Ratio Analysis of HUL and ITC Limited

Ratio Analysis
16BCL075 (JAYESH VAGHELA)
16BCL077 (KULDIP VALA)
16BCL048 (ISHWAR CHAVDA)
SCHOOL OF ENGINEERING
INSTITUTE OF TECHNOLOGY
NIRMA UNIVERSITY
AHMEDABAD – 382481
April 2019
|| 17BCL159 (MAHESH JARU)
|| 17BCL169 (JAY PATEL)
|| 15BCL008 (VIRAJ AMIN)
Prepared by :
ITC Limited & Hindustan Unilever Limited

Flow of Presentation
Ratio analysis
Advantages of ratio analysis
Limitations of ratio analysis
About – ITC limited
About – Hindustan Unilever Limited
Ratio classification
Different ratio analysis comparison
National stock exchange
Result and discussion
HS003 INTRODUCTION TO ACCOUNTANCY 22-Apr-19 2

Ratio Analysis
• Ratio analysis is a quantitative method of gaining insight into a
company's liquidity, operational efficiency, and profitability by
comparing information contained in its financial statements.
Ratio analysis is a cornerstone of fundamental analysis.
• Outside analysts use several types of ratios to assess
companies, while corporate insiders rely on them less because
of their access to more detailed operational data about a
company.
22-Apr-19 3HS003 INTRODUCTION TO ACCOUNTANCY

Advantages of ratio analysis
Helpful in analysis of financial statements
Simplification of accounting data
Helpful in comparative study
Helpful in forecasting
Effective control
Study of financial soundness

Limitations of ratio analysis
Doesn't take into consideration inflationary effects
Not useful while comparing companies of two different
industries
Ratios are based only on internal factors while external factors
like competitors policy, government policy, and political,
economical and social changes should also be taken into
consideration.
In changing price level situation ratio based on past information
become irrelevant.

About – ITC Limited
ITC is one of India's foremost private sector companies with a
market capitalization of US $ 50 billion and Gross Sales Value of
US $ 10 billion.
ITC has a diversified presence in Hotels, Packaging, Paperboards
& Specialty Papers and Agri-Business.
 ITC also features as one of world's largest sustainable value
creator in the consumer goods industry in a study by the Boston
Consulting Group

Vision of company
Sustain ITC's position as one of India's most valuable corporations
through world class performance, creating growing value for Indian
economy and the company's stakeholders
Mission of company
To enhance the wealth generating capability of the enterprise in a
globalizing environment, delivering superior and sustainable
stakeholder value

About – Hindustan Unilever Limited
Hindustan Unilever Limited (HUL) is India's largest Fast
Moving Consumer Goods company with a heritage of over 80
years in India
On any given day, nine out of ten Indian households use our
products to feel good, look good and get more out of life
HUL operates in seven business segments. Soaps and detergents,
Personal products. Beverages, Foods, Ice creams, chemical and
water business.

Vision of company
Our vision is to grow our business, while decoupling our
environmental footprint from our growth and increasing our positive
social impact. - HUL
Mission of company
HUL’s mission is to add Vitality to life. HUL meet everyday
needs for nutrition, hygiene and personal care with brands that
help people feel good, look good and get more out of life

Ratio Analysis
Financial Ratio
Analysis
Liquidity
Ratios
Current Ratio
Acid-Test
Ratio
Supplementary
Ratios
Inventory
Turnover Ratio
Debtors
Turnover Ratio
Creditors
Turnover Ratio
Capital
Structure
Ratios
Profitability
Ratios
Efficiency
ratios
Integrated
Analysis
Ratios
Growth Ratios
Traditional
Classification
Profit & Loss
Ratio
Balance shit
Ratio
Composite
Ratio
22-Apr-19 10
Ratio Classification
HS003 INTRODUCTION TO ACCOUNTANCY

