A FINANCIAL REPORT ON ITC LTD. PREFACE As a student of M.B.A., it is important to study practical things with theoretical knowledge of financial management. The main purpose of Project Report in the finance field is to know how the financial analysis is carried out. We all know that finance is the blood of any business and without it no business can run. In the field of finance you always learn something new, and if you like challenging work you should choose finance. As we like calculative subject and challenges, we have chosen an organization that is “ITC” where we get exposure of all type of work and can learn many things. Financial analysis of a company is very difficult and most important. We have chosen the subject of financial analysis and by doing this, we are able to know its financial position and financial structure of the company. This report includes analysis of balance sheet, profit & loss account and cash flow statement. Ratio has been calculated to present a clear picture of the financial profitability and liquidity of the company. Kadi, 14 th December, 2011 Sunny Teelani Ishan Shah S.V.INSTITUTE OF MANAGEMENT, KADI (20011-12) 1
Transcript
A FINANCIAL REPORT ON ITC LTD.
PREFACE
As a student of M.B.A., it is important to study practical things with theoretical knowledge of financial management.
The main purpose of Project Report in the finance field is to know how the financial analysis is carried out. We all know that finance is the blood of any business and without it no business can run. In the field of finance you always learn something new, and if you like challenging work you should choose finance.
As we like calculative subject and challenges, we have chosen an organization that is “ITC” where we get exposure of all type of work and can learn many things.
Financial analysis of a company is very difficult and most important. We have chosen the subject of financial analysis and by doing this, we are able to know its financial position and financial structure of the company.
This report includes analysis of balance sheet, profit & loss account and cash flow statement. Ratio has been calculated to present a clear picture of the financial profitability and liquidity of the company.
Kadi,
14th December, 2011
Sunny Teelani
Ishan Shah
S.V.INSTITUTE OF MANAGEMENT, KADI (20011-12) 1
A FINANCIAL REPORT ON ITC LTD.ACKNOWLEDGEMENT
The project study will be considered incomplete without acknowledging the persons who have helped us a lot to complete it.
It was indeed a great opportunity for us to prepare this report of ITC LIMITED. It makes us aware of the practical business environment. Here, the student gets an opportunity to learn the practical aspect of business administration and can apply the theoretical knowledge in practice.
We would like to express our gratitude to Prof. Mr. Nikunj Patel & Prof. Mr. Kalpesh Prajapati who has given us an opportunity to prepare financial project report.
We are also very thankful to the other teaching & non-teaching staff of the institute for extended their help; co-operation and support which have greatly ease our work and made our report unproblematic.
At Last but not least we would like to thank all those who helped directly or indirectly for preparation of this financial report, their efforts have not gone unnoticed.
Thanks for being there.
Sunny Teelani
Ishan Shah
S.V.INSTITUTE OF MANAGEMENT, KADI (20011-12) 2
A FINANCIAL REPORT ON ITC LTD.EXECUTIVE SUMMARY
For any company, analysis is very important because by analyzing company on financial basis you are able to know its profit & loss that you can do analysis of their current & liquidity position, not only this you are also able to know the financial position of the company & whether to invest in to or not. You can also know that it is a good company or loss making company.
This project report is prepared on financial analysis of ITC Ltd. This report containing in two parts: - Introduction & Main theme of the report that is Financial Analysis.
The initial part of this report is the general information of the ITC Ltd. It contains the introduction of the company, History, General & Corporate Information, Formal Distribution of Employee.
The second part of this report containing financial analysis of ITC Ltd It containing Ratio analysis, Horizontal analysis, Vertical analysis, Trend analysis, Fund Flow analysis, Average analysis & their interpretation
The horizontal analysis containing comparative profit & loss account & comparative balance sheet of Five financial year 2006–2007, 2007-08, 2008 -09, 2009-10, 2010-11. This part also containing various graphs of growth & sales some based profit & loss a/c & some on balance sheet based.
Ratio analysis comprising mainly five types of ratio analysis as under:
The Vertical analysis containing common – size profit & loss a/c & common – size balance sheet of five years.
The trend analysis containing various components like trends of sales, expenditure & profit, trend in funds & liabilities, trend in assets.
The cash flow analysis containing the operating activities, investing activities & financing activities.
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A FINANCIAL REPORT ON ITC LTD.OBJECTIVES
To find out various critical aspects of the Financial Statements.
To Analyzed & Interpret the Financial strength of the company.
To know about Trends of profit, expenditure, net worth, fixed assets and various other trends of Profit & loss and Balance sheet statements.
To show the contribution of various variables in the Profit & loss
A/C & Balance sheet with respect to Sales & Total Assets.
To recommend the company about the solution of the problem.
And the first & foremost thing is to fulfill the requirement of the course.
About the company
The cigarette and tobacco players face increasing protests from anti-tobacco and health organization. Globally as well as in India, the anti-smoking lobbying has been gaining ground. The cigarette industry faces immense pressure with declining volumes and increasing government regulations and taxation. Profitability of most players has been affected. Players like ITC with a strong equity and pricing power have been able to maintain margins through price increases. The industry has received some relief in the form of excise exemption for manufacture in North Eastern states, and most companies have commenced manufacture in the region to avail of the excise exemption.
ITC’s VALUES
Their core set of values inspires their work ethic.
People Focus:
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A FINANCIAL REPORT ON ITC LTD.
They value and respect their people. By encouraging diversity, transparency, trust and openness with the organization. They aim to further their personal and professional development. Integrity, Loyalty, and Commitment:
They value the highest ethical standards in their work culture loyalty and commitment is rewarded at all levels.
Empowerment:
They nurture carriers by empowering their people to innovate in an open, informed and challenging work place. They encourage richness of ideas, approaches and points of view within a work environment conductive to both superior performance and personal fulfillment.
Sunny Teelani
Ishan Shah
1 . INTODUCTION
1.1 About the company1.2 History
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A FINANCIAL REPORT ON ITC LTD.1.3 Shareholder Value1.4 Location
1.1 ABOUT THE COMPANY
ITC is a bored-managed professional company, committed to creating enduring value for the shareholder and for the nation. It has reach organizational culture rooted in its core value of respect for people and belief in empowerment. Its philosophy of all-round value
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A FINANCIAL REPORT ON ITC LTD.creation is backed by strong corporate governance policies and system.
ITC’s main core business of Cigarettes & Tobacco, Hotels, Packing & Paperboard, apparels, Education & Stationery, Agri-business, Foods, Information Technology and Lifestyle Retailing.
Ensure that each of its business meets the three criteria of sustainability, namely Market Standing, profitability and Internal Vitality. Exit from businesses which do not meet these criteria within an agreed time frame.
Ensure that each business is internationally competitive in the Indian global market.
Create distributed leadership within the organization by nurturing talented and focused top management teams for each of the business.
Institute and practices a system of corporate governance appropriate to ITC’s character and constitution. Such a system of governance must achieve a wholesome balance between the need for executive freedom for management and the requirement of a frame work for effective accountability.
Secure future growth of Company by creating new business which leverages the strength of its core competencies, residing in various businesses.
1.2 History
ITC was incorporated on August 24, 1910 under the name Imperia Tobacco Company of India Limited. As the Company's ownership progressively Indianite, the name of the Company was changed from Imperial Tobacco Company of India Limited to Indian Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing
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A FINANCIAL REPORT ON ITC LTD.a wide range of businesses - Cigarettes & Tobacco Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened ' ITC Limited'
A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks.
Though the first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the seventies witnessed the beginning of a corporate transformation that would usher in momentous changes in the life of the company.
Subsidiaries:
ITC Bhadrachalam:ITC Limited increased its stake in the subsidiary by 5% during FY00 to 56%. The subsidiary is the leading producer of paperboard in India.
ITC Hotels Ltd.:This subsidiary is into business of hospitality and has 18 properties under its banner. This subsidiary has focus both on top end as well as mid-market segment. The company has decided to attach ITC prefix to all Super Deluxe Hotels, Five star hotels would be under brand, Welcome Hotels, and Heritage Properties would be under brand, Welcome heritage and 3-4 star hotels would be under brand of Fortune Hotels.
Russell Credit Ltd. And Summit Investments Ltd. And Saga investments Ltd.:
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A FINANCIAL REPORT ON ITC LTD.These three subsidiaries involved in the business of managing financial investments have been merged together to form Russell Credit Ltd. during FY00.
All India Tobacco and Elan Enterprises are wholly owned subsidiaries engaged in trading in tobacco. ITC InfoTech is an overseas subsidiary. ITC Global Holdings Pvt. Ltd. is a Singapore based subsidiary engaged in international commodities trading and is facing bankruptcy.
1.3 Shareholder Value
ITC is one of India's foremost private sector companies. ITC is a leading FMCG marketer in India today, the second largest Hotel chain, the clear market leader in the Indian Paperboard and Packaging industry and the country’s foremost Agri-business player. Additionally, its wholly owned subsidiary is one of India’s fastest growing Information Technology companies in the mid-tier segment over the last fifteen years; ITC has created multiple drivers of growth by developing a portfolio of world-class businesses. During this period, the Company’s Gross Turnover and Post-tax profits recorded an impressive
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A FINANCIAL REPORT ON ITC LTD.compound growth of 12.7% and 21.7% per annum respectively. Profitability, as measured by Return on Capital Employed improved substantially from 28.4% to 43.4% during this period. Total Shareholder Returns, measured in terms of increase in market capitalization and dividends, grew at a compound rate of 25.6% during this period, placing ITC amongst the foremost in the country in terms of efficiency of servicing financial capital. ITC today is one of India’s most admired and valuable corporations with a market capitalization in excess of Rs. 140000 crores. Servicing financial capital. ITC today is one of India’s most admired and valuable corporations with a market capitalization in excess of Rs 1,40,000 crores.
ITC’s corporate strategies are aimed at matching its core capabilities with market opportunities superior shareholder value.
1.4 Location
The Head Office of ITC is situated in the historical city of India, Kolkata. Then afterwards the different units of ITC are located in different regions of the nation as well as few are outside the country even too. They are as below:
INDIA TOBACCO DIVISION:The divisional headquarter is in Kolkata whereas the trading units are situated in all over the nation. The company has 5 cigarette manufacturing plants with 2 located at Bangalore, 1 at Saharanpur, 1 at Munger and another one at Kolkata
SURYA NEPAL PRIVATE LTD.:
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A FINANCIAL REPORT ON ITC LTD.The registered office is situated in Kathmandu, NEPAL whereas the production units are located in SIMRA, BARA & in NEPAL
ITC FILTRONA LTD.:The registered office and works both of the ITC FILTRONA LTD. is situated in BANGLORE
PAKAGING & PRINTING BUSINESS:The head office is located in Chennai whereas the production unit is located in TIRUVOTTIYUR (CHENNAI), MUNGER AND IN BARODA
GREETING, GIFTING & STATIONERY BUSINESS:The headquarter is situated in Chennai
SAFETY MATCHES:The headquarter of SAFETY MATCHES is situated in Chennai
FOOD DIVISION:The head office is in Bangalore whereas the branch office is in New Delhi
LANDBASE INDIA LTD.:The registered office is in Delhi and the projects are in Gurgaon
ITC INFOTECH LTD.:The registered office is in Virginia House, Kolkata whereas the office of this unit is in BANGLORE, NEWJERSY (USA), and U.K
INTERNATIONAL TRAVEL HOUSE:The corporate headquarter in New Delhi
PAPERBORDS & SPECIALTY PAPERS DIVISION:The headquarter is in Secunderabad. The cast coating plant is in Medak District of Andhra Pradesh, whereas the Mills are situated in Khammam (A.P.) Bhalchandram Unit, Medak (A.P.) Bollaram Unit, Hoogly (W.B.) Tribeni Unit, and Coimbatore (T.N.) Kovai Unit
INTERNATIONAL BUSINESS DIVISION:The headquarter is in Secunderabad
A FINANCIAL REPORT ON ITC LTD.Bhopal, Gandhidham, Kandla, Kakinada, Kota, Luknow, Nagpur & New Delhi AQUA OPERATIONS:Nellore, Kolkata & Vishakhapatnam
GREEN LEAF THRESHING:The plants are at Anaparti and Chirala. Its packing & printing factories are at Chennai and Munger. The company’s Paper mill for manufacturing specialty paper is at Tribeni (W.B.)
2. GENERAL INFORMATION
2.1 Basic information of ITC2.2 Organization Structure2.3 Vision & Mission of ITC
A FINANCIAL REPORT ON ITC LTD. National Stock Exchange of India Ltd Bangalore Stock Exchange Ltd Hyderabad Stock Exchange Ltd The Stock Exchange Ahmadabad Cochin Stock Exchange Ltd Chennai Stock Exchange Ltd The Stock Exchange Mumbai Kanpur Stock Exchange Ltd
Auditors
M/s A. F. Ferguson & Co
Solicitors
Kannadiputhur Sundararaman Suresh
Transfer Agents
Investors Service Centre37 ChowringheeCalcutta 700071
2.3 The ITC Vision & Mission
Vision
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A FINANCIAL REPORT ON ITC LTD.Sustain ITC's position as one of India's most valuable operations through world class performance, creating growing value for the Indian economy and the Company’s stakeholders.
Mission
To enhance the wealth generating capability of the enterprise in a globalizing environment, delivering superior and sustainable stakeholder value.
3. INTRODUCTIONS TO FINANCE AND FINANCIAL ANALYSIS.
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A FINANCIAL REPORT ON ITC LTD.3.1 Introduction to Finance3.2 Financial Analysis & Technique.
3.1 INTRODUCTION TO FINANCE
Preface: The position of finance in business can be matched with the position of blood in the human body. Finance is the lifeblood of the business. Finance, today is not only limited up to function that circulates business but also extended its boundaries. Today success or
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A FINANCIAL REPORT ON ITC LTD.failure concern depends upon how effective financial management a firm has. It is the portfolio that gives maximum return at minimum cost. Further different parties, both inside and outside of firm are interested in financial position of firm and at fixed interval they often evaluate financial position of firm interval they often evaluate financial position by assessing financial statement of firm.
3.2 Financial Analysis & Technique
As stated earlier success or failure of any firm heavily depends upon its financial management. The function of financial management is to manage the inflow and outflow of firm in such a way so that firm can carry out its objective easily. For earning out the objectives management also have to be familiar with the financial position of firm time by time. So for knowing of financial position management has to go for financial analysis. Management can analyze
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A FINANCIAL REPORT ON ITC LTD.firm’s financial position by evaluating and analyzing financial statement of the firm.
There are mainly seven techniques of analyzing financial statements are follows:-
Comparative Statement. Trend Percentages. Common Size Statement. Statement showing change in net working capital. Fund flow analysis. Cash flow analysis. Ratio analysis.
By using these techniques management or any person who knows these Techniques can analyze the financial position with adequate data and interpret it and also deriving conclusion from it.
(A) Comparative Statement.
Under this, the logic is if we put financial statements of different year together we can easily know the changes in the business that occur time by time and slowly gradually. This method is very useful for the owners of the business; by this they can better know their performance in business in last few years. Here, this method needs financial statement of a firm of more than two years. Because if we compare current year’s position with previous year position then it may give wrong information i.e.it may happen that previous year is affected by inflation or vice a versa then in this situation we can’t get correct conclusion. Thus by putting last three or five years statement together we can know the increase or decrease in assets, liabilities, income and expense of the business. With this method we can interpret profit and loss account as well as balance sheet.
(B) Trend percentage.
In this method, for interpreting the situation, weight age should be given to one year and assume that particular year as base year and given it 100. From this we can get increase and decrease in percentage for furthers years of related matter. Suppose we have information about cash and bank balance of business as follow for one particular company.
Year 2008-2009 2009-2010 2010-2011Cash & bank 10000 12000 14000
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A FINANCIAL REPORT ON ITC LTD. So, in trend analysis we put 100 for 100 for 2008-2009 and get 120 for 2009-2010 and also get 140 for the year 2010-2011. So by comparing data in percentage we can easily get conclusion about financial position. But some limitations are that if base year is not normal year than we cannot correct conclusion, further sometime in current year it may be possible that price of some goods is increased or decreased or due to some Govt. new policies, business have to be change accordingly so in this type of condition business in trend analysis cannot give correct conclusion.
(C) Common Size Statement.
Here the change that occurs in business is measured against total asset and total liabilities as well as total income of firm. These all changes are what percentage of total can be known here. Here 100% is given to total of each year of statements 100%is given to total sales and then related change in percentage should be measured. These types of statement are also called as 100 % statements.
(D) Statement Showing Increasing or Decrease in Networking Capital.
Networking capital means increase of current assets over current liabilities. Working capital is necessary for day-to-day functioning of business therefore, for knowing the year by year change in it; Statement of changing in working capital is to be prepared. There are many different methods for preparing this statement but popular among it is compare current assets with current liabilities and not increase or decrease in it.
(E) Fund Flow statement.
This statement is prepared in intention to know that during the year how much outflows goes from business. Further from where this inflow occurred and to where these outflow goes. It also indicates investment of funds. If we have issued shares during the year it is considered as inflow and if we have purchase machinery then it is considered as outflow of funds.
(F) Ratio Analysis.
Financial statements cannot useful for useful proper guidance independently but it is more useful for knowledge of interrelation between two information. In simple words, after comparison of
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A FINANCIAL REPORT ON ITC LTD.different financial statements if we want to put this information for last few years for comparing data and taking decisions for this. We can compare ratio of particular firm with other firm for knowing of performance of particular company. Ratio analysis method is classified as:-
(A) Traditional method include:-
Profit & loss Account Ratios. Balance Sheet Ratios. Mix Ratios.
(B) Classification According to Nature of Ratio includes:-
4.1 Introduction to Balance sheet.4.2 Composition of Balance sheet.4.3 Balance sheet of ITC.4.4 Trend Balance Sheet of ITC.4.5 Common size Balance sheet of ITC.4.6 Ratio analysis of ITC & Interpretation
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A FINANCIAL REPORT ON ITC LTD.
4.1 Introduction to Balance sheet.
A balance sheet is a list of assets and claims of business at some specific point of time and is prepared from an adjusted trail balance. It shows the financial position of business by detailing the sources of funds and the utilization of these funds. A Balance Sheet shows the assets and liabilities grouped, properly classified and arranged in a specific manner.
THE HISTORY OF THE BALANCE SHEET
In the early sixteenth century, Simon Stevin of Burges (Belgium) first devised what he called the statement of affairs of business using the data provided by the residue of Trail Balance. The modern name of
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A FINANCIAL REPORT ON ITC LTD.statement of affairs is Balance Sheet. We still use the name statement of affairs in single entry system of book-keeping. In the Trial Balance, all accounts relating to trial balance are placed in the debit side, i.e., on the left hand side and all accounts relating to liabilities are placed at credit side, i.e., right hand side. But, Stevin reversed the sides.
Liabilities Rs. Assets Rs.
The British Companies Act 1856 prescribed a format for Balance Sheet exactly in the style laid down by Simon Stevin three centuries before.
To fulfill required of the Companies Act, accountants established the British Practice of displaying the Balance Sheet in Stevin’s way. Later, this style was copied by Commonwealth and colonial countries. However, USA, Australia have abandoned this style long ago and always present their Balance Sheet by placing assets in the left hand side and liabilities of the right hand side.
USES OF BALANCE SHEET
It enables us to ascertain the proprietary interest of person or business organization.
It enables us to calculate the actual capital employed in the business.
The lender can ascertain the financial position of the business.
It may serve as the basis for determining purchase consideration of the business.
Different ratios can b calculated from the Balance Sheet and these ratios can be utilized for better management of the business.
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A FINANCIAL REPORT ON ITC LTD.
LIMITATIONS OF BALANCE SHEET
Fixed assets are shown in the Balance Sheet as historical cost less depreciation up-to-date. A conventional Balance Sheet cannot reflect the true value of these assets. Again intangible assets are shown in the Balance Sheet at book values which may bear no relationship to the market values.
Sometimes, Balance Sheet contains some assets which command no market value such as expenses, debenture discount, etc. the inclusion of these assets unduly inflate the total value of assets.
The Balance Sheet can not reflect the value of certain factors such as skill and loyalty of staff.
A conventional Balance Sheet may mislead untrained readers in inflationary situations.
The value of a major number of current assets depends upon some estimates, so it cannot reflect the true financial position of the business.
4.2 Composition of Balance Sheet.
Balance Sheet can be represented both vertical as well as horizontal form. Most of the companies represent their Balance Sheet in the vertical format. So, vertical Performa sheet is as follow.
Schedule Funds Employed AmountA Share Capital √√B Reserves and surplus √√
Loans C Secured Loans √√ D Unsecured loans √√ √√
Current Liabilities √√Provision √√Contingent Liabilities √√ √√Application of Fund
E Fixed Assets √√
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A FINANCIAL REPORT ON ITC LTD.F Investments √√G Current Assets √√H Loan and Advances √√I Misc. Expenditure √√J Profit and Loss Account √√ Fictitious Asset √√
(1) FUNDS EMPLOYED:
(a) Share capital: It involves detail of share capital i.e. total sanctioned share capital, no. of share, and par value. Total issued share capital as well as paid share capital with share numbers, and at last but not least profited shares and its total amount.
(b) Reserves & Surplus: This involves different type of reserves e.g. General Reserve, Dividend reserve, Provident Fund, BDR, Workers salary fund and surplus.
(c) Loans: Loans involve secured and unsecured loansSecured loans: - Secured loans means this type of loans is taken by mortgaging some kind of asset, e.g., debenture.Unsecured loan: - Unsecured loan means loan taken from party without mortgaging any property or asset, e.g. Public Deposit, Public Loan.
(d) Current liabilities: It indicated the expenses that are outstanding remain to pay, interest due but not paid, and also involves creditors, bills payable etc. Most companies show current liabilities under current assets and deduct it from current assets to know new current assets.
(e) Provision: This involves different type of provisions for expected expenses so that business firm can face that type of expenses without any problem e.g. Provision for depreciation, Provision for Taxation, etc.
(f) Contingent liability: This type of liability not included in total liabilities. These are generally claims against companies, e.g. Dividend declared on shares but not paid.
(2) APPLICATIONS OF FUNDS:
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A FINANCIAL REPORT ON ITC LTD.
(a) Fixed Assets: Fixed assets involves Plant & Machinery, Land & Building, Furniture & Fixtures after deducting their depreciation, so their net balances is to be put in balance sheet.
(b) Investment: Investment indicated the investment of company into different projects, schemes as well as projects & plans.
(c) Current Assets: Current assets include income that is due already but not received e.g. Rent due but not received and also includes as well as Bills receivable.
(d) Miscellaneous Expense: This includes the details about preliminary expenses, brokerage, discount allowed on issue of share and debentures, these all capital nature expense.
(e) P & L Account: Debit balance of P & L account carried forward after deducting reserves.
4.3 Balance Sheet of ITC Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Sources Of Funds
Total Share Capital 376.22 376.86 377.44 381.82 773.81
Book Value (Rs) 100.00% 115.44% 131.35% 132.98% 74.48%
INTERPRETATION:
By looking at the trend analysis of Secured and Unsecured Loan of the company we can interpret as below:
The growth rate of Unsecure Loans of the company is fluctuating. In the march 2008 the loan increased by 49.8% but then after it is decreased year by year.
The growth rate of Secure Loans of the company is also fluctuating. The secured loans of the company are decreased year by year.
The growth rate of Investment is decreased in March, 08 and March 09 but then after it is increased by approx 201.82%. It is very huge amount increase in the company.
By the trend analysis we can interpret Liabilities and Assets: The growth rate of Fixed Assets is increases year by year
which is good for company. The growth rate of Liabilities is also increases every year
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A FINANCIAL REPORT ON ITC LTD.
4.5 Common size Balance Sheet of ITC
Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Sources Of Funds
Total Share Capital 3.54% 3.07% 2.71% 2.69% 4.82%
Equity Share Capital 3.54% 3.07% 2.71% 2.69% 4.82%
For the sources of funds we have taken the total liabilities as 100. As we have seen in the table that the Reserves & surplus
constitutes a largest part of the sources of funds. In the Loan Funds the secured Loans decreases year by year.
Application of Funds:-
For the analysis of application of funds we have taken the total Assets as 100
From the table we can interpret that the investment in the company increases in the last two years
The Sundry Debtors of the company reported minor changes throughout whole the three years
As we see in the table The Loans and Advances of the company increases year to year
The liabilities of the company shows average changes through the time period of the first five years whereas it is decreased in the last year
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A FINANCIAL REPORT ON ITC LTD.
4.6 Ratio Analysis of ITC & Interpretation
The ratios of balance sheet are as follows:-
1. Current ratio.2. Quick or Acid ratio.3. Debt Equity ratio.4. Debtor’s turnover ratio.
1. Current Ratio:-
The level of current assets against current liabilities called current ratio. It is obtained by dividing current assets by current liabilities; it is useful for knowing the short term creditors. The higher the ratio the better the liquidity of the company. Generally it is believed that ratio of 2:1 is good enough but this ratio is differed company-by-company & situation-by-situation. Some companies satisfied with 1:1 but according to chore committee 1.33:1 ratio indicates good liquidity position.
