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    CONTENTS

    Section I: Background

    A. Acknowledgement....3

    B. Industry and Environment Analysis.4

    C. Brief Introduction of Hindustan Uniliver Limited.9

    Section II: Detailed Analysis of HUL

    1. Board of

    Directors...... 11

    2. Ownership

    ...11

    3. Shareholding

    Pattern...12

    4. Performance Trends of the

    company..13

    5. Ratio Analysis: Time Series

    Analysis14

    5.1. Liquidity Ratios.....14

    5.2. Solvency Ratios...16

    5.3. Profitability Ratios.18

    5.4. Market Based Returns... 22

    6. Dupont Analysis...23

    7.Economic Value Addition24

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    8.Accounting Policies..26

    9.Ratio Analysis: Inter Company Analysis HUL and ITC29

    10.Conclusion..34

    A. Acknowledgements

    We are highly grateful to Prof .. for making the course of Financial

    Accounting interesting to learn and easy to understand. We wish to thank XI!

    Academic "eam for assigning Prof. to take the introductory course on

    Finance and Accounting. We #ay heartily gratitude to $amana sir for gi%ing us his

    %alua&le time and the immense interaction o##ortunities to resol%e our 'ueries. We are

    also thankful to r. Alok for answering our 'ueries regarding the 'ui((es and

    assignments) es#ecially when .. was not a%aila&le in the cam#us.

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    B. Industry and Environment Analysis:

    Indian FMCG Sector in a nutshell: "he Indian FC* sector is the fourth largest

    sector in the economy with a total market si(e in e+cess of ,- /3./ &illion. It has a

    strong 0C #resence and is characteri(ed &y a well esta&lished distri&ution network)

    intense com#etition &etween the organi(ed and unorgani(ed segments and low

    o#erational cost. A%aila&ility of key raw materials) chea#er la&or costs and #resence

    across the entire %alue chain gi%es India a com#etiti%e ad%antage. "he FC* market is

    set to tre&le from ,- //.1 &illionin 2003 to US$ 33.4 billion in 2015. Penetration

    level as well as per capita consumption in most product categories like jams, toothpaste,skin care, hair wash etc in India is low indicating the untapped market potential.

    Burgeoning Indian population, particularly the middle class and the rural segments,

    presents an opportunity to makers of branded products to convert consumers to branded

    products.

    Growth is also likely to come from consumer 'upgrading' in the matured product

    categories. With 200 million people expected to shift to processed and packaged food

    by 2010, India needs around US$ 28 billion of investment in the food-processingindustry. The Indian FMCG sector gives employment for three million people in

    downstream activities. Within the FMCG sector, the Indian food processing industry

    represented 6.3 per cent of GDP and accounted for 13 per cent of the country's exports

    in 2003-04.A distinct feature of the FMCG industry is the presence of most global

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    players through their subsidiaries (HLL, P&G, Nestle), which ensures new product

    launches in the Indian market from the parent's portfolio.

    What is in India for FMCG: FMCG Sector is expected to grow by over 60% by 2010.

    That will translate into an annual growth of 10% over a 5-year period. It has been

    estimated that FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs

    92,100 crores in 2/. air care) household care) male grooming) female hygiene) and

    the chocolates and confectionery categories are estimated to &e the fastest growing

    segments)says an HSBC report. Though the sector witnessed a slower growth

    in 2002-2004, it has been able to mae a !ine reco"ery since then. #or

    e$ample, Hindustan %nil"er &imited 'H%&( has shown a healthy growth in the

    last )uarter. *n estimated dou&le5digit growth o%er the ne+t few years shows that the

    goodtimes are likely to continue.

    Growth:With the presence of 12.2% of the world population in the villages of India,

    the Indian rural FMCG market is something no one can overlook. Increased focus on

    farm sector will boost rural incomes, hence providing better growth prospects to the

    FMCG companies. Better infrastructure facilities will improve their supply chain.

