CHAPTERI.

6

FINANCIAL MANAGEMENT

INTRODUCTION: -

Financial management is the life of every business enterprise. A business under

taking at a given point time can be viewed as a pool of funds raised from various sources

like inventory and the source of internal financing. The funds raised from these sources

are utilized for.

1. Acquiring fixed Assets needs for the production of goods and services.

2. Inventories that facilitate production and sales accountant’s receivables owned by

customers.

3. Cash and marketable securities used for liquidity purpose and business

transactions.

MEANING: -

The pool of funds at a given point of time is static. But over a period it changes.

The change in the funds positions of a company is known as funds flow. In an ongoing

business enterprise, the funds flow throughout the enterprise, continually. The object of

the subject financial management is to direct the flow of these funds as per a given plan.

Thus the financial management concerns itself with the management of funds of an

enterprise.

NATURE OF FINANCIAL MANAGEMENT: -

The term financial management can be defined as the management of flow

of funds in a firm and it deals with the financial decision making of the firm. . I.e. it is

concerned with overall managerial decision making in general and with the management

of economic resources in particular.

7

Finance has emerged as a distinct area of study during second half of the

twentieth century. Initially it was a part of economics .the evolution of finance function

and the changes in its scope appeared due to two factors namely

1. The continuous growth and diversity in business

2. The gradual appearance of new financial analytical tools.

The subject of financial management is of immense interest to both

academicians and practicing managers. It is of great interest to academicians because the

subject is still developing and there are still certain areas where controversies exist for

which no unanimous solutions have been reaching as yet. Practicing managers are

interested in this subject because among the most crucial decisions of the firms are those

which relate to finance and an understanding of the theory of financial management

provides them with conceptual and analytical insights to make those decisions skillfully.

SCOPE OF FINANCIAL MANAGEMENT

Initially the finance manager function was limited to raising funds as and when the

need arise. Once the funds are procured his function was over. However, over a period of

time the scope of his function has tremendously widened. His presence is required at

every moment whenever any decision having involvement of funds is to be taken. Now a

days, the financial manager, is required to look in to the financial implications of any

decision in the firm. Since every activity in a business organizations, be it purchase,

production, marketing or capital expenditures has a financial implications, the financial

function is inter linked with all other areas. In particular the finance manager has to focus

his attention on

1. Procuring the required quantum of funds as and when necessary, at the lowest cost

2. Investing these funds in various assets in the most profitable way, and

8

3. Distributing returns to shareholders in order to satisfy their expectations from the

firm.

These three functions of the finance manager encompasses most the financial

events in any firm, thus, the functions of finance manager may be summarized to include

the following

1. Overall financial planning and control

2. Raising funds from different sources

3. Selection of fixed assets

4. Management of working capital, and

5. Any other individual financial event.

The financial manager is usually faced with following distinct scenarios.

What should be the size of firm and how fast should it grow?

What are the various types of assets to be acquired?

What should be the pattern of raising funds from various sources?

Depending up on the nature and size of the firm the financial manager is

required to perform all or some of these functions from time to time. While performing

these functions he is required to take different decisions, which can be broadly classified

in to three groups. Those

1. Relating to resource allocation. (Investment decision)

2. Those covering the financing of these investments. (The financing or capital

structure decision)

3. And those determining how much cash be taken out and how much re-

invested. (The dividend decision)

9

Investment Decisions:

This comprises decisions relating to investments in both capital and current assets. The

finance manager has to evaluate different capital investment proposals and select the best

keeping in view the overall objective of the enterprise.

The investment in current assets will depend on the credit and inventory

policies pursued by the enterprise. The credit policy is determined keeping in view the

need of growth in sales and the availability of finance. Similarly, the inventory policy

will be set up taking in to account the requirements of production, the market trend to the

price of raw materials and the availability of funds.

Financing Decision: -

Financing decision is the second important function to be performed by the

financial manager. Broadly, he must decide when, where and how to acquire funds to

meet the firm’s investment needs. The financial manager is concerned with determining

the best financial mix on capital structure for his firm. Once the financial manager is able

to determine the best combination of debt and equity he must raise the appropriate

amount through best available sources.

Dividend Decision: -

Dividend decision is the third major financial decision. The financial manager

must decide whether the firm should distribute all profits, or retain them or distribute a

portion and retain the balance. The optimum dividend policy is one, which maximizes the

market value of the firm’s shares. Thus, if shareholders are not in different to firm’s

dividend policy, the financial manager must determine the optimum dividend payout ratio

10

OBJECTIVES OF FINANCIAL MANAGEMENT

Efficient financial management requires the existence of some objectives or goals

because judgment as to whether or not a financial decision is efficient must be made in

the light of some objective. Although various objectives are possible we assume two

objectives of financial management.

These are:

1. Profit maximization:

It is traditionally been argued that the objective of a company is to earn profit;

hence the objective of financial management is also profit maximization. This implies

that the finance manager has to make his decisions in a manner so that the profits of the

concern are maximized. Each alternative, therefore, is to be seen as to whether or not it

gives maximum profit.

However, profit maximization cannot be the sole objective of company. It is at best a

limited objective. If profit is given undue importance, a number of problems can arise.

Some these have been discussed below:

1. The term profit is vague. It does not clarify what exactly it mean. It conveys

different meaning to different people. For example, profit may be in short term or

long term period, it may be total profit are rate of profit etc.

2. Profit maximization has to be attempted with a realization of risks involved.

There is a direct relation between risk and profit. Many risky propositions yield

high profit. Higher the risk, higher is the possibility of profits. If profit

maximization is the only goal, then risk factor is altogether ignored. This implies

that finance manager will accept highly risky proposals also, if they give high

11

profits. In practice, however, risk is very important consideration and has to be

balanced with the profit objective.

3. Profit maximization, as an objective does not take in to account the time pattern

of returns. Proposal A may give a higher amount of profits as compared to

proposal B. yet if the returns began to flow say 09 years later, proposal B may be

preferred which may have lower overall profits but the returns flow is more early

and quick.

4. Profit maximization, as an objective is too narrow. It fails to take into account the

social considerations as also the obligations to various interests of workers,

consumers, society, as well as ethical trade practices. if these factors are ignored,

a company cannot survive for long. Profit maximization at the cost of social and

moral obligations is a shortsighted policy.

2. Wealth maximization:

A company, which has profit maximization as its objective, may adopt policies yielding

exorbitant profits in the short run which are unhealthy for the growth, survival and

overall interest of the business. A company may not undertake planned and prescribed

shutdowns of the plan for maintenance, etc. for simply to maximize its profit in the short

run. If this reduces the life of a plant say by 5 years, the company is ignoring

maintenance only at its own peril although it may have greater profits in the short run.

Hence, it is commonly agreed that the objective of a firm should be to maximize its value

or wealth.

How do we measure the value/wealth of a firm? According to van Horne, “value

of a firm is represented by the market price of the company’s common stock…. the

market price of a firms stock represents the focal judgement of all market participants as

to what the value of the particular firm is. It takes in to account present and prospective

future earnings per share, the timing and risk of these earning, the dividend policy of the

12

firm and many other factors that bear up on the market price of the stock. The market

price serves as a performance index or report card of the firm’s progress. It indicates how

well management is doing on behalf of stockholders.”

There is no doubt that prices in the share market, at a given point of time, are the

result of a curious mixture of many factors like general economic outlook, particular

outlook of the companies under consideration, technical factors and even mass

psychology. However taken on a long-term basis, the market prices of a company’s

shares do reflect the value, which the various parties put on a company. Normally, this

value is a function of two factors:

(a) The likely rate of earnings per share of the company; and

(b) The capitalization rate.

