Itc sec1

Analysis of Financial StatementsITC Ltd.

By:-Abhimanyu Singh YadavDivya MahttaSec 1, PGP 1

Outline

ITC: the company Segmented sales Ratio Analysis

Stock price comparison DU Pont Analysis

Common size statement Income statement Balance sheet

Trend Analysis

ITC: the company

ITC Ltd is the largest tobacco company in India with an annual turnover of Rs.19,844 crore

ITC features on the Forbes Global 2000 rankings for 2007 at position 1256

Mainly into the business of Cigarettes: Hotels Paperboards & Specialty Agricultural Industry Packaged Foods & Confectionery Branded Apparel Personal Care Greeting Card Information Technology Stationery:

Segmented Sales pie charts.

Agri Business

Cigarettes

Hotels

Others

Paperboards, Paper& Packaging

Segmented PBIT

Sales segment wise

PBIT / capital employed

Asset Structure

Asset Structure 2007

Net fixed assets

Investments

Deferred tax assets

Current assets

Loans & advances

Asset structure 2006

Net fixed assets

Investments

Deferred tax assets

Current assets

Loans & advances

Liabilities Structure

Liabilities Structure 2007

Net Worth

Total borrowings

Current liabilities &provisions

Liability structure 2006

Net Worth

Total borrowings

Current liabilities &provisions

Why Ratios?

Easy comparison as everything’s brought to same platform

Indicates strengths and weaknesses of the company

Different types: & what they tell?

Liquidity: Can the company make required payments?

Turnover ratios: right amount of assets vs. sales?

Solvency Ratios: Right mix of debt and equity?

Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA?

Market value: Do investors like what they see as reflected in ratios like P/E?

Liquidity Ratios

Ratios Mar

04 Mar

05 Mar

06 Mar

07 Analysis

Cash to C.L 0.010 0.017 0.238 0.230

Increasing ability of firm to pay through cash

Quick ratio 0.103 0.211 0.365 0.394

Inadequate quick assets: More

reliance on stock

Current ratio 0.829 1.004 1.320 1.459

Improved Liquidity

Working Capital -610 11.51 1148 1759

Possible Reasons: Increase in WC Requirement

Solvency Ratios

Ratio Mar

04 Mar

05 Mar

06 Mar

07 Analysis

Debt:Equity

0.02 0.03 0.01 0.02

Low Debt &More Reliance on owners fund Ability to pay interest is good: Use more of debt Can use leverage

