AMITY UNIVERSITY, NOIDA

AMITY BUSINESS SCHOOL

ACCOUNTING FOR MANAGERS

(ACCT602)

A COMPARATIVE STUDY ON FINANCIAL POSITION OF ITC Ltd.

SUBMITTED TO:
Dr. Ashima Agarwal

SUBMITTED BY:
Ankit Kumar Varun –
43
Shagun Roy- 64
Ankit Kumar Rai-46
Anjali Chauhan-75
Shivang Gupta-63
Shivam Arora-72
Yadagani Avinash-440621A01

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 TABLE OF CONTENTS

S NO. TOPIC PAGE

NO.
1. CHAPTER 1: INTRODUCTION 3

2. CHAPTER 2: COMPANY OVERVIEW 7

3. CHAPTER 3: REASEARCH METHODOLOGY 12

4. CHAPTER 4: DATA ANALYSIS & 15

OBSERVATION

5. CHAPTER 5: FINDINGS AND LEARNINGS 35

6. CHAPTER 6: RECOMMENDATION & 36

CONCLUSION

7. CHAPTER 7: REFERENCES 37

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 CHAPTER-1
INTRODUCTION TO RATIO

Definition of Ratio
The specified quotient of two mathematical expressions, as well as the relationship between
two or more items, is characterised as a ratio. A financial ratio, also known as an accounting
ratio, is a mathematical statement of the connection between two accounting figures.

Definition of Ratio Analysis

The word financial ratio can be defined by determining how it is computed and what the
calculation's goal is:

A. Calculation Basis
 A relationship expressed in mathematical terms
 Between two individual figures or group of figures
 Connected with each other in some logical manner; and
 Selected from financial statements of the concern

B. Objective for financial ratios is that all stakeholders (owners,

investors, lenders, employee etc) can draw conclusion about the
 Performance (past, present and future)
 Strengths Weakness of a firm; and
 Can take decisions in the relation to the firm
Ratio analysis is simple to use for investors, and all of the figures needed to calculate the rati
os may be found on a company's financial records. They assess stocks within a specific indust
ry. Similarly, they compare a company's current performance to its previous results. In most c
ases, understanding the elements driving ratios is also crucial because management has the op
portunity to change its strategy to make its stock and company ratios more appealing. In gene
ral, ratiosare employed in conjunction with other ratios rather than on their own. Having a
smart thought of the proportions in every one of the four recently referenced classifications
will provide you with a far-reaching perspective on the organization from various points and
assist you with spotting likely warnings.

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Sources of Financial Data for Analysis
The source of information for financial statement analysis are: -
1. Annual Report
2. Interim financial statements
3. Notes of Accounts
4. Statement of cash flows
5. Business periodicals
6. Credit and Investment advisory services

Advantages of Ratio Analysis

1. Helps to understand efficacy of decision
2. Simplify complex figures and establish relationship
3. Helpful in comparative analysis
4. Identification of problem area
5. Enables SWOT Analysis
6. Various Comparisons

Limitations of Ratio Analysis

1. Limitation of Accounting Data
2. Ignores Price-level changes
3. Ignore Qualitative or Non-monetary Aspects
4. Variations in Accounting Practices
5. Forecasting

Types of Ratios

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Examples of Ratio Analysis Categories:
The different sorts of monetary proportions accessible might be comprehensively assembled
into the accompanying six storehouses, in view of the arrangements of information they give:
1. Liquidity Ratios

Liquidity ratios measure an organization's capacity to take care of its transient obligations as
they become due, utilizing the organization's current or speedy resources. Liquidity
proportions incorporate the current proportion, fast proportion, and working capital
proportion.
2. Solvency Ratios

Also called financial leverage ratios, solvency ratios contrast an organization's obligation
levels and its resources, value, and profit, to assess the probability of an organization
remaining above water as time goes on, by taking care of its drawn-out obligation just as the
interest on its obligation. Instances of dissolvability proportions include: obligation value
proportions, obligation resources proportions, and interest inclusion proportions.
3. Profitability Ratios

These proportions pass on how well an organization can produce benefits from its activities.
Overall revenue, return on resources, return on value, return on capital utilized, and net edge
proportions are largely instances of productivity proportions
4. Efficiency Ratios

Also called activity ratios, efficiency ratios assess how productively an organization utilizes
its resources and liabilities to create deals and augment benefits. Key productivity proportions
include: turnover proportion, stock turnover, and days' deals in stock.
5. Coverage Ratios

Coverage ratios measure an organization's capacity to make the interest installments and
different commitments related with its obligations. Models incorporate the occasions revenue
procured proportion and the obligation administration inclusion proportion.
6. Market Prospect Ratios

These are the most ordinarily utilized proportions in crucial investigation. They incorporate
profit yield, P/E proportion, income per share (EPS), and profit payout proportion. Financial
backers utilize these measurements to anticipate profit and future execution.

