Group Assignment

Financial Accounting

1. Company background:
Mention the sectors that the company operates in, main products/brand names, market
share, geographies of operations, new developments, main competitors etc.
Which business segment and/or geographical segment - generates most revenues, is the
most profitable, employs the most capital & tangible assets

Company background

ITC Limited. (Multinational Conglomerate Company) founded in 1910 is head quartered in Kolkata, India.
It was founded on 24th August 1910 by W.D and H.O Hills. The company was converted into a Public
Limited Company on 27 October 1954. The first step towards Indianization was taken in the same year
with 6% of Indian shareholding of the company. Ajit Narain Haskar became the company's first Indian
chairman in 1969 and this was crucial in building up the Indian management for the company. As the
company's ownership progressively Indianised, under Haskar's leadership, the name of the company
was changed from 'Imperial Tobacco Company of India Limited' to 'India Tobacco Company Limited' in
1970.
The sectors that ITC do business in are
1. FOOD : Aashirvaad, Sunfeast, Candyman, B-natural, Bingo and Yippee
2. PERSONAL CARE : Savlon Soap & Handwash, Essenza Di Wills, Fiama Di Wills, Vivel, Superia and
Engage
3. STATIONARY : Classmate, PaperKraft and Colour Crew
4. HOTELS: Fortune Park Hotels and WelcomHeritage Hotels, Sheraton
5. INFORTMATION TECHNOLOGY: ITC Infotech India Limited.
6. CIGARETTES: Gold Flake, Classic, Navy Cut, Scissors, Berkeley

The cigarette segment contributes the highest to the company’s revenue and profits amounting to
42.54% revenue and. It is followed by FMCG others with 23.18% revenue contribution.

2. Company Management:
Board Size & Composition –is the board diverse enough with reference to Gender, Age,
Educational Background, Experience, independence etc.
Has the company expanded board size?
Compensation to directors – as % of revenues & increase over last year.
How many Board meetings were held during the year?
Do these directors also hold directorships in other companies?
Does the entity comply with regulations wrt Independent Directors & Women Directors
Company Management

There are 14 Board of Directors of ITC Ltd, of which there is one Chairman & MD, 3 are Executive
Directors and 10 Independent and Non-Executive Directors.

Designation Name Gender Age

Chairman & MD Sanjiv Puri Male 57
Nakul Anand Male 62
Executive Sumant Bhargavan Male 55
Directors Rajiv Tandon Male 65
Shilabhadra Banerjee Male 70
Hemant Bhargava Male 60
Arun Duggal Male 72
Sunil Behari Mathur Male 74
Anand Nayak Male 68
Independent & John Pulinthanam Male 60
Non-Executive Nirupama Rao Female 68
Directors Ajit Kumar Seth Male 67
Meera Shankar Female 68
David Robert Simpson Male 62

-The current board of directors have no diversification with respect to gender. The ratio of female to
male is 1:6 which depicts a majority concentration of men as members.

Also, with respect to age, all the directors are senior citizen. No importance is given to fresh and young
minds who have a better knowledge and understanding of the currently changing trends. A young mind
would bring a better ability to understand and adapt new trends which is as equally important as
experience is in a corporate world.

While considering the educational background of the BOD’s, all of them come from different fields like
economics, lawyer, social sciences, chartered accountant etc. But majority of them have common base
of studying Management Studies at some point of their journey.

-The Board of Directors have recently been re shuffled in ITC Ltd. Previously, there were 16 Board of
Directors, of which there was 1 Chairman & MD, 3 Executive Directors and 12 Independent & Non-
Executive directors.

Mr. Sanjiv Puri, who was a former executive director of ITC Ltd, was appointed as the Chairman & MD of
ITC Ltd from 13th May 2019. Prior to him, the former chairman & MD were Mr. Y.C. Deveshwar, who
passed away on 11th May 2019 at the age of 72. He was honoured with Padma Bhushan in 2011 and
were also ranked 7th Best Performing CEO in the world by Harvard Business Review.
-The company held a total of 4 board meeting in a year of which 3 are to overview and analyse quarterly
results while the remaining one is to discuss audited results and dividend.

