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Analysis of Financial StatementsITC Ltd.
By:-Abhimanyu Singh YadavDivya MahttaSec 1, PGP 1
Outline
ITC: the company Segmented sales Ratio Analysis
Stock price comparison DU Pont Analysis
Common size statement Income statement Balance sheet
Trend Analysis
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:
Segmented Sales pie charts.
Agri Business
Cigarettes
Hotels
Others
Paperboards, Paper& Packaging
Segmented PBIT
Sales segment wise
PBIT / capital employed
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
Liabilities Structure
Liabilities Structure 2007
Net Worth
Total borrowings
Current liabilities &provisions
Liability structure 2006
Net Worth
Total borrowings
Current liabilities &provisions
Why Ratios?
Easy comparison as everything’s brought to same platform
Indicates strengths and weaknesses of the company
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?
Liquidity Ratios
Ratios Mar
04 Mar
05 Mar
06 Mar
07 Analysis
Cash to C.L 0.010 0.017 0.238 0.230
Increasing ability of firm to pay through cash
Quick ratio 0.103 0.211 0.365 0.394
Inadequate quick assets: More
reliance on stock
Current ratio 0.829 1.004 1.320 1.459
Improved Liquidity
Working Capital -610 11.51 1148 1759
Possible Reasons: Increase in WC Requirement
Solvency Ratios
Ratio Mar
04 Mar
05 Mar
06 Mar
07 Analysis
Debt:Equity
0.02 0.03 0.01 0.02
Low Debt &More Reliance on owners fund Ability to pay interest is good: Use more of debt Can use leverage
Possible reason: High rate of interest on Loan
Interestcoverage 80.12 56.62 207.7 453.0
Debt:Total fund 0.40 0.33 0.32 0.31
Propriety Ratio
0.59 0.67 0.68 0.68
Turnover Ratios
Ratio Mar
04 Mar
05 Mar
06 Mar
07 Analysis
Debtors turnover 46.91 32.58 28.55 31.37
Fastcollection offunds : Less
W. CDrs T/O Period(in days) 7.78 11.20 12.78 11.63
Creditors turnover 1.34 1.55 2.50 2.98
Time Lag inPayments: Decreasing. WC needsincreasing
Crs T/O period(in days) 271.1 234.3 145.4 122.3
Turnover Ratios
Ratio Mar
04 Mar
05 Mar
06 Mar
07 Analysis
Raw materialturnover 2.41 1.96 1.84 1.83
Efficiency ofInventoryManagement : ↓
FinishedGoods T/O 40.98 28.91 24.48 27.00
Fixed Asset T/O 3.19 3.22 3.62 3.37
Stable : Efficient utilization
CapitalEmployed T/O 1.13 1.15 1.24 1.30
Adequateamount ofcapital Used
Profitability Ratios
Ratio Mar
04
Mar 05
Mar 06
Mar 07
Analysis
GrossProfit
22.10 23.01 21.74 21.65Operatingefficiency is good
Operating Profit
20.14 20.93 19.74 19.84Less proportion ofindirect expenses
Net Profit 12.96 14.56 13.46 13.48 Available toOwners : Tax
Incidence
Profitability Ratios : Trend
Conclusion - High Tax Rates : Exempted Income Reducing the Tax liability
Market Value : Owners Point of View
RatiosMar 04
Mar 05
Mar 06
Mar 07
Analysis
ROI 42.0 43.9 38.5 40.5High Return: Efficient utilization of funds
EPS 4.29 4.91 6.08 7.19 Face Value = 1 Re. High Return. DPS 1.33 2.07 2.65 3.10
Market Value : Owners Point of View
RatiosMar 04
Mar 05
Mar 06
Mar 07 Analysis
DP Ratio 31.00 42.16 43.59 43.12
More contribution to Retained Profit
PE ratio 16.19 18.22 32.06 20.92Higher growth prospects
Earning Yield 6.2% 5.5% 3.1% 4.8% Profitability in terms of Mkt Price: Unstable
Dividend Yield 1.9% 2.3% 1.4% 2.1%
BSE Stock prices: ITCShare price of ITC
0
50
100
150
200
250
TIME
INR
Profitability of Shareholders Depends onProfitability of the Organization (PM)Asset utilization Rate (TATO)Debt utilization: Leverage (Eq.
Multiplier.) Shows how these factors combine to
determine ROE.
