Executive Summary

Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. Presently it is one of the largest & leading public sector unit 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/townand5.6Lakhsvillages. 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. In my project work of Comparative Study of Financial Statements of BSNL, I have used comparative study of Balance Sheet, Trend Analysis last four years PBT, to find out the trend in BSNL, and cash flow analysis of BSNL. It was done on the basis of Secondary Data which I got from the Accounting Department of BSNL, Lucknow and also I did my analysis on the basis of the interviews and discussions with employees working there. Apart from my project work I also learnt about the accounting policies of BSNL, Taxation Policy, Payroll Policy, Bank Reconciliation Statement of BSNL and I also worked on some general Departmental jobs of day-to-day business there. From my project I found out that as BSNL had monopoly once upon a time in Indian Telecom Industry, due to which it got a lot of cash and had a good amount of Reserves and Surplus in there balance sheet, but now when there is intense competition in Indian Telecom Industry BSNL is facing Severe problems of cash flow.

Overview of the BSNL

Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. Presently it is one of the largest & leading public sector unit 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 3Gcustomers 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 million Internet Customers who access Internet through various modes viz. Dial-up, Leased Line, DIAS, 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 DataOne 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, reaches, comprehensive range of telecom services and the desire to excel has made BSNL the No. 1 Telecom Company of India. 2

BSNL: A Financial Overview

Telecom landscape in India has changed completely since liberalisation and monopolies in Telecom sector have been replaced with competitive regime (Oligopolies). It is a wellknown fact that BSNL was carved out of erstwhile DOT to provide level playing field to private Telecos. Since then many new business firms have entered in the arena and today there is merciless cutthroat competition in this sector. Even though competition is bonanza for subscribers but for corporates it is the question of survivability. If they are not in a position to earn sufficient revenue from the operations which not only meets their growth and expansion plans but are necessary for paying all Government levies and dues as revenue share, spectrum charges, USO fund contribution etc. as well as meeting internal requirements like Operation and Administration expenditures, Staff costs, Interest and repayment of Debt etc. Corporates are also under tremendous pressure from investors to show better results so that they also get handsome returns on their investments in the form of Dividends or appreciation in share values. To meet all such requirements corporate management some time indulges into creative accounting to artificial boost the profit figures because at the end of day it is the profit, which matters most to any business organization if it is not a non-profit organization. There is mandatory requirement for all companies to file following three audited statements to Company Law Board at the closure of every financial years i.e. Balance Sheet as on the last day of financial year, Profit and loss account for the whole accounting year and Cash flow statement. For stake holders and investors it becomes necessary to look beyond the figures quoted in these statements and carry out the in depth financial analysis to take appropriate decision regarding their investment and other important decisions. In respect of BSNL analysis carried out is based on its audited Balance Sheet and Profit and Loss Accounts taken from its annual reports.

Role of Communication services in national growth: Proportion of Communication Services in GDP is increasing at faster rate, as it is evident from the following Table.

Service Sector Share in GDP

Share % in GDP (2002-03) 5.4 14.0 1.1 1.1 4.3 0.1 3.5 6.9 6.1 5.9 7.8 56.1 Growth 2002-03 7.3 4.5 4.0 5.7 6.0 -7.8 22.0 11.6 5.9 5.3 6.2 7.2

Construction Trade Hotels & Restaurants Railway Other Transport Storage Communications Banking & Insurance Real Estate, Business / Legal Services Defence Other Community & social Services Total Service Sector

From above Table it is clear that growth rate (22%) of communication services in GDP is highest and proportion and importance of communication services is continuously increasing. It is considered as growth engine for overall economic growth. Graph given below indicates the exponential growth of Telecommunication infrastructure in India. As of now total telephones (Basic + Mobile) of all operators put together has crossed 15 Crores. In the month of August-2006 there was addition of 58 lacs of new Mobile subscriber. Such is a growth of Telecommunication in India, even now surpassing to the growth in China.

Growth of Telecommunications in India

Growth of Telecom unications in India m
80 70 60 50 40 30 20 10 0 Fixes Line Telephones Cellular Mobile Telephones Private Basic Telephone Total Telephones

In such a volatile scenario, knowing about the performance of a company becomes very important. Financial performance is a bed rock for overall performance and future growth of any company. Keeping this view in mind I have tried to put some relevant facts through this article.

M ar -1 98 Ma 1 r-1 99 Ma 2 r-1 99 M 4 ar -1 99 M 6 ar -1 99 M 8 ar -2 00 M 0 ar -2 00 M 2 ar -2 00 4

Financial Analysis of BSNL

On October 1st, 2000, BSNL was formed by converting service providing functions of erstwhile DOT to provide level playing field to private Telecos. Since then BSNL has emerged as the 7th largest Telecom Operating Company in the World. BSNL has played major role in spreading telephones to rural areas of the country at affordable rates. As per TRAI report 5.3 lakh villages have been provided access to telecom network through VPTs covering 87% of the villages. Most of the VPTs have been provided by BSNL. BSNL has provided 13.59 million (July 2005) rural DELs in the country. By this statement we can judge the important role played by BSNL right from its inception. Income, Expenditure and Profit: Following Table shows Income, Expenditure and Profit figures of BSNL for the 5 year period since its inception. S. No. YEAR INCOME (Rs. in Crores) 1.10.2000 to 11699 31.3.2001 2 3 4 5 2002 2003 2004 2005 24681 25892 33918 36090 20461 25078 27163 29401 4220 8136 6755 6689 6312 1444 5976 10183 EXPENDITURE (Rs. in Crores) 10669 PROFIT BEFORE TAX (Rs. In Crores) 1 1030 PROFIT AFTER TAX (Rs. In Crores) 747