Quarterly results are discussed in the month of January, July and October and Audited reports are
looked upon in May.

Until now, only 3 meetings are held for the year of 2019, dated: 23rd January, 13th May and 02nd August.

-The BOD’s of ITC Ltd also hold membership on the boards of other companies.

Designation Name
Chairman & MD Sanjiv Puri -National Executive Committees of CII and FICCI
-Director on the Board of US-India Strategic Partnership Forum
-Member of the Steering Committee of FICCI
Nakul Anand -Member of the National Tourism Advisory Council
Executive -Member of the Executive Committee of the Hotel Association of
Directors India
-Member on the Board of the International Tourism Partnership
-Boards of International Travel House Limited, Gujarat Hotels
Limited and Landbase India Limited
Sumant -Council Member of the CII Eastern Region
Bhargavan -Director on the Board of Surya Nepal Private Limited
Rajiv Tandon -Boards of Russell Credit Limited
-Boards of Gold Flake Corporation Limited
-Boards of Wimco Limited
Shilabhadra -
Banerjee
Hemant -Boards of Larsen & Toubro Limited
Bhargava - Boards of Voltas Limited
- Boards of The Tata Power Company Limited
Independent & - Boards of LIC Housing Finance Limited
Non-Executive - Boards of Life Insurance Corporation (LIC) of Bangladesh Limited
Directors Arun Duggal - Chairman & Non-Executive Director of ICRA Limited
- Non-Executive Director of Mangalore Chemicals & Fertilizers
Limited
- Non-Executive Director of International Asset Reconstruction
Company Private Limited
- Independent Director of Info Edge (India) Limited
- Independent Director of ReNew Power Limited
Sunil Behari - Director on the Boards of UltraTech Cement Limited
Mathur - Director on the Boards of Thomas Cook (India) Limited
- Director on the Boards of DCM Shriram Industries Limited
Anand Nayak -Independent Director of International Travel House Limited
John -Wholetime Director of National Insurance Company Limited (NIC)
Pulinthanam
Nirupama Rao -Independent Director of KEC International Limited
Independent Director of JSW Steel Limited
 Ajit Kumar Seth -
Meera Shankar -Independent Director of Pidilite Industries Limited
-Independent Director of Adani Transmission Limited
David Robert -Boards of Ecofin Global Utilities and Infrastructure Trust plc
Simpson -Boards of M&G Credit Income Investment Trust plc

Name Designation Remunerations -Unit Curr Executive / Non-Executive Independent

Sunil Behari Mathur Director 7,250,000.00 Non-Executive NA
Nakul Anand Executive Director 34,894,000.00 Executive NA
Sahibzada Syed Habib ur Rehman Independent Director 7,650,000.00 Non-Executive Independent
Meera Shankar Independent Director 7,300,000.00 Non-Executive Independent
S Banerjee Independent Director 7,150,000.00 Non-Executive Independent
Arun Duggal Independent Director 7,250,000.00 Non-Executive Independent
Sanjiv Puri Chairman & Managing Director 68,300,000.00 Executive NA
Rajiv Tandon Executive Director 34,408,000.00 Executive NA
Nirupama Rao Independent Director 6,750,000.00 Non-Executive Independent
David Robert Simpson Director 6,950,000.00 Non-Executive NA
Rajendra Kumar Singhi Company Secretary 11,143,000.00 NA NA
John Pulinthanam Director 260,000.00 Non-Executive NA
Hemant Bhargava Director 700,000.00 Non-Executive NA
Sumant Bhargavan Whole-time Director 4,662,000.00 Executive NA
Ajit Kumar Seth Addtnl Independent Director 0.00 Non-Executive Independent
Anand Nayak Addtnl Independent Director 0.00 Non-Executive Independent

The Board Size has increased by 2 members since 2018. In 2018, they had a total of 14 members in their Board of Directors.
According to section 149 of the Companies Act,2013 Rule 4 and Rule 5, which mandates the law regarding the Appointment
& Qualification of Directors, it is mandatory for every publicly listed company to have atleast one-third of the total directors
as independent directors. ITC Ltd has a total of 16 Board of Directors, whose one-third would be around 5 directors, and it
complies a total of 12 members as independent directors.
Also, it in mandated in the Companies Act,2013 to have one women director as a member. ITC Ltd has a total of 3 women
Director out of the total 16-member board.

