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Financial Statement Analysis
Financial Statement Analysis
Ltd
TABLE OF CONTENT
S. No Chapters Page No
1 Title Page 1
2 FMCG Sector Industry Trend 2
3 ITC Ltd About the company: 2
4 ITCs corporate strategies 3
Vision of the company 4
5 Multiple Drivers of Growth for 5
the Economy
6
About the FMCG Industry and
Competition:
Opportunities and threats 7
6 Balance Sheet 7
The Indian FMCG sector, with a market size of US$ 25 billion (retail sales),
constitutes 2.15 per cent of Indias GDP. The industry is poised to grow between
10 to 12 per cent annually. A well-established distribution network spread across
six million retail outlets.
The consumer durables market is expected to reach US$ 12.5 billion in 2015 and
US$ 20.6 billion by 2020. Urban markets account for the major share (65 per cent)
of total revenues in the consumer durables sector in India. There is a lot of scope
for growth from rural markets with consumption expected to grow in these areas
as penetration of brands increases.
The FMCG sector has grown at an annual average of about 11 per cent over the
last decade. The overall FMCG market is expected to increase at (CAGR) of 14.7
per cent to touch US$ 110.4 billion during 2012-2020, with the rural FMCG market
anticipated to increase at a CAGR of 17.7 per cent to reach US$ 100 billion during
2012-2025.Food products is the leading segment, accounting for 43 per cent of
the overall market. Personal care (22 per cent) and fabric care (12 per cent) come
next in terms of market share.
Growing awareness, easier access, and changing lifestyles have been the key
growth drivers for the consumer market. The Government of India's policies and
regulatory frameworks such as relaxation of license rules and approval of 51 per
cent foreign direct investment (FDI) in multi-brand and 100 per cent in single-
brand retail are some of the major growth drivers for the consumer market.
ITC belongs to FMCG industry. It is rated by BCG as one of the top 10 consumer
goods companies in the world in terms of the Total shareholder returns (TSR).
Operating Profits
Cash Profits
ITC is the only Indian FMCG company to feature in Forbes 2000 list, A
comprehensive ranking of world companies measured by
Composition of sales
Profits
PBT: No. 6
PAT: No. 5
In services, ITC Hotels is acknowledged worldwide for its fine art of hospitality, for
being an epitome of luxury and the greenest luxury hotel chain in the world.
TC's Branded Packaged Foods Business is one of the fastest growing foods
businesses in India. A spread of delectable offerings in Staples, Snacks & Meals,
Confections and Beverages is available under several popular brands like
Aashirvaad, Sunfeast, Bingo!, Yippee!, Kitchens of India, mint-o, B Natural,
Candyman and GumOn.
The Indian FMCG sector, with a market size of US$ 25 billion (200708 retail sales),
constitutes 2.15 per cent of Indias GDP. The industry is poised to grow between 10 to 12 per
cent annually. A well-established distribution network spread across six million retail outlets.
Some of the leading players in this segment include Britannia Industries Ltd,
Dabur India Ltd, GlaxoSmithKline Consumer Healthcare India Ltd and
Gujarat Cooperative Milk Marketing Federation (GCMMF).
Competition:
Hindustan Unilever Limited (HUL) is India's largest fast moving consumer goods
company is one of the major competitions of ITC. HUL is the market leader in Indian
consumer products with presence in over 20 consumer categories such as soaps, tea,
detergents and shampoos amongst others with over 700 million Indian consumers
using its products. It has over 35 brands
Procter & Gamble Co. (P&G) is an American company based in Cincinnati, Ohio
that manufactures a wide range of consumer goods. In India Proctor & Gamble has
two subsidiaries: P&G Hygiene and Health Care Ltd. and P&G Home Products Ltd
Please find the attached calculation worksheet used for all the ratio and
fund flow calculations
FSACalculationWorks
heet.xlsx
Funds flow analysis is a study of flow of fund from current asset to fixed asset or
current asset to long term liabilities or vice versa. The study helps in understanding
in many key takeaways on business.
Total
Sum of Long term 5068. Sum of Short term 2010. 7079.
Inflows 25 inflows 84 09
Sum of Long term 2219. sum of Short term 4859. 7079.
Outflows 54 outflows 55 09
2848. 2848.
Difference 71 Difference 71
Difference or
Mismatch Analysis Mismatch/Total Outflows 0.402411892
Percentage Mismatch 40.24118919
Percentage Mismatch 40.24% is greater than accepted levels of 25%. So the Short
term funds supplied the funds to Long term needs. This will alter the working capital
and hence it has to rely on some other asset or external Influx of funds for short term
needs.