Possible reason: High rate of interest on Loan

Interestcoverage 80.12 56.62 207.7 453.0

Debt:Total fund 0.40 0.33 0.32 0.31

Propriety Ratio

0.59 0.67 0.68 0.68

Turnover Ratios

Ratio Mar

04 Mar

05 Mar

06 Mar

07 Analysis

Debtors turnover 46.91 32.58 28.55 31.37

Fastcollection offunds : Less

W. CDrs T/O Period(in days) 7.78 11.20 12.78 11.63

Creditors turnover 1.34 1.55 2.50 2.98

Time Lag inPayments: Decreasing. WC needsincreasing

Crs T/O period(in days) 271.1 234.3 145.4 122.3

Turnover Ratios

Ratio Mar

04 Mar

05 Mar

06 Mar

07 Analysis

Raw materialturnover 2.41 1.96 1.84 1.83

Efficiency ofInventoryManagement : ↓  

FinishedGoods T/O 40.98 28.91 24.48 27.00

Fixed Asset T/O 3.19 3.22 3.62 3.37

Stable : Efficient utilization 

CapitalEmployed T/O 1.13 1.15 1.24 1.30

Adequateamount ofcapital Used

Profitability Ratios

Ratio Mar

04

Mar 05

Mar 06

Mar 07

Analysis

GrossProfit

22.10 23.01 21.74 21.65Operatingefficiency is good

Operating Profit

20.14 20.93 19.74 19.84Less proportion ofindirect expenses 

Net Profit 12.96 14.56 13.46 13.48 Available toOwners : Tax

Incidence

Profitability Ratios : Trend

Conclusion - High Tax Rates : Exempted Income Reducing the Tax liability

Market Value : Owners Point of View

RatiosMar 04

Mar 05

Mar 06

Mar 07

Analysis

ROI 42.0 43.9 38.5 40.5High Return: Efficient utilization of funds

EPS 4.29 4.91 6.08 7.19 Face Value = 1 Re. High Return. DPS 1.33 2.07 2.65 3.10

Market Value : Owners Point of View

RatiosMar 04

Mar 05

Mar 06

Mar 07 Analysis

DP Ratio 31.00 42.16 43.59 43.12

More contribution to Retained Profit

PE ratio 16.19 18.22 32.06 20.92Higher growth prospects

Earning Yield 6.2% 5.5% 3.1% 4.8% Profitability in terms of Mkt Price: Unstable

Dividend Yield 1.9% 2.3% 1.4% 2.1%

BSE Stock prices: ITCShare price of ITC

0

50

100

150

200

250

TIME

INR

Profitability of Shareholders Depends onProfitability of the Organization (PM)Asset utilization Rate (TATO)Debt utilization: Leverage (Eq.

Multiplier.) Shows how these factors combine to

determine ROE.

DU Pont Analysis

DU Pont Analysis

ROE = (Profit margin) x (TA turnover) x (Equity multiplier)

ROE = (PAT/Sales) x (Sales/TA) x (TA/Equity)

PM TA TO EM ROE

2004 12.96% 1.12 1.67 24.3%

2005 14.56% 1.15 1.49 25.06%

2006 13.46% 1.24 1.47 24.52%

2007 13.48% 1.30 1.46 25.63%

Common size statementsIncome statement

Year Ending 31st March 2004 %age 2005 %age 2006 %age 2007 %age

GROSS INCOME 12039.92 100.00 13585.39 100.00 16510.51 100.00 19841.54 100.00

Excise Duties etc. 5344.60 44.39 5710.13 42.03 6433.90 38.97 7135.75 35.96

Net Income 6695.32 55.61 7875.26 57.97 10076.61 61.03 12705.79 64.04

Cost of Sales 4109.85 34.14 4846.89 35.68 6463.15 39.15 8412.89 42.40

PBDIT 2585.47 21.47 3028.37 22.29 3613.46 21.89 4292.90 21.64

PBDT 2560.68 21.27 2985.94 21.98 3601.53 21.81 4289.62 21.62

Depreciation 241.62 2.01 312.87 2.30 332.34 2.01 362.92 1.83

PBIT 2343.85 19.47 2715.50 19.99 3281.12 19.87 3929.98 19.81

PROFIT BEFORE TAX 2319.06 19.26 2673.07 19.68 3269.19 19.80 3926.70 19.79

Tax 726.21 6.03 836.00 6.15 988.82 5.99 1226.73 6.18

PAT before exeptional items 1592.85 13.23 1837.07 13.52 2280.37 13.81 2699.97 13.61

Exceptional Items 0.00 0.00 354.33 2.61 -45.02 -0.27 0.00 0.00

PAT 1592.85 13.23 2191.40 16.13 2235.35 13.54 2699.97 13.61

Dividends 558.83 4.64 881.70 6.49 1134.70 6.87 1364.50 6.88

Retained Profits 1034.02 8.59 1309.70 9.64 1100.65 6.67 1335.47 6.73

Common size statements: Balance SheetLiabilities Mar 2004 Mar 2004 Mar 2005 Mar 2005 Mar 2006 Mar 2006 Mar 2007 Mar 2007

Rs. Crore (Non-Annualised) 12 mths %age 12 mths %age 12 mths %age 12 mths %age-Net worth 6410.06 59.96 7895.61 67.15 9061.48 68.04 10437.08 10437.08 Authorised capital 300.00 2.81 300.00 2.55 500.00 3.75 500.00 3.28 Issued equity capital 247.68 2.32 248.22 2.11 375.52 2.82 376.22 2.47 Paid up equity capital (net of forfeited capital) 247.68 2.32 248.22 2.11 375.52 2.82 376.22 2.47

