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Comparative Ratio Analysis of Britannia and Cadbury - 58790024
Comparative Ratio Analysis of Britannia and Cadbury - 58790024
On
COMPARATIVE RATIO ANALYSIS OF
PROFITABILITY RATIOS OF BRITANNIA AND
CADBURY INDIA LTD.
By
JITHIN JOHN
MBA-B
Guided by
Prof. Gayatri Khedkar
ACKNOWLEDGEMENT
1
It is great pleasure for me to acknowledge the kind of help and guidance received to me during
my project work. I was fortunate enough to get support from a large number of people to whom I
shall always remain grateful.
I would like to express my sincere gratitude to Prof. Gayatri Khedkar for giving me this
opportunity to undergo this lucrative project for her great guidance and advice on this project,
without which I will not be able to complete this project.
I am very thankful to Prof. Abhijeet Kelkar for giving me valuable suggestion and
encouragement to bring out a good project.
INDEX
CHAPTE
R NO.
1
PARTICULARS
INTRODUCTION
PAGE
NO.
04
05
COMPANY PROFILE
06
RESEARCH METHODOLOGY
08
5
6
UNDERSTANDING THEROTICAL
10
FRAMEWORK
DATA ANALYSIS & INTERPRETATION 14
18
19
LIMITATIONS
20
10
BIBLIOGRAGHY
21
INTRODUCTION
This project report covers all the aspects relating to the PROFITABILITY ratios of
BRITANNIA and CADBURY INDIA LTD 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 PROFITABILITY 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 PROFITABILITY ratios of both the companies unveils why one
company is more efficient in its activity as compared to the other.
PROFITABILITY ratios are valuable as they depict how are you utilizing and managing your
resources.
All and all it was a good experience doing this project and will be of great help to me in future.
To identify the comparative financial strengths and weakness of Britannia industries and
Cadbury india Ltd.
Through the net profit ratio and other profitability ratio, understand the profitability
position of the company.
To know the liquidity position of the company, with the help of Current ratio.
To find out the utility of financial ratio in credit analysis and determining the financial capability
of the firm.
COMPANY PROFILE
5
BRITANNIA
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) an 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.
Britannia Industries Limited (Britannia) is one of the largest biscuit manufacturing
companies in India. The company is engaged in the manufacture of biscuits, rusks, cookies and
cakes. Britannia operates in a single segment, foods including bakery products such as biscuits,
bread, cakes, rusk, and dairy products. The company is headquarted in Kolkata, India and
employs 2,358 people
Global Markets Direct, the leading business information provider, presents an in-depth business,
strategic and financial analysis of Britannia Industries Ltd. The report provides a comprehensive
insight into the company, including business structure and operations, executive biographies and
key competitors. The hallmark of the report is the detailed strategic analysis and Global Markets
Directs views on the company.
Britannia's plants are located in the 4 major metro cities Kolkata, Mumbai, Delhi, and Chennai.
A large part of products arealso outsourced from third party producers. Dairy products are
outsourced from three producers - Dynamic Dairy based in Baramati, Maharashtra, and Modern
Dairy at Karnal in Haryana and Thacker Dairy Products at Howrah in West Bengal.
RESEARCH METHODOLOGY
7
DEFINITON
1) Redman and Mory:Systematized effort to gain new knowledge
2) D. sliesinger and M.stephonson:The manipulation of things, concept or symbol for the purpose of generalizing to the extend,
correct or verify knowledge, whether that knowledge aids in construction of theory or in practice
of an art.
3) The Advanced Learners Dictionary of Current English:A careful investigation or inquiry especially through search for new facts in any branch of
knowledge.
Data for this project is collected through Secondary sources. Secondary data is collected
with the help of following
1. Annual report
Majority of information gathered from data exhibited in the annual reports of the
company. These includes annual reports of the year 2005-06,2006-07,2007-08,2008-09
and 2009-10.
2. Reference Books
Theory relating to the subject matter and various concepts taken from various financial
reference books.
RATIO ANALYSIS:
INTRODUCTION:Ratio analysis is an important technique, which is widely used for interpreting financial
statement. The technique serves as a tool for assessing the current and long-term financial
soundness of a business. It is also used to analysis various aspects of operating efficiency and
level of profitability. A German scholar used ratios for the first time in 1919.
DEFINITION:1)
2)
Conclusion: - Financial ratios are useful because they summarize briefly the result of detailed
and computation.