    FMCG sector is also likely to benefit from growing demand in the market. Because of

    the low per capita consumption for almost all the products in the country, FMCG

    companies have immense possibilities for growth. And if the companies are able to

    change the mindset of the consumers, i.e. if they are able to take the consumers to

    branded products and offer new generation products, they would be able to generate

    higher growth in the near future. It is expected that the rural income will rise in 2007,

    boosting purchasing power in the countryside. However, the demand in urban areas

    would be the key growth driver over the long term. Also, increase in the urban

    population, along with increase in income levels and the availability of new categories,

    would help the urban areas maintain their position in terms of consumption. At present,

    urban India accounts for 66% of total FMCG consumption, with rural India accounting

    for the remaining 34%. However, rural India accounts for more than 40% consumption

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    in major FMCG categories such as personal care, fabric care, and hot beverages. In

    urban areas, home and personal care category, including skin care, household care and

    feminine hygiene, will keep growing at relatively attractive rates. Within the foods

    segment, it is estimated that processed foods, bakery, and dairy are long-term growth

    categories in both rural and urban.

    Indian Competitiveness and Comparison with the World Markets: The following

    factors make India a competitive player in FMCG sector:

    Availability of Raw Materials: Because of the diverse agro-climatic conditions

    in India, there is a large raw material base suitable for food processing industries.India is the largest producer of livestock, milk, sugarcane, coconut, spices and

    cashew and is the second largest producer of rice, wheat and fruits &vegetables.

    India also produces caustic soda and soda ash, which are required for the

    production of soaps and detergents. The availability of these raw materials gives

    India the location advantage.

    Labor cost comparison: Low cost labor gives India a competitive advantage.

    India's labor cost is amongst the lowest in the world, after China & Indonesia.

    Low labor costs give the advantage of low cost of production. Many MNC's have

    established their plants in India to outsource for domestic and export markets.

    Presence across value chain: Indian companies have their presence across the value

    chain of FMCG sector, right from the supply of raw materials to packaged goods

    in the food-processing sector. This brings India a more cost competitive

    advantage. For example, Amul supplies milk as well as dairy products like

    cheese, butter, etc

    Few indicatives of Indian FMG Market

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    Figure B.1:Consumption Chart

    Table B.1: Rural Urban Profile of Market

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    Figure B.2: Consumption Pattern

    Table B.2: Consumer Profile

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    Figure B.3: Labour Cost Pattern

    C. Brief Introduction of Hindustan Uniliver Limited

    (Formerly Hindustan Lever Limited)

    Brief History: Hindustan Unilever Limited, erstwhile Hindustan Lever Limited (also

    called HLL), headquartered in Mumbai, is India's largest consumer products company,

    formed in 1933 as Lever Brothers India Limited. Its 41,000 employees are headed by

    Mr.Harish Manwani, the non-executive chairman of the board. HLL is the market leader

    in Indian products such as tea, soaps, detergents, as its products have become daily

    household name in India. The Anglo-Dutch company Unilever owns a majority stake in

    Hindustan Lever Limited.

    Recently in February 2007, the company has been renamed to "Hindustan Unilever

    Limited" to provide the optimum balance between maintaining the heritage of the

    Company and the future benefits and synergies of global alignment with the corporate

    name of "Unilever".

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    Prominent Brands: Kwality Walls ice cream, Lifebuoy, Lux, Breeze, Liril, Rexona,

    Hamam, Moti soaps, Lipton tea, Brooke Bond tea, Bru Coffee, Pepsodent and Close Up

    toothpaste and brushes, and Surf, Rin and Wheel laundry detergents, Kissan squashes and

    jams, Pond's talc and creams, Vaseline lotions, Fair & Lovely creams, Lakm beauty

    products are some of the prominent brands of the company.