The likely rate of earnings per share (EPS) depends up on the assessment as to

how a profitability of a company is going to operate in the future or what it is likely to

earn against each of its ordinary shares. Thus, if a company is likely to earn annually Rs 5

on its share of rs09, its share will have a higher market value than a company which earns

Rs 4 for its Rs 09 share each year, of course, presuming that other factors remaining

same. A likely earnings per share is an important factor considered by the shareholders in

valuing a company.

The capitalization rate also reflects the linking of the various investors of the

company. If a company earns a high rate of earnings per share through risky operations or

risky financing pattern, the investors will not look up on its share with favor. To that

extent, the market value of the shares of such a company will be low. An easy way to

determine the capitalization rate is to start with fixed deposit interest rates of banks.

Suppose an investor gets a return of Rs 09 percent from a bank on a one year fixed

13

deposit. However, if he has to invest in shares, he may want a higher return in view of the

risks involved. How much higher would his expectation be, would depend upon the risks

involved in the particular share which in turn depends on company’s policies, past record,

the type of business and the confidence which the management can command. Thus,

capitalization rate is the cumulative result of the assessment of the various shareholders

regarding the risky ventures; the investors will put in their money if they get higher return

as compared to that from a low risk rate.

The market value of share thus a function of the earnings per share and the

capitalization rate.

Since the profit maximization criteria cannot be applied in real world situations

because of its technical limitation the finance manager has to ensure that his decisions are

such that the market value of the shares of the company is maximum in the long run. This

implies that the financial policy has to be such that it optimizes the earnings per share,

keeping in view the risk and other factors in mind. Wealth maximization is, therefore, a

better objective for a commercial undertaking since it represents both return and risk.

There is now a growing emphasis on social and other obligations of an enterprise.

It cannot be denied that in the case of undertakings, especially those in the public sector,

the question of maximization of wealth has to be seen in the contest of social and other

obligations of an enterprise.

It must be clearly understood that financial decision-making is related to the

objective of the business. The finance manager has to ensure that there is a positive

impact of each financial decision on the furtherance of the business objectives. One of the

main objective of an undertaking may be to “progressively build up the capability to

undertake the design and development of air-craft engines, helicopters, etc….” a finance

14

manager in such an undertaking will allocate funds in a manner so that this objective is

fulfilled although such an allocation may not necessarily maximize wealth.

The Changing Scenario of Financial Management In India: -

Modern financial management has come a long way from the traditional corporate

finance. The finance manager is working in a challenging environment, which changes

continuously. As the economy is opening up and global resources are being tapped, the

opportunities available to finance managers virtually have no limits.

At the same time he must understand the risks entailing all his decisions

very well. Financial management is passing through an era of experimentation and

excitements as a large part of the finance activities carried out today were unheard a few

years ago. A few instances of this can be mentioned as: --

1. Interest rates have been freed from regulation. Treasury operations therefore have

to be more sophisticated as the interest rates are fluctuating. Minimum cost of

capital necessitates anticipating interest movements.

2. The rupee has become fully convertible on current account.

3. Optimum debt equity mix is possible. The firms have to take the advantage of the

financial leverage to increase the shareholders wealth. However using financial

leverage necessarily makes a business vulnerable to financial risk. Finding a

correct tradeoff between the risk and the improved return to shareholders is a

challenging task for a financial manager.

4. With free pricing of issues, the optimum price determination of new issues is a

daunting task as over pricing results in under subscription and loss of investor

confidence. While under pricing leads to unwarranted increase in number of shares

there by reducing the earnings per share.

15

5. Maintaining share price is crucial. In the liberalized scenario the capital market is

the important avenue of funds for business. The dividend and bonus polices

framed by finance managers has a direct bearing on share prices.

6. Ensuring management control is vital especially in the light of foreign

participation in the equity, which is backed by huge resources making the firm an

easy takeover target. Existing management may lose control in the eventuality of

being unable to take up the share entitlements. Financial strategies to prevent this

are vital to the present management.

Purpose of Financial Statements: -

Financial statement analysis is the meaningful interpretation of ‘financial statements’ for

parties demanding financial information. It is not necessary for the proprietors alone.

Following are examples of the purposes of financial statement analysis

The government may be interested in knowing the comparative energy

consumption of some private sector and public sector companies.

A nationalized bank may be keen to know the possible debt coverage out of

profit at the time of lending.

Prospective investors may be desirous to know the actual and forecasted yield

date. Customers want to know the business viability before entering in to a long-term

contract.

This list is not exhaustive for obvious reasons. In general, the purpose of

financial statement analysis is to aid decision making by the users of

16

Steps To Be Taken For Financial Statement Analysis Are: -

Identifying the users purpose

Identification of the data sources. (Which part of the annual report or other

information is required to be analyzed to suit the purpose)

Selecting the technique to be used for such analysis.

Thus financial statement analysis is purposive and not necessarily

comprehensive to cover all possible uses. Since it is purposive, analysis may be restricted

to any particular portion of the available financial statement, taking care to ensure

objectivity and unbiased ness.

Financial statement analysis covers study of relationships with a set of financial statements at a point of time and with trends in these relations over time. This means that it may be a study of some comparable firms at a particular time, say a financial year 2005-2005, or it may be a study of particular firm over a period of time says 1994-2005 or it may cover both.

17

OBJECTIVES OF THE STUDY

This study the identify whether the Working capital is efficiently utilized or not.

To know the overall operational efficiently and performance of the Bharat Sanchar

Nigam Limited.

To find out the extend of the need and adequacy of the Working capital of the

firm.

This study will help to know whether the current assets and current liabilities are

properly managed.

To see the liquidity position of the company.

To see the components of Working capital are properly managed.

To determined the requirement of Working capital.

18

NEED FOR THE STUDY

During the post-liberalization are the worlds assail as Economic India’s scenario has

shown a great progress and is growing with increased phase this has necessitated the

complex and efficient ways of management. Thinking practically the main concern is of

the influence of external environment on business, providing a modern dimension to

business management. They find solution for many problems in the aspect of financial

analysis. Financial analysis establishes inter relationship that exists among. The different

items appeared in the financial statements, which are effectively helpful to describe the

company’s statues, control of sound liquidity and leverage position. The company should

monitor key indication of operating performance and wherever possible must compare,

itself with the competitors in the industry.

A systematic financial analysis of accounting figure helps to analyses the probable

caused relationship among different items after analyzing and scrutinizing the past results

which helps the management to prepare budgets, to formulate company’s policy and to

prepare future plan of action. It focuses on company’s relative performance in sales

growth margins and assets management. It is a simple tool where by a company can make

its internal audit to evaluate internal strengths and weaknesses of the integral part of the

strategic planning.

19

RESEARCH METHODOLOGY

The present study covers from its inception to assess and analyze the elements of working capital analysis in Bharat Sanchar Nigam Limited; the study is based on the data collected from the primary and secondary sources.

Primary Data:

It was collected on the basis of personal observation and interview method. I gathered data from Bharat Sanchar Nigam Limited and Finance Manager & Accountant who explain about the accounting system, internal audit system and budgetary system in Bharat Sanchar Nigam Limited.

Secondary Data:

The secondary Data was collected from various published reports such as

company manuals, yearbooks various published articles and hand books.