Current Ratio= Current Assets/Current Liabilities
Year 2006-07 2007-08 2008-09 2009-10 2010-11
1.23 1.2 1.16 1.34 1.8
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A FINANCIAL REPORT ON ITC LTD.
INTERPRETATION:- This calculation implies that the fluctuation in the current ratio. The current asset of the company noticed slight change in the year
2006-07 to 2007-08. The reason behind it, the annual report of the company clearly
mentioned that the inventories decrease during the period.
2. Acid Test Ratio or Quick Ratio:-
All current assets are not equally liquid. While cash is readily available to make payments to suppliers and debtors can be quickly converted into cash, inventories are two steps away from conversion into cash. The quick ratio, or acid test ratio, is computed as a supplement to the current ratio the ratio relates highly liquid current assets, usually current assets less inventories, to current liabilities.
Acid Test Ratio= Quick Ratio/ Quick liabilities.
Year 2006-07 2007-08 2008-09 2009-10 2010-11
0.58 0.56 0.61 0.39 0.5
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A FINANCIAL REPORT ON ITC LTD.
INTERPRETATION:-
According to this calculation we can interpret that the quick ratio for the year 2008-09 is higher than the year 2007-08 it is balanced in the year 2010-11.
Hear we can see that the quick liability in the year 2006-07 – 2007-08 remaining same with the minor change
The growth rate increase in the year 2008-09 then the previous year. The reason behind the large increment in liabilities in the year 2008-09 is the creditors, in the category of sundry creditors, increase by great proportion than the previous year.
The one reason behind it is that in the year 2008-09 the good & unsecured debtors under the sundry debtor’s category is decreased which effect the ratio.
Finally we conclude that the company should maintain the ratio.
3. Debt-Equity Ratio:-
This can be called other form of proprietary ratio. Difference is that this ratio is calculated to know that what percent of long-term debt. Is to owner’s capital. This ratio is obtained by dividing Long-Term
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A FINANCIAL REPORT ON ITC LTD.by Owner’s Fund. Here long-term debt includes debenture and loan from different parties for long period of time.
Debt-Equity Ratio = Long-term Debt/ Owner’s Fund.
Year 2006-07 2007-08 2008-09 2009-10 2010-11
0.02 0.02 0.01 0.01 0.01
INTERPRETATION:-
It is slowly and gradually in decreasing stage. Good for the company as the interest burden is low. Instead of debt funds company y is going for equity funds. In 2006-07 & 2007-08 the company was having the borrowing
as well as debentures too. But later on the company had repaid its debentures and loans.
4. Debtor’s Turnover Ratio:-
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A FINANCIAL REPORT ON ITC LTD. Debtor’s turnover is a measure of the company to promote sales with minimum investment in uncollected debtors. It indicates timely quick collection or premature collection through cash discount incentives, bill discounting or factoring the bad-debts. It is formulated as under:
Debtor’s Turnover Ratio = Credit sales/ Average Debtors
Year 2006-07 2007-08 2008-09 2009-10 2010-11
20.79 20.43 21.32 24.31 23.91
INTERPRETATION:- It is increasing regularly but in the last year there is a decrease
by 1%.
The conversion of debtors into cash shows a good collection policy of the company.
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A FINANCIAL REPORT ON ITC LTD.
5 PROFIT & LOSS ACCOUNT ANALYSIS.
5.1 Introduction to Profit & Loss Account.5.2 Composition of Profit & Loss Account.5.3 Profit & Loss account of ITC.5.4 Trend Analysis of P & L Account of ITC5.5 Common Analysis of P & L Account of ITC5.6 Ratio analysis of P & L Account of ITC
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A FINANCIAL REPORT ON ITC LTD.
5.1 Introduction to Profit & Loss Account.
The Profit & Loss Account is also known as income statement. It can be defined as a report that summarizes the revenue and expenses of an accounting period to reflect the changes in various critical areas of firm’s operation. It is the greatest interest and import and importance to end-users of accounting statements because it enables them to ascertain whether the business operations have been profitable or not during that profitable period. The important destination between the balance sheet and income statement is for a period of one year. The two broad categories of items shown in the income statement are revenue and expenses. Revenues derived from a company’s operation say manufacturing and selling products. During transaction, business has also incurred revenues other than main business operations. Expenses are occurred in day-to-day transactions. Here expenses regarding manufacturing activities do not considered but office and administrative expense are considered. By deducting total expenses from total revenue we get profit and by deducting total revenue from total expense we get loss. Income tax amount is also decided by profit that incurred in business with help of this statement.
