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Project Report (Submitted for the Degree of B.Com. Honours in  Accounting & Finance under the University of Calcutta) 

FINANCIAL STATEMENT ANALYSIS OF  DABUR INDIA LTD. & ITC LTD.  Submitted by  Name of the Candidate : Kankana Nag  Registration Number : 034-1221-0526-13  Name of the College : Shri Shikshayatan College  College Roll Number : 155  Supervised by  Name of the Supervisor: Smt. Papiya Chaudhury  Name of the College: Shri Shikshayatan College  Month and Year of Submission  FEBRUARY 2016  ~ I ~   

Annexure I-A 

Supervisor's Certificate  This is to certify that Miss Kankana Nag a student of B.Com Honours in  Accounting & Finance of Shri Shikshayatan College under the University of  Calcutta has worked under my supervision and guidance for her Project Work and  prepared a Project Report with the title FINANCIAL STATEMENT ANALYSIS  OF DABUR AND ITC which she is submitting, is her genuine and original work  to the best of my knowledge.  Place: Kolkata Signature:  Date: Name: Smt. Papiya Chaudhury  Designation: Associate Professor  Shri Shikshayatan College  ~ II ~   

Annexure I-B 

Student's Declaration  I hereby declare that the Project Work with the title FINANCIAL  STATEMENT ANALYSIS OF DABUR & ITC 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: Kankana Nag  Address: AA-151, Sector 1, Salt Lake City, Kolkata-7000064  Registration Number: 034-1221-0526-13  Place: Kolkata  Date:  ~ III ~   

ACKNOWLEDGEMENT  The  success  and  final  outcome  of  this  project  required  a  lot  of  guidance  and  assistance  from  many  individuals  and  I  am  extremely  fortunate  to  have  got this all  along the completion of my project work. Whatever I have done is only due to such  guidance and assistance.  Firstly  I  would  like  to  thank  my  supervisor  Smt.  Papiya  Chaudhury  for  her  continuous  support  in  this  project,  for  pin  pointing  the  errors  and  suggesting  necessary  measures  to  debug  them.  I  would  also  use  this  platform  to  express  my  deep  regards  for  our  Head  of  the  Department,  Dr.  Kajal  Gandhi  and  Principal  Dr.  Aditi  Dey for being so helpful and considerate. Infact I was fortunate enough to get  constant  encouragement,  support  and  guidance  from  all  the  teaching  staff  of  the  Commerce Department.  Apart  from  this  I  would  also  like  to  thank  my  friends,  who  gave  me  suggestions  and  advices  to  do  this  project.  Last  but  not  the  least  I  would  like  to  thank  my  family,  my  parents  for  educating  me  with  the  aspects  of  commerce,  for  their  unconditional  support  and  encouragement  to  pursue  my  interest;  my  sister  for  sharing  her  knowledge  relating  to  this  particular  topic.  I  like  to  thank  God  for  giving  me  strength  and  capability,  and  also  for  helping  me  complete  my project in  high perfection.  ~ IV ~   

SYNOPSIS  Financial  statements  are  formal  records  of  the  financial  activities  of  a  business,  person,  or  other  entity  and  provide  an  overview  of  a  business  or  person's  financial  condition  in  both  short  and  long  term.  They  give  an  accurate  picture  of  a  company’s  condition  and  operating  results  in  a  condensed  form.  Analysis  and  interpretation  of  financial  statements  help  in  determining  the  liquidity  position,  long  term  solvency,  financial  viability  and  profitability  of  a  firm.  It  helps  the  clients  to  decide  in which firm the risk is less or in which one they should invest so  that maximum benefit can be earned.  The report at hand manifests an in-depth analysis of the financial statements of ITC  Ltd.  and  Dabur  India  Ltd.  that  caters  to  the  fast  moving  consumer  goods  (FMCG)  segment  of  the  national  market.  An  attempt  has  been  carried  out  in  this  study  to  scrutinize  the  financial  statements  of  the  companies  and  justify  whether  profitability  is  sufficient  enough  to  determine  the  performance  of  a company. This  report  comprises  of  a  literature  review  which  projects  the  perceptions  of  different  authors  about  the  different  ratios  used  to  analyse  the  financial  statements followed  by  the  analysis  of  the  financial  statements  using  financial  ratios  and  ends  with  a  brief conclusion and recommendation.  The  objective  of  this  paper  is:  To  understand,  analyze  and  interpret  the  basic  concepts  of  financial  statements  of  different  FMCG  companies,  to  interpret  the  financial  ratios  and  their  significance,  to  study  the  solvency  liquidity  and  profitability position of these companies during the time span of 2011-2015.  The data used for the study is secondary data obtained from the web pages, as  disclosed by the 2 companies.  ~ V ~   

TABLE OF CONTENTS  Sl. No. Chapter Name Page  No.  Chapter 1 Introduction  ➢ 1.1 Background of the study 1  ➢ 1.2 Literature review 2  ➢ 1.3 Research design 4 

Chapter 2 Conceptual Framework  ➢ 2.1 Concept 5  ▪ 2.1.1 Steps in ratio analysis 5  ▪ 2.1.2 Classification of Ratio 6  ➢ 2.2 Benefits and Challenges 7  ▪ 2.2.1 Importance of financial ratios 7  ▪ 2.2.2 Limitations of financial ratios 9 

Chapter 3 Analysis and Findings  ➢ 3.1 Objectives of the study 10  ➢ 3.2Methodology 10  ▪ 3.2.1 Sample 10  ▪ 3.2.2 Data Type 11  ~ VI ~   

Sl. No. Chapter Name Page  No.  ▪ 3.2.3 Data Source 12  ▪ 3.2.4 Period of study 12  ▪ 3.2.5 Tools used 12  ➢ 3.3 Analysis and Findings 13  ▪ 3.3.1 Current Ratio 13  ▪ 3.3.2 Liquid Ratio 16  ▪ 3.3.3 Absolute liquidity Ratio 19  ▪ 3.3.4 Proprietary Ratio 22  ▪ 3.3.5 Fixed Assets to Equity Ratio 25  ▪ 3.3.6 Debt-Equity Ratio 28  ▪ 3.3.7 Net Profit Ratio 31  ▪ 3.3.8 Operating Profit Ratio 34  ▪ 3.3.9 Return on Equity Ratio 37  ▪ 3.3.10 Earnings per Share Ratio 40 

Chapter 4 Conclusions and recommendations  ➢ 4.1 Summary Observations 43  ➢ 4.2 Recommendations for Improvement 44  ➢ 4.3 Limitations of the Study 45  ➢ 4.4 Scope for further Research 46  ~ VII ~   

1. INTRODUCTION  1.1 BACKGROUND OF THE STUDY  Financial  statements  are  the  mirror  which  reflects  the  financial  position,  strength  and  weakness  of  the  company.  Financial  statements  of the company helps  to  know  how  a  business  is  doing  and  how  it’s  useful  internally  for  a  company-  stock  holders  and  to  its  board  of  directors,  its  managers  and  some  employees  including  labor  unions,  externally  they  are  important  to  perspective  investors,  to  government  agencies  responsible  for  taxing  and  regulating,  to  lenders  such  as  banks  and  credit  rating  agencies  &  investment  analysts  &  stock  brokers.  Financial  statement  analysis  involves  careful  selection  of  data  from  financial  statements  for  the  primary  purpose  of  forecasting  the  financial  health  of  the  company.  This  is  accomplished  by  examining  trends  in  key  financial  data,  comparing  financial  data  across  companies,  and  analyzing  key  financial  ratios.  John  N.  Myres  defines  that  “Financial  statement  analysis  is  largely  a  study  of  relationships  among  the various  financial factors in a business, as disclosed by a single set of statements and a study  of the trends of these factors as shown in a series of statements.”  Fast  Moving  Consumer  Goods  (FMCG),  are  the  products  that  are  sold  quickly  at  relatively  low  cost.  Though  the  absolute  profits  made  by  FMCG  companies  are  relatively  small,  the  goods  generally  sell  in  large  quantities,  so  the  cumulative  profits  on such products can be large. Examples of FMCG generally include a wide  range  consumer  products  such  as  toiletries,  soap,  cosmetics,  teeth  cleaning  products,  detergents  etc.  India  having  a  population  of  1.252  billion  as  of  2013  is  a  vital  target  market  for  Consumer  Goods  produced  globally.  Two  of  the  most  significant  Indian  companies  dealing  in  FMCG  is  inarguably  ITC  Ltd  and  Dabur  India  Ltd.  They  cater  to  and  touch  the  lives  of  1  out  of  every  3  India  through  the  sale  of  their  chain  of  consumer  goods.  Their  equity  shares  are  listed  on  Bombay  Stock  Exchange,  National  Stock  Exchange  of  India  and  Calcutta  Stock  Exchange.  Analysis  and  interpretation  of  the  solvency,  liquidity  and  profitability  positions  of  these  companies  in  a  comparative  approach  would  aid  the  investors  in  taking  rational decisions 

