Professional Documents
Culture Documents
Of
By
Varun Bathula
FK - 2189
Batch 19 (Finance)
Financial analysis of ITC Limited
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of
India Limited. As the Company's ownership progressively Indianised, the name of the
Company was changed 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 - Cigarettes &
Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers,
Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the
full stops in the Company's name were removed effective September 18, 2001. The
Company now stands rechristened 'ITC Limited'.
Capital structure:
Interpretation:
From the above table, it can be inferred that over the 5 years the capital raised is through
equity shares only. Which implies that ITC is following differential strategy as it is
having good brand value. It is also having fast moving as a strategy which is helped by
huge internal source of finance.
Ratio analysis
Year Percentage
2007 21.40
2008 21.50
2009 21.18
2010 21.30
2011 22.91
Interpretation:
From the above table it can be inferred that this ratio is maintained at same level till 2010.
The ratio helps in finding out efficiency in capturing the amount of surplus generated per
unit of the product or service sold. In 2011 it has increased 1.61% shows ITC generated a
sizeable profit margin, and the company is efficiently enough to recover not only the
costs of the product or service sold, operating expenses, and the costs of debt, but also to
provide compensation for its owners in exchange for their acceptance of risk.
Interpretation:
The above table shows the very important ratio of a company which tells the share price
also price to earnings. As it has increased in the consecutive years till 2010 ITC is
efficient at using its capital to generate income and it shows great performance. But, a
sudden drop to a lowest value in 2011 is a concern which needs to be improved.
Sales
Fixed Assets Turnover Ratio =
Net Fixed Asset
From the above table, it can be inferred that even though there was a huge drop in
2008and 2009, it improved over last three years. It is especially important for a
manufacturing firm that uses a lot of plant and equipment in its operations to calculate its
fixed asset turnover ratio.
Current Ratio:
Current assets
Current ratio=
Current liabilities
Interpretation:
From the above table, for three consecutive years from 2007-2011 ITC shows a negative
note with bad financial health as it is advisable to be near 2. But in 2010, it has gone
worst to a decrease of 0.5% which is not advisable as current liabilities are more. Even
the increase in 2011 is very minimal which shows the company is in bad financial health.
Quick Ratio:
Quick Assets
Quick Ratio =
Current Liabilities
Interpretation:
From the above table for the last 5 years from 2007-2011 the financial strength of the
company is not accepted. As the current inventory and prepaid expenses are deducted the
quick ratios are usually low. In general, a quick ratio of 1 or more is accepted by most
creditors. The above figures, especially in last 2 years are a concern for the company.
However, quick ratios vary greatly from industry to industry.
Sales
Debtor Turnover Ratio =
Average Debtors
Year Ratio (times)
2007 20.79
2008 20.43
2009 21.32
2010 24.31
2011 23.91
Interpretation:
The higher the value of debtors turnover the more efficient is the management of debtors
or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient
management of debtors or less liquid debtors. From the above table from the past it can
be inferred that in 2010 the ratio is higher (24.31).Higher turnover signifies speedy and
effective collection. A slight decrease is seen in the year 2011 but over the years we can
see a great efficiency of the management of debtors.
Interpretation:
External Equity
Debt Equity Ratio =
Shareholders Fund
This ratio is used to find the relative proportion of equity and debt to finance a companys
assets. The performance of the company is excellent as the ratios are almost negligible.it
can be also inferred that, the company is in strong position with huge amount of
shareholders fund.
Year Ratio
2007 3.10
2008 3.50
2009 3.70
2010 10.00
2011 4.45
Interpretation:
ITC used to pay low dividends at par with the industry standards. Even though they paid
high dividend in 2010, it again brought down to 4.45. It can also be inferred that they are
consistent in paying the dividends.
B
CG Matrix
Cash flow:
Investment:
Cash flow:
Cash flow:
Investment:
Divestiture strategy.
Reducing capacity to free up resources.
Cash flow:
As the BCG Growth/Share Matrix generates options which require further analysis
and validation, this tool definitely enhances strategic decision making. As ITC is
having lot of its products as cash cows with good brand value, the surplus money
generated should be used to fund other strategic business units, especially ?
mark stage. At the same time these cash cows should be maintained by exploring
new avenues and diversification.
As it is also evident from the financial analysis that, company is in a very strong
position with good brand value, it should go for inorganic growth like Mergers &
Acquisitions, Vertical & Horizontal integrations etc. by taking into consideration
strategic financial parameters like business risk, financial risk etc.