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Ratio and swot analysis of itc limited

Presented byPrarthana amin Pgpm finance Iapm assignment Batch 2011-2013

Analysis of ITC financial statement

1. DEBT EQUITY RATIO:


Debt-Equity Ratio = Long term debts/Shareholders fund

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1997-1998 1998-1999 1999-2000 0.23 0.24 0.06 2000-2001 2001-2002 0.74 0.56

Debt equity ratio

INTERPRETATION The comparison made between the 5years i.e. 1997-2002 shows that the debt ratio over equity has decreased from 0.74 to 0.06. This is a good sign for the company as it can be seen it is financed on more of equity funds other than debt funds. Hence this ratio indicates favourable condition of the company.

2. INVENTORY TURNOVER RATIO:


(Average stock= Opening Stock+ Closing Stock/2)

6.3 6.2 6.1 6 5.9 5.8 5.7 5.6 5.5 1997-1998 1998-1999 1999-2000 5.82 5.98 6.12 6.3 6.27

2000-2001

2001-2002

Stock Turnover Ratio

INTERPRETATION By the comparison done between the 5 years i.e. 1997-2002 the turnover of the inventory is constant at 6 times per year. Hence it is concluded that ITC has maintained a stable position in the market for the 5 years. It can also be said that the replacement of stock 6 times a year indicates favourable condition of the company.

3. PROFITABILITY RATIO: a) Gross profit ratio


Gross Profit/Net Sales*100

31.00% 30.00% 29.00% 28.00% 27.00% 26.00% 25.00% 24.00% 23.00% 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 25.76% 26.22% 28.83% 30.48% 30.58%

Gross profit ratio

INTERPRETATION The above chart shows the total profit earned by ITC limited. It can be seen from the chart that the gross profit ratio of the company which was 25.7% in the year 1997-1998 has increased to 30.58% in the year 2001-2002. This indicates that the company is doing very good in sales as the inventory turnover ratio is also favourable. This indicates the favourable condition of the company.

b) Net profit ratio


Net Profit after Tax/Sales*100

14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 7.70% 8.23% 11.59% 9.96% 12.09%

Net profit ratio

INTERPRETATION From the above ratio we can see that even after deducting operating expenses, interest, depreciation and tax, the net profit ratio is still increasing. The net profit ratio which was 7.70% in the year 1997-1998 has increased to 12.09% in the year 2001-2002. This indicates highly favourable condition of the company as its profits are still growing even after deducting the costs.

SWOT ANALYSIS
STRENGTHS ITC is a dominant player with 66% market share. It has a great advantage of its popular brand name. Merger of ITC with bhadrachalam paper boards. ITC has gained people trust which has resulted in rise in nearly 150000 shareholders. Improvement in EBIT margin of ITC in core cigarette business has lead to improvement in the product mix and the omission of launch expenditure of new brands. WEAKNESSES Declined sales volume in quarter 3 as compared to quarter 2 and quarter 1 due to health effects. Dependent on tobacco revenues and people have cheaper substitutes and other brands. OPPORTUNITIES Good opportunity in rural market as the number of smokers are high i.e. 18.9% as compared to urban market of 15.4%. Has provided employment to people over 12000 over 60 locations across India. Merger and acquisition of companies will strengthen the brand. Increasing purchasing power of people is increasing the demand. More publicity of hotel chains will increase the market share. Entrance of ITC in life style retailing business with WILLS sport range will bring great opportunities for ITC.

THREATS Companies like GODFREY PHILIPS, GTC AND VST are threats for ITC. Continuous awareness spread by NGOs and other social service groups to avoid consumption of cigarettes. Bidis giving tough competition to cigarettes by being sold in low prices as compared to cigarettes. Strict government regulations and policies regarding cigarettes.

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