Rajarata University of Sri Lanka Mihintale.

Post Graduate Diploma in Management (PGDM leading to the Master of !usiness "dministration (M!"

#ull $ame Registration $o

% &hana'alasingam ()G"&*))S+"R"$ % R(&,PGDM,-./-,01

#inan2ial Management "pril -./0

/... 3ntrodu2tion to tele2ommuni2ation industry in Sri Lanka Sri Lankas telecommunications industry contributes significantly towards the countrys development and plays an integral part in the lives of many. It is also a key component of the commercial world. Notably, the domestic telecommunications sector has been charting e ponential growth, and continues to en!oy promising prospects. "he dynamic nature of the telecommunications sector allows little respite for industry operators. "he governments liberali#ation of this industry can be seen as the main driving force behind the rapid development of the countrys telecommunication infrastructure and services. "he &ele2ommuni2ations Regulatory 4ommission of Sri Lanka (&R4SL was established under the Sri Lanka "elecommunication in Sri Lanka, this is promoting sustained $%mendment& %ct No. '( of 1))*. %s the national regulatory agency for telecommunications development in the telecommunication industry by shaping the regulatory process, protecting public interest and being responsive to challenges in an increasingly competitive market. "+,SL will ensure that competition in the market is open, fair and effective. 5'je2tives of &R4SL6

"o ensure the provision of a reliable and efficient, national and international telecommunication services in Sri Lanka. "o protect and promote the interests of consumers, purchasers and other users and the public interest with respect to charges for and the -uality and variety of telecommunication services provided and apparatus supplied.

"o maintain and promote effective competition between persons engaged in commercial activities.

"o promote rapid and sustained development of domestic and international telecommunication facilities.
'

"o promote research in to and development and use of new techni-ues in telecommunications and related fields. $.ore fully described in Section / of the %ct&.

%ccording to %kanksha Singh $'010&, Sri Lankas telecom industry has been a trailbla#er in the South %sian region, being the first to introduce latest technologies in the market1be it 2S. $2lobal Standard for .obile& telephony, ,3.% $,ode 3ivision .ultiple %ccess& fi ed wireless telephone services, %3SL $%symmetric 3igital Subscriber Line& Internet access, 24+S $2eneral 4acket +adio Service& Internet access for mobile telephone, 5i.a $5orldwide Interoperability for .icrowave %ccess& broadband services, 62 $"hird 2eneration& and 6.72 mobile communications and 8S4% $8igh Speed 4acket %ccess& mobile broadband Internet services. Sri Lanka now boasts of one of the most sophisticated telecommunications industries in the region, perhaps at par with many developed nations. 5ith so many players, big and small, each one of them has found their niche in the ever growing pool of telecom. ,ompetition has only led the way for development and advancement. Sri Lankas telecommunication sectors are in line for a bonan#a as the island nation e periences some peace now after nearly three decades of armed conflict. "he telecommunications industry also had a significant impact on the economic and social trends in Sri Lanka as an improved ability to communicate1both within and outside the country and greater access to information have improved livelihoods, lifestyles and the -uality of life of nearly all segments of the population. Sri Lankas telecom industry has grown at a breakneck speed last year after the restoration of peace. 4resently, many telecommunication companies are introducing /2 worldwide technologies in Sri Lanka. "+,SL approved tariffs include following Sri Lanka "elecom 4L, 3ialog "elekom 4L,
6

 .obitel $4vt& Ltd 9tisalat Lanka $4rivate& Ltd 8utchison "elecommunications Lanka $4vt& Ltd :harti %irtel Lanka $4vt& Ltd Lanka:ell $4vt& Ltd 3ialog :roadband Networks $4vt& Ltd %im of this paper is to do a comparative analysis of finan2ial status,positions between Dialog &elekom PL4 and Sri Lanka &ele2om PL4. ;ive years data from the financial statements of both companies will be analy#ed using ratio calculation.

-... Sri Lanka &ele2om PL4 Sri Lanka "elecom is one of Sri Lanka<s most valuable blue chip companies with an annual turnover in e cess of +s 70 :illion. Sri Lanka "elecom is the nation<s number one integrated communications service provider and the leading broadband and backbone infrastructure services provider in the country. Listed on the ,olombo Stock 9 change, the company<s market capitali#ation as at 61 3ecember '011 topped +s =( :illion. "he two main shareholders of Sri Lanka "elecom as at year end were the 2overnment of Sri Lanka which held /).7> through the Secretary to the "reasury and 2lobal "elecommunication 8oldings N.?. of Netherlands, which owned a //.)=> stake. "he balance shares are publicly traded. "he SL" 2roup has a customer base of over five million including multinational corporations, large and small corporate, public sector, retail and domestic customers. "he company has been awarded a National Long
/

