0
Analysis of Financial Statements
ITC Ltd.

By:Abhimanyu Singh Yadav
Divya Mahtta
Sec 1, PGP 1
Outline




ITC: the company
Segmented sales
Ratio Analysis
 Stock

price comparison
 DU Pont Analysis


Common size...
ITC: the company




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

Segmented Sales pie charts
Sales segment wise
Agri Business
Cigarettes
Hotels
Others
Paperboards, Paper
& Packaging

Se...
Asset Structure
Asset Structure 2007
Net fixed assets
Investments
Deferred tax assets
Current assets
Loans & advances

Ass...
Liabilities Structure
Liabilities Structure 2007

Net Worth
Total borrowings
Current liabilities &
provisions

Liability s...
Why Ratios?


Easy comparison as everything’s
brought to same platform



Indicates strengths and weaknesses
of the comp...
Different types: & what they tell?







Liquidity: Can the company make required
payments?
Turnover ratios: right a...
Liquidity Ratios
Ratios
Cash to
C.L
Quick
ratio
Current
ratio
Working
Capital

Mar
04

0.010

0.103
0.829

-610

Mar
05

0...
Solvency Ratios
Ratio

Mar
04

Mar
05

Mar
06

Debt:
Equity

Debt:
Total fund

Analysis
Low

0.02
Interest
coverage

Mar
...
Turnover Ratios
Ratio
Debtors
turnover
Drs T/O Period
(in days)
Creditors
turnover
Crs T/O period
(in days)

Mar
04

Mar
0...
Turnover Ratios
Ratio
Raw material
turnover
Finished
Goods T/O
Fixed Asset
T/O
Capital
Employed T/O

Mar
04

Mar
05

Mar
0...
Profitability Ratios
Ratio

Mar
04

Gross
Profit

22.1
0

Operating
Profit

20.1
4

Net Profit

12.9
6

Mar
05

Mar
06

Ma...
Profitability Ratios : Trend

Conclusion - High Tax Rates : Exempted Income Reducing the Tax liability
Market Value : Owners Point of View
Mar
Ratios 04
ROI

42.0

EPS

4.29

DPS

1.33

Mar
05

Mar
06

Mar
07

Analysis

High ...
Market Value : Owners Point of View

Ratios

Mar
04

Mar
05

Mar
06

Mar
07

DP Ratio

More
contribution to
31.00 42.16 43...
0

a
n
-0
2
M
a
y
-0
2
S
e
p
-0
2
J
a
n
-0
3
M
a
y
-0
3
S
e
p
-0
3
J
a
n
-0
4
M
a
y
-0
4
S
e
p
-0
4
J
a
n
-0
5
M
a
y
-0
5
...
DU Pont Analysis


Profitability of Shareholders
Depends on
 Profitability

(PM)

 Asset

of the Organization

utilizat...
DU Pont Analysis
ROE = (Profit margin) x (TA turnover) x

(Equity multiplier)

ROE = (PAT/Sales) x (Sales/TA) x
(TA/Equity...
Common size statements
Income statement
Year Ending 31st March

2004

%age

2005

%age

2006

%age

2007

GROSS INCOME

12...
Common size statements: Balance Sheet
Liabilities

Mar 2004

Mar 2004

Mar 2005

Mar 2005

Mar 2006

Mar 2006

Mar 2007

M...
Common size statements: Balance Sheet
Assets

Mar 2004

%age

Rs. Crore (Non-Annualised)
12 mths
Gross fixed assets
5210.6...
Trend Analysis: Income statement
Year Ending 31st March

2004

2005

2006

2007

SALES

100.00

112.84

137.13

164.80

Ex...
Trend Analysis
Trend analysis
210.00
190.00
170.00

SALES
PBIT

150.00

Tax
PAT

130.00

Cost of sales

110.00
90.00
2004
...
Trend Analysis
Trend analysis

240.00

SALES

220.00

PAT
Dividends

200.00

Retained profits

180.00
160.00
140.00
120.00...
Trend Analysis: Balance sheet
Balance sheet Trend analysis
Rs. Crore

Mar-04
12 mths

Mar-05
12 mths

Mar-06
12 mths

Mar-...
Trend Analysis: Bsh
Trend Analysis (Bsh)
210
Net fixed assets

190

Investments
Current assets

170
150

Net Worth
Total b...
Some problems in Ratio analysis







Comparison with industry averages is
difficult for a conglomerate firm like ITC...
Thank You!
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  1. 1. Analysis of Financial Statements ITC Ltd. By:Abhimanyu Singh Yadav Divya Mahtta Sec 1, PGP 1
  2. 2. Outline    ITC: the company Segmented sales Ratio Analysis  Stock price comparison  DU Pont Analysis  Common size statement  Income statement  Balance sheet  Trend Analysis
  3. 3. ITC: the company    ITC Ltd is the largest tobacco company in India with an annual turnover of Rs.19,844 crore ITC features on the Forbes Global 2000 rankings for 2007 at position 1256 Mainly into the business of           Cigarettes: Hotels Paperboards & Specialty Agricultural Industry Packaged Foods & Confectionery Branded Apparel Personal Care Greeting Card Information Technology Stationery:
  4. 4. . Segmented Sales pie charts Sales segment wise Agri Business Cigarettes Hotels Others Paperboards, Paper & Packaging Segmented PBIT PBIT / capital employed
  5. 5. Asset Structure Asset Structure 2007 Net fixed assets Investments Deferred tax assets Current assets Loans & advances Asset structure 2006 Net fixed assets Investments Deferred tax assets Current assets Loans & advances
  6. 6. Liabilities Structure Liabilities Structure 2007 Net Worth Total borrowings Current liabilities & provisions Liability structure 2006 Net Worth Total borrowings Current liabilities & provisions
  7. 7. Why Ratios?  Easy comparison as everything’s brought to same platform  Indicates strengths and weaknesses of the company
  8. 8. Different types: & what they tell?      Liquidity: Can the company make required payments? Turnover ratios: right amount of assets vs. sales? Solvency Ratios: Right mix of debt and equity? Profitability: Do sales prices exceed unit costs, and are sales high enough as reflected in PM, ROE, and ROA? Market value: Do investors like what they see as reflected in ratios like P/E?
  9. 9. Liquidity Ratios Ratios Cash to C.L Quick ratio Current ratio Working Capital Mar 04 0.010 0.103 0.829 -610 Mar 05 0.017 0.211 1.004 11.51 Mar 06 0.238 0.365 1.320 1148 Mar 07 0.230 0.394 Analysis Increasing ability of firm to pay through cash Inadequate quick assets: More reliance on stock 1.459 Improved Liquidity 1759 Possible Reasons: Increase in WC Requirement
  10. 10. Solvency Ratios Ratio Mar 04 Mar 05 Mar 06 Debt: Equity Debt: Total fund Analysis Low 0.02 Interest coverage Mar 07 80.12 0.40 0.03 0.01 56.62 207.7 0.33 0.32 Propriety Ratio Debt &More Reliance on owners fund 0.02 Ability to pay interest is good: 453.0 Use more of debt Can use leverage 0.31 Possible 0.59 0.67 0.68 reason: High rate of 0.68 interest on Loan
  11. 11. Turnover Ratios Ratio Debtors turnover Drs T/O Period (in days) Creditors turnover Crs T/O period (in days) Mar 04 Mar 05 Mar 06 46.91 32.58 28.55 7.78 11.20 12.78 1.34 271.1 1.55 2.50 234.3 145.4 Mar 07 Analysis Fast 31.37 collection of funds : Less W. C 11.63 Time Lag in 2.98 Payments: Decreasing.  WC needs 122.3 increasing
  12. 12. Turnover Ratios Ratio Raw material turnover Finished Goods T/O Fixed Asset T/O Capital Employed T/O Mar 04 Mar 05 Mar 06 Mar 07 Analysis Efficiency of 2.41 1.96 1.84 1.83 Inventory Management : ↓ 40.98 28.91 24.48 27.00 3.19 1.13 3.22 1.15 3.62 Stable : Efficient 3.37 utilization 1.24 Adequate amount of 1.30 capital Used
  13. 13. Profitability Ratios Ratio Mar 04 Gross Profit 22.1 0 Operating Profit 20.1 4 Net Profit 12.9 6 Mar 05 Mar 06 Mar 07 Analysis 23.01 21.74 21.65 Operating efficiency is good 20.93 19.74 19.84 Less proportion of indirect expenses 14.56 13.46 Available to 13.48 Owners : Tax Incidence
  14. 14. Profitability Ratios : Trend Conclusion - High Tax Rates : Exempted Income Reducing the Tax liability
  15. 15. Market Value : Owners Point of View Mar Ratios 04 ROI 42.0 EPS 4.29 DPS 1.33 Mar 05 Mar 06 Mar 07 Analysis High Return: Efficient 43.9 38.5 40.5 utilization of funds 4.91 6.08 7.19 Face Value = 1 Re. High 2.07 2.65 3.10 Return.
  16. 16. Market Value : Owners Point of View Ratios Mar 04 Mar 05 Mar 06 Mar 07 DP Ratio More contribution to 31.00 42.16 43.59 43.12 Retained Profit PE ratio Higher growth 16.19 18.22 32.06 20.92 prospects Earning Yield 6.2% 5.5% 3.1% Dividend Yield 1.9% 2.3% 1.4% Analysis 4.8% Profitability in terms of Mkt Price: Unstable 2.1%
  17. 17. 0 a n -0 2 M a y -0 2 S e p -0 2 J a n -0 3 M a y -0 3 S e p -0 3 J a n -0 4 M a y -0 4 S e p -0 4 J a n -0 5 M a y -0 5 S e p -0 5 J a n -0 6 M a y -0 6 S e p -0 6 J a n -0 7 M a y -0 7 S e p -0 7 J a n -0 8 J INR BSE Stock prices: ITC Share price of ITC 250 200 150 100 50 TIME
  18. 18. DU Pont Analysis  Profitability of Shareholders Depends on  Profitability (PM)  Asset of the Organization utilization Rate (TATO)  Debt utilization: Leverage (Eq. Multiplier.)  Shows how these factors combine to determine ROE.
  19. 19. DU Pont Analysis ROE = (Profit margin) x (TA turnover) x (Equity multiplier) ROE = (PAT/Sales) x (Sales/TA) x (TA/Equity) PM 2004 2005 2006 2007 TA TO EM ROE 12.96% 14.56% 13.46% 13.48% 1.12 1.15 1.24 1.30 1.67 1.49 1.47 1.46 24.3% 25.06% 24.52% 25.63%
  20. 20. Common size statements Income statement Year Ending 31st March 2004 %age 2005 %age 2006 %age 2007 GROSS INCOME 12039.92 100.00 13585.39 100.00 16510.51 100.00 19841.54 100.00 Excise Duties etc. 5344.60 44.39 5710.13 42.03 6433.90 38.97 7135.75 35.96 Net Income 6695.32 55.61 7875.26 57.97 10076.61 61.03 12705.79 64.04 Cost of Sales 4109.85 34.14 4846.89 35.68 6463.15 39.15 8412.89 42.40 PBDIT 2585.47 21.47 3028.37 22.29 3613.46 21.89 4292.90 21.64 PBDT 2560.68 21.27 2985.94 21.98 3601.53 21.81 4289.62 21.62 241.62 2.01 312.87 2.30 332.34 2.01 362.92 1.83 PBIT 2343.85 19.47 2715.50 19.99 3281.12 19.87 3929.98 19.81 PROFIT BEFORE TAX 2319.06 19.26 2673.07 19.68 3269.19 19.80 3926.70 19.79 726.21 6.03 836.00 6.15 988.82 5.99 1226.73 6.18 1592.85 13.23 1837.07 13.52 2280.37 13.81 2699.97 13.61 0.00 0.00 354.33 2.61 -45.02 -0.27 0.00 0.00 1592.85 13.23 2191.40 16.13 2235.35 13.54 2699.97 13.61 558.83 4.64 881.70 6.49 1134.70 6.87 1364.50 6.88 1034.02 8.59 1309.70 9.64 1100.65 6.67 1335.47 6.73 Depreciation Tax PAT before exeptional items Exceptional Items PAT Dividends Retained Profits %age