~ - 1 - ~   

1.2 LITERATURE REVIEW  A brief discussion of the reviews of the previous researches related with study of  ratio analysis is being presented below:  Chen  and  Shimerda  (1981)  examined  the  financial ratios used in a number of early  studies  for  analysis  and  prediction  of  the  financial  soundness  of  the  entities.  They  noted  that  there  was  an  abundant  41  different  financial  ratios  which  were  found  useful  in  the  earlier  studies. They reconciled by judgement the factors in the earlier  studies  into  financial  leverage,  capital  turnover,  return  on  investment,  inventory  turnover, receivables turnover, short-term liquidity, and cash position.  Martikainen  (1993)  classified  financial  ratios  and  tested  their  stability  with  transformation  analysis  in  a  study  identifying  the  key  factors  that  determine  stock  returns.  Elizabeth  Duncan  and  Elliott  (2004)  he  had  pointed  out  that  he  had  stated  that  the  paper  in  the title of efficiency, Customer service and financing performance among  Australian  financial  institutions  showed  that  all  financial  performance measures as  interest  margin,  return  on  assets,  and  capital  adequacy  are  Positively  correlated  with customer service quality scores.  Jonas  Elmerraji  (2005)  in  his research article on financial performance had pointed  out  that  ratios  can  be  an  invaluable  tool  for  making  an  Investment  decision.  Even  so,  many  new  investors  would  rather  leave  their  decisions  to  fate  than  try  to  deal  with  the  intimidation  of  financial  ratios.  The  truth  is  that  ratios  aren't  that  intimidating,  Even  if  one doesn’t have a degree in business or finance. Using ratios  to  make  informed  decisions  about  an  investment  makes  a  lot  of  sense,  once  one  knows how to use them.  Bull  (2007) stated that financial ratio analysis help managers to analyse control and  improve  an  organisations  operations.  Credit  analysts  can  use  it  to  determine  the  ability  of  an  organisation  to pay its debts and security analysts can use it to analyse  an organisations ability to pay interests on its bonds.  ~ - 2 - ~   

Besley  and  Brigham  (2008)  suggested  that  financial  statement  analysis  may  be  used  to  help  predict  the  firm’s  financial  position  in  the  future  and  to  determine  expected earnings and dividends.  Frederic  M.  Scherer,  (2008)  examined  how  product  innovation  contributes  to  the  renewal  of  the  firm  through  its  dynamic  and  reciprocal  relation  with  the  firm’s  competences.  Based  on  the  notion  that  new  products  are  created  by  linking  competences  relating  to  technologies  and  customers,  a  typology  is  derived  that  classifies  new  product  projects  based  on  weather  a  new  product  can  draw  on  existing  competences.  Following  organizational  learning  these  options  are  conceptualized  as  exploitation  and  exploration.  These  organizational  concepts  are  used  to  gain  a  dynamic  and  path-dependent  view  of  product  innovation  and  development,  and  to  reveal  the  unique  nature  and  challenges  of  different  types  of  product innovation.  Gibson  (2010)  said  that  investors  and  other  external  users  of  financial  information  will  often  need to measure the performance and financial health of an organization.  This  is  done  in  order  to  evaluate  the  success  of  the  business,  determine  any  weaknesses  of  the  business,  compare  current  and  past  performance,  and  compare  current  performance  with  industry  standards.  Financially  stable  organizations  are  desirable,  because  a  financially  stable  business  is  one  that  successfully  ensures  its  ability to generate income for investors and retain or increase value  Rachchh  Minaxi  A  (2011),  in  his  research  article  on  financial  performance  had  pointed  &  suggested  that  the  financial  statement  analysis  involves  analyzing  the  financial  statements  to  extract  information  that  can  facilitate  decision  making. It is  the  process  of  evaluating  the relationship between component parts of the financial  statements to obtain a better understanding of an entity’s position and performance.  Priyaaks  (Mar  2012),  had  stated  that  Financial  statement  analysis  is  the  process  of  examining  relationships  among  financial  statement  elements  and  making  comparisons  with  relevant  information.  It  is  a  tool  in  decision-making  processes  related to stocks, bonds, and other financial instruments  ~ - 3 - ~   

From  the  above  literature  review,  it  is  evident  that,  the  financial  performance  depicts  the efficiency of organization. Along with that financial statements are very  useful for decision making in the company by Board of Directors and management.  It also helps to know the prosperity of the company with the profitability. 

1.3 RESEARCH DESIGN  Chapter 2 : Conceptual Framework  Chapter 3 : Analysis and Findings  Chapter 4 : Conclusion and Recommendations  ~ - 4 - ~   

2. CONCEPTUAL FRAMEWORK  2.1 CONCEPT  The  major  tool  of  analysis  of  financial  statements  of  companies  is  RATIO  ANALYSIS.  Financial  ratios  are  mathematical  comparisons  of  financial  statement  accounts  or  categories.  These  relationships  between  the  financial  statement  accounts  help  investors,  creditors,  and  internal  company  management  understand  how  well  a  business  is  performing  and  areas  of  needing  improvement.  Ratios  are  easy  to  understand  and  simple  to  compute.  They  can  also  be  used  to  compare  different  companies  in different industries. Since a ratio is simply a mathematically  comparison  based  on  proportions,  big  and  small  companies  can  be  use  ratios  to  compare  their  financial  information.  In  a  sense,  financial  ratios  don't  take  into  consideration  the  size  of  a  company  or  the  industry.  Ratios  are  just  a  raw  computation of financial position and performance.  Ratios  allow  us  to  compare  companies  across  industries,  big  and  small,  to identify  their  strengths  and  weaknesses.  Financial  ratios  are  often  divided  up  into  seven  main  categories:  liquidity,  solvency,  efficiency,  profitability,  market  prospect,  investment leverage, and coverage. 

2.1.1 STEPS IN RATIO ANALYSIS:-  The ratio analysis requires two steps:  • Calculation of ratio  • Comparing the ratio with some predetermined standards. The standard ratio  may be the past ratio of the same firm or industry’s average ratio or the ratio  of the most successful firm in the industry. In interpreting the ratio of a  particular firm, the analyst cannot reach any fruitful conclusion unless the  ~ - 5 - ~   

calculated ratio is compared with some predetermined standard. The  importance of a correct standard is oblivious as the conclusion is going to be  based on standard itself. 

2.1.2 CLASSIFICATION OF RATIO  BASED ON FINANCIAL STATEMENT  Accounting  ratios  express  the  relationship  between  figures  taken  from  financial  statements.  Figures  may be taken from Balance Sheet, P&L A/C, or both. One-way  of classification of ratio is based upon the sources from which are taken.  BALANCE  SHEET  RATIO:  Balance  sheet  is  the financial statement that provides  a  picture  of  a company’s financial position by listing a company’s assets, liabilities  and  shareholder’s  equity.  Income  statement  and  cash  flows  statement  provides  information about profitability and cash flows.  A financial ratio determines relationship between two components. These may  include:  Balance Sheet Ratio  Based on Financial Statement  Financial Ratios  Liquidity Ratios 

~ - 6 - ~  Solvency Ratios  Based on functions  Profitability Ratios   

Two ▪  balance sheet components, i.e. assets, liabilities and shareholders’ equity  ▪ 

Two income statement components, i.e. sales, gross profit, net income, etc.  ▪ 

A balance sheet component and an income statement component  ▪ 

An income statement component and a cash flows statement component  ▪ 

A balance sheet component and a cash flows statement component  A  balance  sheet  ratio belongs to the first category, i.e. it includes either two classes  of  assets,  assets  and  liabilities,  assets  and  shareholders  equity,  liabilities  and  share  holders equity. 