Short term Borrowings- Trade Payable- Inventory and Cash Equivalents have
been used towards long term needs. This might result in liquidity issues when the
money needed by short term needs is not meant and working capital needs influx from
other sources.
Trade creditors
Lenders
Investors
Management
Financial Ratio Analysis
Liquidity Ratio
2015 2014
Liquidity Ratios Quick ratio Quick ratio
Quick ratio = Quick 16118.27/116 13569.19/115
assets/Current 81.91= 04.32=
Liabilities 1.379763241 1.179486489
Cash Flow Cash Flow
Ratio Ratio
Cash Flow Ratio=Cash 7588.61/1168 3289.37/1150
assets/Current 1.91= 4.32=
liabilities 0.649603532 0.285924766
Current Current
Ratio Ratio
23955.03/116 20928.73/115
Current Ratio =Current 81.91= 04.32=
Asset/Current Liabilities 2.050609019 1.819206176
2.5
2
1.5
1
0.5
0 2015
2014
ITC have high liquidity ratios, the higher the margin of safety that the company possesses to
meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is in good
financial health ITC has all the liquidity ratio greater than 1 and it is less likely fall into
financial difficulties.
Current ratio of 2.05 indicates ITC's ability to meet short-term debts. The current ratio
measures whether or not a firm has enough resources to pay its debts over the next 12 month.
The main reason the current ratio increases is due to significant increase in the current assets
as compared to current Liabilities.
The Small or Quick ratio is more than 1 and this number 1.37 is acceptable by most
creditors. Meanwhile it changes from industry to industry. ITC has exhibited financial
liquidity in many other aspects.
The Cash ratio of 0.64 says that the company is not in the position to very quickly liquidate
its assets and cover short-term liabilities. ITC ltd does not have any immediate liquidity
needs so this ratio is quite acceptable as per industry standards.
The cash ratio follows also follows the same trend as the other two liquidity measures. The
increase again is because of a more than significant increase in the cash items of ITC
Limited.
Profitability Ratio
2015 2014
PBID margin PBID margin
Profitability Ratios (%) (%)
14959.26/380 13559.03/343
PBID margin 50.53= 45.74=
(%)=PBID/Total
income*100 39.31419615 39.47805463
PBT margin PBT margin
(%) (%)
13997.52/380 12659.11/343
50.53= 45.74=
PBT margin (%)=PBT/Total
Income*100 36.78666237 36.85787524
PAT margin PAT margin
(%) (%)
9607.73/3805 8785.21/3434
0.53= 5.74=
PAT margin (%)=PAT/Total
Income*100 25.24992425 25.57874718
45
40
35
30
25
20
15
10
5
0 2015
2014
PBID margin The ratio between the profit before interest and taxes (equal to the
operating income, in our case) to that of the sales for the given period during which
the profit has been earned is a measure of the profitability of the company for that
period. The Profit margin of
39.31%
is quiet impressive and the company is making good profits. The sales of the ITC Ltd
have also experienced a similar trend that has led to the expansion of profit. Because
the growth in the two components has nearly been equal, the ratio between them has
not changed significantly.
PBT Margin% is also an impressive 36.78% and is consistent.
The interest component is the sole parameter that can differentiate the trend followed
by the ratio above and this one.
The profit margin compared to the previous period's margin signals there is a
consistent performance in both operational efficiency and profitability means the
company is consistent in its profits and efficiency. A margin higher than those of other
companies or higher than the industry average means ITC business performed better
than those companies during that period.
There is not significant increase in profit margins but there isnt significant
decrease in the profit margin either which suggests the company is consistent
and stable in its profitability and operational efficiency.
Leverage Ratios
In both the cases above 0.05 and 0.004 are extremely very low numbers
for this ratio.
ITC has a very low Debt to Equity ratio which means ITC doesnt
run the risk of high debts for the sake of aggressive growth.
It is clearly Equity driven and Not Debt driven. Aggressive
Debt oriented growth practices are often associated with high levels
of risk.
This ensures the shareholders that there is very little risk with
investing with ITC.
2015 2014
Debt Equity Debt Equity
Ratio Ratio
Total Debt to Total Capital
Employed = Total LT + ST
Debt/Total Capital
employed 1.359291377 1.414942866
2015 2014
Debt Equity Debt Equity
Ratio Ratio
Total Debt to Total Capital
Employed = Total LT + ST
Debt/Total Capital
employed 0.305217024 0.34888352
Even the total Debt to Total Capital Employed ratio is very less.
It clearly shows ITC ltd is Equity driven and not Debt driven.
