-: Project Report :-

(Submitted for the Degree of B.Com. Honours in Accounting & Finance under
the University of Calcutta)
TITLE OF THE PROJECT

FINANCIAL STATEMENT ANALYSIS

OF ITC.LTD
Submitted By
Name of the Candidate : PREETAM KARMAKAR

College Name : ACHARYA GIRISH CHANDRA

BOSE COLLEGE
Registration No. : 141-1111-1026-18

C.U Roll No. : 181141-21-0163

College Roll No. : 210163

Supervised by
Name of The Supervisor : Swarup Sen
Name of the College : Acharya Girish Chandra Bose College

Month and Year Submission

August , 2021
FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 1
ANNEXURE 1A

Supervisor's Certificate

This is to certify that MR. Preetam Karmakar a student of B.Com. Honours

in Accounting & Finance of Acharya Girish Chandra Bose College under the
University of Calcutta has worked under my supervision and guidance for his
Project Work and prepared a Project Report with the title FINANCIAL
STATEMENT ANLYSIS OF ITC. LTD, which he is submitting, is his
genuine and original work to the best of my knowledge.

Signature :

Place:Kolkata Name : Swarup Sen

Date: Designation :

Name of the College : Acharya Girish Chandra Bose College

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 2

 ANNEXURE 1B

Student's Declaration

I hereby declare that the Project Work with the title Financial Statement
Analysis of ITC.Ltd. is submitted by me for the partial fulfillment of the
degree of B.Com. Honours in Accounting & Finance under the University of
Calcutta is my original work and has not been submitted earlier to any other
University /Institution for the fulfillment of the requirement for any course of
study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me.
However, extracts of any literature which has been used for this report has been
duly acknowledged providing details of such literature in the references.

Signature:

Name : Preetam Karmakar

Place : Kolkata Address : UTTAR SREE DURGA PALLY, Nimta

Kolkata-70049

Date : Registration No. : 141-1111-1026-18

Roll No. : 210163

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 3

 ACKNOWLEDGEMENT

This report is an outstanding prospect to convey my gratefulness to those many people

whose timely help and guidance went a long way in finishing this project work from
commencement to achievement. I would like to express my sincere thanks to Dr. Asit Kumar
Sarkar (Principal of our college) for giving me an opportunity for pursuing the project.

This project could not been completed without the able guidance and support of Asst.
Prof..Swarup Sen

Last but not the least would like to thank my friends, family members who helped me for the
completion and deeper understanding of the concept of performance appraisal.

Working on this project has proved to be an enlightening experience for me.

Date: Signature:

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 4

 TITLE PAGE

1. INTRODUCTION 6 to 10

Introduction 6
Objective of the Study & need of Study 7
Research Methodology & Scope of Study 8
Limitation of Study & Literature Review 9-10
Chapter Planning 10

2.CONCEPTUALFRAMEWORK 11 to 14

Meaning of Financial Statement Analysis 11

Various Approaches of Financial Statement
Analysis 11 - 12
Various Parties in Financial Statement Analysis 13
Limitations of Financial Statement Analysis 14
Tools & Techniques of Analysis and Interpretation 14

3. PRESENTATION OF DATA ANALYSIS &

FINDINGS 15 to 29

4. CONCLUSION & RECOMMENDATIONS 30 to 31

5. BIBLIOGRAPHY 32

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 5

INTRODUCTION

Financial statement analysis is the process of understanding the risk and

profitability of a firm through analysis of reported financial information by using
different accounting tools and techniques.
It mainly consists of:-
➢ Reformulating reported financial statements.
➢ Analysis and adjustments of measurement errors.
➢ Financial ratio analysis on the basis of reformulated and adjusted financial
statements.

