itc ratio analysis

8/7/2019 ITC Ratio Analysis

1/41

Financial Statement Analysis


2/41

2


3/41

3


4/41


5/41

I Liquidity RatiosYear 2007

1 Current ratio: Current assets / Current Liabilities

The current ratio of 1.63 times says that the company is inrelatively good short-term financial standings.

The ratio is an indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid thecompany is.

II.3:Current assets,Loans and advances 6289.72II.4:Current liabilities and provisions 3857.59(II.3/II.4) 1.630479133


6/41

I Liquidity RatiosYear 2007

2 Quick ratio or Acid test ratio: Current assets-inventories / Current Liabilities

The small Quick ratio, i.e. 0 . 6 times says that the company's

financial strength is not so strong. In general, a quick ratio of 1or more is accepted by most creditors; however, quick ratiosvary greatly from industry to industry and ITC does not have assuch any worries in getting creditors.ITC has strong financial positions in many other aspects.

II. : Current assets ,Loans and advances 6289.72Less:II. a:Inventories 5 .0

.6II. :Current liabilities and provisions .II . -II . a / II . 0 . 61 0 16


7/41

77

I Liquidity Ratios

Year 2007Cash ratio or Absolute liquidity ratio: Cash+Marketable securities /Current liabilities

The cash ratio of 0 . 3 times says that the company isnot in the position to very quickly liquidate its assets andcover short-term liabilities. But there is no such liquidityneed for the company and so the small value of the ratiohas no such important implications. The ratio is of interest to short-term creditors

. c ash and bank Balances .dd arketable securites

00 .. urrent liabilit ies and provisions 3 .. c . 0 . 3 3 3


8/41

88

II Solvency Ratios

Year 2007

1 Debt equity ratio: Long term debt/ equity networth

The ratio of 0 .02 times , which means that thecompany has not been aggressive in financing itsgrowth with debt. Thus its earnings are stable. Thecompany has better support from the shareholders.

. oan funds .

. hareholders funds .. . 0 .019246763


9/41

99

II Solvency Ratios

Year 2007

2 Debt ratio: debt long term / debt long term +equity or debt/capital employed

The ratio of 0 .02 times signifies that the companyhas employed more capitals over its debts. Thus thecompany is efficiently utilizing its loan funds.

. oan funds .

. hareholders funds .. . .. . . 0 .0 888 2


10/41

1010

II Solvency Ratios

Year 2007

Interest Coverage ratio : earnings before interestand tax / Interest

The ratio of 7 13 . times is magnificently very high

and hence the company has very sound financialposition. It has no tension of paying interests over itsloans.

P III profit efore ta ation and e ceptional items .

II. a Interest accrued ut not due on loans .P.III II. a 713 .


11/41

1111

III Turnover Ratios

Year 2007

1 Inventory turnover: Cost of goods sold or netsales/Average or closing inventory.

The ratio of 2 .13 times signifies that the company isefficient in selling its stocks.

Net sales .. a n ento ies .. a 2 .12 5 1525


12/41

1212

III Turnover RatiosYear 2007

2 Days of Inventory holding: umber of days in theyear say 0 / Inventory turnover ratio.

16 days or about five and half months periods for the liquidation of stocks is quiet efficient.

umber of da s in a ear nventories turnover ratios .

16 6


13/41

1313

III Turnover Ratios

Year 2007

Debtors turnover ratio: Credit sales or net sales/Average or closing debtors or accountsreceivable total debtors +bills receivable

The ratio of 11. 2 times signifies that the companyis getting good returns and has no visible risk butbenefits out of its debtors.

et sales .. b undry debtors .. b 11.2


14/41

1414


Collection period: umber of days in the year say 0 / Debtors turnover

The debt collection period of 32 days is quiet good

and the company is efficient in getting back its dues.

umbe of days in the yea

ebtos tunoe .32. 22


15/41

1515


Current assets turnover: et sales/ Current assets

The ratio of 1.13 times signifies that , in spite of thecurrent liabilities, the company is efficient in makingsales revenue.

et sales .. urrent assets,loans an avances .

. 1.13


16/41

1616


et current assets turnover: et sales/ et currentassets

The ratio of 2 . 3 times signifies that the company ishighly efficient in utilizing its net current assets andgenerating sales revenue.

et sales .

et urrent ssets .2. 33


17/41

1717


7 Fixed assets turnover: et sales/ et fixed assets

The ratio of 1. 2 7 times signifies that the company isvery efficiently utilizing its fixed assets for generatingsales revenue.

et sales .. et ixed ssets .

. 1.27

1763404


18/41

1818


et assets turnover: et sales/ et assets or capital employed : et assets = all assets accumulated depreciation

The ratio of 0 .6 times signifies that the company has still tobe more efficient in utilizing its net assets in generating salesrevenue.

et sales .

. et i e ssets .

. nvestments .et urrent assets .et assets .

0 .6 0


19/41

19

IV rofitability RatiosYear 2007

1 Margin: rofit before interest and tax BIT / etsales 100

The rofit margin of 55 .0 3% is quiet impressive andthe company is making good profits.

rofit efore taation and E ceptiona items .

et aes .55 .0 55 3


20/41

2020

IV rofitability Ratios

Year 2007

2 et margin: rofit after tax AT 100 / et sales

The net margin of 37 . 3% is quiet impressive, and the

company is performing well.

rofit after taation .

et ales .37. 37228


21/41

2121


Before tax return on investment: BIT/ etassets 100

The Return of 35 .3 % is quiet good and company isperforming well.