Thus, it is complying to all the rules with respect to independent as well as women directors.
 3. Shareholders:
Issued Share Capital : No of shares & par value.
Has the company issued any shares during the year? How & to whom were they issued?
Has the company bought back any shares?
What is the shareholding pattern? Has it changed as compared to the immediate
previous year?
Have the directors pledged their shareholding as security? How much and Why?
The shares are listed on which exchanges?
What is the highest & lowest price at which the shares traded during the financial year?
What is Book Value of the shares? How does book value compare with the par value &
the current market price?
Do you observe any relation between the Sensex/Nifty & the company’s stock prices?
When was the AGM held? What was the agenda for the meeting?
What portion of current earnings is distributed as dividends?

Shareholders-

For the year financial year 2018-19, the company had a total issued capital of Rs.1225.86 crore with
total no. of shares as 12258631601 and the par value as Rs.1.0 for each share.

The total issued capital had increased from the previous financial year 2017-18, where it was Rs.
1220.42 with total outstanding shares as 12204294911 and par value remaining constant at Rs.1.0.

Shareholding pattern

2018 2019
Ownersh No. of % Sharehold Demat No. of % Sharehold Demat
ip shares Share ers Shares shares Share ers Shares
Pattern Holdi Holdi
ng ng
Non- 54.99 6709324 67598329 55.14 1793 6758266
Promote 67110346 540 59 088
r 27 1752
(Instituti
on)
Non- 44.81 1686085 54780797 44. 855934 1706232
Promote 54685683 688 12 69 749
r (Non- 65 794089
Institutio
n)
 Total 99.80 8395410 12237912 99.83 857727 8464498
Non- 12179602 795841 228 671 837
Promote 992
r
Custodia 0.20 2465141 20718930 0.17 2 2067843
ns 24691919 2 9 0
(Against
Deposito
ry
Receipts)
Grand 12204294 100 795843 8420061 12258631 100 857729 8485177
Total 911 647 601 267

ITC Ltd doesn’t have any promoter as shareholder of their company since many years now. So, the
option of pledging their shares isn’t applicable in this company.

While the total as well as the proportion of Custodians (Against Depository Receipts) have decreased
from 2018 to 2019, the total as well as proportion of non promoters have increased in a greater
measure. Thus, increased the total no. of outstanding shares of the company.

The shares for ITC Ltd are listed on both Bombay Stoc Exchange and National Stock Exchange.

The highest price at which its stock was traded for the current financial year was Rs. 310 which was on
15th April 2019. While the lowest price for the same was Rs. 234 which was hit on 18th September 2019.

The par value of the company shares is Rs.1.0 and the latest book value of ITC Ltd shares is Rs. 48.14
while its latest market value is Rs. 236.75. Thus, we can observe that the market value is almost 4.9x
times the book value indicating that the investors have an strong confidence in the profitability and the
earning power of the company.

The AGM for the year 2019 was the 108th AGM for ITC Ltd and was held on 12th July 2019. The purpose
of this AGM was to discuss the date to declare the dividend, if decided to declare it. Further is discussed
about the Registration of Members & Share Transfer Books of the Company. Also, they introduced and
announced the new auditors of the company as the tenure of 5 years for the previous auditors was
completed.
 4. Auditors:
Who are the auditors? Have they changed from the last year – why/why not?
Are there any negative comments in the audit report? Does the audit report contain any
recommendation to present/potential investors?
What is the total compensation to the auditors? Did the auditors provide any non-audit
services also?