Government has set ambitious targets for Telecom PSUs (MTNL and BSNL) for providing a total of 12.50 Crore telephones by December 2007 with a targeted market share of 50%. However overall market share of both PSUs, which, was more than 85 % at the time of BSNL formation, has declined to less than 37% as on date. In the financial year 2004-05, the revenue from 9,447,357 cellular subscribers (as on March 31, 2005) stands at 10.5% of the total revenue. Less than 1% revenue came from WLL services. We got 44.68 % income from Basic Telephone services while PCO business gave another 17.34 % of the income. Revenue from basic services during 2001-05 was Rs 23,080 Crore, Rs 21,545 Crore, Rs 23,954 Crore, and Rs 22,385 Crore. In the financial year 2004-05, the revenue from 35,859,482 basic subscribers (as on March 31, 2005) is 62% of the total revenue. In the last 4 yrs, BSNL has received Rs 15,701 Crore as compensation for maintenance of VPT, ADC, and IUC, which is 85% of BSNLs cumulative Profit Before Tax of Rs 18,477 Crore during the same period. BSNL has received 100% reimbursement of license fee from 2001-02 to 2003-04. For 2004-05, the reimbursement of license fee is restricted to 2/3rd of license fee paid which will be further restricted to 1/3rd in 2005-06. Thereafter, reimbursement will be nil. In the last 4 yrs BSNL has received total license fee refund of Rs

8,665 Crore (BSNL paid Rs 15,498 Crore as license fees) as a compensation for providing telecom services in rural areas. The total income of BSNL for the financial year 2004-05 is Rs 36,090 Crore and Profit Before Tax (PBT) is Rs 6,688 Crore, which is almost equal to its IUC of Rs 6,035 Crore. BSNL will have to pay income tax on 70% of its profits and only 30% would be exempted. In the absence of such exemption from this year, BSNL will have to resort to borrowing resulting in substantial interest burden. BSNLs expenses on staff have shot-up by 218.75% in the last four years from Rs 3,848 Crore in 2001-02 to Rs 8,418 Crore in 2004-05. For the financial year 2004-05, expenses on staff are 28.63% of the total expenses. Similarly, the Administration and Operational costs have also increased by 199% from Rs 3,995 Crore in 2001-02 to Rs 7,951 Crore in 2004-05. For the financial year 2004-05, expenses on Administration and Operation are 27.05% of the total expenses. Together these two expenses are 55.68% of the total expenses in 2004-05.

Objective of Study: The objective of this project is to carry out comparative study

of Financial

Statement of BSNL. through this I will be able to get the difference of various assets and liabilities of the BSNL. To identify the various assets amount of the BSNL with respect to Annual Repots of the BSNL. Comparative study of Two year Annual reports.

Profile of Organization:
History The British laid the foundation of Telecom Network in India sometime in 19th century. The history of BSNL is linked with the beginning of Telecom in India. In 19th century and for almost entire 20th century, the Telecom in India was operated as a Government of India wing. Earlier it was part of erstwhile Post & Telegraph Department (P&T). In 1975 the Department of Telecom (DoT) was separated from P&T. DoT was responsible for running of Telecom services in entire country until 1985 when Mahanagar Telephone Nigam Limited (MTNL) was carved out of DoT to run the telecom services of Delhi and Mumbai. It is a well known fact that BSNL was carved out of Department of Telecom to provide level playing field to private telecoms. Subsequently in 1990s the telecom sector was opened up by the Government for Private investment, therefore it became necessary to separate the Government's policy wing from Operations wing. The Government of India corporatised the operations wing of DoT on October 01, 2000 and named it as Bharat Sanchar Nigam Limited (BSNL). BSNL operates as a public sector.

Main Services being provided by BSNL

BSNL provides almost every telecom service, however following are the main Telecom Services being provided by BSNL in India:-

1.

Universal Telecom Services: Fixed wire line services & Wireless in Local loop

(WLL) using CDMA Technology called bfone and Tarang respectively. BSNL is dominant operator in fixed line. As on March 31, 2007 (end of financial year) BSNL had 76% share of fixed and WLL phones. BSNL Mobile Pre-paid Mobile

2. Cellular Mobile Telephone Services: BSNL is major provider of Cellular Mobile Telephone services using GSM platform under brandname Cellone. Pre-paid Cellular services of BSNL are know as Excel. As on March 31, 2007 BSNL had 17% share of mobile telephony in the country. 9

BSNL Broadband

3. Internet: BSNL is providing internet as dial-up connection (Sancharnet) and ADSLBroadband Dataone. BSNL has around 50% marketshare in broadband in India. BSNL has planned aggressive rollout in broadband for current financial year.

4. Intelligent Network (IN): BSNL is providing IN services like tele- voting, toll free calling, premium calling etc.

BSNL Present & Future

Since its corporatisation in October 2000, BSNL has been actively providing connections in both Urban and Rural areas and the efficiency of the company has drastically improved from the days when one had to wait for years to get a phone connection to now when one can get a connection in even hours. Pre-activated Mobile connections are available at many places across India. BSNL has also unveiled very cost-effective Broadband internet access plans (DataOne) targeted at homes and small businesses. At present BSNL enjoys 47% of marketshare of ISP services. Year of Broadband 2007 Former Indian Communications Minister Thiru Dayanidhi Maran had declared year 2007 as "Year of Broadband" in India and BSNL is gearing up to provide 56million Broadband connectivity by the end of 2007. BSNL has upgraded existing Dataone (Broadband) connections for a speed of up to 2 Mbit/s without any extra cost. This 2 Mbit/s broadband service is being provided by BSNL at a cost of just US$ 5.5 per month. Further, BSNL is planning to upgrade its broadband services to Triple play (telecommunications) in 2007. BSNL has been asked to add 108 million customers by 2010 by Former Indian Communications Minister Thiru Dayanidhi Maran. With the frantic activity in the communication sector in India, the target appears achievable, however due to intense competition in Indian Telecom sector in recent past BSNL's growth has slowed down. BSNL is pioneer of Rural Telephony in India. BSNL has recently bagged 80% of US$ 580 m (INR 2,500 crores) Rural Telephony project of Government of India.

