PROJECT

Financial Accounting for Managers

COMPANY

Godfrey Phillips India Limited

Godfrey Phillips India Ltd. was incorporated in the year 1936. Its today's share price is
1251.25. Its current market capitalisation stands at Rs 6505.74 Cr. In the latest quarter,
company has reported Gross Sales of Rs. 29449.77 Cr and Total Income of Rs.26073.56 Cr.
The company's management includes Sanjay Gupta, Sumant Bharadwaj, Nirmala Bagri, Atul
Kumar Gupta, Anup N Kothari, Lalit Bhasin, Sharad Aggarwal, Samir Modi, Bina Modi, RA
Shah.
It is listed on the BSE with a BSE Code of 500163, NSE with an NSE Symbol of
GODFRYPHLP and ISIN of INE260B01028. It's Registered office is at Macropolo Building,
Ground Floor,Next To Kala Chowky Post Office, Dr. Babasaheb Ambedkar Road,
LalbaugMumbai-400033, Maharashtra. Their Registrars are ACC Ltd. It's auditors are AF
Ferguson & Co, Deloitte Haskins & Sells, SR Batliboi & Co LLP.

Submitted By: SOURAV ACHARJEE

Roll No: 202111034

Section: A

Submitted To: DR. PAWAN JAIN

  Objective:
To carry out the Financial Statement Analysis of Godfrey Phillips India Limited

 Period:
3 years (FY2016-17, FY2017-18, FY2018-19)

 Type of Data:
Secondary Data

 Tool used to analyse Financial Statements:

Ratio Analysis

Q1. What are the main Revenue Generating Activities (Main Business) of the company?

Godfrey Phillips India Limited, the leading company of K. K. Modi Group, is one of the
largest players in the domestic Cigarette industry. The company has expanded its business
interests in Tea, Pan Masala, Confectionery and Cigar. So, selling cigarette and cigar is the
main business of the company.

Q2. What are the areas which are being covered by the Company in its Accounting
Policies? Summarize the Accounting Policies being followed for Depreciation, Inventory
Valuation and Basis for Preparation of Accounts.

The areas which are being covered by the Company in its Accounting Policies are Revenue
Recognition (sale of goods, income from services, dividend and interest income, rental
income), Non-Current Assets classified as held for sales, Leases (operating lease, finance
lease), Finance Costs, Foreign Currencies (functional and presentational currency,
transactions and balances), Taxation (current tax, deferred tax, current and deferred tax for
the year), Employee Benefits (short term employee benefits, long term employee benefits,
defined contribution plan, defined benefit plan, termination benefits), Property, Plant and
Equipment (recognition and measurement, capital work in progress, depreciation),
Investment Property, Intangible Assets (recognition and measurement of intangible assets
acquired separately, derecognition of intangible asset, amortisation method and useful life),
Impairment of non-financial assets, Inventories, Provisions and Contingencies (provisions,
contingent liabilities), Financial Instruments (financial assets, initial recognition and
measurement, classification of financial assets, equity investment in subsidiaries and
associates, derecognition, impairment of financial assets), Financial liabilities (initial
recognition and measurement, subsequent measurement, loans and borrowings, financial
guarantee contracts, derecognition), Offsetting Financial Instruments, Cash and Cash
Equivalents, Earnings Per Share, Derivative Financial Instruments, Embedded Derivatives,
Fair Value Measurement, Current versus Non-Current classifications.
Accounting Policies being followed for Depreciation:

Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less
its estimated residual value. Depreciation on tangible fixed assets (other than freehold land
and properties under construction) is recognised on straight-line method except in respect of
the Plant and Machinery pertaining to retail business, in which case the life of the assets has
been assessed as 5 years, taking into account their nature, their estimated usage, their
operating conditions, past history of their replacement and maintenance support, etc.
Estimated useful lives of the assets based on technical estimates are as under: Buildings 30 -
60 years Plant and machinery 7.5 - 15 years Electrical installation and equipment’s 10 years
Computers and information technology equipment’s 3 - 6 years Furniture, fixtures and office
equipment’s 5 -10 years Motor vehicles 8 years The useful life estimated above are equal to
those indicated in Schedule II of the Companies Act, 2013. Freehold land is not amortised.
The residual values, useful lives and methods of depreciation of property, plant and
equipment are reviewed at the end of each reporting period, with the effect of any changes in
estimate accounted for on a prospective basis.

Accounting Policies being followed for Inventories:

Inventories are stated at lower of cost and net realisable value. The cost of raw materials,
stores and spares and traded goods is determined on moving weighted average cost basis. The
cost of finished goods and work-in-process is determined on standard absorption cost basis
which approximates actual costs. Absorption cost comprises raw materials cost, direct wages,
appropriate share of production overheads and applicable excise duty paid/payable thereon.
Net realisable value is the estimated selling price for inventories in the ordinary course of
business, less all estimated costs of completion and costs necessary to make the sale.