The first two steps are often dropped in practice, meaning that financial ratios are
just calculated on the basis of the reported numbers, perhaps with some
adjustments.
Financial statement analysis is the foundation of evaluating and pricing credit
risk and for doing fundamental company valuation.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 6

The objectives of the study are as follows:-

➢ To understand to analyze and to suggest methods of improving profitability

management.
➢ To understand the key factors affecting profitability.
➢ To access the working capital employed by the company.
➢ To identify the financial strength and weakness of the company.
➢ To have an insight into the management of profit in an organization.
➢ To access the past performances of the firm. Past performance is a good indicator of
future performance. Investor or creditor are interested in the trend of past sales ,cost of
goods sold ,operating expenses ,net income ,cash flow and return on investment.
➢ To access the operational efficiency of a management company, the actual
performance of the firm which is revealed in the financial statements can be compared
with some standards set earlier and the deviation of any between standards and actual
performances can be used as the indicator of efficiency of the management.

:
Financial statement analysis is used to identify the trends and relationships between
financial statements. Both internal and external users of the financial statement need to
evaluate a company’s profitability, liquidity and solvency. The most common methods
used for financial statement analysis are trend analysis, common – size statements and
ratio analysis. These methods include calculations and comparisons of the results to
historical company data, competitors or industry averages to determine the relative
strength and performances of the company being analyzed.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 7

RESEARCH METHODOLOGY:
The research design refers to preplanning of what a researcher does in his study.

The study is based on two types of data:

➢ Primary Data - It is obtained through the discussions with officials of the company
but in the present studies it is not possible to obtain the primary data because of
several constraints.
➢ Secondary Data - . Secondary data is based on the past data. But in the present
studies it is not possible to obtain the primary data because of several constraints. That
which has been collected by someone else and which has already been passed through
the statistical process is known as secondary data. It consists of not only published
records and reports but also unpublished records.

SCOPE OF THE STUDY:

The basis of financial planning and analysis is financial information; financial need
to predict compare and evaluate the firm’s earning ability. It is also required to aid in
economic decision making investment & financial statement or accounting reports.

It contains summarized information of the firm’s financial affairs, organized

systematically. They are the means to present the firm’s situation to owners, creditors and
general public. Presentation of the statements is the responsibility of top management so
they should be prepared very carefully and should contain as much information as
possible because they are very useful to judge the financial efficiency of the
company.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 8

 ➢ It is very difficult to obtain the primary data of ITC ltd because of time constraints.
➢ Sophisticated statistical tools such as regression analysis have not been employed.
➢ Financial analysis is based on monetary information, it has only been considered and
non monetary information has been ignored.
➢ It is very time consuming, utilization of time is necessary in all the cases or research
we do.
➢ Since this topic covers a huge area, so it is impossible for me to do this analysis of
more than one company or make a comparative study between them.

LITERATURE REVIEW :
According to Direct hit.com “Financial statement analysis is when someone
looks through the accounting entries for a portion of a company’s book and looks for
ways to lower cost or raise revenue or stream line process. It usually refers to an
employee of that company not a contractor.”

According to Barron’s Accounting Dictionary “Financial statement analysis

means use and transformation of financial data into a form that can be used to monitor and
evaluate the firm’s financial position, to plan future financing and to designate the size
of the firm and its rate of growth.”

According to Alan S. Donahue who wrote in his book “what every manager
should know about financial analysis.”

- In a very real sense, finance is the language of business. Goals are set
and performance is measured in financial terms. Plants are built, equipments ordered,
new projects undertaken based on clear investment return criteria. Financial analysis
which mainly consists of financial statement analysis is required in each and every case.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 9

 According to Investopedia financial dictionary “The process of
reviewing and evaluating a company’s financial statement (such as balance sheet or
profit or loss statement ), thereby gaining and understanding of financial health of the
company and enabling more effective decision making. Financial statements record
financial data; however this information must be evaluated through financial statement
analysis to become more useful to investors, shareholders, managers and other
interested parties.”

➢ Chapter 1: Introduction

➢ Chapter 2: Conceptual Framework

➢ Chapter 3:Analysis, presentation and findings

➢ Chapter 4: Conclusion & Recommendations.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 10

 CONCEPTUAL FRAMEWORK

Financial statement analysis is an important part of overall financial analysis

based on the statements which are the end products of accounting system, balance
sheet and P/L account.

