Group Assignment

Subject: Accounting for Managers

MBA 1, SECTION- A
GROUP-B

Company Name: ITC

Area of Ratio Analysis: Profitability Ratio Analysis

Submitted to Group Members:

Dr Manta Dey Shreyasi Chakraborty-A91801923099
Agniv Basu- A91801923022
Sayan- A91801923174
Nikki- A91801923003
Ishika- A91801923012
Rohini- A91801923180
ITC Limited is a multinational company with its corporate headquarters in Kolkata. ITC is
active in a variety of sectors, including FMCG, hotels, software, packaging, paperboards,
specialty papers, and agrobusiness. The company executes 13 operations across 5 market
sectors. It exports to 90 various countries. A total of 6million retail locations offer its
merchandise. ITC is the sole organization in the world of its size and diversity to be carbon,
water, and solid waste recycling positive, demonstrating its desire to be a benchmark of
sustainability practices. In addition, ITC's firms and value chains provide more than 6 million
individuals, the majority of whom are among the poorest in rural India, with sustainable
means of subsistence.
Imperial Tobacco Company of India Limited was the company's original name when it was
August 24,1910. In 1970, it changed its name to India Tobacco Company Limited, and then
in 1974 it became I.T.C. Limited. Currently, it is referred to as ITC Limited.
For the first time in the company's history, on April 17, 2023, its market cap crossed the
500,000 crore ($63 billion) mark. On July 20, 2023, it passed the 600,000 crore ($75 billion)
milestone, making it the largest FMCG company in India by surpassing Hindustan Unilever's
market cap. More than 60 locations in India are homes to its 36,500 employees.
ITC is one the India’s foremost private companies with a Gross Revenue of Rs 69,481 crores
and Net Profit of Rs 18,753.31 crores (according to FY31st,2023).
The equity shares of ITC are listed on the Bombay Stock Exchange, the National Stock
Exchange of India, and the Calcutta Stock Exchange. The Luxembourg Stock Exchange lists
the company's Global Depository Receipts (GDRs). ITC is a member of the NIFTY 50 and
BSE SENSEX, two of India's most important stock market indices.
The board of directors of ITC Ltd. gave its preliminary authorization in July 2023 to demerge
its hotel division and create ITC Hotels as a wholly owned subsidiary.
BOARD OF DIRECTORS
Chairman and Managing Director
Sanjiv Puri
Chairman and Managing Director

Executive Directors
Nakul Anand Supratim Dutta
Executive Director Executive Director & CFO

Independent and Non-Executive Directors

Nirupama Rao Mukesh Gupta
Independent Director Non-Executive Director

FINANCIAL STATEMENT ANALYSIS REPORT OF ITC LIMITED

Ratio Analysis: Profitability Ratio Analysis
Profitability ratios measure the ability of an organization to make profits in regards to sales,
assets, and equity. In general terms, the higher the value denotes greater financial health.
They provide significant data when compared to an industry benchmark, the firm's
competitors, or its past performance.
Profitability ratios are financial metrics that aid in determining and evaluating a company's
capacity to generate a profit. The profitability ratio also demonstrates how effectively a
company utilizes its resources to generate profits and add value for its stockholders.
Every organization therefore aims for a higher ratio, which shows that the company is
performing well in terms of revenue, earnings, or cash flow.
The profitability ratio is an effective instrument for evaluating and comparing organizations
that are comparable or earlier times.
As a higher percentage shows that an organization is functioning well with respect to of
earnings, revenue, or cash flow, it is the ultimate objective of any organization. Furthermore,
the majority of investors and creditors utilize profitability ratios to evaluate the company's
return on investment in comparison to its respective amount of assets and resources.
To analysis the profitability ratio, organization follows few tools which is further discussed
below:

Gross Profit: A profitability ratio known as the gross profit ratio measures the connection
between gross profit and net sales revenue. The gross profit margin ratio is used to measure a
company's profit from sales of products and services after direct costs and cost of goods sold
have been deducted. subtracted.

It is also known as the Gross Profit Margin when it is expressed as a percentage.

Gross Profit Ratio = Gross Profit/Net Revenue of Operations × 100
here,
Gross Profit = Net Sales – Cost of Goods Sold
Net Sales = Total Sales – Discounts – Allowances – Sales Returns
Additionally, a higher gross profit is an indication that an organization can pay operating
expenditures, fixed costs, depreciation, etc. and still generate a profit. A low gross profit
margin, on the other hand, is a disadvantage to an organization since it denotes high selling
prices, slow sales, expensive costs, intense competition in the market, etc.

