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A SUMMER TRAINING PROJECT REPORT ON CASH FLOW MANAGEMENT OF BSNL

SUBMITTED IN PARTIAL FULFILMENT OF THE AWARD OF M.B.A (MASTER OF BUSINESS ADMINISTRATION)

BY NILAM PATEL M.B.A (2010-2011)

Guided By
Mr. Mukesh Shrivastav

Submitted to
Mr. B.S Patel

(CAO,CA)

CONTENTS
PAGE NO. INTRODUCTION Cash Flow Management COMPANY PROFILE Overview of BSNL Overview of BSNL Bilaspur Vision, Mission and Objectives Products Services Management profile SWOT Analysis OBJECTIVES OF THE STUDY LITERATURE REVIEW RESEARCH METHODOLOGY Statement of the Problem Research Design Methodology Sampling Techniques used Selection of Sample Size Data Collection Statistical Tools Used Limitations of the Study DATA ANALYSIS AND INTERPRETATION FINDINGS RECOMMENDATIONS LIMITATIONS CONCLUSION

REFERENCES BIBLIOGRAPHY

INTRODUCTION
CASH is the basic foundation of any business. No business can operate successfully and efficiently without adequate cash. At the same time, cash is an ideal asset not earning anything in itself and therefore excessive cash would have negative effect on the profitability of the business. Thus, cash has to be managed wisely and efficiently. CASH: Cash flow is the movement of money in and out of a business. Happiness is a positive cash flow. Yesterday is a cancelled cheque. Tomorrow is a promissory note. Today is cash. Ah, take the Cash in hand and waive the Rest. Whoever has the gold makes all the rules. Revenue is vanity....margin is sanity....cash is king. Profit is an illusion, cash flow is fact. Profits are an opinion, cash is a fact

Objectives Of Cash Management

1. To meet the needs of payment schedule. 2. To minimize the amount to be kept as cash.

Steps In Cash Management

1) Cash planning & control.

o Cash Flow Analysis o Cash Budget o Ratio Analysis

o Cash Management Models 2) Collecting and Disbursing Cash efficiently. 3) Determination of optimum Cash Balance. 4) Investing remaining Excess Cash Balance.

Cash Flow Planning

One of the objectives of cash flow management is to hold the right amount of cash. If we hold too much cash, we lose the opportunity to earn a return on idle cash. If we hold too little cash, we run the risk of not making timely payments to suppliers, banks, and other parties. We want to have an optimal cash balance that is neither excessive nor deficient. The optimal cash balance is determined by looking at the four reasons for holding cash:
1.

Transaction Amounts: We have to hold enough cash to cover our outstanding payments or transactions. In addition to transaction amounts, we should add any compensating balances required under loan agreements. Therefore, the amount of cash on hand must be transaction amounts + compensating balances. Precautionary Amounts: We need to maintain cash for unexpected disbursements. This is the precautionary amount of cash. Speculative Amounts: If we are anticipating making an investment, we will hold a speculative amount to take advantage of opportunities in the marketplace. Financial Amounts: In order to acquire assets, retire debt, or meet some major event, we will accumulate and hold a financial amount of cash.

2.

3.

4.

Key Point The minimal cash balance is usually equal to the total transaction amount (includes compensating balances) + total precautionary amount.

Cash Flow Cycles

Cash is the most liquid of assets and it represents the lifeblood for growth and investment. In order to generate cash, we must efficiently and effectively manage the activities that provide cash. These activities include billing customers as quickly as possible, disbursing payments only when they come due, collecting cash on overdue accounts, and investing idle cash. Therefore, managing cash flow involves several objectives:

5 Accelerating cash inflows wherever possible. Delaying cash outflows until they come due. Investing surplus cash to earn a rate of return. Borrowing cash at the best possible terms. Maintaining an optimal level of cash that is neither excessive nor deficient.

This course will attempt to outline how these objectives can be met. We will try to answer the following questions: How much cash do we need to run our business? How much cash is locked-up in other current assets? How long does it take to collect our cash from customers? How much cash should we hold? How do we cover cash deficits? How do we identify problems with cash flow?

Cash Flow Analysis

Cash flow analysis is a method of analyzing the financing, investing, and operating activities of a company. The primary goal of cash flow analysis is to identify, in a timely manner, cash flow problems as well as cash flow opportunities. The primary document used in cash flow analysis is the cash flow statement. Since 1988, the Securities and Exchange Commission (SEC) has required every company that files reports to include a cash flow statement with its quarterly and annual reports. The cash flow statement is useful to managers, lenders, and investors because it translates the earnings reported on the income statementwhich are subject to reporting regulations and accounting decisionsinto a simple summary of how much cash the company has generated during the period in question. "Cash flow measures real money flowing into, or out of, a company's bank account, .

