Itc Limited Technical Analysis

ITC LIMITED FINANCIAL ANALYSISITC LIMITED FINANCIAL ANALYSIS

GROUP :- 4:

RAJDEEP LAHA

SABYASACHI BHATTACHARYA

SOURAV MANNA

ANAY HALDER

CALCUTTA BUSINESS SCHOOL

1ST YEAR ,PGDM

FACULTY :- PROF. K.C BOTHRA

COURSE:-STOCK SIMULATION GAME

IntroductionIntroductionType: Public (BSE:ITC),(NSE: ITC EQ)Founded: 24 August 1910Radha Bazar Lane, Kolkata, IndiaHeadquarters: Kolkata, IndiaKey people: Yogesh Chander Deveshwar, ChairmanK. Vaidyanath, Director, Partho Chatterjee, CFOIndustry: Tobacco, foods, hotels, stationery, greeting cardsProducts: Cigarettes, packaged food, hotels, apparelEmployees: over 26,000 (2010)Website: http://www.itcportal.com/Forbes Global 2000 List: 987 rank (2010)

Sales (Rs.crore):15388.11 Profits (Rs. million): 32636Market Value($ billion): 13.48

FMCG-FOODPackaged Food Snack & confectionery

ITC PRODUCTSITC PRODUCTS

Sales & Market Growth

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2006 2007 2008 2009

Sales for FMCG business

Sales

Market for Biscuits

11%

10%

33%15%

31% Sunfeast

Others

Parle

Priya Gold

Britannia

RATIO ANALYSIS OF ITC LTD:

Financial Ratio Analysis is the evaluation and interpretation of a company’s financial data using standard financial ratios or accounting

ratios to determine a company’s financial state or condition. A financial ratio or accounting ratio is a ratio of two values that are taken from a

company financial statement (Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Retained Earnings).

CURRENT RATIO Current Assets/Current LiabilitiesYear 2009CURRENT ASSETS 8159.73CURRENT LIABILITIES 4703.63CA/CL 8159.73/4703.63 = 1.73

CURRENT RATIO Current Assets/Current LiabilitiesYear 2010CURRENT ASSETS 8127.08CURRENT LIABILITIES 8048.24CA/CL 8127.08/8048.24 = 1.009

LIQUIDITY RATIOS:

Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations.

CURRENT RATIO:The current ratio is the ratio of current assets to current liabilities.

IMPLICATIONCR of ITC for 2 years is more than one. Moreover, it is greater than the industry average i.e. 0.886.

This implies that working capital of ITC is always positive.

QUICK RATIO Current Assets - Inventories/Current LiabilitiesYear 2009CURRENT ASSETS 8159.73INVENTORIES 4599.72QUICK ASSETS 8159.73 – 4599.72 = 3560.01CURRENT LIABILITIES 4703.63QA/CL 3560.01/4703.63 = 0.76

QUICK RATIO Current Assets - Inventories/Current LiabilitiesYear 2010CURRENT ASSETS 8127.08INVENTORIES 4549.07QUICK ASSETS 8127.08 – 4549.07 = 3578.01CURRENT LIABILITIES 8048.24QA/CL 3578.01/8048.24 = 0.44

QUICK RATIO OR ACID TEST RATIO

The quick ratio is an alternative measure of liquidity that does not include inventory in the current assets.

IMPLICATIONQuick ratio is greater than the industry average i.e. 0.389, which means quick assets are easily convertible into cash.

SUPER QUICK RATIO Cash + Marketable Securities/Current LiabilitiesYear 2009CASH 1031.01MARKET SECURITIES 0.0SUPER QUICK ASSETS 1031.01 + 0.0 = 1031.01CURRENT LIABILITIES 4703.63QA/CL 1031.01/4703.63 = 0.22

SUPER QUICK RATIO Cash + Marketable Securities/Current LiabilitiesYear 2010CASH 1126.28MARKET SECURITIES 0.0SUPER QUICK ASSETS 1126.28+ 0.0 = 1126.28CURRENT LIABILITIES 8048.24QA/CL 1126.28/8048.24= 0.14

SUPER QUICK RATIO:

The Super quick ratio is the most conservative liquidity ratio. It excludes all current assets except the most liquid: cash and cash equivalents.

IMPLICATIONSuper quick ratio is slightly less than the industry average i.e. 0.299. So it can be said that liquidity position of the company is maintained through quick ratio as compared to super quick ratio.

