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A

Project report

On

COMPARATIVE RATIO ANALYSIS OF BRITANNIA INDUSTRIES AND


NESTLE INDIA

In partial fulfillment of the requirements of

Master of Management Studies

conducted by

University of Mumbai

through

Rizvi Institute of Management Studies & Research

under the guidance of

Mr. Subhash Raje

Submitted by

Deepak Goswami

MMS

Batch: 2015 2017


CERTIFICATE

This is to certify that Mr. Deepak Goswami, a student of Rizvi Institute of


Management Studies and Research, of MMS III bearing Roll No. 30 and specializing
in Finance has successfully completed the project titled

COMPARATIVE RATIO ANALYSIS OF BRITANNIA INDUSTRIES AND


NESTLE INDIA

under the guidance of Prof. Subhash Raje in partial fulfillment of the requirement of
Masters of Management Studies by University of Mumbai for the academic year 2015
2017.

________________
Prof. Subhash Raje
Project Guide

________________ _______________
Prof. Umar Farooq Dr. Kalim Khan
Academic Coordinator Director
ACKNOWLEDGEMENT

I take this opportunity to thank the University of Mumbai for giving me a chance to
do this project. Firstly, I owe my deepest gratitude to my project guide Prof. Subhash
Raje for his guidance, care and moral support without which this project would have
really been a distant dream.

I thank the teaching and non-teaching staff of Rizvi Institute of Management Studies
and Research for providing encouragement and valuable inputs required for
completion and enrichment of this project.

I would like to thank each and every person who directly or indirectly helped me in
the completion of the project. This acknowledgement would surely be incomplete
without thanking my parents, who raised me, taught me and supported me throughout
the years. A special thanks to my mother who was instrumental in instilling the love of
food & cooking in me, which resulted in the topic of this project.

To my parents I dedicate this dissertation project. Lastly, and most importantly, I


thank God for making all of this possible.
EXECUTIVE SUMMARY

This project report covers all aspects relating to Financial Ratios of BRITANNIA
INDUSTRIES and NESTLE INDIA interpreted according to standards. This project
was done with the help of secondary data as research in finance subjects is done on
performance and not potential.

The project selected by me is to do comparative ratio analysis for the above


mentioned two companies using various financial statements. The main intention was
to group or regroup the various figures and information appearing on the financial
statement (either profitability statement or balance sheet or both) to draw the fruitful
conclusions there from.

I found that by comparing Financial ratios of both the companies unveils why one
company is more efficient in its activity as compared to the other.

Financial ratios are valuable as they depict how an organisation utilises and manages
its resources.

The objectives of this project are:


To identify the comparative financial strengths and weakness of Britannia
Industries and Nestle India

Through the net profit ratio and other profitability ratios, understand the
profitability position of the companies.

To know the liquidity position of the companies, with the help of Current
ratio.

To find out the utility of financial ratio in credit analysis and determining the
financial capability of the firms.
CONTENTS

INTRODUCTION..........................................................................................................1

RESEARCH METHODOLOGY...................................................................................3

UNDERSTANDING THEORETICAL BACKGROUND............................................4

CLASSIFICATION OF RATIOS...................................................................................6

Liquidity Ratios..........................................................................................................6

Leverage Ratios..........................................................................................................8

Activity Ratios..........................................................................................................10

Profitability Ratios....................................................................................................13

Valuation Ratios........................................................................................................15

DATA INTERPRETATION.........................................................................................16

Liquidity Ratios........................................................................................................16

Leverage Ratios........................................................................................................19

Activity Ratios..........................................................................................................21

Profitability Ratios....................................................................................................26

Valuation Ratios........................................................................................................31

FINDINGS...................................................................................................................34

CONCLUSION............................................................................................................37

BIBLIOGRAPHY........................................................................................................38
INTRODUCTION

Food Processing

Food processing is the transformation of raw ingredients, by physical or chemical


means into food, or of food into other forms. Food processing combines raw food
ingredients to produce marketable food products that can be easily prepared and
served by the consumer.

The Indian food industry is poised for huge growth, increasing its contribution to
world food trade every year. In India, the food sector has emerged as a high-growth
and high-profit sector due to its immense potential for value addition, particularly
within the food processing industry.

The food industry, which is currently valued at US$ 39.71 billion is expected to grow
at a Compounded Annual Growth Rate (CAGR) of 11 per cent to US$65.4 billion by
2018. Food and grocery account for around 31 per cent of Indias consumption basket.

Accounting for about 32 per cent of the countrys total food market, The Government
of India has been instrumental in the growth and development of the food processing
industry. The government through the Ministry of Food Processing Industries
(MoFPI) is making all efforts to encourage investments in the business. It has
approved proposals for joint ventures (JV), foreign collaborations, industrial licenses
and 100 per cent export oriented units.

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Britannia Industries

Britannia Industries Limited (A WADIA Enterprise) is an Indian food-products


corporation based in Bangalore, India. It sells its Britannia and Tiger brands of biscuit
throughout India. Britannia has an estimated market share of 38%. The Company's
principal activity is the manufacture and sale of biscuits, bread, rusk, cakes and dairy
products.

