WORKING CAPITAL ANALYSIS

OF ITC

MADE BY : SHRAVANA CHAKRAVARTY

BBA II SEC C
1876130

FINANCIAL MANAGEMENT II
 INTRODUCTION
Any firm, from time to time, employs its short-term assets as well as short-term financing sources to
carry out its day to day business. It is this management of such assets as well as liabilities which is
described as working capital management. Working capital management is a quintessential part of
financial management as a subject. It can also be compared with long-term decision-making the
process as both of the domains deal with the analysis of risk and profitability. orking capital is
formally arrived at by subtracting the current liabilities from current assets of a firm on the day the
balance sheet is drawn up. Working capital is also represented by a firm’s net investment in current
assets necessary to support its everyday business. Working capital frequently changes its form and is
sometimes also referred to as circulating capital.

INTRODUCTION TO ITC LIMITED

ITC Limited is an Indian multinational conglomerate company headquartered in Kolkata,
West Bengal. Established in 1910 as the 'Imperial Tobacco Company of India Limited',
the company was renamed as the 'India Tobacco Company Limited' in 1970 and later to
'I.T.C. Limited' in 1974. The dots in the name were removed in September 1974 for the
company to be renamed as 'ITC Limited' where 'ITC' would no longer be an initialism. The
company completed 100 years in 2010 and as of 2012–13, had an annual turnover of
US$8.31 billion and a market capitalization of US$52 billion. It employs over 30,000 people
at more than 60 locations across India and is part of Forbes 2000 list.
 COMPANY PROFILE: ITC LIMITED
a. Name of the Company – ITC LIMITED
b. Founded – August 24, 1910 (as Imperial Tobacco Company of India)
c. Founder – Henry Overton Wills
d. Headquarters – Virginia House, 37 , Jawaharlal Nehru Rd, Kolkata-700 071

 RATIO ANALYSIS
SHORT TERM SOLVENCY RATIO
Current Ratio =
Total Current Assets
Total Current Liabilities
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Total Current Assets 11395.32 14260.01 16097.49
Total Current
Liabilities 10519.67 11663.18 12916.23
Current Ratio 1.083 1.223 1.246

Interpretation : Standard current ratio is 2:1. From the above table, I see that Current Ratio
is increasing. It means that Solvency Position is better.

Acid Test Ratio =

Quick Assets
Quick Liabilities
Here, Quick Assets = Sundry Debtors + Cash at Bank + Loans & Advances
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Quick Assets 3079.06 7659.81 8737.95
Quick Liabilities 10519.67 11663.18 12916.23
Acid Test Ratio 0.293 0.657 0.677

Interpretation : Acid Test Ratio shows that measurement of Short term Solvency Position of
the Company.
It will be always 1:1 as Standard Ratio. But from the above table I see that, Acid Test Ratio is
below 1:1 in
every year. This is not sound liquidity position of the company.

Working Capital Turnover Ratio =

Net Sales .
Net Working Capital
Here net Working Capital = Net Current Assets
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Net Sales 25090.11 29901.27 33238.60
Net Working Capital 875.65 2596.83 3181.26
Working Capital
Turnover Ratio 28.653 11.515 10.448
Interpretation : A high working capital turnover ratio indicates efficiency in utilization of
resource. In the year 2011-12 we see that, highest working capital exist it shows that,
component of working capital is less utilized. In the 2012-13 & 2013-14 I see that, working
capital turnover ratio has decreased. This means that component of working capital is more
utilized which is considered as the negative sign from the point view of finance.

LONG TERM SOLVENCY RATIO

Debt Equity Ratio =
Total Debt
Share Holders Fund
Here, Total debt= Secured Loans + Unsecured Loans+ Total Current Liabilities
Share Holders Fund = Net Worth
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Secured Loans 1.77 0 0.14
Unsecured Loans 77.32 66.40 51
Total Current
Liabilities 10019.67 11663.18 12916.23
Total Debt 10098.8 11729.6 12967.4
Share Holders Fund 18738.84 22287.85 26252.02
Debt Equity Ratio 0.539 0.526 0.494

Interpretation : The Debt Equity Ratio is 1:1. It implies that for every rupee of outside
liability equal to every rupee of shareholder fund. From the above table I see that debt equity
ratio gradually decreases from 0.539 to 0.526 and from 0.526 to 0.494. It shows that debt
capital decreases. This position is better for the company.

Proprietary Ratio =
Shareholders Fund
Total Assets
Here , Shareholders Fund = Net Worth
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Shareholders Fund 18738.84 22287.85 26262.02
Total Assets 18817.93 22354.25 26313.16
Proprietary Ratio 0.996 0.997 0.998
Interpretation : Normal ratio of proprietary ratio is 1:1. It is seen that the company’s total
shareholders fund approximately equal to total assets. It is the standard position of business.
Net Profit Ratio =
Net Profit
Sales X 100
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Net Profit 6162.37 7418.39 8785.21
Sales 35247.25 29901.27 33238.6
Net Profit Ratio 17.48% 24.81% 26.43%
Interpretation : Net profit ratio will be normally created by every company 5-10%. But
from the above table I see that company’s net profit is more than 10% and gradually
increased every year. This is the good position of the company.

