ratio analysis itc

1

Financial Statement Analysis

Presented By: Prit Ranjan Jha

Submitted to: Mrs. S.Sudha

Faculty of Financial Management, Indian Institute of Plantation Management, Bangalore

http://www.itcportal.com/index.html

44

Notes

• All amounts worked here are in terms of Rupees in Crores (1 crore =10000000=10^7).

• MS Excel sheet has been used for computing the ratios.

55

I Liquidity Ratios

Year 2007

1 Current ratio: Current assets / Current Liabilities

The current ratio of 1.63 times says that the company is in relatively 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 the company is.

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

66

I Liquidity Ratios

Year 2007

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

The small ‘Quick ratio’, i.e. 0.76 times says that the company's financial strength is not so strong. In general, a quick ratio of 1 or more is accepted by most creditors; however, quick ratios vary greatly from industry to industry and ITC does not have as such any worries in getting creditors.

ITC has strong financial positions in many other aspects.

II.3:(Current assets,Loans and advances) 6289.72Less:II.3a:Inventories 3354.03

2935.69II.4:Current liabilities and provisions 3857.59(II.3-II.3a)/(II.4) 0.761016593

77

I Liquidity Ratios

Year 2007

3 Cash ratio or Absolute liquidity ratio: (Cash +Marketable securities)/Current liabilities

The cash ratio of 0.23 times says that the company is not in the position to very quickly liquidate its assets and cover short-term liabilities. But there is no such liquidity need for the company and so the small value of the ratio has no such important implications. (The ratio is of interest to short-term creditors)

II.3c:Cash and bank Balances 900.16Add:Marketable securites 0

900.16II.4:Current liabilities and provisions 3857.59(II.3c)/(II.4) 0.233347764

88

II Solvency Ratios

Year 2007

1 Debt – equity ratio: Long term debt/ equity (net worth)

The ratio of 0.02 times, which means that the company has not been aggressive in financing its growth with debt. Thus its earnings are stable. The company has better support from the shareholders.

I.2:Loan funds 200.88I.1:Shareholders funds 10437.08(I.2)/(I.1) 0.019246763

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 company has employed more capitals over its debts. Thus the company is efficiently utilizing its loan funds.

I.2:Loan funds 200.88I.1:Shareholders funds 10437.08(I.2)+(I.1) 10637.96(I.2)/(I.2+I.1) 0.01888332

1010

II Solvency Ratios

Year 2007

3 Interest Coverage ratio : (earnings before interest and tax) / Interest

The ratio of 7139.4 times is magnificently very high and hence the company has very sound financial position. It has no tension of paying interests over its loans.

P/L:III:profit before taxation and exceptional items 3926.7II.4a-13:Interest accrued but not due on loans 0.55(P.III)/(II.4a-13) 7139.454545

1111

III Turnover Ratios

Year 2007

1 Inventory turnover: Cost of goods sold or net sales/Average (or closing) inventory.

The ratio of 2.13 times signifies that the company is efficient in selling its stocks.

P/L:IB:Net sales 7135.75II.3a:Inventories 3354.03(P/L:IB)/(II.3a:) 2.127515258

1212

III Turnover Ratios

Year 2007

2 Days of Inventory holding: Number of days in the year (say 360)/ Inventory turnover ratio.

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

Number of days in a year 360Inventories turnover ratios 2.127(360)/(ITR) 169.2524683

1313

III Turnover Ratios

Year 2007

3 Debtors turnover ratio: Credit sales or net sales/ Average (or closing) debtors (or accounts receivable (total debtors +bills receivable)

The ratio of 11.2 times signifies that the company is getting good returns and has no visible risk but benefits out of its debtors.

P/L:IB:Net sales 7135.75II.3b:Sundry debtors 636.69(P/L:IB)/(II.3b) 11.20757354

1414

III Turnover Ratios

Year 2007

4 Collection period: Number of days in the year (say 360)/ Debtors turnover

The debt collection period of 32 days is quiet good and the company is efficient in getting back its dues.

Number of days in the year 360Debtors turnover 11.207(360)/(DTR) 32.12278041

1515

III Turnover Ratios

Year 2007

5 Current assets turnover: Net sales/ Current assets

The ratio of 1.13 times signifies that , in spite of the current liabilities, the company is efficient in making sales revenue.

P/L:IB:Net sales 7135.75II.3: Current assets,loans and advances 6289.72(P/L:IB)/(II.3) 1.134509962

1616

III Turnover Ratios

Year 2007

6 Net current assets turnover: Net sales/ Net current assets

The ratio of 2.93 times signifies that the company is highly efficient in utilizing its net current assets and generating sales revenue.

P/L:IB:Net sales 7135.75Net Current Assets 2432.13(P/L:IB)/(NCA) 2.933950899

1717

III Turnover Ratios

Year 2007

7 Fixed assets turnover: Net sales/ Net fixed assets

The ratio of 1.27 times signifies that the company is very efficiently utilizing its fixed assets for generating sales revenue.

P/L:IB:Net sales 7135.75II.1:Net Fixed Assets 5610.91(P/L:IB)/(II.1) 1.271763404

1818

III Turnover Ratios

Year 2007

8 Net assets turnover: Net sales/ Net assets or capital employed : (Net assets = all assets – accumulated depreciation)

The ratio of 0.64 times signifies that the company has still to be more efficient in utilizing its net assets in generating sales revenue.