BASED ON FUNCTIONS  LIQUIDITY RATIOS: It shows the relationship between the current assets and  current liabilities of the concern. E.g. liquid ratios and current ratios.  SOLVENCY  RATIOS:  It  shows  the  relationship  between  proprietor’s  funds  and  debts  used  in  financing  the  assets  of  the  concern.  E.g.  Capital  Gearing  ratio,  debt  equity ratio & proprietary ratio.  PROFITABILITY RATIOS: Shows the relationship between profit & sales. E.g.  Operating ratios, gross profit ratio, operating net profit ratio, etc. 

2.2 BENEFITS AND CHALLENGES  2.2.1 IMPORTANCE:  As  a  tool  of  financial  management,  ratios  are  of  crucial  significance.  The  importance  of  ratio  analysis  lies  in  the  fact  that  it  presents  facts  on  a  comparative  basis  &  enables  the  drawing  of  interference  regarding  the  performance  of  a  firm.  Ratio  analysis  is  relevant  in  assessing  the  performance  of  a  firm  in  respect  of  the  following aspects:  ~ - 7 - ~ 

 

1.  Liquidity  position:  Ratio  analysis  helps  in  determining  the  liquidity  position  of  the  firm.  A  firm  can  be said to have the ability to meet its current obligations when  they become due. It is measured with the help of liquidity ratios.  2.  Long  term  solvency:  Ratio  analysis  is  equally  useful  for assessing the long term  financial  viability  of  a  firm.  This  respect  of  the  financial  position  of  a  borrower  is  of  concern  to  the  long  term  creditors,  security  analyst  &  the  present  &  potential  owners  of  a  business.  The  long  term  solvency  is  measured  by  the  leverage/capital  structure & profitability ratio.  3.  Operating efficiency: The various activity ratios measure this kind of operational  efficiency.  In fact, the solvency of a firm is in the ultimate analysis dependent upon  the  sales  revenues  generated  by  the  use  of  its  assets-  total  as  well  as  its  components.  4.  Overall  profitability:  The  management  is  constantly  concerned  about  overall  profitability  of  the  enterprise.  That  is,  they  are  concerned  about  the  ability  of  the  firm  to  meets  its short term as well as obligations to its creditors. This is possible if  an integrated view is taken & all the ratios are considered together.  5.  Inter  firm  comparison:  An  inter  firm  comparison  would  demonstrate  a  firms  position  vice-versa  its  competitors.  If  the  results  are  at  variance  either  with  the  industry  average or with those of the competitors, the firm can seek to indentify the  probable & in light. Take remedial measure.  ~ - 8 - ~   

6.  Trend  analysis:  Finally,  ratio  analysis  enables  a  firm  to  take  the  time dimension  into  account.  In  other  words,  whether  the  financial  position  of  a  firm  is  improving  or deteriorating over the years. This is made possible by the use of trend analysis. 

2.2.2 LIMITATIONS:  1.  Historical  Results:  All  of  the  information  used  in  ratio  analysis  is  derived  from  actual historical results. This does not mean that the same results will carry forward  into the future.  2. Inflation: If the rate of inflation has changed in any of the periods under review,  this can mean that the numbers are not comparable across periods.  3.  Operational  changes:  A  company  may  change  its  underlying  operational  structure  to such an extent that a ratio calculated several years ago and compared to  the same ratio today would yield a misleading conclusion.  4.  Accounting  policies:  Different  companies  may  have  different  policies  for  recording  the  same  accounting  transaction.  This  means  that  comparing  the  ratio  results of different companies may be like comparing apples and oranges.  5. Company strategy: It can be dangerous to conduct a ratio analysis  comparison between two firms that are pursuing different strategies.  In short, ratio analysis has a variety of limitations that can limit its usefulness. But  as long as one is aware of these problems it’s an useful tool.  ~ - 9 - ~   

3. ANALYSIS AND FINDINGS  3.1 OBJECTIVES OF STUDY  ▪ To analyse the financial performances of the companies through relevant  financial analysis.  ▪ To study the growth profile of the companies during the study period.  ▪ To appraise the financial soundness of the companies - Dabur India Ltd. and ITC  Ltd.  ▪ To provide valuable suggestions and recommendations to the companies. 

3.2 METHODOLOGY  3.2.1 Sample (Company Profiles)  ITC  Limited  or  ITC  is  an  Indian  conglomerate  headquartered  in  Kolkata,  West  Bengal.  Its  diversified  business  includes  five  segments:  Fast  Moving  Consumer  Goods  (FMCG),  Hotels,  Paperboards  &  Packaging,  Agricultural  Business  &  Information  Technology.  Established in 1910 as the Imperial Tobacco Company of  India  Limited,  the  company  was renamed as the Indian Tobacco Company Limited  in 1970 and further to I.T.C. Limited in 1974. The periods in the name were  ~ - 10 - ~   

removed  in  September  2001  for  the  company  to  be  renamed  as  ITC  Ltd.  The  company  completed  100  years  in  2010  and  as  of  2012-13,  had  an  annual  turnover  of  US$8.31  billion  and  a  market  capitalization  of  US$45  billion.  It  employs  over  25,000  people  at  more  than  60  locations  across  India  and  is  part  of  Forbes  2000  list.  Dabur  (Dabur  India  Ltd.)  (Devanagari:  derived  from  Daktar  Burman)  is  the fourth  largest  Fast  Moving  Consumer  Goods  (FMCG)  company  in  India  with  consolidated Revenues of over INR 7,800 Crores and Market Capitalisation of over  INR  46,600  Crore  (at  the  end  of  2014-15).  Building on a legacy of over 130 years,  Dabur  is  today  India’s  most  trusted  name  and  the  world’s  largest  Ayurvedic  medicine  &  related  products  manufacturer  and  Natural  Health  Care  Company.  Today,  Dabur  has  a  portfolio  of  over  381  trusted  products  spread  across  21  categories  and  over 1,000 SKUs. Dabur was founded in 1884 by Dr. S. K. Burman,  a physician in West Bengal, to produce and dispense Ayurvedic medicines. 

3.2.2 Data Type  The data used in this study is secondary. Due to the busy schedule of the high  officials of the companies the collection of primary data was not possible.  ~ - 11 - ~   

3.2.3 Data Source  Data have been collected from the websites of both the companies and their  annual reports 

3.2.4 Period of Study  Financial year 2011-12 to 2014-15 

3.2.5 Tools Used  The tools used for analysis and graphical representation are Bar Graphs, Linear  graphs, pie charts created with the help of MS Word.  ~ - 12 - ~   

3.3 Analysis and Findings  3.3.1 CURRENT RATIO  The ratio compares the current assets to current liabilities. It is also known as working capital  ratio or ‘solvency ratio’. The ideal current ratio for a company is 2:1.  CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES 

ITC  TABLE 1 CURRENT RATIO OF ITC 

YEAR CURRENT  ASSETS  CURRENT LIABILITIES  CURRENT RATIO  2011- 2012 15801.45 9304.00 1.69  2012-2013 17591.47 10330.73 1.70  2013-2014 22581.06 11886.06 1.89  2014-2015 23955.03 11681.91 2.05  SOURCE : BALANCE SHEETS OF ITC LTD. 

2.5  2.05 2  1.69 1.7  1.89  1.5  0  2011- 2012 2012-2013 2013-2014 2014-2015  GRAPH 2 CURRENT RATIO OF ITC 

2011- 2012  2012-2013 1  2013-2014  0.5  2014-2015 

~ - 13 - ~ 

 

DABUR  TABLE 3 CURRENT RATIO OF DABUR 

YEAR  CURRENT ASSETS  CURRENT LIABILITIES  CURRENT RATIO  2011- 2012 1630.62 1077.42 1.51  2012-2013 1737.39 1158.44 1.49  2013-2014 1969.85 1136.68 1.73  2014-2015 1572.32 1259.03 1.25  SOURCE: BALANCE SHEETS OF DABUR INDIA LTD. 