Uses of Ratio Analysis:

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 1. Comparisons

One of the employments of proportion examination is to contrast an organization's monetary

exhibition with comparable firms in the business to comprehend the organization's situation
on the lookout. Getting monetary proportions, like Price/Earnings, from known contenders
and contrasting it with the organization's proportions can assist the board with recognizing
market holes and analyze its upper hands, qualities, and shortcomings. The administration
would then be able to utilize the data to form choices that intend to advance the organization's
situation on the lookout.
2. Trend line

Organizations can likewise utilize proportions to check whether there is a pattern in monetary
execution. Set up organizations gather information from the fiscal summaries over an
enormous number of revealing periods. The pattern acquired can be utilized to anticipate the
heading of future monetary execution, and furthermore recognize any normal monetary
disturbance that would not be imaginable to foresee utilizing proportions for a solitary
announcing period.
3. Operational efficiency

The administration of an organization can likewise utilizes monetary proportion examination

to decide the level of proficiency in the administration of resources and liabilities. Wasteful
utilization of resources like engine vehicles, land, and building brings about pointless costs
that should be wiped out. Monetary proportions can likewise assist with deciding whether the
monetary assets are finished or under-used.

CHAPTER-2

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 COMPANY OVERVIEW

Company Introduction
ITC is one of the largest Fast Moving Consumer Goods companies in India. ITC have
activities in FMCG, Paperboards and Packaging, Information Technology, Hotels and Agri
Business. It is one of India's leading private sector corporations. With a gross sales value of
74,979 crores and a net profit of 13,032 crores, the company is considered one of India's most
valuable corporate firms (as on 31.03.2021).
According to a study performed by Fortune India in collaboration with Hay Group, ITC was
named India's most admired corporation.

ITC is India's top FMCG marketer, the obvious market leader in the Indian Paperboard and
Packaging business, a worldwide recognised pioneer in farmer empowerment through its vast
Agri Business, and India's preeminent hotel network that is a pathfinder in 'green' hospitality.

In just one decade ITC has created around 25 brands in FMCG sector which are world-class
brands.

Ashirwad range of products, Sun-feast biscuits, Yippee, Classmate books, Paperkraft,

Aim, Bingo, B Natural Fabelle, ITC Master Chef, Engage, Vivel, Savlon health care, Fiama
and other ITC FMCG products are highly successful.

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ITC has conducted large-scale climate-smart and sustainable agriculture interventions that
contribute significantly to the Hon'ble Prime Minister's aim of doubling farmer incomes.

To this end, ITC has established the 'Baareh Mahine' integrated programme.

Hariyali' (maximising farm utilisation throughout the course of a year) adds a new dimension
to the difficult endeavour of increasing farmer incomes.

ITC is working with NITI Aayog to gradually strengthen the ability of 2 million farmers in 27
Aspirational Districts in order to assist boost rural incomes.

ITC is making a long-term commitment to India by constructing world-class consumer goods

factories and famous hospitality properties.

 It’ s Gross sales value is around ₹ 74,979 crores (for the year ended
31.03.2021)
 A net profit of around ₹ 13,032 crores (for the year ended 31.03.2021)
 13 Businesses of Tomorrow
 4 million Farmers Benefitted by e-Choupal
 200+ Manufacturing
 19 years Water Positive
 6 million Sustainable Livelihoods
 41% of Total Energy is Renewable
 14 years Solid Waste Recycling Positive
 33 Platinum Rated Green Buildings
 No.1 in Paper & Paperboards
 25 FMCG Mother Brands
 36,500 ITC Group Direct Employees
 100+ Hotels across 70 locations
 16 years Carbon Positive

Customer focus, trusteeship, respect for people and employees, innovation, excellence, and
nation orientation are the key values that are considered by ITC which helped the company to
grow, and made the company one of India's most admired and cherished businesses.

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Overview of the Industry:
The Fast-Moving Consumer Goods (FMCG) sector being the fastest growing sector and the
4th largest within the country, is marked by high turnover. The products within the FMCG
industry which dominates the market share are cosmetics, detergents consumer electronics
as well as soft drink products. The FMCG sector encompasses a wide range of products, so
different organisations dominate the market in different sub-categories- Hindustan Unilever
(market cap of 660,810 cr), ITC (market cap of 297,535cr), Nestle Ltd (market cap of
194,658 cr).