"erm +ating of %%% $lka& and a ::1 rating on Long term Local ,urrency and ;oreign ,urrency by ;itch +atings, followed by ::1 local currency and :@ foreign currency ,redit +atings by Standard A 4oor<s. SL" provides facilities and services in the areas of voice, data, video and mobile to its customers. "hese services, which are unmatched in scope, range from domestic and international voice, advance data transmission services which include internet services on leased lines, broadband and dial up, data circuits, and frame relay solutions to I4 services such as I4?4N based on I41.4LS technology, total corporate solutions of multiple services, satellite uplink services, I4 transit, I4?4N, I4L, and international voice traffic transit services to global telecom operators and corporates, N2N services, wholesale services and mobile telephony and mobile broadband through its fully owned subsidiary .obitel. +ision "All Sri Lankans seamlessly connected with world-class information, communication and entertainment services." Mission "Your trusted and proven partner delivered for innovative passion, and exciting and communication commitment" +alues !ustomer !aring- "e put our customers at the centre of everything we do #rustworthy $nnovative creative thinking %esponsive #eamwork common goals
7

experiences

with

uality

- "e are true to our promises - "e continuously invent new opportunities through - "e are ready to listen and act promptly - "e are one team with a common purpose to achieve

&xcellence %esults 'riven

- "e are committed to exceptional performance - "e are committed to enhancing shareholder value

0... Dialog &elekom PL4 3ialog "elekom 4L, operates Sri Lankas largest and fastest growing mobile telecommunications network 1 3ialog .obile. "he ,ompany is also one of the largest listed companies on the ,olombo Stock 9 change in terms of market capitali#ation. 3ialog "elekom 4L, is a subsidiary of % iata 2roup :erhad $% iata&. 3ialog has spearheaded the mobile industry in Sri Lanka since the late )0s, propelling it to a level of technology on par with the developed world. "he ,ompany operates '.72, 62 and 6.72 mobile services, supporting the very latest in multimedia and mobile internet services as well as international roaming across over '00 countries. 3ialog "elekom accounts for more than 70 per cent of Sri Lankas mobile subscribers. In addition to its core business of mobile telephony, the ,ompany operates a wide portfolio of international telecommunication services, including but not limited to retail and wholesale international voice and data services, based on cutting edge International 2ateway Infrastructure. 3ialog 2lobal, the international arm of 3ialog "elekom, provides state1of1 the1art gateway facilities through partnerships with B"ier11 international carriers. 3ialog :roadband Networks $4rivate& Limited $3:N& is a fully owned subsidiary of the ,ompany and is a key player in Sri Lankas I," infrastructure sector, providing backbone and transmission infrastructure facilities and data communication services. 3:N also operates a fi ed wireless telephony service based on ,3.% technology. 3:N was also the first service provider in Sri Lanka to introduce high1speed broadband internet services based on 5i.%C technology. 3ialog "elevision $4rivate& Limited $3ialog "?&, a subsidiary of 3ialog "elekom 4L,, operates 3ialog
*

Satellite "?, a 3irect to 8ome $3"8& 3igital Satellite "? service. 3ialog "? supports a broad array of international and local content including ,NN, ::,, 8:D, ,inema , %CN, 9S4N, "en Sports, 3iscovery ,hannel, ."? $.usic "elevision& and ,artoon Network alongside a wide portfolio of Sri Lankan television channels. +ision "o be the undisputed leader in the provision of multi1sensory connectivity resulting always, in the empowerment and enrichment of Sri Lankan lives and enterprises. Mission "o lead in the provision of technology1enabled connectivity touching multiple human sensors and faculties, through committed adherence to customer1driven, responsive and fle ible business processes, and through the delivery of -uality service and leading edge technology unparalleled by any other, spurred by an empowered set of dedicated individuals who are driven by an irrepressible desire to work as one towards a common goal in the truest sense of team spirit. +alues E "otal commitment to our customers E 3ynamic and human1centered leadership E ,ommitment to task A e cellence E Fncompromising integrity E 4rofessionalism and accountability E "eamwork E ;oremost respect for concern A care

7... "nalysis of finan2ial statements %s stated in the Encyclopedia of Management, ;inancial ratios are one of the most common tools of managerial decision making. % ratio is a comparison of one number to another thematically, a simple division
(

problem. ;inancial ratios involve the comparison of various figures from the financial statements in order to gain information about a company<s performance. It is the interpretation, rather than the calculation, that makes financial ratios a useful tool for business managers. +atios may serve as indicators, clues, or red flags regarding noteworthy relationships between variables used to measure the firm<s performance in terms of profitability, asset utili#ation, li-uidity, leverage, or market valuation. a Statement of #inan2ial Position , !alan2e sheet% "he balance sheet provides an insight into the financial status of a company at a particular time. "he balance sheet, type of financial statement is different in comparison to the other types of financial statements. Dther financial statements are prepared by taking into account the financial health of the company over a considerable span of time. ' 3n2ome statements% %lso known as the 4AL statement or the 4rofit and Loss Statement. "his statement, ascertains the profit and loss of any business. "his can be again of two typesG