Britannia was incorporated in 1918 as Britannia Biscuits Co LTD in Calcutta. In 1924,


Pea Frean UK acquired a controlling stake, which later passed on to the Associated
Biscuits International (ABI) a UK based company. During the 50s and 60s, Britannia
expanded operations to Mumbai, Delhi and Chennai. In 1989, J M Pillai, a Singapore
based NRI businessman along with the Group Danone acquired Asian operations of
Nabisco, thus acquiring controlling stake in Britannia. Later, Group Danone and Nusli
Wadia took over Pillais holdings.

Nestle India

Nestl is a Swiss transnational food and drink company headquartered in Vevey,


Vaud, Switzerland. It is the largest food company in the world measured by revenues
and ranked #72 on the Fortune Global 500 in 2014. Nestl has 447 factories, operates
in 194 countries, and employs around 339,000 people.It is one of the main
shareholders of LOreal, the worlds largest cosmetics company.

NESTL's relationship with India dates back to 1912, when it began trading as The
NESTL Anglo-Swiss Condensed Milk Company (Export) Limited, importing and
selling finished products in the Indian market.

After India's independence in 1947, the economic policies of the Indian Government
emphasised the need for local production. NESTL responded to India's aspirations
by forming a company in India and set up its first factory in 1961 at Moga, Punjab,
where the Government wanted NESTL to develop the milk economy.

NESTL India manufactures products of truly international quality under


internationally famous brand names such as NESCAF, MAGGI, MILKYBAR, KIT
KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has
also introduced products of daily consumption and use such as NESTL Milk,
NESTL SLIM Milk, NESTL Dahi and NESTL Jeera Raita.

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RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the problems. It may be
understood to study how research is done scientifically. In this, we study various steps
that are generally adopted by the researcher in studying research problems along with
the logic behind them, to understand why we are using particular method or technique
so that the research results are capable of being evaluated. During my project work, I
used a lot of data to understand concept of Ratio Analysis. The data collected was
interpreted and then used as information in project.

SOURCES OF DATA COLLECTION

Data for this project is collected through Secondary sources. Secondary data is
collected with the help of following:

1. Websites

Majority of data was gathered from moneycontrol.com and acekp.in.

2. Reference Books

Theory relating to the subject matter and various concepts taken from various
financial reference books.

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UNDERSTANDING THEORETICAL BACKGROUND
Ratio Analysis

The analysis of the financial statements and interpretations of financial results of a


particular period of operations with the help of 'ratio' is termed as "ratio analysis."
Ratio analysis is used to determine the financial soundness of a business concern.
Alexander Wall designed a system of ratio analysis and presented it in useful form in
the year 1909.

Meaning and Definition

The term 'ratio' refers to the mathematical relationship between any two inter-related
variables. In other words, it establishes relationship between two items expressed in
quantitative form.

According J. Batty, Ratio can be defined as "the term accounting ratio is used to
describe significant relationships which exist between figures shown in a balance
sheet and profit and loss account in a budgetary control system or any other part of the
accounting management."

Advantages of Ratio Analysis

Ratio analysis is necessary to establish the relationship between two accounting


figures to highlight the significant information to the management or users who can
analyse the business situation and to monitor their performance in a meaningful way.
The following are the advantages of ratio analysis:

(1) It facilitates the accounting information to be summarized and simplified in a


required form.

(2) It highlights the inter-relationship between the facts and figures of various
segments of business.

(3) Ratio analysis helps to remove all type of wastages and inefficiencies.

(4) It provides necessary information to the management to take prompt decision


relating to business.

(5) It helps to the management for effectively discharge its functions such as planning,
organizing, controlling, directing and forecasting.
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(6) Ratio analysis reveals profitable and unprofitable activities. Thus, the management
is able to concentrate on unprofitable activities and consider to improve the efficiency.

(7) Ratio analysis is used as a measuring rod for effective control of performance of
business activities.

(8) Ratios are an effective means of communication and informing about financial
soundness made by the business concern to the proprietors, investors, creditors and
other parties.

(9) Ratio analysis is an effective tool which is used for measuring the operating results
of the enterprises.

(10) It facilitates control over the operation as well as resources of the business.

(11) Effective co-operation can be achieved through ratio analysis.

(12) Ratio analysis provides all assistance to the management to fix responsibilities.

(13) Ratio analysis helps to determine the performance of liquidity, profitability and
solvency position of the business concern.

Limitations of Ratio Analysis

Ratio analysis is one of the important techniques of determining the performance of


financial strength and weakness of a firm. Though ratio analysis is relevant and useful
technique for the business concern, the analysis is based on the information available
in the financial statements. There are some situations, where ratios are misused, it
may lead the management to wrong direction. The ratio analysis suffers from the
following limitations:

(1) Ratio analysis is used on the basis of financial statements. Number of limitations
of financial statements may affect the accuracy or quality of ratio analysis.

(2) Ratio analysis heavily depends on quantitative facts and figures and it ignores
qualitative data. Therefore this may limit accuracy.

(3) Ratio analysis is a poor measure of a firm's performance due to lack of adequate
standards laid for ideal ratios.

(4) It is not a substitute for analysis of financial statements. It is merely used as a tool
for measuring the performance of business activities.
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(5) Ratio analysis clearly has some latitude for window dressing.