Analysis of financial statement is a systematic process & critical information

underlined in the financial statements in order to understand & make decisions
regarding the operations of the firm. The analysis of financial statements is a
relationship among various financial facts as set out in the financial statements i.e. B/S
and P/L account. The complex data given in these financial statements is divided
/broken into simple and valuable elements and relationships are established between
the elements of the same statements or different financial statements. These include
certain absolute information about assets, liabilities, equity, revenue, expenses and
profit or loss of an enterprise.

VARIOUS APPROACHES OF FINANCIAL STATEMENT

ANALYSIS:
There are two main approach of financial statement analysis and they are:

➢ Traditional Approach
➢ Modern Approach
Traditional Approach – The use of the word traditional implies
adherence to some age old practice, conventions or methods. If we look back to
the history of development of FSA, we find that it started during the latter half
of the 19th century when the size of the business was comparatively smaller and
there were very few complicated business structure. At that time the analysis
was mainly made for credit evaluation & investment decisions with the use of a
very few selected ratios like current ratio (current asset – current liabilities) and
Debt equity ratio (debts – equity capital) .The main purpose would be to make
credit analysis and understand the short term solvency position very soon
certain ratios like profitability ratios, acid test ratio’s were also used.
FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 11
The basic features of TRADITIONAL APPROACH to financial statement
analysis are:-

➢ It is past oriented.
➢ It is related to the analysis of financial data as available from the
published financial statements.
➢ The technique applied here are simple and easy to understand.
➢ It is a general purpose analysis. It does not confirm to any specific
purpose.
➢ It is mainly a short term analysis aimed at judging the profitability and
financial position of the business.

Modern Approach – The modern or new financial statement analysis

came out with a specific purpose oriented and integrated approach which
designs to provide specific information for the separate needs of specific
decision takers. It developed in a manner to be usable according to the varying
requirements of such decision takers. The mode of analysis under this approach
is based on quantitative as well as qualitative data collected in keeping with
needs of decision models. Such collections of data are made according to the
environment – both internal and external in which a firm has to function.
Naturally both inside and outside sources are tapped.
The main/basic features MODERN APPROACH to financial statement
analysis are:-

➢ This approach ties up FSA with other branches of knowledge like

statistics, economics, etc.
➢ This approach puts emphasis on both short term and long term
profitability and financial standing of a concern.
➢ Under it, the decision maker has to select first the specific issues which
he needs information. The analysis is made according to the selections.
➢ It extends over both financial and non financial measures for making
predictions about future profitability & cash flows to the business.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 12

VARIOUS PARTIES INTERESTED IN
FINANCIAL STATEMENT ANALYSIS :
The list of stakeholders who are interested in a company and interested parties in
Financial Statement Analysis are most important, those are:-

➢ Management – The management always looks for the safe survival of the business
and the maintenance of its economic viability and sustainable growth. For carrying out
managerial activities, proper planning, framing useful policies and strategies, taking
appropriate decisions regarding allocation of limited resources and exercising overall
control are required.
➢ Investors – They look for steady return and the safety of their investment. The
shareholders try to know the profitability of the firm and its dividend policy.
➢ Bankers/Lenders – They need information as whether the recovery of their
existing and proposed loans to the firm will be possible in due time and whether they
will get proper interest on such loans.
➢ Suppliers and Trade Creditors – They want to assess the profitability and short
term solvency of the firm to which they are going to allow credit facilities.
➢ Employees – They want information about the profitability and financial stability of
their employers firm.
➢ Customers – Usually the customers want to build up a long relationship & want a
continuous supply of quality products at reasonable price.
➢ Competitors – For comparisons of relative performance results they need
information out of FSA.
➢ Government – It depends upon financial statement analysis of a firm for the
different reasons assessment of general/economic conditions of the firm, its position in
the industry, considering and applying national economic statistics, deciding tax
matters etc.

