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1. Bharti Airtel Ltd. has a bond rating of CRISIL AA+/Stable/CRISIL A1+ according to CRISIL. Its cost of debt is 11.47% and after-tax cost of debt is 7.57%.
2. As of December 2013, Bharti Airtel had total debt of Rs. 129,798 million comprising long-term debt of Rs. 98,408 million and short-term debt of Rs. 31,390 million.
3. The market value of Bharti Airtel's equity as of December 2013 was Rs. 1,254,893.82 million based on a stock price of Rs. 330
1. Bharti Airtel Ltd. has a bond rating of CRISIL AA+/Stable/CRISIL A1+ according to CRISIL. Its cost of debt is 11.47% and after-tax cost of debt is 7.57%.
2. As of December 2013, Bharti Airtel had total debt of Rs. 129,798 million comprising long-term debt of Rs. 98,408 million and short-term debt of Rs. 31,390 million.
3. The market value of Bharti Airtel's equity as of December 2013 was Rs. 1,254,893.82 million based on a stock price of Rs. 330
1. Bharti Airtel Ltd. has a bond rating of CRISIL AA+/Stable/CRISIL A1+ according to CRISIL. Its cost of debt is 11.47% and after-tax cost of debt is 7.57%.
2. As of December 2013, Bharti Airtel had total debt of Rs. 129,798 million comprising long-term debt of Rs. 98,408 million and short-term debt of Rs. 31,390 million.
3. The market value of Bharti Airtel's equity as of December 2013 was Rs. 1,254,893.82 million based on a stock price of Rs. 330
1. What is the rating, if any, of your company's bonds? Company Name Rating outstanding Bharti Airtel Ltd. CRISIL AA+/Stable/CRISIL A1+ Source: http://crisil.com/Ratings/Brochureware/News/18.02.pdf?cn=null 2. What is the cost of debt of your company? How did you arrive at this figure? Total debt as on 31 st Dec 2013 = 129798, Interest expenses for 2012-13 FY = 14885, Tax rate = 33.99% Cost of debt= (Interest expenses/Long term debt)= 11.47% After tax cost of debt = 7.57% Source: http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel-Full- Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES 3. How much debt does your company have? (i)Total long term debt as on = 98408 (ii)Total short term debt as on = 31390 Source: http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel- Full-Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES Total debt = (i) + (ii) =1, 29,798.00 4. What is the market-value of equity of your company? Market price as on 31 st Dec 2013 = 330.45 Total market value as on 31 st Dec 2013= 330.45 * 3797530096 = 1254893.82 million Source: http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel-Full- Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES 5. What is the Debt/Equity percentage (ratio) of your company? Share capital = 18988 million , Reserves and surplus = 522474 Million, Long term debt = 98408 Million Short term debt = 31,390 million Column1 debt to equity percentage Ratio Debt to equity(LTD+STD/Equity) 23.97% 1/4 Source: http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel-Full- Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES
6. What is the Debt/Equity percentage of your company's competitors? Bharti Airtels Major Competitors Debt/Equity Percentage Idea Cellular (http://www.moneycontrol.com/financials/ideacellular/ratios/IC8) 80 % Reliance Communications (http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13) 92% Tata Communications (http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx) 10 %
7. How does your company's Return on Assets compare with those of its competitors? Company Name Return on Asset Bharti Airtel (http://www.moneycontrol.com/financials/bhartiairtel/ratios/BA08) 142.58 Idea Cellular (http://www.moneycontrol.com/financials/ideacellular/ratios/IC8) 42.30 Reliance Communications (http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13) 160.57 Tata Communications (http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx) 2.91
8. How does your company's Interest Coverage compare with those of its competitors? Company Name Interest Coverage Ratio Bharti Airtel (http://www.moneycontrol.com/financials/bhartiairtel/ratios/BA08) 4.91 Idea Cellular (http://www.moneycontrol.com/financials/ideacellular/ratios/IC8) 2.58 Reliance Communications (http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13) 1.32 Tata Communications (http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx) 6.49
9. Would your company's bonds be rated better or worse than an average competitor? Why?
Bond rating is primarily dependent upon the Credit history, previous track records, Interest coverage capacity, liquidity and profit margins of the company. Bharti Airtel Being the Largest telecom operator of India and the 5 th largest in the world has a very good track record and has very good credit history. It also has good interest coverage, liquidity, moderate leverage and better EBIT margin than its competitors. So Bharti Airtels Bonds should be rated better than its competitors.
10. What is the company's P/E Ratio? Is it higher or lower than that of its competitors? Why? Share Price Values Taken from: http://www.moneycontrol.com & http://money.rediff.com/ EPS taken from the Annual Reports of the Company Company Name EPS() Share Price() P/E Ratio Bharti Airtel 13.42 330.45 24.6 Idea Cellular 2.47 166.85 67.6 Reliance Communications 3.02 129.8 43.0 Tata Communications 11.12 309.05 27.8
Bharti Airtel has a low P/E ratio and Idea Cellular has a high P/E ratio. The higher P/E ratio indicates that the market is expecting more growth out of the stocks of Idea Cellular. However higher P/E ratio might sometimes also indicate that the stock is overpriced. But a lower P/E ratio on the other hand can indicate that the stock is safe for investment as one would get better Earnings out of the money invested in the stock. 11. What has been the dividend-yield of your company's shares? Last years dividend (for 2013) = 1 http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms Price of share as on 31 st dec 2013 = 330.45 http://www.moneycontrol.com/stock-charts/bhartiairtel/charts/BA08#BA08 Dividend yield = (annual dividend per share/ price per share) * 100 = 0.3026%
12. What has been the capital-gains-yield on your company's shares? Price of share as on 31 st Dec 2013 = 330.45, Price of share as on 31 st Dec 2012 = 316.8 http://www.moneycontrol.com/stock-charts/bhartiairtel/charts/BA08#BA08 Capital gains yield: ((P2013-P2012)/P2012)*100 = ((330.45-316.8)/ 336.75)*100 = 4.31% 13. What has been the average growth in annual dividends during the last five years or so? The dividend has remained constant (20% of the par value, i.e. Re1 for every Rs5) for the past five years. So there has been no growth in dividend. Hence average growth in dividend is zero. http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms 14. What has been the average growth in annual EPS during the last five years or so? Year Earnings Per Share () Growth in EPS Average growth CAGR 2012-13 13.42 -11.07% -14.02% -19.94% 2011-12 15.09 -25.74% 2010-11 20.32 -18.13% 2009-10 24.82 -39.15% 2008-09 40.79 23.98% 2007-08 32.9 http://www.moneycontrol.com/stocks/company_info/print_main.php 15. What has been the company's average Payout Ratio during the last five years or so? Payout ratio= (Dividend per share/ Earning per share)*100 Year Earnings Per Share (Rs) Dividend per share (Rs) Payout ratio Average 2012-13 13.42 1 7.45% 5.10% 2011-12 15.09 1 6.63% 2010-11 20.32 1 4.92% 2009-10 24.82 1 4.03% 2008-09 40.79 1 2.45% http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms http://www.moneycontrol.com/stocks/company_info/print_main.php 16. What has been the company's reported book Return on Equity (ROE)? Return on Equity = Net Income after Tax / Share Holders Equity As per Balance Sheet (2012-2013) of Bharti Airtel > Net Income after tax = 50963 Million rupees and Share Holders Equity = Share Capital + Reserves & surplus = (18988+522474) = 541462 Million rupees So ROE = 0.094 17. What is the company's cost-of-equity (COE) as per the DDM (dividend discount model)? Dividend paid in 2013 =1 Price as on 31 st Dec 2013 = 330.45 Growth in dividend = 0% Then Dividend expected to be paid= 1 DDM COE= (Dividend 2014 /Price 2013 ) +Growth in dividend= (1/330.45) +0%=0.3026% 18. Is the DDM-COE obtained above higher or lower than earnings-yield (inverse of the P/E ratio)? Why?
Earnings yield ratio with the price of 31 st Dec 2013 = 4.06% DDM COE calculated = 0.3026% Earnings yield higher as the growth in dividend is 0%. 19. Is the DDM-COE obtained above same as the reported (book) ROE? Should it be? DDM COE calculated = 0.3026% Reported ROE as calculated = 9.4% They are not same in this case and they are not supposed to be equal always. A company should have higher ROE 20. What is the s of your company? Beta of Bharti Airtel is 0.8 Source: http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS 21. Is the company's s higher or lower than that of its competitors? Why so? Company Beta Bharti airtel 0.8 Idea cellular 0.97 Reliance communications 1.94 MTNL 1.34 Source: http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS Beta of Bharti Airtel is lower than that of all of its listed competitors. It shows that Bharti Airtel stocks are less volatile than that of Idea, Reliance and MTNL with respect to market and a beta of 0.8 also shows that Bharti Airtels share is more stable than the overall stock market. 22. Based on your company's s, what is your company's CAPM-COE? Risk free rate (avg return on 10 year govt. of India bond) =7.16% Source:http://www.macquariesbi.com/dafiles/Internet/co/mglsbi/macroeconomic-snapshot/snapshot.html Beta of Bharti airtel = 0.8 Source: http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS Equity market risk premium=9.58% Source:source- http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html CAPM COE= Risk free rate Beta*(Equity market risk premium) =14.82% 23. How does your estimate of the CAPM-COE compare with your estimate of the DDM-COE? Calculated DDM COE for Bharti Airtel = 0.343% Calculated CAPM COE for Bharti Airtel= 14.82% The DDM COE is far lesser than CAPM COE, because of zero growth in dividend in last 5 years. 24. What is the WACC of your company? Which cash flows do you discount at this rate? Cost of debt of Bharti Airtel (K d ) = 11.47% CAPM Cost of equity of Bharti Airtel (k e ) = 14.82% Market value of total equity (E) = 1254893.82 million Market value of total debt (D) = 129798 million Capital Base(C) =1254893.82 millionn+129798 million= 1384691.82million WACC= (E/C)* k e + (D/C)*K d =14.51% WACC is used to discount unlevered cash flows. 25. What is the Adjusted COC of your company? When do you use this? Cost of debt of Bharti Airtel (K d ) = 11.47% CAPM Cost of equity of Bharti Airtel (k e ) = 14.82% Tax rate = 34% Market value of total equity (E) = 1254893.82 million Market value of total debt (D) = 129798 million Capital Base(C) = 1254893.82 million+129798 million= 1384691.82 million Adjusted COC = (E/C)*k e + (D/C)*K d *(1-t) = 14.14% Adjusted COC is used to discount unlevered cash flows.
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