Challenges:
During Financial Year 2007-2008 (From April 01, 2006 to March 31, 2007) BSNL has added 9.6 million new customers in various telephone services taking its customer base to

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64.8 million. BSNL's nearest competitor Bharti Airtel is standing at a customer base of 39 million. However, despite impressive growth shown by BSNL in recent times, the Fixed line customer base of BSNL is declining. In order to woo back its fixed-line customers BSNL has brought down long distance calling rate under One India plan, however, the success of the scheme is not known. However, BSNL faces bleak fiscal 2006-2007 as users flee, which has been accepted by the CMD BSNL. Presently there is an intense competition in Indian Telecom sector and various Telcos are rolling out attractive schemes and are providing good customer services. However, BSNL being legacy operator and its conversion from a Government Department, earns lot of criticism for its poor customer service. Although in recent past there have been tremendous improvement in working of BSNL but still it is much below the Industry's Expectations. A large aging (average age 49 years(appx)) workforce (300,000 strong), which is mostly semiilletrate or illeterate is the main reason for the poor customer service. Further, the Top management of BSNL is still working in BSNL on deputation basis holding Government employee status thus having little commitment to the organisation. Although in coming years the retirement profile of the workforce is very fast and around 25% of existing workforce will retire by 2010, however, still the workforce will be quite large by the industry standards. Quality of the workforce will also remain an issue. Access Deficit Charges (ADC, a levy being paid by the private operators to BSNL for provide service in non-lucarative areas especially rural areas) has been slashed by 37% by TRAI, w.e.f. April 01, 2007. The reduction in ADC may hit the bottomlines of BSNL.

Vision
To become the largest telecom Service Provider.

Mission
To provide world class State-of-art technology telecom services to its customers on demand at competitive prices.

To Provide world-class telecom infrastructure in its area of operation and to contribute to the growth.

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Fact sheets The Company

Bharat Sanchar Nigam Limited (known as BSNL) is a public sector communications company in India. It is the largest telecommunication company in India and the sixth largest in the world. Its headquarters are at Statesman House, Barakhamba Road, New Delhi. It has the status of Mini-ratana - a status assigned to reputed Public Sector companies in India. During the current financial year, the management based on physical verification of fixed assets and inventory and reconciliation of various heads of assets and liabilities in the subsidiary and general ledgers which has resulted into increase/decrease in the following assets and liabilities taken over as on 01st October 2000 amounting to net reduction in the assets of Rs. 5,910 lakh (P.Y. - Rs. 25,452 lakh): In pursuance of the Memorandum of Understanding dated 30th September 2000 executed between Government of India and BSNL, all assets and liabilities in respect of business carried on by DTS and DTO were transferred to the Company with effect from 01st October 2000 at a provisional value of Rs. 6,300,000 lakh and up to previous financial year BSNL has identified net assets of Rs. 6,352,028 lakh against it.

Revenues Strategies
The telecom sector is the most competitive sector post liberalization. This has resulted in a movement from growth based business model that emphasized growth in numbers to profitbased model where the success is measured by margins. BSNL as part of the transition has to adopt both cost reduction and revenue enhancement measures, which would directly impact profitability. It is evident that there is a declining trend in basic services and there is stagnation in cellular revenues. Revenue maximization strategies will have two components, one internal to the organization and the other external. The internal aspect would involve an initiative for change of process, technology, organizational structure etc. In this context, revenue

assurance is the key to improving the bottom line for BSNL. This is proactive strategy to capture all revenues due for the services provided. Presently, BSNL generates bills through different softwares across the zones of operation, which are disintegrated and provide only basic solutions. The industry standard for revenue leakage is about 3 to 7% percent of revenue, which in money terms translates to about Rs.2100 crores for BSNL. Therefore plugging revenue leakages is just the first and most obvious part of a Revenue Assurance initiative. The key concerns for BSNL for effective revenue realization are

12

 The delay in customer billing after activation Time lag between calls generated and billed Scope of fraud Non-availability of uniform database.

Therefore the focus should be on immediate implementation of CDR based billing. This would require huge investment but the return would more than commensurate. The software should be scalable and be able to incorporate all the next generation value added services. The implementation of CDR based system will also generate the following benefits: Plugging of leakage of revenue. Formulation of appropriate marketing strategies.

Products
BSNL LANDLINE

PHONE PLUS SERVICE NEW TELEPHONE CONNECTION PERMANENT CONNECTION CONCESSION IN RENTALS SHIPT OF TELEPHONE TRANSFER OF TELEPHONE TELEPHONE TARIFF

BSNL MOBILE
POSTPAID PREPAID UNIFIED MESSAGING GPRS/WAP/MMS DEMOs TARIFF SMS & BULK SMS

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 BSNL WLL INTERNET SERVICES

NETWORK BROADBAND TYPES OF ACCESS WI-FI CO-LOCATION SERVICE BSNL WEB HOSTING INTERNET TARIFF DIAL UP INTERNET SMS& BULK SMS

BSNL BROADBAND
REGISTER ONLINE TARIFF USO FUNDED RURAL BROADBAND FAQ CHECK USAGE

BSNL MANAGED NETWORK SERVICES BSNL MPLS-VPN ISDN

ISDN TARIFF

LEASED LINE
LEASED LINE TARIFF

INTELLIGENT NETWORK
PREMIUM RATE SERVICE INDIA TELEPHONE CARD VIRTUAL PRIVATE NETWORK VOICE VPN UNIVERSAL NUMBER

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UNIVERSAL PERSONAL NUMBER TELE VOTING

VIDEO CONFERENCING
OVERVIEW TARIFF FAQ

AUDIO CONFERENCING
OVERVIEW TARIFF FAQ

I NET
OVERVIEW SERVICES ON I NET USING ON I NET I NET CONNECTIONS TARIFF

TELEX/ TELEGRAPH
TELEX/ TELEGRAPH TARIFF

EPABX
EPABX FREE EPABX TARIFF CENTREX CENTREX TARIFF

HVNET RABMN INMARSAT

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KU-BAND TRANSPONDER

Accounting Policies
Basis of Preparation of Financial Statements The financial statements of Bharat Sanchar Nigam Limited (the Company or BSNL) are prepared under the historical cost convention adopting the accrual method of accounting in accordance with Indian Generally Accepted Accounting Principles and in accordance with the provisions of the Companies Act, 1956 (the Act).