Cash Flow Statement

6 A typical cash flow statement is divided into three parts: cash from operations (from daily business activities like collecting payments from customers or making payments to suppliers and employees); cash from investment activities (the purchase or sale of assets); and cash from financing activities (the issuing of stock or borrowing of funds). The final total shows the net increase or decrease in cash for the period. Cash flow statements facilitate decision making by providing a basis for judgments concerning the profitability, financial condition, and financial management of a company. While historical cash flow statements facilitate the systematic evaluation of past cash flows, projected (or pro forma) cash flow statements provide insights regarding future cash flows. Projected cash flow statements are typically developed using historical cash flow data modified for anticipated changes in price, volume, interest rates, and so on. To enhance evaluation, a properly-prepared cash flow statement distinguishes between recurring and nonrecurring cash flows. For example, collection of cash from customers is a recurring activity in the normal course of operations, whereas collections of cash proceeds from secured bank loans (or issuances of stock, or transfers of personal assets to the company) is typically not considered a recurring activity. Similarly, cash payments to vendors is a recurring activity, whereas repayments of secured bank loans (or the purchase of certain investments or capital assets) is typically not considered a recurring activity in the normal course of operations. In contrast to nonrecurring cash inflows or outflows, most recurring cash inflows or outflows occur (often frequently) within each cash cycle (i.e., within the average time horizon of the cash cycle). The cash cycle (also known as the operating cycle or the earnings cycle) is the series of transactions or economic events in a given company whereby: 1. Cash is converted into goods and services. 2. Goods and services are sold to customers. 3. Cash is collected from customers. To a large degree, the volatility of the individual cash inflows and outflows within the cash cycle will dictate the working-capital requirements of a company. Working capital generally refers to the average level of unrestricted cash required by a company to ensure that all stakeholders are paid on a timely basis. In most cases, working capital can be monitored through the use of a cash budget.

Cash Ratio Analysis

7 One way to monitor cash flow is to track liquidity ratios and compare these ratios to historical ratios and/or industry averages. Some examples include: Current Ratio = Current Assets / Current Liabilities Acid Test = Cash + Accounts Receivable + Marketable Securities / Current Liabilities Cash Flow to Debt Ratio = Cash Flow / Total Debt Cash Flow to Income Ratio = Operating Cash Flow / Net Income

Z-SCRORE
Z-Score is a multivariate formula for the measurement of financial health of a company and a powerful diagonostic tool that forecasts the probability of a company entering bankruptcy within a 2 year period. Z-score was developed in 1968 by Dr. Edward I Altman, Ph.D., a financial economist and professor at New York University s Stem School Of Bussiness .He used Multiple Discriminant Analysis and combined a set of 5 financial ratios to come up with the Altman ZScore. This score uses statistical techniques to predict a company's probability of failure using the following 8 variables from a company's financial statements: 1. Earnings Before Interest & Taxes:EBIT 2. Total Assets 3. Net Sales 4. Market Value of Equity 5. Total Liabilities 6. Current Assets 7. Current Liabilities 8. Retained Earnings The EBIT and Net Sales are from the Income Statement and the rest ones are from the Balance Sheet. The Z-Score is an insolvency

prediction method that combines five ratios and compares the result to a scoring scale. A weight is assigned to each ratio.The Z Score is about 90% accurate in predicting bankruptcy in the first year and about 80% accurate the second year. 1. Original Z-SCORE[For Public Manufacturer]: If the score is 3.0 or above bankruptcy is not likely. If the score is 1.8 or less -bankruptcy is not likely. A score between 1.8 and 3.0 is the gray area.Probabilities of bankrupsy within the above ranges are 95% for the one year and 70% with in two years.obiviosly a higher score is desirable.

Z-Score (PUBLIC COMPANIES) RATIO A. B. C. D. E. Working Capital/Total Assets Retained Earnings /Total Assets EBIT/Total Assets Market Value of Equity /Book Value Of Total Liabilities Net Sales /Total Assets WEIGHTAGE 1.2 1.4 3.3 0.6 0.999

These ratios are multiplied by the weightage as above, and the results are added together.