    Power Brands: In mid-2000 after M.S. Banga took over the reins at HLL, the company

    decided that it would focus on 30 odd 'Power Brands' and carefully plan its entry into

    new businesses. Intuitively this made sense, instead of spreading your resources all over

    the place concentrate on a few brands. But what it meant was that power brands had to

    grow at higher rates to compensate for the loss of sales from other brands. Unfortunately,

    the other brands have shrunk faster vis--vis the rate at which the power brands have

    grown. This has hit the top line of the company. The company's Vanasapti brand, Dalda,

    is a case in point

    Appointment of Doug Baille :The appointment of an expat, Doug Baillie, as the CEO

    of consumer heavyweight HLL is seen as an indication of the parent companys desire to

    hasten the process of Unileverising the Indian subsidiary, it is reliably learnt. Informed

    sources said Unilever was not very satisfied with the pace of harmonization of HLL vis-

    -vis other global subsidiaries. Within Unilever, it was felt that there was some

    opposition from HLLs senior management who wanted HLLs Indian ness to be

    maintained.

    Project Shakti: It is an initiative take by the group as a way of fulfilling its social

    responsibility by empowering the less privileged sections of the society we live in. The

    objectives of Project Shakti are to create income-generating capabilities for

    underprivileged rural women by providing a small-scale enterprise opportunity, and to

    improve rural living standards through health and hygiene awareness.

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    Hindustan Lever Network:In February 2003 Hindustan Unilever Limited has launched

    a new division called Hindustan Lever Network. This division markets a wide range of

    Fast Moving Consumer Goods through Network Marketing. Network Marketing was

    pioneered in the United States of America in the 1940s by companies like Amway

    Corporation and operates by recruiting individuals as consultants. These consultants are

    paid a commission on the purchases made by them and on the purchases made by those

    recruited by them.

    1. Board of Directors:

    Chairman: Harish Manwani

    CEO and Managing Director: Douglas Baillie

    Vice Chairman: M.K.Sharma

    Managing Directors Food: S.Ravindranath

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    Director Finance and IT: D.Sundaram

    Directors: A.Narayan

    V.NarayananD.S.Parekh

    C.K.Prahalad

    S.Ramadorai

    2. Ownership:

    The company is a publicly held organization. The majority of the shares are held by the

    parent company Unilever limited.

    3. Shareholding Pattern(as on 31.05.2007):

    The majority of shares of the company are held by 9 foreign corporate bodies. They hold

    54.2% of the total shares. The names of the companies and their share %age are:

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    Unilever PLC 33.7%

    Brooke Bond Group Limited 4.84%

    Unilever UK & CN Holdings Limited 2.72%

    Brooke Bond South India Estates Ltd 2.39%

    Unilver PLC 2.31%

    Unilever Overseas Holdings AG 1.81%

    Brooke Bond Assam Estates Ltd 1.49%

    Unilver Overseas Holdings AG 1.3%

    Unilver Overseas Holdings BV 0.85%

    The public shareholding of the company is varied and comprises of Mutual funds/UTI

    (3.74%), Banks (.3%), Insurance Companies (12.41), FII (12.28), thus the total

    institutional public shareholding is 28.73%

    In non institutions, corporate bodies hold 1.83%, while 17.56% shares are held by

    individuals. In addition to that.46% of the shares are held by other individuals and bodies

    such as the director & relatives, trusts, NRIs and clearing bodies. Hence the total public

    shareholding comes out to be 48.52%.

    4. Performance Trends of the company:

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    Table 4.1: Performance Trend

    This table has been taken from the annual report of the HUL for the year ended on 31 st

    December 2006. This table contains key financial indicators which show the performance

    of the company in year 2006 and its performance trend for last 10 years.

    5. Ratio Analysis: Time Series Analysis

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    5.1 Liquidity Ratios: Liquidity Ratios indicate the companys ability to meet its short-

    term liability. These ratios indicate the availability of liquid asset to meet short term

    obligations. Creditors usually check this ratio to assess the ability of firm to meet its

    short term obligations.