10
5) Helpful in Efficiency Appraisal: - Ratios are the scale of comparison; here the
variations in financial statement, if they need appreciation, are brought to limelight.
6) Helpful in Evaluation of Financial Position: - The ratio analysis is useful for
financial diagnosis of an enterprise. The under mentioned ratios will make the above
clear:
Current Ratio: - It speaks about the working capital the company is having and the
funds to pay-off its short-term commitments.
Solvency Ratio: - Profitability Ratio, Capital Gearing Ratio are all such ratio that can
evaluate the financial soundless or weakness of a company.
VARIOUS TYPES OF FINANCIAL STATEMENTS:Classification of ratio is made based on requirement by end users and they indicate symptoms as
characteristic of the company.
PROFITABILITY RATIO:Measures that indicate how well a firm is performing interms of its ability to generate profit.
Formulae of some of the common ratios are as follows: (1) Book Value Per share: Total common
(ordinary) equity Number of
common
(ordinary) shares issued
and
outstanding.
(2)Dividends Per Share: Dividends paid Number of common (ordinary) shares issued
and outstanding.
(3) Earnings
Per
Share:
(Net
income - preferred
stock or preference shareinterest) Number of common (ordinary) shares issued and
outstanding. (4) Gross profit percentage: Total cost ofsales in a period x 100 Total sales
revenue for that period. (5) Net income percentage: Net income for a period x 100 Total
sales revenue for that period. (6) Operating profit percentage: Earnings before interest and taxes
(EBIT) in a period x 100 Total sales revenue in the sameperiod. (7) Return On Common
equity: (Net income for a period - Dividends) (Common equity - Preferred stock). (8) Return
On Investment: Net income Total assets.
11
In 2008-09,the Gross Profit Ratio was 7.85 and it went to 6.12 next year.As there is no
standard Ratio,company has to determine its standard ratio based on past GP ratios or GP
ratios of other concern.The Ratio if we compare it shows that1)Failure in managing purchases,production,sales and inventory
2)Loose control over direct costs of labour,fuel,freights etc.
3)Lower productivity and lower margin to meet other expenses
COGS
OPERATING
SALES
In 2008-09,the Operating Ratio was 8.97 and it went to 7.2 next year.It indicates the cost of
Expenses.As there is no standard Ratio,company has to determine its standard ratio based on past
GP ratios or GP ratios of other concern.The Ratio if we compare it shows that1) High efficiency in managing the Operations of the concern like purchases made at lower
prices,optimum level of production,good inventory management and good control of
direct cost of labour,fuel,freight etc.
2) 2) A very good Margin available to meet non-operating Expenses.
NET
PROFIT
NPAT X 100
RATIO
SALES
In 2008-09,the Net profit Ratio was 7.31 and it went to 5.75 next year.It indicates the
relationship between net profit and sales.As there is no standard Ratio,company has to determine
its standard ratio based on past NP ratios or NP ratios of other concern.The Ratio if we compare
it shows that1)
2)
3)
4)
5)
X 100
NET SALES
Expense ratios indicate the relationship of various expenses to net sales. The operating ratio
reveals the average total variations in expenses. But some of the expenses may be increasing
while some may be falling. Hence, expense ratios are calculated by dividing each item of
expenses or group of expense with the net sales to analyze the cause of variation of the operating
ratio.
The ratio can be calculated for individual items of expense or a group of items of a particular
type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio,
materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and
higher the operating ratio, lower is the profitability.
DATA INTERPRETATION
13
14
12
10
8
6
4
2
0
BRITANNIA
CADBURY
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars
BRITANNIA
CADBURY
2010
4.89
11.54
2009
6.12
6.12
2008
7.85
7.85
2007
4,7
4.7
2006
10.46
10.46
INTERPRETATION:-
14
The above table shows that the In Britannia Gross profit ratio is decreasing year by year
from 2006 to 2010. This is due to increase in cost of sales and in Cadbury india Ltd, gross profit
is increasing as compared to previous years.
COGS
OPERATING
SALES
16
14
12
10
8
6
4
2
0
BRITANNIA
CADBURY
2010
2009
2008
2007
2006
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars
BRITANNIA
CADBURY
2010
5.99
2009
7.20
2008
8.97
2007
5.85
2006
11.72
13.81
13.75
13.27
13.16
11.25
INTERPRETATION:-
The above table shows that in Britannia, Operating ratio is decreasing year by year from
2006 to 2010 and in Cadbury india Ltd there is no major change in operating ratios from 2006 to
2010.As we compare we come to know that Cadbury is performing well than Britannia.