Auditors

ITC Ltd has appointed SRBC & Co LLP, Chartered Accountants, as its auditors for a period of five years
beginning FY20. Its previous auditors were Deloitte, Haskins & Sells who had completed its term for 5
years which ended in the FY2019.

SRBC & Co LLP, Chartered Accountants doesn’t provide any other non audit services to ITC Ltd as of now.

5. Fixed Assets:
What is the total investment in fixed assets as % of total assets?
What is composition of tangible & intangible assets?
Has the firm made additional investments in fixed assets? How does this compare with
current revenues, profits, operating cash flows?
Has it scrapped or sold any fixed assets – what was the profit/loss in that case?
What is the policy for depreciation? Is it the same for all types of assets?
What is the depreciation as % of total revenues?
Has the company revalued any of its fixed assets during the year?
Has the company recognized any impairment losses?
How much revenue is generated per rupee of investment in fixed assets?
What the return on total assets, return on fixed assets?
What % of last year’s revenues, profits, operating cash flows is invested in additional
fixed assets?

Fixed Assets

For the year ending on 31st March 2019, the total assets are Rs.717984 crore out of which Rs.235106
crore contribute to the fixed assets of the company. Thus, a total of 32.74% of the total assets are
pooled in the fixed assets.
Of these total fixed assets, Rs. 7587 crores are committed towards the intangible assets i.e. Goodwill,
Copyrights, Patents etc. This indicates that the company invest approximately 30 times more in tangible
assets than on intangible assets.

When compared to the previous years, ITC Ltd has been continuously increasing its fixed assets over the
past few years, even though the increase is by a very small margin. This investment into fixed assets like
plant, equipment and machinery has had a direct impact on its net sales and ultimately the revenue
generated. If we observe the trends for the past few years, there has been a marginal growth in sales,
revenue and ultimately the profit for each year. This has also had a positive relationship with the cash
amount generated through operating activities of the business.
There has been a purchase as well as sale of fixed assets over the past 5 years as follows:

Year Mar 15 Mar 16 Mar 17 Mar 18 Mar 19

Purchased of Fixed Assets (in crores) 3051.06 2144.78 2944.49 2619.04 2768.64
Sale of Fixed Assets (in crores) 6.56 7.11 47.38 71.23 9.16

Depreciation of these assets are commenced once they are ready for their intended use. The company
follows Straight Line method in which it depreciates the cost of asset after deducting the residual value
over the useful life of the asset. This depreciation method is followed for all its fixed assets i.e. plant,
property and equipment except for land. The company doesn’t depreciate the value of land.

The estimated useful lives of property, plant and equipment of the Company are as follows:
Assets held under finance leases are depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, the term of the relevant lease.
Property, plant and equipment’s residual values and useful lives are reviewed at each Balance Sheet
date and changes, if any, are treated as changes in accounting estimate.

As mentioned earlier, there has been a direct impact on the revenue generated by the company by
investment in fixed assets of the company. When calculated for each rupee invested in fixed assets, Rs.
16.25 is generated as revenue for the year ending 2019, while Rs. 15.51 is generated in the year ending
in 2018. This indicates great efficiency as well as concludes to be a profitable investment.

For the fiscal year 2019, the return on total assets is 2.76% while the return on fixed assets is 8.70%.

The additional investment in fixed assets for this year is Rs. 2768.64 crores.

Amount for 2018(in crores) % of amount invested for

additional fixed assets

Revenue 40627.54 6.81 %

Profit 11223.25 24.66%
 Operating Cash Flow 12650.85 21.88%

6. Revenues & Income

What are the major sources of revenues & other income?
If revenue is generated from multiple business segments or geographical regions – what
is the proportion of each segment/region?
What is the growth in revenues?
What is the policy for revenue recognition?