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LIMITATIONS OF THE STUDY

The study has been conducted is a systematic and comprehensive way so as to make the project work and enviable one. However the topic under my study may not be free firm limitations due to the factors

The major limitation of the project under study was time. Since it was to be completed within a short period of time. This is not sufficient to undertaking comprehensive study.

Non-availability of completed information. Limitation in information about cash sales and credit sales out of total sales is not available. One more limitation is depreciation on assets individually is not available.

In the height of the above, it is not possible for an analysis to calculate the exact working capital ratios.

The study covers a period of five years form 2005-2009.The information is mostly depends upon the secondary data As it is not possible to cover all the supervisors, so the student trainee selected the supervisors of working capital analysis. Time constraint is another limitation for the study because the project trainee has to study the whole work within 2 months. A study of risk coverage could not make as no records are available in organization to the student trainee.

21

CHAPTERII. INDUSTRY PROFILE

22

INDUSTRY PROFILE

Background:-

The Indian Telecommunications network with 203 million connections is the third

Largest in the world and the second largest among the emerging economies of Asia.

Today, it is the fastest growing market in the world. The telecommunication sector

Continued to register significant success during the year and has emerged as one of the

key sectors responsible for India’s resurgent India’s economic growth.

Telecom sector accounts for 1 percent of India’s GDP. Likely to double in 2-

3 years.

Telecom services contribute 30 percent to India’s total service tax revenue

The Indian telecom sector gives direct employment to more than 4,00,000

People, compared to about 6,00,000 people in China.

Not just the enabler of software, BPO and ITeS companies, it is also the

Lifeline of a fast growing E-commerce space.

State-of-the-art telecom infrastructure has led to the rise of cities like Mysore,

Mangalore, Jaipur, Ahmadabad, Kochi on the software services map.

This has helped spread the benefits of a booming Indian economy to beyond

metros and large cities, and wealth creation is happening in tier-2 cities.

Growth:-

The sector, which was growing in the range of 20 to 25 per cent up to the year 2002-03,

has moved to a higher growth path of an average rate of 40-45 per cent during the last

two years.

23

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-002

02-003

03-004

04-005

05-006

06-007

07-008

08-009

0

5

10

15

20

25

30

35

40

45

1517 18

22 2224.7 25.2

21.924.7

27.724

21.2

40

29

42.4

Indian Telecom Subscriber Annual Growth Rate

This rapid growth has been possible due to various proactive and positive decisions of

the Government and contribution of both by the public and the private sector. The

rapid strides in the telecom sector have been facilitated by liberal policies of the

Government that provide easy market access for telecom equipment and a fair regulatory

framework for offering telecom services to the Indian consumers at affordable prices.

Teldensity:-

The telecom sector has shown robust growth during the past few years. From a

teledensity of mere 0.5 per cent in the year 1989, it has grown to double digit in the

year 2005.

24

89-91 91-93 93-95 95-97 97-99 99-01 01-003 03-005 05-007 07-0090

5

10

15

20

25

0.5 0.6000000000000010.8 1.1 1.6 2.3

3.65.1

11.4

22

India's Growing Teledensity

Buoyed by the better-than-expected teledensity in 2005 (11.4 per cent against 8.6 percent

in 2004) due to the mobile boom in India, Department of Telecommunications

(Dot) has revised the upwards the target of 22 per cent tele density by 2007.

Internet Services:-

Internet services were launched in India on August 15, 1995. In November 1998 the

Government opened up the sector to private operators. A liberal licensing regime was put

in place to increase Internet penetration across the country. Though a large number of

Internet Service Providers (ISPs) has been licensed (389) to operate Internet service

Today, just the top 20 ISPs service 98 per cent of subscribers.

Similarly, while internet telephony is permitted to 128 ISPs, only 32 actually provide the

service. The slow growth of internet and broadband will make the target of 18 million

Internet subscribers and 9 million broadband connections by 2007 tough to achieve.

The growth of IP telephony or grey market is also a serious concern. Government

loses

25

Revenue, while unlicensed operation by certain operators violates the law and depletes

Licensed operators market share.

New services like IP-TV and IP-Telephony are becoming popular with the demand likely

to increase in coming years. The scope of services under existing ISP license conditions

are unclear.

44%

19%

9%

7%

6%

5%

2% 1%5%

Internet Subscriber Base In Per cent

BSNLMTNLSifyBharti AirtelRelianceVSNLYou TelecomHath Way Cable & DataOthers

Internet subscribers stood at 8.6 million for the quarter ending 31st

December 2006,

registering an increase of 6.00 per cent. The growth trend during the quarter is positive

as compared with last quarter where it was 5.02 per cent. The total Internet subscribers

increased from 6.7 million at the end of December 2005 to 8.6 million at the end of

December 2006 registering a growth of 28.03 per cent.

Bharat Sanchar Nigam Ltd (BSNL) has retained its top position and reported a

subscriber base of 38.12 Lakhs Internet subscribers against 3.55 million during the last

quarter. Mahanagar Telephone Nigam Limited (MTNL) has retained second position

with a subscriber’s base of 1.66 million. Sify Limited is third with a base of 8,06,000

subscriber.

26

Major Players:-

There are three types of players in telecom services:

• State owned companies (BSNL and MTNL)

• Private Indian owned companies (Reliance Infocomm, Tata Teleservices,)

• Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea

Cellular, BPL Mobile, Spice Communications)

27

CHAPTERIII. COMPANY PROFILE

28

COMPANY PROFILE

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 47.3

million line basic telephone capacity, 4 million WLL capacity, 49.76 Million GSM

Capacity, more than 37382 fixed exchanges, 46565 BTS, 3895 Node B ( 3G BTS), 287

Satellite Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network

connecting 602 Districts, 7330 cities/towns and 5.5 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, Cell One, has more than 52.09 million cellular customers,

garnering 16.96 percent of all mobile users in its area of operation as its subscribers. In

basic services, BSNL is miles ahead of its rivals, with 35.1 million Basic Phone

29

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).

BSNL plans to expand its customer base from present 47 million lines to 125

million lines by December 2014 and infrastructure investment plan to the tune of Rs. 733

crores(US$ 16.67 million) in the next three years.

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.

30

Interesting Facts:-

There are 2 million BSNL mobile connections in rural India (a record, no other connection is as famous as bsnl in rural areas).

BSNL supplies phone lines to all other network such as Airtel, Vodafone etc.

BSNL is the only network which offers broadband connections.

More than 50% of the international calls coming to India,

Use Reliance network.

Largest pan India coverage-over 11000 towns & 3 lakh villages.

India’s No. 1 wireless service provider with more than 50 Million customers.

An incredible speed of 2mbps is only offered by BSNL.

The only Mobile service available throughout the country including Jammu and

Kashmir and North Eastern states like Arunachal Pradesh, Nagaland, Mizoram etc.

ASPIRATION:-

Be the leading Telecom Service Provider in  India with global presence.  

Create a customer focused organisation with excellence in sales, marketting and

customer care.  

Leverage technology to provide affordable and innovative products/services across

customer segments

Provide a conducive work environment with strong focus on performance

Establish efficient business processes enabled by IT

Nature of the business carried:-

BSNL is basically a telecom(land line) service provider. But now a days apart from these

services, the operations of the company has been diversified into several arenas such as

3G,customercare,call centres, mobile services,etc.

31

Vision of BSNL:-

To become the largest telecom Service Provider in Asia.

Mission of BSNL:-

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 of the country's economy.

Quality Policy:-

BSNL Telecom Factory Mumbai is committed to continually improve through excellence

and customer satisfaction with employee’s participation.

