Analysis of Liquidity

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PRESTIGE INSTITUTE OF MANAGEMENT

AND RESEARCH, INDORE (M.P.)

Major Research Project on the topic:

Analysis of Liquidity and Profitability Trade-off of Selected FMCG

(Personal and Skin care Sector) Companies

MBA PROGRAM

(2010-12)

Faculty Guide: Submitted by:

Prof. Ranjana Patel Madhuri Mundhra

PIMR, Indore MBA (FT) IV SEM

Major- Finance


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DECLARATION

I, Madhuri Mundhra, hereby declare that this major research project report on

Analysis of Liquidity and Profitability Trade-off of Select FMCG (Personal andSkin care sector) companies is a genuine work done by me and all theinformation collected is authentic to the best of my knowledge.

MADHURI MUNDHRA

MBA [CORE] IV SEM


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CERTIFICATE OF FACULTY GUIDE

PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH, INDORE

(M.P.)

To whomsoever it may concern

This is to certify that Ms. Madhuri Mundhra student of MBA (CORE) - IVSemester has completed her Major Research Project on Analysis of Liquidity and

Profitability Trade-off of Select FMCG (Personal and Skin care Sector)companies under my guidance and supervision and this is original piece of work.This thesis is completed on time with full satisfaction under my supervision.

Prof. Ranjana Patel

[Faculty Guide]


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ACKNOWLEDGEMENT

Survey is an excellent tool for learning and exploration. No classroom routine cansubstitute which is possible while working in real situations. Application of

theoretical knowledge to practical situations is the bonanzas of this survey.

Without a proper combination of inspection and perspiration, its not easy toachieve anything. There is always a sense of gratitude, which we express to others

for the help and the needy services they render during the different phases of ourlives. I too would like to do it as I really wish to express my gratitude toward all

those who have been helpful to me directly or indirectly during the development ofthis project.

I am grateful for finishing this project to many people.

First of all, I want to thank Mrs. Yogeshwari Phatak, Director Prestige Instituteof Management & Research, Indore.

Secondly I wish to express my profound gratitude and sincere thanks to myesteemed Professor Ranjana Patel, who was always there to help and guide me

when I needed help, her perceptive criticism kept me working to make this project

more full proof. I am thankful to her for his encouragement and valuable support.

Working under her was an extremely knowledgeable and enriching experience for

me. I am very thankful to her for all of the productive discussions on liquiditymanagement and liquidity and profitability trade-off and changing businessdynamics in the world of personal and skin care sector.

I am grateful to many anonymous experts working in the turbulent environment of

personal and skin care industry, who provided me with better understanding ofinterrelationships in mobile business ecosystems. These insights helped me in

explaining some of the empirical research findings.

I also thank my parents, Mr. Madan Gopal Mundhra & Mrs. Anita Mundhra,

and the rest of my family for encouragement and support with respect to my post-graduate studies.

At last but not least, I want to thank God without whose inspiration and guidancethis herculean task would not have been accomplished.

Madhuri Mundhra


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1 Table of Contents1. Chapter 1: Conceptual Framework ............................................................................................................................ 8

1.1 Introduction .................................................................................................................................................. 8

1.2 Liquidity ........................................................................................................................................................ 8

1.3 Profitability ................................................................................................................................................. 10

1.4 Trade-Off .................................................................................................................................................... 11

1.5 Fast-Moving Consumer Goods(FMCG) orConsumer Packaged Goods(CPG) ........................................... 12

2. Chapter 2: Literature Review ............................................................................................................................... 15

3. Chapter 3: Rationale of the Study ........................................................................................................................ 20

4. Chapter 4: Objective(s) of the study .................................................................................................................... 22

5. Chapter 5: Research Methodology ...................................................................................................................... 24

5.1 The Study .................................................................................................................................................... 24

5.2 The Sample ................................................................................................................................................. 24

5.3 Tools for Data Collection ............................................................................................................................ 24

5.4 Tools for Data Analysis ............................................................................................................................... 24

5.4.1. Ratio Analysis ......................................................................................................................................... 25

5.4.2 Motaals Comprehensive Test................................................................................................................ 26

5.4.3 Spearmen Rank Correlation ................................................................................................................... 26

6. Chapter 6: Results and Discussions ...................................................................................................................... 28

6.1

Liquidity ratios ............................................................................................................................................ 28

6.1.1 Current Ratio .......................................................................................................................................... 28

6.1.2 Quick Ratio ............................................................................................................................................. 29

6.1.3 Debt Equity Ratio ................................................................................................................................... 30

6.1.4 Absolute Liquid Ratio ............................................................................................................................. 30

6.2 Profitability ratios....................................................................................................................................... 31

6.2.1 Operating Profit Margin ........................................................................................................................ 31

6.2.2 Gross Profit Margin ................................................................................................................................ 32

6.2.3 Net Profit Margin ................................................................................................................................... 33

6.2.4 Return on Capital Employed .................................................................................................................. 34

6.2.5 Return on Net Worth ............................................................................................................................. 35

6.3 Motaals Comprehensive Test.................................................................................................................... 35

6.4 Correlation between liquidity & Profitability .............................................................................................. 36

7. Chapter 7: Conclusion and Suggestions ............................................................................................................... 39


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7.1 Conclusion .................................................................................................................................................. 39

7.2 Suggestions ................................................................................................................................................ 40

8. Chapter 8: Limitations and Implications .............................................................................................................. 42

8.1 Limitations of the study .............................................................................................................................. 42

8.2 Implications of the study ............................................................................................................................ 42

9. Chapter 9: References .......................................................................................................................................... 44

9.1 Bibliography: .............................................................................................................................................. 45

9.2 Webliography: ............................................................................................................................................ 45

10. APPENDIX ....................................................................................................................................................... 47

10.1 Ratios: ........................................................................................................................................................ 47

10.1.1 Profitability Ratios of HUL: ................................................................................................................ 47

10.1.2 Liquidity Ratios of HUL: ..................................................................................................................... 48

10.1.3 Profitability Ratios ITC: ...................................................................................................................... 50

10.1.4 Liquidity Ratios of ITC: ....................................................................................................................... 51

10.1.5 Profitability Ratios of Marico industries: ........................................................................................... 53

10.1.6 Liquidity Ratios of Marico industries: ................................................................................................ 54

10.1.7 Profitability Ratios of P&G: ................................................................................................................ 56

10.1.8 Liquidity Ratios of P&G: ..................................................................................................................... 57

10.1.9 Profitability Ratios of Colgate-Palmolive: .......................................................................................... 59

10.1.10 Liquidity Ratios of Colgate-Palmolive: ............................................................................................... 60

10.2 Motaals Comprehensive Test: ................................................................................................................... 62

10.2.1 Ratio and Ultimate rank of HUL: ....................................................................................................... 62

10.2.2 Ratio and Ultimate rank of ITC: ......................................................................................................... 63

10.2.3 Ratio and Ultimate rank of Marico industries: .................................................................................. 64

10.2.4 Ratio and Ultimate rank of P&G: ....................................................................................................... 65

10.2.5 Ratio and Ultimate rank of Colgate-Palmolive: ................................................................................. 66

10.3 Correlation: ................................................................................................................................................ 67

10.3.1 HUL: ................................................................................................................................................... 67

10.3.2 ITC: ..................................................................................................................................................... 68

10.3.3 Marico industries: .............................................................................................................................. 69

10.3.4 P&G: .................................................................................................................................................. 70

10.3.5 Colgate-Palmolive: ............................................................................................................................ 71


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1. Chapter 1: Conceptual Framework

1.1IntroductionA firm is required to maintain a balance between liquidity and profitability while conducting its

day to day operations. Investments in current assets are inevitable to ensure delivery of goods or

services to the ultimate customers. A proper management of the same could result in the desired

impact on either profitability or liquidity. Liquidity is a precondition to ensure that firms are able

to meet its short-term obligations. The 'liquidity position' in a company is measured based on the

'current ratio' and the 'quick ratio'. The current ratio establishes the relationship between current

assets and current liabilities. Normally, a high current ratio is considered to be an indicator of the

firm's ability to promptly meet its short term liabilities. The quick ratio establishes a relationship

between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into

cash immediately or reasonably soon without a loss of value.

1.2LiquidityIn accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay his

debts as and when they fall due. It is usually expressed as a ratio or a percentage of current

liabilities. Liquidity refers to how quickly and cheaply an asset can be converted into cash.Money (in the form of cash) is the most liquid asset. Assets that generally can only be sold after

a long exhaustive search for a buyer are known as illiquid. Also it can be defined as the ability of

an assetto be converted into cash quickly and without any price discount.
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In business, economics or investment, market liquidity is an assets ability to be sold without

causing a significant movement in the price and with minimum loss of value. Money, or cash, is

the most liquid asset, and can be used immediately to perform economic actions like buying,

selling, or paying debt, meeting immediate wants and needs.However, currencies, even major

currencies, can suffer loss of market liquidity in large liquidation events. For instance, scenarios

considering a major dump of US dollar bonds by China or Saudi Arabia or Japan, each of which

holds trillions in such bonds, would certainly affect the market liquidity of the US dollar and US

dollar denominated assets. There is no asset whatsoever that can be sold with no effect on the

market.

An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity

also refers both to a business's ability to meet its payment obligations, in terms of possessingsufficient liquid assets, and to such assets themselves.

Liquidity is defined formally in many accounting regimes and has in recent years been more

strictly defined. For instance, the US Federal Reserve intends to apply quantitative liquidity

requirements based on Basel III liquidity rules as of fiscal 2012. Bank directors will also be

required to know of, and approve, major liquidity risks personally. Other rules require

diversifying counterparty risk and portfolio stress testing against extreme scenarios, which tend

to identify unusual market liquidity conditions and avoid investments that are particularly

vulnerable to sudden liquidity shifts.

Consequences of low liquidity

a) A company that cannot pay its creditors on time and continues not to honor its

obligations to the suppliers of credit, services and goods could result in losses on account

of non-availability of supplies and lead to possible sickness or insolvency. Also, the

inability to meet the short term liabilities could affect the company's operations and in

many cases it may affect its reputation as well. Lack of cash or liquid assets on hand may

force a company to miss the incentives given by the suppliers of credit, services, and

goods as well. Loss of such incentives may result in higher cost of goods which in turn

affects the profitability of the business.


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b) Every stakeholder has interest in the liquidity position of a company. Suppliers of goods

will check the liquidity of the company before selling goods on credit. Employees should

also be concerned about the company's liquidity to know whether the company can meet

its employee related obligations--salary, pension, provident fund, etc. Thus, a company

needs to maintain adequate liquidity. Profitability is a measure of the amount by which a

company's revenues exceeds its relevant expenses. Profitability ratios are used to evaluate

the management's ability to create earnings from revenue-generating bases within the

organization. The 'profitability position' of a company is measured using the 'gross profit

margin' and the 'net profit margin'. The gross profit margin is an indicator of the profit a

business makes on its cost of sales, or cost of goods sold. It is the profit earned before any

administration costs; selling costs and so on are removed. The net profit margin is an

indicator of the amount of net profit per rupee of turnover a business has earned. That is,

after taking account of the cost of sales, the administration costs, the selling and

distributions costs and all other costs, the net profit is the profit that is left, out of which

the company will have to pay interest, tax, dividends and so on.

1.3ProfitabilityProfitability means ability to make profit from all the business activities of an organization,

company, firm, or an enterprise. It shows how efficiently the management can make profit by

using all the resources available in the market. According to Harward & Upton, profitability is

the the ability of a given investment to earn a return from its use.

Profitability is expressed in terms of several popular numbers, which measure one of two generic

types of performance: "how much they make with what they've got" and "how much they make

from what they take in "The word profitability may be defined as the ability of a given

investment to earn a return from its use. The overall objective of the business is to earn at least a

satisfactory return on the funds invested in it, consistent with maintaining a sound financial

position. Satisfactory returns depends upon several factors including the nature of business, risk

involved in the business, etc. The efficiency of a business concern is measured by the amount of

profits earned. The larger the profit the more efficient and profitable the business become. The

surplus remaining after total costs are deducted from total revenue and the basis on which tax is

computed and dividend is paid. It is the best known measure of success in an enterprise .Profit is


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reflected in reduction in liabilities, increase in assets, and/or increase in owners' equity. It

furnishes resources for investing in future operations, and its absence may result in the extinction

of a company. As an indicator of comparative performance, however, it is less valuable than

return on investment (ROI). Profit is also called as earnings, gain, or income.

Consequences of low profitability

A profit ratio indicates how effectively management can wring profits from sales. It also

indicates how much room a company has to withstand a downturn, fend off competition and

make mistakes. Potential investors are interested in dividends and appreciation in market price of

stock, so they focus on profitability ratios. Managers, on the other hand, are interested in

measuring the operating performance in terms of profitability. Hence, a low profit margin would

suggest ineffective management and investors would be hesitant to invest in the company. Thus,

a financial manager has to ensure on one hand that the firm has adequate cash to pay for its bills,

has sufficient cash to make unexpected large purchases and cash reserve to meet emergencies,

while on the other hand, he has to ensure that the funds of the firm are used so as to yield the

highest return. This poses a dilemma of maintaining liquidity or profitability as indicated in the

figure. The liquidity and profitability goals conflict in most decisions which the finance manager

makes. For example, if higher inventories are kept in anticipation of increase in prices of raw

materials, profitability goal is approached, but the liquidity of the firm is endangered. Similarly,

the firm by following a liberal credit policy may be in a position to push up its sales, but its

liquidity decreases. Similarly, there is a direct relationship between higher risk and higher return.

A company taking higher risk could endanger its liquidity position. However, if a company has a

higher return it will increase its profitability.

1.4Trade-OffAn exchange of one thing in return for another, especially relinquishment of one benefit or

advantage for another regarded as more desirable: a fundamental trade-off between capitalist

prosperity and economic security -David A. Stockman.

In economics the term is expressed as opportunity cost, referring to the most preferred alternative

given up. A trade-off, then, involves a sacrifice that must be made to obtain a certain product,

rather than other products that can be made using the same required resources. It can be defined


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as the technique of reducing or forgoing one or more desirable outcomes in exchange for

increasing or obtaining other desirable outcomes in order to maximize the total

return or effectiveness under given circumstances.

1.5Fast-Moving Consumer Goods(FMCG) orConsumer Packaged Goods(CPG)These are products that are sold quickly and at relatively low cost. Examples include non-durable

goods such as soft drinks, toiletries, and grocery items.Though the absolute profit made on

FMCG products is relatively small, they generally sell in large quantities, so the cumulative

profit on such products can be substantial. The term FMCG refers to those retail goods that are

generally replaced or fully used up over a short period of days, weeks, or months, and within one

year. This contrasts with durable goods or major appliances such as kitchen appliances, which

are generally replaced over a period of several years.

FMCG have a short shelf life, either as a result of high consumer demand or because the product

deteriorates rapidly. Some FMCGs such as meat, fruits and vegetables, dairy products and

baked goodsare highly perishable. Other goods such as alcohol, toiletries, pre-packaged foods,

soft drinks and cleaning products have high turnover rates.

The following are the main characteristics of FMCGs:

From the consumers' perspective:

Frequent purchase

Low involvement (little or no effort to choose the item products with strong brand

loyalty are exceptions to this rule)

Low price

From the marketers' angle:

High volumes

Low contribution margins

Extensive distribution networks

High stock turnove


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Top 20 FMCG Companies in India:

1. Hindustan Unilever Ltd. (Personal and Skin care sector company)

2. ITC (Indian Tobacco Company) (Personal and Skin care sector company)

3. Nestl India

4. GCMMF (AMUL)

5. Dabur India Ltd

6. Asian Paints (India)

7. Cadbury India

8. Britannia Industries Ltd.

9. Procter & Gamble Hygiene and Health Care (Personal and Skin care sector company)

10.Marico Industries Ltd. (Personal and Skin care sector company)

11.Colgate-Palmolive (India) Ltd. (Personal and Skin care sector company)

12.Gillette India Ltd.

13.Godfrey Phillips

14.Henkel Spic

15.Johnson & Johnson

16.Modi Revlon

17.Nestle

18.Nirma Ltd

19.Amul India

20.Godrej Consumer Products Ltd.


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2. Chapter 2: Literature Review

Abuzar M.A. Eljell, 2004, conducted an empirically study to examines the relation between

profitability and liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a

sample of joint stock companies in Saudi Arabia. Using correlation and regression analysis the

study found significant negative relation between the firms profitability and its liquidity level, as

measured by current ratio. The study found that the cash conversion cycle or the cash gap is of

more importance as a measure of liquidity than current ratio that affects profitability. The size

variable is also found to have significant effect on profitability at the industry level.

Bhunia A. and Khan I. U., 2011, found that Liquidity management is of crucial importance in

financial management decision. The optimal of liquidity management is could be achieve by

company that manage the trade-off between profitability and liquidity management. The paper

analyses the association between the liquidity management and profitability of 230 Indian private

sector steel companies obtained from CMIE database. Liquidity management indicators and

profitability indicator over the period from 2002 to 2010 are modeled as a linear regression

system in multiple correlation and regression analysis. Evidence of petite association between

those variables is found. A descriptive statistics discloses that liquidity and solvency position is

very satisfactory and relatively efficient liquidity management is found. Multiple regressiontests confirm a lower degree of association between the liquidity management and profitability.

Dash M.and Ravipati R., 2009, this paper proposes a goal programming model for working

capital management. Goal programming is necessary to model the working capital decision, as a

balance has to be achieved between the conflicting objectives of liquidity and profitability. The

model determines, for given working capital turnover and fixed assets turnover ratios, how funds

should be maintained between working capital/current assets and fixed assets to achieve targeted

levels of liquidity and profitability, whilst minimizing the opportunity cost/loss of excess

liquidity.

Qasim S. and Ramiz Ur R., 2011, present study aims to reveal the relationship between liquidity

and profitability so that every firm has to maintain this relationship while in conducting day to
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day operations. The results show that there is a significant impact of only liquid ratio on ROA

while insignificant on ROE and ROI; the results also show that ROE is no significant effected by

three ratios current ratio, quick ratio and liquid ratio while ROI is greatly affected by current

ratios, quick ratios and liquid ratio. The main results of the study demonstrate that each ratio

(variable) has a significant effect on the financial positions of enterprises with differing amounts

and that along with the liquidity ratios in the first place. Profitability ratios also play an important

role in the financial positions of enterprises. Every stakeholder has interest in the liquidity

position of a company. Suppliers of goods will check the liquidity of the company before selling

goods on credit. Employees should also be concerned about the companys liquidity to know

whether the company can meet its employee related obligationssalary, pension, provident fund,

etc. Thus, a company needs to maintain adequate liquidity so that liquidity greatly affects profits

of which some portion that will be divided to shareholders. Liquidity and profitability are closely

related because one increases the other decreases.

Raheman A. and Nasr M., 2007, concluded that Working Capital Management has its effect on

liquidity as well on profitability of the firm. In this research, we have selected a sample of 94

Pakistani firms listed on Karachi Stock Exchange for a period of 6 years from 1999 2004, we

have studied the effect of different variables of working capital management including the

Average collection period, Inventory turnover in days, Average payment period, Cash

conversion cycle and Current ratio on the Net operating profitability of Pakistani firms. Debt

ratio, size of the firm (measured in terms of natural logarithm of sales) and financial assets to

total assets ratio were being used as control variables. Pearsons correlation, and regression

analysis (Pooled least square and general least square with cross section weight models) are used

for analysis. The results show that there is a strong negative relationship between variables of the

working capital management and profitability of the firm. It means that as the cash conversion

cycle increases it will lead to decreasing profitability of the firm, and managers can create apositive value for the shareholders by reducing the cash conversion cycle to a possible minimum

level. They found that there is a significant negative relationship between liquidity and

profitability. They also find that there is a positive relationship between size of the firm and its

profitability. There is also a significant negative relationship between debt used by the firm and

its profitability.
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Saini R. and Sharma P., 2009, made a study, based on different measures, reveals that the

overall liquidity position of Steel Authority of India Limited was satisfactory. Although the

behaviour patterns of the different indices indicate the sound liquiditymanagement of the

company, yet recommendations based on findings are offered to improve certain factors like

reduction in current assets through maintaining its optimum level, prompt recovery of debts

through the preparation of periodical reports of the overdue, maintaining a definite proportion

among the various components of working capital on the basis of past experience and

strengthening the cash position through reducing the level of investment in inventory and

collecting what is outstanding properly. There was a very high degree of positive correlation

between liquidity and profitability, reflecting the favorable effect of liquidity on profitability.

There was a negative association between the risk and profitability. The high degree of

aggressive policy adopted by SAIL has made a negative impact on its profitability.

Bhunia A., Khan I. and Mukhuti S., 2011, did a research; this research paper is to identify the

effectiveness of working capital in terms of short-term liquidity of the private sector steel

companies in India. Since LPG, to ensure swift economic development it was deemed essential

that a sound steel production program with private sector on a formidable basis must be

formulated. To some extent the priority given by the country failed to flourish due to poor

capacity, under-utilization and poor consumption. Working capital in terms of liquidity is

accountable for poor capacity, under-utilization and poor consumption. There exists a

relationship between liquidity and profitability indicators.

Meryem B., 2011, concluded from his research that working capital is an important component

in the financial decision of the company. An optimal working capital management is reached

through a trade off between profitability and liquidity. This study aims to provide empirical

evidence about the effects of working capital management on the profitability of 386 Tunisian

export SMEs observed from 2001 to 2008. The results of fixed and random effects models show

a negative relationship between corporate profitability and the different working capital

components. This reveals that Tunisian export SMEs should shorten their cash conversion cycle

by reducing the number of days of accounts receivable and inventories to increase

their profitability.


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Han H. and Luc A., 2000, concluded that financial managers are responsible for making

investment and financial decisions on behalf of the stakeholders in the firm, the shareholders in

particular. One such important decision is the investment of working capital. Although the

investment community is primarily interested in corporate profitability, it cannot ignore the

importance of liquidity management. The way working capital is managed can have a significant

impact on both the liquidity and profitability of the company. There is an important tradeoff to

be made between the dual goals of working capital management. In other words, decisions that

tend to lessen profitability tend to lessen the chances of adequate liquidity. Conversely, focusing

on liquidity will tend to reduce the potential profitability of the firm.


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3. Chapter 3: Rationale of the StudyThe current study aims to understand and assess the qualitative efficiency of liquidity

management and liquidity and profitability tradeoff. The study will help us to understand the

relationship between liquidity and profitability and also to understand its effect on the efficiency

of the companies.


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4. Chapter 4: Objective(s) of the study1. To measure efficiency of liquidity management by using ratio analysis.

2. To compare the liquidity position of the select FMCG companies.

3. To study the correlation between the liquidity and profitability of the selected companies.

4. To study the trade-off between liquidity and profitability.


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5. Chapter 5: Research MethodologyResearch is a diligent and systematic inquiry or investigation into a subject in order to

discover or revise facts, theories, applications, etc. Methodology is the system of methods

followed by particular discipline. Thus, research methodology is the way how we conduct

our research.

5.1The StudyThe type of research conducted is Descriptive in nature as the research includes surveys

and fact-finding enquiries of liquidity and profitability.

5.2The SampleThe sample would consist of annual data of selected FMCG (Skin and Personal Care

Products) companies for the period of ten years i.e. from March 2002March 2011 and

the selected companies are:

HUL

ITC

Marico

P&G

Colgate-Palmolive

5.3Tools for Data CollectionSecondary data is collected, to conduct this study the data is collected from the relevant

official websites of NSE, HUL, ITC, Marico, Procter & Gamble, money control, etc.

5.4Tools for Data AnalysisThe collected data was analysed with the help of ratio analysis, liquidity and

profitability ratios, motaals comprehensive test and Spearmen Correlation.


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5.4.1. Ratio AnalysisRatio analysis is a widely used tool of financial analysis. It is defined as the systematic

use of ratio to interpret the financial statements so that the strength and weaknesses of a

firm as well as its historical performance and current financial condition can be

determined. The term ratio refers to the numerical or quantitative relationship between

two variables. According to Wixon and Bedford A ratio is an expression of quantitative

relationship between two numbers.

1.1.1.1 Liquidity RatiosLiquidity ratio, expresses a company's ability to repay short-term creditors out of its total

cash.

Current ratio

Quick ratio

Debt-equity ratio

Absolute liquid ratio

1.1.1.2 Profitability ratiosThese ratios are used to assess a business's ability to generate earnings as compared to its

expenses and other relevant costs incurred during a specific period of time.

A). General profitability ratios

Operating profit margin ratio

Gross profit margin ratio

Net profit margin ratio

B). Overall profitability ratios

Return on capital employed ratio

Return on net worth


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5.4.2 Motaals Comprehensive TestMotaal prescribes a comprehensive test for determining the soundness of a firm as regards

liquidity position. Motaals Comprehensive Test method of ranking has been applied to reach at

a more comprehensive assessment of liquidity in which three different ratios, debtors to currentassets ratio, cash to current assets ratio and loans and advances to current assets ratio have been

computed and combined in a points score.

5.4.3 Spearmen Rank CorrelationCorrelation tests are used to assess whether there is a relationship between two or more variables.


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6. Chapter 6: Results and Discussions

6.1Liquidity ratiosLiquidity refers of the ability of a firm to meet its obligation in the short run, usually one year

or when they become duration for payment. A proper balance between liquidly and

profitability is required for efficient Financial Management.

6.1.1 Current RatioThe current ratio is the ratio of total current assets to total current liabilities it is

calculated by dividing current assets by current liabilities. Current assets include cash and

bank balances, marketable securities, inventory of raw materials, semi-finished and

finished goods, bills receivable and prepaid expenses. The current liabilities which are

short- term obligations to be met it consist of trade creditors, bills payable, bank credit,

provision for taxation and outstanding expenses. The current ratio of 2:1 is considered to

be satisfactory.

Current Ratio = Total Current Assets

Total Current Liabilities

Year HUL ITC Marico P&G Colgate-

Palmolive

Mar '11 0.644 1.107 2.426 3.107 0.428

Mar '10 0.562 1.197 2.043 2.558 0.314

Mar '09 0.733 1.295 1.719 3.453 0.333

Mar '08 0.645 1.365 1.299 2.431 0.349

Mar '07 0.642 1.315 0.823 3.126 0.455

Mar '06 0.633 1.188 1.268 3.411 0.477

Mar '05 0.755 1.034 1.481 1.870 0.486

Mar '04 0.772 0.519 1.586 1.598 0.525

Mar '03 0.736 0.585 1.650 1.553 0.520

Mar '02 0.751 0.683 1.412 1.417 0.792


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Interpretation: As an increase in the current ratio represents improvement in the liquidity

position while a decrease in the current ratio indicates that there has been deterioration in the

liquidity position of the firm. The current CR of all the five companies is improving except the

ITC whose CR reduced in the year 2011 as compared to in the year 2010.

6.1.2 Quick RatioThe acid test ratio is a measure of liquidity designed to overcome the Defect of current ratio. It is

often referred to as quick ratio because it is a measurement of firms ability to convert its current

assets quickly into cash in order to meet its current liabilities. The ratio of 1:1 is considered to be

satisfactory.

Quick Ratio = Current assets - Inventory

Total Current Liabilities


Palmolive

Mar '11 0.196 0.178 0.549 2.769 0.115

Mar '10 0.166 0.212 0.440 2.297 0.066

Mar '09 0.164 0.179 0.367 3.029 0.133

Mar '08 0.160 0.246 0.239 2.105 0.140

Mar '07 0.182 0.238 0.201 2.790 0.212

Mar '06 0.204 0.225 0.490 3.057 0.223

Mar '05 0.217 0.232 0.450 1.415 0.152

Mar '04 0.250 0.076 0.582 1.314 0.268

Mar '03 0.240 0.096 0.494 1.302 0.325

Mar '02 0.258 0.109 0.376 1.200 0.524

Interpretation: The high QR indicates that the firms liquidity position is very good. The

current QR (2011) is higher than the QR for the year 2010 of all the five companies except the

ITC as it reduced to 0.178 from 0.212 among all the five companies it was best for P&G in the

year 2006.


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6.1.3 Debt Equity RatioDebt-equity ratio is a ratio which expresses the relationship between debt and equity.

This ratio explains how far owned funds are sufficient to pay outside liabilities. It is

calculated by following formula and the ratio 1:1 is considered to be satisfactory.

Debtequity ratio= Long term debt

Owners equity


Palmolive

Mar '11 1 0.994 0.612 1 1.000

Mar '10 1 0.992 0.603 1 0.986

Mar '09 0.830 0.987 0.544 1 0.979

Mar '08 0.942 0.983 0.478 1 0.972

Mar '07 0.974 0.981 0.523 1 0.985

Mar '06 0.976 0.987 0.554 1 0.984

Mar '05 0.587 0.970 0.807 1 0.984

Mar '04 0.557 0.981 0.950 1 0.991

Mar '03 0.984 0.979 0.948 1 0.992

Mar '02 0.973 0.939 0.975 1 0.964

Interpretation: The Debt-Equity Ratio indicates the extent to which debt financing has been

used in the business. The DER of P&G is satisfactory also the ratio of HUL for the year 2010 &

2011 is also satisfactory. The DER of Colgate-Palmolive and ITC is also near 1:1 but of Marico

it is not up to the satisfactory level.

6.1.4 Absolute Liquid RatioThis is the ratio between the cash and bank balances to current liabilities. The acceptable norm

for this ratio is 50% or 1:2.

Cash ratio= cash + bank

Current liabilities


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Palmolive

Mar '11 0.045 0.017 0.058 0.019 0.028

Mar '10 0.042 0.026 0.030 0.042 0.044

Mar '09 0.042 0.017 0.066 0.035 0.106

Mar '08 0.049 0.042 0.038 0.047 0.115

Mar '07 0.050 0.033 0.071 0.047 0.184

Mar '06 0.033 0.025 0.169 0.682 0.197

Mar '05 0.037 0.021 0.125 0.395 0.074

Mar '04 0.073 0.010 0.228 0.325 0.131

Mar '03 0.097 0.015 0.166 0.700 0.175

Mar '02 0.089 0.019 0.008 0.419 0.256

Interpretation: The ALR of P & G in the year 2003 and 2006 were the best, whereas it is not

satisfactory for all the other companies.

6.2Profitability ratiosA class of financial metrics that are used to assess a business's ability to generate earnings as

compared to its expenses and other relevant costs incurred during a specific period of time. For

most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a

previous period is indicative that the company is doing well.

6.2.1 Operating Profit MarginOperating net profit ratio is calculated by dividing the operating net profit by sales. This ratio

helps in determining the ability of the management in running the business.

Operating profit / (Net sales 100)

Operating profit = Gross profit - Operating Exp.

OR


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Operating profit = Net sales - Operating cost

OR

= Net sales - (Cost of goods sold + Administrative and office expenses + Selling anddistribution exp.)

OR

(Net profit + Non-operating expenses) - (Non-operating incomes)


Palmolive

Mar '11 13.532 34.085 14.627 16.883 22.771

Mar '10 15.745 33.027 17.151 26.535 24.144

Mar '09 14.460 32.845 17.861 27.756 19.128

Mar '08 14.959 31.707 21.781 27.751 18.093

Mar '07 14.748 32.670 24.997 25.762 18.796

Mar '06 14.148 34.581 32.844 22.799 17.985

Mar '05 15.328 36.552 36.209 19.623 18.510

Mar '04 20.589 37.335 40.506 23.048 16.091

Mar '03 20.125 37.733 46.553 23.221 14.503

Mar '02 16.670 38.310 51.076 26.122 9.630

Interpretation: Higher the operating ratio, the less favorable it is. None of the companies had

satisfactory operating ratio as 75% to 80% is considered favorable operating profit ratio. Among

all the five companies the Operating Ratio of Marico in the year 2003 was highest and it is least

for the Colgate-Palmolive in the year 2002.

6.2.2 Gross Profit MarginGross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage.

It expresses the relationship between gross profit and sales.


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[Gross Profit Ratio = (Gross profit / Net sales) 100]


Palmolive

Mar '11 26.057 29.547 15.577 28.774 24.272

Mar '10 15.697 25.293 16.549 28.599 20.858

Mar '09 14.802 23.200 13.780 31.836 21.266

Mar '08 16.360 23.360 13.147 29.875 16.821

Mar '07 17.805 21.992 14.404 28.589 19.561

Mar '06 16.538 22.255 13.667 34.239 20.915

Mar '05 15.897 22.667 9.456 26.285 18.775

Mar '04 15.676 21.874 8.879 24.323 15.724

Mar '03 22.079 21.067 11.076 24.017 11.836

Mar '02 19.774 20.782 11.146 29.618 10.732

Interpretation: As higher the Gross Profit Ratio better the results so, among all the five

companies the Gross Profit Ratio was better of company P&G in the year 2006 while it was

worst in the year 2004 for Marico.

6.2.3 Net Profit MarginIt is the ratio of net income and net sales and is expressed in percentage i.e. it expresses the

relationship between net income and net sales.

Net Profit Ratio = (Net profit / Net sales) 100]


PalmoliveMar '11 11.711 23.615 13.436 15.070 17.623

Mar '10 12.392 21.872 11.742 19.946 14.404

Mar '09 12.175 21.778 7.395 23.143 13.235

Mar '08 15.140 22.235 9.100 20.407 10.545


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Mar '07 15.712 21.926 8.910 18.702 10.330

Mar '06 16.575 22.814 9.677 24.658 9.868

Mar '05 13.563 28.813 7.567 18.271 11.233

Mar '04 11.561 24.841 6.844 16.035 9.454

Mar '03 17.140 23.365 7.199 15.574 6.858

Mar '02 16.387 23.674 7.340 18.812 5.615

Interpretation: This ratio indicates the firms ability to face adverse economic conditions. The

current Net Profit Ratio of all the five companies are increasing except for the P&G as its NPR

had reduced to 15.070 from 19.946.

6.2.4 Return on Capital EmployedIt establishes the relationship between the profits and the capital employed. It is widely used to

measure the overall profitability of a business.

Return on capital employed= (net income/capital employed)*100


Palmolive

Mar '11 87.5 48.030 26.643 37.041 104.81

Mar '10 103.5 42.512 32.740 55.209 127.99

Mar '09 107.5 33.332 30.003 57.217 131.33

Mar '08 78 36.061 37.800 64.398 144.02

Mar '07 67 35.880 348.306 50.768 56.24

Mar '06 68.7 34.687 29.147 72.390 49.96

Mar '05 45.9 38.842 44.320 118.710 44.65

Mar '04 60.2 51.937 61.098 98.831 43.82Mar '03 59.4 46.921 43.271 82.986 31.99

Mar '02 62.4 44.968 40.355 120.194 27.17

Interpretation: This ratio helps us to study whether the optimum use of factors of

production for the good rate of return on investment is done by management or not. The Marico


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had the least ROCE ratio for the year 2011. The ROCE ratio had reduced for all the companies

except for the ITC, which indicates the improper allocation of resources in the ITC.

6.2.5 Return on Net WorthThe amount of net income returned as a percentage of shareholders equity. Return on net

worth measures a corporation's profitability by revealing how much profit a company

generates with the money invested.

Return on Equity = [Net profit (after tax)/net worth]*100


Palmolive

Mar '11 87.549 31.264 36.115 25.120 104.825

Mar '10 85.234 28.874 41.112 33.623 88.995

Mar '09 121.098 23.761 38.653 40.644 107.124

Mar '08 146.012 25.876 51.179 37.910 98.742

Mar '07 70.637 25.869 66.685 34.528 49.052

Mar '06 80.471 24.669 36.465 51.166 41.794

Mar '05 65.182 27.755 32.827 55.215 43.240

Mar '04 55.297 24.849 32.235 36.998 36.290

Mar '03 47.121 25.558 28.052 29.536 25.380

Mar '02 57.683 26.953 25.127 35.353 25.238

Interpretation: It shows the return on the investment. The Colgate-Palmolive had the highest

return, followed by HUL, Marico, ITC and P&G had the least returns.

6.3Motaals Comprehensive TestMotaal prescribes a comprehensive test for determining the soundness of a firm as regards

liquidity position. Motaals Comprehensive Test method of ranking has been applied to reach at

a more comprehensive assessment of liquidity in which three different ratios, debtors to current

assets ratio, cash to current assets ratio and loans and advances to current assets ratio have been

computed and combined in a points score. A high value of debtors to current assets ratio or cash

to current assets ratio shows greater liquidity and accordingly ranking has been done in that


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order. On the other hand, a low inventory to current assets ratio or loans and advances to current

assets ratio indicates more favorable liquidity position and therefore, ranking has been done

accordingly in that order. Ultimate ranking has further being done on the basis that the lower the

total of individual ranks, the more favorable is the liquidity positions of the concern and vice

versa. The final Ultimate rank table is as below:

Ultimate Rank:

Year HUL ITC Marico P & G Colgate-

Palmolive

Mar '11 7 (VII) 9 (IX) 8 (VIII) 3 (III) 10 (X)

Mar '10 8 (VIII) 6 (VI) 9 (IX) 2 (II) 9 (IX)

Mar '09 10 (X) 10 (X) 5 (V) 7 (VII) 3 (III)

Mar '08 8 (VIII) 2 (II) 6 (VI) 10 (X) 2 (II)

Mar '07 4 (IV) 6 (VI) 3 (III) 1 (I) 3 (III)

Mar '06 5 (V) 5 (V) 1 (I) 9 (IX) 6 (VI)

Mar '05 6 (VI) 2 (II) 4 (IV) 7 (VII) 8 (VIII)

Mar '04 2 (II) 8 (VIII) 2 (II) 3 (III) 7 (VII)

Mar '03 2 (II) 2 (II) 6 (VI) 5 (V) 1 (I)

Mar '02 1 (I) 1 (I) 10 (X) 6 (VI) 5 (V)

The above table furnishes that HUL, in the years 2002, 2003, 2004, 2007, 2006, 2011, 2008,

2010, marked the most sound liquidity position and it was followed by the year 2009. The

liquidity positions of the ITC, year wise is as 2002, 2003, 2005, 2008, 2006, 2007, 2010, 2011,

2010 and then 2009. The Marico has the liquidity position as 2006, 2004, 2007, 2005, 2009,

2008, 2003, 2011, 2010 and 2002 as last. The liquidity position of the P&G is as, in the years

2007, 2010, 2011, 2004, 2003, 2002, 2005, 2009, 2006 followed by 2008. The Colgate-

Palmolive had the best liquidity position in the year 2003 followed by 2008, 2009, 2007, 2002,

2006, 2004, 2005, 2010 and 2011 as last.

6.4Correlation between liquidity & ProfitabilityCorrelation tests are used to assess whether there is a relationship between two or more variables.

The data referred to in the report are all bivariate. So each data item is reported in terms of the


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values of two attributes. In the following table the relationship between liquidity and profitability

is analyzed with the help of rank correlation using SPSS (16.0):

Companies Correlation

HUL 0.855

ITC -0.406

Marico 0.915

P&G 0.879

Colgate-Palmolive 0.091

There exist positive correlation between liquidity & profitability for the companies, HUL,

Marico, P&G and Colgate-Palmolive. While for the company, ITC the liquidity and profitability

correlation is negative.


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7. Chapter 7: Conclusion and Suggestions

7.1ConclusionThe present study was an attempt to understand and assess the qualitative efficiency of liquidity

management and liquidity and profitability tradeoff for the select FMCG companies in personal

and skin care segment. The study reveals that with respect to the liquidity ratios all the select five

companies had satisfactory result except for ITC that showed very low current ratio for the

current year 2010-11.

The current ratios of all the five companies is improving except for ITC whose current ratio is

reduced for the year 2011 as compared to in the year 2010.The current quick ratio (2011) is

higher than the quick ratio for the year 2010 of all the five companies except the ITC as it

reduced to 0.178 from 0.212 among all the five companies it was best for P&G in the year

2006.The debt equity ratio of P&G is satisfactory also the ratio of HUL for the year 2010 & 2011

is also satisfactory. The absolute liquidity ratio of P&G in the year 2003 and 2006 were the best,

whereas it is not satisfactory for all the other companies.

In case of Profitability Ratios, operating profit margin among all the five companies the

Operating Ratio of Marico industries in the year 2003 was highest and it is least for the Colgate-

Palmolive in the year 2002.

As higher the Gross Profit Ratio better the results so, among all the five companies the Gross

Profit Ratio was better of company P&G in the year 2006 while it was worst in the year 2004 for

Marico industries. The current Net Profit Ratio of all the five companies are increasing except

for the P&G as its net profit ratio had reduced to 15.070 from 19.946.The return on capital

employed ratio had reduced for all the companies except for the ITC, which indicates theimproper allocation of resources in the ITC.

For return on net worth the Colgate-Palmolive had the highest return, followed by HUL, Marico

industries, ITC and P&G had the least returns.


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The Motaals comprehensive test revealed that that HUL, in the years 2002, 2003, 2004, 2007,

2006, 2011, 2008, 2010, marked the most sound liquidity position and it was followed by the

year 2009. The liquidity positions of the ITC, year wise is as 2002, 2003, 2005, 2008, 2006,

2007, 2010, 2011, 2010 and then 2009. The Marico industries has the liquidity position as 2006,

2004, 2007, 2005, 2009, 2008, 2003, 2011, 2010 and 2002 as last. The liquidity position of the

P&G is as, in the years 2007, 2010, 2011, 2004, 2003, 2002, 2005, 2009, 2006 followed by 2008.

The Colgate-Palmolive had the best liquidity position in the year 2003 followed by 2008, 2009,

2007, 2002, 2006, 2004, 2005, 2010 and 2011 as last.

For the correlation test that was applied on the five FMCG Companies and the result showed that

there exist positive correlation between liquidity & profitability for the companies, HUL, Marico

industries, P&G and Colgate-Palmolive. While for the company, ITC the liquidity and

profitability correlation is negative.

7.2Suggestions

The current ratio of HUL and Colgate-Palmolive need to be improved. The company must put

efforts to improve this ratio.

All the five companies needs to improve their profit margins.

As the correlation of HUL, P&G, Marico industries, Colgate-Palmolive is positive so the

company need to focus on the profitability as it will result in the increase in the liquidity.


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8. Chapter 8: Limitations and Implications

8.1Limitations of the studya) The study is limited to ten years i.e. from the year 2002 to 2011.

b) The data used for analysis in the study is the secondary data and collected from the

annual reports of the companies.

c) The other statistical analysis tools can also be used for the analysis.

d) The current asset to total asset ratio had been used as parameter for liquidity and return

on average capital employed had been used as the parameter for profitability, in spite of

this other parameter may also be used.

8.2Implications of the studya) The research can be very useful for the academicians primarily in the finance field as this

could help to understand the liquidity management of the company and also the liquidity

and profitability trade-off of the company.

b) The research can also be useful for the students to study the importance of liquidity

management and liquidity and profitability trade-off.

c) The industry people can also refer this research to understand the importance of liquidity

and profitability trade-off and liquidity management in a company.


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9. Chapter 9: References

Abuzar M.A. Eljell, 2004, liquidity profitability trade off: an empirical investigation in

emerging market, International journal of commerce and management.

Bhunia A, Islam K., 2011, liquidity management efficiency of Indian steel companies, FarEast

journal of psychology and business Vol.3 (3).

Dash M. and Ranipati R., 2009, A liquidity trade-off model for working capital management.

Qasim S., Rameez ur R., 2011, Impacts of liquidity ratios on profitability, Interdisciplinary

journal of research in business, volume 1(7) pp. 95-98.

Raheman A, Nasr M, 2007, working capital management and profitability-case of Pakistani

firms, International review of Business research papers, Vol. 3 pp.279-300.

Sharma V., 2011, liquidity, risk & profitability analysis: a case study of Maruti India ltd., search

and research, Vol. II (3).

Saini R. and Sharma P., 2009, liquidity, risk & profitability analysis: a case study of Steel

authority of India ltd., ASBM journal of management, Vol. II (2) pp.64-75

Bhunia A., Khan I. and Mukhuti S., 2011, a study of managing liquidity, journal of management

research, Vol. III (2) pp.1-8, 10-22

Meryem B., 2011, the impact of working capital management on profitability: the case of small

and medium-sized export companies in Tunisia, management international publication, Vol. XV

(3) pp.71-88, 114, 116, 118

Han H. and Luc A., 2000, liquidity management or profitability-is there room for both?, AFP

exchange publication, Vol. XX (2) pp.46-49


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9.1Bibliography: Pandey I.M., 2009, Financial Management, Vikas Publishing House Pvt. Ltd., Ninth

edition.

Chandra P., 2007, Financial Management: Theory and Practice, Tata McGraw-Hill

Education, Seventh Edition.

Sharma R.K. and Gupta S.K., 1999, Management Accounting: Principles and Practice,

Kalyani Publishers, seventh edition.

9.2Webliography: www.hul.co.in

www.itcportal.com www.marico.com

www.pg.com

www.colgate.co.in
http://www.hul.co.in/http://www.hul.co.in/http://www.itcportal.com/http://www.itcportal.com/http://www.marico.com/http://www.marico.com/http://www.pg.com/http://www.pg.com/http://www.colgate.co.in/http://www.colgate.co.in/http://www.colgate.co.in/http://www.pg.com/http://www.marico.com/http://www.itcportal.com/http://www.hul.co.in/


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10. APPENDIX10.1Ratios:

10.1.1Profitability Ratios of HUL:Year Operating

IncomeNet Sales Operating Profit Margin

Mar '11 2,664.49 19,689.91 13.532

Mar '10 2,797.70 17,769.12 15.745

Mar '09 2,964.94 20,504.28 14.460

Dec '07 2,076.43 13,880.56 14.959

Dec '06 1,805.69 12,244.02 14.748

Dec '05 1,583.71 11,193.88 14.148

Dec '04 1,541.54 10,057.11 15.328

Dec '03 2,106.16 10,229.41 20.589

Dec '02 2,024.38 10,059.02 20.125Dec '01 1,786.08 10,714.11 16.670

Year Gross Income Sales Gross Profit Margin

Mar '11 5,367.48 20,598.89 26.057

Mar '10 2,898.08 18,462.34 15.697

Mar '09 3,245.74 21,927.23 14.802

Dec '07 2,443.87 14,937.88 16.360

Dec '06 2,348.38 13,189.70 17.805

Dec '05 2,002.58 12,108.86 16.538

Dec '04 1,748.11 10,996.72 15.897

Dec '03 1,756.21 11,203.14 15.676

Dec '02 2,436.49 11,035.20 22.079

Dec '01 2,340.40 11,835.45 19.774

Year Net Income Net Sales Net Profit Margin

Mar '11 2,305.97 19689.91 11.711

Mar '10 2,202.03 17769.12 12.392

Mar '09 2,496.45 20504.28 12.175

Dec '07 2,101.47 13880.56 15.140

Dec '06 1,923.79 12244.02 15.712

Dec '05 1,855.37 11193.88 16.575

Dec '04 1,364.06 10057.11 13.563

Dec '03 1,182.66 10229.41 11.561

Dec '02 1,724.10 10059.02 17.140

Dec '01 1,755.69 10714.11 16.387


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Year Net Income Total Assets Current Liabilities Capital

Employed

Return on Capital

Employed

Mar'11 2,305.97 2,633.92 6,264.21 -3,630.29 -57.953

Mar '10 2,202.03 2,583.52 5,493.97 -2,910.45 -52.975Mar '09 2,496.45 2,483.46 4,440.08 -1,956.62 -44.067

Dec '07 2,101.47 1,527.76 4,028.41 -2,500.65 -62.075

Dec '06 1,923.79 2,796.09 3,362.52 -566.43 -16.845

Dec '05 1,855.37 2,362.56 3,077.97 -715.41 -23.243

Dec '04 1,364.06 3,563.82 2,730.64 833.18 30.512

Dec '03 1,182.66 3,843.03 2,669.14 1,173.89 43.980

Dec '02 1,724.10 3,717.16 2,582.73 1,134.43 43.924

Dec '01 1,755.69 3,127.44 2,513.55 613.89 24.423

Year Net PAT Net Worth Return On Net Worth

Mar '11 2,305.97 2,633.92 87.549

Mar '10 2,202.03 2,583.52 85.234

Mar '09 2,496.45 2,061.51 121.098

Dec '07 2,101.47 1,439.24 146.012

Dec '06 1,923.79 2,723.49 70.637

Dec '05 1,855.37 2,305.63 80.471

Dec '04 1,364.06 2,092.71 65.182

Dec '03 1,182.66 2,138.73 55.297

Dec '02 1,724.10 3,658.88 47.121

Dec '01 1,755.69 3,043.69 57.683

10.1.2Liquidity Ratios of HUL:Year Current Assets Current

liabilities

Current Ratio

Mar '11 4,036.37 6,264.21 0.644

Mar '10 3,089.74 5,493.97 0.562

Mar '09 3,256.34 4,440.08 0.733

Dec '07 2,597.08 4,028.41 0.645

Dec '06 2,158.88 3,362.52 0.642

Dec '05 1,948.37 3,077.97 0.633

Dec '04 2,062.69 2,730.64 0.755

Dec '03 2,059.43 2,669.14 0.772

Dec '02 1,899.69 2,582.73 0.736

Dec '01 1,888.53 2,513.55 0.751


49/71

Year Current

Assets

Inventories Quick Assets Current

Liabilities

Quick Ratio

Mar '11 4,036.37 2,811.26 1,225.11 6,264.21 0.196

Mar '10 3,089.74 2,179.93 909.81 5,493.97 0.166

Mar '09 3,256.34 2,528.86 727.48 4,440.08 0.164

Dec '07 2,597.08 1,953.60 643.48 4,028.41 0.160Dec '06 2,158.88 1,547.71 611.17 3,362.52 0.182

Dec '05 1,948.37 1,321.77 626.60 3,077.97 0.204

Dec '04 2,062.69 1,470.44 592.25 2,730.64 0.217

Dec '03 2,059.43 1,392.63 666.80 2,669.14 0.250

Dec '02 1,899.69 1,278.74 620.95 2,582.73 0.240

Dec '01 1,888.53 1,240.04 648.49 2,513.55 0.258

Year Total Liabilities Owner's Equity Debt-Equity Ratio

Mar '11 2,633.92 2,633.92 1Mar '10 2,583.52 2,583.52 1

Mar '09 2,483.46 2,061.51 0.830

Dec '07 1,527.77 1,439.24 0.942

Dec '06 2,796.09 2,723.49 0.974

Dec '05 2,362.57 2,305.63 0.976

Dec '04 3,563.83 2,092.71 0.587

Dec '03 3,843.04 2,138.73 0.557

Dec '02 3,717.18 3,658.88 0.984

Dec '01 3,127.42 3,043.69 0.973

Year Cash & Bank Current

Liabilities

Absolute Liquidity Ratio

Mar '11 281.91 6,264.21 0.045

Mar '10 231.37 5,493.97 0.042

Mar '09 190.59 4,440.08 0.043

Dec '07 200.11 4,028.41 0.050

Dec '06 170.8 3,362.52 0.051

Dec '05 103.77 3,077.97 0.034

Dec '04 102.98 2,730.64 0.038

Dec '03 195.95 2,669.14 0.073

Dec '02 253.1 2,582.73 0.098

Dec '01 223.71 2,513.55 0.089


50/71

10.1.3Profitability Ratios ITC:

Year Operating

Income

Net Sales Operating Profit Margin

Mar '11 7,199.03 21,120.83 34.085Mar '10 6,132.32 18,567.45 33.027

Mar '09 4,922.02 14,985.81 32.845

Mar '08 4,449.15 14,032.20 31.707

Mar '07 4,022.91 12,313.83 32.670

Mar '06 3,388.37 9,798.33 34.581

Mar '05 2,779.98 7,605.60 36.552

Mar '04 2,393.94 6,412.08 37.335

Mar '03 2,214.69 5,869.31 37.733

Mar '02 1,925.27 5,025.47 38.310


Mar '11 9,051.41 30,633.57 29.547

Mar '10 6,677.38 26,399.63 25.293

Mar '09 5,393.47 23,247.84 23.200

Mar '08 5,014.84 21,467.38 23.360

Mar '07 4,292.90 19,519.99 21.992

Mar '06 3,613.46 16,236.42 22.255

Mar '05 3,028.37 13,360.24 22.667

Mar '04 2,585.47 11,819.66 21.874Mar '03 2,323.37 11,028.41 21.067

Mar '02 2,045.64 9,843.16 20.782


Mar '11 4,987.61 21,120.83 23.615

Mar '10 4,061.00 18,567.45 21.872

Mar '09 3,263.59 14,985.81 21.778

Mar '08 3,120.10 14,032.20 22.235

Mar '07 2,699.97 12,313.83 21.926

Mar '06 2,235.35 9,798.33 22.814

Mar '05 2,191.40 7,605.60 28.813

Mar '04 1,592.85 6,412.08 24.841

Mar '03 1,371.35 5,869.31 23.365

Mar '02 1,189.72 5,025.47 23.674


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Employed

Return on Capital

Employed

Mar '11 4,987.61 16,052.47 5,668.10 10,384.37 48.030

Mar '10 4,061.00 14,172.09 4,619.54 9,552.55 42.512

Mar '09 3,263.59 13,912.63 4,121.59 9,791.04 33.332

Mar '08 3,120.10 12,272.10 3,619.76 8,652.34 36.061Mar '07 2,699.97 10,637.96 3,113.01 7,524.95 35.880

Mar '06 2,235.35 9181.21 2736.95 6,444.26 34.687

Mar '05 2,191.40 8140.97 2499.1 5,641.87 38.842

Mar '04 1,592.85 6530.91 3464.01 3,066.90 51.937

Mar '03 1,371.35 5482.6 2559.9 2,922.70 46.921

Mar '02 1,189.72 4698.52 2052.79 2,645.73 44.968


Mar '11 4,987.61 15,953.27 0.313Mar '10 4,061.00 14,064.38 0.289

Mar '09 3,263.59 13,735.08 0.238

Mar '08 3,120.10 12,057.67 0.259

Mar '07 2,699.97 10,437.08 0.259

Mar '06 2,235.35 9061.48 0.247

Mar '05 2,191.40 7895.61 0.278

Mar '04 1,592.85 6410.06 0.248

Mar '03 1,371.35 5365.62 0.256

Mar '02 1,189.72 4413.98 0.270

10.1.4Liquidity Ratios of ITC:Year Current Assets Current

liabilities

Current Ratio

Mar '11 6,273.92 5,668.10 1.107

Mar '10 5,528.03 4,619.54 1.197

Mar '09 5,337.12 4,121.59 1.295

Mar '08 4,940.79 3,619.76 1.365

Mar '07 4,094.26 3,113.01 1.315

Mar '06 3251.72 2736.95 1.188Mar '05 2583.2 2499.1 1.034

Mar '04 1798.4 3464.01 0.519

Mar '03 1497.8 2559.9 0.585

Mar '02 1403.03 2052.79 0.683


52/71

Year Current

Assets

Inventories Quick Assets Current Liabilities Quick Ratio

Mar '11 6,273.92 5,267.53 1,006.39 5,668.10 0.178

Mar '10 5,528.03 4,549.07 978.96 4,619.54 0.212

Mar '09 5,337.12 4,599.72 737.40 4,121.59 0.179

Mar '08 4,940.79 4,050.52 890.27 3,619.76 0.246Mar '07 4,094.26 3,354.03 740.23 3,113.01 0.238

Mar '06 3251.72 2636.29 615.43 2736.95 0.225

Mar '05 2583.2 2002.99 580.21 2499.1 0.232

Mar '04 1798.4 1534.21 264.19 3464.01 0.076

Mar '03 1497.8 1252.22 245.58 2559.9 0.096

Mar '02 1403.03 1180.27 222.76 2052.79 0.109


Mar '11 16,052.47 15,953.27 0.994Mar '10 14,172.09 14,064.38 0.992

Mar '09 13,912.63 13,735.08 0.987

Mar '08 12,272.10 12,057.67 0.983

Mar '07 10,637.96 10,437.08 0.981

Mar '06 9181.21 9061.48 0.987

Mar '05 8140.97 7895.61 0.970

Mar '04 6530.91 6410.06 0.981

Mar '03 5482.6 5365.62 0.979

Mar '02 4698.52 4413.98 0.939

Year Cash + Bank Current

Liabilities

Absolute Liquid Ratio

Mar '11 98.77 5,668.10 0.017

Mar '10 120.16 4,619.54 0.026

Mar '09 68.73 4,121.59 0.017

Mar '08 153.34 3,619.76 0.042

Mar '07 103.54 3,113.01 0.033

Mar '06 67.47 2736.95 0.025

Mar '05 52.45 2499.1 0.021

Mar '04 34.04 3464.01 0.010

Mar '03 38.84 2559.9 0.015

Mar '02 38.46 2052.79 0.019


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10.1.5Profitability Ratios of Marico industries:

Year Operating

Income

Net Sales Operating Profit

Margin

Mar '11 343.27 2,346.87 14.627Mar '10 343.27 2,001.50 17.151

Mar '09 343.27 1,921.85 17.861

Mar '08 343.27 1,575.99 21.781

Mar '07 343.27 1,373.27 24.997

Mar '06 343.27 1,045.16 32.844

Mar '05 343.27 948.02 36.209

Mar '04 343.27 847.45 40.506

Mar '03 343.27 737.37 46.553

Mar '02 343.27 672.08 51.076


Mar '11 366.64 2,353.71 15.577

Mar '10 336.08 2,030.85 16.549

Mar '09 264.84 1,921.85 13.780

Mar '08 206.25 1,568.78 13.147

Mar '07 197.58 1,371.66 14.404

Mar '06 142.81 1,044.91 13.667

Mar '05 89.62 947.79 9.456

Mar '04 75.26 847.58 8.879Mar '03 81.77 738.27 11.076

Mar '02 74.79 671.01 11.146


Mar '11 315.33 2,346.87 13.436

Mar '10 235.02 2,001.50 11.742

Mar '09 142.12 1,921.85 7.395

Mar '08 143.42 1,575.99 9.100

Mar '07 122.36 1,373.27 8.910

Mar '06 101.14 1,045.16 9.677

Mar '05 71.74 948.02 7.567

Mar '04 58 847.45 6.844

Mar '03 53.08 737.37 7.199

Mar '02 49.33 672.08 7.340


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Employed

Return on Capital

Employed

Mar '11 315.33 1,425.61 242.07 1,183.54 26.643

Mar '10 235.02 948.58 230.75 717.83 32.740

Mar '09 142.12 676.21 202.52 473.69 30.003

Mar '08 143.42 585.82 206.4 379.42 37.800Mar '07 122.36 350.74 315.61 35.13 348.306

Mar '06 101.14 500.87 153.87 347.00 29.147

Mar '05 71.74 270.93 109.06 161.87 44.320

Mar '04 58 189.32 94.39 94.93 61.098

Mar '03 53.08 199.56 76.89 122.67 43.271

Mar '02 49.33 201.37 79.13 122.24 40.355


Mar '11 315.33 873.12 36.115Mar '10 235.02 571.66 41.112

Mar '09 142.12 367.68 38.653

Mar '08 143.42 280.23 51.179

Mar '07 122.36 183.49 66.685

Mar '06 101.14 277.36 36.465

Mar '05 71.74 218.54 32.827

Mar '04 58 179.93 32.235

Mar '03 53.08 189.22 28.052

Mar '02 49.33 196.32 25.127

10.1.6Liquidity Ratios of Marico industries:

Year Current Assets Current liabilities Current Ratio

Mar '11 587.15 242.07 2.426

Mar '10 471.43 230.75 2.043

Mar '09 348.11 202.52 1.719

Mar '08 268.02 206.4 1.299

Mar '07 259.78 315.61 0.823

Mar '06 195.05 153.87 1.268

Mar '05 161.5 109.06 1.481

Mar '04 149.7 94.39 1.586

Mar '03 126.86 76.89 1.650

Mar '02 111.7 79.13 1.412


55/71

Year Current

Assets


Liabilities

Quick Ratio

Mar '11 587.15 454.22 132.93 242.07 0.549

Mar '10 471.43 369.9 101.53 230.75 0.440Mar '09 348.11 273.69 74.42 202.52 0.367

Mar '08 268.02 218.59 49.43 206.4 0.239

Mar '07 259.78 196.21 63.57 315.61 0.201

Mar '06 195.05 119.59 75.46 153.87 0.490

Mar '05 161.5 112.47 49.03 109.06 0.450

Mar '04 149.7 94.72 54.98 94.39 0.582

Mar '03 126.86 88.86 38.00 76.89 0.494

Mar '02 111.7 81.93 29.77 79.13 0.376


Mar '11 1,425.61 873.12 0.612

Mar '10 948.58 571.66 0.603

Mar '09 676.21 367.68 0.544

Mar '08 585.82 280.23 0.478

Mar '07 350.74 183.49 0.523

Mar '06 500.87 277.36 0.554

Mar '05 270.93 218.54 0.807

Mar '04 189.31 179.93 0.950

Mar '03 199.55 189.22 0.948

Mar '02 201.37 196.32 0.975

Year Cash + Bank Current Liabilities Absolute Liquidity Ratio

Mar '11 13.95 242.07 0.058

Mar '10 7.02 230.75 0.030

Mar '09 13.37 202.52 0.066

Mar '08 7.75 206.4 0.038

Mar '07 22.28 315.61 0.071

Mar '06 25.93 153.87 0.169

Mar '05 13.67 109.06 0.125

Mar '04 21.52 94.39 0.228

Mar '03 12.75 76.89 0.166

Mar '02 0.6 79.13 0.008


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10.1.7Profitability Ratios of P&G:

Year Operating

Income

Net Sales Operating Profit Margin

Jun '11 169.04 1,001.22 16.883Jun '10 239.14 901.22 26.535

Jun '09 214.5 772.81 27.756

Jun '08 178.7 643.95 27.751

Jun '07 138.49 537.58 25.762

Jun '06 128.99 565.77 22.799

Jun '05 133.83 682 19.623

Jun '04 132.48 574.79 23.048

Jun '03 101.45 436.88 23.221

Jun '02 106.95 409.42 26.122


Jun '11 287.81 1,000.25 28.774

Jun '10 258.67 904.46 28.599

Jun '09 246.03 772.81 31.836

Jun '08 192.7 645.02 29.875

Jun '07 154.49 540.38 28.589

Jun '06 194.04 566.73 34.239

Jun '05 180.03 684.92 26.285

Jun '04 140.4 577.24 24.323Jun '03 106.25 442.39 24.017

Jun '02 121.26 409.41 29.618


Jun '11 150.88 1,001.22 15.070

Jun '10 179.76 901.22 19.946

Jun '09 178.85 772.81 23.143

Jun '08 131.41 643.95 20.407

Jun '07 100.54 537.58 18.702

Jun '06 139.51 565.77 24.658

Jun '05 124.61 682 18.271

Jun '04 92.17 574.79 16.035

Jun '03 68.04 436.88 15.574

Jun '02 77.02 409.42 18.812


57/71


58/71

Year Current

Assets


Liabilities

Quick Ratio

Jun '11 600.62 65.33 535.29 193.29 2.769

Jun '10 534.65 54.41 480.24 209.05 2.297

Jun '09 440.02 53.98 386.04 127.44 3.029

Jun '08 346.64 46.52 300.12 142.58 2.105Jun '07 291.18 31.36 259.82 93.14 2.790

Jun '06 272.65 28.31 244.34 79.93 3.057

Jun '05 225.69 54.9 170.79 120.72 1.415

Jun '04 249.11 44.34 204.77 155.85 1.314

Jun '03 230.36 37.25 193.11 148.37 1.302

Jun '02 217.87 33.38 184.49 153.79 1.200


Jun '11 600.63 600.63 1.000Jun '10 534.64 534.64 1.000

Jun '09 440.04 440.04 1.000

Jun '08 346.64 346.64 1.000

Jun '07 291.18 291.18 1.000

Jun '06 272.66 272.66 1.000

Jun '05 225.68 225.68 1.000

Jun '04 249.12 249.12 1.000

Jun '03 230.36 230.36 1.000

Jun '02 217.86 217.86 1.000

Year Cash + Bank Current

Liabilities

Cash Ratio

Jun '11 3.76 193.29 0.019

Jun '10 8.76 209.05 0.042

Jun '09 4.52 127.44 0.035

Jun '08 6.67 142.58 0.047

Jun '07 4.35 93.14 0.047

Jun '06 54.49 79.93 0.682

Jun '05 47.73 120.72 0.395

Jun '04 50.7 155.85 0.325

Jun '03 103.86 148.37 0.700

Jun '02 64.47 153.79 0.419


59/71

10.1.9Profitability Ratios of Colgate-Palmolive:

Year Operating Income Net Sales Operating Profit Margin

Mar '11 520.19 2,284.46 22.771

Mar '10 486.47 2,014.84 24.144

Mar '09 334.89 1,750.76 19.128

Mar '08 274.81 1,518.88 18.093

Mar '07 250.36 1,331.99 18.796

Mar '06 206.47 1,148.03 17.985

Mar '05 177.97 961.48 18.510

Mar '04 150.9 937.8 16.091

Mar '03 147.61 1,017.76 14.503

Mar '02 107.19 1,113.12 9.630


Mar '11 557.49 2,296.86 24.272

Mar '10 369.36 1,770.82 20.858

Mar '09 313.33 1,473.38 21.266

Mar '08 217.85 1,295.14 16.821

Mar '07 219.9 1,124.19 19.561

Mar '06 201.67 964.22 20.915

Mar '05 176.33 939.19 18.775

Mar '04 166.19 1,056.89 15.724

Mar '03 137.4 1,160.90 11.836

Mar '02 126.3 1,176.90 10.732


Mar '11 402.58 2,284.46 17.623

Mar '10 290.22 2,014.84 14.404

Mar '09 231.71 1,750.76 13.235

Mar '08 160.17 1,518.88 10.545

Mar '07 137.6 1,331.99 10.330

Mar '06 113.29 1,148.03 9.868Mar '05 108 961.48 11.233

Mar '04 88.66 937.8 9.454

Mar '03 69.8 1,017.76 6.858

Mar '02 62.5 1,113.12 5.615


60/71

Year Total Capital

Employed

Net Profit After

Tax

Return On Capital

Employed

Mar '11 38410 40258 104.81

Mar '10 33070 42326 127.99

Mar '09 22098 29022 131.33

Mar '08 16089 23171 144.02Mar '07 28480 16017 56.24

Mar '06 27543 13760 49.96

Mar '05 25375 11329 44.65

Mar '04 24648 10800 43.82

Mar '03 27716 8866 31.99

Mar '02 25689 6979 27.17


Mar '11 402.58 384.05 104.825Mar '10 290.22 326.11 88.995

Mar '09 231.71 216.3 107.124

Mar '08 160.17 162.21 98.742

Mar '07 137.6 280.52 49.052

Mar '06 113.29 271.07 41.794

Mar '05 108 249.77 43.240

Mar '04 88.66 244.31 36.290

Mar '03 69.8 275.02 25.380

Mar '02 62.5 247.64 25.238

10.1.10 Liquidity Ratios of Colgate-Palmolive:

Year Current Assets Current liabilities Current Ratio

Mar '11 210.40 491.84 0.428

Mar '10 139.84 445.33 0.314

Mar '09 137.24 411.93 0.333

Mar '08 126.50 362.27 0.349

Mar '07 150.27 329.95 0.455

Mar '06 139.52 292.72 0.477

Mar '05 108.35 222.97 0.486

Mar '04 125.73 239.31 0.525

Mar '03 142.32 273.81 0.520

Mar '02 216.09 272.95 0.792


61/71

Year Current

Assets


Liabilities

Quick Ratio

Mar '11 210.40 153.7 56.70 491.84 0.115

Mar '10 139.84 110.55 29.29 445.33 0.066

Mar '09 137.24 82.42 54.82 411.93 0.133

Mar '08 126.50 75.64 50.86 362.27 0.140Mar '07 150.27 80.33 69.94 329.95 0.212

Mar '06 139.52 74.36 65.16 292.72 0.223

Mar '05 108.35 74.47 33.88 222.97 0.152

Mar '04 125.73 61.68 64.05 239.31 0.268

Mar '03 142.32 53.32 89.00 273.81 0.325

Mar '02 216.09 73.12 142.97 272.95 0.524


Mar '11 384.1 384.05 1.000Mar '10 330.7 326.11 1.014

Mar '09 220.99 216.3 1.022

Mar '08 166.9 162.21 1.029

Mar '07 284.8 280.52 1.015

Mar '06 275.43 271.07 1.016

Mar '05 253.75 249.77 1.016

Mar '04 246.48 244.31 1.009

Mar '03 277.16 275.02 1.008

Mar '02 256.89 247.64 1.037

Year Cash + Bank Current Liabilities Absolute Liquidity Ratio

Mar '11 13.74 491.84 0.028

Mar '10 19.52 445.33 0.044

Mar '09 43.69 411.93 0.106

Mar '08 41.67 362.27 0.115

Mar '07 60.61 329.95 0.184

Mar '06 57.76 292.72 0.197

Mar '05 16.53 222.97 0.074

Mar '04 31.43 239.31 0.131

Mar '03 47.95 273.81 0.175

Mar '02 69.97 272.95 0.256


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10.2Motaals Comprehensive Test:

10.2.1Ratio and Ultimate rank of HUL:

Year Total

Current

assets(CA)

Debtors Debtors

to CA

Cash Cash to

CA

Loans &

Advances

Loans &

Advnces to CA

Mar '11 4,036.37 943.2 23.368 281.91 6.984 1,099.72 27.245

Mar '10 3,089.74 678.44 21.958 231.37 7.488 1,068.31 34.576

Mar '09 3,256.34 536.89 16.488 190.59 5.853 1,196.95 36.758

Dec '07 2,597.08 443.37 17.072 200.11 7.705 1,083.28 41.711

Dec '06 2,158.88 440.37 20.398 170.8 7.912 1,150.06 53.271

Dec '05 1,948.37 522.83 26.834 103.77 5.326 902.04 46.297

Dec '04 2,062.69 489.27 23.720 102.98 4.993 1,013.04 49.113Dec '03 2,059.43 470.85 22.863 195.95 9.515 1,208.92 58.702

Dec '02 1,899.69 367.85 19.364 253.1 13.323 1,229.16 64.703

Dec '01 1,888.53 424.78 22.493 223.71 11.846 1,198.41 63.457

Ultimate rank for HUL:

Year As % to Total Current Assets Liquidity Rank

Debtor

s

Cash Loans &

Advances

Debtors Cas

h

Loans &

Advances

Total

Rank

Ultimate

Rank

Mar '11 23.368 6.984 27.245 3 7 10 20 7 (VII)Mar '10 21.958 7.488 34.576 6 6 9 21 8 (VIII)

Mar '09 16.488 5.853 36.758 10 8 8 26 10 (X)

Dec '07 17.072 7.705 41.711 9 5 7 21 8 (VIII)

Dec '06 20.398 7.912 53.271 7 4 4 15 4 (IV)

Dec '05 26.834 5.326 46.297 1 9 6 16 5 (V)

Dec '04 23.720 4.993 49.113 2 10 5 17 6 (VI)

Dec '03 22.863 9.515 58.702 4 3 3 10 2 (II)

Dec '02 19.364 13.323 64.703 8 1 1 10 2 (II)

Dec '01 22.493 11.846 63.457 5 2 2 9 1 (I)


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10.2.2Ratio and Ultimate rank of ITC:

Year Total Current

assets(CA)

Debtors Debtors

to CA

Cash Cash to

CA

Loans &

Advances

Loans &

Advnces to CA

Mar '11 6,273.92 907.62 14.467 98.77 1.574 2,173.89 34.650Mar '10 5,528.03 858.8 15.535 120.16 2.174 1,929.16 34.898

Mar '09 5,337.12 668.67 12.529 68.73 1.288 2,150.21 40.288

Mar '08 4,940.79 736.93 14.915 153.34 3.104 1,949.29 39.453

Mar '07 4,094.26 636.69 15.551 103.54 2.529 1,390.19 33.955

Analysis of Liquidity

Documents