This document provides an analysis of financial ratios for ITC Limited, a multi-industry company headquartered in Kolkata, India. It first introduces the company and its operations. It then calculates and analyzes various liquidity, solvency, and profitability ratios for ITC using its financial statements from 2019 and 2018. Key ratios like the current ratio, debt-equity ratio, return on assets, and profit margins are examined to evaluate ITC's financial performance and position over the two years.

1. PULAK PATTANAIK
M190614ME
ME6113D Accounting and Finance
ASSIGNMENT (RATIO ANALYSIS) Dt-24.06.2020
Financial Ratios analysis on ITC Limited
INTRODUCTION ABOUT THE COMPANY
• It is a multi-industry company headquartered at Kolkata, West Bengal.
• Established in 1910 as Imperial Tobacco Company LTD.
• The name of the Company was changed from Imperial Tobacco Company of India Limited to
India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974
• In recognition of the Company's multi-business portfolio encompassing a wide range of
businesses - Fast Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and
Cigars, Branded Apparel, Education and Stationery Products, Incense Sticks and Safety
Matches, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information
Technology - the full stops in the Company's name were removed effective September 18,
2001.
• It employs over 25,000 people at more than 60 locations across India.

2. PULAK PATTANAIK
M190614ME
ME6113D Accounting and Finance
ASSIGNMENT (RATIO ANALYSIS) Dt-24.06.2020
RATIO ANALYSIS
• It is the financial tool used by top management to conduct a quantitative analysis of
information in a company’s financial statements.
• These are useful to all i.e. for businessman, suppliers, bankers, investors, customers to
analyze performance of a company.
• The focus of financial analysis is a key figure in the financial statements and the
significant relationship that exists between them.
• The analysis of financial statements is a process of evaluating relationship between
components of financial statements to obtain a better understanding of the firm’s
position and performance.
These are classified into
• Liquidity
• Profitability
• Solvency
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
• Does not take into consideration inflationary effects.
• Not useful for comparing companies of two different industry.
• In changing price level situation ratio based on past information become irrelevant.
The balance sheet for firm was downloaded from the company website -https://www.itcportal.com/about-
itc/shareholder-value/annual-reports/itc-annual-report-2019/pdf/ITC-Report-and-Accounts-2019.pdf and the details are
shown .

5. LIQUIDITY RATIO: Indicates short term solvency of the business. In other words: company’s
ability to meet current obligations.
It includes the following ratios:
1. Current Ratio :
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
• It is the proportion of current assets to current liabilities.
• Ideal value of current ratio is 2:1.
• As shown below for both years there has been a rise in Current Ratio which shows the
usage of resources is not proper and it affects the profit.
As of March 31,2019 As of March 31,2018
Current asset= 29568.96
Current liabilities=9621.56
Current Ratio =3.073
Current Asset = 24503.00
Current Liabilities=8856.60
Current Ratio= 2.766
2. Quick Ratio:
𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
where Quick Assets = Current Assets – Stock - Prepaid
Expenses.
• It means assets quickly can be converted into cash.
• It is obtained by excluding inventories/stock and prepaid expenses.
• It is better indicator to measure liquidity position of business as non-liquid current
asset is excluded.
• Ideal value 1.1
• As shown below both the quick ratio is greater than 1. It shows both the years the
company is better able to meet the current obligations using liquid assets. This also
suggests that excess of resources are used and hence will result in less profit.
As of March 31,2019 As of March 31,2018
Current asset= 29568.96
Current liabilities=9621.56
Inventories = 7587.24
Loans= 6.21
Quick Ratio = 2.28
Current Asset = 24503.00
Current Liabilities=8856.60
Inventories = 7237.15
Loans= 7.40
Quick Ratio=1.94
3. Inventory Turnover Ratio :
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Where Average Inventory =( Beginning
Inventory + Ending Inventory)/2

6. • Determines the number of times stock is turned in sales during the accounting period
under consideration.
• High turnover is good but it must be carefully interpreted as it may be due to buying in
small lots or selling quickly at low margin to realise cash. Therefore this indicates
efficiency management is high.
As of March 31,2019 As of March 31,2018
Cost of Goods Sold = 13184.97
Average Inventory= 7412.195
Inventory Turnover Ratio=1.778
Cost of Goods Sold = 11756.21
Average Inventory= 7550.57
Inventory Turnover Ratio=1.56
4. Account Receivable Turnover Ratio:
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
• It is also called as Debtors turnover Ratio.
• Indicates the number of times the receivables are turned over in business during a
particular period.
• This ratio can be used to judge a firm's liquidity position on the basis of efficiency of
credit collection and credit policy.
• From 2018 there is fall in the ratio, this indicates that liquidity position of this firm
came down.
As of March 31,2019 As of March 31,2018
Revenue from Operation = 45784.39
Trade Receivable=3646.22
Account Receivable Turnover Ratio =12.5
Revenue from Operation = 44329.77
Trade Receivable=2357.01
Current Ratio =18.8
5. Net Sales to Working Capital:
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
• It is called as Working Capital turnover Ratio.
• It means a ratio measuring the efficiency of company’s working capital utilization in
order to generate the certain level of sales.
• A lower ratio generally signals that the company is not generating more revenue with
its working capital.
As of March 31,2019 As of March 31,2018
Revenue from Operation = 45784.39
Working Capital =19947.4
Net Sales to Working Capital=2.295
Revenue from Operation = 44329.77
Working Capital=15646.4
Current Ratio =2.833