Rural and Urban Trend

In India, the FMCG industry can be broadly divided into two demographics. First One is rural
and the other one is Urban. Urban demographics has the major share of over 60% of the total
FMCG revenues. Undoubtedly, Urban areas are the pioneers of the FMCG industry but rural
areas are also growing at a very fast pace. Dabur has the largest market share in the rural
market in India which accounts to about 45%. Hindustan Unilever is next to Dabur which
captures about 35% of the FMCG industry in rural areas. There is a growing demand for
beverages, fabric care and personal care categories in Rural India. There is a huge prospect
for household care, skin care, home and personal care categories in urban Indian. Demand for
processed foods is estimated to rise both in urban and rural areas.

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Demography:

According to a report on the FMCG industry, India's demographic profile plays a significant
effect in the sector's growth. India's demography is not only youthful, but it is also
characterised by growing urbanisation and higher spending. The government's urban
development efforts, as well as the rise of India's middle class has resulted in an increase in
the number of appealing markets in the country. According to Ernst & Young's research on
Indian cities, 30 'new wave' cities have emerged, including Jaipur and Surat. These cities'
consumption is expanding at a quicker rate than many of India's metros. The young
population of India is also marked by a high level of technological awareness. E-commerce
will be contributing 11% of Indian FMCG company sales by 2030.The online FMCG market
reached to $ 45bn by 2020. This has increased the rate of development of FMCG sector.

The abundant growth rate in the FMCG industry in India goes beyond the income growth and
urbanisation. The consumption pattern propelling the demand in India is due to attitudinal
shift of the youth population. Digital sites are playing a key role for companies’ growth and
future revenue. These trends will further the development of the FMCG industry in the
future. With the growth of the traditional FMCG industry combined with the digital space
which was non-existent a few years ago- the future of this industry looks good for all, the
investors as well as the consumers.

Growing Demand
The FMCG market in India is expected to increase at approx. 14% to reach US$ 220 by
around 2025 from around US$110 in 2021 which is almost double.

Along with its Indian packaged market is almost expected to show 100% growth and reach
around US$ 70 billion by 2025

Indian processed food market is projected to expand to US$ 470 billion by 2025 from 263
billion in F.Y 19-20

Attractive Opportunities
Enhanced living standards of rural India and reduced penetration levels in rural market offers
room for growth.

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Policy Support

 Investment approvals of up to 100% foreign equity in single brand retail

and 51% in multi-brand retail.
 Major opportunity given to production linked incentive scheme (PLI) to boost exports
 PLI scheme for food processing industry to boost investment
 Higher Investments
 Investment in this sector attracts investment as FMCG products have demand through
the year.
 Healthy Inflow of FDI of US$ 18 19 billion for F.Y 20-21

Reasons for selecting the firm:

The FMCG Industry is an ever-growing market and ITC is one of the prominent brands
within the Fast-Moving Consumer Goods Sector (FMCG) with a diversified portfolio of
products and services. It is one of the most valuable business organizations with a long
legacy, strong and experienced management.

The analysis of the financial statements for a massive company like ITC will give insights
into the financial aspects of the business as well as the industry. It will help us understand the
management’s decisions on aspects like working capital, investment and financing decisions
along with the debt structure of the company.

ITC has presence in different segments which includes FMCG, hotels, packaging and agri-
business. So, study of the financials of this company will also give us an understanding of the
recovery of these segments post the pandemic as well as the management’s decisions to
tackle the same.

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 CHAPTER – 3
RESEARCH METHEDOLOGY

The term "research" refers to the process of gathering information. In other terms, research is
the process of gathering facts or knowledge for the aim of making decisions. Surveys,
interviews, literature study, and other research approaches are examples of methodology. It
contains both current and historical data. In a nutshell, research technique is a method for
obtaining data or information for the aim of making various conclusions. In today's world,
where everything has grown so complicated and tough, research methodology is the most
straightforward and practical method for making various selections.

I. RELEVANCE OF THE STUDY

Ratio Analysis is the primary tool for performing a quantitative analysis of any company
financial statements can say a lot about a company’s financial health and earning potential.
These statements are analysed and reviewed for decision making purposes, this process is
known as financial analysis. Financial analysis helps the stakeholders to assess the financial
performance of an organization which helps them in making good investment decisions. This
study analyses the financial position of ITC using ratio of ITC Ltd with an attempt to assess
the company’s efficiency and performance. The study has focused on current and previous
year performance of ITC Ltd.