    5.1.1 Current Ratio: Current ratio is obtained by dividing Current Assets by Current

    Liabilities. Current ratio gives a quick understanding of the companys liquidity

    position but is subjected to window dressing. Current asset consists of Cash,

    Inventory and Debtors as major items. Though Inventory and Debtors are

    considered liquid asset, the company may find itself unable to collect debt at

    right time and convert inventory into cash when it has to pay its creditors.Hence this ratio alone can not provide a clear picture of firms liquidity

    position.

    5.1.2 Liquid Ratio: Liquid ratio is a better measure of Liquidity because inventory,

    which might not get converted into cash when required to do so, is taken out of

    the current asset for calculating this ratio.

    5.1.3. Absolute Cash Ratio: It is the best measure of the liquidity since only cash and

    near cash items are taken for calculating this ratio. Debtors and Inventory are

    taken out of the Current Asset and thus left part of current asset give a better

    idea of liquidity of the firm.

    5.1.4 Working Capital: It is net current asset that a company has to have in order to

    smoothly run its day to day operation.Net Current Asset is difference between

    CA and CL. It also indicates how the firm is financing its assets. For example if

    a company has CL more than CA, i.e. Negative Working Capital, it implies that

    the company is financing its long term asset from short term funds. Generally

    CL does not carry any cost and hence it increases the profitability of the firm.

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    5.1.4. Working Capital Days: Working capital days indicate the time taken in

    completion of the operating cycle. It is a measure of firms policy of collecting

    debt, making payment to creditors and average inventory holding period. The

    goods are purchased either in cash or on credit, then it remains with the firm as

    inventory for some days, then it is sold and debtors are created, then the cash is

    collected from debtors. So, WCD is Debtors Days + Inventory Days- Creditor

    Days.

    5.1.5. Debtors Days: Time taken to convert debtor into cash. It indicates how

    efficiently the firm is collecting its debt.

    5.1.6. Creditor Days:It indicates how fast the firm is paying back to its creditors.

    5.1.7. Inventory Days:How efficiently the firm converts its inventory into debtors,i.e. how efficient the sales are. It also indicates for how long (on an average)

    goods are stocked.

    2006 2005 2004

    Current +atio 0.0 0. 0./

    &i)uid +atio 0. 0.1 0.4/

    *bsolute Current +atio 0.2 0.22 0.

    n"entory 3ays 4. 4.2 14.0

    3ebtor 3ays .2 .21 .//

    Creditor 3ays .1/ . 40.2

    5oring Capital 3ays -. -.00 -.2Table 5.1.1: Key Liquidity Ratio for HUL

    Figure 5.1.1:Trend of Liquidity of HUL

    15

    0.00

    0.00.20

    0.0

    0.40

    0.10

    0.-0

    0.,0

    0.0

    0./0

    .00

    200- 2001 2004

    Current +atio

    &i)uid +atio

    *bsolute Current +atio

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    Analysis of Liquidity Ratios: Current ratio of HUL has been less than 1 for all the 3

    years taken for analysis. This implies that working capital of HUL is always negative.

    This is generally considered an aggressive strategy i.e. to financing its long term asset by

    short term sources that increases profitability because current liabilities are non interest

    bearing items. There is significant difference between CR and LR which indicates that

    the current asset of HUL consists of good amount of inventory. Value of sundry debtors

    is quite low since there is minor difference between LR and ACR. The liquidity ratios

    have decreased from previous year which shows that HUL has reduced its liquidity

    further. On analyzing the operating cycle it can be said that HUL takes good amount of

    time to pay its creditors and this is how it manage to run its operations with negative

    working capital.

    5.2. Solvency Ratio: Solvency Ratios indicate the companys ability to meet its Long-

    term liability. These ratios indicate the ability of the firm to return the investment

    made by its owners and debt providers in the business, in case the company is

    closed down. These ratios are usually seen by the debt providers or financial

    institutions in order to assess the risk involved in the business. If the firm is closed

    down then first it is liable to pay back its loan and then if it is left with something

    that belongs to the share holders.