(6) It makes comparison of ratios between companies which is questionable due to


differences in methods of accounting operation and financing.

(7) Ratio analysis does not consider the change in price level, as such, these ratio will
not help in drawing meaningful inferences.

CLASSIFICATION OF RATIOS

Ratios

Financial Operational Valuation


Ratios Ratios Ratios

Activity
Liquidity Leverage Profitability
(Turnover)
Ratios Ratios Ratios
Ratios

Financial Ratios

Financial Ratios are classified into Liquidity Ratios and Leverage Ratios

Liquidity Ratios

Liquidity Ratios are also termed as Short-Term Solvency Ratios. The term liquidity
means the extent of quick convertibility of assets in to money for paying obligation of
short-term nature. Accordingly, liquidity ratios are useful in obtaining an indication of
a firm's ability to meet its current liabilities, but it does not reveal how effectively the
cash resources can be managed. To measure the liquidity of a firm, the following
ratios are commonly used:

(1) Current Ratio.

(2) Quick Ratio (or) Acid Test or Liquid Ratio.

(3) Cash Ratio (or) Cash Position Ratio (or) Absolute Liquid Ratio

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1. Current Ratio

Current Ratio establishes the relationship between current Assets and current
Liabilities. It attempts to measure the ability of a firm to meet its current obligations.
In order to compute this ratio, the following formula is used:

Current Ratio = Current Assets

Current Liabilities

The two basic components of this ratio are current assets and current liabilities.
Current asset normally means assets which can be easily converted in to cash within a
year's time. On the other hand, current liabilities represent those liabilities which are
payable within a year.

2. Quick Ratio (or) Acid Test or Liquid Ratio

Quick Ratio also termed as Acid Test or Liquid Ratio. It is supplementary to the
current ratio. The acid test ratio is a more severe and stringent test of a firm's ability to
pay its short-term obligations as and when they become due. Quick Ratio establishes
the relationship between the quick assets and current liabilities. In order to compute
this ratio, the below presented formula is used:

Quick Ratio = Quick Assets

Current Liabilities

Quick Ratio can be calculated by two basic components of quick assets and current
liabilities.

Quick Assets = Current Assets - (Inventories + Prepaid expenses)

Current liabilities represent those liabilities which are payable within a year.

The ideal Quick Ratio of I: I is considered to be satisfactory. High Acid Test Ratio is
an indication that the firm has relatively better position to meet its current obligation
in time. On the other hand, a low value of quick ratio exhibiting that the firm's
liquidity position is not good.

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3. Cash Ratio

Cash Ratio or Absolute Liquid Ratio is also called as Cash Position Ratio (or) Over
Due Liability Ratio. This ratio established the relationship between the absolute liquid
assets and current liabilities. Absolute Liquid Assets include cash in hand, cash at
bank, and marketable securities or temporary investments. The optimum value for this
ratio should be one i.e. 1:1. If it is 1: 2 it indicates that 50% worth absolute liquid
assets are considered adequate to pay the 100% worth current liabilities in time. If the
ratio is relatively lower than one, it represents that the company's day-to-day cash
management is poor. If the ratio is considerably more than one, the absolute liquid
ratio represents enough funds in the form of cash to meet its short-term obligations in
time. Cash ratio can be calculated by dividing the total of the Absolute Liquid Assets
by Total Current Liabilities. Thus,

Cash Ratio = Absolute Liquid Assets X 100

Current Liabilties

In the above formula Absolute Liquid Assets = Cash in Hand + Cash at Bank +

Marketable Securities.

Leverage Ratios

Companies rely on a mixture of owners' equity and debt to finance their operations. A
leverage ratio is any one of several financial measurements that look at how much
capital comes in the form of debt (loans), or assesses the ability of a company to meet
financial obligations. Leverage ratios measure the extent to which a firm has been
financed by debt. Generally, the higher this ratio, the more risky a creditor will
perceive its exposure in your business. Thus, high leverage ratios make it more
difficult to obtain credit (loans). Leverage Ratios can be classified into:

1. Debt-Equity Ratio

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2. Interest Coverage Ratio

1. Debt Equity Ratio

This ratio also termed as External - Internal Equity Ratio. This ratio is calculated to
ascertain the firm's obligations to creditors in relation to funds invested by the owners.
The ideal Debt Equity Ratio is 1: 1. This ratio also indicates all external liabilities to
owner recorded claims. It may be calculated as

Debt - Equity Ratio = External Equities

Internal Equities
OR

Debt - Equity Ratio = Outsiders Funds

Shareholders Funds
The term External Equities refers to total outside liabilities and the term Internal
Equities refers to all claims of preference shareholders and equity shareholders' and
reserve and surpluses.

Debt - Equity Ratio = Total Long-Term Debt

Total Long-Term Funds

OR

Debt - Equity Ratio = Total Long-Term Debt

Shareholders Funds
The term Total Long-Term Debt refers to outside debt including debenture and long-
term loans raised from banks. This ratio indicates the proportion of owner's stake in
the business. Excessive liabilities tend to cause insolvency. This ratio also tell the extent to
which the firm depends upon outsiders for its existence.