5.2 Composition of Profit & Loss Account.
Particulars Amt Amt 1. Sale of the products and services √√ 2. Other income √√ √√Expenditure
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A FINANCIAL REPORT ON ITC LTD.3. Manufacturing and other expense √√ 4. Depreciation √√ √√ 5. Less-expenditure (other than interest) Transferred to capital and other accounts √√ 6. Interest √√ 7. Total expenditure √√ Profit before tax and exceptional / extraordinary items √√8. Employee separation compensation √√9. Provision for power and cost relating to previous year √√10. Profit on sale long term investment √√ Profit before tax 11. Taxes (a) Current tax √√ (b) Differed tax √√ √√ Profit after tax 12. Add amount transferred from debenture redemption reserve √√13. Add amount transferred from investment allowances reserve √√ √√14. Less-amount transferred to debenture redemption reserve √√15. Less-amount transferred to capital redemption reserve √√ √√16. Balance brought forward from last year √√ Amount available for appropriation √√17. Appropriation (a) Interim dividend on Pref. share √√ (b) Interim dividend on Ordinary share √√ (c ) Proposed dividend √√ (d) Tax on dividend √√ √√ (e) Contingency reserve √√ (f) General reserve √√ √√ √√Balance carried to balance sheet √√Basic and Diluted earnings per share √√
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A FINANCIAL REPORT ON ITC LTD.
5.3 Profit & Loss Account of ITC Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Book Value (Rs) 100.00% 115.44% 131.35% 132.98% 74.48%
INTERPRETATION:
By showing the graph of Income, Expenditure and Profit After Tax we can interpret following things:
The growth rate of income increased year by year. The reason behind is that the net sale of the company increased by 71.52% in the current year. It means that the production of the company increases every year.
On the other side Expenditure of the company also increases by 65.20% in the current year which is lower than the growth rate of income. The one reason behind is that the Rae Material consumed in the current year is higher than the previous year.
Profit after Tax of the company increases by 84.73% in the current year so we can say that the company tries its best to maintain and improve its PAT.
The growth rate of Profit before Tax of the company increases by leaps and bounds every year. In the current year PBT of the company increases by 84.70% which is very good for company.
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5.5 Common Size Analysis of Profit & Loss Account of ITC Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Per share data(annualized) 0.00% 0.00% 0.00% 0.00% 0.00%
Shares in issue (lakes) 192.74% 175.55% 162.35% 144.63% 252.60%
Earnings Per Share (Rs) 0.04% 0.04% 0.04% 0.04% 0.02%
Equity Dividend (%) 1.59% 1.63% 1.59% 3.79% 1.45%
Book Value (Rs) 0.14% 0.15% 0.16% 0.14% 0.07%
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A FINANCIAL REPORT ON ITC LTD. INTERPRETATION:
For the analysis of Profit & Loss A/C we have taken the sales figure as 100.
From the analysis of common size statement, we can interpret that the Income of the company increases year by year.
The Expenditure also increases year by year. It recorded % in the current year, which is higher than the previous year.
As we see in the table the Raw material consumed increases very large proportion. It also shows that the production of the company increases year by year.
The Selling, Distribution and Other Expenses decrease which is good for company.
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A FINANCIAL REPORT ON ITC LTD.5.6 Ratio analysis of Profit & Loss Account of ITC
As per the analysis of Profit & Loss account is concern there are total five ratios for analyzing and deriving conclusion of profit and losses can count are as follow:
1. Gross Profit Ratio2. Operating Ratio3. Expense Ratio4. Net Profit Ratio
1. Gross Profit Ratio:-
This ratio is important for knowing the result of the business during the year. We can come to know by this ratio that what is the ratio of gross profit is to sales. This shows interrelationship between sales price and cost of goods sold. This ratio can be finding out by dividing gross profit with sales. By this ratio can be found the percentage of profit on cost goods sold.
Gross Profit Ratio = Gross Profit / Sales
Year 2006-07 2007-08 2008-09 2009-10 2010-11
34.05 28.44 29.17 29.74 30.97
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A FINANCIAL REPORT ON ITC LTD.INTERPRETATION:
From the above calculation it is clear that the Gross Profit Ratio shows a in compare to 2006-07 the Profit decrise but in 2010-11 its increase.
Though there is a regular decrease in the sales of company the gross profit of the company is decreaseing due to the increase in the COGS. So company should maintain the cost of gain a profit.
Decrise in the Gross Profit it is not good sign for the company.
2. Operating Ratio:-
This ratio is obtained by dividing cost of goods sold plus opreting expenses with net sales. With help of ratio we can identify how much amount an owner has remain as net profit. The higher the ratio the worst situation. This ratio also indicates that out of total sales revenue how much amount is remain with owners and how much amount is expend as expences.
Operating Ratio = cost of good sold + operating expenses / sales *
100
Year 2006-07 2007-08 2008-09 2009-10 2010-11
32.51 31.57 32.84 33.02 34.08
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A FINANCIAL REPORT ON ITC LTD.INTERPRETATION:
From the above calculation we can say that the oprating profit is increasing after 2007-08.
At the and we conclude that an incrase in the Operating Ratio is good for the company and company should try to maintain this ratio.
3. Expense Ratio:-
This ratio is also found out as subsidiary for oprating ratio. This ratio is found out for knowing the ratio between sales and particular expenses. i.e. oprating expenses, financial expenses.,etc. but here we have total expenditure in formula.
Expense Ratio = Expensis / sales
Year 2006-07 2007-08 2008-09 2009-10 2010-11
18.54 15.45 14.85 12.68 13.32
INTERPRETATION:
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A FINANCIAL REPORT ON ITC LTD.