Revenues & Incomes

The major sources of revenue for ITC Ltd is through it business portfolio which consists of:

1. Sale of FMCG products:

 Tobacco & Cigarettes
 Foods
 Personal Care
 Lifestyle Retailing
 Education & Stationary products
 Safety matches & Intense sticks
2. Hotel Services
3. Manufacturing of Paperboards, Paper and Packaging
4. Information Technology Services
5. 20Agricultural Commodity Products

The total revenue generated from the FMCG sector is 66.25% of which Cigarettes & Tobacco contribute
a massive share of 41.31% while the remaining FMCG products contribute 24.94 %.

The growth in the revenue for 2019 was 43.68%, which was quite huge as compared to the growth in
revenue from the previous years.

While the hotel services despite investing an extensive amount, contribute just 3.32% of the total
revenue. The Paperboard, Paper & Packaging Business generates a total of 11.69% and the rest of the
revenue i.e. 18.74% is generated from the agricultural products business.

Policy for revenue recognition:

Revenue from the sale of goods and services is recognised when the Company performs its obligations
to its customers and the amount of revenue can be measured reliably and recovery of the consideration
is probable.
The timing of such recognition in case of sale of goods is when the control over the same is transferred
to the customer, which is mainly upon delivery and in case of services, in the period in which such
services are rendered.

7. Inventories:
What type of inventories does the company hold?
What is the total investment in inventories? How does it compare with the previous
year?
What is the policy adopted for inventory valuation?

Inventories

The company holds different types pf inventories like:

 Raw Materials
 Work-in Progress
 Contract WIP
 Finished Goods
 Stores and Spares
 Stock on Hire
 Packaging Materials
 Goods-in Transit

The total investment in inventories for 2019 is Rs.78956 crores, which occupies a 10% of the total
assets of the company. This when compared to previous year has increased by Rs.3645 crore but the
proportionate value has decreased as the inventory constituted to 12% of the total assets of the
company.

Inventories are stated at lower of cost and net realisable value. The cost is calculated on weighted
average method. Cost comprises expenditure incurred in the normal course of business in bringing
such inventories to its present location and condition and includes, where applicable, appropriate
overheads based on normal level of activity. Net realisable value is the estimated selling price less
estimated costs for completion and sale. Obsolete, slow moving and defective inventories are
identified from time to time and, where necessary, a provision is made for such inventories.
 8. Other:
What kind of investments has the company made? How much is trading purposes?
How much income did the company get during the year from its investments?
What kind of contingent liabilities does the firm have? How much are these as % of
current revenues/operating cash flows?
What is the nature of the extraordinary gains/losses?
What is the effective tax rate?
What are the major reasons for the current profits increasing/decreasing as compared
to the previous year?
Is the company generating sufficient cash from its operating activities? What are the
major reasons for the differences between operating profits and cash flows?
Are any operations discontinued? Impact thereof?
Any M & A or other similar activities?

Others:

The company has made investments in:

 Quoted Government Securities

 Unquoted Government Securities
 Quoted Equity
 Unquoted Equity
 Quoted Debentures/Bonds
 Unquoted Debentures/Bonds
 Quoted Units
 Unquoted Units

It is earning an income of Rs.726.97 crore from these investment activities for the year 2019.

The contingent liabilities of the company were as follows:

1. Claims against the Company not acknowledged as debts Rs. 581.25 Crores (2015 - Rs. 558.25
Crores), including interest on claims, where applicable, estimated to be Rs. 178.47 Crores (2015 -
Rs. 153.37 Crores). These comprise:
 Excise duty, VAT / sales taxes and other indirect taxes claims disputed by the Company relating
to issues of applicability and classification aggregating Rs. 471.42 Crores (2015 - Rs. 450.01
Crores), including interest on claims, where applicable, estimated to be Rs. 159.98 Crores (2015 -
Rs. 135.58 Crores).
 Local Authority taxes/cess/royalty on property, utilities, etc. claims disputed by the Company
relating to issues of applicability and determination aggregating Rs. 73.36 Crores (2015 - Rs.
68.79 Crores), including interest on claims, where applicable, estimated to be Rs. 14.46 Crores
(2015 - Rs. 13.47 Crores).
 Third party claims arising from disputes relating to contracts aggregating Rs. 29.10 Crores (2015
- Rs. 29.19 Crores), including interest on claims, where applicable, estimated to be Rs. 0.25 Crore
(2015 - Rs. 0.14 Crore.
 Other matters Rs. 7.37 Crores (2015 - Rs. 10.26 Crores), including interest on other matters,
where applicable, estimated to be Rs. 3.78 Crores (2015 - Rs. 4.18 Crores). It is not practicable
for the Company to estimate the closure of these issues and the consequential timings of cash
flows, if any, in respect of the above.