CURRENT RATIO DABUR  1.73 1.8  1.6  1.51 1.49  1.4  1.25  1.2  1  0.8  0.6  0.4  0.2  0  2011- 2012 2012-2013 2013-2014 2014-2015  GRAPH 2 CURRENT RATIO OF DABUR 

~ - 14 - ~   

INTERPRETATION OF CURRENT RATIO  In  Graph  1  (ITC)  the  current  ratio  is  increasing  from  1.69  in  year  2011-12  to  2.05  in  year  2014-15.  So  it  can  be  said  that  the  company  has  reached  ideal  current  ratio  in  2014-15.  .  It  indicates  that  company  current  ratio is in a stronger position and the company has sufficient cash  liquidity  to  meet  its  short-term  liquidity.  Whereas  in  Graph  2  (Dabur)  the  current  ratio  is  decreasing  from  1.51  in  year  2011-12  to  1.25  in  the  year  2014-15  which  is 1.5 times lower than  that of ITC Ltd. on an average. Thus a higher current ratio is preferable.  2.5  2.05 2  1.73  1.5  1.51  1.49  1.25  1  0.5  0  2011- 2012 2012-2013 2013-2014 2014-2015  GRAPH 3: COMPARING THE CURRENT RATIOS OF THE TWO COMPANIES ITC & DABUR 

1.69 1.7  CURRENT RATIO ITC 

~ - 15 - ~  1.89  CURRENT RATIO Dabur   

3.3.2 LIQUID RATIO  Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares quick assets  with quick liabilities. The ideal liquid ratio is 1:1.  LIQUID RATIO= QUICK ASSETS / QUICK LIABILITIES 

ITC  TABLE 3 LIQUID RATIO OF ITC 

YEAR CASH AND  CASH EQUIVALENT  SHORTTERM INVESTMENT  ACCOUNTS RECEIVABLE  CURRENT LIABILITIES  QUICK RATIO 

2011-12 3130.12 465.98 1203.84 9304.00 0.51  2012-13 3615.00 512.12 1163.34 10330.73 0.51  2013-14 3490.19 816.12 2439.21 11886.06 0.56  2014-15 7588.61 549.89 1722.40 11681.91 0.84  SOURCE: BALANCE SHEETS OF ITC LTD. 

0.9 0.8 

LIQUID RATIO  0.7 0.6 0.5  2011-12 2012-13 2013-14 2014-15  GRAPH 4 LIQUID RATIO OF ITC 0.4  0.84  0.3 0.2 0.1 0  0.51 0.51 

~ - 16 - ~  0.56   

DABUR  TABLE 4 LIQUID RATIO OF DABUR 

YEAR CASH AND  CASH EQUIVALENT  SHORTTERM  ACCOUNTS INVESTMENT  RECEIVABLE  QUICK RATIO 

2011-12 291.29 141.33 224.17 1077.42 0.60  2012-13 319.40 116.53 255.32 1158.44 0.59  2013-14 297.47 84.62 323.12 1136.68 0.62  2014-15 123.94 114.08 338.79 1259.03 0.46  SOURCE: BALANCE SHEETS OF DABUR LTD.  GRAPH 5 LIQUID RATIO OF DABUR 

~ - 17 - ~ 

LIQUID RATIO  0.7  0.6  0.5  0.4  0.3  0.62  0.2  0.46  0.1  0  2011-12 2012-13 2013-14 2014-15  0.6 0.59 

CURRENT LIABILITIES   

INTERPRETATION OF LIQUID RATIO  In general, higher quick ratio is preferable than lower ratio. From the data above, in Graph 4  (ITC) the liquid ratio is increasing from 0.51 in year 2011-12 to 0.84 in year 2014-15. Whereas  in Graph 4 (Dabur) the liquid ratio is decreasing from 0.6 in year 2011-12 to 0.46 in the year  2014-15. The comparison between the years 2013-14 and 2014-15 reveals that their (Dabur’s)  quick ratio has substantially decreased during the particular year. So it indicates that the  industry’s profit margin was not so high that they could make some investments paying off the  liabilities that could result in an increase in assets and decrease in liabilities to make the liquidity  position far better.  QUICK RATIO ITC  QUICK RATIO DABUR 0.9  0.8  0.6  0.84  0.7  0.59 0.62  0.6  0.51  0.5  0.51  0.56  0.46  0.4  0.3  0.2  0.1  0  2011-12  2012-13  2013-14  2014-15  GRAPH 4 COMPARING THE QUICK RATIOS OF TWO COMPANIES ITC & DABUR 

~ - 18 - ~   

3.3.3 ABSOLUTE LIQUIDITY RATIO  It  is  a  variation  of  quick  ratio.  Absolute  liquidity  ratio  measures  relationship  between  cash  and  near  cash  items  on  one  hand  immediately  maturing  obligation  on  the  other.  The  ideal  Absolute  quick ratio is 0.75:1.  ABSOLUTE LIQUIDITY RATIO= (CASH + MARKETABLE SECURITIES) /  CURRENT LIABILITIES ITC  TABLE 5 ABSOLUTE LIQUIDITY RATIO OF ITC YEAR CASH & CASH EQUIVALENTS 

CURRENT LIABILITIES  ABSOLUTE LIQUIDITY RATIO 2011-12 3130.12  9304.00  0.37  2012-13 3615.00  10330.73  0.35  2013-14 3490.19  11886.06  0.29  2014-15 7588.61  11681.91  0.65  SOURCE: BALANCE SHEETS OF ITC LTD. 

ABSOLUTE LIQUIDITY RATIO ITC  GRAPH 7 ABSOLUTE LIQUIDITY RATIO OF ITC 

0.65 0.7  0.6  0.5  0.37  0.35 0.4  0.29  0.3  0.2  0.1 

0  2011-12 2012-13 2013-14 2014-15 

~ - 19 - ~   

DABUR  TABLE 6 ABSOLUTE LIQUIDITY RATIO OF DABUR 

YEAR CASH & CASH EQUIVALENTS  CURRENT LIABILITIES  ABSOLUTE LIQUIDITY RATIO 2011-12 291.29  1077.42  0.27  2012-13 391.40  1158.44  0.34  2013-14 297.47  1136.68  0.26  2014-15 123.94  1259.03  0.11  SOURCE: BALANCE SHEETS OF DABUR LTD. 

0.35  0.30  0.25  0.20  0.15  0.10  0.05  0.00  GRAPH 8 ABSOLUTE LIQUIDITY RATIO OF DABUR 

~ - 20 - ~  ABSOLUTE 0.34  LIQUIDITY RATIO OF DABUR  0.27  0.26 

0.11 

2011-12 2012-12 2013-14 2014-15   

INTERPRETATION OF ABSOLUTE  LIQUIDITY RATIO  On comparing the Absolute liquidity Ratio of both the companies ITC and Dabur we can  conclude that ITC’s Absolute liquidity Ratio increased to 0.65 in 2014-15 from 0.37 in  2011-12, though in 2013-14 there was a drop but it managed to climb back the next year.  Where as in case of Dabur after a rise in 2012-13 it kept falling and in 2014-15 the fall  was much drastic to 0.11.  0.7  0.6  0.65  0.5  0.4  0.37  0.27  0.35  0.34  0.26 0.3  0.29 0.2  0.1  0.11  0  2011-12  2012-13  2013-14  2014-15  GRAPH 5 COMPARING THE ABSOLUTE LIQUIDITY RATIO OF TWO COMPANIES ITC &DABUR 

~ - 21 - ~  ABSOLUTE LIQUIDITY RATIO ITC  ABSOLUTE LIQUIDITY RATIO DABUR   

3.3.4 PROPRIETARY RATIO  Proprietary  ratio  is  a  test  of  financial  and  credit  strength  of  the  business.  It  relates  shareholders  fund to total assets. This ratio determines the long term or ultimate solvency of the company.  PROPRIETARY RATIO= SHAREHOLDER’S FUND / TOTAL ASSESTS 

ITC  TABLE 7 PROPRIETARY RATIO OF ITC 

YEAR SHAREHOLDER’S  TOTAL ASSETS PROPRIETARY FUND  RATIO 2011-12  19458.58 30079.77 0.65 2012-13 22287.67 34017.43 0.66 2013-14 27236.96 40883.93 0.67  2014-15 30735.69 44195.66 0.70  SOURCE: BALANCE SHEETS OF ITC LTD. 