Capital Structure / Leverage Ratio:

Financial leverage ratios provide an indication of the long-term solvency of the firm. Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt.

INTEREST COVER RATIO:

The interest cover ratio indicates how well the firm's earnings can cover the interest payments on its debt.

IMPLICATIONInterest cover ratio is very less as compared to industrial avg i.e. 408.58, which

implies that debt servicing capacity of the firm is very less.  

INTEREST COVER RATIO Profit before Interest & Tax(PBIT)/Interest Expense

Year 2009PBIT 4844.06INTEREST COVER 28.38PBIT/INTEREST COVER 4844.06/28.38 = 170.68

INTEREST COVER RATIO Profit before Interest & Tax(PBIT)/Interest Expense

Year 2010PBIT 6068.67INTEREST COVER 73PBIT/INTEREST COVER 6068.67/73 = 83.12

PROFITABILITY RATIOS:

Profitability ratios offer several different measures of the success of the firm at generating profits.

GROSS PROFIT RATIO:The gross profit ratio is a measure of the gross profit earned on sales. The gross profit margin considers the firm's cost of goods sold, but does not include other costs.

IMPLICATION Gross profit ratio is much higher than the industry average i.e 20.08 which is a sign of good management. It implies that cost of production of the firm is relatively low.

GROSS PROFIT RATIO Gross Profit x 100/ Net SalesYear 2009GROSS PROFIT 5393.47NET SALES 15611.92GP x 100/NS 5393.47 x 100/15611.92 = 34.54

GROSS PROFIT RATIO Gross Profit x 100/ Net SalesYear 2010GROSS PROFIT 6677.38NET SALES 18153.19GP x 100/NS 6677.38 x 100/18153.19 = 36.74

NET PROFIT RATIO Net Profit x 100/ Net SalesYear 2009NET PROFIT 3263.59NET SALES 15611.92NP x 100/NS 3263.59 x 100/15611.92 = 20.90

NET PROFIT RATIO Net Profit x 100/ Net SalesYear 2010NET PROFIT 4061.00NET SALES 18153.19NP x 100/NS 4061.00 x 100/18153.19 = 22.37

NET PROFIT RATIO:This ratio measures the net profit earned on sales.

IMPLICATION Net profit ratio is much higher than the industry average i.e 15.31% which is a sign of good management. It implies that the returns to owner is adequate and the company is quite stable.

OPERATING PROFIT RATIO

Profit before Interest & Tax(PBIT)/Net Sales

Year 2009PBIT 4844.06NET SALES 15611.92PBIT x 100/NS 4844.06 x 100/15611.92 = 31.02

OPERATING PROFIT RATIO

Profit before Interest & Tax(PBIT)/Net Sales

Year 2010PBIT 6068.67NET SALES 18153.19PBIT x 100/NS 6068.67 x 100/18153.19 = 33.43

OPERATING PROFIT RATIO:

The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations.

IMPLICATIONOperating profit ratio is greater than the industrial average i.e. 22.34. This implies that the company is able tosustain its profits even after paying for variable cost of production such as wages etc.

RETURN ON CAPITAL EMPLOYEDIndustry average is 106.57. The firms return on capital employed is very less. The long term funds of owners and creditors are not efficiently used i.e. the less efficient is use of capital employed.

Ratio = 34.60 (2009) 42.64(2010)

EARNING PER SHAREIndustry average is 30.01.Our firms’ EPS is less. The profit available to equity share holder in per share basis is very less.

Ratio = 8.69 (2009) 10.64(2010)

DIVIDEND PER SHARE

Industrial average is 19.9.Our firms’ DPS is less.The dividend paid on a per share basis is very less. DPS is better indicator than EPS. As DPS is very less as compared to industrial average, it shows very less is received by owners.

RATIO = 13.04(2009) 16.06(2020)

INVENTORY TURNOVER RATIO

Net Sales/ Average (or closing) Stock

Year 2009CL. STOCK 4599.72NET SALES 15611.92NS/CL. STOCK 15611.92/4599.72 = 3.39

INVENTORY TURNOVER RATIO

Net Sales/ Average (or closing) Stock

Year 2010CL. STOCK 4549.07NET SALES 18153.19NS/CL. STOCK 18153.19/4549.07 = 3.99

ACTIVITY OR TURNOVER RATIO:

Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios. Two commonly used asset turnover ratios are receivables turnover and inventory turnover.