Single Step Income Statement .ulti Step Income Statement

2 Statement of 4hanges in )8uity , Statements 5f Retained earnings% "his financial statement denotes alterations in the title rights of e-uities, in any business. d 4ash flo9 statement% "his statement highlights flow of cash over a period of time. "he cash flow may be from investment activities, operations or financing activities. "he report is analy#ing financial statements of both Sri Lanka "elecom 4L, and 3ialog "elekom 4L,. ;ive years $'00=1'01'& financial statements of the companies will be taken into consideration for i& +atios analysis ii& "rendHtime analysis and iii& "ime series cross1 sectional analysis 7./. Ratios analysis
=

;inancial ratios are tools for interpreting financial statements to provide a basis for valuing securities and appraising financial and management performance. 5hen it comes to investing, analy#ing financial statement information is one of, if not the most important element in the fundamental analysis process. %t the same time, the massive amount of numbers in a company<s financial statements can be confusing and intimidating to many investors.

7././.

Profita'ility ratios

4rofitability ratios measure a companys ability to generate earnings relative to sales, assets and e-uity.

Gross Profit Margin: 2ross profit margin $gross margin& is the ratio of gross profit $gross sales less cost of sales& to sales revenue. It is the percentage by which gross profits e ceed production costs. % company that boasts a higher gross margin than its competitors and industry is more efficient.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)
-..1 1(,/(= 6*,116 -..< 10,'1( 6/,0=( -./. ),))= 66,61 1 -.// ),))( 6',')1 -./),'=* 6/,(1)

Ratio,:ear Gross profit margin = Gross Profit Sales!"## 2ross profit Sales

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)
-..1 17,7=),0 /= 66,10=,0 16 -..< 16,17/,0 76 6',71/,* 01 -./. 1(,6)7, ((1 6(,)7/, '6* -.// 1),'6/,)0 7 /1,('),1) ) -./'',0/7,' 0( /),=0',( 7'

71.7.

-<.< >

0... /

0..< ?

-?.>@

7>..<

7..7?

7@.10

7?..<

77.->

It seems 3ialog "elekom 4L, $3ialog& has high gross profit margins over past five years, about /7> of its sales value when it compares with Sri Lanka "elecom 4L, $SL"&. SL" has an average of 60>. "his indicates that 3ialog made a reasonable profit on sales, as long as it keeps overhead costs in control. "his is the first level profitability. "he 24. depends primarily on the firm<s product pricing and cost control.

Operating Profit Margin: % ratio used to measure a company<s pricing strategy and operating efficiency. Dperating margin is a measurement of what proportion of a company<s revenue is left over after paying for variable costs of production such as wages, raw materials, etc. % healthy operating
)

margin is re-uired for a company to be able to pay for its fi ed costs, such as interest on debt.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

Ratio,:ear $perating profit margin= operating income sales!"# # Dperating Income Sales =

-..1 *,6)* 6*,11 6 />.>/

-..< 1,(1) 6/,0= ( @..7

-./. ',(7/ 66,61 1 1.->

-.// ',6/6 6',') 1 >.-?

-./',*)( 6/,(1 ) >.>>

-..1 1,(7/,** 6 66,10=,0 16 @.0.

-..< 1 (,76),06 1 6',71/,* 01 ;-0./<

-./. *,=00,*0 = 6(,)7/,' 6* />.<-

-.// (,1*(,=6 ) /1,('),1 )) />./1

-./*,)'),(0 * /),=0',( 7' /0.</

It seems that both SL" and 3ialog do not have healthy operating profit margin over past five years ranging )>110> average for SL" while it is from *>110> for 3ialog. "his indicates both SL" and 3ialog will be facing challenges to pay for its fi ed costs, such as interest on debt.

Net Profit Margin: Net profit margin measures how much of each rupee earned by the company is translated into profits. % low profit margin indicates a low margin of safetyG higher risk that a decline in sales will erase profits and result in a net loss. 3ifferent strategies and product mi cause the net profit margin to vary among different companies.

Ratio,:ear
%et profit margin=%et income sales!" ## %ttributable to e-uity holders of the ,ompany Sales

Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

-..1

-..<

-./.

