Financial Ratio Analysis

HUL
A financial ratio analysis with interpretations for the past five years (2005-06
to 2009-10) of industan nilever imited
Abhinav Singh Radhika Siddharth D. Shirshendu Jyotimani

Table of Contents
LIQUIDITY RATIO ................................................................
.................................................................... 3 Current R
atio ...........................................................................
............................................................ 3 Interpretation...
................................................................................
............................................... 3 QUICK/LIQUID/ACID TEST RATIO .
................................................................................
....................... 4 Interpretation........................................
................................................................................
.......... 4 PROFITIBILITY RATIO ...............................................
...............................................................................
5 GROSS PROFIT MARGIN ..........................................................
............................................................ 5 Interpretation...
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............................................... 5 NET PROFIT MARGIN.............
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.............................. 6 Interpretation.................................
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................. 6 OPERATING PROFIT RATIO .....................................
............................................................................. 7
Interpretation..................................................................
................................................................ 7 RETURN ON CAP
ITAL EMPLOYED...................................................................
..................................... 8 Interpretation..........................
................................................................................
........................ 8 RETURN ON EQUITY ....................................
................................................................................
........ 9 Interpretation.......................................................
........................................................................... 9 EA
RNINGS PER SHARE ...............................................................
........................................................ 10 Interpretation......
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.......................................... 10 TURNOVER RATIO ...................
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............................. 11 DEBTORS TURNOVER RATIO ........................
................................................................................
..... 11 Interpretations .......................................................
....................................................................... 11 STOCK
TURNOVER RATIO ................................................................
.................................................. 12 Interpretation............
................................................................................
.................................... 12 TOTAL ASSETS TURNOVER RATIO ............
................................................................................
......... 13 Interpretation.....................................................
........................................................................... 13 L
EVERAGE RATIO ..................................................................
................................................................ 14 DEBT EQUITY
RATIO ..........................................................................
................................................ 14 Interpretation..............
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.................................. 14 INTEREST COVERAGE RATIO ..................
................................................................................
........... 15 Interpretation...................................................
............................................................................. 15
VALUATION RATIO ...............................................................
................................................................ 16 PRICE TO CAS
H FLOW RATIO ...................................................................
......................................... 16 Interpretation.....................
................................................................................

.... 16 1 ........................

.. ... 17 Interpretation.................................................PRICE TO EARNINGS RATIO .................. ...................................................................................................................... 17 2 ............ ......................................

3 . INVENTORY + CASH AND BANK + DEBTORS + BILLS RECIEVABLE CREDITORS + BILLS PAYABLE + O/S EXPENSES + BANK OVERDRAFTS Year End ITC HUL MARICO 2010 2 1.32 2 2008 3 2 2007 3 0. cash equiv alents. In theory.93 2 3.A current ratio of close to 1 signifies efficient utilization of current assets as compared to that of ITC.5 2 1. marketable securities.5 1 0.e. accrued expenses and taxes).LIQUIDITY RATIO Current Ratio Defined as ratio of current assets to current liabilities. the higher the current rat io.5 3 2.5 0 2004 ITC HUL MARICO 2005 2006 2007 2008 2009 2010 2011 Interpretation Current Ratio of HUL is less than that of ITC and MARICO for the last 5 years and is close to 1 for the entire period. current portion of term de bt.01 3 2009 3 1. payables. the better. The concept behind th is ratio is to ascertain whether a company's short-term assets (cash. However Cash and Bank Bala nce as a percentage of the Current Asset for HUL (Cash and Bank Balance comprisi ng almost 40% of Current Assets) is more than that of Current Asset for ITC whic h have Cash and Bank Balance as 16% of current Assets. i. receivables and inventory) are readily available to pay off its short-term liabilities (notes payable. Also as a company operati ng in FMCG sector HUL need not have to maintain a huge volume of current asset a gainst its current liabilities.99 2 2005 2 0.85 1 2006 2 0.