➢ Government Department – For framing regulations and guidelines under

different departments, separate boards like the law board, securities and exchange
board (SEBI), etc. Need adequate information’s most which are derived from the
analysis of financial statements of different companies.
➢ Research scholars – Researchers in the accounting field require various
information about different issues of different firms. They depend upon the financial
statement analysis of such companies.
FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 13
LIMITATIONS OF FINANCIAL STATEMENTS:
Although financial statements render ample information service to the stakeholders of a
business as well as to its outsiders, such statements suffer from certain limitations. These are:

➢ These statements report quantitative facts only. The qualitative aspects are not
properly hinted upon.
➢ Only some major and important pieces of information are transmitted. An overall
picture cannot be reflected by the traditional financial statements. As a result,
decision making become partial and biased.
➢ Personal observations and intuitions are not allowed proper lee way to bring out
complete material facts.
➢ Change of socio-economic scenario and political surrounding’s find no place in
financial statements. But pre-dominantly these factors are governing the development
of businesses.

TOOLS & TECHNIQUES OF ANALYSIS AND

INTERPRETATION:
➢ Ratio Analysis –It is also an important method of analysis of financial
statement. It is adapted to establish meaningful mathematical relation between two
items or two groups of items show in financial statements.

➢ Cash flow Statement –This technique is very useful in the management of

cash and analysis of short term liquidity. Under this method a statement is prepared to
show the inflow and outflow of cash related to various activities in the concern during
a specific period.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 14

Consolidated Statement of Profit And Loss A/c
( Rs. In Crores )

PARTICULARS FOR THE YEAR FOR THE YEAR

ENDED 31.3.2015 ENDED 31.3.2014
AMMOUNT AMMOUNT
RS RS
GROSS INCOME 54417.09 50550.61

Gross Revenue from sale of products and services 52759.08 49247.28

Less : Excise Duty __(14325.77) (14262.58)
Net Revenue from sale of products and services 38433.31 34984.70
Other operating revenue 401.50 332.38
Revenue from operation 38834.81 35317.08
Other income __970.95
__1256.51
Total Revenue 40091.32 36288.03

EXPENSES
Cost of materials consumed 11089.10 10376.05
[Includes Share of joint Ventures Rs. 123.16 Crs (2014- Rs. 108.30 Crs)]
Purchase of Stock-in- Trade 3918.80 2976.98
Changes in inventories of finish good, work-in progress, stock-in-Trade (235.72) (112.74)
And Intermediates
Employee Benefits Expense 277.28 2504.24
Finance cost 68.12 6.37
Depreciation and Amortisation expense 1027.96 964.92
[Includes share of joint Ventures Rs. 1.71 Crs (2014- Rs.1.91 Crs)
Other Expenses 7088.73 6520.66
Total Expenses 25729.27 23236.48

PROFIT BEFORE TAX 14362.05 13051.55

Tax Expense :
Current Tax 4228.21 3988.87
Deferred Tax __368.21 __ 72.06
Profit after tax before share of result of associates and minority 9765.63 8990.62
interests
Share of net profit of associates _ _12.89 _ _10.57
Profit after tax before Minority Interest 9778.52 9001.19
Less Minority Interest 115.35 109.81
Profit For The Year 9663.17 8891.38

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 15

Consolidated Statement of Balance Sheet
( Rs. In Crores )

PARTICULARS FOR THE YEAR FOR THE YEAR

ENDED 31.3.2015 ENDED 31.3.2014
AMMOUNT AMMOUNT
RS RS
EQUITY AND LIABILITIES
Share Holders Fund
Share Capital 801.55 795.32
Reserve And Surplus 30933.94 31735.49 26441.64 27236.96
Minority Interest 225.11 203.03
Non-Current Liabilities
Long-term Borrowings 60.68 76.40
Deferred Tax Liabilities ( Net ) 1642.77 1306.99
Other Long term Liabilities 42.67 42.74
Long—term provision 124.16 1870.28 131.75 1557.88
Current Liabilities
Short-term borrowing 195.39 150.24
Trade Payables 2020.47 2106.25
[ Includes Share of joint Venture Rs. 14.18 Crs (2014 – Rs. 30.36 Crs)]
Other current liabilities 3782.04 2106.25
Short-term provision 6162.01 5956.47
12159.91 11886.06
TOTAL 45990.79 40883.93
ASSETS
Non-Current Assets
Fixed Assets
Tangible assets 14648.38 12556.00
Intangible assets 423.98 73.83
Capital Work-in progress – Tangible assets 2671.55 3081.29
Intangible assets under development 28.65 36.08
17772.56 15747.20
Less : Provision for assets given on lease (1.05) (5.67)
17771.51 15741.53
Goodwill on consolidation 231.97 297.14
Non-current investment 807.68 798.52
Deferred tax assets (Net) 38.57 35.52
Long-term loans and advances 1565.47 1428.92
Other non-current assets 1.24____ 1.24____
20416.44 18302.87
Current Assets
Current investment 6135.09 6485.50
Inventories 8586.87 8255.24
Trade receivables 1982.07 2439.21
Cash and bank balance 7896.22 3490.19
Short-term loans and advances 568.67 816.20
Other current assets 405.43___ 1094.72__
25574.35 22581.06
TOTAL 45990.79 40883.93