Revenue Recognition

Income from services is accounted for on accrual basis and in conformity with Accounting Standard 9 of ICAI. Accordingly, a) Revenue for all services is recognized when earned and are realizable at the time of billing. Unbilled revenues from the billing date to the end of the year are recorded as accrued revenue during the period in which the services are provided. Provision is made in respect of bills considered to be disputed (by the management), debts outstanding for more than two years and for debts due for less than 2 years, to the extent considered necessary by the management. b) Installation Charges recovered from subscribers at the time of new telephone connections are recognized as income in the first year of the billing. c) In terms of the arrangement between Department of Telecommunications (DoT) and the Company, the charges for telecommunication services and other infrastructural services provided by BSNL to DoT are neither being billed nor provided for. d) Sale proceeds of scrap arising from maintenance and project works are taken into miscellaneous income in the year of sale. e) Income from SIMs, recharge coupons of Mobile, Prepaid Calling Cards, and Prepaid internet connection cards are treated as income of the year in which the payment is received since the extent of use of these cards within the financial year could not be ascertained. 16

f) Wherever there is uncertainty in realization of income, such as liquidated damages, claims on Government Departments & local authorities etc., these are recognized on collection basis. 16g) The claims on account of reimbursement for provision of infrastructure, operation and maintenance of Village Public Telephones (VPTs) and Rural Household Connections (RDELs) receivable from U.S.O. fund are accounted for as revenue on account of the fact that the claim for infrastructure cannot be credited to the concerned asset account since the claim amount could not be segregated asset wise. h) Other income by way of interest on loans to employees, security deposit with Government Departments and local authorities, being not material, are accounted for on collection.

Fixed Assets

a)

Fixed assets are carried at cost less depreciation. Cost includes directly related establishment and other expenses including employee remuneration and benefits, directly identifiable to the construction or creation of the assets.

b) Expenditure on replacement of assets, equipments, instruments and rehabilitation works is capitalized if, in the opinion of the results in enhancement of revenue generating capacity. management, it

c)

Assets

are

capitalized

to

the

extent

completion

certificates

have

been

obtained,wherever applicable.

d)

The cost of stores and materials at the time of issue to a project, is debited toCWIP .

e) Apparatus and plants principally consisting of telephone exchanges, transmission equipments and air conditioning plants etc. are capitalized as and when an exchange is commissioned and put to use.

f)

Cables are capitalized as and when ready for connection to the main system. g)

Intangible assets are stated at cost of acquiring the same less accumulated depreciation / amortization. 17

Depreciation/Amortization

Depreciation is provided based on the Written Down Value method at the rates prescribed in Schedule XIV to the Companies Act, 1956 except for Subscriber Installation. The Subscriber Installation is depreciated over the useful life of 5 years on Written Down Value method.

Assets costing up to Rs. 5,000 are depreciated fully in the year of purchase. Similarly, partition works costing up to Rs. 2,00,000 are depreciated fully in the year of construction.The depreciation on machinery & tools used both for project and maintenance work is charged to profit and loss account instead of capitalization. All telephone exchange buildings, administrative offices and captive consumption assembling premises/workshops are considered as normal building and not as factory building. Accordingly depreciation is charged uniformly. Intangible assets such as Entry License Fee for Telecom Service operations are amortized over the license period (i.e. 20 years) and standalone computer software applications are amortized over the license period subject to maximum of 10 years as per straight line method.

Impairment of Assets

Assets, which are impaired by disuse or obsolescence, are segregated from the concerned assets category and shown as Decommissioned Assets and provision made for the loss, if any, due to the difference between their net carrying cost and the net realizable value.

Investments

Long-term investments are carried at cost, after providing for any diminution in value, if such diminution is of a permanent nature.

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Inventories

Inventories are valued at cost or net realizable value as the case may be - cost ascertained generally on weighted average method; obsolete/non moving inventories are valued at net realizable value.

Foreign Currency Transactions

a) Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transaction i.e. on the date of payment or receipt as the case may be.

b) All Foreign Currency Liabilities and monetary assets are stated at the exchange rate prevailing as at the date of Balance Sheet and the difference taken to Loss Accounts as Exchange Fluctuation Loss or Gain. Profit and

Extraordinary Items Extra-ordinary items of income and expenditure, as covered by AS 5, are disclosed separately.

Manufacturing Expenses

Expenses incurred at Factory units are allocated to the cost of the manufactured products.

Prior Period Items

Items of Income/expenditure exceeding Rs. 5 lakh are only considered for being treated as 'prior period items'.

Taxes on Income

Taxes on Income for the current period are determined on the basis of taxable income and tax credits computed in accordance with the provisions of the Income Tax Act, 1961. In accordance with the AS-22, Deferred Tax Liability is recognized on the timing 19

differences between accounting income and the taxable income for the period taking into consideration the contents of Accounting Standard Interpretations 3 and quantified using the tax rates in force or substantively enacted as on the Balance Sheet date. Deferred Tax Assets are recognized and carried forward to the extent there is a virtual certainty that such deferred tax assets can be realized.

Provisions

Provisions are recognized when the Company has a present obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Contingent Liabilities

Liabilities, though contingent, are provided for if there are reasonable chances of maturing such liabilities as per management. Other contingent liabilities, barring frivolous claims, not acknowledged as debts, are disclosed by way of notes.

Earning Per Share

Earning Per Share ("EPS") comprises the Net Profit after tax (excluding extraordinary income net of tax). The number of shares used in computing Basic & Diluted EPS is the weighted average number of shares outstanding during the year.

Segment Reporting The primary segment consists of basic and cellular services provided. The manufacturing activities have not been treated as a separate segment since such activities are essentially carried on as support service to other segments. The following specific accounting policies have been followed for segment reporting: Segment Revenue includes service income and other income directly identifiable with/allocable to the segment. Income/expense, which relates to the Company, as a whole and not allocable to individual business segment is included in Un-allocable Corporate Income/expense respectively. 20

Expenses that are directly identifiable with/allocable to segments are considered for determining Segment Results. Segment Assets and Liabilities include those directly identifiable with the respective segments. Un-allocable corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and not allocable to any segment

Policy of Finance

Standards of Financial Proprieties Ever officer incurring or authorizing expenditure from public funds should be guided by high standards of financial propriety. Every officer should also enforce financial order and strict economy at every step and see that all relevant financial rules and regulations are observed, by his own officer and by subordinates disbursing officers. Among the principles on which emphasis is generally laid are the following:

1. Every officer is expected to exercise the same vigilance in respect of expenditure incurred from public moneys as a person of ordinary prudence would exercise in respect of expenditure of his own money.

2. The expenditure should be prima-facie more that the occasion demands.

3.

No authority should exercise its powers of sanctioning expenditure to pass an

order which be directly or indirectly to its own advantages.

4. Expenditure from pubic moneys should not be incurred for benefit of a person or section of the people unless- a. in a Court of Law, or b. custom. a claim for the amount could be enforce

the expenditure is in pursuance of a recognised policy or

5.

The amount of allowances granted to meet expenditure of a particular type

should be so regulated that the allowances are not on the whole a source of profit to the recipients.

6. The responsibility and accountability of every authority delegated with financial 21

powers to procure any item or service on Government account is total and indivisible. Government expects that the authority a concerned will have the public interest uppermost in its mind while making a procurement decision. The responsibility is not discharged merely by the selection of the cheapest offer.

SWOT Analysis:
Strengths: Pan-India reach Experienced telecom service provider Total telecom service provider Huge Resources (financial & technical pool) Huge customer base Most trusted telecom brand Transparency in billing Easy deployment of new services Copper in last mile can be used for easy broadband deployment Huge Optical Fibre network and associated bandwidth Weaknesses: Non-optimization of network capabilities Poor marketing strategy Bureaucratic organizational set up Inflexibility in mindset (DOT period legacies) Limited number of value added services Poor franchisee network Legacy of poor service image Huge and aged manpower Procedural delays Lack of strategic alliances Problems associated with incumbency like outdated technologies, unproductive , rural assets, social obligations, political interference, Poor IT penetration within organization

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 Poor knowledge Management

Opportunities Tremendous market growing at 20 lac customers per month Untapped broadband services Untouched international market Can capitalize on public sector image to grab governments ICT initiatives ITEB service markets Diversification of business to turn-key projects Leveraging the brand image to source funds Fuller utilization of slack resources Can make a kill through deep penetration and low cost advantage Broaden market expected from convergence of broadcasting, telecom and entertainment industry

Threats Competition from private operators Keeping pace with fast technological changes Market maturity in basic telephone segment Manpower churning Multinational eyeing Indian telecom market Private operators demand for sharing last mile Decreasing per line revenues due to competitive pricing Private operators demand to do away with ADC can seriously effect revenues Populist policies of government like One India rates

Research Methodology
Every project work is based on certain methodology, which is a way to systematically solve the problem or attain its objectives. It is a very important guideline and lead to completion of any project work through observation, data collection and data analysis.

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Sampling Technique Used:

This research has used convenience sampling technique.

Convenience sampling technique: Convenience sampling is used in exploratory research where the researcher is interested in getting an inexpensive approximation of the truth. As the name implies, the sample is selected because they are convenient

Selection of Sample Size:

For the survey of departments.

Sources of Data Collection:

Research will be based on two sources:

1) Secondary Data:

Secondary data will consist of different literatures like books which are published, articles, internet, the company manuals and websites of company- www.bsnl.com. In order to reach relevant conclusion, research work needed to be designed in a proper way.

This research methodology also includes: Familiarization with the concept of finance and its various merits,demerits. Thorough study of the information collected. Conclusions based on findings.

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Statistical Tools Used

The main statistical tools used for the collection and analyses of data in this project are: Bar Diagrams Line Charts

Types of Financial Analysis

I can classify various types of financial analysis into different categories depending upon (i) the material used, and (ii) the method of operation followed in the analysis or the modus operandi of analysis.

(i)

On the basis of material used: According to material used, financial analysis can be of two types

a) external analysis and (b) internal analysis.

a. External Analysis: This analysis is done by outsiders who do not have access to the

detailed internal accounting records of the business firm. These outsiders include investors, potential investors, creditors, potential creditors, government agencies, credit agencies and the general public. For financial analysis, this external party to the firm depends almost entirely on the published financial statement. External analysis, thus serves only a limited purpose. However, the changes in the government regulations requiring business firm makes available more detailed information to the public through audited accounts have considerably improved the position of the external analysis.

b. Internal Analysis: The analysis conducted by persons who have access to the internal accounting records of a business firm is known as internal analysis. Such an analysis can,

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therefore, be performed by executive and employees of the organization as well as government agencies which have statutory powers vested in them. Financial 31analysis for managerial purpose is the internal type of analysis that can be effected depending upon the purpose to be achieved.