Now a days financial decisions are one of the crucial decisions for managers.
Right from the
inception of the company, manger has to take decisions which balances the
goals of wealth
maximization along with profit maximization. Accounting ratios are one of the
important tool for
financial analysis and decision making. It expresses relationship between two
variables. It helps to
assess the financial health, operational proficiency of managers and earning
capacity of the firm by
using financial statement analysis. It is useful for inter firm, intra firm and
industry comparison
over a period of ti
Now a days financial decisions are one of the crucial decisions for managers.
Right from the
inception of the company, manger has to take decisions which balances the
goals of wealth
maximization along with profit maximization. Accounting ratios are one of the
important tool for

12
financial analysis and decision making. It expresses relationship between two
variables. It helps to
assess the financial health, operational proficiency of managers and earning
capacity of the firm by
using financial statement analysis. It is useful for inter firm, intra firm and
industry comparison
over a period of ti
Now a days financial decisions are one of the crucial decisions for managers.
Right from the
inception of the company, manger has to take decisions which balances the
goals of wealth
maximization along with profit maximization. Accounting ratios are one of the
important tool for
financial analysis and decision making. It expresses relationship between two
variables. It helps to
assess the financial health, operational proficiency of managers and earning
capacity of the firm by
using financial statement analysis. It is useful for inter firm, intra firm and
industry comparison
over a period of ti
SAMPLING METHODS
The sample has been chosen based on the data of balance sheet.

DATA COLLECTION
Secondary data collected from annual reports of the ITC, website of the company.

II. SCOPE OF THE STUDY

In the study ITC company is being chosen to carry out a widespread examination of
financial performance with the aid of analysis of financial statement such as Analysis
of Ratios with regard to liquidity, profitability, leverage and capital structure,
Analysis of Comparative Statement and Analysis of Common Size Statement. The
study has been taken on certain objectives giving importance to the exclusive
attributes, purposes, functioning and also the legal system governing the company.

III. RESEARCH OBJECTIVE

 To evaluate the financial situation of the company.

 To learn the liquidity position of the company.
 To identify the profitability position of the company.
 To find the debtor’s position.
 To spot the creditors position.

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  To unearth the solvency position of the company.
 To assess the inventory position of the company.

IV. SOURCES OF DATA

There are two ways of research methodology: -

Primary Data
Primary data is information gathered directly from primary sources by researchers using
methods such as interviews, questionnaires, and experiments
Primary data sources are typically chosen and adjusted to satisfy the objectives or
requirements of a certain research project. Before deciding on a data collection source, it's
also necessary to figure out what the research's goal is and who the target population is.

Secondary Data
Secondary data is information that has previously been gathered from primary sources and
made available to researchers for use in their own studies. It's a type of data that has already
been collected. A researcher may have collected data for a specific project and subsequently
made it available for other researchers to use. The data may have been collected for broad use
rather than for specialised research reasons, as in the case of the national census.
Data that is classed as secondary for one study may be considered primary for another. When
data is reused, it becomes main data for the first research and secondary data for subsequent
research.

Method of Data Collection in this report

The information is gathered using the following methods: SECONDARY SOURCE.

Sources of Data
Secondary sources of data will be utilized for this research study. Secondary data have been
collected from ITC Ltd. company’s annual reports, companies’ websites and so on.

Analysis of data
Tables, diagrams, and statistical results will be derived with the help of statistical calculate
Microsoft excel tools. Data will be analysing by ratios of ITC Ltd. and Hindustan Unilever.

Limitations of the study

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1. The present study is based on the data which is collected from annual reports of
selected FMCG Industries operating in India.
2. For the explanation of several ratios a thorough knowledge is essential and it might be
less highlighted in this matter.
3. As there are numerous concepts of liquidity which are not easy to include all together
in the study so, researcher has tried to cover some of them.

CHAPTER-4

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 DATA ANALYSIS AND OBSERVATION

1. Company’s Current performance as compared to previous year

performance:
RATIO FORMULA 2020 2019
Current ratio Current Assets/Current Liability 3.13 4.02

Quick ratio Quick Asset /Current Liabilities 2.20 3.13

Debt Equity Total debt/ equity 0.213 0.175

Ratio

Return on EBIT/Capital Employed 0.2908 0.2993

Investment

Gross Profit (Gross Profit/Net sales) x 100 71.96 71.67

Ratio

Operating Profit (Operating Profit/Net sales) x 100 28.67 34.11

Ratio

Net Profit Ratio (Net Profit/Net sales) x 100 26.86 32.67

Stock Turnover Cost of Goods Sold/ Average Inventory 1.55 1.67

Ratio

Fixed Asset Net Sales/Fixed Assets 1.24 1.19

Turnover Ratio

Working Net Sales/Working Capital 2.24 1.68

Capital
Turnover Ratio

Earnings per Net Profit After Taxes/No. of equity shares 10.59 12.33
Share

Price Earnings Market Price per Equity share/Earning Per 20.63 13.93
Ratio Share

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Graphical Representation:

Observation:
 The Current Ratio of the company for the year ended 31st March 2020 is 3.13 and for
the year ended 31st March 2019 is 4.02. We can see that there is a decrease in the
current ratio which tells us that the ability of the firm to meet its current liabilities has
decreased compared to the last year. This is because current assets reduced from
36,506.91 in the year 2020 to 31,815.42 in the year 2019. Even though it decreased

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 from last year, still 3.13 is a very good number because for every rupee of
current liability the company is maintaining 3.13 of current assets.

 The Quick Ratio of the company for the year ended 31st March 2020 is 2.20 and for
the year ended 31st March 2019 is 3.13. There has been an increase in the inventory
level from 8038.07 crores in 2020 to 9470.87 crores in 2020 which further decreased
the ratio from 3.13 to 2.2. That means the ability of the company to meet its short-
term obligations with its quick assets has been reduced in 2020 compared to the
previous year. Even though the ratio decreased over the previous year, the quick
ratio of 2.20 is a very good number which means the company's quick assets are
2.2 times the current liabilities.

● The debt-to-equity ratio shows the relative proportion of debt and equity that is used
to finance the company's assets. The debt equity ratio is almost similar for both the
years i.e., 0.21 and 0.17 for year 2020 and year 2019 respectively, which means there
has been little to no change in the way the business finances its assets between the
two years. The low ratio shows that the company has extremely low levels of debt and
is majorly dependent on equity for financing its activities. Which means the company
is not able to leverage its debt efficiently to increase the earnings of shareholders.
Along with a low debt equity ratio, the company also has an extremely high interest
coverage ratio which means that the company's financial distress costs are coming
down and is nearing zero.

● Return of Investment is profitability measure that calculates a firm's efficiency to earn

profits from its capital employed in account to its net operating profit. this ratio also
reflects long-term prospects for a firm because it gives asset performance while taking
long-term financing into consideration. A ratio of 0.2993 indicates that ITC is earning
0.29 for – or 29% of – each rupee of employed capital. This return is considerable,
considering the company has much assets.

● Gross Profit Ratio: -The trend of the Gross Profit Ratio is heading upwards; this is
because the Ratio has been increasing from 71.67 in the year 2019 to 71.96 in the year
2020. Thus, the Gross Profit Ratio has an upward moving or bullish trend.

● Operating Profit Ratio: - The trend of the Operating Profit Ratio is heading
downwards; this is because the Ratio has been decreasing from 34.11 in the year 2021
to 28.67 in the year 2019. Thus, the Operating Profit Ratio has a downward moving or
bearish trend.

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● Net Profit Ratio: - The trend of the Net Profit Ratio is heading downwards; this is
because the Ratio has been decreasing from 32.61 in the year 2021 to 26.86 in the
year 2019. Thus, the Net Profit Ratio has a downward moving or bearish trend.

● Stock turnover Ratio determines that how soon company sells its goods and products
and replace its inventories in a set duration. Here we can see that in the year 2020 the
stock turnover ratio is 1.55 and in 2019 it is 1.67 so there is a slightly difference in the
ratio of both current and previous year.

● Fixed asset ratio measures how efficiently a firm is using its fixed assets to generate
profits, higher the firm's ratio the more it is using its fixed assets efficiently.
Considering ITC’s fixed asset ratio for year 2020 and 2019 it is 1.24 and 1.19
respectively which indicates that the firm is using its fixed assets more efficiently in
the current year and has generated more sales through its fixed assets as compared to
previous year

● Earnings per share is company’s net profit divided by number of common shares. EPS
indicates how much money a company makes for each share The EPS ratios for 2020
and 2019 for ITC are 10.59 and 12.33 respectively. EPS decreased in the year 2020
because profit after tax and no. of equity shares both increased from 2019 to 2020.

● We observe Working capital turnover ratio is decreasing considerably from 2.24 to

1.68 which depicts ITC's short term financial health and efficiency. Most ideal ratio is
considered between 1.2 - 2.0. Here, a ratio of 1.68 indicates a balanced ratio and the
company on solid financial ground in terms of liquidity.