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 16

 Consolidated Cash Flow Statement
(Rs. In Crores )

PARTICULARS FOR THE YEAR FOR THE YEAR

ENDED 31.3.2015 ENDED 31.3.2014
AMMOUNT AMMOUNT
RS RS
A. Cash Flow From Operating Activities
PROFIT BEFORE TAX 14362.05 13051.55
ADJUSTEMENT FOR:
Depreciation and amortization Expense 1027.96 964.92
Finance costs 68.12 6.37
Interest Income (619.11) (416.02)
Dividend Income from Long Term Investment (10.34) (9.64)
Dividend Income from Current Investment 255.41 179.67
Loss on Sale of Fixed Assets- Net 27.18 5.21
Net Gain on Sale of Current Investment ect. (339.95) (330.76)
Gain on Sale of Long Term Investment (0.64) (0.35)
Doubtful and Bad Debt 23.06 2034
Doubtful And Bad Advances, Loans and Deposits 0.62 0.89
Provision on Long Term Investment -- 20.67
Excess of Carrying Cost over Fair Value of Current Investment ect. – Net -- 8.21
Excess of Cost of Current Investment ect. Over Fair Value, reserve- Net (29.53) --
Foreign Currency translation and transaction - Net (8.57) 15.73
Impairment of Goodwill on Consolidation 15.13__ (101.48) 15.17__ 120.87
OPERATING PROFIT BEFORE WORKING CHANGES ADJUSTMENT 14260.57 13172.42
FOR:
Trade Receivables, Loan and Advances and other Assets 558.50 (1546.05)
Inventories (504.78) (754.57)
Trade Payables, other Liabilities and Provision (22.51)__ 31.21 456.26_ (1844.36)
CASH GENERATED FROM OPERATION 14291.78 11328.06
Income Tax Paid (4448.58) (3984.48)
NET CASH FROM OPERATING ACTIVITIES 9843.20 7343.58
B. Cash Flow From Investing Activities
Purchase of Fixed Assets (3300.06) (2887.16)
Sale of Fixed Assets 8.73 38.26
Purchase of Current Investment ect. (98741.55) 94216.50
Sale/Redemption of Current Investment ect. 99655.95 93268.59
Purchase of Long Term Investment (25.73)
Sale of Long Term Investment 2.10 24.10
Dividend Income from Long Term Investment Received 10.34 9.64
Dividend Income from Current Investment ect. Received 255.41 179.87
Dividend from Associates 2.27 2.27
Interest Received 559.09 373.95
Purchase of interest in Joint Venture (1.63)
Investment in Bank Deposits (7395.17) (2866.50)
( Original maturity more than 3 months )
Redemption/Maturity of Bank Deposits 2914.15 3163.16
( Original maturity more than 3 months )
Investment in deposits financial institution (750.00)

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 17

Redemption/Maturity of deposits with financial institution 750.00 425.00
Loans Realized from Associates 1.40 1.40
Loans Realized 3.54____ 5.57_____
NET CASH USED IN INVESTING ACTIVITIES (5275.43) (3254.08)
C. Cash Flow From Financing Activities
Proceeds from issue of Share Capital 978.79 691.08
Proceeds from Long Term Borrowings 6.53 5.81
Repayments of Long Term Borrowings (20.21) (15.04)
Proceeds from issue of Share by a Subsidiary to minority share holders 11.60 3.60
Net Increase/(Decrease) in Cash/ Export Credit Facilities 45.15 150.24
Interest Paid (16.12) (47.73)
Net Increase in Statutory Restricted Account Balances 21.22 17.36
Dividend Paid (4875.61) (4238.60)
Income Tax on Dividends Paid (812.38) ______ (688.26)_________
NET CASH USED IN FINANCING ACTIVITIES (4661.03) (4121.54)

