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An Empirical Assessment of a Telecom Major Applying the Tool of Leverages


Affiliations
1 Department of Management Studies, Panimalar Engineering College, Chennai, India
2 Department of Management Studies, Velammal Engineering College, Chennai, India
     

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The Indian telecom industry is the second fastest growing in the world next only to China in terms of subscriber additions. The intense competition witnessed among players has resulted in price wars resulting in lower revenues and further the huge license fee imposed by the government has had a severe negative impact on the operating margins of the industry players. In this challenging scenario, the authors felt the need to analyse the financial position of one the leading players in the industry by employing the tool of leverage analysis. The company's EBIT growth has been moderate. All the three leverages has shown a marked increase during the study period. The interest expense to total debt ratio and concomitantly, the interest expense to total expenditure has also increased during the period of study. Variable costs as percentage of fixed costs has declined while variable costs as percentage of revenue has been stable. It was suggested that the company considered for the discussion and in general all telecom companies need to revisit their business model and focus on earning higher share of revenues through providing a comprehensive suite of value added services. Consistent efforts need to be taken on revenue generation and cost control in order to improve earnings visibility. Measures need to be taken to retire high cost debt in a phased manner so as to improve the liquidity and solvency position of the organizations.

Keywords

Operating Leverage, Financial Leverage, Combined Leverage, Fixed Costs, Variable Costs
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  • An Empirical Assessment of a Telecom Major Applying the Tool of Leverages

Abstract Views: 249  |  PDF Views: 0

Authors

C. D. Balaji
Department of Management Studies, Panimalar Engineering College, Chennai, India
S. Praveen Kumar
Department of Management Studies, Panimalar Engineering College, Chennai, India
R. Arasu
Department of Management Studies, Velammal Engineering College, Chennai, India
K. Suresh Kumar
Department of Management Studies, Panimalar Engineering College, Chennai, India

Abstract


The Indian telecom industry is the second fastest growing in the world next only to China in terms of subscriber additions. The intense competition witnessed among players has resulted in price wars resulting in lower revenues and further the huge license fee imposed by the government has had a severe negative impact on the operating margins of the industry players. In this challenging scenario, the authors felt the need to analyse the financial position of one the leading players in the industry by employing the tool of leverage analysis. The company's EBIT growth has been moderate. All the three leverages has shown a marked increase during the study period. The interest expense to total debt ratio and concomitantly, the interest expense to total expenditure has also increased during the period of study. Variable costs as percentage of fixed costs has declined while variable costs as percentage of revenue has been stable. It was suggested that the company considered for the discussion and in general all telecom companies need to revisit their business model and focus on earning higher share of revenues through providing a comprehensive suite of value added services. Consistent efforts need to be taken on revenue generation and cost control in order to improve earnings visibility. Measures need to be taken to retire high cost debt in a phased manner so as to improve the liquidity and solvency position of the organizations.

Keywords


Operating Leverage, Financial Leverage, Combined Leverage, Fixed Costs, Variable Costs

References