-.//

-./-

-..1

-..< 1 ),'10,1* ' 6',71/,* 01

-./. *,771,)7 6 6(,)7/,' 6*

-.// 7,=/0,=0 * /1,('),1 ))

-./*,1)0,0/ 7 /),=0',( 7'

*,*01 6*,11 6

1,'6' 6/,0= (

1,'6' 66,61 1

6,6/0 6',') 1

6,6*1 6/,(1 )

16=(,)/' 66,10=,0 16

/1

/.

/.

;/

;-1

/>

/7

/-

10

5hen we e amine the net profit margin of the SL", this does not show an healthy earnings. ;or the year in '00)1'010, this has earned only /> each year. Dn the other hand, the 3ialg also does not show ade-uate net profit margin. "his earned a negative net profit margin in the year '00= and '00). "his is a worse situation to the company. :ecause, net profit margin provides clues to the company<s pricing policies, cost structure and production efficiency. "his indicates that both SL" and the 3iolog are not efficiently functioning. "hey need to manageHcontrol their costs.

Return on Assets (ROA): +eturn on assets is a financial ratio that shows the percentage of profit that a company earns in relation to its overall resources $total assets&. +eturn on assets is a key profitability ratio which measures the amount of profit made by a company per +upee of its assets. It shows the company<s ability to generate profits before leverage, rather than by using leverage
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands) -..1 -..< -./. -.// -./-

Ratio,:ear Return on assets=%et income Total assets!"## %ttributable to e-uity holders of the ,ompany "otal assets =

-..1

-..<

-./.

-.//

-./-

-..1

-..<

-./.

-.//

-./-

-..1

-..<

-./.

-.//

-./*,1)0,0/ 7 )1,'6=,0 0=

*,*01 =1,)(*

1,'6' *=,*6=

1,'6' *=,70'

6,6/0 (7,/1(

6,6*1 =6,6=6

16=(,)/' =0,1((,0( (

1),'10,1*' (=,1(6,=' 1

*,771,)76 (=,')0,=* '

7,=/0,=0* =6,7/6,'/ '

1..@

/.><

/.1.

7.70

7..0

;..71

;//.>1

1.0>

?.<<

?.>1

%ccording to above table, the SL"s return on assets is slightly decreasing from '00= to '01'. 8owever, though the 3ialog e perienced a negative return on asset in year '00= and '00), this is getting improved return on asset over past 6 years.

Return on Equity (ROE): Return on e8uity is the amount of net income returned as a percentage of shareholders e-uity. It reveals

11

how much profit a company earned in comparison to the total amount of shareholder e-uity found on the balance sheet.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio,:ear
Return on e&uity (R$E)=%et income '(era ge common e&uity!"## %ttributable to e-uity holders of the ,ompany ,ommon 9-uity -..1 -..< -./. -.// -./-

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)
-..1 -..< -./. -.// -./-

-..1

-..<

-./.

-.//

-./-

-..1

-..< 1 ),'10,1* ' 6/,*7=,0 (7

-./. *,771,)7 6 6),***,7 /=

-.// 7,=/0,=0 * /',1)),/ )*

-./*,1)0,0/ 7 /*,6)6,' /0

*,*01 /),66 =

1,'6' /=,=/ '

1,'6' 70,*/ *

6,6/0 76,1* 0

6,6*1 76,*1 (

16=(,)/' /7,6)7,0 ==

/0.0 1

-.@ -

-.7 0

?.1

?.>

;..1@

;-?.@>

/?.@-

/0.17

/0.07

It represent that the SL" and the 3ialogs efficiency at generating profits from every rupee of net assets $assets minus liabilities& is not in good position. "he SL"s +D9 is not stable over the years. Dn the other hand, the 3ialog shows -uit good position in return on e-uity despite its negative figure in '00= and '00). In general both have to find improvement in getting return over their e-uity. 7./.-.

Li8uidity Ratios

Current Ratio: "he ratio is mainly used to give an idea of the company<s ability to pay back its short1term liabilities $debt and payables& with its short1term assets $cash, inventory, receivables&. "he higher the current ratio, the more capable the company is of paying its obligations. % ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.

Ratio,:ear
,urrent ratioIcurrent assetsHcurrent liabilities ,urrent assets ,urrent liabilities

Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)

Ratio 2al2ulation for Dialog &lekom (all amounts in Sri Lanka Rupees Thousands)

-..1 61,0= 0 '/,/6 7

-..< 1(,=1 6 1',** /

-./. 1),(1 = 11,7( 0

-.// '1,(/ ) 1/,0( 6

-./'',)0 ( 1=,/1 =

-..1 10,/)),*= ( '7,)(7,'/ 0

-..< 1',/0*,=6 ) 1(,')(,07 )

-./. 16,/1*,*0 1 17,*6*,*6 (

-.// 1*,61),0=' '0,6'0,1/(

-./1(,67=,((= 60,(/',*)/

/.>

/.7 /

/.> .