NET INCREASE/(DECREASE) IN CASH AND CASH (93.26) (32.04)

EQUIVALENTS
OPENING CASH AND CASH EQUIVALENTS 276.48 308.52
CLOSING CASH AND CASH EQUIVALENTS 183.22 276.48

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 18

A. Liquidity Group
1. CURRENT RATIO:

It shows the ratio of current asset over current liabilities. The customary ratio
is 2:1 which means Rs 2 of asset is ready to pay Re1 of liability. Current assets are
those which can be converted into cash in an accounting period. Similarly current
liabilities are those which need to be paid in an accounting period .

Current Assets
Current Ratio = ------------------------------
Current Liabilities

2014-15 2013-14
Particulars (Rs in Crs) (Rs in Crs)
Current Assets 25574.35 22581.06
Current Liabilities 12159.91 11886.06
Current Ratio 2.10 1.90

2.1

1.9

1.8
2013-14 2014-15

Interpretation:Since the customary ratio is 2:1, it is seen that current ratio is getter
than 2 in 2013-14 . However it shows that current ratio has shown improvement over
the past two financial years.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 19

2. ACID TEST RATIO:
This ratio shows the company’s capability to pay its current liability very quickly.
Because of this ratio is also known as Liquid Ratio or Quick Asset ratio. It is a ratio
of Quick assets to Quick liabilities. Quick assets are those which are immediately
converted into cash in an accounting period. Quick assets mean current assets less
stock.

Quick Assets

Acid Test Ratio= --------------------------------

Quick Liabilities

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Quick Asset 16987.48 14325.82
Quick Liabilities 12159.91 11886.06
Acid Test Ratio 1.40 1.21

1.4
1.35
1.3
1.25
1.2
1.15
1.1
2013-14 2014-15

Interpretation: The conventional ratio is 1:1. It means Re 1 of asset is ready to pay

Re1 of liability. It is seen that company’s acid test ratio is over the conventional ratio
of 1:1. So short term financial position of the company is good.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 20

B. Turnover Group
1. CURRENT ASSET TURNOVER RATIO :
This ratio shows the relation between current assets and Net sales. This measures the
efficiency level of the company for utilization of working capital.

Net sales

Current assets Turnover ratio= ------------------

Current Asset

Particulars 2013-14 2014-15

(Rs in Crs) ( Rs in Crs)
Net Sales 99666.78 93330.95
Current Assets 25574.35 22581.06
Current Assets 3.90 4.13
Turnover ratio

4.15
4.1
4.05
4
3.95
3.9
3.85
3.8
3.75
2013-14 2014-15

Interpretation: It is evident that current asset turnover ratio has increased from
2.33 in 2012 to 2.34 in 2013 and then remained same in 2013. This shows that
utilization of working capital of the company is satisfactory.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 21

 2. FIXED ASSETS TURNOVER RATIO:
Fixed assets are used by the manufacturing company to produce goods with reduced
cost. Efficient utilization of fixed assets will increase production and thereby increase
in profitability. Higher the ratio better is the company.
Net sales
Fixed Assets Turnover Ratio = --------------------------------------
Net Fixed Assets

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Net sales 99666.78 93330.95
Net Fixed Assets 20416.44 18302.87
Fixed Assets 4.90 5.10
Turnover Ratio

5.1
5.05
5
4.95
4.9
4.85
4.8
2013-14 2014-15

Interpretation: Fixed assets turnover ratio decreased to 5.10 in 2013-14 but it decreases
to 4.90 in 2014. Hence it can be said utilization of fixed assets for production is not
satisfactory.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 22

 3. TOTAL ASSETS TURNOVER RATIO:
This ratio shows how efficiently company has utilized its total asset to generate production
and sales. The higher is the ratio, more efficient the company is or vice versa.