15
RATIO
SALES
12
10
8
BRITANNIA
CADBURY
4
2
0
2010 2009 2008 2007 2006
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars
BRITANNIA
CADBURY
2010
3.38
9.68
2009
5.75
10.27
2008
7.31
8.94
2007
4.86
6.42
2006
8.48
5.11
OBSERVATIONS/ INTERPRETATION:-
The above table shows that in Britannia ,the net profit is decreasing year by year like it in
2006, it was 8.48 and it went up to 3.38 in 2010.whereas in Cadbury net profit is increasing year
by year.
16
NPAT
X 100
SHAREHOLDERS FUND
60
50
40
BRITANNIA
30
CADBURY
20
10
0
2010
2009
2008
2007
2006
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars
BRITANNIA
CADBURY
2010
48.27
35.53
2009
18.40
35.69
2008
24.06
27.77
2007
16.87
19.42
2006
24.99
11.30
OBSERVATIONS/ INTERPRETATION:The above ratio indicates that in Britannia, the net profit available to equity shareholder is rising
from 2006 to 2010 whereas in Cadbury also return on networth is rising from 11.30 in 2006 to
35.53 in 2010.
17
In this project I calculate some ratios; these ratios are very useful to interpret financial
position of the company. From that it is clear that the Britannia and Cadbury india Ltd
are in advanced stage. From the ratios calculated above following conclusions can be
drawn.
The gross profit earned by the both the companies are declining every year. From 2006
to 2010, it is fluctuating a lot which is due to failure in managing purchases, production,
sales and inventory or loses control over direct costs of labor, fuel, freights etc.
Operating ratio of Britannia going down from 2006 to 2010 which is nothing but due to
certain reasons like low efficiency in managing the operations of the company or low
margin available to meet non-operating expenses whereas as compared to Cadbury the
fluctuations are not much.
The net profit is nothing but profit earned by the company after deducting interest and
taxes. The graph is showing that in Britannia from 2006 to 2010,the net profit is
declining which is due to inefficiency in managing its activities like trading, production,
financing and investment or unsatisfactory control over operating or non operating costs
whereas in Cadbury its rising from year year.
18
The in-depth analysis of key financial ratios in this project helps in measuring the
financial strength, liquidity conditions and operating efficiency of the company. It
also provides valuable interpretation separately for each ratio that helps
organization implementing the findings that would help the organization 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 not
revealed by 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.
From the analysis it is evident that the gross profit ratio is good, whereas the
operating ratio is around optimum level to the industry standards. As a whole the
liquidity position of the company is good.
The company not very well used its fixed assets efficiently company has reduce it
in order to invest the major portion in working capital or investment in current
assets. This is one of the reason for profit fluctuation.
Thus finally the company must try to improve its profit margins as they are below
industry levels. This improvement may also bring up its return on investment and
overall efficiency to the company.
The business environment of both the company is reasonably good. The
companys track record is always oriented towards profitable growth and with
strong fundamentals
19
LIMITATIONS
Though the every researcher tries his/her best to fulfill the objectives of his, her study, but still
there are some limitation.
The authority and genuinely of the data received cannot be tested as every company does
not disclose al l of its records on internet or discloses bon the financial statement.
False result
Accounting ratio is based on data drawn from accounting records. In this case if data is
correct, then only the ratio will be correct. The data therefore must be absolutely correct.
Effect of price level changes
Price level changes often make the comparison of figures difficult over a period of time.
Changes in price affect the cost of production, sales and also the value of the assets.
The comparison is rendered difficult because of differences in situations of one company
as compared to the other.
Ratios are tool of quantitative analysis only. Normally qualitative factors are needed to
draw conclusions.
Ratio Analysis is only the beginning as it gives only a little information for the purpose of
decision making.
20
BIBLIOGRAPHY
Following books were referred for carrying out the project: 1. Financial Management by N.M. Venchalekar.
2. Financial Management by KHAN AND JAIN.
3. Annual Reports of Britannia and Cadbury India Ltd.
4. Financial Management by Ainapure Ainapure
www.money.rediff.com
www.cadburyindia.com
www.wikipedia.com
www.cadbury.com
21