Operating Profit Ratio =

Operating Profit
Net Sales X 100
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Operating Profit 8921.81 10627.51 12454.84
Net Sales 25090.11 29901.27 33238.60
Operating Profit Ratio 35.559% 35.542% 37.471%
Interpretation : In 2011-12 and 2012-13 Operating Profit ratio almost same. In 2013-14
Operating Profit Ratio has gradually increased to 37.471%. It is the best position in
efficiency.

ACTIVITY RATIO

Debtors Collection Period =

Average Debtors
Net Sales X 365 days
Here Average debtor for 2011-12 = 986.02
For 2012-13 = (986.02+1163.34)/2 = 1074.68
For 2013-14 = (1163.34+2165.36)/2 = 1664.35
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Average Debtors 986.02 1074.68 1664.35
Net Sales 25090.11 29901.27 33238.60
Debtors
Collection Period 14 13 18
Interpretation : There is in both average debtors and sales. But average collection period
decreases in 2012-13 and increases in 2013-14. This shows, that cash collection from debtors
is not very good.

Total Assets Turnover Ratio =

Net Sales
Total Assets
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Net Sales 25090.11 29901.27 33238.60
Total Assets 18817.93 22354.25 26313.16
Total Assets
Turnover Ratio 1.33 1.34 1.26
Interpretation : From the above table I see that, total assets turnover ratio has firstly
increased and then decreased. It shows that position of the company is slightly good. Its
stability position is not very good.

Fixed Assets Turnover Ratio =

Net Sales
Assets
Where Fixed Assets = Net Block.
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Net Sales 25090.11 29901.27 33238.60
Fixed Assets 9053.63 11209.34 12012.74
Fixed Assets
Turnover Ratio 2.77 2.67 2.77

Interpretation : From the above table I see that, Fixed Assets Turnover ratio is firstly
increases and then it decreases. It shows that position of the company is slightly good.

Current Assets Turnover Ratio =

Net Sales
Current Assets
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
Net Sales 25090.11 29901.27 33238.60
Current Assets 11395.32 14260.01 16097.49
Current Assets
Turnover Ratio 2.20 2.10 2.06
Interpretation : Better current turnover ratio is always good for the company. The turnover
ratio is moving positively in the last three years. There was increase in current assets as well
as in sales. But growth rate of sales were higher. But the Current Asset Turnover Ratio is
gradually decreased.
S

NET WORKING CAPITAL

STATEMENT SHOWING NET WORKING CAPITAL
(Rs. IN CRORES)
Particulars 2011-12 2012-13 2013-14
(A) CURRENT ASSET
(a) Inventories 5637.83 6600.20 7359.54
(b) Sundry Debtors 986.02 1163.34 2165.36
(c) Cash & Bank 140.50 3615 3289.37
(d) Loans & Advances 1952.54 2881.47 3283.22
Total (A) 8716.89 14260.01 16097.49
(B)CURRENT LIABILITIES
(a) Current Liabilities 6108.60 6404.43 6921.52
(b) Provisions 4411.07 5258.75 5994.71
Total (B) 10519.67 11663.18 12916.23
NET WORKING CAPITAL (A-B) - 1802.78 2596.83 3181.26

Interpretation : This table shows the net working capital position for the last three years. In
the year 2011-’12 net working capital shows in negative. It indicates that the ability of the
ITC company to meet the short term obligation is very poor. Whereas in the year 2012-’13 &
2013-’14 net working capital is positive. It indicates that the ability of the ITC company to
meet the short term obligation is high and creditor accept net working capital as margin of
safety and it indicates that the financial solvency position of the company.
Findings:
(i) Since volume of sales is increased. So, company’s earning will also be increased.
(ii) Standard current ratio is 2:1 but company ratio is 1.24:1. This shows company’s solvency
position is not so good.
(iii) Standard asset test ratio is 1:1 but company’s ratio is 0.67:1. The company has not excess
liquidity.
(iv)The debtors of the company were high. They were increasing year by year. So more funds
were blocked in debtors. But now recovery is becoming slowly and steadily.
(v) Working capital turn over ratio is decreasing in 2013-’14, that shows decreasing needs of
working capital.
(vi)Asset turn over ratio is gradually increased is shows that company’s stability position is
better.
Suggestions:
(i) It can be said that over all financial position of the company is very good from the point of
view of profitability.
(ii) The company should try to increase their shareholders fund over the total assets.
(iii) Since operating profit ratio is high so the company must try to more increase in sale.
(iv) Company should try to increase the volume of sales to occupy the major area of the
market.

CONCLUSION
With the best of my efforts, the guidance of my supervisor and the information based on ITC
Company, I have completed this project report of my working capital management. I have
carryout detailed information of ITC Company. The acid test ratio shows the short term
solvency position of the company. The average debtors and sales are both increasing but still
cash collection from debtors is not so good. The debt equity ratio shows that company is in
fairly better position. The net profit 0f the company is also good since it exceeds 10% and is
gradually increasing every year. The working capital of the company is reducing which is
considered from the point of view of finance. From the above collected data, I may say the
ITC Company is in good position
in market.