Ratio Analysis of

Presented By Group 9

Submitted to:Prof. Priyanka Agarwal

Institute for Technology and ManagementKharghar

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited.

Name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974.

Currently headed by Yogesh Chander Deveshwar.

With the turnover of US $ 6 billion.

It has the market capitalization of over US $ 22 Billion. 

It employs over 26,000 people at more than 60 locations across India.

It completed 100 years on 24th August, 2010.

It has a diversified product portfolio.

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About ITC

It’s a tool which enables the banker or lender

or investor to arrive at the followingfactors :

Liquidity position

Profitability

Efficiency

Solvency

Ratio Analysis

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As Percentage - such as 25% or 50% . For example if net profit is Rs.25,000/- and the sales is Rs.1,00,000/- then the net profit can be said to be 25% of the sales.

As Proportion -The above figures may be expressed in terms of the relationship between net profit to sales as 1 : 4.

As Pure Number/Times-The same can also be expressed in an alternatively way such as the sale is 4 times of the net profit or profit is 1/4th of the sales.

How a Ratio is expressed?

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1.Uses

ofRatio Analysis

Employees and trade unions

(pay raises / job security)

Managers and directors

(bonuses for reaching targets)

Trade creditors(makes sure

customer has enough working

capital)

Shareholder(capital gain and

dividends)

Potential financiers(looks at

profitability and funds to repay

loans)

Local community

(secure funding for local

projects/jobs)

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2.Limitations

ofRatio Analysis

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LIQUIDITY RATIOS

CURRENT RATIO

QUICK RATIO

Classification

CapitalStructure RatiosDEBT-EQUITY RATIO-Long term debt- Total debt

PROFITABILITY RATIOS

Short TERM-GP ratio-NP ratio-Expense ratio

LONG TERM-Return On Investment-Return on capital employed-Return on net worth-Dividend per share-Earnings per share

TURNOVER RATIOS

STOCK TURNOVER RATIO

DEBTORS TURNOVER RATIO(Avg Collection Period)

CREDITORS TURNOVER RATIO(Avg Payment Period)

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CURRENT RATIO The current ratio is the ratio of current assets to current

liabilities.

QUICK RATIO The quick ratio is an alternative measure of liquidity that

does not include inventory in the current assets. It gives you the immediate paying capacity of the company.

LIQUIDITY RATIOSLiquidity ratios provide information about a firm's ability to meet its short-term financial obligations.

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.Liquidity ratios of ITC ltd.

2009 2010Current Ratio 1.73:1 1.10:1Quick Ratio 0.76:1 0.44:1

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It Shows

Liquidity condition has deteriorated marginally in 2010.

The ideal current ratio 2:1 has not been maintained.

Similarly the ideal liquid of 1:1 has not been maintained.

Current ratio: For every 1 rupee of current liability the company has got 1.10 rupees of current asset which is slightly reduced from the previous year.

Quick ratio: For every 1 rupee of current liability the company has got 0.44 rupees of quick asset which is reduced drastically from the previous year, this is a major concern of the company

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DEBT-EQUITY RATIO It indicates the relative proportion of shareholders equity

and debt used to finance the company’s assets.

Long term debt It includes only long term debt.

Total debt Creditors are added into long term debt to calculate total

debt.

Capital Structure Ratios Financial leverage ratios provide an indication of the long-term solvency of the firm.

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Debt – Equity Ratio

2009 2010

Long Term Debt – Equity Ratio

0.47 : 1 0.28 : 1

Total Debt – Equity Ratio

0.471 : 1 0.29 : 1

Capital Structure Ratios of ITC ltd.

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It Shows

The long term debt equity ratio of 0.28 times shows that the company is largely dependent of equity capital and is not aggressively expanding using debt.

ITC over the years has shown a mismatch of debt- equity ratios.

It shows that for every 1 Rupee insider fund there is 0.28 Rupee of long term debt.

The difference between company’s long term n total debt - equity ratio is close to 0 which shows total debt of company comprises of long term debts.