PROPRIETARY RATIO  0.70  0.70  0.69  0.68  0.67  0.67  0.66  0.65  0.66  0.65  0.64  0.63  0.62  2011-12 2012-13 2013-14 2014-15  GRAPH 6 PROPRIETARY RATIO OF ITC 

~ - 22 - ~   

DABUR  TABLE 8 PROPRIETARY RATIO OF DABUR 

SHAREHOLDER’S YEAR  FUND  TOTAL ASSETS PROPRIETARY  RATIO 2011-12  1303.27 2840.71 0.46  2012-13 1594.78 2827.89 0.56 2013-14 1902.34 3121.80 0.61 2014-15 2336.1 3688.36 0.63  SOURCE: BALANCE SHEETS OF DABUR LTD. 

PROPRIETARY RATIO  0.70  0.61  0.63  0.60  0.56  0.50  0.46  0.40  0.30  0.20  0.10  0.00  2011-12 2012-13 2013-14 2014-15  GRAPH 7 PROPRIETARY RATIO OF DABUR 

~ - 23 - ~   

INTERPRETATION OF PROPRIETARY  RATIO  Higher  the net worth ratio better the long term solvency position of the company. From Graph 10  (ITC)  it  is  evident  that  the ratio is conistently increasing during the period. In 2011-12 it stood at  0.65  and  in  2014-15  it  has  reached  0.7.  In  case  of  Dabur  (Graph  11)  it  can  be  inferred  that  the  ratios  have  been  lower  on  an  average  but  the  growth  from  2011-  12  to  2014-15  is  substantial  with  a  total  increase  of  1.37  times.  This  ratio  indicates  the  extent  to  which  the  assets  of  the  company can be lost without affecting the interest of thecreditors of the company  0.8  0.65 0.46  0.66 0.56  0.67  0.61  0.7  0.7  0.6  0.5  0.4  0.3  0.2  0.1  0  2011-12 2012-13 2013-14 2014-15  GRAPH 8 COMPARISON OF PROPRIETARY RATIO OF ITC & DABUR 

0.63  PROPRIETARY RATIO ITC PROPRIETARY RATIO DABUR 

~ - 24 - ~   

3.3.5 FIXED ASSETS TO EQUITY RATIO  Fixed  assets  to  equity  ratio  measures  the  contribution  of  stockholders  and  the  contribution  of  debt  sources  in  the  fixed  assets  of  the  company.  Other  names  of  this  ratio are fixed assets to net  worth  ratio  and  fixed  assets  to  proprietors  fund  ratio.  If fixed assets to stockholders’ equity ratio  is  more  than  1,  it means that stockholders’ equity is less than the fixed assets and the company is  using  debts  to  finance  a  portion  of  fixed  assets.  If  the  ratio  is  less  than  1,  it  means  that  stockholders’  equity  is  more  than  the  fixed  assets  and  the  stockholders’  equity  is  financing  not  only  the  fixed  assets  but  also  a  part  of  the  working  capital.  Generally  a  ratio  of  0.60  to  0.70  is  considered satisfactory.  FIXED ASSETS TO EQUITY RATIO = FIXED ASSETS / STOCK HOLDERS  EQUITY ITC  TABLE 9 FIXED ASSETS TO EQUITY RATIO YEAR FIXED ASSETS STOCK HOLDER’S 

EQUITY  FIXED ASSETS TO EQUITY RATIO 2011-12 12095.42 19615.67 0.62  2012-13 12697.13 22288.58 0.57  2013-14 15747.20 27439.99 0.58  2014-15 16292.63 30735.69 1.8  SOURCE: BALANCE SHEETS OF ITC LTD. 

FIXED ASSETS TO EQUITY RATIO ITC  GRAPH9 FIXED ASSETS TO EQUITY RATIO 

1.8 1.8 1.6 1.4 1.2 1 0.8  0.62 0.6  0.57 0.58  0.4 0.2 0  2011-12 2012-13 2013-14 2014-15 

~ - 25 - ~   

0.46 0.5  0.4  0.39  0.35  0.3  0.29  0.2  0.1  0  2011-12  2012-13  2013-14  2014-15 

FIXED ASSETS TO EQUITY RATIO DABUR 

DABUR  TABLE 10 FIXED ASSETS TO EQUITY RATIO OF DABUR 

YEAR FIXED ASSETS STOCK HOLDER’S  EQUITY  FIXED ASSETS TO EQUITY RATIO 

2011-12  596.91  1303.27  0.46  2012-13  633.65  1594.78  0.39  2013-14  670.38  1902.34 0.35 2014-15 694.74 2336.19 0.29  SOURCE: BALANCE SHEETS OF DABUR LTD.  GRAPH 10 FIXED ASSETS TO EQUITY RATIO 

~ - 26 - ~   

INTERPRETATION OF FIXED ASSETS TO  EQUITY  RATIO  An analysis of Graph 13 (ITC) conveys that this ratio has always been ‘satisfactory’ that is above  0.60 times. Although it has dropped between the years 2012 to ’14, it climbed up to a massive  1.8 times in the financial year 2014-15. It means that stockholders’ equity is less than the fixed  assets and the company is using debts to finance a portion of fixed assets. Contradictorily  Dabur’s FA to Equity Ratio (in Graph 14) is seen to be decreasing continuously and it has  dropped to a mere 0.29 in the F.Y. 2014-15, 6.2 times lower than that of ITC. Since it has  always been much lower than unity , it means that stockholders’ equity of Dabur is more than the  fixed assets and the stockholders’ equity is financing not only the fixed assets but also a part of  the working capital.  2014-15  2013-14  0.58  2012-13  0.57  2011-12  0.62  GRAPH 11 COMPARISON OF FIXED ASSETS TO EQUITY RATIO OF DABUR &ITC 

0  0.5  1  1.5  2  0.29  1.8  0.35  FIXED ASSETS TO STOCKHOLDER’S EQUITY RATIO DABUR  0.39 

FIXED ASSETS TO STOCKHOLDER’S  0.46  EQUITY RATIO ITC 

~ - 27 - ~   

3.3.6 DEBT- EQUITY RATIO  Debt/Equity  Ratio  is  a  debt  ratio  used  to  measure  a  company's  financial  leverage,  calculated  by  dividing  a  company’s  total  liabilities  by  its  stockholders'  equity.  The  D/E  ratio  indicates  how  much  debt  a  company  is  using  to  finance its assets relative to the amount of value  represented  in  shareholders’  equity. For most companies the maximum acceptable debt-to-equity  ratio  is  1.5-2  and  less.  For  large  public  companies  the  debt-to-equity  ratio  may  be  much  more  than 2, but for most small and medium companies it is not acceptable.  DEBT - EQUITY RATIO = TOTAL LIABILITIES / SHAREHOLDERS' EQUITY 

ITC  TABLE 11 DEBT-EQUITY RATIO OF ITC YEAR TOTAL  LIABILITIES SHAREHOLDERS'  EQUITY  DEBT- EQUITY RATIO  2011-12  10464.1  19615.67  0.53  2012-13  11728.6  22288.58  0.54  2013-14  13443.94  27439.99  0.49  2014-15 13459.97 30735.69 0.44  SOURCE: BALANCE SHEETS OF DABUR LTD. 