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2. Interest Coverage Ratio

Interest Coverage Ratio or Debt Service Ratio or Fixed Charges Cover Ratio. This
ratio establishes the relationship between the amount of net profit before deduction of
interest and tax and the fixed interest charges. It is used as a yardstick for the lenders
to know the business concern will be able to pay its interest periodically. Interest
Coverage Ratio is calculated with the help of the following formula:

Interest Coverage Ratio = Net Profit Before Interest And Income Tax X 100

Interest
Higher the ratio the more secure the debenture holders and other lenders would be
with respect to their periodical interest income. In other words, better is the position
of long-term creditors and the company's risk is lesser. A lower ratio indicates that the
company is not in a position to pay the interest but also to repay the principal loan on
time.

Activity Ratios

Activity Ratios or Turnover Ratios may be also termed as Efficiency Ratios or


Performance Ratios. Activity Ratios highlight the different aspect of financial
statement to satisfy the requirements of different parties interested in the business. It
also indicates the effectiveness with which different assets are vitalized in a business.
Turnover means the number of times assets are converted or turned over into sales.
The activity ratios indicate the rate at which different assets are turned over.
Depending upon the purpose, the following activities or turnover ratios can be
calculated:

1. Inventory Turnover Ratio

2. Accounts Receivable Turnover Ratio

3. Average Collection Period Ratio

4. Total Assets Turnover Ratio

5. Fixed Assets Turnover Ratio

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1. Inventory Turnover Ratio

This ratio is also called as Stock Turnover Ratio or Stock Velocity Ratio. Inventory
means stock of raw materials, working in progress and finished goods. This ratio is
used to measure whether the investment in stock in trade is effectively utilized or not.
It reveals the relationship between sales and cost of goods sold or average inventory at
cost price or average inventory at selling price. Stock Turnover Ratio indicates the
number of times the stock has been turned over in business during a particular period.
While using this ratio, care must be taken regarding season and condition, price trend,
supply condition etc. In order to compute this ratio, the following formula is used:

Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - Closing Stock

Average Inventory = (Current Inventory Value + Previous Inventory Value) / 2

2. Accounts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio or Debtor's Turnover Ratio is also termed as or


Debtor's Velocity. Receivables and Debtors represent the uncollected portion of credit
sales. Debtor's Velocity indicates the number of times the receivables are turned over
in business during a particular period. In other words, it represents how quickly the
debtors are converted into cash. It is used to measure the liquidity position of a
concern. This ratio establishes the relationship between receivables and sales.

Accounts Receivable Turnover Ratio = Credit Sales

Average Accounts Receivable


Credit Sales = Total Sales - (Cash Sales + Sales Return)

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Average Accounts Receivable = Opening Receivable + Closing Receivable

2
It is to be noted that opening and closing receivable and credit sales are not available,
the ratio may be calculated as

Accounts Receivable Turnover Ratio = Total Sales

Accounts Receivable

Accounts Receivable = Sundry Debtors or Trade Debtors + Bills Receivable

3. Average Collection Period Ratio

This ratio indicates the efficiency of the debt collection period and the extent to which
the debt have been converted into cash. This ratio is complementary to the Accounts
Receivable Turnover. It is very helpful to the management because it represents the
average debt collection period. The ratio can be calculated as follows:

Average Collection Period Ratio = Months (or) Days in a year


Accounts Receivable Turnover

4. Net Assets Turnover Ratio


Net asset turnover ratio is the ratio of the value of a companys sales or revenues
generated relative to the value of its assets. The Asset Turnover ratio can often be used
as an indicator of the efficiency with which a company is deploying its assets in
generating revenue. The total assets turnover ratio, indicates how efficiently a firm is
using all its assets to generate revenues. This ratio helps to signal whether a firm is
generating a sufficient volume of business for the size of its asset investment.
Net Asset Turnover Ratio = Sales
Net Assets

5. Fixed Assets Turnover Ratio


This ratio indicates the efficiency of assets management. Fixed Assets Turnover Ratio
is used to measure the utilization of fixed assets. This ratio establishes the relationship
between cost of goods sold and total fixed assets. Higher the ratio highlights a firm

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has successfully utilized the fixed assets. If the ratio is depressed, it indicates the
under utilization of fixed assets. The ratio may also be calculated as:
Fixed Assets Turnover Ratio = Cost of Goods Sold
Total Fixed Assets

OR
Fixed Assets Turnover Ratio = Sales
Net Fixed Assets

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Profitability Ratios

The term profitability means the profit earning capacity of any business activity. Thus,
profit earning may be judged on the volume of profit margin of any activity and is
calculated by subtracting costs from the total revenue accruing to a firm during a
particular period. Profitability Ratio is used to measure the overall efficiency or
performance of a business. Profitability ratios measure managements overall
effectiveness as shown by returns generated on sales and investment. Generally, a
large number of ratios can also be used for determining the profitability as the same is
related to sales or investments. Profitability Ratios can be classified into:

1. Gross Profit Margin Ratio

2. Operating Profit Margin Ratio

3. Net Profit Margin Ratio

4. Return on Total Assets Ratio (ROA)

5. Return on Stockholders Equity Ratio (ROE)

1. Gross Profit Margin Ratio

The gross profit margin is the total margin available to cover operating expenses and
yield a profit. This ratio indicates how efficiently a business is using its labor and
materials in the production process, and shows the percentage of net sales remaining
after subtracting cost of goods sold. The higher the ratio, the better. A high gross
profit margin indicates that a firm can make a reasonable profit on sales, as long as it
keeps overhead costs under control. Gross profit margin serves as the source for
paying additional expenses and future savings.