    5.2.1 Debt Equity Ratio: Debt Equity ratio is obtained by dividing Long Term

    outside Liability (Debt) by Net Worth. This ratio indicates the risk involved for

    loan givers. If it is too high then the owner may not be that much concerned for

    profit making since he has invested less in the business and hence getting less

    return. If the company makes loss ad closed down subsequently, then the owner

    does not loose much and loan givers will have to bear relatively more losses.

    This ratio also determines EPS.

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    5.2.2 Interest Coverage Ratio: ICR indicates the firms ability to pay the interest of

    the loans taken. It is ratio of PBIT to Interest.

    5.2.3. Debt to Total Funds: This ratio indicates the share of the debt in total sourcesused to fund the business. Since total sources are equal to total assets, this

    ratio is analyzed to assess the firms ability to meet its long term liability i.e.

    ability to pay back its loan, in case the company is closed down.

    5.2.4. Reserves and Surplus to Total Fund: This ratio indicates the share of the

    Reserves and Surplus in total sources used to fund the business. Since total

    source are equal to total assets, this ratio is used to assess the firms ability to

    meet its long term liability towards its owner that is, ability to return the shareprofit made by the business that belongs to shareholders, in case the company is

    closed down.

    2006 2005 20043ebt 6)uity +atio 0.0 0.02 0.0

    nterest Co"erage +atio 1/. . 2.1

    3ebt to Total Source 0.0 0.0 0.20

    +S to Total Source 0.4 0.2 0.2

    Table 5.2.1: Key Solvency Ratios

    17

    0.00

    0.0

    0.20

    0.0

    0.40

    0.10

    0.0

    0.,0

    0.0

    200 2001 2004

    3ebt 6)uity +atio

    3ebt to Total Source+S to Total Source

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    Figure 5.2.1: Trend of Solvency Position of HUL

    Analysis of Solvency Ratios: The loans taken by HUL were high in 2004 which is

    indicated by high debt to total source ratio and this is why its ICR ratio was low (as

    compared to ICR in 2005 and 2006). It has decreased its loan and currently it is financing

    its business mostly by net worth and current liability. Debt to equity ratio has decreased

    over the years as it has reduced the loans. Its RS to Total source has increased which

    indicates that HUL invests accumulated profit into business with decreasing debt. Now

    HULs assets are financed by net worth and current liability with debt being a small

    component of total source.

    5.3. Profitability Ratio: Profitability Ratios show how successful a company is in terms

    of generating returns or profits on the Investment that has been made in the business

    i.e. the Profitability ratios indicates the ability of the firm to generate and distribute

    the profit. It can be broadly categorized into profit generating ability (PGA) ratios

    and profit distributing ability (PDA) ratios. It can be said the higher these ratios the

    better it is for the company.

    5.3.1 PBIT to Sales: This ratio is obtained by dividing Profit before Interest and Tax

    by Sales. This ratio is a measure of the companys profit generating ability on agiven volume of sales. This is the most basic ratio of profit generating ability on

    sales i.e. sales margin because it does not take into account the interest and

    taxes which the company has to pay.

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    5.3.2 PBT to Sales: This ratio is obtained by dividing Profit before Tax by Sales. This

    ratio gives the companys profit generating ability on a given volume of sales.

    This ratio takes the profit after paying the interest in order to assess profit made

    (profit margin) after all the expenses except tax.

    5.3.3. Operating Expenses to Sales: It is a measure of the expenses that are incurred

    on a particular volume of sales. This ratio can be used to analyze the cost

    incurred and find out the ways to reduce the operational cost without decreasing

    the sales volume.

    5.3.4. Return on Net worth (RONW):This ratio gives an indication about the profitbeing made by the firm on the investment made by the owner. This ratio is used

    to analyze the business from the perspective of the owner. RONW is an

    indicator of profit distributing ability of a firm.

    5.3.5 Return on Capital Employed (ROCE): This ratio indicates the profit making

    ability of the firm on total capital employed which consists of owners fund and

    debt. This is a profit generating ability ratio which is seen by owners and debtproviders.