Reserves & surplus 6162.38 57.65 7646.18 65.03 8685.96 65.22 10060.86 66.04 Free Reserves 5731.03 53.61 7220.45 61.41 8260.96 62.03 9637.95 63.26 Security premium reserves (Net of deductions) 295.62 2.77 382.25 3.25 447.28 3.36 488.97 3.21 Other free reserves 5435.41 50.85 6838.20 58.16 7813.68 58.67 9148.98 60.05 Specific Reserves 370.51 3.47 365.83 3.11 365.83 2.75 365.83 2.40 Revaluation Reserves 60.84 0.57 59.90 0.51 59.17 0.44 57.08 0.37

Total borrowings 120.85 1.13 245.36 2.09 119.73 0.90 200.88 1.32 Bank borrowings 55.71 0.52 168.91 1.44 33.80 0.25 107.07 0.70 Short term bank borrowings 55.71 0.52 168.91 1.44 26.04 0.20 76.62 0.50 Long term bank borrowings 0.00 0.00 0.00 0.00 7.76 0.06 30.45 0.20 Deferred credit 65.14 0.61 76.45 0.65 85.93 0.65 93.81 0.62

0.00 0.00 0.00 0.00 Secured borrowings 31.56 0.30 88.69 0.75 25.91 0.19 60.78 0.40 Unsecured borrowings 89.29 0.84 156.67 1.33 93.82 0.70 140.10 0.92 Current portion of long term debt 0.00 0.00 0.00 0.00 0.29 0.00 1.70 0.01

Current liabilities & provisions 3544.67 33.16 3043.72 25.89 3589.13 26.95 3869.01 25.40 Sundry creditors 2804.31 26.23 1892.02 16.09 2148.42 16.13 2343.44 15.38 Acceptances 2.02 0.02 3.01 0.03 4.34 0.03 2.69 0.02 Deposits & advances from customers & employees 40.76 0.38 22.97 0.20 26.82 0.20 23.83 0.16 Interest accrued 0.79 0.01 1.04 0.01 0.54 0.00 0.55 0.00 Other current liabilities 13.91 0.13 16.50 0.14 19.97 0.15 25.66 0.17 Provisions 682.88 6.39 1108.18 9.42 1389.04 10.43 1472.84 9.67

Deferred tax liability 614.18 5.75 573.46 4.88 547.92 4.11 728.26 4.78

Total liabilities 10689.76 100.00 11758.15 100.00 13318.26 100.00 15235.23 100.00

Common size statements: Balance SheetAssets Mar 2004 %age Mar 2005 %age Mar 2006 %age Mar 2007 %age

Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths-Gross fixed assets 5210.69 48.74 6015.94 51.16 6627.14 49.76 8264.51 54.25 Land & building 1196.80 11.20 1544.96 13.14 1624.53 12.20 1862.71 12.23 Plant & machinery 3233.48 30.25 3809.53 32.40 4156.86 31.21 4760.66 31.25 Transport & comm. equipment/infrastructure25.46 0.24 31.41 0.27 43.82 0.33 51.69 0.34 Furniture,amenities & other fixed assets 185.50 1.74 271.82 2.31 298.10 2.24 319.36 2.10 Capital work-in-progress 435.89 4.08 269.67 2.29 399.97 3.00 1130.20 7.42 Intangible assets 99.70 0.93 88.55 0.75 103.86 0.78 139.89 0.92

Less: Cumulative depreciation -1442.63 -13.50 -1795.51 -15.27 -2065.44 -15.51 -2389.54 -15.68

Net fixed assets 3768.06 35.25 4220.43 35.89 4561.70 34.25 5874.97 38.56

Investments 3053.96 28.57 3874.68 32.95 3517.01 26.41 3067.77 20.14 Equity shares 859.04 8.04 795.96 6.77 795.96 5.98 847.10 5.56 Preference shares 0.01 0.00 120.01 1.02 120.01 0.90 107.14 0.70 Mutual funds 1898.32 17.76 2596.70 22.08 2204.72 16.55 1720.12 11.29 Debt instruments 323.36 3.02 388.78 3.31 423.09 3.18 420.18 2.76 Less: Provision for dimunition in value of investments-26.77 -0.25 -26.77 -0.23 -26.77 -0.20 -26.77 -0.18