T he quick ratio is more conservative than the current ratio because it excludes i nventory and other current assets. A small value of quick ratio also signifies ef ficient utilization of cash. T herefore.6 0.35 1 2006 1 0. a higher ratio means a more liquid current position.4 0.51 1 2005 1 0.Also the ratio is less than that of ITC and MA RICO across last five years. Being a major player in FMCG sector HUL do not have to worries in finding creditors.6 1 2009 1 0.8 ITC 0. Year End ITC HUL MARICO 2010 1 0.2 1 0.2 0 2004 HUL MARICO 2005 2006 2007 2008 2009 2010 2011 Interpretation Quick ratio for HUL is less than 1 for all years against the conv entionally recommended value of 1. 4 .72 1 2008 1 1 2007 1 0. which are more difficult to turn into cash.QUICK/LIQUID/ACID TEST RATIO A liquidity indicator that further refines the current ratio by measuring the am ount of the most liquid current assets there are to cover current liabilities.49 1 1.

13 2010 29.8 9.PROFITIBILITY RATIO GROSS PROFIT MARGIN Used to assess a firmâ s financial health by revealing the proportion of money left o ver from revenues after accounting for the cost of goods sold. as compared to ITC.74 14.5 13. Year End ITC HUL Marico 2006 35. 5 is closed to 15 and is considerably le AS Gross profit margin represent the c its raw materials.86 11.72 2007 34.06 2009 29.44 12.17 13. ompanyâ s ability to efficiently utilize related fixed assets to generate profits.7 15. labour and manufacturinghere HUL appears to be less efficient .05 15.21 2008 28.98 15.37 40 35 30 25 ITC 20 15 10 5 0 2005 HUL Marico 2006 2007 2008 2009 2010 2011 Interpretation Gross profit margin of HUL ss than that of ITC for the last 5 years.

It measure how much out of every dollars of sales a company actually keeps in earnings.4 12.29 11.3 12.65 20 15 ITC HUL 10 Marico 5 0 2005 2006 2007 2008 2009 2010 2011 Interpretation Net Profit Margin of HUL is showing a decreasing trend except for the year 2010. Analysis o f Income statement of HUL and ITC yields that average revenues for HUL is less t .Also it is less than that of ITC for the last 5 years.4 21.94 9.18 12.39 21.35 21.19 14.06 21.5 9.58 8.NET PROFIT MARGIN Calculated as net income divided by revenues or net profits by sales. Net Profit Margin= Net Income Revenues Year End ITC HUL Marico 25 2006 2007 2008 2009 2010 22.09 7.

han that of ITC for the last 5 years. As Net Profit margin represents a comprehe nsive view of the profitability of the company HUL seems to be less profitable a s compared to ITC. 6 .

77 13. Operating Profit Ratio = Operating Profit Net Sales Whereas Operating Profit = Gross Profit â Operating Expenses And Net Sales = Total S ales â Sales Return Year End ITC HUL Marico 2006 34. HUL seems to be less profitable in its operational ac tivities as compared to ITC.Analysis of Income statement of ITC and HUL yields that for every year total sales of HUL is less that of ITC.57 2009 32.9 2007 32.74 16. 7 .46 14.02 15.74 12. As Op erating Profit ratio is deemed to be more reliable than Net Profit ratio for com parison between companies.63 40 35 30 25 ITC 20 15 10 5 0 2005 HUL Marico 2006 2007 2008 2009 2010 2011 Interpretation Operating Profit Ratio for HUL is consistent over the last 5 year s and is considerably less than that of ITC.95 1 3.36 14.01 2010 33.84 14.OPERATING PROFIT RATIO Operating profit means profit earned by the concern from its business operation and not from other sources.26 2008 31.51 14.

RETURN ON CAPITAL EMPLOYED Indicates the efficiency and profitability of a companyâ s capital investments. This ratio indicates that HUL is able to generate more returns by u sing less capital as compared to ITC and Marico.Also i tâ s more than that of ITC and Marico in last 5 years. 8 . Analysis of Balance sheet of H UL and ITC yields that total fund employed for HUL is less than that of ITC for all 5 years. = Net Income Capital Employed Capital Employed: Avg Debt Liability + Avg Shareholder Equity Year End ITC HUL Marico 2005 42 57 33 2006 38 85 27 2007 40 109 37 42 200 8 40 2009 37 152 35 2010 44 111 33 160 140 120 100 ITC 80 60 40 20 0 2004 HUL Marico 2005 2006 2007 2008 2009 2010 2011 Interpretation ROCE for HUL is showing an increasing trend except in 2010.