    5.3.6 Return on Total Asset: ROTA tells how efficiently the firm is using its assets

    or total sources of fund to generate profit. It is a profit generating ability ratio.

    5.3.7 Earning Per Share: EPS is an indicator of profit distributing ability of a firm.This ratio tells how much profit the firm is making on owners investment on a

    single share of the company.

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    5.3.8 Dividend per Share: DPS ratio gives an idea of the actual distribution of profit

    to the owners i.e. profit distributed to shareholders per share.

    5.3.9 CFO to PAT: CFO to PAT compares the net cash generated from operationalactivities with net profit made by the firm. It gives an idea as to how much

    profit is realized and how it is being used in different activities(Investment,

    financial, Operational)

    Some of the profitability ratio in this report do not match with the values given in

    HULS summary of performance because the sales figures taken here are after exciseduty whereas the sales figures taken by HUL for calculating these ratios are before

    excise duty i.e. Gross Sales.

    2006 2005 20047BT8Sales '9( .2 2./1 1./

    7BT8S*&6S '9( 1. 4.1 1.

    :perating 6$pense ':ther than C:;S(8Sales '9( 2. 0./ 2.2

    7*T8:#'+:

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    There has not been any significant change in operating expense as percentage of sales in

    last three years. For FMCG business the operating expense to sales ratio around 30% can

    be considered good as the company has to spend heavily on its distribution network and

    promotional activities. The profit distributing ability of the firm is excellent with return

    on net worth (RONW) being around 58% over the years. The profit generating ability

    similar to the profit distributing ability is pretty good with ROCE over 60% during the

    year 2005 and 2006. ROCE in year 2005 has increased from the figure of 2004, perhaps

    because of the decrease in debt (change in capital structure) and increase in current

    liability (non interest bearing item). Return on total asset (ROTA) has been moderately

    good with almost constant value of around 22% over the years.

    0.00

    .00

    2.00

    .00

    4.00

    1.00

    -.00

    ,.00

    .00

    /.00

    200- 2001 2004

    67S

    37S

    Figure 5.3.1: Profitability Trends of HUL

    The face value of Equity Share of HUL is Rs. 1. Analyzing the EPS and DPS, which are

    profit distributing ability ratios, for HUL we can see that it has been generating more than

    500% times profit for its shareholders over the years. The EPS increased over the years

    from Rs.5.xx in year 2004 to Rs. 8.xx in year 2006. It has been generous in distributing

    the profit in form of dividend with DPS Rs 6 in year 2004 and Rs. 5 in year 2005 and

    2006.

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    C#:87BT'9(

    0.00

    20.00

    40.00

    -0.00

    0.00

    00.00

    20.00

    40.00

    -0.00

    200- 2001 2004

    C#:87BT'9(

    Figure 5.3.2:Comparison of CFO and PAT

    The trend of CFO/PBIT is worth analyzing since the companys CFO is close to its PBIT

    which indicates that almost entire profit of HUL comes from its operation and the profit

    is realized. In year 2005 the CFO is higher than PBIT indicating the negative CFF or CFIi.e. the company has realized the profit(in form of cash) and invested in long term assets

    or paid its long term outside liabilities(loans).

    5.4 Market Based Returns:Market based return figures indicate the firms position in

    the market and the benefits associated with the investment in company. A small

    investor, if interested in purchasing the shares of a company, first looks at themarket capitalization of the company and return that he can expect on the price paid

    for the share.

    5.4.1 Price to Earning Ratio: Return associated with the shares on its market price.

    Since the investors buy the share at its market price and not at face value or

    book value, this ratio gives information about the actual return on investment.

    5.4.2 Market Cap to Net worth (Price to Book Value Ratio): Comparison of marketvalue of the firm with the owners fund. This can give an idea about the success

    of the company in increasing the value of owners investment.

    5.4.3 Market Capitalization: Market value of the firm. Market capitalization gives

    an indication of the companys financial status in the market. Market

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    capitalization is used to compare the size of the organization in term of market

    value.