(ii)On the basis of modus operandi: According to the method of operation followed in the analysis financial can also be of two types: (a) horizontal analysis (b) vertical analysis.

a. Horizontal Analysis: Horizontal analysis refers to the comparison of financial data

of a company for several years. Thus figure for this type of analysis are presented horizontally over a number of columns. The figures of the various years are compared with standard or base years. A base year chosen as beginning point. This type of analysis is also called Dynamic Analysis as it is based on the data from year to year rather than on data of any one year. The horizontal analysis makes it possible to focus attention on items that have changed significantly during the period under review. Comparison of an item over several periods with a base year may show a trend developing. Comparative statement and trend percentages are two tools employed in horizontal analysis.

b. Vertical Analysis: Vertical analysis refers to the study of relationship of the various items in the financial statements of one accounting period. In this types of analysis the figure from financial statement of a year are compared with a base selected from the same years statement. It is also knows as Static Analysis. Common-size financial analysis statement and financial ratio are the tools employed in vertical analysis. Since vertical analysis considers data for one time period only, it is not conducive to a proper analysis of financial statements. However, it may be used along with horizontal analysis to make it more effective and meaningful.

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Procedure of Financial Statement There are three steps involved in the analysis of financial statements. These are: (i) selection (ii) classification (iii) interpretation, the first step involves selection of information (data) relevant to the purpose of analysis of financial statements. The second step involved is the methodical classification of the data and the third step include drawing and conclusions.

The following procedure is adopted for the analysis and interpretation of financial statements:

1. The analysis should acquaint himself with the principal and postulates of accounting. He should know the plans and policies of the management so that he may be able to find out whether theses plans properly executed or not.

2. The extent of analysis should be determined so that the sphere of work may be decided. If the aim is to find out the earning capacity of the enterprise than analysis of income statement will be undertaken. On the other hand. If financial position is to be studied then balance sheet analysis will be necessary.

3. The financial data given in the statement should be re-organized and re- arranged. It will involve the grouping of similar data under same heads, breaking done of individuals components of statements according to nature. The data is reduced to a standard form.

4. A relationship is established among financial among financial statements with the help tools and techniques of analysis such as ratio, trends, common size, funds flow etc.

5. The information is interpreted in a simple and understandable way. The significance and utility of financial data is explained for helping decision- talking.

6.

The conclusions drawn from interpretation are presented to the

management in the

form if reports. 27

Methods or Devices of Financial Analysis

The analysis and interpretation of financial statements is used to determine the financial position and result of operation as well. A number of methods or devices are used to study the relationship between different statements. An effort is made to use those devices which clearly analysis position of the enterprise. The following methods of analysis are generally used: Comparative Statement Trend analysis Common Size Statement Cash Flow Analysis

Comparative Statement: Comparative balance sheet analysis is the study of the trend of the same items, group of item and computed item in two or more balance sheets of the same business enterprise on different data.

Trend analysis: This method determines the direction upwards and involves the computation of the percentage relationship that each statement item bears to the same item in base year.

Common size Statement: The common size statements balance sheet statements are shown in analytical percentages. The figures are shown as percentages of total assets, total liabilities and total sales. Total assets are taken as 100 and different assets are expressed as a percentage of the total, similarly various liabilities are taken as a part of total liabilities.

Cash flow Statement: Cash flow statement is a statement which describes the inflow (sources) and outflow (uses) of cash and cash equivalent in an enterprise during a specified period of time

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Comparative Statement of BSNL year 2009 & 2010

Comparative Balance Sheet For the year ended 2009 and 2010 Particulars As at 31 As at 31 Increase/Decreas March March e Increase/Decrease (Percentage)

2009 (Rs. 2010 (Rs. (Rs. In Lakhs) In Lakh) Sources of Funds Shareholders Funds Capital 1,250,000 Reserves Surplus and 7,613,358 1,250,000 7,397,566 (215,792 ) Loan Funds Unsecured Loan 64,484 Deffered liability Total 9,269,226 8,813,320 Tax (52,100) (455906) (88.79) (4.91) 341,384 153,370 12,384 (188,014) (55.07) (2.83) 0 In Lakh)

Application of Funds

Fixed Assets Gross block 13,224,291 16,046,96 2 Less: Depreciation 7,792,203 2,822,671 21.34

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8,658,930 Net Block

866,727

11.12

Capital Working in progress 5,432,088 7,388,032 1,955,944 36.007

Decommissiond Assets

492,864

596,523 103,659 7,897 21.03

4,644 3,253 5,929,596 Investments Current, Loans Advances Inventories 457,258 505,833 48575 10.62 20,20000 7,992,452 20,000 2,062856 70.04 34.78 0

Assets, and

Sundry Debtors

472,054

474,457

2403

0.50

Cash

and

Bank 3,813,430

3,034,340

(779,090)

(20.43)

Balances

Other

Current 87,239

85,521

(1718)

(1.96)

assets-Accured Interest

Loans Advances

and 944880 1397028 452148 47.45

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5,774,861

5,497,179

(-277,682)

(-4.80)

Less: Liabilities Provisions

Current and 2,072,702 4,277,642 2204940 106.37

Current Liabilities

Provision

493,878

557,602

63724

12.90

2,566,580

4,835,244

2268664

88.39

Net Assets

Current 3,208,281

661,935

(2546346)

(79.36)

Inter/Intra Circle 111,394 Remittance Total 9,269,226

138,933

27539

24.72

8,813, 320

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8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0

100

150

50

Comparative Balance Sheet in Rs.