DU Pont Analysis
DU Pont Analysis
ROE = (Profit margin) x (TA turnover) x (Equity multiplier)
ROE = (PAT/Sales) x (Sales/TA) x (TA/Equity)
PM TA TO EM ROE
2004 12.96% 1.12 1.67 24.3%
2005 14.56% 1.15 1.49 25.06%
2006 13.46% 1.24 1.47 24.52%
2007 13.48% 1.30 1.46 25.63%
Common size statementsIncome statement
Year Ending 31st March 2004 %age 2005 %age 2006 %age 2007 %age
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
Depreciation 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
Tax 726.21 6.03 836.00 6.15 988.82 5.99 1226.73 6.18
PAT before exeptional items 1592.85 13.23 1837.07 13.52 2280.37 13.81 2699.97 13.61
Exceptional Items 0.00 0.00 354.33 2.61 -45.02 -0.27 0.00 0.00
PAT 1592.85 13.23 2191.40 16.13 2235.35 13.54 2699.97 13.61
Dividends 558.83 4.64 881.70 6.49 1134.70 6.87 1364.50 6.88
Retained Profits 1034.02 8.59 1309.70 9.64 1100.65 6.67 1335.47 6.73
Common size statements: Balance SheetLiabilities Mar 2004 Mar 2004 Mar 2005 Mar 2005 Mar 2006 Mar 2006 Mar 2007 Mar 2007
Rs. Crore (Non-Annualised) 12 mths %age 12 mths %age 12 mths %age 12 mths %age-Net worth 6410.06 59.96 7895.61 67.15 9061.48 68.04 10437.08 10437.08 Authorised capital 300.00 2.81 300.00 2.55 500.00 3.75 500.00 3.28 Issued equity capital 247.68 2.32 248.22 2.11 375.52 2.82 376.22 2.47 Paid up equity capital (net of forfeited capital) 247.68 2.32 248.22 2.11 375.52 2.82 376.22 2.47
Reserves & surplus 6162.38 57.65 7646.18 65.03 8685.96 65.22 10060.86 66.04 Free Reserves 5731.03 53.61 7220.45 61.41 8260.96 62.03 9637.95 63.26 Security premium reserves (Net of deductions) 295.62 2.77 382.25 3.25 447.28 3.36 488.97 3.21 Other free reserves 5435.41 50.85 6838.20 58.16 7813.68 58.67 9148.98 60.05 Specific Reserves 370.51 3.47 365.83 3.11 365.83 2.75 365.83 2.40 Revaluation Reserves 60.84 0.57 59.90 0.51 59.17 0.44 57.08 0.37
Total borrowings 120.85 1.13 245.36 2.09 119.73 0.90 200.88 1.32 Bank borrowings 55.71 0.52 168.91 1.44 33.80 0.25 107.07 0.70 Short term bank borrowings 55.71 0.52 168.91 1.44 26.04 0.20 76.62 0.50 Long term bank borrowings 0.00 0.00 0.00 0.00 7.76 0.06 30.45 0.20 Deferred credit 65.14 0.61 76.45 0.65 85.93 0.65 93.81 0.62
0.00 0.00 0.00 0.00 Secured borrowings 31.56 0.30 88.69 0.75 25.91 0.19 60.78 0.40 Unsecured borrowings 89.29 0.84 156.67 1.33 93.82 0.70 140.10 0.92 Current portion of long term debt 0.00 0.00 0.00 0.00 0.29 0.00 1.70 0.01
Current liabilities & provisions 3544.67 33.16 3043.72 25.89 3589.13 26.95 3869.01 25.40 Sundry creditors 2804.31 26.23 1892.02 16.09 2148.42 16.13 2343.44 15.38 Acceptances 2.02 0.02 3.01 0.03 4.34 0.03 2.69 0.02 Deposits & advances from customers & employees 40.76 0.38 22.97 0.20 26.82 0.20 23.83 0.16 Interest accrued 0.79 0.01 1.04 0.01 0.54 0.00 0.55 0.00 Other current liabilities 13.91 0.13 16.50 0.14 19.97 0.15 25.66 0.17 Provisions 682.88 6.39 1108.18 9.42 1389.04 10.43 1472.84 9.67
Deferred tax liability 614.18 5.75 573.46 4.88 547.92 4.11 728.26 4.78
Total liabilities 10689.76 100.00 11758.15 100.00 13318.26 100.00 15235.23 100.00
Common size statements: Balance SheetAssets Mar 2004 %age Mar 2005 %age Mar 2006 %age Mar 2007 %age