  21. 21. Common size statements: Balance Sheet Liabilities Mar 2004 Mar 2004 Mar 2005 Mar 2005 Mar 2006 Mar 2006 Mar 2007 Mar 2007 Rs. Crore (Non-Annualised) Net worth Authorised capital Issued equity capital Paid up equity capital (net of forfeited capital) 12 mths %age 12 mths %age 12 mths %age 12 mths %age Reserves & surplus Free Reserves Security premium reserves (Net of deductions) Other free reserves Specific Reserves Revaluation Reserves Total borrowings Bank borrowings Short term bank borrowings Long term bank borrowings Deferred credit Secured borrowings Unsecured borrowings Current portion of long term debt Current liabilities & provisions Sundry creditors Acceptances Deposits & advances from customers & employees Interest accrued Other current liabilities Provisions Deferred tax liability Total liabilities 6410.06 300.00 247.68 247.68 59.96 2.81 2.32 2.32 7895.61 300.00 248.22 248.22 67.15 2.55 2.11 2.11 9061.48 500.00 375.52 375.52 68.04 3.75 2.82 2.82 10437.08 500.00 376.22 376.22 10437.08 3.28 2.47 2.47 6162.38 5731.03 295.62 5435.41 370.51 60.84 57.65 53.61 2.77 50.85 3.47 0.57 7646.18 7220.45 382.25 6838.20 365.83 59.90 65.03 61.41 3.25 58.16 3.11 0.51 8685.96 8260.96 447.28 7813.68 365.83 59.17 65.22 62.03 3.36 58.67 2.75 0.44 10060.86 9637.95 488.97 9148.98 365.83 57.08 66.04 63.26 3.21 60.05 2.40 0.37 120.85 55.71 55.71 0.00 65.14 245.36 168.91 168.91 0.00 76.45 25.91 93.82 0.29 0.90 0.25 0.20 0.06 0.65 0.00 0.19 0.70 0.00 200.88 107.07 76.62 30.45 93.81 88.69 156.67 0.00 2.09 1.44 1.44 0.00 0.65 0.00 0.75 1.33 0.00 119.73 33.80 26.04 7.76 85.93 31.56 89.29 0.00 1.13 0.52 0.52 0.00 0.61 0.00 0.30 0.84 0.00 60.78 140.10 1.70 1.32 0.70 0.50 0.20 0.62 0.00 0.40 0.92 0.01 3544.67 2804.31 2.02 40.76 0.79 13.91 682.88 33.16 26.23 0.02 0.38 0.01 0.13 6.39 3043.72 1892.02 3.01 22.97 1.04 16.50 1108.18 25.89 16.09 0.03 0.20 0.01 0.14 9.42 3589.13 2148.42 4.34 26.82 0.54 19.97 1389.04 26.95 16.13 0.03 0.20 0.00 0.15 10.43 3869.01 2343.44 2.69 23.83 0.55 25.66 1472.84 25.40 15.38 0.02 0.16 0.00 0.17 9.67 614.18 5.75 573.46 4.88 547.92 4.11 728.26 4.78 10689.76 100.00 11758.15 100.00 13318.26 100.00 15235.23 100.00
  22. 22. Common size statements: Balance Sheet Assets Mar 2004 %age Rs. Crore (Non-Annualised) 12 mths Gross fixed assets 5210.69 Land & building 1196.80 Plant & machinery 3233.48 Transport & comm. equipment/infrastructure 5.46 2 Furniture,amenities & other fixed assets 185.50 Capital work-in-progress 435.89 Intangible assets 99.70 Less: Cumulative depreciation Net fixed assets Market value of quoted investments Deferred tax assets Current assets Cash & bank balance Inventories Receivables Expenses paid in advance Loans & advances Total assets %age 12 mths Mar 2006 %age 12 mths Mar 2007 %age 12 mths 48.74 11.20 30.25 0.24 1.74 4.08 0.93 6015.94 1544.96 3809.53 31.41 271.82 269.67 88.55 51.16 13.14 32.40 0.27 2.31 2.29 0.75 6627.14 1624.53 4156.86 43.82 298.10 399.97 103.86 49.76 12.20 31.21 0.33 2.24 3.00 0.78 8264.51 1862.71 4760.66 51.69 319.36 1130.20 139.89 54.25 12.23 31.25 0.34 2.10 7.42 0.92 -1442.63 -13.50 -1795.51 -15.27 -2065.44 -15.51 -2389.54 -15.68 3768.06 35.25 4220.43 35.89 4561.70 34.25 5874.97 38.56 28.57 8.04 0.00 17.76 3.02 -0.25 3874.68 795.96 120.01 2596.70 388.78 -26.77 32.95 6.77 1.02 22.08 3.31 -0.23 3517.01 795.96 120.01 2204.72 423.09 -26.77 26.41 5.98 0.90 16.55 3.18 -0.20 3067.77 847.10 107.14 1720.12 420.18 -26.77 20.14 5.56 0.70 11.29 2.76 -0.18 870.40 2210.33 8.14 