The company can go for raising funds through loans as it has very low debt as compared to its equity.

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Short Term

GROSS PROFIT RATIO: The gross profit ratio is a measure of the gross profit

earned on sales.

NET PROFIT RATIO: This ratio measures the net profit earned on sales.

MANUFACTURING AND SELLING EXPENSE RATIO: This ratio measures the Manufacturing and selling

expenditure to make sales.

PROFITABILITY RATIOSProfitability ratios offer several different measures of the success of the firm at generating profits.

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Long Term

Return On Investment A performance measure used to evaluate the efficiency of

an investment.

Return On Capital Employed ROCE compares earnings with capital invested in the company.

Return On Net Worth This ratio indicates the return on stockholder's total fund.

DIVIDED PER SHARE  The sum of declared dividends for every ordinary share issued.

EARNINGS PER SHARE (EPS) are the earnings returned on the initial investment amount.

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Short term 2009 2010Gross Profit Ratio 34.54% 36.74%Net Profit Ratio 20.90% 22.37%Man & Selling Exp Ratio 30.83% 28.43%

PROFITABILITY Ratios of ITC ltd.

Long term 2009 2010Return On Investment

8.66% 3.72%

Return On Capital Employed

32.84% 40.70%

Return On Net Worth

23.76% 28.87%

DIVIDED PER SHARE 3.70 10.00

EARNINGSPER SHARE Rs. 7.16 Rs. 10.63

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It shows

Returns on investment have decreased drastically from 2009 to 2010. It shows some decisions regarding the investment were not good.

There is significant increase in the return on total capital employed. It shows the overall efficiency of the company ha increased.

Shareholders are gaining more than the previous year.

It is clear from above that overall profitability has increased. The only thing the company has to think is how to make investments more profitable.

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INVENTORY TURNOVER RATIO: A measure of the number of times a company's inventory is replaced

during a given time period.

DEBTOR TURNOVER RATIO: This ratio tells how efficient are the credit sales of the company.

CREDITORS TURNOVER RATIO: This ratio tells how efficient are the credit purchases of the company.

FIXED ASSET TURNOVER RATIO: Fixed ratio turnover ratio tells how easily the fixed assets can be

converted into cash.

TOTAL ASSET TURNOVER RATIO: Total ratio turnover ratio tells how easily the Total assets can be

converted into cash.

Turnover/Efficiency RatiosIt indicates how efficiently the firm utilizes its assets.

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2009 2010

Inventory Turnover Ratio

3.39:1 3.99:1

Inventory Conv. Period 107 Days 91 Days

Debtors Turnover Ratio 23.34:1 21.13:1

Average Collection Period

16 Days 17 Days

Creditors Turnover Ratio

2.08:1 2.13:1

Average Collection Period

175 Days 171 Days

Fixed Asset Turnover Ratio

1.84 1.98

Total Asset Turnover Ratio

0.80 0.78

Efficiency Ratios of ITC ltd.

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It Shows Inventory Ratio of 3.99 shows that the company is efficient in

selling its stock.

Inventory conversion rate has also improved from three and a half months to 3 months which is very efficient.

The ratio of 21.13 shows that company is good in getting the returns from the debtors and is in no viable risk of bad debts.

Fixed asset ratio which is less has also improved. This also means that fixed assets have been utilized better to get more turnovers.

Though turnover on fixed assets has increased, but turnover on overall assets has come down. That shows that strategies are needed to be worked out to get more returns on assets.

Average collection period is significantly less than average payment period. This shows efficiency of the company and company can use creditors money for use in their business.

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We can easily conclude after the ratio analysis that

ITC LTD is in a very good condition.

The shareholders are getting worth for their money.

financial results the company is showing it is going to get stronger in the years to come.

Conclusion

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Presented by “GROUP 9” Ritu Kumari (09) Abhishek Yadav (19) Dheeraj Girase (29) Aditi Pednekar (39) Aakash Sablani (49)

THANK YOU

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