Gross Profit Margin = Gross Profit X 100

Net Sales

Gross Profit = Sales - Cost of Goods Sold

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Net Sales = Gross Sales - Sales Return (or) Return Inwards

2. Operating Profit Margin Ratio

The Operating Profit Margin measures profitability without concern for taxes and
interest. The higher the ratio, the better. A high operating profit margin indicates that
a firm can make a reasonable profit on sales, as long as it does good tax planning.

Operating Profit Margin = EBIT (Earnings Before Interest and Tax) X 100

Net Sales

Net Sales = Sales - Sales Return (or) Return Inwards

3. Net Profit Margin Ratio

Net Profit Margin Ratio is also termed as Sales Margin Ratio (or) Profit Margin Ratio
(or) Net Profit to Sales Ratio. This ratio reveals the firm's overall efficiency in
operating the business. Net profit Ratio is used to measure the relationship between
net profit (either before or after taxes) and sales. This ratio can be calculated by the
following formula:

Net Profit Margin Ratio = Net Profit After Tax X 100

Net Sales

Net profit includes non-operating incomes and profits. Non-Operating Incomes such
as dividend received, interest on investment, profit on sales of fixed assets,
commission received, discount received etc. Profit or Sales Margin indicates margin

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available after deduction cost of production, other operating expenses, and income tax
from the sales revenue. Higher Net Profit Ratio indicates the standard performance of
the business concern.

4. Return on Investment Ratio

This ratio is also called as ROI or ROCE (Return on Capital Employed Ratio). This
ratio measures a return on the owner's or shareholders' investment. This ratio
establishes the relationship between net profit after interest and taxes and the owner's
investment. Usually this is calculated in percentage. This ratio, thus, can be calculated
as:

Return on Investment Ratio = Net Profit (after interest and tax) X 100

Shareholders' Fund (or) Investments

Shareholder's Investments = Equity Share Capital + Preference Share Capital +


Reserves and Surplus - Accumulated Losses

Net Profit (after interest and tax) = Net Profit - Interest and Taxes

5. Return on Shareholders Equity Ratio

Return on Equity (ROE) is the amount of net income returned as a percentage of


shareholders equity. Return on equity measures a corporation's profitability by
revealing how much profit a company generates with the money shareholders have
invested.

ROE = Net Profit After Tax

Net Worth

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Valuation Ratios

A valuation ratio is a measure of how cheap or expensive a security (or business) is,
compared to some measure of profit or value. A valuation ratio is calculated by
dividing a measure of price by a measure of value, or vice-versa. Valuation Ratios can
be classified into:

1. Earning Per Share Ratio (EPS)

2. Dividend Per Share Ratio (DPS)

3. Price-Earnings Ratio (P/E)

1. Earning Per Share Ratio (EPS)

Earning per share (EPS) is the portion of a company's profit allocated to each
outstanding share of common stock. Earning per share serves as an indicator of a
company's profitability. EPS measures the earning capacity of the concern from the
owner's point of view and it is helpful in determining the price of the equity share in
the market place. Earning Per Share Ratio can be calculated as:

Earning Per Share Ratio = Net Profit After Tax and Preference Dividend

No. of Equity Shares

2. Dividend Per Share Ratio (DPS)

Dividend per share (DPS) Earnings distributed to the shareholders as cash dividends.
It is the total dividends paid out over an entire year (including interim dividends but
not including special dividends) divided by the number of outstanding ordinary shares
issued.

Dividend Per Share Ratio = Dividends Paid to Shareholders

No. of Equity Shares

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3. Price Earning Ratio

This ratio highlights the earning per share reflected by market share. Price Earning
Ratio establishes the relationship between the market price of an equity share and the
earning per equity share. This ratio helps to find out whether the equity shares of a
company are undervalued or not. This ratio is also useful in financial forecasting. This
ratio is calculated as:

Price Earning Ratio = Market Price Per Equity Share


Earning Per Share

DATA INTERPRETATION
COMPARATIVE RATIO ANALYSIS OF BRITANNIA
INDUSTRIES LTD AND NESTLE INDIA

Financial Ratios

Liquidity Ratios

Current Ratio

1. Current Ratio = Current Assets

Current Liabilities

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3.5
3
2.5
2
Ratio 1.5
BRITANNIA
1
PARLE
0.5
0
2015 2014 2013
Year

Year 2015 2014 2013


Britannia 1.19 0.90 0.71
Parle Biscuits 2.96 3.13 2.67

Interpretation: The above graph and table show that Britannia Industries Current
Ratio is increasing from 2012 to 2015. Whereas current ratio of Nestle India is
showing a decreasing trend from 2013 to 2015. This shows that Britannia Industries is
in a better position than Nestle India to pay its short-term and long-term obligations.