    5.4.4 Average Market Capitalization: Average Market value of the firm over the

    year. Average is taken because the market value of shares keeps on changing

    and so is market capitalization.

    2006 2005 2004

    7rice to 6arning +atio .04 2.0 2.4

    =aret >alue to Boo >alue +atio .11 . 1.0/

    =aret Capitali?ation 'in =illion +s.( 4.4 44/1. 1.1

    Table 5.4.1: Key Market Indicators of HULs Performance

    Analysis of Market Based Returns:PER ratio for HUL is not so good with values over

    30 in year 2006 and 2005 and somewhat better with value around 25 in the year 2004. It

    means an investor will get return around 1/30 times on his actual investment. Market

    capitalization of HUL has increased after 2004.

    6. Dupont Analysis:

    2006 2005 2004

    ROCE 0. 0.2 0.4Operating Decisions

    7BT8Sales '9( .2 2./1 1./

    C:;S8Sales '9( 1. 11./ 1./ 3ep 8Sales '9( .0 . .22

    :perational 6$pense8 Sales'9( 2. 0.// 2.

    Investment Decisions

    Sales8T* .1 .0 .

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    Sales8#* .0 .4 .14

    Sales8C* .2 .// .00

    Sales8Stoc .2 . .1

    Sales83ebtors 2.4 2. 20.2/

    Sales8Cash 2/.0 .1 4.22

    Financial Decisions

    T*8C6 2.2 2.1 2.04

    T*8&T& 00. .// 4./1

    T*8:# 2./ 2.2 .4

    T*8Capital . 2/.4/ .0

    T*8+eser"es Surplus 2./2 . ./

    Table 6.1: Dupont Analysis for HUL

    7. Economic Value Addition:

    Profit is the out#ut of the *AAP dri%en accounting assum#tions. 6ne of the im#ortant

    accounting assum#tions is that the interest is treated as an e+#ense) whereas the di%idend

    is treated as distri&ution of #rofit. -ometimes) such assum#tion results in situations where

    the com#anies show the accounting #rofit &ut may &e destroying the wealth of the

    shareholders. 78A measures whether the o#erating #rofit is enough com#ared to thetotal costs of ca#ital em#loyed.

    78A 9 06PA" 5 :Cost of Ca#ital ; Ca#ital 7m#loyed

    A.Inter segment re%enue has &een accounted for &ased on the transaction #rice

    agreed to &etween segments which is #rimarily market led.

    B. $e%enue and e+#enses ha%e &een identified to segments on the &asis of their

    relationshi# to the o#erating acti%ities of the segment. $e%enue and e+#enses)

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    which relate to the enter#rise as a whole and are not alloca&le to segments on a

    reasona&le &asis) ha%e &een included under unallocated cor#orate e+#enses.

    9. Ratio Analysis: Inter Company Analysis HUL and ITC

    Ratio $%&(2006' )*+Dec I+C()*+,arc-200.

    C"rrent Ratio 0.0 .

    #/sol"te C"rrent Ratio 0.2 0.14

    or1ing Capital Days -. 1.2

    De/t E"ity Ratio 0.0 0.02

    3I+*ales ( .2 0./03#+*ales ( 2.2 2.

    Depreciation*ales ( .0 2.

    3I++#(RO+# 0.2 0.1

    3I+CE(ROCE 0. 0.

    3#+OF(RO7 0.1 0.2

    E3* .4 ./

    D3* 1.00 .0

    ,ar1et 3rice of *-are 2.11 10.40

    3rice to Earning Ratio .04 20./2

    ,ar1et Capitali8ation (in ,illion Rs9 4.4 110.00

    2a'le -.1: 3e !atios of 45/ and I2C for the 6ear 00*70,

    9.1. Comparison of Liquidity Position: Current Ratio for HUL is negative whereas it

    is positive for ITC. This indicates that HUL has negative working capital and ITC

    has positive working capital. ITC is funding its short term asset by long term

    funds and HUL funding its long term asset by its short term non-interest bearing

    sources (CL). One more difference in liquidity position of the two companies can

    be seen through the difference between the CR and ACR. There is huge difference

    in ACR and CR of ITC which shows that it has less cash or near cash items in its

    current liabilities whereas for HUL the difference is moderate. Working Capital

    Days for ITC is positive and WCD for HUL is negative. It can be said that HUL

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    has more current liability to source its asset and ITC has high current asset which

    is sourced by long term sources of fund.