INVENTORY TURNOVER RATIO:

A measure of the number of times a company's inventory is replaced during a given time period.

IMPLICATION

Inventory turnover ratio is less than the industrial average i.e. 7.68, which implies that the inventory is not easily converted into cash.

DEBTOR TURNOVER RATIO

Credit sales or net sales/ Average (orclosing) debtors

Year 2009NET SALES 15611.92S. DEBTORS 668.67NS/SD 15611.92/668.67 = 23.34

DEBTOR TURNOVER RATIO

Credit sales or net sales/ Average (orclosing) debtors

Year 2010NET SALES 18153.19S. DEBTORS 858.80NS/ SD 18153.19/858.80 = 21.13

DEBTOR TURNOVER RATIO:

This ratio tell efficient are the credit sales of the company.

IMPLICATIONDebtors turnover ratio is less than the industrial average i.e. 46.30, which implies that the liquidity of the debtors of the firm is very less and debtors are not easily convertible into cash.

2009 2010

Current Ratio 1.73:1 1.10:1

Quick Ratio 0.76:1 0.44:1

Super Quick Ratio 0.22:1 0.14:1

INTERPRETATION OF RATIOS:

LIQUIDITY RATIOS:

• As compared to 2009 the liquidity condition has deteriorated marginally in 2010.• As evident from the above, the ideal current ratio 2:1 has not been maintained.• Similarly the ideal liquid or quick ratio of 1:1 has not been maintained.• ITC’s low super quick ratio shows it is not in a position to quickly liquidate its assets and

short term liabilities. But there is no such liquidity need for the country so the low ratio doesn’t matter.

2009 2010

Gross Profit Ratio 34.54% 36.74%

Net Profit Ratio 20.90% 22.37%

Profit Margin Ratio 31.23% 33.13%

Operating Profit Ratio 31.02% 33.43%

PROFITABILITY RATIOS:

• Gross profit has increased by 2.20 % which is a good sign for the company.• The profit margin of 33.43 which has also increased by more than 2% is quiet impressive.• ITC has regularly shown increase in profits and this is largely due to the ever increasing sales.• Operating profit ratio has also improved due to reduction in operating expenses.• The net margin of 22.37% is also quite impressive.• PAT of ITC, like PBIT, has shown an upward trend. The financing decisions and the tax have altered

the overall impact on the profitability of the company.

2009 2010Inventory Turnover Ratio

3.39:1 3.99:1

Inventory Conv. Period

107 Days 91 Days

Debtors Turnover Ratio

23.34:1 21.13:1

Average Collection Period

16 Days 17 Days

Current Asset Turnover Ratio

1.91 2.23

Net Current Asset Turnover Ratio

2.40 2.66

Fixed Asset Turnover Ratio

1.84 1.98

Working Capital Ratio

12.85 17.99

TURNOVER RATIOS:

• Inventory Ratio of 3.99 shows that the company is efficient in selling its stock.• Inventory conversion rate has also improved from three and a half months to 3 months which

is very efficient.• The ratio of 21.13 shows that company is good in getting the returns from the debtors and is

in no viable risk of bad debts.• Working Capital turnover ratio is good.• Fixed asset ratio which is less has also improved. This also means that fixed assets have been

utilized better to get more turnovers.

2009 2010Return On Capital Employed

34.60% 42.64%

Earnings Per Share (Rs)

8.65 10.64

Dividend Payout Ratio Net Profit

50.06% 109.63%

Dividend Per Share (Rs)

3.70 10

Return on Long Term Funds

34.75% 42.64%

PROFIT RATIOS BASED ON INVESTMENT:

• Dividend per share of ITC is very good. Also the rise in dividend from 3.70 to 10 shows that the company is making good profits and proving high returns to its shareholders.

• Return on capital employed is also very high showing that the shareholders are encouraged to buy more share whenever IPO takes place.

• Even the long term debts are providing good returns.

ITC IN THE STOCK MARKETBSE: 500875 |

NSE:  ITC

  BSE NSE

7/1/20011172.50 -6.15

(-3.44%)172.50 -6.40

(-3.58%)

Open 178.10 178.05

Day High 180.00 180.00

Day Low 170.80 170.60

Previous Close 178.65 178.90

52-Week high 184.70 181.80

52-Week low 114.50 114.40

P/E 31.89 31.89

Market Cap (Rs cr) 132926.78 132926.78

Volume 407669.00 7202862.00

Thank You