/.@ @

/.7

..7.

..>-

..1?

..1.

..@?

1'

%s far as current ratio is concerned, the SL" showed good ratio level ranging from 1.'/ to 1.(0. 2enerally, short1term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm<s assets are working to grow the business. 8owever, the 3ialog, being the competitor to the SL" recorded comparatively unhappy figure on this ratio.

Quick/Aci !test Ratio: % stringent indicator that determines whether a firm has enough short1term assets to cover its immediate liabilities without selling inventory. "he acid1test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)

Ratio,:ear
JuickH%cid1test ratioI ,urrent assets1 InventoryH,urrent assets ,urrent assets Inventory ,urrent assets1 Inventory ,urrent liabilities

Ratio 2al2ulation for Dialog &lekom (all amounts in Sri Lanka Rupees Thousands)

-..1 61,0= 0 ',660 '=,(7 0 '/,/6 7

-..< 1(,=1 6 1,(/' 1*,0( 1 1',** /

-./. 1),(1 = 1,17= 1=,7* 0 11,7( 0

-.// '1,(/ ) 1,/*7 '0,'= / 1/,0( 6

-./'',)0 ( ',6)* '0,71 1 1=,/1 =

-..1 10,/)),* =( */*,*01 ),=76,0= * '7,)(7,' /0

-..< 1',/0*,= 6) '0(,7== 1',1)),' 71 1(,')(,0 7)

-./. 16,/1*,* 01 '**,17) 16,170,/ /' 17,*6*,* 6(

-.// 1*,61),0 =' 6)7,717 17,)'6,7 *( '0,6'0,1 /(

-./1(,67=,( (= '16,1(= 1(,1/7,* 00 60,(/',* )/

/./ 1

/.>

/.? .

/.7 7

/./ /

..01

..>/

..17

..>1

..@?

"he SL"<s li-uidity seems unstable over the years. 8owever, it has maintained the -uick ratio to the standard 1G1. "his is due to the large levels of inventory. "he firm may need to e amine its inventory levels to see if they are too e cessive. It is also possible that the firm carries obsolete or non1moving inventory items which need to be written off to reflect the true levels of operating inventory. 7./.0. De't ratios,Leverage ratios

16

:oth long1term and short1term creditors are concerned with the amount of leverage a company employs, since it indicates the firm<s risk e posure in meeting its debt obligations.

"e#t Ratio: It shows how much the company relies on debt to finance assets. "he debt ratio gives users a -uick measure of the amount of debt that the company has on its balance sheets compared to its assets. "he higher the ratio, the greater the risk associated with the firm<s operation. "he optimal debt ratio is determined by the same proportion of liabilities and e-uity as a debt1to1e-uity ratio. If the ratio is less than 70>, most of the company<s assets are financed through e-uity. If the ratio is greater than 70>, most of the company<s assets are financed through debt.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)

Ratio,:ear 3ebt ratioI "otal debtHtotal assetK100

"otal debt $L" A ,L& "otal asset =

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

-..1 '/,/6 7 =1,)( *

-..< 1',** / *=,*6 =

-./. 11,7( 0 *=,70 '

-.// 1/,0( 6 (7,/1 (

-./1=,/1 = =6,6= 6

-..1 '7,)(7, '/0 =0,1((,0( (

-..< 1(,')(, 07) (=,1(6,=' 1

-./. 17,*6*, *6( (=,')0,=* '

-.// '0,6'0, 1/( =6,7/6,'/ '

-./60,(/', *)/ )1,'6=,00 =

-<.1 /

/1.7 @

/?.1 <

/1.? ?

--.. <

0-.7.

--./0

/<.<>

-7.0-

00.>.

%s shown in the table, both SL" and the 3ialogs debt ratio indicate a wealthy position. "his means that both companies assets are derived mainly through e-uity not through debt. 8owever, both companies should not show a stable stance as their debt ratios are sometime increasing.

"e#t to Equity Ratio: % measure of a company<s financial leverage calculated by dividing its total liabilities by stockholders< e-uity. It indicates what proportion of e-uity and debt the company is using to finance its assets.