    0

    0.2

    0.4

    0.

    0.

    .2

    .4

    .

    .

    H%&'200- ST 3ec( TC'ST =arch200,(

    Current +atio

    *bsolute Current +atio

    Figure 9.1.1: Comparison of Liquidity Position of HUL and ITC

    5oringCapital 3ays

    -00

    -0

    -0

    -40

    -20

    0

    20

    40

    0

    0

    H%&'200- ST 3ec( TC'ST =arch200,( 5oringCapital 3ays

    Figure 9.1.2: Comparison of WCD of ITC and HUL

    31

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    9.2. Comparison of Solvency Position: Two companies are similar in terms of theirsolvency position as indicated by various solvency ratios.

    9.3. Comparison of Profitability: Both the PBIT/Sales and PAT/Sales are higher for

    ITC than HUL and the difference in these ratios is quite high which indicates that

    ITC has higher profit margin on sales than HUL. Depreciation/Sales ratio of ITC

    is almost double of that for HUL indicating higher depreciation and amortization

    charged by ITC than HUL. The ROTA figure for ITC is higher than it is for HULwhich shows that ITC is generating more profit than HUL on total asset (or total

    sources of funds). The other profit generating ability ratios shows a different

    picture. ROCE for HUL is higher than that for ITC which is because HUL is

    using more current liabilities to fund its assets hence making more profit on its

    capital employed. The RONW for HUL is also higher than that for ITC because

    of the same reason. So, it can be inferred that HUL is generating more profit for

    on its owners fund than ITC. The difference between PBIT /Sales and PAT/ Salesis lower in case of HUL due to its net income from interest being positive i.e. it

    has earned more interest than it has paid.

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    0

    1

    0

    1

    20

    21

    0

    1

    H%&'200- ST 3ec( TC'ST =arch200,(

    7BT8Sales '9(

    7*T8Sales '9(

    Figure 9.3.1: Comparison of Profitability on Sales for HUL and ITC

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    0

    0.

    0.2

    0.

    0.4

    0.1

    0.

    0.,

    7BT8T*'+:T*( 7BT8C6'+:C6( 7*T8:#'+:

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    0

    1

    0

    1

    20

    21

    0

    1

    67S 37S 7rice to 6arning +atio

    H%&'200- ST 3ec(TC'ST =arch200,(

    Figure 9.4.1: Comparison of Profit Distributing Ability of HUL and ITC

    =aret 7rice o! Share

    0

    10

    00

    10

    200

    210

    H%&'200- ST 3ec( TC'ST =arch200,(

    =aret 7rice o! Share

    Figure 9.4.2: Comparison of Market Price of Shares of HUL and ITC

    35

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    =aret Capitali?ation'in =illion +s.(

    420000

    440000

    40000

    40000

    100000

    120000

    140000

    10000

    10000

    H%&'200- ST 3ec( TC'ST =arch200,(

    =aret Capitali?ation'in =illion

    +s.(

    Figure 9.4.3:Comparison of Market Capitalization of HUL and ITC

    10. Conclusion: The aim of the FA course was to make us understand the business

    decisions behind financial transaction that results into a financial statement, which

    we feel have been achieved. Financial statements use a different terminology that

    we have understood while working on this project. The ratio analysis helps one to

    know the financial health/position of the company and compare the firms current

    performance with its previous performance (Time Series Analysis) and its

    performance with the other firms performance operating in same industry (Inter

    Company Analysis).While working on this project we learned to analyze the ratios

    in order to arrive at a conclusion about the companys performance and its financial

    position.

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