13,895.44Cr.
8. The overall performance of company was satisfactory. If the company takes care
in decreasing the expenditure, the profits can be increased by large extent. Also
the company net sales have reduced so the company should find ways to increase
its operational income through dredging services which can increase the company
net sales. Also the costs of operations have increased within the last few years
which should be reduced in order to increase the operating profits for the
company.
9. By making use of projected funds flow statement the management can come to
know the adequacy or inadequacy working capital in advance. When loans are
increased the interest also increased so it will effect on profits so we can suggest
reducing the loans. When the working capital of the company is gradually
increasing, it will effect on profits, we suggest the company to control the
working capital.
10. Funds outflows operations are gradually increased comparatively inflows.
Therefore, company has to manage sufficient funds flow operations.
Another important suggestion for restructuring of BSNL is given as
following

The above restructure is prescribed by IIMA students for restructuring or revival of

BSNL for resolving organizational issues.