7. SOLVENCY RATIO: The term ‘Solvency’ generally refers to the capacity of the business to
meet its short-term and long term obligations.
Some of the important ratios are given below
1. Debt Ratio:
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
• It shows how much company relies on debt to finance assets.
• A ratio of 1 means total liabilities equals total assets.
• The company would have to sell off all of its assets in order to pay off its liabilities.
• This is a highly leverage firm.
As of March 31,2019 As of March 31,2018
Total Assets =69797.92
Total liabilities = 69797.92
Debt Ratio= 1:1
Total Assets =62381.31
Total liabilities = 62381.31
Debt Ratio= 1:1
2. Interest Coverage Ratio:
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑎𝑛𝑑 𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥𝑒𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
• The Interest coverage ratio is also called “times interest earned.”
• It measures how many times a company can cover its current interest payment with its
available earnings.
As of March 31,2019 As of March 31,2018
Earnings Before Interest Expenses & Taxes =18444.16
Interest expense=34.19
Coverage Ratio= 539.4
Earnings Before Interest Expenses & Taxes =16438.80
Interest expense=86.65
Coverage Ratio= 189.71
3. Debt to Equity Ratio:
𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡
𝑠ℎ𝑎𝑟𝑒 ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
• The debt-equity ratio of ITC is low which while representing a strong solvency
position also represents that the company is not able to leverage debt to increase its
earnings per share
As of March 31,2019 As of March 31,2018
Total Debt =11848.13
Share Holder Equity = 57949.79
Debt Equity Ratio= 0.2044
Total debt =10981.24
Share holder equity=51400.07
Debt Equity Ratio= 0.2136

8. PROFITIABILITY RATIO: Profitability ratio evaluates the company's ability to generate
income against expenses and other cost associated with the generation of income
1. Return on Assets :
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
• ROA of ITC appears to be good which might signify efficient use of its assets by the
company.
As of March 31,2019 As of March 31,2018
Total Assets =69797.92
Net Income before tax= 12464.32
Return on Asset = 0.1785
In terms of %= 17.85
Total Assets =62381.31
Net Income before tax= 11223.25
Return on Asset = 0.1799
In terms of %= 17.99
2. Return on Equity after income tax:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠
𝑆𝑡𝑜𝑐𝑘 𝐻𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
• ITC’s return on equity seems to be good but has declined slightly in the year 2019
compared to 2018.But still ROE of above 20% can be considered good
As of March 31,2019 As of March 31,2018
Stock holders Equity=57949.79
Net Income after tax= 12464.32
Return on Equity after income tax= 0.215
In terms of %= 21.5
Stock holder Equity =51400.07
Net Income after tax= 11223.25
Return on Equity after income tax = 0.2184
In terms of %= 21.84
3. Return on Equity before income tax :
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠+𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥𝑒𝑠
𝑆𝑡𝑜𝑐𝑘 𝐻𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
• It is a profitability ratio that measures the ability of a firm to generate profits from its
shareholders investments in the company.
As of March 31,2019 As of March 31,2018
Stock holders Equity=57949.79
Net Income after tax= 12464.32
Income tax=5979.84
Return on Equity before income tax= 0.318
In terms of %= 31.80
Stock holder Equity =51400.07
Net Income after tax= 11223.25
Income tax=5628.45
Return on Equity before income tax = 0.327
In terms of %= 32.70