Products / Services Profile:-

1. Products of BSNL:-

BSNL LANDLINE

BSNL MOBILE POSTPAIDPREPAIDUNIFIED MESSAGINGGPRS/WAP/MMSDEMOsTARIFF

BSNL WLL

32

INTERNET SERVICES NETWORKBROADBAND WI- F ICO-LOCATION SERVICEBSNL WEB HOSTINGDIAL UP INTERNETSMS& BULK SMS

BSNL BROADBAND

BSNL MANAGED NETWORK SERVICES

BSNL MPLS-VPN

ISDN

LEASED LINE

INTELLIGENT NETWORK FREE PHONE SERVICEPREMIUM RATE SERVICEINDIA TELEPHONE CARDVIRTUAL PRIVATE NETWORK (VPN) VOICE VPNUNIVERSAL NUMBERUNIVERSAL PERSONAL NUMBERTELE VOTING

VIDEO CONFERENCING

AUDIO CONFERENCING

TELEX/ TELEGRAPH

EPABX EPABXFREE EPABXCENTREX

33

HVNET

INMARSAT

TRANSPONDER

Services of BSNL:-

When it comes to connecting the four corners of the nation, and much beyond, one

solitary name lies embedded at the pinnacle - BSNL.  A company that has gone past the

number games and the quest to attain the position of a leader .  It is working round the

clock to take India into the future by providing world class telecom services for  people

of India.  BSNL is India's no. 1 Telecom Service provider and  most trusted Telecom

brand of the Nation.

Driven by the very best of telecom technology from chosen global leaders, it connects

each inch of the nation to the infinite corners of the globe, to enable you to step into

tomorrow.  

Here is an overview of the World Class services offered by the BSNL:-

Basic Telephone Services:-

 The Plain old, Countrywide telephone Service through 32,000 electronic exchanges.

Digitalized Public Switched Telephone Network (PSTN) with a host of Phone Plus value

additions.

 BSNL launched DataOne broadband service in January 2005 which shall be extended to 

198 cities very shortly. The service is being provided on existing copper infrastructure on

ADSL2 technology. The minimum speed offered to the customer  is  256 Kbps at Rs.

250/- per month only. Subsequently, other services such as VPN, Multicasting, Video

34

Conferencing, Video-on-Demand, Broadcast application etc will be added.

 

Intelligent Network:-

Intelligent Network Service (In Service) offers value-added services, such as:

Free Phone Service (FPH)

India Telephone Card (Prepaid card)

Account Card Calling (ACC)

Virtual Private Network (VPN)

Tele-voting

Premium Rae Service (PRM)

Universal Access Number (UAN) and more.

I-Net :-

India s x.25 based packet Switched Public Data Network is operational in 104 cities of

the country. It offers x.25 x.28 leased, x.28 Dial up (PSTN) Connection) and frame

relay services.

 Leased Lines &Datacom:-

BSNL provides leased lines for voice and data communication for various application on point to

point basis. It offers a choice of high, medium and low speed leased data circuits as well as dial-

up lines.  Bandwidth is available on demand in most cities. Managed Leased Line Network

(MLLN) offers flexibility of providing circuits with speeds of nx64 kbps upto 2mbps, useful for

Internet leased lines and International Principle Leased Circuits (IPLCs).

Cellular Mobile Service :- 

35

Wireless in Local Loop:-

This is a communication system that connects customers to the Public Switched

Telephone Network (PSTN) using radio frequency signals as a substitute for

conventional wires for all or part of the connection between the subscribers and the

telephone exchange.

Countrywide WLL is being offered in areas that are non-feasible for the normal network.

Helping relieve congestion of connections in the normal cable/wire based network in

urban areas.

Connecting the remote and scattered rural areas.

Limited mobility without any air-time charge.

Infrastructure facilities:-

Our Corporate Office, R&D and Factory are situated at the heart of the Trivandrum city.

Our infrastructure is spread across 6000 SQ FEET with Four Building. The main office

constitutes of the Accounts, Administration, Marketing and Director’s offices. There are

separate buildings for R&D centre, that houses the Software and Quality departments,

Production building where the entire assemble is done, and a another separate building

for the Customer Support departments. Our advanced infrastructural setup gives us high

production capacity of more than 5000 machines per month.

36

Achievement and Award of BSNL:-

BSNL National Awards 2006 distribution ceremony was held on the occasion of World

Telecom Day on 17th May 2006 at New Delhi.

Awards were given by Hon'ble Minister of State for Communications & IT Dr.Shakeel

Ahmed. Also present on the occasion were Secretary DoT Dr. J.S. Sarma, CMD BSNL

Sh. A.K. Sinha, Director Operations BSNL Sh. J.R. Gupta and other dignitaries.

Awards such as Bharat Sanchar Doot, AtiVishist Sanchar SevaPadak, Best Maintained

Telecom System, Best Improved Telecom System and, Telegraph award were given on

this occasion.

37

KEY PERSONS

DESIGNATION NAME PHOTOGRAPH

Chairman & managing director Mr.RakeshKumar upadhyay

Dir. Consumer Fixed Access(CFA) Mr. Rajesh Wadhwa

Dir Consumer Mobility & Enterprise

(CM & E)

Mr. R. K. Agarwal

Director(HR) Mr. A.K.Garg

Director(Enterprise) Mr. A. N. Rai

Govt.Director Mr. S. R. Rao

Govt.Director

Mr. Maruthi P.Tangirala

Director Mr. Ashish Guha

38

BSNL AP CIRCLE STRUCTUREThe AP Circle of BSNL is headed by a CGM. Under him there are PGM’s and GM’s . The AP Circle is divided in to 22 SSA’s .

Diagrammatically we can represent in the following manner:

39

CGM, AP Circle

PGM, HD PGM(O), CO

GM (P)

GM(S)

GM(N)

GM(W)

GM(BD) CO

GM(P) CO

GM(NC) CO

GM(MKTG) CO

GMTD,ADB

GMTD,ATP

GMTD,CTR

GMTD,CDP

GMTD,MDK

GMTD,NGD

GMTD,NL

GMTD,NZB

GM (F)

PCE (ELEC)

CE (CIVIL)

CHIEF ATCHT

DGM (VIG)

ADB-AdilabadATP-Ananthapur

MBN-MahabubnagarMDK-MedakNGD-Nalgonda

40

GM(C ) GM(TT) CO GMTD,EG GMTD,PKM

CTR-ChittoorCDP-CuddapahEG-East GodavariGTR-GunturHD-HyderabadKAA-KarimnagarKHM-KhammamKRI-KrishnaKNL-Kurnool

NL-NelloreNZB-NizamabadPKM-PrakashamSKL-SrikakulamVM-VishakhapatnamVZM-VizianagaramWL-WarangalWG-West Godavari

KEY PERSONS (AT AP CIRCLE)

DESIGNATION NAME (Shri/Smt)