2. Quick Ratio

Quick Ratio = Quick Assets

Current Liabilities

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2.5

1.5
Ratio 1 britannia
0.5 parle

0
2015 2014 2013
Year

Year 2015 2014 2013


Britannia 0.91 0.52 0.41
Parle Biscuits 2.17 1.96 1.70

Interpretation: The Above graph and table show that Britannias Quick Ratio has
increased from 2014 to 2015 whereas Nestle Indias Quick Ratio has remained the
same. This shows that Britannia Industries has better short term liquidity i.e. Britannia
Industries ability to meet its short-term obligations with its most liquid assets is better
than that of Nestle Indias.

Leverage Ratios

1. Debt Equity Ratio

Debt - Equity Ratio = Total Long-Term Debt


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Shareholders Funds

0.4
0.35
0.3
0.25
0.2
Ratio
0.15 BRITANNIA
0.1 PARLE
0.05
0
2015 2014 2013
Year

Year 2015 2014 2013


Britannia 0 0.00 0.34
Parle Biscuits 0.01 0 0

Interpretation: The above Graph and table show that Nestle India relies on debt
financing more than Britannia Industries.

2. Interest Coverage Ratio

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Interest Coverage Ratio = Net Profit Before Interest And Income Tax X 100

Interest

800
700
600
500
400
Ratio
300 BRITANNIA
200 PARLE
100
0
2015 2014 2013
Year

Year 2015 2014 2013

Britannia 730.15 100.75 9.8


Parle Biscuits 372.83 NA

Interpretation: The above graph and table show that Britannia Industries could pay
its current interest payment with its available earnings 613 times and Nestle India
could pay its current interest payment with its available earnings 400 times in 2015.

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Activity Ratios

1. Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory

25

20

15
Ratio 10
BRITANNIA
5 NESTLE INDIA

0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 21.24 17.19 16.94
Parle Biscuits 10.43 9.82 10.47

Interpretation: The above graph and table show that the inventory turnover ratio of
Britannia Industries increased from 2012 to 2015 whereas the inventory turnover ratio
of Nestle India decreased from 2013 to 2015. Also Britannia Industries is faster than
Nestle India when it comes to selling inventories.

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2. Accounts Receivable Turnover Ratio

Accounts Receivable Turnover Ratio = Credit Sales

Average Accounts Receivable

140
120
100
80
Ratio 60
BRITANNIA
40
PARLE
20
0
2015 2014 2013
Year

Year 2015 2014 2013

Britannia 117.83 98.21 88.21


Parle Biscuits 46.45 44.20 47.44

Interpretation: The above graph and table show that in 2015 Nestle India took 92
days to collect credit sales whereas Britannia Industries took 115 days to collect credit
sales. This shows that in the year 2015 Nestle India managed its assets more
efficiently than Britannia Industries.

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3. Average Collection Period Ratio

Average Collection Period Ratio = Months (or) Days in a year


Accounts Receivable Turnover

10

6
Ratio 4 BRITANNIA
2 PARLE

0
2015 2014 2013
Year

Year 2015 2014 2013

Britannia 3.1 3.72 4.14


Parle Biscuits 7.86 8.26 7.69

Interpretation: The above graph and table show that on an average in the year 2015
Britannia Industries took 3.17 days to collect credit sales whereas Nestle India took
3.96 days to collect credit sales. This means that Britannia Industries had a better
Average Collection Period.

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4. Net Assets Turnover Ratio
Net Asset Turnover Ratio = Sales
Net Assets

4
3.5
3
2.5
2
Ratio
1.5 BRITANNIA
1 PARLE
0.5
0
2015 2014 2013
Year

Year 2015 2014 2013


Britannia 3.43 3.64 3.4
Parle Biscuits 2.70 2.76 3.00

Interpretation: The above graph and table show that Britannia Industries is using all
its assets more efficiently than Nestle India to generate revenues.

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5. Fixed Assets Turnover Ratio
Fixed Assets Turnover Ratio = Cost of Goods Sold
Total Fixed Assets

7.6

7.4

7.2
Ratio 7 BRITANNIA
6.8 PARLE

6.6
2015 2014 2013
Year

Year 2015 2014 2013


Britannia 7.37 6.91 7.35
Parle Biscuits 7.09 6.88 7.09

Interpretation: The above table and Graph show that for the year 2015 Britannia
Industries had a higher Fixed Assets Turnover Ratio as compared to Nestle India. This
means that Britannia Industries utilized its fixed assets more efficiently than Nestle
India.

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Profitability Ratios

1. Gross Profit Margin Ratio

Gross Profit Margin = Gross Profit X 100

Net Sales

20

15

10
Ratio
BRITANNIA
5 NESTLE INDIA

0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 37.60 25.59 24.15
Parle Biscuits 0 0 0

Interpretation: The above graph and table show that for the year 2015 Nestle India
had a higher Gross Profit Margin as compared to Britannia Industries. This shows that

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Nestle India is more efficient than Britannia Industries in using its labor and materials
in the production process.

2. Operating Profit Margin Ratio

Operating Profit Margin = EBIT (Earnings Before Interest and Tax) X 100

Net Sales

25

20

15
Ratio 10
BRITANNIA
5 NESTLE INDIA

0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 12.03 8.53 6.49
Parle Biscuits 7.44 5.62 5.79

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Interpretation: The above graph and table show that for the year 2015 Nestle India
had a higher Operating Profit Margin as compared to Britannia Industries. This shows
that Nestle India made more profit on sales as compared to Britannia Industries.