Z-Score = 1.2 (A) + 1.4 (B) + 3.3 (C) + .6 (D) + .999 (E)

The scoring scale for the Z Score is: Z-SCORE BELOW 1.80- Probability of Financial embarassment is very high. If the Z Score is 1.8 or less, there is a very high probability of bankruptcy. Z-SCORE BETWEEN 1.8 and 2.7 - Good chances of the company going bankrupt within 2 years of operations from the date of financial figures given. we are not sure about bankruptcy. Z-SCORE BETWEEN 2.7 and 2.99 - On Alert. This zone is an area where one should exercise caution. we are not sure about bankruptcy. Z-SCORE ABOVE 3.0 -The company is safe based on these financial figures only. If the Z score is 3.0 or higher, bankruptcy is unlikely.

2. Model A Z-Score[For Private Manufacturer]:

Model A of Altman Z-Score is appropriate for private manufacturing firm. Model A should not be applied to other companies. Z-SCORE BELOW 1.23: A score of 1.23 or below is a strong indicator that bankruptcy is likely. Z-SCORE ABOVE 2.90: A score of 2.90 or more indicates that bankruptcy is not likely. Probabilities of bankruptcy within the above ranges are 95% for the one year and 70% within two years. Obviously a higher score is desirable.

3. Model B Z-Score[For Private General Firm]:

Edward Altman developed this version of Altman Z-Score to predict the likelihood of a privately owned non-manufacturing company

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going bankrupt within one year or two years. Model B is appropriate for a private general (non-manufacturing) firm. Z-SCORE BELOW 1.10: A score of 1.10 or lower indicates that bankruptcy is likely. Z-SCORE ABOVE 2.6: while a score of 2.6 or above can be a indicator that bankruptcy is not likely. A score between the two is the gray area. Probabilities of bankruptcy within the above ranges are 95% for the one year and 70% with in two years.Again, obiviosly a higher score is desirable. Z-Score (PRIVATE COMPANIES) RATIO A. B. C. D. E. Working Capital/Total Assets Retained Earnings /Total Assets EBIT/Total Assets Market Value of Equity /Market Value Of Total Liabilities Net Sales /Total Assets WEIGHTAGE 0.717 0.847 3.107 0.420 0.998

Z-Score = 0.717 (A) + 0.847 (B) + 3.107 (C) + 0.420 (D) + 0.998 (E)

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COMPANY PROFILE

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Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India: Wire line, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLSVPN, VSAT, VoIP services, IN Services etc. Presently it is one of the largest & leading public sector units in India. 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 wining customer's confidence. Today, it has about 46 million line basic telephone capacity, 8 million WLL capacity, 52 Million GSM Capacity, more than 38302 fixed exchanges, 46565 BTS, 3895 Node B ( 3G BTS), 287 Satellite Stations, 614755 Rkm of OFC Cable, 50430 Rkm of Microwave Network connecting 602 Districts, 7330 cities/towns and 5.6 Lakhs 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 & corner of country and operates across India except Delhi & Mumbai. Whether it is inaccessible areas of Siachen glacier and North-eastern region of the country. BSNL serves its customers with its wide bouquet of telecom services.

BSNL is numero uno operator of India in all services in its license area. The company offers vide ranging & most transparent tariff schemes designed to suite every customer. BSNL cellular service, CellOne, has 55,140,282 2G cellular customers and 88,493 3G customers as on 30.11.2009. 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

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million Internet Customers who access Internet through various modes viz. Dial-up, Leased Line, DIAS, and Account Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country. BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure that provides convergent services like voice, data and video through the same 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 & Transmission Networks and 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.351, 820 million (US $ 8 billion) with net profit to the tune of Rs.99,390 million (US $ 2.26 billion) for last financial year. The infrastructure asset on telephone alone is worth about Rs.630, 000 million (US $ 14.37 billion). The turnover, nationwide coverage, reach, comprehensive range of telecom services and the desire to excel has made BSNL the No. 1 Telecom Company of India.

VISION
To become the largest telecom Service Provider in South East

Asia. MISSION

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To provide world class State-of-art technology telecom services on demand at affordable price.
To provide world class telecom infrastructure to

develop the country's economy.

OBJECTIVES OF BSNL
To be a Lead Telecom Services Provider. Build customers confidence through quality and reliable service. Create a customer focused organisation with excellence in sales,

marketting and customer care.

Provide Bandwidth on demand. To provide high speed Internet connectivity (up to 8 Mbps). To provide both pre-paid and post paid broadband services.

Contribute towards: o o o Broadband customers base of 20 million in the Telephone in all villages. Implementation of Triple play as a regular country by 2010 as per Broadband Policy 2004.

commercial proposition.