DEBT- EQUITY RATIO ITC  0.6  0.54  0.5  0.49  0.44  0.4  0.3  0.2  0.1  0  2011-12 2012-13 2013-14 2014-15  GRAPH 12 DEBT EQUITY RATIO OF ITC 

0.53 

~ - 28 - ~ 

DEBT- EQUITY RATIO ITC   

DABUR  TABLE 12 DEBT EQUITY RATIO OF DABUR 

YEAR TOTAL  LIABILITIES  SHAREHOLDERS' EQUITY  DEBT- EQUITY RATIO  2011-12 1537.44 1303.27 1.18  2012-13 1233.11 1594.78 0.77 2013-14 1219.46 1902.34 0.64  2014-15 1352.17 2336.19 0.58  SOURCE: BALANCE SHEETS OF DABUR LTD. 

DEBT- EQUITY RATIO DABUR  1.18 1.2  1  0.77 0.8  0.64  0.58  0.6  0.4  0.2  0  2011-12 2012-13 2013-14 2014-15  GRAPH 17 DEBT EQUITY RATIO OF DABUR 

~ - 29 - ~   

INTERPRETATION OF DEBT-EQUITY  RATIO  In  Graph  16,  the  debt  to  equity  ratio  of  ITC  ltd.  in  2011-12  (at  1.18  times)  can  be  called  unsatisfactory  as  a  higher  ratio  indicates  that  the  outside  debts  or  liabilities  are  more  than  the  shareholders’  funds,  further  indicating that the state of long term creditors are more and financial  structure  is  a  bit  weak.  Although  in  the  subsequent  years  the  ratio  has  dropped  and  reached  its  lowest  at  0.58  in  2014-15  to  an  acceptable  level.  Dabur’s  position  in  terms  of  Debt  and  Equity  (In  Graph 17) is more or less consistent throughout these years with a slight drop towards the last  two financial years.  1.4  1.2  1.18  1  0.8  0.77  0.6  0.64 0.53 0.54  0.49  0.58  0.4  0.44  0.2  0  2011-12 2012-13 2013-14 2014-15  GRAPH 13 COMPARISON OF DEBT EQUITY SHARE BETWEEN DABUR AND ITC 

~ - 30 - ~  DEBT- EQUITY RATIO ITC  DEBT- EQUITY RATIO DABUR   

3.3.7 NET PROFIT RATIO  Net  profit  ratio (NP ratio) is a popular profitability ratio that shows relationship between  net  profit  after  tax  and  net  sales.  It  is computed by dividing the net profit (after tax) by net sales.  For  the  purpose  of  this  ratio,  net  profit  is  equal  to  gross  profit  minus  operating  expenses  and  income  tax.  All  non-operating  revenues  and  expenses  are  not  taken  into  account  because  the  purpose  of  this  ratio  is  to  evaluate  the  profitability  of  the  business  from  its  primary  operations.  There  is  no  norm  to  interpret  this  ratio.  To  see  whether  the  business  is  constantly  improving  its  profitability  or  not,  the  analyst  should  compare  the  ratio  with  the  previous  years’  ratio,  the  industry’s  average  and  the  budgeted  net  profit  ratio.  The  use  of  net  profit  ratio  in  conjunction  with  the  assets  turnover  ratio  helps  in  ascertaining  how  profitably  the  assets  have  been  used  during the period.  NET PROFIT RATIO = NET PROFIT AFTER TAX / NET SALES 

ITC  TABLE 13 NET PROFIT RATIO OF ITC YEAR NET PROFIT AFTER TAX 

NET SALES NET PROFIT  RATIO 2011-12  6322.39 26179.52 0.24 2012-13 7418.39 29605.58 0.25  2013-14 8990.62 34948.70 0.26 2014-15 9607.73 36083.21 0.26  SOURCE: PROFIT AND LOSS STATEMENT OF ITC LTD. 

NET PROFIT RATIO ITC  0.265  0.26 0.26 0.26  0.255  0.25  0.245  0.24  0.235  0.23  2011-12 2012-13 2013-14 2014-15  GRAPH 14 NET PROFIT RATIO OF ITC 

0.24  0.25 

~ - 31 - ~   

DABUR  TABLE 14 NET PROFIT RATIO OF DABUR 

YEAR NET PROFIT AFTER TAX  NET SALES NET PROFIT  RATIO  2011-12 463.24 3759.33 0.12  2012-13 590.98 4349.39 0.14  2013-14 672.10 4870.08 0.14  2014-15 762.58 5431.28 0.14  SOURCE: PROFIT AND LOSS STATEMENTS OF DABUR LTD. 

NET PROFIT RATIO DABUR  0.14  0.14  0.14  0.14  0.135  0.13  0.125  0.12  0.12  0.115  0.11  2011-12 2012-13 2013-14 2014-15  GRAPH 15 NET PROFIT RATIO OF DABUR 

~ - 32 - ~   

INTERPRETATION OF NET PROFIT RATIO  From 0.24 times in 2011-12 the NP margin of ITC has increased to 0.26 with an average growth  rate of 4.15% each year. Although it is not huge, it indicates a positive advancement. In contrast  to ITC’s figures the Net Profi Ratios of Dabur (Graph 2.1) have been almost 0.5 times lower.  Further the ratio has elevated during the 1st year but subsequently been stagnant at 0.14 from FY  2012-13 to 2014-15. The constant net margin rate does not denote the company is improving its  profitability but also does not show any decline. However a higher growth rate is anticipated.  0.3  0.24  0.25  0.26  0.26  0.25  0.2  0.15  0.12  0.14 0.14  0.14  0.1  0.05  0  2011-12 2012-13 2013-14 2014-15  GRAPH 16 COMPARISON OF NET PROFIT RATIO OF DABUR & ITC 

~ - 33 - ~  NET PROFIT RATIO ITC  NET PROFIT RATIO DABUR   

3.3.8 OPERATING PROFIT RATIO  The operating profit ratio indicates how much profit a company makes after paying for  variable costs of production such as wages, raw materials, etc. It is expressed as a percentage of  sales and shows the efficiency of a company controlling the costs and expenses associated with  business operations. The operating profit margin ratio is a key indicator for investors and  creditors to see how businesses are supporting their operations. If a company requires both  operating and non-operating income to cover the operation expenses, it shows that the business'  operating activities are not sustainable. A higher operating margin is more favorable compared  with a lower ratio because this shows that the company is making enough money from its  ongoing operations to pay for its variable costs as well as its fixed costs.  OPERATING PROFIT RATIO = OPERATING PROFIT / NET SALES 

ITC  TABLE 15 OPERATING PROFIT RATIO OF ITC 

YEAR OPERATING  PROFIT  NET SALES OPERATING  PROFIT RATIO 2011-12  9168.15 26179.52 0.35 2012-13 10684.18 29605.58 0.36 2013-14 13051.55 34948.70 0.37  2014-15 13997.52 36083.21 0.39  SOURCE: PROFIT AND LOSS STATEMENTS OF ITC LTD. 

OPERATING PROFIT RATIO ITC  0.4 0.39 0.38 0.37 0.36 0.35 0.34 0.33 0.32  2011-12 2012-13 2013-14 2014-15  GRAPH 17 OPERATING PROFIT RATIO OF ITC 

~ - 34 - ~  OPERATING PROFIT RATIO ITC   

DABUR  TABLE 16 OPERATING PROFIT RATIO OF DABUR 

YEAR OPERATING  PROFIT  NET SALES OPERATING  PROFIT RATIO  2011-12 631.92 3759.33 0.17 2012-13 749.67 4349.39 0.17 2013-14 862.05 4870.08 0.18  2014-15 976.53 5431.28 0.18  SOURCE: PROFIT AND LOSS STATEMENTS OF DABUR LTD. 