Both for ITC and HUL share of equ ity in total capital is much more than that of debt hence the ROE is an importan t ratio in determining their profitabilities. ROE ratio indicates that HUL is able to more effectively use its investor money as compared to ITC in generating profit. Analysis of bala nce sheet yields that both Net income and total share capital for HUL is less th an that of ITC for all years. Return on Equity = Net Income Shareholder's Equity Year End ITC HUL Mar ico 2005 31 64 34 2006 27 74 36 2007 28 93 50 67 2008 28 2009 25 143 49 2010 29 95 42 160 140 120 100 ITC 80 60 40 20 0 2004 HUL Marico 2005 2006 2007 2008 2009 2010 2011 Interpretation ROE for HUL is more than that of ITC and Marico in the last 5 yea rs. ROE is showing an increasing trend with a decrease in 2010. 9 .RETURN ON EQUITY Ccalculated as the amount of net income returned as a percentage of shareholders equity. However since ROE is the ratio of Net Income to Eq uity.

10 . however ITC employs more capital in comparison to HUL in generating for generating he earnings hence HUL earnings are not efficient in comparison to ITC. EPS = Net income.Dividend on Preferred Stock Average Outstanding shares Year End ITC HUL Marico 2010 11 10 4 2009 9 11 3 2008 8 3 2007 7 9 2 2006 6 8 15 2005 88 6 12 100 90 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 ITC HUL Marico Interpretation Earnings per share for HUL is gradually increasing in the last 5 years and is almost equivalent to ITC in last 4 years.EARNINGS PER SHARE Calculated as the portion of companyâ s profit allocated to each outstanding share of common stock.

4 27 2006 30 27. DEBTORS TURNOVE R RATIO = SALES DEBTORS Year End ITC HUL MARICO 2010 34 29.TURNOVER RATIO Turnover ratio measures the degree to which assets are efficiently employed in t he firm.17 2 4 2008 31 25 2007 32 33. ITC is s till tops when it comes to keeping debtors low and payments high. the above table indicates that while it was managing itâ s debt ors in an increasing more efficient fashion before 2008. Right after the change. in 2009-10. the company returned to a more normalized pattern. there seems to have bee n a jump due to changing in their accounting practises. 11 .67 28 50 45 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 ITC HUL M ARICO Interpretations Here.98 20 2009 32 44. However.07 26 2005 34 23. It is an activity ratio which ref lects upon the efficiency of the asset in generating sales flow. There are also known as activity ratio or asset management ratio and th ey are important for a business concern to find out how well the facilities at t he disposal of the concern are being used. DEBTORS TURNOVER RATIO It is a measure as to how well the debtors are being used as current assets or h ow well assets have been employed in the firm.

HUL has a higher Stock Turnover Ratio than both ITC and Marico. STOCK ITC HUL MARICO 2010 2005 8 8. pointing towards a more competitive organisation.66 8 2008 6 8 2007 6 8. 12 .STOCK TURNOVER RATIO It is an indicator as to with what efficiency and rapidity a e its merchandise. A quicker stock turnover also indicates that HUL makes profits on its stocks quic ker than the others.74 7 2009 5 9.58 9 12 10 8 ITC 6 4 2 0 2005 2006 2007 2008 2009 2010 HUL MARICO Interpretation As can be seen above.43 9 2006 7 9. It is basically a measure of liquidity of TURNOVER RATIO = COSTS OF GOODS SOLD AVERAGE STOCK Year End 6 7. This means that money is tied up for less time on stocks.09 9 firm is able to mov firmâ s inventory.

05 9 2005 4 4. it used those assets well. HUL made a heavy investment of about Rs. However. 900 crore f or asset acquisition.TOTAL ASSETS TURNOVER RATIO It is an indicator that defines whether a firm is utilising its assets efficient ly or not.04 9 12 10 8 ITC 6 4 2 0 2005 2006 2007 2008 2009 2010 HUL MARICO Interpretation In the period under consideration. HUL achieved its best turnover ratio in the year 2007. It is an activity ratio which suggests that whether the assets of the firm are operating as desired and is contributing to the sales of the firm. 13 . making a large jump of Rs.1 9 7 2009 3 10. TOT AL ASSETS TURNOVER RATIO = SALES TOTAL ASSETS Year End ITC HUL MARICO 2010 3 7. when a sharp decrease in total assets did not affect th e growth of sales. 6200 crore in sales. In 2008.83 9 2006 3 5.79 8 2008 3 8 2007 3 6.