CGM

PGM Rajeev Agrawal

AGM (Vig.) K.Gangajala Rao

GM (HR/MIS) A.Ganapati Ram

DGM (Admn/HR) G.Raja Rammohan

AGM(A) I.V.Krishna Rao

GM (Central & West) B.Jagadesh Kumar

GM (NW P) CFA D S. Narendra

GM (South) CFA P.V.Satyanarayana

GM PV.Muralidhar

41

GM (North) CFA K.Manohar

GM (CM) C N. Rao

GM (Fin) V. Srinivasulu

GM MA.Siddiqui

GM NWP CFA DS. Narendra

DGM (Plg & MM) N.Sujatha

DGM (TP) C.Ramachandran

DGM (PP) N.Sujatha

AGM (TP) Brahma Reddy

GM (South) P.V.Satyanarayana

AM (CHMR) V.Sridhar

AM (GWD) M.Chandrasekhar

DGM NWO(LGP+AR) RVSS.Rama Anjaneyulu

AM (Lingampally) DR.Rajeswari

GM-North K.Manohar

AM (SD) U.Srinivas

DGM (Tirumalagiri) G.Nagewsara Rao

GM-Mktg C N .Rao

42

DGM (OP) K.Ramesh

AGM (Op.) G. Rama Krishna

AGM (CS) M.Venkateswara Rao

AGM (PR) J.V.Viswanath

DGM (Mktg) K.Sathya Murthy

GM(Fin) V. Srinivasulu

DGM (TR-I) GTVS.Krishnamacharyulu

43

BSNL SSA LEVEL STRUCTURE (Rajahmundry)

The basic accounting unit in BSNL is SSA. as of now most of these SSA’s are headed by an officer of telecom engineering service in the rank of PGM/GM. In addition to the other engineering officers he is supported by a finance officer of the rank of GM/DGM finance as the case may be who is designated as IFA.

Diagrammatically we can represent in the following manner:

44

GM

CAO(PLG)CAO(TR-KKD) CAO(Dot

soft )

IFA ( At a level of DGM)

CAO(TR-Rmy)CAO(Finance)

KEY PERSONS (AT RAJAHMUNDRY SSA)

DESIGNATION NAME OF THE OFFICER

GENERAL MANAGER SRI.G.RAGHAVENDRA RAO

45

IFA AT DGM LEVEL SRI G.V.RAMAKRISHNA

CAO PLANNING SRI K.M.MANILAL

CAO FINANCE SRI.B.K.VENKATESWARULU

CAO TR- RAJAHMUNDRY SRI K.M. MANI LAL

CAO DOT SOFT SRI.ACHARYULU

CAO TR- KAKINADA SRI.BHAGEERADHA RAO

AO(PLANNING ) SRI T.NAGA RAJU

AO(CASH) SMT. GIRIJA

AO ( CASH RECEIPTS) SRI. Y. VENKATESWARA RAO

AO(PAY ) SRI K.B.KRISHNA

AO(TA & CLAIMS ) SRI P.B.G.TILAK

AO(DOT SOFT) SRI RAJU

AO(OPC ) SRI.G.V.S.R.K.MURTHY

AO(TR-I ) SRI ASHRAFF

AO(TR-II ) SRI M.SATYANARAYANA

AO(TR-III ) SMT.N.V.B. SRIDEVI

AO(TR-I )KAKINADA SRI.SVSV.PRASAD

AO(TR-II )KAKINADA SRI A. LAXMINARAYANA

AO(OPC ) KAKINADA SRI D ACHA RAO

JAO(ASSETS ) SRI B.AJAY BABU

JAO(PLANNING) SRI G.A.K. PRASAD

46

JAO(CASH ) SMT K.MADHAVI

JAO(CASH RECEIPTS) SRI. E.V.RAMANA MURTHY

JAO(PAY-I ) SRI K.V.JAYARAM CHANDRUDU

JAO(PAY-II ) SRI T.S. SRINIVASA RAO

JAO(CLAIMS ) SRI.S.RADHA KRISHNA

JAO(TR-I ) SMT.G.RATNAVATHI

JAO(TR-II ) SRI B.SUNDAR RAO

JAO(TR-III ) SRI JAGAN

JAO(TR-I )KAKINADA SRI.K.SATYANARAYANA

JAO(TR-II ) KAKINADA SRI.V.V.S.NAGESWARA RAO

JAO(DOT SOFT ) SRI M.SRINIVASA RAO

JAO(TASK FORCE ) SRI N.B.G.S.PRASAD

JAO(OPC-I ) SRI D.RAMAKRISHNA

JAO(OPC-II ) SRI.V.V.R.SATYANARAYANA

JAO (OPC-III) SRI K.S.N.MURTHY

SCOPE OF WORK

1. SERVICE:

47

The bidder is required to provide light commercial vehicles fully confirming to

RTA/RTO Regulation along with fuel and with licensed drivers with working mobile

telephone etc and carry out periodical maintenance and execute the work through their

supervisor on hiring basis for running within within the jurisdiction of Andhra Pradesh.

The essence of the contract is to provide service to senior level executives for official

visits and conveyance from home to office and back.

2. PERIOD OF CONTRACT:

Under normal circumstances the contract shall be valid for a period of one year from the

date of issue of work order. However contract may be extended unilaterally by bsnl for a

further period up to one year on the same rate, terms & conditions.

3. QUANTITY:

Estimated numbers of vehicles to be hired are 5 vehicles shall be hired from the

successful bidder. However it should be clearly noted that the requirements may increase

or decrease from time to time and BSNL shall place the order only as per the actual

requirement.

4. Duty hrs:

The vehicles are normally required for ten hours per day an all days of month. However

actual duty hours shall be specified by actual users of vehicle.

5. REPORTING PLACE:

Any place within the jurisdiction of Andhra Pradesh. Actual place of reporting shall be

specified by transport in charge / users of vehicles.

48

6. COUNTING OF DISTANCE:

From garage to garage but chargeable distance in this respect shall not be more than 5

kms.in each way.

7. ACCURACY OF METERS:

The meter reading should tally with the actual distance of run at any instant and

authorized officer shall have full power to get the meter calibrated or check up the meter

for its correctness at bidders cost at any time during the currency of contract and in the

event of any error/fault in the meter being noticed , the bill for the journey under taken

(including those taken earlier) would be adjusted, besides any other penal action as

decided by bsnl, which may even lead to termination of contract.

PREPARATION OF TERMS & CONDITIONS:

Eligibility conditions:

1. The vendor should have current experience of minimum 5 years. they should have

good track record with respect to the transport field.

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2. Vehicle should not be older than 2 years as on the date of hiring. All the

documents pertaining to the vehicle should be made available to the bsnl whenever

is required.

3. The vendor should have a capacity of operating not less than 20 vehicles of the

same class and kind in the same locality.

50

CHAPTERIV. THEORETICAL FRAME WORK

(a)Functional Areas:-

FINANCE DEPARTMENT:-

  Bharath Sanchar Nigam Limitted , the largest public sector undertaking of the nation, is

certainly on a financial ground that’s sound. The corporation has a networth of Rs.78757

crores (US $ 17.71 billion), authorized equity capital of Rs.10,000crores (US $ 2.25

billion), paid up equity capital of Rs 5,000 crores (US $ 1.12 billion)and Revenue is

51

Rs.40,177 crores (US $ 9.04 billion) in 2005-06. (Note: INR 1 = USD0.02249 as on 31-

03-2006)

Corporate Assets

Bharath Sanchar Nigam Limitted has got fixed assets valuing more thanRs.62862 crores

(US $ 14.29 billion), which are in the form of Land, Buildings, Cablesand Apparatus and

Plants etc. BSNL had gross fixed asset of over Rs1,11,692crores(US  $ 25.12 billion) as

on 31-03-2006.

Annual Capital Investment :- 

AnnualCapital Investment in the network has increased from Rs.785 crores(US $ 0.18

billion) in 1986-87 to over Rs.6383 crores (US $ 1.53 billion) in   2005-06.This

investment has been financed mainly by the internal accruals. The annual

capitalinvestment of BSNL can shown graphically as below with the current year in X

axis andamount or capital investment required to be invested for that particular year in

the Y axis.