● We see here PE ratio is decreasing from 20.63 to 13.93. Currently it implies that
current market value of ITC is equal to 13.93 times its annual earnings, i.e., if any
investor hypothetically buys 100% of the company’s shares, it would take 13.93 years
to earn back the initial investment through the company’s ongoing profits. when
compared from last year, it of declining, which means investors will be paying less for
every rupee of earnings they receive.

2. Comparison of Accounting Ratios of ITC Ltd and

Hindustan Unilever Ltd

Hindustan Unilever Limited: Hindustan Unilever Limited (HUL) is India’s

largest FMCG Company with the heritage of over 80 years in India. As per Nielsen
market research data, two out of three Indians use HUL products. It is owned by the
British-Dutch company Unilever which controls 52% majority stake in HUL. Its
products include foods, beverages, cleaning agents and personal care products. HUL
was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as
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Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati
Mfg. Co. Ltd. and United Traders Ltd. Lever Brothers started its actual operations in
India in the summer of 1888, when crates full of Sunlight soap bars, embossed with
the words "Made in England by Lever Brothers" were shipped to the Kolkata harbor
and it began an era of marketing branded Fast Moving Consumer Goods (FMCG)
HUL works to create better future every day and helps people feel good, look good
and get more out of life with brands and services. With over 35 brands spanning 20
distinct categories such as soap, detergents, shampoos, skin care, toothpastes,
deodorants, cosmetics, tea, coffee, water purifiers, etc. the company is a part of the
everyday life of millions of consumers across India. Its portfolio includes leading
household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely,
Pond’s, Vaseline, Lakme, Dove, Clinic Plus, Sunsilk, Pepsodent, Close Up, Axe,
Brook Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit. The company has over
16000 employees and has an annual turnover of around Rs.19400 corers (financial
year 2010- 2011). Over the last two years, HUL have added one million new stores,
doubled its coverage and took the HUL products and services to some of the remotest
corners. In India, HUL is known for its tight management of working capital and the
company has been operating with a negative working capital since 2000. But the
management realized that as competition intensifies, there is still scope for improving
operational efficiency and cutting working capital needs. Unilever companies in India
integrated all aspects of finance, accounting and logistics into one all-embracing
commercial function. "Commercial" focused on cutting working capital requirements
through innovative supply chain management and use of Information Technology to
improve the efficiency of transactions.

20
 Table:

Ratio ITC HUL

Current ratio 3.13 1.28

Quick Ratio 2.20 0.95

Debt Equity Ratio 0.21 0.0

Operating Profit Margin 28.67(%) 24.2(%)

Net Profit Margin 26.86(%) 16.9(%)
Fixed Asset Turnover Ratio 1.24 1.19
Return on Investment 0.2908 0.3836
Working Capital Turnover Ratio 2.24 17(%)
Earning Per Share 10.59 34.02

Price Earnings Ratio 20.63 77.48

Graphical Representation:

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Analysis of the Comparison:

 The Current Ratio is a liquidity ratio that measures a company’s ability to pay
short-term obligations or those due within one year. It tells investors and
analysts how a company can maximize the current debt and other payable.
Current Ratio compares all company’s current assets to its current liabilities.
Here, Current Ratio of ITC is 3.13 and HUL is 1.28. ITC has the highest
current ratio in comparison to HUL. This means it is in a better position to
repay its current obligations out of the current resources. However, this also
means, ITC is not efficiently utilising its current assets and has some problems
in managing its working capital.
 The quick ratio is a number that tells you within moments whether your
company can pay all of its current debts. Also called the acid test ratio, the
quick ratio is a measure of your business’s liquidity.
Here, Quick ratio of ITC is 2.20 and HUL is 0.95.
 This financial tool gives an idea of how much borrowed capital (debt) can be
fulfilled in the event of liquidation using shareholder contributions. It is used
for the assessment of financial leverage and soundness of a firm and is
typically calculated using previous fiscal year's data. Here ITC has 0.21 and
HUL has 0.0. A low debt-equity ratio is favourable from investment viewpoint
as it is less risky in times of increasing interest rates.
 The net profit margin has been the highest for ITC which indicates that it is
performing better than HUL in terms of generating profit through sales.
 The operating profit margin has been the highest for ITC which indicates that
ITC is earning higher profits from its operations as compared to HUL.
 As we can see in the table and easily compare the ratio of ITC and HUL of
Fixed Asset Turnover Ratio is ITC 1.24 HUL 1.19. Fixed assets are long-term
assets that a company has purchased and is using for the production of its
goods and services. Fixed assets include property, plant, and equipment and
are recorded on the balance sheet.
 Return on Investment better known as ROI is a key performance indicator,
allowing a business owner to calculate how efficiently the company uses its
total assets to generate sales. In the case of ITC limited and HUL limited we
can see that the ratio of ITC is 0.2908 and HUL is 0.3836. As the HUF have
more in numbers. It is one way of relating profits to capital invested.