It is much lower than MARICO for the last five years.6 0. DEBT EQUITY RATIO = ALL LONG TERM LOANS EQUITY SHAREHOLDERS CAPITAL Year End ITC HUL MARICO 2010 0 0.03 1 2005 0 0. DEBT EQUITY RATIO The debt-equity ratio is a leverage ratio that compares a company's total liabil ities to its total shareholders' equity. lenders. This is a measurement of how much suppl iers.2 1 0.8 ITC 0. Analysis of balance sheet of HUL reveals that capital of HUL is funded majorly through equity rathe r than debt.09 1 2009 0 0.LEVERAGE RATIO Leverage Ratio used to calculate the financial leverage of the company to get an idea of the companyâ s methods of financing or measure its ability to meet financial obligations.35 0 1.2 0 2005 2006 2007 2008 2009 2010 HUL MARICO Interpretation Debt/Equity ratio for HUL is not following a trend over the last years.4 0.04 1 2006 0 0. 14 .15 1 2008 0 1 2007 0 0. creditors and obligors have committed to the company versus what the shareholders have committed.

INTEREST COVERAGE RATIO It is the measure that determines whether the firm would be able to service its debt.39 23 450 400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 ITC HUL MARIC O Interpretation Interest Coverage ratio for HUL is much more than that of HUL and MARICO for all years except 2007.86 16 2005 61 87. This indicates that HUL can easily meet its i nterest expense. Analysis of Income statement for HUL yields that Interest paid is much less Rs(Cr)6.98 in comparison to EBIT Rs(Cr) 2. The ratio is the test of solvency for the firm. 29 7 2008 187 8 2007 246 92.07 13 2009 102 120. INTEREST COVERAGE RATIO = EBIT Interest to be paid Year End ITC HUL MARICO 2010 68 403.43 resulting in high value of Interest Coverage Ratio.997. 15 .81 7 2006 154 203.

Higher the ratio better will be the valuation of the company. of a stock's current p ricing as it is not easily manipulated. of a company's stock.VALUATION RATIO Valuation ratio measure how cheap or expensive security is as compared to some m easure of profit or value.43 7 2005 1 5.05 8 2006 19 7. This metric compares th e stock's market price to the amount of cash flow the company generates on a per -share basis. Pric e/cash flow ratio (P/CF) is seen by some as a more reliable basis than earnings per share to evaluate the acceptability. or lack thereof. 16 .98 13 2008 14 13 2007 13 8. from a value standpoint.11 13 2009 11 9. PRICE TO CASH FLOW RATIO The price/cash flow ratio is used by investors to evaluate the investment attrac tiveness.91 19 20 18 16 14 12 10 8 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 2011 ITC HUL Mari co Interpretation Price/Cash flow ratio for HUL is showing an increasing trend othe r than in 2010 when it has decreased.P/Cf ratio for HUL is less than that of ITC and MARICO for all years. In 2010 there is a drastic increase in Cash Flow from operating activities (Rs(Cr) 20128 in 2009 to Rs(Cr)3432 in 2010) which is the reason of decrease in the value of Price/Cash flow ratio in 2010. Year End ITC HUL Marico 2010 11 5.

24 32 200503 0 31. as investors are paying more for toda y's earnings in anticipation of future earnings growth.27 33 200603 16 25. shareholder orientation and corporate image of a company. risk characteristics. A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to the overall market. 17 .06 28 200903 10 20 .Also P/E ratio for HUL is more than that of ITC in all years indicating a higher confidence of investors in HUL as compared to ITC.Analysis of Income statement of HUL yields that earning has decreased from Rs(Cr) 2500 to Rs(Cr)2202 which is the reason for decrease in EPS in 2010.69 26 200803 12 29 200703 10 24.PRICE TO EARNINGS RATIO The PE ratio indicates the growth prospects. degree of liq uidity.92 19 35 30 25 20 15 10 5 0 2004 ITC HUL Marico 2005 2006 2007 2008 2009 2010 2011 Interpretation P/E ratio for HUL is showing a decreasing trend except in 2010 wh en it has increased. P/E ratio = Price per sh are / Earnings per share Year End ITC HUL Marico 201003 12 24.

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