Revenue :-

BSNL has shown sustained growth in past five years. The growth rate in2005-06 was 11.32%.

Revenue earned by BSNL during last five years:-

52

Gross Investment in Fixed Assets:-

The BSNL is making substantial investment year to year for its network expansion and

modernization. During the current financial year BSNL has made the gross investment of

Rs. 28,227 crore( US $ 6.28 billion) in Fixed Assets.

53

Cumulative Capital Outlay:-BSNL has Gross Fixed Assets of over Rs. 132243 Crores (US $ 25.96 billion) as on 31.03.2009.

54

Investment in Telecom Sector :-

Both public players and private players are investing huge sums to expandtheir network

and provide more coverage in fixed line telephony as well as mobiletelephony. Facing

stiff competition from private sector, public players are taking upmeasures to increase

their customer base to fixed lines and internet services. MTNL andBSNL are investing in

internet infrastructure to provide much reliable network.

Private players are striving hard to capture more and more customers. Theyare

introducing low cost tariff plans and discount schemes in fixed line telephony andinternet

services to increase their customer base. They are also in the process of enlargingtheir

network area providing more coverage in urben as well as rural areas. Finance

department is the key department which maintain and over allcontrol of finance over each

SSA in Kerala. The revenue generated from all the servicesis accounted through

cash/bank books and other records. In providing the services, lot of expenditure is

involved under capital and revenue.

MARKETING DEPARTMENT:-

Marketing is as old man kind. Now marketing has become a broadterm in BSNL.

Marketing department is associated with the exchange of goods, serviceand ideas. Goods

it is a physical entity eg. CD-ROM, shirt etc. service: human effortclubbed with

mechanical effort to provide intangible benefits to the customers. Eg.Telecom, Banking

and Transport etc. Ideas provide intellectual or spiritual benefits to thecustomers. Eg.The

blue print of a business plan, computer software. Marketing aims at³meeting needs

profitable´.

BSNL is marketing their services. There are four characteristics uniquely allied with

services. This department is adopting these strategies. 

55

Intangibility:-

In services customer is unable to experience the µproduct¶ prior toµpurchase¶. To over

come this difficult BSNL is thinking of converting the intangibles tothe tangibles by

providing suitable physical evidence among prospective customers.Eg. The telephone

house wiring, the instrument, the behaviour, the BSNL identity carddisplay by

employees, the attitude, the road side cabinet, logo display, advertisementseverything

matters.

Perishability:-

Service can¶t be stored. Once lost means lost forever. For example just think of an airline

service flying with 50% vacant seats. The ticket charges for that 50% seatswere lost

forever. Give suitable offers to the customers to attract them, even if they arecollecting

one rupee per seat that would have been vacant other wise is additionalrevenue to the

organization. Night unlimited down load in Broad band is an example totackle the

perishability nature

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MEANING AND CONCEPT OF “FLOW OF FUNDS”:

The term ‘flow’ means movement and includes both ‘inflow’ and ‘outflow’ the term

‘flow of funds’ means transfer of economic values from one asset of equity to another

flow of funds is said to have taken place when any transaction makes changes in the

amount of funds available before happening of the transaction. If the effect of

transaction results in the increase of funds. It is called a source of funds and if it

results in the decrease of funds, it is known as an application of funds. Further , in

case the transaction does not change funds. It is said to have not resulted in the flow

of funds. According to the working capital concept of funds, the term ‘flow of funds’

refers to the movement of funds in the working capital. If any transaction results in

the increase in working capital it is said to be a source to be a source or inflow of

funds.

And it results in decrease of working capital,it is said to be application or outflow

funds.

In simple language funds move when a transaction effects.

i. A current assets and a fixed assets, or

ii. A fixed and a current liability.

iii. A current assets and a fixed liability.

iv. A fixed liability and current liability.

And funds do not move when the transaction affects fixed assets and fixed liability

or current assets and current liabilities.

Kenneth medley and Ronald Gibers define the term ‘funds’ as one used in the

sense of spending power, it refers to the value embedded in assets. According to

Bonneville and Dewey ‘funds’ constitute the prime importance in sharing and operating

57

any business enterprise. In the ordinary parlance. Funds mean cash only, but it has got

several different concepts as mentioned below.

Funds May Mean:

a. Cash onlyb. Net working capital i.e., current assets less current liabilities.c. Total resources or total funds.d. Internal resources only.e. Net worth i.e., owner’s equity capital plus reserves.

58

Importance of funds flow Analysis:

Thus funds flow statement in a statement which indicates various means by which the funds have been obtained during a certain period and the ways to which these funds have been used during that period. The term funds used here means working Capital i.e., the excess of current assets over current liabilities.

Funds flow statement is called by various names such as sources and application of funds; statement of changes in financial position, sources and uses of duns; summary of financial operation , where came in and where gone out statement, where got, where gone statement, movement of working capital statement, movement of funds statement, funds received and disbursed statement; sources of increase and application of decrease; funds statement etc.

The funds statement provides an insight into financial operations of a business firm, it is immensely valuable to a finance manager in analyzing the past and future expansion plans of the company and the impact of these plans on the liquidity. He can find out imbalance in the use of funds and undertake remedial actions. For example, an analysis of funds flow position for the past several years might disclose that inventories have expanded at sharper rate than the growth of other assets and sales. And based on detailed analysis, the finance manager might find that the inefficient inventory management of the enterprise was the root cause of the problem. As such,the funds statement draws the attention of finance manager to problems which call for detailed analysis and immediate action.

The funds flow statement can also make an analyst to evaluate the financing pattern of the enterprise. An analysis of the major sources of funds in the past reveals what portion of the growth was financed internally and what portion externally. The statement is also meaningful in deciding whether the firm has grown at a faster rate and vice versa. For instance, we can determine if trade credit has increased out of proportion to expansion in current assets and sales. And if trade credit has increased

59

at relatively higher rate, we can evaluate the consequences of slowness in trade payments on the credit standing of the company.

The funds flow statement acts as a third eye to the finance manager in deciding the make-up of capitalization. Estimated uses of funds for new fixed assets, working capital dividends and for the repayment of debt are made for each of several years. Forecasts are made of the funds to be provided by operations and the balance must be obtained by debt or the shares. If the required amount of new funds is greater than the possible amount to raise, then the plans for new fixed assets and the dividend policies are to be re-examined, so that the uses of funds can be brought into balance with anticipated sources of financing them. In particular, funds flow statements are very useful in planning intermediate and long-term financing.

The statement also serves as control measure in that the statement compared with budgeted figures will show extent the funds were put to use according to plan. It enables the finance manager to find out the deviations from the planned course of action and take remedial courses to rectify the deviations.

Hence, funds flow statement is becoming prominent with the corporate management. As a result, many bank managers request borrowers to furnish a funds statement along with their annual balance sheet and a few Indian companies publish this statement in their reports although they are not obliged to do so under the companies Act.

60

Objectives of Funds Flow:

Funds flow statement is an analytical tool in the hands of financial manager. The basic purpose of this statement is to indicate on historical basis the changes in the working capital i.e., where funds came from and where there are used during a given period.