 We observe Working capital turnover ratio of ITC is 2.24 and HUL is 17(%)
The working capital ratio is a measure liquidity, revealing whether a
business can pay its obligations. The ratio is the relative proportion of an

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 entity’s current assets to its current liabilities and shows the ability of a
business to pay for its current liabilities with its current assets.
 The Earnings per share defines the profit that the company makes for each
share in its capital. It helps in determining a company’s profitability in
absolute terms. The EPS for HUL is the highest which could mean that
investors will pay more for its share as compared to ITC.
 The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that
measures its current share price relative to its Earning per Share. Here ITC
has 20.63 PE Ratio and as we can see that HUF has more i.e., 77.48.

3.FMCG INDUSTRY STANDATRD RATIOS

Taking into account:
1.HUL
2.Colgate
3.ITC
4.Nestle
5.Parle
6.Britannia

⮚ Current Ratio
COMPANY RATIO
HUL 1.28
Colgate 1.09
ITC 3.13
Nestle .080
Parle 4.48
Britannia 1.21

Graphical Representation:

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 The Average Standard Current Ratio for FMCG Industry 1.998
 ITC Current Ratio is 3.13
 This is well above 1.998 so it can be considered a great Current Ratio for ITC.

⮚ Quick Ratio

COMPANY RATIO
HUL .95
Colgate .64
ITC 2.20
Nestle .50
Parle 1.43
Britannia .91

Graphical Representation:

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  The Average Standard Quick Ratio for FMCG Industry 1.105
 ITC Quick Ratio is 2.20
 This is well above the Standard Ratio of FMCG which means the Company is
performing fine.

⮚ Debt to Equity Ratio

COMPANY RATIO
HUL 0
Colgate 0
ITC .213
Nestle 1.74
Parle 0
Britannia .60

Graphical Representation:

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  The Average Standard Debt to Equity for FMCG Industry is .4255
 ITC Debt to Equity Ratio is .213
 Which is slightly below the standard ratio and Company can improve a bit on
it.

⮚ Return on Investment Ratio

COMAPANY RATIO
HUL 16.76
Colgate 88.80
ITC 22.08
Nestle 103.12
Parle -2.43
Britannia 53.02

Graphical Representation:

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  The Average Standard Return on Investment ratio for FMCG sector is 46.891
 ROI of ITC is 22.08
 Which concludes Substantial Growth is needed for ITC to perform well in
ROI according to FMCG Industry Average Standards.

⮚ Gross Profit Ratio

COMPANY RATIO (%)

HUL 44.13
Colgate 61.1
ITC 71.96
Nestle 21.26
Parle 59.4
Britannia 17.9

Graphical Representation:

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  The Average Standard Gross Profit Ratio for FMCG Industry is 45.94%
 ITC Gross profit Ratio 71.96%
 That is a great Gross Profit Ratio for a FMCG company and hence the
company is doing great in this field.

⮚ Operating Profit Ratio

COMPANY RATIO (%)

HUL 24.2
Colgate 59.4
ITC 28.67
Nestle 25.07
Parle -10.1
Britannia 18.99

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 Graphical Representation:

 The Average Standard Operating Ratio for FMCG Industry is 24.37%

 ITC Opening Profit Ratio 28.67%
 That Operating Profit is very good for an FMCG company compared to
Industry standard.

⮚ Net Profit Ratio

COMPANY RATIO (%)

HUL 16.9
Colgate 21.38
ITC 26.86
Nestle 15.59
Parle 43.17
Britannia 14.21

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 Graphical Representation:

 The Average Standard Net Ratio for FMCG Industry is 10.29%

 ITC Net Profit Ratio is 26.86%
 In this are the Company is also performing great because Ratio is well above
10.29%

⮚ Stock Turnover Ratio

COMPANY RATIO
HUL 13.60
Colgate 14.42
ITC 1.55
Nestle 9.42
Parle 0.00
Britannia 12.49

Graphical Representation:

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  The Average Standard Stock Turnover Ratio for FMCG is 8.58
 ITC Stock Turnover Ratio is 1.55
 Which is compared to Industry Standard is good.