P/L:IB:Net sales 7135.75II.1:Net Fixed Assets 5610.91II.2: Investments 3067.77Net Current assets 2432.13

Net assets 11110.81(P/L:IB)/(NA) 0.642234905

1919

IV Profitability Ratios

Year 2007

1 Margin: (Profit before interest and tax (PBIT)/ Net sales)×100

The Profit margin of 55.03% is quiet impressive and the company is making good profits.

P/L:III:Profit before taxation and Exceptional items 3926.7P/L:IB:Net Sales 7135.75(P/L:III)/(P/L:IB)×100 55.02855341

2020


Year 2007

2 Net margin: Profit after tax (PAT) ×100 / Net sales

The net margin of 37.83% is quiet impressive, and the company is performing well.

P/L:III:Profit after taxation 2699.97P/L:IB:Net Sales 7135.75(P/L:III)/(P/L:IB)×100 37.83722804

2121


Year 2007

3 Before tax return on investment: (PBIT/Net assets) ×100

The Return of 35.34% is quiet good and company is performing well.

P/L:III:Profit before taxation and Exceptional items 3926.7II.1:Net Fixed Assets 5610.91II.2:Investments 3067.77Net Current assets 2432.13

Net assets 11110.81(P/L:III)/(NA)×100 35.34125775

2222


Year 2007

4 Return on equity: (PAT/Equity (net worth)) ×100

The ratio of 25.86% is quiet good and the company is utilizing the shareholders funds in a better way.

P/L:III:Profit after taxation 2699.97I.1:Shareholders funds 10437.08(P/L:III)/(P/L:IB)×100 25.869017

2323

V Equity-related Ratios

Year 2007

1 Earning per share (EPS): PAT/Number of ordinary shares

In comparison to the face value of Re.1/share the EPS of Rs.7.18 is very good.

P/L:III:Profit after taxation 2699.97P/L:IV-19(iv):Weighted average Number of ordinary shares outstanding 3757636907(P/L:III)/(P/L:IV)(×10^7: to convert in per rupee) 7.185287102

2424


Year 2007

2 Dividends per share (DPS): Dividends/ Number of ordinary shares

Dividend per share (DPS) is a simple and intuitive number. 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. DPS of Rs.3.10 is quiet good.

P/L:IV:Proposed Dividend 1166.29P/L:IV-19(iv):Weighted average Number of ordinary shares outstanding 3757636907(P/L:III)/(P/L:IV)×10^7(to convert into unit ruppes) 3.10378578

2525


Year 2007

3 Pay out ratios: DPS/EPS or Dividends/PAT

a very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends.The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend because smaller dividends are easier to pay out than larger dividends.

So the value of 0.43 times is quiet good.

DPS 3.1EPS 7.19(DPS)/(EPS) 0.431154381

2626


Year 2007

4 Dividend Yield: DPS/Market value per share

We have to get the Market value per share of the relevant period .

Market Price Per Share

The closing price of the common or preferred stock as reported on the applicable stock exchange consolidated tape as of the date indicated

2727


Year 2007

5 Price/Earning ratio: Market value per share/ EPS


2828


Year 2007

6 Earning Yield: EPS/ Market value per share


2929


Year 2007

7 Book value per share: Net worth/ Number of ordinary shares

BV is considered to be the accounting value of each share, drastically different than what the market is valuing the stock at. The book value, i.e. Rs.27.77 is far higher than the face value of each share, i.e. Re.1.00.

“Here “diluted” value in considering numbers of shares is not considered.”

I.1:Shareholders funds 10437.08P/L:IV-19(iv):Weighted average Number of ordinary shares outstanding 3757636907(I.1)/(P/L:IV)×10^7(to convert into unit ruppes) 27.77564799

3030

VI Investment-related Ratios

Year 2007

1 Return on assets or earning power (ROA): (PAT/ Average total assets (of the given years, here 2006&07)) ×100 or ((PAT+ Interest)/Average fixed assets) ×100

Earning power of the company, i.e. 19.25% is quiet good and the company is doing well.

P/L:III:Profit after taxation 2699.97Fixed assets 2007 5610.91Investments 2007 3067.77Current assets 2007 6289.72

Fixed assets 2006 4405.13

Investments 2006 3517.01Current assets 2006 5161.9Average total assets 14026.22(PAT/ATA)×100 19.24944853

3131

VI Investment-related Ratios

Year 2007

2 Return on capital employed (ROCE): (EBIT(PBIT)/ Capital employed) ×100

The ROCE of 35.34% signifies that the company is getting good return out of its investment decisions.

P/L:III:Profit before taxation and Exceptional items 3926.7I:Sources of Funds 11110.81((P/L:III)/I)×100 35.34125775

3232

VII Return on Equity (ROE)

Year 2007

1 ROTSE (return on total shareholders equity): (PAT/ Total shareholders equity) ×100

The ratio (25.87 times) is same as that of “Return on equity”, since there are no preference shares.


3333

VII Return on Equity (ROE)

Year 2007

2 ROOSE (return on ordinary shareholders equity) / RONW (return on net worth): ((PAT-preferential dividends)/Net worth) ×100

The ratio (25.87 times) is same as that of “Return on equity”, and “return on total shareholders equity” since there are no preference shares.


34

Du Pont Analysis

35

Du Pont analysis for year 2007:

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Du Pont analysis for year 2006

37


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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

Years:1~2004:2~2005:3~2006:4~2007

Ret

urn

on

to

tal

asse

ts (

%)

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 improved either by generating more sales volume per rupee of investment or by increasing the profit margin 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.

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













• Class notes of Sudha madam, books from the liabrary of IIPM.

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



http://www.icmrindia.org/casestudies/icmr_case_studies.htm



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



ratio analysis itc

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