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Submitted to:
Prof. S Abhijith
CONTENTS
Executive Summary...................................................................................................................2
Capital Budgeting Management.................................................................................................2
Major Capital Investments undertaken by Airtel.......................................................................3
Impact of the above capital budgeting decisions on the financial health...................................4
Key Stock Indicators..................................................................................................................4
Ratio Analysis............................................................................................................................5
Executive Summary
Sound financial management is the most important element in the viability of any business
undertaking, and capital investment decisions are the foundation stone of this process. A
company can pursue either an internal, organic approach to its financing options or an
external, inorganic approach that uses borrowed funds to make acquisitions it hopes will
increase its business. This is the route taken by Bharti Airtel Limited, India's leading
telecommunications giant. Beginning in 2010, it has borrowed heavily on the international
market to invest in acquisitions of a 3G licence in India, in Zain Africa and in the broadband
wireless access branch of Qualcomm Inc. However, due to many causes - including the
effects of the global recession on the industry; the highly competitive Indian
telecommunications market; restructuring and disorganization in the firm's top management;
and lack of innovation in offering and delivering new services in India - the company has
experienced not the growth it expected from its expansion strategy, but a steady decline in
profits.
Anticipated business opportunities and possible constrains are easily developed based on the
objectives of the company. Flexibility, on the other hand facilitates the strategic assessment of
financing and capital budgeting, but consistency must be carefully deliberated before setting
up any plan or objective. Given the relationship between tactics, strategy and goals in the
ever changing environment, capital budgeting is certainly of utmost importance when it
comes to equitable distribution of resources.
2. Better financial decisions
With capital budgeting, it becomes easy to analyse several investment options, for example
calculating profitability index and payback period. Business executives can use different tools
to come up with different recommendations. For this reason, make sure you use the most
appropriate tool so that you can determine whether it makes financial sense to initiate longterm plans.
3. Access risk and uncertainty
Capital budgeting is the only sure way to access the risk involved when allocating more
resources in long-term investments. We all know that any investment is clouded with risks
and uncertainty therefore thorough assessment is necessary to make an informed decision
whether or not to invest in long-term projects.
4. Analyse long-term repercussions
Capital budgeting has long-term effect on your business and unavoidably affects the
organizations future growth and cost structure. For this reason, the executive has to make a
good financial decision since it affects the future of the company. In other words, capital
budgeting will determine the success of the company.
Capital budgeting involves the use of several techniques that strive to estimate whether it is
financially wise to initiate long-term projects. Most small businesses lack the know-how of
implementing capital budgeting.
Ratio Analysis
Assets turnover ratio
After the acquisition of Zain, an African telecom company in 2010 and the Indian branch of
Qualcomm Inc. in 2012, we can observe from our calculation there is a significant decrease
in assets turnover ratio from 2010 to 2014.This indicates assets of the company are not
utilised effectively as there 22% increase in asset utilization.
Profit on sales
Profit on sales ratio should be as high as possible. Compared to previous years data, profit on
sales has decreased by 57%.To arrive at sales turnover all the expenses are taken away to
arrive at profits. We see lower profits because the expenditure is going by more than
proportionately for increase in sale turnover from year 2010 to 2013.
Return on assets
High ROE is desirable for every company and this ought to be going up year after year. But,
we see 66% reduction in ROA from year 2010 to 2013.The reasons for this could be the
companys low basing earning power or high interest cost resulting from above average use
of debt.
Return on equity
ROE is indicator of profitability. A high ROE is desired by shareholders. We see from the
data that ROE is decreasing by nearly 64% from year 2010 to 2013.
Debt ratio
Debt ratio in 2010 is 8.4%. In 2013 it is 13.5% which means that creditors are now supplying
more finance in addition to upward trend.
Debt equity
Debt equity ratio of Airtel is less than 1.This indicates that company relies on equity. Over the
years Debt equity ratio is increasing from 0.13 in 2010 to 0.243 in 2013.This is due the long
term debt for financing Zain telecom and Qualcomm.