9. 4. Total Asset Turnover :
𝑠𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
• The asset turnover ratio measures the efficiency of a company's assets to generate
revenue or sales.
• The value depicts that for every amount in the assets the company generates 0.655
sales in 2019 and 0.733 sales in 2018.
As of March 31,2019 As of March 31,2018
Total Assets =69797.92
Sales = 45784.39
Total Asset turnover Ratio= 0.655
Total Assets =62381.31
Sales = 45784.39
Total Asset turnover Ratio= 0.733
5. Profit Margin after income tax:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥𝑒𝑠
𝑆𝑎𝑙𝑒𝑠
• Also called as Net Profit Margin
• The net profit margin of ITC has been good over all the years and has been steadily
increasing with increase in sales.
As of March 31,2019 As of March 31,2018
Net income After Taxes=12464.32
Sales = 45784.39
Profit Margin after Income tax = 0.2722
In terms of %=27.72
Net Income after Taxes =11223.25
Sales = 44329.77
Profit Margin after income tax= 0.2532
In terms of %=25.32
6. Profit Margin before income tax :
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥𝑒𝑠
𝑆𝑎𝑙𝑒𝑠
• It is a financial accounting tool used to measure the operating efficiency of a company
before deducing taxes.
• Pretax Margin Ratio also called Earnings before Tax Ratio.
• This ratio is useful in analyzing the standalone profitability of a company’s operations,
as it excludes tax expense.
As of March 31,2019 As of March 31,2018
Net income before Taxes=18444.16
Sales = 45784.39
Profit Margin before Income tax = 0.402
Net Income before Taxes =16438.80
Sales = 44329.77
Profit Margin before Income tax= 0.370

10. 7. Price Earnings Ratio:
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟𝑠ℎ𝑎𝑟𝑒
𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
• ITC’s price-earnings ratio seems to be a little over the current average of 20%-25%
which might indicate that the company’s shares were a bit overvalued.
As of March 31,2019 As of March 31,2018
Market Price Per Share=296.7
Earnings Per Share = 10.19
P/E ratio = 29.11
Market Price Per Share=255.5
Earnings Per Share = 9.22
P/E ratio = 27.71
Industry Average Analysis For ITC India Limited
The industry average comparison is one of the way to evaluate the performance of our organization
by comparing the financial ratios of ours to the industry we operate. This could help an organization
to make decisions and predictions about possible future outcomes such as whether our business
have enough potential to grow in the future and the level of risk for the investment.
The date required for this analysis can be collected from through several professional websites from
the internet.
Here three firms’ data’s were taken for comparison from www.moneycontrol.com. The industry
averages for the year 2018 and 2019 till the month of March were taken and averages were found
out.
Here Britannia, Hindustan Unilever ltd and Marico India ltd have been taken for calculating the
industrial averages.
The following table shows the names of the selected Companies, their financial ratios and the average ratios

11. RATIO
COMPARISO
NS
ITC MARICO INDIA BRITANNIA HINDUSTAN
UNILEVER
LTD
INDUSTRY AVG.
YEAR 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
LIQUIDITY
RATIOS
Quick Ratio 2.28 1.94 1.32 1.07 1.49 1.59 1.07 1.02 1.293 1.22
Current Ratio 3.07 2.76 2.41 2.45 1.94 2.03 1.36 1.29 1.90 1.923
Inventory Turn
Over ratio
1.77 1.56 4.84 3.94 14.58 15.65 15.78 14.64 11.73 11.41
Working Capital
In Cr.
19947.4 15646.40 1590.00 1383.33 1487.91 1401.49 3021 2503 20332.9 1762.60
Debtors
Turnover ratio
12.5 18.8 16.63 20.05 36.07 52.16 27.11 33.28 26.60 35.16
SOLVENCY
RATIO
Interest
Coverage ratio
539.4 189.71 99.92 141.10 1115.36 997.69 313.46 368.35 509.58 502.38
Debtors to
Equity ratio
0.2044 0.2136 0.04 0.04 0 0 0 0 0.013 0.013
PROFITABILI
TY RATIO
Net Profit
Margin (%)
27.72 25.32 17.18 18.95 10.7 10.18 15.79 15.16 14.55 14.76
Return on
Assets (%)
17.85 17.99 24.39 17.86 19.85 20.48 33.78 30.53 26.00 22.97
Return on
Equity (%)
21.5 21.84 32.26 23.61 27.78 29.29 78.8 74.02 46.28 42.30

12. Graphically we plot the different ratio values among the companies. These are plotted below.

15. SUMMARY
Liquidity Ratios
• It can be seen that current ratio of ITC is greater than its industry average. This shows the
company has enough current assets to settle its current liabilities.
• As per the above table it can be seen ITC quick ratio is greater than industry average which
implies company is performing good.
• As ITC debtors turn over ratio is low than industry average which implies that the company
should reassess its credit policies to ensure the timely collection of its receivables.
Solvency Ratios
• A debt to equity ratio which is very low such as 0.1 would suggest that the Company is not
utilizing the cheaper source of finance (debt). When the ratios of the company fall below the
optimum range, a corrective action may be required by Companies.
• Debt to Equity ratio is more than industry average implies company is under performing.
Profitability Ratio
• Net profit ratio is more than industry average implies company is doing well.
• Net profit margin tells you how much of a company’s revenue translates to profit after
expenses are paid. The higher the ratio the better is the company’s performance.
• Here the company is performing very well.
• Return on assets is low than the industry average which indicates that the company is not
making enough income from the use of its assets so more attention to be needed and flaws to
be rectified.
• Also Return of Equity is less than industry average so more focus is to be given to increase
the ROE.