•Liquidity ratios measure the ability of a firm to meet its
short-term obligations
Liquidity ratio
Liquidity Ratios
Current Ratio Acid-Test Ratio
Supplementary
Ratios
Current Ratio
•Current Ratio is a measure of liquidity calculated dividing
the current assets by the current liabilities
22-Apr-19 11
Hindustan Unilever Limited ITC Limited
Current ratio 1.29 2.76

Liquidity Ratios
Current Ratio Acid-Test Ratio
Supplementary
Ratios
Acid-Test Ratio
•The quick or acid test ratio takes into consideration the
differences in the liquidity of the components of current
assets
Quick Assets = Current assets – Stock – Pre-paid expenses
22-Apr-19 12
Acid test ratio 0.68 1.02

Inventory Turnover Ratio
•The ratio indicates how fast inventory is sold. A high ratio is good
from the viewpoint of liquidity and vice versa . A low ratio would
signify that inventory does not sell fast and stays on the shelf or in the
warehouse for a long time.
Supplementary
Ratios
Inventory Turnover
Ratio
Debtors Turnover
Ratio
Creditors Turnover
Ratio
•The cost of goods sold means sales minus gross profit.
•The average inventory refers to the simple average of the opening and closing inventory
22-Apr-19 13
Inventory Turnover Ratio 14.93 6.13

Debtors Turnover Ratio
•The ratio measures how rapidly receivables are collected. A high ratio
is indicative of shorter time-lag between credit sales and cash
collection. A low ratio shows that debts are not being collected rapidly.
Supplementary
Ratios
Inventory Turnover
Ratio
Debtors Turnover
Ratio
Creditors Turnover
Ratio
•Net credit sales consist of gross credit sales minus returns, if any, from customers.
•Average debtors is the simple average of debtors (including bills receivable) at the beginning and at the end
of year.
22-Apr-19 14
Debtors Turnover Ratio 33.28 17.80

Creditors Turnover Ratio
A low turnover ratio reflects liberal credit terms granted by suppliers, while
a high ratio shows that accounts are to be settled rapidly. The creditors
turnover ratio is an important tool of analysis as a firm can reduce its
requirement of current assets by relying on supplier’s credit.
Supplementary
Ratios
Inventory Turnover
Ratio
Debtors Turnover
Ratio
Creditors Turnover
Ratio
•Net credit purchases = Gross credit purchases - Returns to suppliers.
•Average creditors = Average of creditors (including bills payable) outstanding at the beginning and at the
end of the year
22-Apr-19 15
*Creditors Turnover Ratio 14.42 6.29
*Investments Turnover Ratio

Leverage Capital Structure Ratio
There are two aspects of the long-term solvency of a firm:
(i)Ability to repay the principal when due
(ii)Regular payment of the interest .
Capital structure or leverage ratios throw light on the long-term solvency of a firm.
Accordingly, there are two different types of leverage ratios.
First type: These ratios are computed from the
balance sheet
Second type: These ratios are computed from the
Income Statement
(a)Debt-equity ratio
(b)Debt-assets ratio
(c)Equity-assets ratio
(a)Interest coverage ratio
(b)Dividend coverage ratio

Debt-equity ratio
Debt-equity ratio measures the ratio of long-term or total debt to
shareholders equity.
computed from
the balance sheet
a)Debt-equity ratio Debt-assets ratio Equity-assets ratio
•If the D/E ratio is high, the owners are putting up relatively less money of
their own. It is danger signal for the lenders and creditors. If the project should
fail financially, the creditors would lose heavily.
•A low D/E ratio has just the opposite implications. To the creditors, a
relatively high stake of the owners implies sufficient safety margin and
substantial protection against shrinkage in assets.
•The disadvantage of low debt-equity ratio is that the shareholders of the firm
are deprived of the benefits of trading on equity or leverage.
22-Apr-19 17
Debt-equity ratio 0.00:1 0.0002:1