OPERATING PROFIT RATIO DABUR 0.185  0.18  0.175  0.17  0.165  0.16  0.155  2011-12 2012-13 2013-14 2014-15  GRAPH 18 OPERATING PROFIT RATIO OF DABUR 

~ - 35 - ~  OPERATING PROFIT RATIO DABUR  Poly. (OPERATING PROFIT RATIO DABUR)   

INTERPRETATION OF OPERATING PROFIT  RATIO  On  comparing  the  Operating  Profit Ratio of both the companies ITC and Dabur we can conclude  that  ITC’s  Operating  Profit  Ratio  increased  to  0.39  in  2014-15  from  0.35  in  2011-12  ;  and  Dabur’s  from  0.17  in  2011-12  to  0.18  in  2014-15.  ITC’s  higher  margins  indicates  that  the  company  is  making  more  money  from  its  ongoing operations to pay for its variable costs as well  as  its  fixed  costs  than that of Dabur. Also the rate of increase of this ratio is a bit sluggish in case  of Dabur.  0.4  0.35  0.36  0.37  0.39  0.35  0.3  0.25  0.17 0.17  0.18 0.18  0.2  0.15  0.1  0.05  0  2011-12 2012-13 2013-14 2014-15  GRAPH 19 COMPARISON OPERATING PROFIT RATIO OF DABUR & ITC 

OPERATING PROFIT RATIO ITC OPERATING PROFIT RATIO DABUR 

~ - 36 - ~   

ITC  3.3.9 RETURN ON EQUITY RATIO  Return  on  equity  or  return  on  capital  is  the  ratio  of  net  income  of  a  business  during a year to its  stockholders'  equity  during that year. It is a measure of profitability of stockholders' investments.  It  shows  net  income  as  percentage  of  shareholder  equity.  Net  income  is  the  after  tax  income  whereas  average  shareholders'  equity  is  calculated  by dividing the sum of shareholders' equity at  the  beginning  and  at  the  end  of  the  year  by  2.  Return  on  equity  is  an  important  measure  of  the  profitability  of  a  company.  Higher  values  are  generally  favorable  meaning  that  the  company  is  efficient  in  generating  income  on  new  investment.  Investors  should  compare  the  ROE  of  different  companies  and also check the trend in ROE over time. However, relying solely on ROE  for investment decisions is not safe. It can be artificially influenced by the management.  RETURN ON EQUITY RATIO = NET INCOME / SHAREHOLDERS’ EQUITY  TABLE 17 RETURN ON EQUITY RATIO OF ITC YEAR NET INCOME  SHAREHOLDERS' 

EQUITY  RETURN ON EQUITY RATIO 2011-12 6258.14 19615.67 0.32 2012-13 7418.39 22288.58  0.33 2013-14 8891.38 27439.99 0.32 2014-15 9607.73 30735.69 0.31  SOURCE: BALANCE SHEET AND P/L STATEMENT OF ITC LTD 

0.335  0.33  0.33  0.325  0.32  0.32  0.32  0.315  0.31  0.31  0.305  0.3  2011-12 2012-13 2013-14 2014-15  GRAPH 20 RETURN ON EQUITY RATIO OF ITC 

~ - 37 - ~  2011-12  2012-13  2013-14  2014-15   

DABUR  TABLE 18 RETURN ON EQUITY RATIO OF DABUR 

YEAR NET INCOME SHAREHOLDERS’  EQUITY  RETURN ON EQUITY RATIO 2011-12 463.24 1303.27 0.36  2012-13 590.98 1594.78 0.37  2013-14 672.10 1902.34 0.35  2014-15 762.58 2336.19 0.32  SOURCE: BALANCE SHEET AND P/L STATEMENT OF DABUR LTD. 

0.38  0.37 0.37  0.36  0.35 0.35  0.34  0.33  0.32 0.32  0.31  0.3  0.29  2011-12 2012-13 2013-14 2014-15  GRAPH 21 RETURN ON EQUITY RATIO OF DABUR 

~ - 38 - ~  0.36  RETURN ON EQUITY RATIO DABUR   

INTERPRETATION OF RETURN ON EQUITY  RATIO  From the analysis (Graph 27) it shows that Dabur Ltd. has higher return on equity than ITC ltd.  However in contrast to the previous years the ROE of Dabur has drastically decreased in 2014-  15 and the possible cause of this occurrence is the lower net income between 2013 to 2015  0.37 0.37  0.36  RETURN ON EQUITY RATIO ITC  0.36  0.35 0.35  RETURN ON EQUITY RATIO  DABUR 0.34  0.33 0.33  0.32  0.32  0.32 0.32  0.31 0.31  0.3  0.29  0.28  2011-12 2012-13 2013-14 2014-15  GRAPH 22 COMPARISON OF RETURN ON EQUITY RATIO OF DABUR & ITC 

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3.3.10 EARNINGS PER SHARE RATIO (EPS)  Earnings  per  share,  also  called  net  income  per  share,  is  a  market prospect ratio that measures the amount  of  net  income  earned  per  share  of  stock  outstanding..  Earnings  per  share  is  also  a  calculation  that shows  how  profitable  a  company  is  on  a  shareholder  basis.  So  a  larger  company's  profits  per  share  can  be  compared  to smaller company's profits per share. Obviously, this calculation is heavily influenced on how  many  shares  are  outstanding.  Thus,  a  larger  company  will  have  to  split  its  earning  amongst  many  more  shares  of  stock  compared  to  a  smaller  company.  Earnings  per  share  is  the  same  as  any  profitability  or  market  prospect  ratio. Higher earnings per share is always better than a lower ratio because this means the  company is more profitable and the company has more profits to distribute to its shareholders. 

EPS = NET INCOME / AVERAGE OUTSTANDING COMMON SHARES ITC  TABLE 19 EARNINGS PER RATIO OF ITC YEAR NET INCOME AVERAGE 

OUTSTANDING COMMON SHARE  SOURCE: BALANCE SHEETS AND P/L STATEMENT OF ITC LTD.  GRAPH 23 EARNINGS PER SHARE RATIO OF ITC 

EARNINGS PER SHARE RATIO  2011-12 6258.14 97.12 64.43 2012-13 7418.39 83.61 88.73 2013-14 8891.38 70.88 125.44  2014-15 9607.73 66.52 144.43 

EARNINGS PER SHARE RATIO ITC  160 

144.43  140 

125.44  120  100 

64.43  88.73  80  60  40  20  0  2011-12 2012-13 2013-14 2014-15 

~ - 40 - ~ 

 

YEAR NET INCOME AVERAGE  OUTSTANDING COMMON SHARE  EARNINGS PER SHARE RATIO  2011-12 463.24 65.49 7.07  2012-13 590.98 51.41 11.50 2013-14 672.10 45.29 14.84 2014-15 762.58 40.38 18.88 

EARNINGS PER SHARE RATIO DABUR  20 

18.88  18 

11.50  14.84 16 14  7.07  12 10 8 6 4 2 0  2011-12 2012-13 2013-14 2014-15 

DABUR  TABLE 20 EARNINGS PER SHARE RATIO OF DABUR  SOURCE: BALANCE SHEETS AND P/L OF DABUR LTD  TABLE 24 EARNINGS PER SHARE RATIO OF DABUR 

~ - 41 - ~   

INTERPRETATION OF EARNINGS PER  SHARE RATIO  From  Graph  29  (Dabur)  it  is  apparent  that  Earnings  per  share  of  the  company  has  drastically  improved  throughout  the  time span and reached its pinnacle at 18.88 in 2014-15. ITC (Graph 28)  has  also  improved  in  terms  of  EPS  with  a  sharp  ascent  during  the  year  2012-13.  A comparative  analysis  in  Graph  30  below,  depicts  that  the  overall  ratio  of Dabur is higher than that of ITC but  the rate of increase in both the companies is commendable.  180  160  140  120  100  80  60  40  20  0  2011-12 2012-13 2013-14 2014-15  GRAPH 25 COMPARISON OF EARNING PER SHARE RATIO OF DABUR & ITC 

~ - 42 - ~  EARNINGS PER SHARE RATIO DABUR  EARNINGS PER SHARE RATIO ITC   

4. CONCLUSIONS AND  RECOMMENDATIONS  4.1 SUMMARY OBSERVATIONS:  TABLE 21 SUMMARY OF ALL THE RATIOS ANALYSED IN TABULAR FORM FOR THE LAST 4  FINANCIAL YEARS 

2011-12 2012-13 2013-14 2014-15  ITC DABUR ITC DABUR ITC DABUR ITC DABUR CURRENT  RATIO 1.60 1.51 1.79 1.49 1.89 1.73 2.05 1.25  LIQUID RATIO 0.51 0.60 0.51 0.59 0.56 0.62 0.84 0.46  ABSOLUTE LIQUIDITY RATIO 