Comparative Balance Sheet in percentage:

Capital Reserves and Surplus Unsecured Loans Deffered Tax Liability Fixed Assets Investments Sundry Debtors Cash and Bank Other Current Assets Loans and Advances Current Liabilities Provisions Net Current Assets Inter / Intra Circle Percentage Increse / Decrease 2010

-100 -50 2009

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Procedure of Comparative Balance Sheet

1. The Comparative balance sheet has two columns for the data of original 2. Third column is used to show increases in figures.

balance sheet.

3. The Fourth column may be added for giving percentages of increase or decrease.

Interpretation of Comparative Balance Sheet

The comparative balance sheet of the company reveals that during 2010 there has been on Increased in fixed assets of Rs. 2,062856. lakh i.e 34.78% while long term liabilities to

outsiders have decreased by Rs. 455906 lakh i.e. -4.91. This fact depicts the policy of the company is to purchase fixed assets from the cash there by it will affect the working capital. Current assets have decreased by Rs. 277,682 lakh and cash and bank balances also decreased Rs. 779,090 i.e. -20.42%, investments not increased on the other hand there has been an increase in inventories amount Rs. 48575 lakh i.e.10.12%. The current liabilities have increased by Rs. 2204940 lakh i.e. 106.35 %. This further confirms that the company has not revised long term finances and company using their reserve and surplus that's the reason reserve and surplus decreased 215,792 lakh i.e. -2.83. The overall financial position of the company is not good it will face working capital problem.

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Trend Analysis (Profit of BSNL)

Procedure of Calculation Trends One year is taken as a base: year 2005 taken as a base year The figure of base year are taken 100 Trend percentages are calculated in relation to base year. Figure in other and it will be more than 100 if figure is more than base year figure. Each years figure is dived by the base years figure.

Profit before tax Years Amount (Rs.) in Lakh 2007 2008 815,381 445,155 Percentages 100 54.59

2009 2010

127163 (219,748)

15.59 -26.95

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Profit Percentage
100 80 60 40 20 0 -20 -40 1 2 3 4 Profit

Interpretation

Profit before tax has substantially decreased.. The comparative decrease in profit is negative in2010 as compared 2007 to 2009. The expansion of the firm is not possible. The overall performance of the concern is not good on the basis of profit.

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Common size Balance Sheet For the year ended 2009 and 2010 Particulars As at 31 March 2009 (Rs. In Lakh) Sources of Funds Shareholders Funds Capital 1,250,000 13.48 1,250,000 14.18 % As at 31 March 2010 (Rs. In Lakh) %

Reserves and Surplus

7,613,358

82.13

7,397,566

83.97

Loan Funds Unsecured Loan 341,384 3.68 153,370 1.74

Deffered Tax liability 64,484 0.69 12,384 0.14

Total

9,269,226

100

8,813,320

100

Application of Funds Fixed Assets Gross block 13,224,291 142.66 16,046,962 182.07

Less: Depreciation

7,792,203 5,432,088

84.06 58.60

8,658,930 7,388,032

98.24 83.82

Net Block

492,864

5.31

596,523

6.76

Capital Working in 4,644 progress

0.050

7,897

0.083

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Decommissiond Assets

5,929,596

63.97

7,992,452

90.68

Investments

20,20000

0.21

20,000

0.22

Current,

Assets,

Loans and Advances Inventories 457,258 4.93 505,833 5.73

Sundry Debtors

472,054

5.09

474,457

5.38

Cash Balances

and

Bank 3,813,430

41.44

3,034,340

34.42

Other Current assets- 87,239 Accured Interest

.094

85,521

0.97

Loans and Advances

944880

10.19

1397028

15.85

5,774,861

62.37 5,497,179

62.37

Less: Liabilities Provisions

Current and

Current Liabilities

2,072,70

22.36

4,277,642

48.53

Provision

493,878

5.32

557,602

5.32

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2,566,580

27.68 4,835,244

54.86

Net Current Assets Inter/Intra Remittance Total Circle

3,208,281

34.65

661,935

7.51

111,394 9,269,226 100

1.20

138,933 8,813, 320

1.57 100

Procedure of Common-Size Balance Sheet 1. The total assets are taken as 100 and different assets are expressed as a percentages of the total 2. Similarly, various liabilities are taken as a part of total liabilities. 3. This statement is also known as component percentages or 100 percent statement because every individual item is stated as a percentage of the total 100. The short comings in comparative statement and trend percentage where changes in items could not be compared with the totals have been covered up. Interpretation An analysis of patter of financing of both the years shows that year 2009 is more traditionally financed as compared to year 2010. The BSNL has depended more on its own reserves and surplus as is shown by balance sheet. Out of total reserve 83.97% of the funds are proprietors funds. In year 2007 funds are 82.13% which shows that this company has depend more upon outsider funds. In the present day economic world generally, companies depend more on outsiders funds. In this context both years have good finical planning but year 2010 is more financed on traditional lines. Both years are suffering from adequacy of working capital. The percentage of current assets is more than the percentage of current liabilities in both the year. In the year 2010 BSNL is suffering more form working capital position than the second than the second year because current assets are more then current liabilities i.e. 54.86% and this percentage is 27.68% in the 2008. A close look at the balance sheet shows that investments in fixed asset have been not financed from working capital in both years. In 2009 fixed account for 63.97% of the total assets while long-term funds account for 3.68% of total funds. In year 2010 fixed account for 90..68 whereas long term funds account for 1.74% of total instead of using long-term funds. Both the year BSNL is facing working capital problem

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Common size Balance Sheet

90 80 70 60 50 40 30 20 10 0

2009 2010

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Procedure of Cash Flow Statement Cash flow statement is not a substitute of income statement, i.e. a profit and loss account, and a balance sheet. It provides additional information and explain the reasons for changes in cash and cash equivalent. The basic information required for the preparation of cash flow statements is obtained from the following sources.

i.