The utility of this statement can be measured on the basis of its contributions to the financial management. It generally serves the following purposes:

(1)Analysis of Financial Position:

The basic purpose of preparing the statement is to have a rich into the financial operations of the concern. It analyses how the funds were obtained and used in the past. In this sense, it is a valuable tool for the finance manager for analyzing the past and future plans of the firm and their impact on the liquidity. He can deduce the reasons for the imbalances in uses of funds in the past a take necessary corrective Actions. In analyzing the financial position of the firm, the funds flow statement answers to such questions as:

1. Why was the net current asset of the firm down, though the net income was up or vice versa?

2. How was it possible to distribute dividends in absence of or in excess of current income for the period?

3. How was the sale proceeds of plant and machinery used?4. How was the sale proceeds of plant and machinery used?5. How were the debts retired?6. What became to the proceeds of share issue or debenture issue?7. How was the increase in working capital financed?8. Where did the profits go?

Though it is not an easy job to find the definite answer to such questions because funds derived from a particular source rarely used for a particular purpose. However, certain assumptions can often be made and reasonable conclusions are usually not difficult to arrive at.

61

(2) Evaluation of the Firm’s financing:

One important use of the statement is that it evaluates the firm financing capacity. The

analysis of sources of funds reveals how the firm’s financed its development projects in

the past i.e., from internal sources or from external sources. It also reveals the rate of

growth of the firm.

(3) An Instrument for Allocation of Resources:

In modern large business, available funds are always short for expansion programmes

and there is always a problem of allocation of resources. It is, therefore, a need of

evolving an order of priorities for putting through their expansion programmes Which are

phased accordingly, and funds have to be arranged as different phases of programmes get

into their stride. The amount of funds to be available for these projects shall be estimated

by the finance with the help of funds flow statement. This prevents the business from

becoming a helpless victim of unplanned action.

(4) A Tool of Communication of Outside World:

Funds Flow statement helps in gathering the financial states of business. It gives an

insight into the evaluation of the present financial position and gives answer to the

problem ‘where have our resources been moving’? In the present world of credit

financing, it provides a useful information and government etc. regarding amount of loan

required, its purposes, the terms of repayment an sources for repayment of loan etc. The

financial manager gains a confidence born out of a study of Funds Flow Statement. In

fact, it Carries information regarding firms financial policies to the outside world.

62

(5)Future Guide:

An analysis of funds flow statements of several years certain valuable information for

the financial manager for planning the future financial requirements of the firm and their

nature too i.e. short term, long-term or midterm. The management can formulate its

financial policies based on information gathered from the rearrange the firm’s financing

more effectively on the basis of such information along with the expected changes in

trade payable and the various accruals. In this way, it guides the management in

arranging its finance.

Determinants of Funds Flow Statements:

Due to differences in financial sophistication and agency relationships, we

deposit that investors use different criteria to select portfolio managers in The

retail mutual fund and fiduciary pension fund industry segments. We provide

evidence on investor’s manager selection criteria by estimating the relation

between manager’s asset flow and performance. We find that pension fund clients

use quantitatively sophisticated measures like Jensen’s alpha, tracking error, and

outperformance of a market benchmark. Pension clients also punish poorly

performing managers by withdrawing assets under management. In contrast,

mutual fund investors use raw return performance and flock disproportionately to

recent winners but do not withdraw assets from recent losers. Mutual fund

manager flow is significantly positively related to Jensen’s alpha, a seemingly

anomalous result in light of a relatively unsophisticated mutual fund client base.

We provide preliminary evidence, however, that this relation is driven by a high

correlation summary performance measures, such as Morningstar’s star rating. By

documenting differences in the flow-performance relation, we contribute to the

growing literature linking fund manager behavior to the implicit incentives to

63

increase assets under management. We show that several forces combine to

weaken the incentive for pension fund managers to engage in the type of risk-

shifting behavior identified in the mutual fund literature.

CURRENT AND NON-CURRENT ACCOUNTS:

To understand flow of funds it is essential to classify various accounts and balance sheet

items current and non-current categories.

Current accounts can either be current assets of current liabilities. Current assets

are those assets which in the ordinary course of business can be or will be converted into

cash within a short period of normally one accounting year.

Current liabilities are those liabilities which are intended to be paid in the ordinary

course of business with in the short period of normally one accounting year out of the

current assets or the income of the business.

64

CHAPTERV. DATA ANALYSIS AND INTERPRETATION

65

FUNDS FLOW STATEMENTThe following are the list of current or working capital accounts:

LIST OF CURRENT OR WORKING CAPITAL ACCOUNTS

CURRENT LIABILITIES CURRENT ASSETSBill payable Cash in hand

Sundry creditors or accounts payable 2. Cash at bank

Accrued or outstanding expenses 3. Bills receivable

4. Dividends payable 4. Sundry debtors or accounts receivable

5. Bank overdraft 5. Short term loans or advance

6. Short term loans advances and deposits 6. Temporary or marketable investments

7. Provision against current assets 7. Investors or stocks such as

A. Raw materials

B. Work in progress

C. Stores and spares

D. Finished goods

8. Provision for taxation, if it does not amount

to appropriation of profits.

8. Prepared expenses

9. Proposed dividends (may be a current non-

current liability)

9. Accrued incomes.

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LIST OF NON-CURRENT (OR) PERMANENT CAPITAL ACCOUNTS:Non-current or

permanent liabilities

Non-current or

Permanent assets

1. Equity share capital 1. Good will

2. Preference share capital 2. Land

3. Redeemable Preference share capital 3.Building

4. Debentures 4. Plant and machinery

5. Long term loans 5. Furniture and fittings

6. Share premium account 6. Trade marks

7. Share forfeited shares 7. Patent Rights

8. Profit and loss account (balance of profit

i.e. credit balance)

8. Long term investment

9. Capital Reserve 9. Debit balance of profit and loss account.

10. Capital redemption reserve 10. Discount on issue of shares

11. Provision for depreciation against fixed

assets

11. Discount on issue of debentures

12. Appropriation of profits 12. Other deferred expenses

A. General reserve

B. Dividend equalization fund

C. Insurance fund

D. Compensation fund

E. Sinking fund

F. Investment fluctuation fund

G. Provision for taxation

H. Proposed dividend

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Funds flow statement

Funds flow statement is the statement of sources and application of funds.

It is also called as ‘funds where got and where gone statement’ Almond Coleman

Observed. “the funds statement in the statement summarizing the significant financial

charges which have occurred between the between the beginning and the end of

company’s accounting period’.

There are 4 steps involving in preparation of funds flow statement:

Ascertain the funds from operations.

Preparation of statement of charges.

Computation of any missing figures as to profit or loss on sale of fixed assets

purchases or sale of fixed assets purchases or sale of fixed assets etc. finally

preparation of funds flow statement.

Foulke defines this statement as:

“A statement of sources and appreciation of funds in technical device designed to analyze

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

I n the words of Anthony the funds flow statement describe the sources from which

additional funds were derived and the use to which these sources were put.

F.C.W.A in glossary of management accounting terms defined funds flow

statement as a statement either prospectus or retrospect’s, setting out the sources and

applications of the funds of an enterprise. The purpose of the statement is to indicate

clearly the requirement of funds and how they are proposed to be raised and the efficient

utilization and application of the same.

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Thus funds flow statement in a statement which indicates various means by which

the funds have been obtained during a certain period and the ways to which these funds

have been used during that period. The term funds used here means working capital i.e.,

the excess of current assets over current liabilities.

Funds flow statement is called by various names such as sources and application

of funds; statement of charges in financial position, sources and uses of duns; summary

of financial operation, where came in and where gone out statement, where got, where

gone statement, movement of working capital statement, movement of funds statement,

funds received and disbursed statement; funds generated and expended statement; sources

of increase and application of decrease; funds statement etc.

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Difference between funds flow statement and income statement

Funds flow statement Income statement

1. It highlights the changes in the financial position of a business and indicates the various means by which funds were obtained during a particular period and the ways to which these funds were employed.

