ACCOUNTING FOR MANAGERS

Industry: Telecommunication-Equipment
The Telecom industry in India has grown tremendously over the last decade. It is the fastest
growing sector in the world. The Government policies and the policies implemented by TRAI
has helped the telecom industry to a great extent to achieve this growth rate. So also the
increased no of handset, routers, modems and other equipments has helped this industry grow.
Below is the analysis and comparison of two industries namely
1.

Hartron Communications Ltd.: It deals in delivering broadband services on any

device.
2. ADC India Communications Ltd.: ADC India offers a range of Genuine KRONE
products and delivers broadband and wireless connections throughout India.
Ratio Comparison
Hartron Communications
Mar-13 Mar-12 Mar-11 Mar-10 Mar-09
Leverage Ratios
Debt Equity Ratio
Interest Cover
Equity Multiplier

0.95
4.83
1.74

0.94
3.21
1.73

1.14
3.88
1.90

1.78
2.66
2.47

1.86
2.21
2.54

Profitability Ratio
Net Profit Margin
Return on Long Term Funds
Earnings Per Share

22.78
17.62
5.78

22.62
15.2
5.44

31.54
15.58
4.77

25.48
16.5
4.13

24.97
14.83
2.77

Activity Ratio
Investments Turnover Ratio
Debtors Turnover Ratio
Asset Turnover Ratio

2.69
33.26
0.58

5.03
29.33
0.44

412.22
17.56
0.28

440.36
17.23
0.3

293.57
8.21
0.29

1.71
0.71
1.22

1.93
1.43
3.25

2.17
2.03
7.25

1.97
1.96
6.53

0.46
0.46
1.59

Liquidity Ratio
Current Ratio
Quick Ratio
Interval Measure

ADC India Communications

Mar-13 Mar-12 Mar-11 Mar-10
Leverage Ratios
Debt Equity Ratio
Interest Cover
Equity Multiplier

Mar-09

0
0
0.46

0
0
0.46

0
174.23
0.46

0.009
36.62
0.46

0.012
9.59
0.47

-14.92
-3.48

1.83
1.22

3.86
8.57

2.79
5.16

1.62
2.31

-13.17

0.95

6.17

4.61

2.36

Activity Ratio
Investments Turnover Ratio
Debtors Turnover Ratio
Asset Turnover Ratio

3.77
2.54
0.78

1.94
1.39
0.43

7.94
3.8
3.55

11.44
3.73
3.53

7.63
2.38
1.31

Liquidity Ratio
Current Ratio
Quick Ratio
Interval Measure

5.11
4.04
5.18

6.71
5.19
12.07

4.26
3.58
1.01

4.67
4.07
1.15

3.47
2.91
2.22

Profitability Ratio
Net Profit Margin (%)
Return on Long Term Funds (%)
Earnings Per Share

Analysis and Interpretations

1. Liquidity Ratio
The liquidity ratios of a company talks about its ability to meet its short term financial obligations in time
by assessing the cash trapped in the cash cycle when creditors ask for payments.
The margin of the liquidity ratios of Hartron Communications Ltd is less as compared to ADC India
Communications which states that Hartron might not be able to meet their short term liabilities on time as
indicated by its Quick and Current Ratio. The 4:1 quick ratio of the company indicates a strong
liquidity position of the company as compared to Hartron. Therefore we can say that the company has
safe margin of liquidity in order to meet its current liabilities. A huge variation between the quick and
current ratio would indicate inventory- holdups. But in the case of the above companies the inventory
holdup are not very large.
Interval measure approximately calculates the number of days a company can operate only using the
cash in hand. Interval measure is generally used in liquidity ratio in order to judge the number of days a
company can operate rather than the other ratios that only show the ease of making payments. The
interval measure of both the above companies is very low which indicates it has very less cash in hand
and should increase the amount in hand.

2. Activity ratio
It tells us about the ability of the company to convert its inventor and other different accounts mentioned
in the balance sheet into cash or sales. The ratios I have analyzed are investment turnover ratio, debtors
turnover ratio and asset turnover ratio. The investment turnover ratio of both the companies has
decreased drastically from Mar11 as per the annual reports of the respective companies it indicates that
the companies have been investing in long term projects for future improvement of network
communication. Therefore their investment have not yet paid off which is the reason for the drastic
decrease in the investment turnover ratio. The debtors turnover ratio of Hartron in increasing at a larger
rate as compared to ADC communications which show a drop in the DTR in the year 2012. Therefore we
can see that the companies are efficient enough in collecting the sales that are made on credit. ADC
communication had shown a drop in receivables collection probably because as per news it had started
exporting goods in 2011 and therefore maybe they got receivables at a later point of time.

3. Profitability Ratios
The profit making ability of these companies is not so good as they are going facing loses due to
reduction in export because of the economic slowdown in Europe and US which are their major
exporting destinations. The profitability ratios of Hartron Communication shows that the
company is doing very well but as per the previous growth rates in profit the current growth in is
lesser, this is mainly because of its investment in Real Estate where it has established to gain its
profits. The EPS is also increasing but at a slow rate with respect to both the companies which
shows a signs of recovery. As per the annual report of ADC Communications the company has
taken adequate measures of reducing the cost like the VRS, investing in new innovative
technologies that are coming up etc.
4. Leverage Ratios
The Leverage Ratio of the companies calculates the Debt the company shows on its balance
sheet, it is also a measure of financial health of the company. ADC Communications Ltd has
paid off all its debts and therefore does not show any debt to equity ratio. As per its annual
reports the company has not accepted any deposits in 2013 nor are there unclaimed deposits due
for repayment at the close of the financial year. The debt/equity ratio for Hartron is also lessening
which is a good sign. Interest coverage ratio measure the ability of the company to pay the
interest occurred on its debts. The interest coverage ratio of both the companies is rising. This
may be due to the government policies introduced in the last couple of years. The equity
multiplier effect of both the companies is not improving consistently.

Recommendations
The companies have good liquidity ratio only thing it must focus on the cash control and reserves
it keeps along with itself. The company should try exploring other markets as the markets in US
and Europe are recovering at a very slow rate from the financial crisis.
Investing in other industries which are currently profitable like real estate, technology, or
investing in their own R&D can improve the profitability ratio of the company as it can reduce
the impact of losses that the company is currently facing in the telecom industry.
The companies should take advantage of the 4G services, which has overseen a positive impact
from the government of India. The company should invest in this service and increase their
profitability ratio
Both the companies should improve their awareness throughout India, through marketing and
other initiatives.

Reference
Websites
http://www.moneycontrol.com/annual-report/adcindiacommunications/directors-report/KC07#KC07
http://www.moneycontrol.com/annual-report/hartroncommunications/directors-report/HC01#HC01

http://ratio-analysis.org/activity-ratios.php

Books
Accounting for Management 3rd Edition - Vikas Publishing House Pvt Ltd; Page No: 3.37