Interest Coverage Ratio
Interest Coverage Ratio measures the firm’s ability to make
contractual interest payments.
Computed from
the Income
Statement
Interest coverage
ratio
Dividend coverage
ratio
22-Apr-19 18
Hindustan Unilever Limited* ITC Limited**
Financial charges coverage
ratio
392.25 203.93
* https://money.rediff.com/companies/Hindustan-Unilever-Ltd/12520002/ratio
** https://money.rediff.com/companies/ITC-Ltd/12630003/ratio

Dividend Coverage Ratio
Dividend Coverage Ratio measures the firm’s ability to pay dividend on
preference share which carry a stated rate of return.
Computed from
the Income
Statement
Interest coverage
ratio
Dividend coverage
ratio
22-Apr-19 19
Dividend Coverage Ratio
(net profit)
74.39 51.41
A preferred dividend is a dividend that is accrued and paid on a
company's preferred shares.

Profitability Ratio
Profitability ratios can be computed either from sales or investment.
Profit Margin
(1) Gross Profit Margin
• Gross profit margin measures the percentage of each sales rupee remaining after the firm has paid for its goods.
(2) Net Profit Margin
• Net profit margin measures the percentage of each sales rupee remaining after all costs and expense including interest and
taxes have been deducted.
22-Apr-19 20
Gross Profit Margin(%) 19.69 35.09
Net Profit Margin(%) 15.16 25.94

Efficiency Ratio
• Inventory turnover measures the efficiency of various types of inventories.
• Activity ratios measure the speed with which various accounts/assets are converted into sales or cash.
22-Apr-19 21
Inventory turnover ratio 14.93 6.13
Inventory turnover ratio = (Cost of goods sold)/(Average Inventory)

Integrated Analysis Ratio
• Integrated ratios provide better insight about financial and economic analysis of a firm.
22-Apr-19 22
Return on Assets 33.73 43.30
Return on Assets = (Net Income) / (Average total Assets)

Return on Assets
Earning Power
Earning power is the overall profitability of a firm; is computed by multiplying net profit margin and assets
turnover.
Earning power = Net profit margin × Assets turnover
Where, Net profit margin = Earning after taxes/Sales
Asset turnover = Sales/Total assets
22-Apr-19 23
Earning Retention Ratio 11.05 46.63

The National Stock Exchange of India Limited (NSE)
For HUL Limited from 19 july 2019 to 22 April 2019

The National Stock Exchange of India Limited (NSE)
For ITC Limited from 13 july 2019 to 22 April 2019

Conclusion
22-Apr-19 26
Current ratio 1.29 2.76
Acid test ratio 0.68 1.02
Inventory Turnover Ratio 14.93 6.13
Debtors Turnover Ratio 33.28 17.80
*Creditors Turnover Ratio 14.42 6.29
Debt-equity ratio 0.00:1 0.0002:1
Financial charges coverage ratio 392.25 203.93
Dividend Coverage Ratio (net profit) 74.39 51.41
Gross Profit Margin(%) 19.69 35.09
Net Profit Margin(%) 15.16 25.94
Inventory turnover ratio 14.93 6.13
Return on Assets 33.73 43.30
Earning Retention Ratio 11.05 46.63

Conclusion
22-Apr-19 27
• ITC's non-cigarette FMCG (Fast-Moving Consumer Goods) business revenue comprising
foods, personal care and retailing, among others, grew at 11 per cent on a comparable
basis, the same for HUL was at 16 per cent as on May 21, 2018.
* https://www.business-standard.com/

Bibliography
[1] Annual reports of Hindustan Unilever Limited and ICT Limited
[2] https://www.hul.co.in/
[3] https://www.itcportal.com/
[4] https://www.toppr.com/
[5] https://www.scribd.com/
[6] https://www.investopedia.com/
[7] https://money.rediff.com/
22-Apr-19HS003 INTRODUCTION TO ACCOUNTANCY 28

22-Apr-19 29
Thanks!

Ratio Analysis of HUL and ITC Limited

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