Group companies 870.40 8.14 806.43 6.86 807.33 6.06 858.46 5.63 Non-group companies 2210.33 20.68 3095.01 26.32 2736.44 20.55 2236.07 14.68

Market value of quoted investments 285.22 2.67 8.70 0.07 13.46 0.10 13.30 0.09

Deferred tax assets 526.44 4.92 197.37 1.68 223.16 1.68 255.41 1.68

Current assets 2949.84 27.60 3201.17 27.23 4736.90 35.57 5721.69 37.56 Cash & bank balance 34.04 0.32 55.66 0.47 855.82 6.43 900.16 5.91 Inventories 1534.21 14.35 2002.99 17.03 2636.29 19.79 3354.03 22.01 Receivables 1381.59 12.92 1142.52 9.72 1244.79 9.35 1445.65 9.49 Expenses paid in advance 0.00 0.00 0.00 0.00 0.00 0.00 21.85 0.14

Loans & advances 391.46 3.66 264.50 2.25 279.49 2.10 315.39 2.07

Total assets 10689.76 100.00 11758.15 100.00 13318.26 100.00 15235.23 100.00

Trend Analysis: Income statementYear Ending 31st March 2004 2005 2006 2007

SALES 100.00 112.84 137.13 164.80

Excise Duties etc. 100.00 106.84 120.38 133.51

Net Income 100.00 117.62 150.50 189.77

Cost of Sales 100.00 117.93 157.26 204.70

PBDIT 100.00 117.13 139.76 166.04

PBDT 100.00 116.61 140.65 167.52

Depreciation 100.00 129.49 137.55 150.20

PBIT 100.00 115.86 139.99 167.67

PROFIT BEFORE TAX 100.00 115.27 140.97 169.32

Tax 100.00 115.12 136.16 168.92

PAT before exeptional items 100.00 115.33 143.16 169.51

Exceptional Items *        

PAT 100.00 137.58 140.34 169.51

Dividends 100.00 157.78 203.05 244.17

Retained Profits 100.00 126.66 106.44 129.15

Trend Analysis

Trend analysis

90.00

110.00

130.00

150.00

170.00

190.00

210.00

2004 2005 2006 2007

Years

SALES

PBIT

Tax

PAT

Cost of sales

Trend Analysis

Trend analysis

80.00

100.00

120.00

140.00

160.00

180.00

200.00

220.00

240.00

2004 2005 2006 2007

Years

SALES

PAT

Dividends

Retained profits

Trend Analysis: Balance sheetMar-04 Mar-05 Mar-06 Mar-07

12 mths 12 mths 12 mths 12 mths

100 112.01 121.06 155.91

100 126.87 115.16 100.45

100 37.49 42.39 48.52

100 108.52 160.58 193.97

100 67.57 71.40 80.57

100 109.99 124.59 142.52

100 123.41 141.79 163.48

100 100.22 151.61 151.90

100 124.08 140.95 163.26

100 203.03 99.07 166.22

100 281.02 82.10 192.59

100 175.46 105.07 156.90

100 85.87 101.25 109.15

100 67.47 76.61 83.57

100 131.65 68.35 69.62

100 118.62 143.57 184.47

100 162.28 203.41 215.68

100 109.99 124.59 142.52

Other current liabilities

Provisions

Total liabilities

Current liabilities & provisions

Sundry creditors

Interest accrued

Total borrowings

Secured borrowings

Unsecured borrowings

Reserves & surplus

Paid up equity capital (net of forfeited capital)

Total assets

Net Worth

Deferred tax assets

Current assets

Loans & advances

Net fixed assets

Investments

Balance sheet Trend analysisRs. Crore

Trend Analysis: BshTrend Analysis (Bsh)

50

70

90

110

130

150

170

190

210

1 2 3 4 5

Years

Net fixed assets

Investments

Current assets

Net Worth

Total borrowings

Current liabilities & provisions

Mar 04 Mar 05 Mar 06 Mar 07

Some problems in Ratio analysis

Comparison with industry averages is difficult for a conglomerate firm like ITC that operates in many different divisions.

Since ITC operations are so diversified competitor comparison was also not possible.

Seasonal factors can distort ratios. Some techniques can make statements

and ratios look better.

Thank You!