1/

Ratio,:ear 3ebt to 9-uity +atioI "otal 3ebtH,ommon 9-uityK100 "otal 3ebt ,ommon 9-uity $S,@+etained earnings@s.premium@ 4AL@ +eserves&

Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

-..1 '/,/6 7

-..< 1',** /

-./. 11,7( 0

-.// 1/,0( 6

-./1=,/1 =

-..1 '7,)(7, '/0

-..< 1(,')(, 07)

-./. 17,*6*, *6(

-.// '0,6'0, 1/(

-./60,(/', *)/

/),66 =

/=,=/ '

70,*/*

76,1* 0

76,*1 (

/7,6)7,0 ==

6/,*7=,0 (7

6),***,7 /=

/',1)),/ )*

/*,6)6,' /0

7<.@ 0

-@.< 0

--.1 7

-?.7 >

07.0 @

@>.--

7<.</

0<.7-

71./@

??.->

"he SL" had a moderate debtHe-uity ratio generally and it is on an unstable stage over the years. Dn the other hand, the 3ialog had a higher ratio. It means that the 3ialog had been aggressive in financing its growth with debt. "his can result in volatile earnings as a result of the additional interest e pense.

$i%es &nterest Earne

Ratio: "imes interest earned is the ratio of a business to its interest

of earnings before interest and ta

e pense during a given period. It is a solvency ratio measuring the ability of a business to pay off its debts.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio,:ear
iii. "imes Interest 9arned +atio $"I9&IDperating incomeHInterest e penseK100 Dperating income Interest e pense

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

-..1 *,6)*
1,'0'

-..< 1,(1)
)07

-./. ',(7/
61=

-.// ',6/6
(7

-./ ',*) (
76/

-..1 1,(7/,** 6
NIL

-..< 1 (,76),06 1
NIL

-./. *,=00 ,*0=

NIL

-.// (,1*(,=6 )
1 1,1==,/(7

-./*,)'),(0 *
1 ',)=6,1*7

@.0 -

/.< .

1.? ?

0/.7

@.. @

$3L

$3L

$3L

;?..0

;-.0-

"he SL" showed fair interest cover over the year while the 3ialog e perienced negative interest cover in '011 and '01'. "his represents that SL"s interest cover is more than 07 times over the years e cept the year '00) in which it had the times interest earned is relatively less $1.)0& and in '011 relatively high $61.0/&.
17

;igure of the 3ialog represents that it is facing challenging in paying interest to the investors. 7./.7. "sset "2tivity,Management Ratios

%ctivity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items. "hese ratios are important in determining whether a company<s management is doing a good enough !ob of generating revenues, cash, etc. from its resources.

A'erage Co((ection perio : "he appro imate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients.

Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)
Ratio,:ear
%verage ,ollection 4eriodI %ccounts +eceivableH%nn ual 3aily ,redit SalesH6*7 %ccounts +eceivable %verage 3aily ,redit Sales %verage 3aily ,redit SalesH6*7

Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

-..1 10,(() 6*,116 )=.)6)( '*

-..< 10,6)) 6/,0=( )6.6=)0/ 11

-./. 10,/)/ 66,611 )1.'*601 6(

-.// 10,1// 6',')1 ==./*=/) 6'

-./1',1=) 6/,(1) )7.1'07/ ()

-..1 =,60=,67 1 66,10=,0 16 )0,(0(

-..< (,0=/,67 7 6',71/,* 01 =),0=1

-./. =,0(1,60 ( 6(,)7/, '6* 106,)=/

-.// ),0'6,/0 / /1,('),1 )) 11/,6'(

-./),6(=,1* 1 /),=0',( 7' 16*,//*

Days

/.<

///

//@

//@

/-1

<-

1.

>1

><

?<

"he SL" maintained a higher %,4, 10)11'=, which indicates a liberal policy in that the firm gives more times to debtors for making payments. 8owever, as the financial statement of the company did not specify the actual credit sales, therefore, total turnover considered as credit sales and which may not be more reliable practically. Dn the other hand, the 3ialog comparatively had less %,4, which is ranging from *)1)'. So, the SL" provide more fle ibility in collecting its debts than the 3ialog.

1*

&n'entory $urno'er Ratio: % ratio showing how many times a company<s inventory is sold and replaced over a period. "he days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or inventory turnover days.
Ratio 2al2ulations for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million)

Ratio,:ear
Inventory "urnover +atioISalesHInvent ory Sales Inventory

Ratio 2al2ulations for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

-..1
6*,11 6

-..<
6/,0= (

-./.
66,61 1

-.//
6',') 1

-./6/,(1)

-..1
66,10=,01 6

-..<
6',71/,*0 1

-./.
6(,)7/,' 6*

-.//
/1,('),1) )

-.//),=0',(7 '

',660

1,(/'

1,17=

1,/*7

',6)*

*/*,*01

'0(,7==

'**,17)

6)7,717

'16,1(=

/@

-.

-<

--

/7

@/

/@>

/70

/.?