PRODUCTS
BSNL LANDLINE BSNL MOBILE _ POSTPAID _ PREPAID _ UNIFIED MESSAGING _ GPRS/WAP/MMS

15 _ DEMOs _ TARIFF BSNL WLL INTERNET SERVICES _ NETWORK _ BROADBAND _ WI-FI _ CO-LOCATION SERVICE _ BSNL WEB HOSTING _ DIAL UP INTERNET _ SMS& BULK SMS BSNL BROADBAND BSNL MANAGED NETWORK SERVICES BSNL MPLS-VPN ISDN LEASED LINE INTELLIGENT NETWORK _ FREE PHONE SERVICE _ PREMIUM RATE SERVICE _ INDIA TELEPHONE CARD _ VIRTUAL PRIVATE NETWORK (VPN) _ VOICE VPN _ UNIVERSAL NUMBER _ UNIVERSAL PERSONAL NUMBER _ TELE VOTING VIDEO CONFERENCING AUDIO CONFERENCING TELEX/ TELEGRAPH EPABX _ EPABX _ FREE EPABX _ CENTREX HVNET INMARSAT TRANSPONDER

SERVICES

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BSNL provides almost every telecom service in India. Following are the main telecom services provided by BSNL:

Universal Telecom Services: Fixed wire line services & Wireless in Local loop (WLL) using CDMA Technology called bfone and Tarang respectively. As of December 31, 2007, BSNL has 81% market share of fixed lines.

Cellular Mobile Telephone Services: BSNL is major provider of Cellular Mobile Telephone services using GSM platform under the brand name BSNL Mobile. As of Sep 30, 2009 BSNL has 12.45% share of mobile telephony in the country.

Internet: BSNL provides internet services through dial-up connection (Sancharnet) as Prepaid, (NetOne) as Postpaid and ADSL broadband (BSNL Broadband). BSNL has around 50% market share in broadband in India. BSNL has planned aggressive rollout in broadband for current financial year.

Intelligent Network (IN): BSNL provides IN services like televoting, toll free calling, premium calling etc.

3G: BSNL offers the '3G' or the'3rd Generation' services which includes facilities like video calling etc.

IPTV:

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BSNL also offers the 'Internet Protocol Television' facility which enables us to watch television through internet.

FTTH: Fibre to The Home facility that offers a higher bandwidth for data transfer. This idea was proposed on post-December 2009.

Management profile

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GMTD (SSA HEAD)

TECHNICAL

FINANCE

ADMINISTRATION

CAO/IFA Chief Accounts Officer/ Internal Financial Adviser Mr. Seth

CAO(TRF) Telecom Revenue & Finance Mr. S.K. Mitra

CAO(CA) Corp A/Cs Mr. Mukesh Shrivastav

AO(TR) Mr. S.N.S. Yadav

AO(TR-COMP) Mr. P.Vengopal

AO(TROPC) Mr. M. Das

AO(CASH) Mr. M. Shrivastava

AO(PRJ) Mr. M. Shrivastava

AO(PRJ) Mr. M. Shrivastava

AO(CA) Mr. M. Shrivastava

JAO(TR)

JAO(TR)

JAO

JAO

JAO(CASH)

JAO(CASH)

JAO(CA)

JAO(CA)

Clerical Staff

Clerical Staff

Clerical Staff

Clerical Staff

Clerical Staff

Clerical Staff

Clerical Staff

Clerical Staff

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Organisation Functional Structure of BSNL Bilaspur Circle

OBJECTIVES OF STUDY

The main objective of the summer training project report is to analyze the Cash position of the company. To know about the short term Liquidity of the Company.

To understand cash flow from operating, investing and financing activities.

To know the changes in the Cash Position of the Company. To know the payment & Cash Collection of the Company. To know the optimum cash balance of the company.

To predict the future cash flow of the company / to prepare the projected cash flow statement of the company.

To detect the factors causing changes in cash balances. To systematically evaluate the past cash flows of the company. To understand the banking channel for smooth inflow & outflow.

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RESEARCH METHODOLOGY
Research is a process through which we attempt to achieve systematically and with the support of data the answer to a question, the resolution of a problem, or a greater understanding of a phenomenon. This process, which is frequently called research methodology, has eight distinct characteristics: 1. Research originates with a question or problem. 2. Research requires a clear articulation of a goal. 3. Research follows a specific plan of procedure. 4. Research usually divides the principal problem into more manageable sub problems. 5. Research is guided by the specific research problem, question, or hypothesis. 6. Research accepts certain critical assumptions. 7. Research requires the collection and interpretation of data in attempting to resolve the problem that initiated the research. 8. Research is, by its nature, cyclical; or more exactly, helical. Descriptive research is used in this project report in order to know about cash management services to clients and determining their level

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of satisfaction. This is the most popular type of research technique, generally used in survey research design and most useful in describing the characteristics of consumer behavior. The method used were following: Questionnaire method Direct Interaction with the clients. MODE OF DATA COLLECTION Primary Data: - The sources of Primary data were questionnaires and personal interviews. Secondary data: - the sources of secondary data were internet, books and newspaper articles.