Comparative balance sheets as two points of time, i.e. in the beginning and

at the

end of accounting period. ii. iii. Income statement of the current accounting period or the profit and loss account. Some selected additional data to extract the hidden transaction.

Step1: Compute the net increase or decrease in cash and cash equivalents by making a comparison of these accounting given in the comparative balance sheet.

Step2: Calculate the net cash flow provided operating activities by analysis the profit and lose account balance sheet and additional information.

Step3: Calculate the net cash flow from investing activities.

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Step4: Calculate the net cash floe from financing activities.

Step5: Prepare a formal cash flow statement highlighting the net cash flow from operating.

Step6: Make an aggregate of net cash flow the three activities and ensure that the total net cash flow is equal to the net increase or decrease in cash and cash equivalent as calculated in step I.

Step7 Repot significant non-cash flow statement e.g., purchase of machinery against issue of share capital or redemption of debenture in exchanges fro share capital.

Interpretation

Cash Flow from Operating Activities Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. The operating activities are calculates 2009 to 2010. This activity is shown that the cash flow of operating activities. The year of 2009 net cash is Rs. 684381 in lakh, year 2010 cash Rs. 2236357.. In 2010 operating goes up because deprecation is also high comparison year 2009 and other current assets are also increased so net cash from operating activities goes up in comparison year 2009.

Cash Flow from Investing Activities This activity disclose of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intend to generate future income and cash flow. This activity is shown that the cash flow of investing activities. The year of 2009 net cash is Rs. -743814 in lakh and year 2010 cash from investing activities Rs. -2791358 lakhs. This 42

calculation shown investing payments. In 2010 investing activities goes up because purchase of fixed assets is Rs. 3016422 lakhs. In this year investing money is goes up in comparison year 2009 and interest receiving is goes down so net cash using in investing activities goes up in comparison year 2009.

Cash Flow from Financing Activities This activity disclose of cash flows arising from financing activities is important because the claim on future cash flows by providers of funds (both capital and borrowings) to the enterprises. This activity is shown that the cash flow of financing activities. The year of 2009 net cash is Rs. -182295 in lakh, and year 2010 cash from financing activities Rs. -224089 laks. This calculation shown investing payments. In 2010 financing activities goes upward because rs. 189934 lakhs interest is paid to govt. against loans .. Overall cash flow net cash and cash equivalent is decreased in comparison previous year.

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Findings
According to my calculation the noteworthy points are: In mostly years, profits are declining and in year 2010 company suffered loss. BSNL build fixed assets; these assets will give effect in profit of BSNL. Highly dues of intra/inter circle transfer of funds which is leave our effect in liabilities side in balance sheet. Coordinations of departments are not satisfactory. Qualification of employees is not match to their posts. Revenues policies of BSNL are not properly implied. Departmental process so long. Proper computerizing of department are not satisfactory. Company has very big amount of govt. loans. BSNL is facing working capital problem.

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Suggestions
The study has provided with the useful data from the respondents. There has a lot to be recommended. Following are the recommendations: Company has try to increase their profit instead of using reserves. Company has to purchase inventories according to their needs because excess purchase of inventories effects the cash of the company. Manipulation of the accounts should be removed. There is a need for better promotion for the investment & services. More returns should be provided on revenues policies. As the BSNL provides the telecom facility to its customers. It should provide this facility by tie up with the other organizations as well. Recruit new qualified employees technical or non technical. Working hour will increase to employees. Launch better plans for according to customers. Plans will be flexible nature Maintain Communication of each department. Departmental processes so long I suggest make a short process of work to departmental. Company should invest in current assets instead of fixed assets because investing in current assets will increases working capital.

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Conclusion
After overhauling the all situation that boosted a number of Pvt. Companies associated with multinational in the Telecom Sector to give be relevant competition to the other established company in private sector, we come at the conclusion that. Company is using their reserve and surplus to fulfill their obligation . There is a very tough competition among the private telecom companies on the level of new trend of advertising to silence a major part of Customers. BSNL is left behind in the present race of advertisement. The entry of more Pvt. players in the telecom Sector have expanded the product segment to meet the different level of the requirement like 3G, Broadband, phone line, It has brought about greater choice to the customers. Over all BSNL is facing short of employees and present employees are not working properly. They manipulates the accounts according to their needs. BSNL facing of over capitalization problem. This problem generated by decommissioned assets. This organization paid large amount of taxes. These taxes leave effect on financials of BSNL. Company has to repay the govt. loans which effects the profits . Company has more liabilities that also creates working capital problem. Company is investing more on fixed assets that will increases the deprecation which also effects profit.

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Limitations of Study
Financial analysis is a powerful mechanism of determining financial strengths and weaknesses of a firm but, the analysis is based on the information available in the financial statements. We has also careful about the impact of price level chances, windows-dressing of financial statements, changes in accounting policies of BSNL, accounting concepts and conventions, and personal judgments etc. Due to the following unavoidable and uncontrollable factors the factors, the result might not be accurate. Some of the problems faced while conducting the survey are as follows: Time and cost constraints were also there. . Some of the important Limitations of financial analysis are however, summed up as below: It is only a study of interim reports. Financial analysis is based upon only monetary information and non-monetary factors are ignored. It does not consider changes in price level. As the financial statements are prepared on the basis of a going concern, it does not give exact position. Thus accounting concepts and conventions cause a serious limitation to financials analysis. Changes in accounting procedure by a firm may often make financial analysis misleading. Analysis is only a means and not an end in itself. We have to make interpretation and draw own conclusion Different people may interpret the same analysis in different ways.

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Annexures:
Bibliography Management Accounting Shashi K. Gupta & R.K. Sharma Financial Management I.M. Pandey. Annual Reports of BSNL 2006-2008. Departmental Records.

Web sites www.bsnl.co.in www.google.com

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