Net Sales

Total Assets Turnover Ratio = --------------------------------

Total Assets

Particulars 2014-15 2013 -14

(Rs in Crs) ( Rs in Crs)
Net sales 99666.78 93330.95
Total Assets 45990.79 40883.93
Total Assets 2.17 2.28
Turnover Ratio

2.3

2.25

2.2

2.15

2.1
2013-14
2014-15

Interpretation: It appears from the above that the company had the same level of total
assets turnover ratio in the last two years. But it had slowly decreased in 2013-14. Moreover
it also indicates that assets are being not utilized efficiently. So the position is not
satisfactory.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 23

 4. WORKING CAPITAL TURNOVER RATIO :
This ratio shows that the number of times the working capital is converted into revenue in an
accounting period, or how efficient management is in using its working capital to generate
sales revenue.

Working Capital Net Sales

Turnover Ratio = -------------------------------------------------------------------------------

-----------------------------

Working Capital [C.A. – C.L.]

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Net sales 99666.78 93330.95
C.A. – C.L. 13414.44 10695.00
Inventory Turnover Ratio 7.43 Times 8.72 Times

8.5

7.5

6.5
2013-14 2014-15

Interpretation: The above table shows that the company has not a good working capital
in hand to fulfill all its needs. And the graph also shows that it keeps on Decreasing this
financing year.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 24

 5. INVENTORY TURNOVER RATIO :
This ratio shows the relation between costs of goods sold and average stock. It means how
much time stock has been rolled to make cost of goods sold. Higher the ratio, more efficient
the company is. The equation of for inventory turnover equals the cost of goods sold divided
by the average inventory. Inventory turnover ratio is also known as inventory turns, stock
turn, stock turns, turns and stock turnover.

Cost of Goods Sold

Inventory Turnover Ratio = --------------------------------------------

Average Stock

365 Days

Inventory Turnover Period = ----------------------------------------

Inventory Turnover Ratio

Particulars 2014-15 2013 -14

(Rs in Crs) ( Rs in Crs)
Cost of Goods Sold 45249.69 42780.34
Average Stock 4293.44 4127.62
Inventory Turnover Ratio 10.54 10.36
Inventory Turnover Period 34.63 Times 35.23 times
(Months)

10.6
10.55
10.5
10.45
10.4
10.35
10.3
10.25
2013-14 2014-2015

Interpretation: It is observed that inventory turnover ratio has improved than previous
year in 2013-14. This shows that inventory of the company is bit slow moving.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 25

 C. Profitability Group

1. GROSS PROFIT RATIO:

This ratio shows the relation between Gross profit and sales. Increase in gross profit ratio
will indicate good sales at reduced direct cost. This shows the manufacturing efficiency.

Gross Profit

Gross Profit Ratio= --------------------------- x 100

Sales

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Gross Profit 54417.09 50550.61
Net sales 99666.78 93330.95
Gross Profit Ratio 0.54.60% 0.54.16%

55.00%

54.50%

54.00%

53.50%

2013-14
2014-15

Interpretation: It is seen from the above that Goss profit has increased to 0.44% in the
year 2014-15. So the position is satisfactory. Gross profit margin is higher than 2013-14.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 26

 2. NET PROFIT RATIO :
This ratio shows the relation between net profit and net sales. This shows the operating
efficiency of a company. Increase in the ratio means managerial efficiency like better
performance or vice versa

Net Profit

Net Profit Ratio: ------------------------- x 100

Net Sales

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Net Profit 9663.17 8891.38
Net sales 99666.78 93330.95
Net Profit Ratio 9.69% 9.55%

9.75%

9.70%

9.65%

9.60%

9.55%

9.50%

9.45%
2013-14 2014-15

Interpretation: It is seen from the above that Net profit has increased to 0.14% in the year
2014-15. It is observed from the above that the company is able to maintain the
increase the profit slightly. Net profit margin is higher than 2013-14.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 27

 D. Solvency Group

1. INTEREST COVERAGE RATIO:

This ratio shows the ability of the company to pay the interest on outstanding borrowings. In
other words it indicates whether sufficient profit to service has the interest burden. The
higher the ratio better is the ability of the company.