20.68 806.43 3095.01 6.86 26.32 807.33 2736.44 6.06 20.55 858.46 2236.07 5.63 14.68 285.22 2.67 8.70 0.07 13.46 0.10 13.30 0.09 526.44 4.92 197.37 1.68 223.16 1.68 255.41 1.68 2949.84 34.04 1534.21 1381.59 0.00 27.60 0.32 14.35 12.92 0.00 3201.17 55.66 2002.99 1142.52 0.00 27.23 0.47 17.03 9.72 0.00 4736.90 855.82 2636.29 1244.79 0.00 35.57 6.43 19.79 9.35 0.00 5721.69 900.16 3354.03 1445.65 21.85 37.56 5.91 22.01 9.49 0.14 391.46 3.66 264.50 2.25 279.49 2.10 315.39 2.07 10689.76 100.00 11758.15 100.00 13318.26 100.00 15235.23 100.00 Investments 3053.96 Equity shares 859.04 Preference shares 0.01 Mutual funds 1898.32 Debt instruments 323.36 Less: Provision for dimunition in value of investments -26.77 Group companies Non-group companies Mar 2005
  23. 23. Trend Analysis: Income statement Year Ending 31st March 2004 2005 2006 2007 SALES 100.00 112.84 137.13 164.80 Excise Duties etc. 100.00 106.84 120.38 133.51 Net Income 100.00 117.62 150.50 189.77 Cost of Sales 100.00 117.93 157.26 204.70 PBDIT 100.00 117.13 139.76 166.04 PBDT 100.00 116.61 140.65 167.52 Depreciation 100.00 129.49 137.55 150.20 PBIT 100.00 115.86 139.99 167.67 PROFIT BEFORE TAX 100.00 115.27 140.97 169.32 Tax 100.00 115.12 136.16 168.92 PAT before exeptional items 100.00 115.33 143.16 169.51 PAT 100.00 137.58 140.34 169.51 Dividends 100.00 157.78 203.05 244.17 Retained Profits 100.00 126.66 106.44 129.15 Exceptional Items *
  24. 24. Trend Analysis Trend analysis 210.00 190.00 170.00 SALES PBIT 150.00 Tax PAT 130.00 Cost of sales 110.00 90.00 2004 2005 2006 Years 2007
  25. 25. Trend Analysis Trend analysis 240.00 SALES 220.00 PAT Dividends 200.00 Retained profits 180.00 160.00 140.00 120.00 100.00 80.00 2004 2005 2006 Years 2007
  26. 26. Trend Analysis: Balance sheet Balance sheet Trend analysis Rs. Crore Mar-04 12 mths Mar-05 12 mths Mar-06 12 mths Mar-07 12 mths Net fixed assets 100 112.01 121.06 155.91 Investments 100 126.87 115.16 100.45 Deferred tax assets 100 37.49 42.39 48.52 Current assets 100 108.52 160.58 193.97 Loans & advances 100 67.57 71.40 80.57 Total assets 100 109.99 124.59 142.52 Net Worth 100 123.41 141.79 163.48 Paid up equity capital (net of forfeited capital) 100 100.22 151.61 151.90 Reserves & surplus 100 124.08 140.95 163.26 100 203.03 99.07 166.22 Secured borrowings 100 281.02 82.10 192.59 Unsecured borrowings 100 175.46 105.07 156.90 100 85.87 101.25 109.15 Sundry creditors 100 67.47 76.61 83.57 Interest accrued 100 131.65 68.35 69.62 Other current liabilities 100 118.62 143.57 184.47 Provisions 100 162.28 203.41 215.68 Total liabilities 100 109.99 124.59 142.52 Total borrowings Current liabilities & provisions
  27. 27. Trend Analysis: Bsh Trend Analysis (Bsh) 210 Net fixed assets 190 Investments Current assets 170 150 Net Worth Total borrowings Current liabilities & provisions 130 110 90 70 50 1 Mar 04 2 Mar 05 Years 3 Mar 06 4 Mar 07 5
  28. 28. Some problems in Ratio analysis     Comparison with industry averages is difficult for a conglomerate firm like ITC that operates in many different divisions. Since ITC operations are so diversified competitor comparison was also not possible. Seasonal factors can distort ratios. Some techniques can make statements and ratios look better.
  29. 29. Thank You!
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