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DATA ANALYSIS AND FINDINGS

CASH FLOW ANALYSIS FOR THE YEARS 2004-2009

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Interpretation :Investing activities: include the purchase and sale of long term assets not held for resale. Cash flow from the investing activities discloses the expenditure incurred for resources intended to generate future income and cash flows. These activities have been increasing year by year.

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Operating activities: are the main revenue generating activities of the enterprise, as they include cash flows from those transactions and events which enter into the ascertainment of net profit or loss of the enterprise. Operating activities are decreasing year by year. Financing activities: are the activities that result in change in capital and borrowings of the enterprise. In 2006 these activities have increased to a large extent then, it decreased by some amount in 2007 after that in 2008 it has improved a little bit. In 2009 again it has decreased to Rs.743814 lacs.

CASH RATIO ANALYSIS OF BSNL Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. 1) CURRENT RATIO A measure of the degree to which current assets cover current liabilities . A high ratio indicates a good probability the enterprise can retire current debts. A ratio of 2.0 or higher is a comfortable financial position for most enterprises. Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business. Typical values for the current ratio vary by firm and industry. For example, firms in cyclical industries may maintain a higher current ratio in order to remain solvent during downturns.

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One drawback of the current ratio is that inventory may include many items that are difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets. Current Ratio 1 < Current Ratio 2 < Current Ratio 5 < Current Ratio <= 1 <= 2 <= 5 Going bankrupt! May experience difficulties in facing short term commitments. Normal, depending on the industry standards for companies of similar size and activity. Very little short term debt!

Current Ratio = Current Assets / Current Liabilities

Years Current Assets

(Rs. in Lakh)

2004 2634780

2005 3847762

2006 461380 5 216044 3 2.13:1

2007 537478 8 218277 7 2.46:1

2008 580584 3 234610 9 2.47:1

2009 577486 1 256658 0 2.25:1

2010

Current Liabilities
(Rs. in Lakh)

2007199

2200040

Current Ratio

1.313:1

1.75:1

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2) ACID TEST RATIO A measure of the amount of liquid assets available to offset current debt (Cash + Accounts Receivable / Current Liabilities). A healthy enterprise will always keep this ratio at 1.0 or higher. Quick Ratio <= 1 Dangerous Zone. Very low liquidity. 1 < Quick Ratio <= 2 May fail to meet short term commitments 2 < Quick Ratio <= 5 Normal, depending on the industry standards for companies of similar size and activity. 5 < Quick Ratio Very little short term debt!

Acid Test Ratio=[Current Assets-Inventory] / Current Liabilities

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Years Current Assets

(Rs. in Lakh)

2004 2634780 222082

2005 384776 2 224535

2006 461380 5 279524

2007 537478 8 242847

2008 580584 3 322006

2009 577486 1 457258

2010

Inventory
(Rs. in Lakh)

Current Liabilities
(Rs. in Lakh)

2007199 1.202:1

220004 0 1.647:1

216044 3 2.1:1

218277 7 2.35:1

234610 9 2.34:1

256658 0 2.07:1

Current Ratio

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3) CASH RATIO A measure of the amount of cash available to offset current debt. The Cash Ratio (CAR) method is a formula for measuring the liquidity of a company by calculating the ratio between all cash and cash equivalent assets and all current liabilities. It excludes both inventory and accounts receivable in comparison to the Current Ratio. The CAR model measures only the most liquid of all assets against current liabilities, and is therefore seen as the most conservative of the three liquidity ratios. This CAR ratio is also known as the Liquidity Ratio and Cash Asset Ratio. The formula is an indicator of the extent to which a company can pay current liabilities without relying on the sale of inventory and without relying on the receipt of accounts receivables. A thing to remember when using the Cash Ratio formula is that it ignores timing of both cash received and cash paid out. A ratio below .5 may mean you are having cash flow problems, possibly because of a significant

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backlog in accounts receivable. The cash ratio is an indication of the firm's ability to pay off its current liabilities if for some reason immediate payment were demanded. Cash Ratio <= 1 Dangerous Zone. Very low liquidity. 1 < Cash Ratio Short term debt can be paid in full with cash and near cash items. 2 < Cash Ratio Bad management of short term liquidity ? Cash could be invested in longer term assets earning a higher return. Cash Ratio = Cash + Marketable Securities / Current Liabilities