3. Net Profit Margin Ratio

Net Profit Margin Ratio = Net Profit After Tax X 100

Net Sales

14
12
10
8
Ratio 6
BRITANNIA
4
NESTLE INDIA
2
0
2015 2014 2013 2012 2011
Year

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Year 2015 2014 2013
Britannia 8.47 5.76 4.10
Parle Biscuits 5.08 3.97 4.09

Interpretation: The above graph and table show that for the year 2015 each rupee
earned by Britannia Industries was translated into 8.67 rupees and each rupee earned
by Nestle India was translated into 6.88 rupees.

4. Return on Investment Ratio

Return on Investment Ratio = Net Profit (after interest and tax) X 100

Shareholders' Fund (or) Investments

70
60
50
40
Ratio 30
BRITANNIA
20
NESTLE INDIA
10
0
2015 2014 2013 2012 2011
Year

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Year 2015 2014 2013
Britannia 84.24 63.83 40.80
Parle Biscuits 25.51 20.22 22.65

Interpretation: The above graph and table show that for the year 2015 Britannia
Industries had 59.82 percentage of return on money invested in the business whereas
Nestle India had 46.47 percentage of return on money invested in the business.

5. Return on Shareholders Equity Ratio

ROE = Net Profit After Tax

Net Worth

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80
70
60
50
40
Ratio
30 BRITANNIA
20 NESTLE INDIA
10
0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 59.36 49.34 40.28
Parle Biscuits 17.5 14.27 16.02

Interpretation: The above graph and table show that for the year 2015 Britannia
Industries had 50.37 and Nestle India had 19.98 Return on Shareholders Equity
Ratio. This means that in 2015 Britannia Industries generated more profit with the
money shareholders had invested as compared to Nestle India.

Valuation Ratios

1. Earning Per Share Ratio (EPS)

Earning Per Share Ratio = Net Profit After Tax and Preference Dividend

No. of Equity Shares

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140
120
100
80
Ratio 60
BRITANNIA
40
NESTLE INDIA
20
0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 51.89 30.83 19.56
Parle Biscuits 68981.49 47929.78 46280.73

Interpretation: The above graph and table show that in 2015 Nestle India allocated
Rs. 58.42 to each outstanding share of common stock whereas Britannia Industries
allocated Rs. 57.41 to each outstanding share of common stock. This shows that
Nestle India had higher profitability.

2. Dividend Per Share Ratio (DPS)

Dividend Per Share Ratio = Dividends Paid to Shareholders

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No. of Equity Shares

70
60
50
40
Ratio 30
BRITANNIA
20
NESTLE INDIA
10
0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 16 12 8.5
Parle Biscuits 0 0

Interpretation: The above graph and table show that in 2015 Nestle India paid Rs.
48.5 as dividend to each outstanding share of common stock whereas Britannia
Industries paid Rs. 16 as dividend to each outstanding share of common stock. This
shows that Nestle India had higher profitability.

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3. Price Earning Ratio

Price Earning Ratio = Market Price Per Equity Share


Earning Per Share

120
100
80
60
Ratio
40 BRITANNIA
NESTLE INDIA
20
0
2015 2014 2013 2012 2011
Year

Year 2015 2014 2013


Britannia 41.6 27.35 26.8
Parle Biscuits

Interpretation: The above graph and table show that in 2015 Nestle India had a
Price-Earnings Ratio of 99.7 and Britannia Industries had a Price-Earnings Ratio of
41.6. This means that in 2015 investors paid 99.7 times more for a stock relative to
Nestle Indias Earnings Per Share whereas investors paid 41.6 times more for a stock
relative Britannia Industries Earnings Per Share.

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FINDINGS
1. Current Ratio of Britannia Industries showed an increasing trend from 2012 to
2015. This shows that from 2012 kept improving its ability to pay its short-
term and long-term obligations with its assets. Whereas current ratio of Nestle India is
showed a decreasing trend from 2013 to 2015.

2. Quick Ratio of Britannia Industries increased from 2014 to 2015 whereas that of
Nestle India remained the same. This shows that Britannia Industries has better short
term liquidity i.e. Britannia Industries ability to meet its short-term obligations with
its most liquid assets is better than that of Nestle Indias.

3. Cash Ratio of Britannia Industries improved significantly from 2014 to 2015. This
shows that Britannia Industries significantly improved its ability to repay its short
term debt through liquidity.

4. Debt Equity Ratio of Nestle India for the year 2015 is 0.01 and that of Britannia
Industries. This shows that in 2015 Nestle India relied more on Debt financing than
Britannia Industries.

5. Interest Coverage Ratio of Britannia Industries in 2015 was 613.02 whereas that of
Nestle India was 400.53. This shows that Britannia Industries in 2015 could pay its
current interest more times than Nestle India.

6. Inventory turnover ratio of Britannia Industries increased from 2012 to 2015


whereas that of Nestle India decreased from 2013 to 2015. This shows that Britannia
Industries is faster than Nestle India when it comes to selling inventories.