Basis of Preparation of Accounts:

The financial statements have been prepared on the historical cost basis except for certain
financial instruments that are measured at fair values at the end of each reporting period, in
the accounting policies Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services. Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place.

Q3. Comment on the cash flows from Operating Activities, Financing Activities and
Investing Activities. During the period of study, whether these cash flows have
improved or otherwise. Provide the reasons for the same.

March’ 19 March’ 18 March’17

Net Cash from Operating 351.54 513.82 248.06
Activity
Net Cash from Investing Activity - 311.92 - 408.84 - 131.44
Net Cash from Financing - 39.41 - 96.08 - 119.96
Activity
Foreign Exchange Gains/Losses 0.00 - 0.01 - 0.01
Net Cash Flow 0.21 8.89 - 3.35
(Figures in Rs. Cr)

If we analyse the data of the above table, we can see that over the three years period,
company’s net cash flow from operating activity is positive and net cash flow from investing
and financing activity is negative. From operating activity, positive net cash flow means cash
inflow for the company with no cash outflow and over the three years period negative
investing activity means company purchased fixed assets which is also a good sign to some
extent. Negative cash flow from financing activity means, company paid off its debts and
refrained itself from taking new debts which is also a good sign. Again from financing
activities over these three years we can see that the company paid good amount of interest as
well as dividend which is also a good sign for the investors. So, after analysing all the data
we can conclude that the main revenue generating activity for the company is Operating
Activity.

Ratio Analysis:
RATIOS FY 2018-19 FY 2017-18 FY 2016-17
a) NET PROFIT RATIO 9.72 6.95 5.71
b) OPERATING PROFIT RATIO 15.35 11.15 10.4
c) DEBT EQUITY RATIO 0.01 0.02 0.03
d) CURRENT RATIO 1.36 1.57 2.15
e) NON CURRENT RATIO 87.32 84.09 71.2
f) DEBT TO TOTAL INVESTED CAPITAL RATIO 0.01 0.02 0.03
g) 1. TRADE RECEIVABLES TURNOVER RATIO 38.70 32.87 25.07
2. INVENTORY TURNOVER RATIO 4.35 4.52 4.13
h) CASH REALIZATION 1.46 3.2 1.83
i) EPS 46.35 28.4 26.22
j) INTEREST COVERAGE RATIO 422.45 141.68 57.33
a) Net Profit Ratio (%): This ratio is useful for Managers, Shareholders/Owners and
Lenders. This ratio indicates the amount of profit available for dividend distribution after
deducting total expenses from total revenue. At Godfrey Phillips, Net profit ratio keeps on
increasing which represents that every year the profit available for dividend distribution after
deducing total expenses increased which is a good aspect for the company. It will please
stockholders who are looking for a large profit margin. Here, we can see Net Profit Ratio
increased over these three years period and in FY 2018-19 Net profit ratio was highest i.e. a
9.72% profit margin indicates the company earns 9.72 paisa in profit for every rupee it
collects. Godfrey Phillips was able to effectively control its costs and/or provide goods at a
price significantly higher than its costs.

b) OP P R (%): Operating profit ratio establishes a relationship between Operating Profit

Earned and Net Revenue generated from operations (net sales). It provides information of
the cushion available for paying Interest & Taxes. We can see from the table and graph above
that there was a 47.60% growth in 2017-18 compared to 2016-17, which is a positive feature
for the company, and that there is a modest increase in 2018-19, showing that the company
has a cushion available for paying interest and taxes. In FY 2018-19, the operating profit ratio
was highest i.e. 15.35% which mean that for every 1 rupee of net sales the company earns
15.35 paisa as operating profit.

c) Debt Equity Ratio (X): The debt equity ratio is a financial, liquidity ratio that compares a
company’s total debt to total equity. The debt to equity ratio shows the percentage of
company financing that comes from creditors and investors. A higher debt to equity ratio in
FY 2016-17 indicates that more creditor financing (bank loans) is used than investor
financing (shareholders) which decreases for the next two years. A debt to equity ratio of 1
would mean that investors and creditors have an equal stake in the business assets. A lower
debt to equity ratio for instance here in FY 2018-19 and FY 2017-18 usually implies a more
financially stable business year. Companies with a higher debt to equity ratio are considered
more risky to creditors and investors than companies with a lower ratio.

d) Current Ratio (X): The current ratio is a liquidity and efficiency ratio that measures a

firm’s ability to pay off its short-term liabilities with its current assets. This ratio expresses a
firm’s current debt in terms of current assets. So, here in FY 2018-19, current ratio of 1.36
would mean that the company has 1.36 times more current assets than current liabilities. A
higher current ratio like in FY 2016-17 is always more favourable than a lower current ratio
in FY 2018-19 because it shows the company can more easily make current debt payments.