-07

The above table indicates that the SLT has inventory turnover ratios between 14- 29 and this may indicate excessive, obsolete, or slow-moving inventory. owever, the !ialog indicates very good inventory turnover being an average o" 1#$ times. This shows that the com%etitor %ossess "ast moving inventory or it sells its inventory "aster than the SLT.

)i*e

Assets $urno'er Ratio: % financial ratio of net sales to

fi ed assets. "he fi ed1asset turnover ratio measures a company<s ability to generate net sales from fi ed1asset investments 1 specifically property, plant and e-uipment $44A9& 1 net of depreciation. % higher fi ed1asset turnover ratio shows that the company has been more effective in using the investment in fi ed assets to generate revenues
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

Ratio,:ear
;i ed %ssets "urnover +atioISalesHNet ;i ed %ssets Sales Net ;i ed %ssets

-..1 6*,116 70,=)*

-..< 6/,0=( 70,='7

-./. 66,611 /=,(=/

-.// 6',')1 76,**=

-./6/,(1) *0,/(*

-..1 66,10=,0 16 *),*((,6 )0

-..< 6',71/,* 01 *7,(**,) ='

-./. 6(,)7/, '6* */,=(/,' *1

-.// /1,('),1 )) *(,''/,1 *0

-.//),=0',( 7' (6,=(),' 60

..>/

..?>

..?1

..?.

..@>

..71

..7<

..@<

..?-

..?>

1(

$ota( Asset $urno'er Ratio: "he amount of sales generated for every rupee<s worth of assets. It is calculated by dividing sales in rupees by assets in rupee.
Ratio 2al2ulation for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio 2al2ulation for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands)

Ratio,:ear
"otal %sset "urnover +atioISalesH"ot al %ssets Sales "otal %ssets

-..1
0?B//0 1/B<>?

-..<
07B.1> ?1B?01

-./.
00B0// ?1B@.-

-.//
0-B-</ >@B7/>

-./07B>/< 10B010

-..1
00B/.1B. /0 1.B/>>B. >>

-..<
0-B@/7B? ./ >1B/>0B1 -/

-./.
0>B<@7 B-0? >1B-<.B1 ?-

-.//
7/B>-<B/ << 10B@70B7-

-./7<B1.-B> @</B-01B. .1

..77

..@.

..7<

..70

..7-

..7/

..7-

..71

..@.

..@@

&enerally s%ea'ing on net "ixed assent turnover and the total assets turnover ratios, the SLT has maintained higher the ratio, more than (.))* 1. Dn other hand, the 3ialog has also maintained an average of 7'G1 in terms of net "ixed assent turnover and the total assets turnover ratios. This indicates that both SLT and the !ialog have less money tied u% in "ixed assets or each sales revenue. owever a very high ratio may indicate inade+uate, low, outdated or de%reciated "ixed assets. 7./.@. Market +alue Ratios

"he current -uoted price at which investors buy or sell a share of common stock or a bond at a given time. Market Ratio +a(ue: "he current -uoted price at which investors buy or sell a share of common stock or a bond at a given time. The ,rice--arnings .atio is calculated by dividing the current mar'et %rice %er share o" the stoc' by earnings %er. The ,/- .atio indicates how much investors are willing to %ay %er ru%ee o" current earnings. 0s such, high ,/- .atios are associated with growth stoc's. 1n this manner, the ,/- .atio also indicates how ex%ensive a %articular stoc' is. This ratio is not meaning"ul, however, i" the "irm has very little or negative earnings.
Ratio 2al2ulations for Sri Lanka &ele2om (all amounts in Sri Lanka Rupees million) Ratio,:ear 4rice to 9arnings +atioI.arket '00= '00) '010 '011 '01' Ratio 2al2ulations for Dialog; the 2ompetitor (all amounts in Sri Lanka Rupees Thousands) '00= '00) '010 '011 '01'

1=

4rice per ShareH9arnings per Share .arket 4rice per Share 9arnings per Share A

10 6.** -.>0

10 0.*= /7.>/

10 1.6( >.0.

10 1.=7 @.7/

10 1.=* @.01

* 10.1/ ; 7-.1?

(.'7 11.'( ;@.>/

11.= 0.(= /@./0

(.= 0.(6 /..?1

=.6 0.(= /..?7

"he SL" is recording relatively good market ratio value comparing to its competitor, the 3ialog, which e perienced a negative earning in '00= and '00). 1nvestors who are willing to %ay a high %rice "or a ru%ee o" current earnings obviously ex%ect high earnings in the "uture. 7.-. &rend,time analysis

"rend analysis is important when e amining a firm<s financial statements, because financial analysts can see how company assets have grown over time. In the competitive landscape, the topic of asset growth is often preeminent, especially in industries re-uiring substantial upfront investments. 4rofitability ratios

7.-./.