Net Profit: The organization's total profitability from sales is estimated using the net profit
margin after all direct and indirect costs have been subtracted. It is also the amount of
revenue that is left over after all costs, taxes, and interest have been subtracted.
Net Profit Margin Ratio= Net Income / Net Sales
here,
 Net Sales = Total Sales – Discounts – Allowances – Sales Returns

A higher net profit indicates that the company is running efficiently while controlling
expenses and pricing of goods and services. However, one disadvantage of implementing this
ratio is that it takes one-time costs and profits into account, making it difficult to compare
performance with that of the company's competitors.

Operating Profit Ratio: Operating Profit Ratio is the term used to determine the
opening profit and revenue generated from operations.

Operating Profit Ratio = Operating Profit/ Revenue from Operations × 100

OR Operating Profit Ratio = 100 – Operating ratio

Operating Ratio: The operating ratio is calculated to evaluate the cost of operation
relative to the revenue generated by the activities.

Operating Ratio = (Cost of Revenue from Operations + Operating Expenses)/

Net Revenue from Operations ×100

ROCE/ROI: Return on Capital Employed (ROCE) or Return on Investment (ROI) is a

profitability ratio that measures how well an organisation is able to generate profits from its capital.

ROCE or ROI = EBIT ÷ Capital Employed × 100

Here,
Capital Employed= Total Assets-Current Liabilities

ROE/RONW: Return on shareholder funds is used for estimating whether investments

done by the shareholders are able to generate profitable return or not. It should always be
greater than the return on investment, as doing otherwise would show the inappropriate
application of the organization's financial resources.

Return on Shareholders’ Fund = Profit after Tax / Shareholders’ Funds 100

Or Return on Net Worth = Profit after Tax / Shareholders’ Funds × 100

FINANCIAL STATEMENT
CALCULATING GROSS PROFIT RATIO
2023
Gross Profit = Net Sales - Direct Expenses (Cost of materials consumed + Purchase of stock
in Trade + Excise duty)
= 70251.28- (19809.83 + 9109.85 + 4208.01)
= 70251.28- 33127.69
= 37,123.59
Gross Profit Ratio = Gross Profit / Net Sales x 100
= 37123.59/70251.28 x 100
= 52.84%
2022
Gross Profit = 59745.56- (16064.50 + 10734.48 + 3404.29)
= 59745.56- 30203.27
= 29542.29
Gross Profit Ratio = 29542.29/59745.56 x 100
= 49.45%

Analysis on Gross Profit Ratio

Gross Profit Increase: In 2023, the company's gross profit increased from Rs 29,542.29 in
2022 to Rs 37,123.59. This indicates that the organization's ability to make revenue from its
primary operations has improved.

CALCULATING NET PROFIT RATIO

2023
Net Profit = 18753.31
Net Profit Ratio = Net Profit/Net Sales x 100
= 18753.31/70251.28 x 100
= 26.69%
2022
Net Profit = 15057.83
Net Profit Ratio = 15057.83/59745.56 x 100
= 25.20%
Analysis on the Net Profit Ratio
According to the company's anticipated 26.69% net profit ratio for 2023, it will maintain
around 26.69 cents of every rupee in net sales as net profit.
The company retained around 25.20 cents in net profit for every rupee of net sales in 2022,
according to the slightly lower Net Profit Ratio of 25.20% that year.
Comparing
In 2023, the Net Profit Ratio increased to 26.69% from 25.20% in 2022. It indicates that the
organization became more profitable from 2022 and 2023.
CALCULATING THE OPERATING RATIO AND OPERATING PROFIT
RATIO
2023
Operating Ratio = (COGS (Direct Expenses) + Operating Expense (Depreciation and
amortization expense)/ Revenue from operations x 100
 = (33127.69 + 1662.73)/70251.28 x 100
= 49.52%
Operating Profit Ratio = 100 - Operating Ratio
= 100- 49.52 = 50.48%
2022
Operating Ratio = (30203.27 + 1652.15)/ 59745.56 x 100
= 53.31%
Operating Profit Ratio = 100 – 53.31
= 46.69%