Net Profit before Interest & Taxes

Interest Coverage Ratio = --------------------------------------------------------

Interest

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Net Profit before interest 14362.05 13051.55
& Taxes
Interest 16.12 47.7
Interest Coverage Ratio 890.95 Times 273.62 Times

0
2013-14 2014-15

Interpretation: The above table shows that the company is more than capable to pay its
dues with sufficient amount of profit. i.e. 890.95 times in 2014-15 and 273.62 times in
2013-14. This is possible due to very low outstanding borrowed funds.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 28

2. DEBT EQUITY RATIO:
This ratio shows the relation between own capital and loan capital. In other words it
shows to what extent the company is dependent on the borrowed funds. This ratio
helps to measure the long term solvency as well as the creditors claim. The
conventional ratio is 2:1.

Long Term Liability

Debt Equity Ratio = ------------------------------------------------------------------

Share Holder’s Fund

Particulars 2014-15 2013-14

(Rs in Crs) ( Rs in Crs)
Long Term Liability 1565.47 1428.92
Share Holder’s Fund 27236.96 31735.49

Debt Equity Ratio 0.0574 0.0450

0.06

0.04

0.02

2013-14
2014-15

Interpretation:
The Debt Equity ratio (D/E ratio) in the above table clearly establishes that the long
term solvency of the company is satisfactory. So the D/E ratio is well below the
conventional ratio of 2:1.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 29

CONCLUSION & RECOMMENDATIONS

Recommendations:
The overall financial position of the company is good. It is advised that company
should look for better working capital management to improve liquidity further.

1) The company is cash rich company and need not go for any long term
borrowings.

2) The Company may ask its suppliers to extend the credit period.

3) A high debtor’s turnover ratio indicates an improvement in the business

conditions or improved collection procedure. The company has high
debtors turnover ratio and as such need not tighten the credit policy further.

4) The net profit of the company has increased consistently for the last years.
It has not only helped to cover all operating expenses but is able to reward
its shareholders.

5) The company should consider expenses for selling & Distribution to

increase sales and to survive in the competition.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 30

Conclusion:

The project was undertaken to evaluate the financial performance so that it gives an
idea about the company’s financial position. It is expected that the study will help
understanding the overall financial performance of the company. It is also expected that the
recommendation / suggestions made will bring attention of the management.

The observations are as follows –

1. The customary ratio for current ratio is 2:1. FY 2014-15 and 2013-14 has
improved. Its current ratio to 1.90 in 2013-14 and 2.10 in 2014-15.
2. Standard ratio for Acid Test ratio is 1:1. The Company has liquid ratio is getter than
standard one for the last years. This shows that liquidity position of the company is
good.
3. Standard Debt Equity ratio is 2:1. The company has very low Debt Equity ratio in
the last years. This shows that the company has very lesser burden for interest on
borrowings.
4. Gross profit ratio of the company is good . GP ratio is 0.54.60%, 0.54.16% in 2014-
15 , and 2013-14 respectively.
5. Similar is the position for Net profit ratio. The company has actually maintained
0.14% in the last years.
6. Interest Coverage ratio – Due to low outstanding borrowings, interest coverage ratio
is high which 890.95 times is for the FY ending 2014.
7. Inventory Turnover ratio is hovering between 34 to 35 times during the last years.

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 31

 BIBLIOGRAPHY:

● ITC Ltd (2015, March 31)

Financials from http://www.itcportal.com/itc-2015-Annual reports

●ITC Ltd (2014, March 31)

Financials from http://www.itcportal.com/itc-2014-Annual reports

• The book “Financial Statement Analysis”by Prof JayantaGhosh

• www.wikipedia.com
• www.moneycontrol.com/financials/itc/cashflowstatement
• www.moneycontrol.com/financials/itc/balancesheet
• www.moneycontrol.com/financials/itc/profitandlossaccount

FINANCIAL STATEMENT ANALYSIS OF ITC. LTD 32