By the above data we can say that company is able to control the expense in the last 4 year. As we can see that the expenditure is decrease year by year.
It is good sign for company to control the expenses so that the profit margin of the company will increase.
4. Net Profit Ratio:-
This ratio can be finding out by dividing net profit with total sales. Out of total sales revenue if we deduct all of the expenses then how much amount a company has remain is to be determine by this ratio. This ratio is exactly opposite of operating ratio. The higher the ratio good for the company. Income year gross profit is increases while net profit is decreased which indicates that operating expenses are increased.
Net Profit Ratio = PAT (Profit After Sales) / sales
Year 2006-07 2007-08 2008-09 2009-10 2010-11
21.4 21.5 21.18 21.3 22.91
INTERPRETATION:
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A FINANCIAL REPORT ON ITC LTD. The above calculation clearly indicates that in 2006-07, 2007-08 years its increase than 2008-09, 2009-10 its decrease and in 2010-
11 its again incrased.
Here the variation of net profit between two year is minor so we can say that it is good sign for the company as well as for the invester too.
As there is have variation of net profit compant should try to maintain net profit.
6 COMPOSITE RATIOS
6.1 Composite Ratios of ITC
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A FINANCIAL REPORT ON ITC LTD.
6.1 Composite Ratios of ITC
Composit ratios are those which need information both from Profit & Loss account as well as from balance sheet for find out related values some of the composite ratios are as follows:
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A FINANCIAL REPORT ON ITC LTD.
1. Return on Capital Employed2. Total Assets Turnover Ratio3. Fixed Assets Turnover Ratio4. Interest Coverage Ratio
1. Return on Capital Employed:
This ratio can be determined by dividing net profit with total capital employed. There total capital includes share capital plus reserve and sureplus lonas. Here net profit means profit after tax.
Return on Capital Employed = Net Profit / Total Capital Employed
The ratio shows the companys profit earned on the total capital employed.
The companys profit increasing year by year, only in the year 2007-08 and 2008-09 there is a little decrease in the profit.
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A FINANCIAL REPORT ON ITC LTD.
The reason behind all this is loan amount that company had taken in the earliar had repair and due to this employed capital somewhat decreases which further decrease the ratio.
The good thing is that through the company was earning profit in a increasing rate yet.
2. Total Assets Turnover Ratio:-
What is the ratio of total asset against total sale is to be determining here. Higher the ratio higher the ability of getting more sale with less assets and also high profitability. This ratio can be finding out by following formula:
Total Assets Turnover Ratio = Total Sale / Total Assets
This shows a continuous fall in the investment of the company in the fixed asset.
It has been mantioned in the Assets Turnover Ratio that the company was not the asset efficiantly.
It is not good for the company as it is investing more and is not been able to use the asset efficiantly.
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A FINANCIAL REPORT ON ITC LTD.
It shows the company is not been able to handle the assets properly.
4. Interest Covering Ratio:-
This ratio indicates the use of interest becoming debt funds in generating higher operating profits or EBIT. Higher is the Ratio better is the utilization of the debt funds. Higher interest covering ratio, enhsnces the equity earning is passed over to the equity financed of the capitalization. It can be concluded as follow:
There is a very high increase in the interest expenses of the company
It is interasting to see that the interest expense is incresing there is a regular fall in the companys debt.
The creditors of the company will feel secured on the company has high interest expense ratio.
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7 ANALYSIS OF CASH FLOW STATEMENT
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A FINANCIAL REPORT ON ITC LTD.
ANALYSIS OF CASH FLOW STATEMENT
Cash is the nerve centre around which business activity flow. The profit figure shown in the profit and loss statement is the book of profit it does not represent cash profit. It may show book profit but may still face liquidity problems. A business entity which occupies a smaller market share, may extend libral credit ti boost sales. Also the same business entity, because of poor market share, may fail to get sufficient days of credit from its suppliers. The entity may increase turnover and profit but it eill face liquidity problem – it has to pay its supplier before its receives payment from its customer. The entity may have earned book profit but surely not equivalent net profit. Its cash profit will be less than book profit, other things remain same. The stakeholder of a business entity are now mare intrested in knowing about the cash profit earned by the firm and not book profit.
A FINANCIAL REPORT ON ITC LTD.Net (decrease)/increase In Cash and Cash Equivalents 44.34 -329.9 462.1 89.23 1096Opening Cash & Cash Equivalents 855.8 900.2 570.3 993.7 1083Closing Cash & Cash Equivalents 900.2 570.3 1032 1083 2179
INTERPRETATION:
From the cash flow statement we know that the Net Profit before Tax is increasing every year. which shows the company is making good profit and rapid progress during last five years.
Opening cash in 2008 is increased and by 2009 it is again decreased. It shows company do not have sufficient amount of cash and again increased next three years.
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A FINANCIAL REPORT ON ITC LTD.
Bibliography:
Books
Financial Accounting -A Managerial Perspective, 4th Edition R. Narayanaswamy Ch-11 Financial statement analysis.
Websites
http://www.moneycontrol.comhttp://www.itc.co.in
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ANNEXUREBalance Sheet of ITC
Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Sources Of Funds
Total Share Capital 376.22 376.86 377.44 381.82 773.81