L rofit before ta ation and ceptional items 2 .7.1 et i ed ssets 10. 1

.2 n estments 0 7.77et urrent assets 2 2.1et assets 11110. 1

L 100 35 .3 1 2 5 77 5


22/41

2222


Return on equity: AT/ quity net worth 100

The ratio of 2 5 .8 6% is quiet good and the companyis utilizing the shareholders funds in a better way.

rofit after taation .. hareholders funds .

25.86


23/41

2323

V quity-related RatiosYear 2007

1 arning per share S : AT/ umber of ordinaryshares

In comparison to the face value of Re.1/share the Sof R s. 7 .1 8 is very good.

roi er io .iv Weig ed ver ge er o ordi ry s res o s di g

o o ver i er r ee 7.185 87 1


24/41

2424


2 Dividends per share D S : Dividends/ umber of ordinary shares

Dividend per share D S is a simple and intuitivenumber. It is the amount of the dividend that

shareholders have or will receive, over an year, for each share they own.In compared to the face value of the shares, i.e.Re.1.00/share. D S of R s.3.1 0 is quiet good .

o osed i ide di eig ted e ge u e o o di s es outst di g

to o e t i to u it u es 3.103


25/41

2525


ay out ratios: D S/ S or Dividends/ AT

a very low payout ratio indicates that a company isprimarily focused on retaining its earnings rather than paying out dividends.

The payout ratio also indicates how well earningssupport the dividend payments: the lower the ratio, themore secure the dividend because smaller dividends areeasier to pay out than larger dividends.

So the value of 0 . 3 times is quiet good.

..

0. 3 3


26/41

2626


Dividend Yield: D S/Market value per share

e have to get the Market value per share of the relevantperiod .

M arket Price Per ShareThe closing price of the common or preferred stock as

reported on the applicable stock exchange consolidatedtape as of the date indicated


27/41

2727

V quity-related Ratios

Year 2007

rice/ arning ratio: Market value per share/ S



28/41

2828


arning Yield: S/ Market value per share



29/41

2929


7 Book value per share: et worth/ umber of ordinary shares

BV is considered to be the accounting value of eachshare, drastically different than what the market is

valuing the stock at. The book value, i.e.R

s.2 7

.77

is far higher than the face value of each share, i.e. Re.1.00.Here diluted value in considering numbers of shares isnot considered .

.1 hareholders funds 10 .01 iv eighted average umber of ordinar shares outstanding 0

.1 10 to convert into unit ru es 27 .77 799


30/41

3030

VI Investment-related RatiosYear 2007

1Return on assets or earning power ROA : AT/ Averagetotal assets of the given years, here 200 &07 100 or

AT+ Interest /Average fixed assets 100

arning power of the company, i.e. 1 . 2 5 % is quiet good and thecompany is doing well.

o it a te ta a t ion .i ed a s se t s .

n e s tm e n t s .u e n t a s s ets .i ed a s se t s .

n e s tm e n t s .u e n t a s s ets .

e age to ta l as s e ts .1 . 2 5 3


31/41

3131

VI Investment-related RatiosYear 2007

2 Return on capital employed ROC :BIT BIT / Capital employed 100

The ROC of 35 .3 % signifies that the company isgetting good return out of its investment decisions.

rofit efore taation and ceptiona items .ources of unds .

.


32/41

3232

VII Return on quity ROYear 2007

1 ROTS return on total shareholders equity :AT/ Total shareholders equity 100

The ratio 2 5 .87 times ) is same as that of Return onequity, since there are no preference shares.

rofit after taation .

. hareho ers fun s .)/(P/L:IB)100 25.8 1


33/41

3333

VII Return on quity RO )

Year 2007

2 ROOS return on ordinary shareholders equity ) /RO return on net worth ): AT-preferentialdividends )/ et worth ) 100

The ratio 2 5 .87 times ) is same as that of Return on

equity, and return on total shareholders equity sincethere are no preference shares.

rofit after ta ation .. hareholders funds .

) ) 25.8 7


34/41

34

Du Pont Analysis


35/41

35

D u Pont analysis for year 2007:


36/41

36

D u Pont analysis for year 2006


37/41

37



38/41

38



39/41

39

Du Pont Analysis

22.44

28.55

23.37 22.69

0.00

5.00

10.00

15.00

20.00

25.00

30.00

1 2 3 4

Ye ars:1~2004:2~2005:3~2006:4~2007

Return on total assets (%)

Du Pont chart portrays the earning power of a firm . The ROA ratio is a central measure of the overall profitability and operational efficiency of a firm it shows the interaction of Profitability and activity Ratios, It implies that the performance of a firm can be improvedeither by generating more sales volume per rupee of investment or by increasing the profitmargin per rupee of sales . So as per the analysis, the company has to maintain more consistent and increasing trend in

its ROA in the following years .


40/41

4040

References

http://www .investopedia .com/terms/d/debtequityratio .asp

http://www.icmrindia

.org/casestudies/icmr_case_studies .htm

http://www .econ .uconn .edu/

http://www .morningstar .com

http ://www .investopedia .com/terms/d/debtequityratio .asp















Class notes of Nupur mishra, books from thelibrary of GB S .


41/41

4141

itc ratio analysis

Documents