1. It does not reveal the inflows and outflows of funds but depicts the items of expenses and incomes to arrive all the figure of profit or loss.

2. It is complementary to income statement helps the preparation of funds flow statement.

2. Income statement is not prepared from funds flow statement.

3.While preparing funds flow statement both capital and revenue items are considered.

3. Only revenue items are considered.

4. There is no prescribed format for preparing a funds flow statement.

4. It is prepared in a prescribed format.

Difference between funds flow statement and balance sheet:

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FUNDS FLOW STATEMENT INCOME STATEMENT

1. It is a statement of changes financial position and hence in dynamic in nature.

1. It is a statement of financial position on a particular date and here is static in nature.

2. It shows the sources and uses of funds in a particular of time

2. It depicts the assets and liabilities at particular point of time.

3. It is tool of management for financial analysis and helps in making decisions.

3. It is not of much help to management in making decision.

4. Usually schedule of changes in working capital has to be prepared before prepare funds flow statement.

4. No such schedule of changes is required rather profit and loss account is prepared.

USES, SIGNIFICANCE AND IMPORTANCE OF FUNDS FLOW STATEMENT

A funds flow statement is an essential tool for the financial analysis and is of

primary importance to financial management. Now days, it is being widely used by the

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financial analysis, credit granting institutions and financial managers. The basic purpose

of a funds flow statement is to reveal the changes in working capital on the two balance

sheets dates.

It also describes the sources from which additional working capital has been

applied such a statement is particularly useful in assessing the growth of the firm it’s

resulting financing these needs. By making use of projected funds flow statement, the

management can come to know the adequacy. One can plan the intermediate and long-

term debts, expansion of the business, and allocation of resources, etc., the significance

can be were followed from its various uses given below:

IT HELPS IN THE ANALYSIS OF FINANCIAL OPERATIONS

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The financial statements reveal the net effect of various transactions on the

operational and financial position of a concern. The balance sheet gives a static view of

the resources of a business and the uses to which these resources of a business and the

uses to which these resources have been put at a certain point of time. But it does not

disclose the causes for changes in assets and liabilities between two different points of

time. The funds flow statement explains causes for such changes and also the effect of

these changes on the liquidity position of the company. Sometimes a concern may

operate profitably and yet its cash position may become more and more course. The

funds flow statement gives a clear answer to such a situation explaining what has

happened to the profit of the firm.

It throws light on many perplexing questions of general interest:

Which otherwise may be diffcult to be answered, such as:

Why were the net current assets lesser inspite of higher profits and vice-verse.

Why more dividends could not be declared inspite of available profit?

How was it possible to distribute more dividends than the present earning?

What happened to the net profit? Where did they go?

What happened to the proceeds of sale of fixed assets or reissue of shares, debentures etc?

IT HELPS IN THE FORMATION OF REALISTIC DIVIDEND POLICY:

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Sometime a firm has sufficient profit available for distribution as dividend but yet it may

not be advisable to distribute dividend for lack of liquid or cash resources. In such causes,

a funds flow statement helps in the formation of a realistic dividend policy.

IT HELPS IN THE PROPER ALLOCATION OF RESOURCES:

The resources of a concern are always limited and it works to make the best use of these

resources. A projected funds flow statement constructed for the future help in making

managerial decision. The firm can plan the deployment of its resources and allocation

them among various application.

IT ACTS AS A FUTURE GUIDE:

A project funds flow statement also acts as a guide for future to the management. The

management can come to know the various problems it is going to funds can be projected

well in advance and also the timing of these needs. The firm can arrange to finance these

needs more effectively and avoid future problem.

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IT HEPS IN APPRAISING THE USE OF WORKING CAPITAL:

A funds flow statement helps in explaining how efficiently the

management has used its working capital and also suggests way to improve working

capital position of the firm.

IT HELPS KNOWING THE OVERALL CREDIT WORTHILESS OF A FIRM:

The financial institutions and banks such as state financial institutions, industrial

development corporation, industrial finance corporation of India, industrial development

bank of India etc., all ask for funds flow statement constructed for a number of years

before granting loans to know the credit worthiness and paying capacity of the firm.

Hence, a firm seeking financial assistance from these institutions has no alternative but to

prepare funds flow statements.

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LIMITATIONS OF FUNDS FLOW STATEMENT:

The funds flow statement has a number of uses; however, it has certain limitations also, which are listed below:

A. It should be remembered that a funds flow statement is not a substitute of an income statement or a balance sheet. It provides only some additional information as regards changes in working capital.

B. It cannot reveal continues changes.C. It is not a original statement but simply a re-arrangement of data given in the

financial statement.D. It is essential historic in nature and projected funds flow statement cannot prepared

with much accuracy.E. Changes in cash are more important and relevant for financial management than

the working capital.

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Procedure for preparing a funds flow statement

Funds flow statement is method by which are study changes in financial position of a business enterprise between beginning and end financial statement dates. Hence, the funds flow statement is prepared by comparing two balance sheets and with the help of such other information derived from the accounts as may be needed. Broadly speaking the preparation of a funds flow statement consists of two parts.

I. Statement of schedule of changes in working capital.II. Statement of sources and application of fund.

Statement of schedule of changes in working capital:

Working capital means the excess of current assets over current liabilities. Statement of changes in working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from the two balance sheets.

As working capital=current assets-current liabilities.

i. An increase in current assets and increase working capital.ii. A decrease in current assets and decrease in working capital.

iii. An increase in current liabilities and decrease in working capital.iv. A decrease in current liabilities increases the working capital.

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CHAPTER VI

FINDINGS

SUGGESITIONS

CONCLUSION

BIBLIOGRAPHY

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FINDINGS

The current assets are decreased in the year 2009 as compared to the year 2008.

BSNL has raised their sources of funds during the year 2011-2012.

Increase in working capital in 2006-2007.

The company is using more sources from secured loans.

BSNL has increased they Credit worthiness in the recent years.

By analyzing the BSNL funds flow statement we find that working capital had

effectively used.

By observing the funds flow statement we find that BSNL has losing their profit

percentage from year to year.

BSNL had lost their profit from 19.65 to -5.68 in 5 years of span.

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SUGGESTIONS

Maximum reserves should maintain by the organization.

The company may use modern inventory techniques to manage inventories

effectively.

Better to increase the finance to working capital.

We find that there are several changes in working capital requirements. They need

reduce their requirements capital.

In deficit years the company should pay in dividends to maintain working capital

requirements.

It is suggested that company should raise the funds to the extent required or it

should invest all available long-term funds at a higher rate of returns in long term

investments and advances.

It is advisable to maintain more owned funds.

Reduce the Credit period to cover the bad debts.

Provide the discount policies to debtors to avail the funds for working capital.

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CONCLUSION

The study was undertaken to examine the financial performance of BSNL Rajahmundry

By observing the Annexure of BSNL we find that the company had utilizing their

funds to maximum extent.

This company has several competitors in the market which leads to fluctuations in

sources and application of funds.

The debt equity ratio is at good mark.

There are losing their Net Profit Over the series of year.

BSNL has Good sources of Funds and Grater Application of Funds which leads to

net loss.

In financial year 2010-2011 the Working Capital had increased slightly to

638.02(lakhs).

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BIBLIOGRAPHY

BSNL RAJAHMUNDRY

www.bsnl.co.in

www.cellone.co.in

www.bharatsancharnigam.com

www.wikipedia.com

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ANNEXURES

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