7. Accounts Receivable Turnover Ratio of Nestle India in 2015 was 92 and that of
Britannia Industries was 115. This shows that Britannia India in 2015 took more days
than Nestle India to collect its credit sales. Also, in 2015 Nestle India managed its
assets more efficiently than Britannia Industries.

8. Average Collection Period in 2015 of Britannia Industries was 3.96 days whereas
that of Nestle India was 3.17 days. This means that in 2015 Nestle India took less
days than Britannia Industries to collect credit sales.

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9. Net Asset Turnover Ratio of Britannia Industries in 2015 was 6.84 whereas that of
Nestle India was 2.87. This means that in 2015 Britannia India used its assets more
efficiently than Nestle India to generate revenues.

10. Fixed Assets Turnover Ratio in 2015 of Britannia Industries was 7.37 whereas that
of Nestle India was 1.62. This means that Britannia Industries utilised its fixed assets
more efficiently than Nestle India.

11. Gross Profit Margin Ratio of Britannia Industries in 2015 was 9.11 whereas that of
Nestle India was 14.77. This means that Nestle India is more efficient than Britannia
Industries in using its labor and materials in the production process.

12. Operating Profit Margin Ratio of Britannia Industries in 2015 was 10.75 whereas
that of Nestle India was 19.01. This means that Nestle India made more profit on sales
as compared to Britannia Industries.

13. Net Profit Margin Ratio of Britannia Industries in 2015 was 8.67 whereas that of
Nestle India was 6.88. This means that in 2015 each rupee earned by Britannia
Industries was translated into 8.67 rupees and each rupee earned by Nestle India was
translated into 6.88 rupees.

14. Return on Investment Ratio of Britannia Industries in 2015 was 59.82 whereas
that of Nestle India was 46.47. This means that in 2015 Britannia Industries had 59.82
percentage of return on money invested in the business whereas Nestle India had
46.47 percentage of return on money invested in the business.

15. Return on Shareholders Equity Ratio of Britannia Industries in 2015 was 50.37
whereas that of Nestle India was 19.98. This means that in 2015 Britannia Industries
generated more profit with the money shareholders had invested as compared to
Nestle India.

16. Earning Per Share Ratio of Britannia Industries in 2015 was 57.41 whereas that of
Nestle India was 58.42. This means that in 2015 Nestle India allocated Rs. 58.42 to
each outstanding share of common stock whereas Britannia Industries allocated Rs.
57.41 to each outstanding share of common stock. This shows that Nestle India had
higher profitability.

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17. Dividend Per Share Ratio of Britannia Industries in 2015 was 16 whereas that of
Nestle India was 48.5. This means that in 2015 Nestle India paid Rs. 48.5 as dividend
to each outstanding share of common stock whereas Britannia Industries paid Rs. 16
as dividend to each outstanding share of common stock. This shows that Nestle India
had higher profitability.

18. Price Earning Ratio of Nestle India in 2015 was 99.7 and that of Britannia
Industries was 41.6. This means that in 2015 investors paid 99.7 times more for a
stock relative to Nestle Indias Earnings Per Share whereas investors paid 41.6 times
more for a stock relative to Britannia Industries Earnings Per Share.

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CONCLUSION
The in-depth analysis of key financial ratios in this project helps in measuring the
financial strength, liquidity conditions and operating efficiency of both the
companies. It also provides valuable interpretations separately for each ratio that
helps both the organizations to implement the findings to increase its efficiency.

Ratios are only post mortem analysis of what has happened between two balance
sheet dates. For one thing the position of the company in the interim period is not
revealed by ratio analysis, moreover they give no clue about the future. Ratio
analysis in view of its several limitations should be considered only as a tool for
analysis rather than as an end itself.

If Ratios are used to take decisions then following are two decisions that can be taken
by investors and banks respectively:
1. An investor should invest in Britannia Industries as it has a higher Return on
Investment Ratio than Nestle India for the year 2015.
2. Banks should lend money to Britannia Industries as its Interest Coverage Ratio
is higher than that of Nestle India for the year 2015.

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BIBLIOGRAPHY
Food Processing. (2016, July 18). Retrieved from indiainbusiness.nic.in:
http://indiainbusiness.nic.in/newdesign/index.php?
param=industryservices_landing/337/1

Britannia Industries. (2016, July 18). Retrieved from britannia.co.in:


http://britannia.co.in/about-us/overview

Nestle India. (2016, July 18). Retrieved from nestle.in:

https://www.nestle.in/aboutus

Nestle India. (2016, July 18). Retrieved from en.wikipedia.org:


https://en.wikipedia.org/wiki/Nestl%C3%A9

Data Interpretation, Ratios. (2016, July 18). Retrieved from moneycontrol.com:


http://www.moneycontrol.com/financials/nestleindia/ratiosVI/NI#NI

http://www.moneycontrol.com/financials/nestleindia/balance-sheetVI/NI#NI

http://www.moneycontrol.com/financials/britanniaindustries/balance-
sheetVI/BI#BI

http://www.moneycontrol.com/financials/britanniaindustries/ratiosVI/BI#BI

Understanding Theoretical Background & Classification of Ratios. Retrieved from

A TEXTBOOK OF FINANCIAL COST AND MANAGEMENT


ACCOUNTING (Revised Edition 2010) by Dr. P. PERIASAMY: Chapter 9
Ratio Analysis

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