2. Corporate Guarantee given to Yes Bank Limited for credit facility availed by Broadcast Audience
Research Council (BARC) outstanding - Rs. 1.30 Crores (2015 - Rs. 1.30 Crores).

The extraordinary gains and looses are faced by the company due to the sale of fixed assets and
investments. Also, its effects are continued in the taxing of these profit and losses.

The effective tax rate since the past 4 years is 32%.

The core reason for the increase of net profits since the past few years is the increase in the overall
sales of the company, which can be linked to additional fixed assets investments. Thus, maximizing
the efficiency and trying to expand its business and going deeper into the market.

Also, the increase of net sales can be linked to the rising income level and thus increased standard of
living of the consumers. This increases the purchasing power of the consumers and so they start
demanding for better and innovative products, which led to the product diversification.

For the year 2019, the operating profit of the company is Rs.17329.36 crore but only Rs. 162.75
crore are available as cash flows. The reason for this disparity is that the majority of the operating
profit generated are being used up in investing and financial activities of the company. When
studied the cash flow, it is observed that the investing and financial activities are generating
negative cash flows. Also, a small chunk of the cash flows are being used up to pay taxes to the
government.
 9. Ratio Analysis:
Analyze the performance of the firm for the current and compare performance with 3
previous financial years. Use appropriate ratios.

Liquidity Ratios

1. Current Ratio:

ITC Ltd has maintained a very high current ratio over the past 5 years.

Its current ratio was 2.10x in 2015 and has increased to 3.17 in 2019. This indicates that ITC is
achieving more current assets than its current liabilities and is thus in a better position to liquidate
its assets in the short run.

As a manufacturing & FMCG firm, it is necessary to have a high inventory to be able to produce
goods on a continuous cycle. ITC Ltd has contributed over one third to one fourth of its total current
assets to its inventories but majority of these are parked in raw materials and a very less proportion
is towards finished goods. Thus, making a troublesome situation to liquidate current assets quickly.

2. Quick Ratio:

ITC Ltd has been able to maintain quite a stable quick ratio of greater than 1x since the past 5 years.

With almost 50-55% of its total current assets locked in cash, cash equivalents and receivables it
indicates that any given position it can easily pay off its short-term debt and liabilities with its
current assets quickly.

Profitability Ratios

1. Gross Margin:

Gross Margin basically indicates us how much of the Sales revenue is a company utilizing for the
manufacturing of the products/ services.
Being a manufacturing firm at its core business, it is obvious that the company may have parked
majority of its expenses into the production of the product and thus decrease our total gross
margin.

ITC over the past 5 years has maintained a steady gross margin of around 50%.

This indicates that its direct cost account for nearly half of their revenue, which as a manufacturing
& FMCG firm is quite robust.

Despite the increase in prices of raw materials and labor getting expensive, ITC is able to withstand
these hurdles by proportionately increasing its net sales.

2. Operating Profit Margin:

Operating Profit Margin indicates the total revenue a company is able to generate from the core
operations of its business. This would be a optimal ratio for a shareholder to check how efficiently
the company is working.

The operating profit margin for ITC Ltd ranges from around 36-38% over the past 5 years.

The difference between the gross margin and operating profit margin is around 10% since the past 5
years. This is because of the various logistics and administration cost. When compared to its
competitors like HUL, who have an operating profit margin of around 20% since the past 5 years, ITC
is working much more efficiently.