Years Cash
(Rs. in Lakh)

2004 1155133 2007199 0.575: 1

2005 2193113 2200040

2006 3057948 2160443

2007 3745296 2182777

2008

2009

2010

4055158 3 813430 2346109 2566580

Current Liabilities
(Rs. in Lakh)

Cash Ratio

0.99:1

1.41:1

1.716:1

1.728:1

1.486:1

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4) CASH FLOW TO DEBT RATIO This coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of shortterm borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt. Cash Flow To Debt Ratio = Operating Cash Flow / Total Debt

Years Operating Cash Flow

(Rs. in Lakh)

2004 1393405

2005 1746962

2006 1870905

2007
1413996

2008

2009

2010

1098184 684381

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Total Debt
(Rs. in Lakh)

825768 1.687:

822089 2.125:1

728393 2.568:1

554366 2.55:1

338887 3.24:1

341384 2.00:1

Cash Flow To Debt 1 Ratio

5) CASH FLOW TO INCOME RATIO Cash Flow To Income Ratio = Operating Cash Flow / Net Income

Years
Operating Cash Flow
(Rs. in Lakh)

2004 1393405 3391859

2005
1746960 3609009

2006
1870905 4017658

2007
1413996 3971511

2008
1098184 3804683

2009
684381 3581192

2010

Net Income
(Rs. in Lakh)

32 Cash Flow To Income Ratio

0.41:1

0.48:1

0.465

0.356:1

0.3:1

0.2:1

6) CASH TURNOVER RATIO Cash Turnover Ratio = Cash Operating Activities/Average Cash Balance

Years
Operating Cash Flow
(Rs. in Lakh)

2004 1393405

2005
1746960

2006
1870905

2007
1413996

2008
1098184

2009
684381

2010

33 Average Cash Balance

(Rs. in Lakh)

Cash Turnover Ratio

:1

:1

:1

:1

:1

:1

7) CASH HOLDING PERIOD Cash Holding Period = 365*Average Cash Balance / Cash Operating activities

Years
Average Cash Balance
(Rs. in Lakh)

2004

2005

2006

2007

2008

2009

2010

Operating Cash Flow

(Rs. in Lakh)

1393405

1746960

1870905

1413996

1098184

684381

Cash Turnover Ratio

:1

:1

:1

:1

:1

:1

8) INVENTORY TO NET WORKING CAPITAL

1<

Inv to NWC <= 0 Inv to NWC

Going bankrupt! Too much dependence on inventory to liquidate short term debts

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Inv to NWC = Inventory / [Current Assets - Current Liabilities]

Years Inventory
(Rs. in Lakh)

2004 222082 2634780 2007199

2005 224535 384776 2 220004 0 164772 2 0.136:1

2006 279524 461380 5 216044 3 245336 2 0.114:1

2007 242847 537478 8 218277 7 319201 1

2008 322006 5805843 2346109

2009 457258 577486 1 256658 0 320828 1 0.142:1

2010

Current Assets
(Rs. in Lakh)

Current Liabilities
(Rs. in Lakh)

Net Working Capital (Rs.

in Lakh)

627581

3459734

Inv To NWC Ratio

0.354:1

0.076 :1 0.093:1

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9) NET WORKING CAPITAL RATIO

Net Working Capital Ratio = Net Working Capital / Total Assets

Years Net Working Capital

(Rs. in Lakh)

2004 627581

2005 1647722

2006 2453362

2007 3192011

2008 3459734

2009 3208281

2010

Total Assets
(Rs. in Lakh)

9524835

1050994 0

1104204 8

1145148 2

11562643 1172445 7

NWC Ratio

0.065:1

0.157:1

0.222:1

0.279 :1

0.3:1

0.274:1

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Z-SCRORE

Z = 1.2 (A) + 1.4 (B) + 3.3 (C) + .6 (D) + .999 (E)

Z-Score Of BSNL For The Year 2004 A: working capital /

total assets

627581 /9524835 = 0.065 5051833/9524835 = 0.530 899617 /9524835 =0.094 1000000/636086 =1.572 3391859/9524835 =0.356 Z = 1.2 (0.065) 1.4 (0.530) 3.3 (0.094) 0 .6 (1.572) 0.999 (0.356) Z = 2.43 + + + +

B: retained earnings /
total assets

C: earnings before
interest taxes / total assets

D: market value of
equities / book value of total liabilities

E: sales / total assets

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Z-Score Of BSNL For The Year 2005 A: working capital /

total assets

1647722/10509940 = 0.157 6027911/10509940 = 0.573 Z = 1.2 (0.157) 1.4 (0.573) 3.3 (0.075) 0 .6 (1.506) 0.999 (0.343) Z = 2.484 + + + +

B: retained earnings /
total assets

C: earnings before

792008/10509940 interest taxes / total assets =0.075 D: market value of

equities / book value of total liabilities E: sales / total assets

1000000/663587 =1.506 3609009/10509940 =0.343

Z-Score Of BSNL For The Year 2006 A: working capital /

total assets

2453362/11042048 = 0.222 6825651/11042048 = 0.618 845276/11042048 =0.076 1000000/630205 =1.587 4017658/11042048 =0.364 Z = 1.2 (0.222) 1.4 (0.618) 3.3 (0.076) 0 .6 (1.587) 0.999(0.364) Z = 2.698 + + + +

B: retained earnings /
total assets

C: earnings before
interest taxes / total assets

D: market value of equities / book value of total liabilities E: sales / total assets

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Z-Score Of BSNL For The Year 2007 A: working capital /

total assets

3192011 /11451482 = 0.279 7444802/11451482 = 0.65 Z = 1.2 (0.279) 1.4 (0.65) 3.3 (0.071) 0 .6 (1.605) 0.999 (0.347) Z = 2.788 + + + +

B: retained earnings /
total assets

C: earnings before

815406 /11451482 interest taxes / total assets =0.071 D: market value of

equities / book value of total liabilities E: sales / total assets

1000000/622986 =1.605 3971511/11451482 =0.347

Z-Score Of BSNL For The Year 2008 A: working capital /

total assets

3459734 /11562643 =0.3 7562825/11562643 =0.654 Z = 1.2 (0.3) 1.4 (0.654) 3.3 (0.0385) 0 .6 (1.83) 0.999 (0.33) Z = 2.83 + + + +

B: retained earnings /
total assets

C: earnings before

445330/11562643 interest taxes / total assets =0.0385 D: market value of equities / book value of total liabilities E: sales / total assets 1000000/546551 =1.83 3804683/ 11562643 =0.33

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Z-Score Of BSNL For The Year 2009 A: working capital /

total assets

3208281/11724457 = 0.274 7613358/11724457 = 0.65 127290/11724457 =0.0108 1000000/472054 =2.118 3581192/11724457 =0.305 Z = 1.2 (0.274) 1.4 (0.65) 3.3 (0.0108) 0 .6 (2.118) 0.999 (0.305) Z = 2.85 + + + +

B: retained earnings /
total assets

C: earnings before
interest taxes / total assets

D: market value of
equities / book value of total liabilities E: sales / total assets

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Interpretation: There is no probability of Financial embarassment of the company as the Z Score is not 1.8 or less for any of the year from 2004 to 2009.Although the Z- Score of the company is increasing year by year the company should exercise some cautions as for no year the Altmon Z-Score is 3.0 or more If the Z Score is 3.0 or higher, bankruptcy is unlikely.

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DETERMINATION OF OPTIMUM CASH BALANCE

Another step in cash management is as how to determine the appropriate amount of working cash balance.it is also known as the problem of maintaining optimum cash balance.An enterprise should not lose sight of keeping suuficient liquidity while earning profit.In other words, profit is necessary but the maintenance of optimum level of cash balance should also be cared for. The determination of working cash balance is fully dependent upon operating plan.working cash balabce refers to that amount of cash which can be used in making payments for all the expenses of operating plans in time.if cash balance is in excess of operating expenses, the excess balance maybe operating expenses, the deficiency can be met either by borrowing or by liquidating the investments in short-term securities.in both the cases there will be some Costs known as Transaction Costs. If the enterprise has more balances than what is required and such excessive cash is kept in the business as cash balances , the enterprise will lose the opportunity of earning from investments in short-term securities.this will be called as Opportunity Cost.a proper balancing or equilibrium is to be maintained in these two types of costs in order to determine the optimum amount of cah balance. This is clarified in the figure below.

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In Fig. , transaction cost line is having a downward slope to the right; this indicates that transaction costs tend to decline with the increase in cash balance. Remember ,transaction costs are those which may occur due to purchasing and selling investments in short term securities. On the other hand, the opportunity costs line is having a straight upward slope indicating the direct propotional relationship between cash balances and opportunity costs. In other words , opportunity costs tend to rise with increase in cash balances. Remember, keeping excessive cash implies loosing the opportunity of earning income. Total cost line at point M indicates minimum cost. Cash balbnce at point C is optimum as total costs line indicates the minimum cost at this point (M).

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Cash Cycle Model:

Cash cycle is a term which is used to signify the entire process of cash flow through an enterprises accounts. Cash Turnover signifies the number of times enterprises cash is used during each year. Minimum cash required shall be ascertained by applying the cash turnover to total cash operating expenses (annual).

Minimum Cash Requirement (M.C.R.)

Total Cash Outlay p.a. Cash Turnover

Cash Cycle Period (in days)

365 or 360 Cash Turnover

Cost of Keeping M.C.R. = M.C.R. * Rate of Return on Investments

Cash from operating activities (Year 2009) = 684381 (Rs. in Lakh) Assuming Cash Turnover = 3 times

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Minimum Cash Requirement

Lakh)

(Year 2010)

= 684381 / 3 = 228127 (Rs. in

Cash Cycle Period (in days) =

360 / 3 120 ( in days)

Cost of Keeping M.C.R. = 228127 * ( 8 / 100 ) = 18250.16 (Rs. in Lakh)

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FINDINGS

I will give some conclusions which I derived during the analysis of financial statements: Out the past four years, in 3 years BSNL recorded a decrease in

profit and in 2 years a decrease in income, but the expenditure has continuously increased.
These are the years where telecom sector emerge as a fastest

growing sector of economy. And in same years BSNL fail to gain more income. Although the income figure is continuously falling but there is no impact shown on expenditure side, it is continuously increasing over the years. This is the main cause of reduction in profits.
In the year 2007-08 BSNL current assets fell with a huge

margin due to this year poor performance. After this year company has shown a growth in current assets but not sufficient to fulfill the short-term requirements.
In the year 2007-08 fixed assets found significant growth with

12.56% which is a good sign for long term prospect. But increase in fixed assets during last two years is not sufficient. 71

46 Companys current ratio fell very short of the ideal, which

shows an inadequate margin of safety to the creditors, company has no sufficient cash to pay its liabilities. Due to Shortage of working capital in the business, company is trading out of its resources.
The capital employed ratio is not very high. It shows the

ineffective and inefficient utilization of capital. So there is need to use the capital in a better way to gain maximum profit in the long term.
Except the year 2005-06, in all other years the Debt equity ratio

is very low which shows that the money which is invested in the company by outsiders is very low. Means out of 1rs to the owners only Rs. 0.06 is invested by the outsiders this year, which shows lack of interest in investing money by outsiders in the company.
Decreasing Earning per Share shows reduction in the market

price of BSNL shares. Company is losing the faith of shareholders. Earning per share is continuously decreasing so as the profit of shareholders. And in the year 2007-08 it has fallen quite dramatically.
Employee remuneration & benefits area is a area of major

concern because there is no impact of profit or loss on this area and expenditure on employee is simultaneously rising.

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SUGGESTIONS & RECOMMENDATIONS

Following are the recommendations:

There should be increase in investment of BSNL. So that could

be earned more profit. Because, if investment will be high than profit will be earned high.
There should be improved the working process of BSNL.

Because working Process of BSNL is take more time. Departments of BSNL do not have good coordination. So there should be Good coordination in departments of BSNL. If coordination will have good in Departments, than there will not has to face any problem in proper work.

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Time to time, there should be provided training of employee. So that they could take information about the new technology of them proper working Process. There should be good communication between each departments of BSNL. There should be computerized work in BSNL. But also at this time, paper Work are continue to see in many department. Use better & high tech methods of advertising, so that more & more subscriber attract towards BSNL.
Should try to decrease expenditure especially in the employees

remuneration & benefit area. Should increase the service quality as well as better customer care service.
Should work towards 3 G phones, means high speed streaming

video, gaming, video messaging, and even mobile TV.

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REFERENCES

1. Accounting 2. 3.

S.P.Gupta

Management

Sahitya bhavan publications I. M. Pandey -Financial Management

1. 2.

http://www.bsnl.co.in http://www.bsnl.com

3. http://money.livemint.com
4.

http://www.scribd.com

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5.

http://www.bized.co.uk

EXPECTED OUTCOMES
From the Cash Flow Analysis of BSNL, I expect the following outcomes: (i) (ii) (iii) (iv) The cash position of the company. The net cash spend in operating, financing and investing activities by the company. The liquidity position of BSNL. An estimation of the future cash flow of the company.

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(v)

Factors responsible for changes in the cash balance.

CASH FLOW MANAGEMENT