2ross 4rofit .arginG

1)

%s shown in the above graph, gross profit margin of the SL" is decreasing at a slower rate when comparing with past $'00=&. In the year '00(, its gross profit margin further declined to '*.(7>. It alarms that SL" should adapt new strategies to keep its gross profit margin at stable percentage. "hen only, it can attract shareholders who may get high return to their investment. %s the SL"s gross profit margin decreases, it should focus on following. the selling price of goods the cost of goods sold purchasing or markup policies. ability of management to improve sales volume, or omission of sales.
valuation of opening stock or closing stock

8owever, the 3ialog telekom1 the competitor gets good gross profit margin with a stable position over last five years. It can be e pected that this will maintain its stableness.

7.-.-.

Dperating 4rofit .argin

'0

"he graph shows that operating profit margin of the SL" is having less value over past five year, and it could be predicted that it will further get down in the future. It indicates that managements efficiency of SL" is not at acceptable level. ;urther, as it compares the -uality of a companys activity to its competitors, the 3ialog, though it recorded a negative figure in '00), is maintaining comparatively good rate of the operating profit. "herefore, the SL" has to put more effort in maintaining a low1cost operating model in its operation. 7.-.0. Net 4rofit .argin

%s far as the net profit margin is concerned, the SL" is e periencing a decreasing figure over past years. "his is predicted that this will further
'1

decline if the company makes necessary action to get improvement in terms of sales and cost of goods sold. "he 3ialog, the competitor, though it e perienced a negative figure in '00), is having a fair net profit margin over past years. N4. ratio is used to measure the overall profitability and hence it is very useful to proprietors. "he ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. 7.-.7. +eturn on %ssets

7.-.@.

+eturn on 9-uity

''

"he above graph indicates that the SL" is maintaining a stable return on assets and e-uity though it is relative less comparing to its competitor, which, on the other hand, e perienced negative return on assets and e-uity in '00= and '00). So, it can be predicted that the SL"s return on assets and e-uity will be more stable in the industry than competitor. 7.0. Li8uidity Ratios 7.0./. ,urrent +atio

7.0.-.

JuickH%cid1test +atio

'6

"he SL" has show a very good current ratio and -uick acid ratio over past five years. It indicates that the SL" is maintaining verygood le-uidity position in its operation. :ut, the 3ialog is continuously e perincing less current and -uick ration over past years. It is unable to meets the standard ration rate 1G1.

7.7. De't ratios,Leverage ratios 7.7./. 3ebt +atio

"he graph above shows that the SL"s debt ratio is going stable over the years, and get started to increase in '011 and '01'. "his can be e pected that this will further increse in future. "he 3ialog is also gaining good debt ratio over the years. "his incdicate that both companies will be able to pay their debt without any difficulties.

'/

7.7.-.

3ebt to 9-uity +atio

"he SL" had a very good debt to e-uity ratio in '00= and started to decline in '00) and '010. 8owever, it again got started to increase in '011 and '01'. Dn the other hand, the 3ialog has been maintaining well position on this. "his indicates that the SL" has to create some new strategies in financial strategies.

7.7.0.

"imes Interest 9arned +atio

"his represents that SL"s interest cover is more than 07 times over the years. "he SL"s interest cover was gradually increasing from '00) up to
'7

'011. 8owever, it goes down to 7 in '01'. 8owever, this can be predicted based past records that the SL"s interest cover will be increasing in future as well. 7.@. "sset "2tivity,Management Ratios 7.@./. %verage ,ollection period

SL"s average collection period has been continously increagin over past year while the competitors one decreasing. It means the SL" have the more liberal collection policy and giving more time to the customers than the competitors.

7.@.-.

Inventory "urnover +atio

'*

The gra%h indicates that !ialog has high inventory turnover ratios than the SLT. 1t means high turnover o" stoc's in !ialog2s o%eration. 7.@.0. ;i ed %ssets "urnover +atio

7.@.7.

"otal %sset "urnover +atio

'(

The SLT has maintained higher %osition on net "ixed assent turnover and the total assets turnover ratios, more than (.))* 1 over the years. Dn other hand, the 3ialog has also maintained an average of 7'G1 in terms of net "ixed assent turnover and the total assets turnover ratios. This indicates that both SLT and the !ialog have less money tied u% in "ixed assets or each sales revenue. owever a very high ratio may indicate inade+uate, low, outdated or de%reciated "ixed assets.

7.?. Market +alue Ratios

'=

7.?./.

.arket +atio ?alue

"hough price to earnings in the SL" is decreasing over the years, it recorded relatively good market ratio value comparing to its competitor, the 3ialog, which e perienced a negative earning in '00= and '00). 8owever, the 3ialogs price to earnings started increasing from through '011.

')

60