Analysis on the Operational Ratio and Operational Profit Ratio

The operational ratio in 2023 is 49.52%, which indicates that for every rupee of revenue
generated, operating costs (including depreciation and amortization) account for 49.52 cents.
The operational ratio increased in 2022, at 53.31%, indicating that costs will consume a
greater proportion of income than they would in 2023.
With an operating profit ratio of 50.48% in 2023, the operational profit ratio for 2022 is lower
at 46.69%, indicating that less revenue is retained as operating profit than in 2023. Overall,
the analysis shows that the company' operational efficiency and financial performance were
higher in 2023 than they were in 2022.
CALCULATING THE Return on Investment (ROI)
EBIT = Profit before tax + Financial costs (to be taken from cashflow)
Return on investment (ROI) = EBIT/ (Total Asset – Current Liabilities) x 100
2023
EBIT = 24750.41 + 41.81
= 24792.22
ROI = 24792.22/ (82261.74 – 12415.62) x 100
= 35.49%
2022
EBIT = 19829.53 + 41.95
= 19871.48
ROI = 19871.48/ (75092.50 – 11478.09) x 100
= 31.23%

Analysis on ROI
Increased Performance: From 2022 to 2023, the ROI increased from approximately 31.23%
to about 35.49%. This indicates that the company's profitability when compared to its capital
investments increased throughout this period.
The financial Costs: Both years' financial costs are relatively low when compared to EBIT,
which is typically a good indicator because it suggests that the company is not excessively
limited by the payment of interest.

REPORT ANALYSIS ON THE BASIS OF OUTCOME

The analysis highlights the complete financial health of the company. We have used the
Profitability Ratio to understand the financial status of the ITC Limited of the financial year
2023 & 2022.
o The organization's gross profit gained from Rs 29,542.29 in 2022 to Rs 37,123.59 in
2023. This indicates that the organization's core activities were able to produce more
profit during the year. The company's financial performance is positively affected by
the increase in gross profit and the gross profit ratio. It may indicate that the
organization has put forward efficient cost-control measures, perfecting its pricing
policy, potentially experiencing sales growth.
o And in terms of Net Profit Ration, in 2023, the firm kept around 26.69 cents in net
profit for every rupee of net sales produced, indicating that a significant portion of
their sales income was converted into profit. Finally, the increase in the Net Profit
Ratio from 2022 to 2023 suggests an improvement in the company's profitability.
 Implementing trained strategic decisions for sustainable growth, however, requires
extensive investigation, which includes taking a deeper look at expenses and the
marketplace.
o In particular, the company showed increased operational effectiveness and
profitability in 2023. The higher Operating Profit Ratio, which indicates greater
profitability from core businesses, and the lower Operating Ratio, which shows more
efficient cost control, both indicate this increase in profitability.
o The ROI increased from around 31.23% in 2022 to about 35.49% in 2023, indicating
that the business became more effective at generating returns on its capital
investments. EBIT (Earnings Before Interest and Taxes), an estimate of the amount of
revenue the firm generated before deducting interest and taxes, grew from about
19871.48 in 2022 to 24792.22 in 2023.

RECOMMENDATIONS
In 2023, ITC demonstrated an upsurge in its financial performance. Therefore, the ITC
Limited, should continue to prioritize sustainable growth strategies as that maximize cost
management, pricing strategies, and market development while minimizing environmental
effect if it intends to maintain this development continue.
To increase profitability, the company should regularly evaluate and minimize operational
costs. Cost-effective solutions can help increase margins and improve overall financial health.
Although the ITC already exports to 90 different countries, it could consider expanding into
emerging worldwide markets to diversify the customer base and reduce its dependence on
certain locations or markets.
ITC should evaluate the performance of each division and take into consideration
redistributing resources to segments that provide stronger profitability and growth potential in
regard to the company's various business divisions.

CONCLUSION
We can conclude that the project is based on the Profitability Ratio Analysis for ITC Limited.
Profitability is very important for predicting the growth of sales of any company or
organization for improving the business. Here all possible ratios of Profitability is calculated
to analyse the difference in growth and progress of ITC between 2022 to 2023 based on
financial statement (Profit and Loss), Balance Sheet and Cashflow statement showing the
difference between 31st march 2022 and 31st march 2023.
ITC Limited demonstrated its commitment to both profitability and environmental
responsibility in 2023 through its strong financial performance and sustainability initiatives.
It indicates that the organization's primary operations and capital expenditures are now more
financially rewarding. It should continue to prioritize cost management, innovation, and
expansion plans while preserving its leadership in sustainability in order to sustain this
growth.