⮚ Fixed Asset Turnover Ratio

COMPANY RATIO
HUL 1.19
Colgate 3.57
ITC 1.24
Nestle 3.50
Parle 0
Britannia 5.15

Graphical Representation:

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  The Average Standard Fixed Asset Turnover Ratio for FMCG is 2.43
 ITC Fixed Turnover Ratio is 1.24
 As compared to Industry Standard ITC’s Ratio is below the standard and
needs to work upon Fixed Asset Turnover Ratio.

⮚ Working Capital Turnover Ratio

COMPANY RATIO (%)

HUL 17
Colgate 54.88
ITC 2.24
Nestle 49.4
Parle 0.00
Britannia 17.08

Graphical Representation:

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 The Average Standard Working Capital Ratio for FMCG is 23.43 %
 ITC WC Ratio is 2.24%, which is not great for an FMCG company compared to
standard ratio.

⮚ Earnings Per Share

COMPANY RATIO
HUL 34.03
Colgate 38.07
ITC 10.59
Nestle 215.98
Parle .03
Britannia 73.12

Graphical Representation:

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  The Average Standard Earnings per Share for FMCG sector is 61.97
 ITC EPS is 10.59
 This is good as EPS but still much lower than Industry Standard.

⮚ Price Earnings Ratio

COMPANY RATIO
HUL 77.48
Colgate 24.35
ITC 20.63
Nestle 25.07
Parle 1.24
Britannia 56.6

Graphical Representation:

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 The Average Standard Price Earnings Ratio for FMCG Industry is 34.228
 ITC Price Earnings Ratio is 20.63
 The ITC PE Ratio is Close to Industry Standard but ITC can perform better at
PE Ratio to match up to FMCG Industry Averages.

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 CHAPTER-5
FINDINGS AND LEARNING

 The balance sheet is a financial snapshot of the company’s assets and liability, and
informs shareholders about its financial health.
 Profitability ratios are used to compare companies in the same industry, since profit
margin will vary from business to business.
 The profit margin shows the relationship between profit and sales and is mostly used
for internal comparison.
 Liquidity ratios should fall within a certain range too low and the company cannot
pay off its obligations, or too high and the company is not utilizing its cash
efficiently.
 Current Ratio = Current Assets/ Current Liabilities. This Ratio examines the
percentage of current assets a company holds to meet its liabilities, and it provides
good indication of a company’s ability to cover its short-term liabilities.
 Quick Ratio More stringent and meaningful than the current ratio, since it does not
include inventory.
 A company can improve its liquidity ratios by raising the value of its current assets
reducing current liabilities by paying off debt.
 Generally, the more debt of a company has, the less healthy it is financially.
 Debt Ratio: It shows the percentage of a company’s assets that are provided through
debt. The higher the ratio, the greater the risk the company has undertaken.
 Debt to Equity Ratio It shows the split of shareholder’s equity and debt that are used
to finance the company’s assets.
 Ratios allow easier comparison between companies than using absolute values of
certain measures.

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 CHAPTER-6
RECOMMENDATIONS AND CONCLUSION

 Ratio Analysis is one of the techniques of Financial Analysis where ratios are used as
yardstick for evaluating the sound financial condition and performance of a firm.
 Accounting Ratios measures and indicate efficiency of an enterprise in all aspects.
 From the study of Ratio Analysis, it is found that maintaining ideal ratios in such a
big organisation is a very tough task. There are various factors affecting Ratio
Analysis while managing like credit policy, Inventory Management system etc. The
Analysis om different financial data collected from the company id finally well at
present.
 It could be recommended that, The Important of ratio analysis depends on the
stakeholder’s specific need and the situational requirements.
 The Financial performance of ITC Limited and HUL Limited was found to be
satisfactory in the study. It is concluded that HUL Limited and ITC limited both has
better liquidity position, profitability and turnover ratios.
 The overall performance of ITC among the most of the FMCG companies according
to their financial performances; show in the ratio analysis that ITC ratios more
satisfactory. Their Net Profit Ratio in the financial year 2020 tops among all the
FMCG Companies Ratio analysis done by us.
 Therefore, we conclude from our study that according to FMCG Industry Standard
Ratio ITC standards are satisfactory and the management should concentrate on some
area likes their shares and stock turnover ratios.

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 CHAPTER-7
REFERENCE

 https://www.economicsdiscussion.net/financial-management/ratio-analysis/33405
 https://www.itcportal.com/about-itc/shareholder-value/report-and-accounts.aspx
 https://www.hul.co.in/Images/hul-annual-report-2020-21_tcm1255-561812_1_en.pdf
 https://www.moneycontrol.com/financials/hindustanunilever/balance-sheetVI/HU

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