3. Net Profit Margin

It indicated the percentage of total residual amount a company is left with after deducting all the
expenses related and non-related to the operations of the business.

It is an optimal ratio for a potential investor, as it indicates how much amount will be available for
them after all the expenses are considered.

ITC Ltd has maintained an upward sloping net profit margin, even though the marginal difference is
too low. It ranges from 25-27% since the past 5 years.

4. Return on Capital Employed

It indicates a company’s profitability and efficiency with which its capital is used. It is quite an
important tool for an investor, because based on this it can infer how efficiently is the company
utilizing the amount invested by the shareholders.
ITC Ltd is maintaining a ROCE of around 40% since the last 4 years. This implies that the it generated
40% of its revenue from the capital invested by the shareholders.

5. Return on Assets:

It indicates how profitable a company is relative to its total assets. Higher the ROA, better is its
financial position.

ITC Ltd is maintaining it at around 30-35%. It faced a huge drop from 2015 to 2016 by almost 15%.
This may be because of the effect of demonetization which created multiple effects on the economy
as well as buying behavior of the consumer.

Turnover Ratios:

1. Inventory Turnover Ratio:

It indicates how many times does a company has sold and replaced its inventory in a given period of
time.

As a FMCG firm, the inventory turnover of ITC Ltd should be high which indicates that it is able to
sell more units of its products in a given time frame and thus needs to re-flourish its stock soon.

ITC Ltd has seen an increase in this from 21.8x to 28.9x from 2015 to 2019. The critical reason for
this is the increase in demand and variety by the consumers due to an increase in the standard of
living of people, even in rural areas.

2. Average Holding Period:

It indicates for how long does it take a company to convert its inventory into sales i.e. for how long
does it needs to hold its inventory. The lower this ratio, the better is the position of the company.

Just like the inventory turnover ratio is increasing for ITC, the average holding period has been
continuously decreasing since the past 5 years from 16.75 to 12.63 days. This is a positive sign to
determine the efficiency and penetration of the company.

3. Account Receivable & account Payable Turnover Ratio:

Account Receivable Turnover Ratio is a tool to measure how quickly does a company receive cash
from its creditors and customers, while the account payable turnover ratio is a tool to measure the
rate at which the company pays off to its suppliers. The higher the Account Receivable Turnover
Ratio and the lower the account Payable Turnover Ratio, the better is the financial position of the
company. This is because it indicates that the company is able to receive cash quickly from it debtors
and also it is able to hold that cash for longer duration as it is able to wait for a longer duration
before paying the cash to its suppliers.

ITC Ltd is able to maintain account receivable ratio greater than 1 since the last 5 years, though it
has seen a drip in this ratio from 1.84x to 1.34x from 2015 to 2019. This may be because of the
quality of the creditors it had maintained or because of the overall deficiency of liquidity in the
market resulting due to the economic slowdown.

But it achieves a continuous drop in the account Payable Turnover Ratio from 0.93x to 0.65x since
the past 5 years.

Solvency Ratios:

1. Price to Earnings Ratio:

P/E ratio is considered by an investor to know the value of the company, as it indicates them how
much value should it pay for the company stocks on the basis of its present revenue.

A high ratio implies that an investor is ready to pay more for the company’s share and it expecting it
grow further as it trusts the efficiency of the company.

ITC Ltd has seen a continuous increase in the P/E ratio which indicates that an investor assumes the
efficiency of this company to be great and is thus ready to invest more.

It witnessed a growth from 20.26% to 29.17% in 2019.

2. Equity Multiplier Ratio:

It indicates how much of the total assets of a company are financed by a shareholder of the
company. ITC Ltd has seen a drop in this ratio from 1.44x in 2015 to 1.21x in 2019. This implies that
the company is funded more by its creditors than its investors.

This is a unhealthy sign as it implies a loss of trust and increased risk about the growth of the
company in investors mind.