e) Non-Current Ratio: Godfrey Phillips has more non-current Assets that can be machinery,
plant or building as compared to non-Current liabilities. Non-Current Ratio for Godfrey
Phillips is 71.20 in 2016-17. It means that for every one rupee of non-current liability,
Godfrey Phillips has assets i.e., 71.20 higher than the non-current liability, and we can see
increase in the ratio which stands at 84.09 in the year 2018-19. The company is in a strong
position when we compare non-current assets with non-current liabilities.

f) Debt to Total Invested Capital (X): This ratio is really a measure of risk and allows us to
calculate how well a company can handle a down turn in sales because it highlights the
relationship between debt and equity financing. Thus, Godfrey Phillips in FY 2016-17, with
higher ratio of 0.03 is considered more risky because they must maintain the same level of
sales in order to meet their debt servicing obligations. A down turn in sales could spell
solvency issues for the company.

g) 1. Trade Receivables Turnover Ratio (X): This ratio is useful for Managers and
Working Capital Funds providers. This ratio indicates the period; company takes to collect
money from its Trade Receivables. The lower the ratio the better it is for the company. In the
year 2016-17 the ratio is 25.07, which means the company took approx. 25 days on average
to receive its trade receivables from traders. And in the year 2017-18 there is 31.11 %
increase and the ratio stood at 32.87 and in the year 2018-19, the ratio increased to 38.70
which means the company took approx. 39 days on average to receive its trade receivables
from traders.

2. Inventory Turnover Ratio (X): Indicates the velocity with which Inventory moves or
how quickly a company is able to convert its inventory into cash or cash equivalents. The
lower the ratio the better it is for the company. In the year 2016-17 the ratio is 4.13 and in the
year 2017-18 there is 9.44 % increase and the ratio stood at 4.52 and in the year 2018-19, the
ratio decreased to 4.35 which means the company was able to convert its inventory into cash
or cash equivalents more quickly as compared to 2017-18.

h) Cash Realization (X): This Ratio indicates how much %age of PAT is being realized in
cash. Higher the ratio better is the quality of earning. The Ratio for Godfrey Phillips is 1.83 in
2016-17 and we can see, slight decrease in the ratio which stands at 1.46 in the year 2018-19.
The company's revenue from operating activities decreased which is a little cause of concern
for the company. It should work on improving the revenue from operating activities.

i) Earnings per Share (Rs.): Earnings per share (EPS), also called net income per share, is
a market prospect ratio that measures the amount of net income earned per share of stock
outstanding. Earning per share is the same as any profitability or market prospect ratio. Here,
higher earnings per share in FY 2018-19 is always better than a lower ratio in FY 2016-17
because this means the company was more profitable and the company had more profits to
distribute to its shareholders in FY 2018-19.

j) Interest Coverage Ratio: The interest coverage ratio is a financial ratio that measures a
company’s ability to make interest payments on its debt in a timely manner. Unlike the debt
service coverage ratio, this liquidity ratio really has nothing to do with being able to make
principle payments on the debt itself. Instead, it calculates the firm’s ability to afford the
interest on the debt. Creditors and investors use this computation to understand the
profitability and risk of a company.

k) Does company’s Industry Segment play any role in deciding profitability, Liquidity
and solvency of the company? How?

Profitability, solvency, and liquidity management are all affected by a company's industry
segment. The primary goal of this is to determine the significance and implications of an
industrial segment. A business owner can learn about where his or her firm's business stands
in comparison to the industry average by comparing a certain ratio of the company to that of
the industry as a whole. If a firm's segment is in equilibrium, the matching ratios will be
appropriate for that company; however, this fluctuates according to the growth and fall of
industries.

l) The share price movement chart of the company Godfrey Phillips India Limited from
July 01, 2021 – September 15, 2021.

Dividend/Bonus given by the company during last three years.

Effective Date Dividend Type Dividend (%) Dividend (Rs)

25-06-2021 Final 1200 24.00
05-03-2020 Interim 1200 24.00
30-05-2019 Final 500 10.00
29-05-2018 Final 400 8.00
 Bibliography

https://www.godfreyphillips.com/wp-content/uploads/2019/08/Godfrey-Phillips-India-
Limited-Annual-Report-2018-19.pdf

https://www.godfreyphillips.com/wp-content/uploads/2018/09/GPI-Annual-
Report__New_2017-2018.pdf

https://www.godfreyphillips.com/wp-content/uploads/2018/03/Godfrey-Phillips-Annual-
Report-2016-17.pdf

https://www.moneycontrol.com/india/stockpricequote/cigarettes/godfreyphillipsindia/GPI

https://www.financialexpress.com/market/stock-market/godfrey-phillips-india-ltd-stock-
price/financials-balance-sheet/

https://www.myaccountingcourse.com/financial-ratios

https://corporatefinanceinstitute.com/resources/knowledge/finance/

https://www.screener.in/company/GODFRYPHLP/consolidated/