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths-Gross fixed assets 5210.69 48.74 6015.94 51.16 6627.14 49.76 8264.51 54.25 Land & building 1196.80 11.20 1544.96 13.14 1624.53 12.20 1862.71 12.23 Plant & machinery 3233.48 30.25 3809.53 32.40 4156.86 31.21 4760.66 31.25 Transport & comm. equipment/infrastructure25.46 0.24 31.41 0.27 43.82 0.33 51.69 0.34 Furniture,amenities & other fixed assets 185.50 1.74 271.82 2.31 298.10 2.24 319.36 2.10 Capital work-in-progress 435.89 4.08 269.67 2.29 399.97 3.00 1130.20 7.42 Intangible assets 99.70 0.93 88.55 0.75 103.86 0.78 139.89 0.92
Less: Cumulative depreciation -1442.63 -13.50 -1795.51 -15.27 -2065.44 -15.51 -2389.54 -15.68
Net fixed assets 3768.06 35.25 4220.43 35.89 4561.70 34.25 5874.97 38.56
Investments 3053.96 28.57 3874.68 32.95 3517.01 26.41 3067.77 20.14 Equity shares 859.04 8.04 795.96 6.77 795.96 5.98 847.10 5.56 Preference shares 0.01 0.00 120.01 1.02 120.01 0.90 107.14 0.70 Mutual funds 1898.32 17.76 2596.70 22.08 2204.72 16.55 1720.12 11.29 Debt instruments 323.36 3.02 388.78 3.31 423.09 3.18 420.18 2.76 Less: Provision for dimunition in value of investments-26.77 -0.25 -26.77 -0.23 -26.77 -0.20 -26.77 -0.18
Group companies 870.40 8.14 806.43 6.86 807.33 6.06 858.46 5.63 Non-group companies 2210.33 20.68 3095.01 26.32 2736.44 20.55 2236.07 14.68
Market value of quoted investments 285.22 2.67 8.70 0.07 13.46 0.10 13.30 0.09
Deferred tax assets 526.44 4.92 197.37 1.68 223.16 1.68 255.41 1.68
Current assets 2949.84 27.60 3201.17 27.23 4736.90 35.57 5721.69 37.56 Cash & bank balance 34.04 0.32 55.66 0.47 855.82 6.43 900.16 5.91 Inventories 1534.21 14.35 2002.99 17.03 2636.29 19.79 3354.03 22.01 Receivables 1381.59 12.92 1142.52 9.72 1244.79 9.35 1445.65 9.49 Expenses paid in advance 0.00 0.00 0.00 0.00 0.00 0.00 21.85 0.14
Loans & advances 391.46 3.66 264.50 2.25 279.49 2.10 315.39 2.07
Total assets 10689.76 100.00 11758.15 100.00 13318.26 100.00 15235.23 100.00
Trend Analysis: Income statementYear 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
Exceptional Items *
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
Trend Analysis
Trend analysis
90.00
110.00
130.00
150.00
170.00
190.00
210.00
2004 2005 2006 2007
Years
SALES
PBIT
Tax
PAT
Cost of sales
Trend Analysis
Trend analysis
80.00
100.00
120.00
140.00
160.00
180.00
200.00
220.00
240.00
2004 2005 2006 2007
Years
SALES
PAT
Dividends
Retained profits
Trend Analysis: Balance sheetMar-04 Mar-05 Mar-06 Mar-07
12 mths 12 mths 12 mths 12 mths
100 112.01 121.06 155.91
100 126.87 115.16 100.45
100 37.49 42.39 48.52
100 108.52 160.58 193.97
100 67.57 71.40 80.57
100 109.99 124.59 142.52
100 123.41 141.79 163.48
100 100.22 151.61 151.90
100 124.08 140.95 163.26
100 203.03 99.07 166.22
100 281.02 82.10 192.59
100 175.46 105.07 156.90
100 85.87 101.25 109.15
100 67.47 76.61 83.57
100 131.65 68.35 69.62
100 118.62 143.57 184.47
100 162.28 203.41 215.68
100 109.99 124.59 142.52
Other current liabilities
Provisions
Total liabilities
Current liabilities & provisions
Sundry creditors
Interest accrued
Total borrowings
Secured borrowings
Unsecured borrowings
Reserves & surplus
Paid up equity capital (net of forfeited capital)
Total assets
Net Worth
Deferred tax assets
Current assets
Loans & advances
Net fixed assets
Investments
Balance sheet Trend analysisRs. Crore
Trend Analysis: BshTrend Analysis (Bsh)
50
70
90
110
130
150
170
190
210
1 2 3 4 5
Years
Net fixed assets
Investments
Current assets
Net Worth
Total borrowings
Current liabilities & provisions
Mar 04 Mar 05 Mar 06 Mar 07
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.
Thank You!
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