Investment Activity Ratios
Activity ratios are calculated to evaluate how efficiently and effectively the
firm utilizes its assets. The fixed (or capital) assets turnover ratio
measures how intensively a firm's fixed assets such as land, buildings, and
equipment are used to generate sales. A low fixed assets turnover implies
that a firm has too much investment in fixed assets relative to sales; it is
basically a measure of productivity
2015 2014
Fixed Asset Fixed Asset
Investment Activity Turnover Turnover
Ratios ratio ratio
Fixed Asset Turnover 49964.82/162 46712.62/143
ratio=Sales Turnover/ 92.63= 08.47=
Net Fixed Assets 3.066712986 3.264683086
Total Assets Total Assets
Turnover Turnover
Ratio Ratio
Total Assets Turnover 49964.82/441 46712.62/392
Ratio =Sales 95.66= 29.39=
Turnover/Total Assets 1.130536799 1.190755706
Capital Capital
Employed Employed
Turnover Turnover
ratio ratio
Capital Employed
Turnover ratio= Sales 49964.82/325 46712.62/277
Turnover/Capital 13.75= 25.07=
Employed 1.536728922 1.684851292
3.5
2.5
2 2015
1.5
2014
1
0.5
0
Investment Activity Ratios
In the above example the fixed assets turnover ratio is 3.0 and 3.2 which
means for every 1 rupee spent on the fixed assets it generates sales worth 0.90
rupees.
Similarly the Total Assets turnover ratio is more than 1 so it means the
investment on the Total assets, it generates positive sales.
2015 2014
ROI Ratios ROA% ROA%
Return on Assets (%) = 21.7390802 22.3944598
PAT/Total Assets 6 7
ROCE% ROCE%
Return On Capital
Employed= PBT + LT
Interest 45.74 48.21
RON% RON%
Return on Networth
(%) =PAT/Net worth 31.25888209 33.51
60
50
ROI Ratios Return on Assets (%)
40 = PAT/Total
Assets
30 Return On Capital
Employed= PBT + LT
20 Interest
Return on Networth
10 (%) =PAT/Net worth
0
2015 2014
ROA%
Every Rupee invested in assets during the year produced Rupees 0.21 rupees of
net income. This is very good Return rate nevertheless they should try get this
number to a bit higher level.
Profit has increased from the previous year, but the asset utilization
has slightly come down from 22% to 21% and the amount of assets
added also got increased. This is marginal and could be improved.
RON%
The net worth ratio states the return that shareholders could receive on their
investment in a company, if all of the profit earned were to be passed through
directly to them. Thus, the ratio is developed from the perspective of the
shareholder, not the company, and is used to analyze investor returns.
The ratio of net income after taxes to total end of the year net-worth of
the company is called the RONW for that company. This ratio indicates
the return on stockholder's total equity that is invested in the business.
The ratio of
31.25%
ROCE%
Investors are interested in the ratio to see how efficiently a company uses its
capital employed as well as its long-term financing strategies.
When it comes to informed investing all of the Equity investor ratios are going
to play a major role in determining the investment options amongst the
competitors in the industry. Some of the key Equity investor ratios for ITC ltd
are listed below
60
50
40
30
20
10
0 2015
2014
2015 2014
Earnings Earnings
Equity Investor Ratio per share per share
Earnings per share (EPS)
= PAT/No of Equity
Shares 11.99 11.05
Dividend
Payout Dividend
ratio Payout ratio
Dividend Payout ratio =
DPS/EPS*100 52.12677231 56.56108597
Earning Earning
Yield Yield
Earning Yield =
EPS/Market price per
share*100 3.735202492 3.453125
60
50
40
30
20
10
0 2015
2014
P/E RATIO
The price-to-earnings, or P/E, ratio shows how much stock investors are paying
for each rupee of earnings. It shows if the market is overvaluing or
undervaluing the company.
The P/E ratio is relatively less for ITC ltd which suggests the
values of the shares are not overpriced.
If you look at the historical data of this ratio it has been
consistent. A stock with a low P/E may have greater potential for
rising.
ITC ltd has also fewer Debts which suggest they dont add Debt to
boost their P/E ratio.
P/BV ratio values shares of companies with large tangible assets on their
balance sheets.
ITC ltd doesnt have this value less which suggests the stocks are
not undervalued and significant liquid funds in case of Debts or
uncertainty to handle, which increases the investors confidence.
This is 3% for ITC relatively less comparing the FMCG industry there
are several other companies which has higher Earning Yield, ITC
should try to increase this number to enjoy investor confidence.
Dividend Payout Ratio: