Friday, June 10, 2005

The quality of reporting in Business newspapers

Financial Express says: VSNL FY05 net more than doubles to Rs 756 crore

The news is similar in almost all the other business channels.

I was quite surprised to see VSNL posting such significant gains, since I couldn't see where the growth could have come. International calling, VSNL's key revenue generator has been flat. The falling rates are compensated by rising volumes, and in the end the growth is minimal, if at all.

Then, how can VSNL double its profit? Surely there can't be so much of cost cutting possible despite the VRS implemented previous year?

Read through the quarterly accounts (pdf file) and you will notice that the increase in annual profits is related to one exceptional item - for Rs. 468.7 crores, arising from sale of assets of Intelsat, in which VSNL had a little over 5% stakes. Though this is clearly mentioned in the quarterly/annual result, none of the news agencies thought it necessary to mention this.

It is difficult for me to evaluate what the net profit would have been by removing the extraordinary item, since there would be an impact on the taxation as well. My guess is that without the extraordinary items, the profit would be almost on par - that is very close to Rs. 370 crores. May be a bit less, maybe a bit more.

By not reporting this clearly, the business newspapers and online sites are doing a disservice to their readers.


  1. The CMIE database processes firm-level data nicely, where raw information for all firms is processed using a standardised methodology. This enables inter-firm and inter-temporal comparisons. I believe their methodology would correctly remove such one-time transactions from the profit number. (Look on for "CMIE Prowess" for applications of this data in the research community). The media people often don't know how to use such care.

  2. Thanks for this information! I will check this out.