0.37 0.27 0.35 0.34 0.29 0.26 0.65 0.11  PROPRIETARY RATIO 0.65 0.46 0.66 0.56 0.67 0.61 0.70 0.63  FIXED ASSETS TO EQUITY RATIO 

0.62 0.46 0.57 0.39 0.58 0.35 1.8 0.29  DEBT-EQUITY RATIO 0.53 1.18 0.54 0.77 0.49 0.64 0.44 0.58  NET PROFIT RATIO 0.24 0.12 0.25 0.14 0.26 0.14 0.26 0.14  OPERATING PROFIT RATIO 

0.35 0.17 0.36 0.17 0.37 0.18 0.39 0.18  RETURN ON EQUITY RATIO 

0.32 0.36 0.33 0.37 0.32 0.35 0.31 0.32  EARNINGS PER SHARE RATIO 

64.43 7.07 88.73 11.50 125.44 14.84 144.43 18.88  SOURCE: FINANCIAL STATEMENTS OF ITC AND DABUR 

The following are, in brief the inferences drawn from the data analysis and calculations  made in this study:  ▪ Current ratio of ITC is seen to have escalated in the time span whereas for DABUR it has kept  drooping. So it can be said that ITC Ltd. has a much better solvency position.  ▪  ITC’s  liquid  ratio  has  increased  over  the  years  and  in  case  of  Dabur  quick  ratio  is  seen  to  decrease  especially  during  the  last  two financial years which shows that the firm has been facing  some  problems  regarding  paying  short  term  liabilities  for  3  years.  Since  a  higher  quick  ratio  is 

always anticipated ITC is in a better position. 

~ - 43 - ~   

▪  The  trend  of  absolute  liquidity  ratio  shows  that  for  both  the  companies  it  has  been fluctuating  throughout  the  period  but  the  drop  in  the  last  financial  year  is  especially  high  for  Dabur  indicating an unsound liquidity position.  ▪ An upward trend in the proprietary ratios of both the companies shows that the long term or  ultimate solvency of the company is good and getting better.  ▪  The  fixed  asset  to  equity  ratio  of  ITC  has  been  satisfactory  that  is  around  0.6.  However  Dabur’s  ratio  has  kept decreasing meaning that stockholders’ equity is more than the fixed assets  and  the  stockholders’  equity  is  financing  not  only  the  fixed  assets  but  also a part of the working  capital.  ▪  The  Net  profit  and  Operating profit ratios depicts that the ratios of Dabur have been almost 0.5  times  less  than  that  of  ITC.  Morover  the  former  company  fails  to  increase its profitability in the  last few years  ▪  The  trend  of  ratios  shows that Dabur Ltd. has higher return on equity than ITC ltd. However in  contrast  to  the  previous  years  the  ROE  of  Dabur  has  drastically  decreased  in  and  the  possible  cause of this occurrence is the lower net income between the last 2-3 years.  ▪ The overall Earnings per ratio of Dabur is higher than that of ITC but the rate of increase in  both the companies is commendable.  ▪  It  can  further  be  concluded  that  in terms of solvency and liquidity ITC Ltd. is showing a better  trend  but  in  terms  of  profitability  Dabur  Ltd.  surpasses  the  former  marginally,  if  not  considerably. 

4.2 RECOMMENDATIONS FOR IMPROVEMENT  Financial  analysis  is  the  process  of  selecting  and  evaluating  the  relationship  between  component  part  of  financial  statement  to  obtain  a  better  understanding  of  the  firms’  position  and  performance.  This  financial  analysis  is  done  using the tools of ratio analysis. These  tools  show  us  the  company  position  in  terms  of  liquidity  profitability,  solvency, bankruptcy and  stability. By using these tools we came to the conclusion that the companies should improve their  revenue  from  operations  or  sales  by  adopting  better  marketing  techniques  and  procedures. They  should  also  try  to  expand  the  geographical  market  by  trying  to  gain  strong  hold  in  the  foreign  countries. Dabur Ltd. especially is far behind of ITC in this aspect. Further Dabur Ltd. is advised 

~ - 44 - ~   

to  cope  up  and  compete  with  its  competitors in the FMCG market by introducing new and better  line  of  products.  Both  the  companies  are  advised  to  improve  upon  the  solvency  and  liquidity  position  as  they  are  responsible  for  creating  a  significant  impact  in  the  minds  of  the  potential  investors and other interested parties.  In the changing economy scenario the financial performance has to be better. Even though the  firms’ profitability, liquidity and other positions are somewhat satisfactory it can reach even  higher positions and better stability if the above said suggestions are considered. 

4.3 LIMITATIONS OF THE STUDY  • The study is done within a period of four months only (Oct-Jan), so some additional financial  analyses are not covered in this study.  • Further the period of study is of 4 financial years only. So this conclusions are not exhaustive.  • Due to the time constraint, all the financial ratios could not be analyzed.  • The financial statement and annual reports were used; hence the data collected is secondary**  in nature.  • Ratios are only post-mortem of what happened between two balance sheet data.  • Ratio analysis is based on accounting not economic data so its credibility is questioned by some  users.  •  They  reveal  only the past performance of firm, it is not necessary that the same conditions have  to  be  repeated  in  the  future.  Past  performance  (good  or  bad)  is  not  a  perfect  indicator  of  future  performance.  **Due to the busy schedules of the high officials of the companies the collection of primary data  was not possible. As such, this project report is restricted to the use of secondary data. 

~ - 45 - ~   

4.4 SCOPE FOR FURTHER RESEARCH  In light of the limitations specified earlier it can be said there was, and there is ample  scope for further research in this aspect and topic. Apart from the 10 ratios analyzed in  this project there are several other financial ratios that can be calculated and assessed to  present a clearer picture of the financial stability of the two companies. Also there are  other techniques (like common size balance sheet) for comparison and assessment of  financial statements other the conventional ratio analysis. The study can also be  conducted for a much larger time bracket which would facilitate the investors to make  more prudent and informed decisions. Apart from this use of secondary data if accessible  can improve the credibility of the calculations and results obtained as it will be free from  any manipulative figures from the internal management of the companies. 

~ - 46 - ~   

BIBLIOGRAPHY  • Besley, S., Brigham, E. F., & Besley, S. (1999). Principles of finance. Fort Worth:  Dryden Press.  • Birchall, A. (1991). Ratio analysis. Financial Analysis and Control, 30-53.  • Bull, B., & McNeill, D. (2007). Development issues in global governance: Public-private  partnerships and market multilateralism. London: Routledge.  • Chen, K. H., & Shimerda, T. A. (1981). An Empirical Analysis of Useful Financial  Ratios. Financial Management, 10(1), 51.  • Drake, P. P., & Fabozzi, F. J. (2008). Financial Ratio Interpretation. Handbook of Finance.  • Duncan, E., & Elliott, G. (2004). Efficiency, customer service and financial performance  among Australian financial institutions. Intl Jnl of Bank Marketing International Journal  of Bank Marketing, 22(5), 319-342.  • Financial Ratio Analysis. (2011). The Basics of Finance An Introduction to Financial  Markets, Business Finance, and Portfolio Management, 243-274.  • Financial Ratios: Technical Analysis of Financial Markets. (n.d.). Retrieved January 17,  2016, from http://www.finpipe.com/financial-ratios-analysis/  • Horrigan, J. O. (1978). Financial ratio analysis: An historical perspective. New York:  Arno Press.  • Ratio Analysis: Using Financial Ratios | Investopedia. (2003). Retrieved January 8, 2016,  from http://www.investopedia.com/university/ratio-analysis/using-ratios.asp  • Scherer, F. M. (2008). The World Productivity Growth Slump. Organizing Industrial  Development. 

~ VIII ~   

Annexure II- A  Financial Statements of ITC Ltd.  ~ IX ~   

~ X ~   

Annexure II – B  Financial Statements of Dabur India Ltd.  ~ XI ~   

~ XII ~ 

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