A PROJECT REPORT ON

PROFITABILITY ANALYSIS OF FMCG COMPANIES

Submitted to:Mr. Deepak gokhru

Submitted by:Tarun Bhatia PGDM 2011-13

Introduction
As a manager, we may want to reward employees based on their performance. How do we know how well they have done? How can we determine what departments or divisions have performed well? As a lender, how do decide the borrower will be able to pay back as promised? As a manager of a corporation how do we know when existing capacity will be exceeded and enlarged capacity will be needed? As an investor, how do we predict how well the securities of one company will perform relative to that of another? We can address all of these questions through financial analysis. Financial analysis is the selection, evaluation, and interpretation of financial data, along with other pertinent information, to assist in investment and financial decision-making. Financial analysis may be used internally to evaluate issues such as employee performance, the efficiency of operations, and credit policies, and externally to evaluate potential investments and the credit-worthiness of borrowers, among other things. The analyst draws the financial data needed in financial analysis from many sources. The primary source is the data provided by the company itself in its annual report and required disclosures. The annual report comprises the income statement, the balance sheet, and the statement of cash flows, as well as footnotes to these statements. Certain businesses are required by securities laws to disclose additional information. Besides information that companies are required to disclose through financial statements, other information is readily available for financial analysis. For example, information such as the market prices of securities of publicly-traded corporations can be found in the financial press and the electronic media daily. Similarly, information on stock price indices for industries and for the market as a whole is available in the financial press.

Classification of ratios
A ratio is a mathematical relation between one quantity and another. Suppose you have 200 apples and 100 oranges. The ratio of apples to oranges is 200 / 100, which we can more conveniently express as 2:1 or 2. A financial ratio is a comparison between one bit of financial information and another. Consider the ratio of current assets to current liabilities, which we refer to as the current ratio. This ratio is a comparison between assets that can be readily turned into cash, current assets and the obligations that are due in the near future current liabilities. A current ratio of 2:1 or 2 means that we have twice as much in current assets as we need to satisfy obligations due in the near future. Ratios can be classified according to the way they are constructed and their general characteristics.

There are six aspects of operating performance and financial condition we can evaluate from financial ratios: 1. A liquidity ratio provides information on a company's ability to meet its shortterm, immediate obligations. 2. A profitability ratio provides information on the amount of income from each Rupees of sales. 3. An activity ratio relates information on a company's ability to manage its resources efficiently. 4. A financial leverage ratio provides information on the degree of a company's fixed financing obligations and its ability to satisfy these financing obligations. 5. A shareholder ratio describes the company's financial condition in terms of amounts per share of stock. 6. A return on investment ratio provides information on the amount of profit, relative to the assets employed to produce that profit.

PROFITABILITY ANALYSIS OF FMCG COMPANIES

The main objective of every business firm is to earn profit. It is possible only when resources of the firm are effectively utilized. The firms ability to earn maximum profit by the best utilization of its resources is called profitability. Profit refers to the absolute quantity of profit, whereas profitability refers to the ability to earn profit. Profit is an absolute measure of earning capacity and profitability is the relative measure of earning capacity. Profitability depends on quantum of sales, cost of production and use of financial resources etc. The profitability of a firm can easily be measured by its profitability ratios. These ratios indicate overall managerial efficiency. Profitability of any company can be measured by net profit ratio and operating profit ratio.

1. NET PROFIT RATIO:- This ratio measures the relationship between net profit and
sales of a firm. Net profit is the excess of revenue over expenses during a particular accounting period.

Calculation of net profit ratio:

NET PROFIT NET PROFIT RATIO = NET SALES * 100

2. OPERATING PROFIT RATIO:- It establishes the relationship between operating

profit and net sales.

Calculation of operating profit ratio:

OPERATING PROFIT OPERATING PROFIT RATIO = NET SALES Operating profit = Net profit + non operating exp. non operating income * 100

1. ITC
According to annual report (2013) of ITC, net profit and net sales of ITC are following:Net profit of ITC = 6162.37 (cr.) Net sales of ITC = 25090.11 (cr.) Net profit Net profit ratio = Net sales 6162.37 Net profit ratio = 25090.11 * 100 = 24.56 % * 100

The net profit ratio of ITC is 24.56% which shows the profitability of ITC

Calculation of operating profit ratio of ITC :According to annual report (2013) of ITC, operating profit and net sales are following:Operating profit of ITC = 8921.81(cr.) Net sales of ITC = 25090.11 (cr.)

Operating profit Operating profit ratio= Net sales * 100

8921.81 Operating profit ratio = 25090.11 * 100 = 35.55 %

2. HINDUSTAN UNILIVER
According to annual report (2013) of HUL, net profit and net sales are following:Net profit NET PROFIT RATIO = Net sales Net profit of HUL= 2691.40 (cr.) Net sales of HUL= 22118.64 (cr.) 2691.40 Net profit ratio = 22118.64 * 100 = 12.16 % * 100

So we can see that net profit ratio HUL is 12.16 % which shows the profitability of HUL.

Calculation of operating profit ratio of HUL:According to annual report (2013) of HUL, operating profit and net sales are following:Operating profit of HUL = 3325.20(cr.) Net sales of HUL= 22118.64 (cr.)

Operating profit Operating profit ratio= Net sales * 100

3325.20 Operating profit ratio = 22118.64 * 100 = 15.03 %

3. Britannia Industries Ltd.

According to annual report (2013) of Britannia Industries Ltd., net profit and net sales are following:Net profit NET PROFIT RATIO = Net sales Net profit of Britannia = 259.88 (cr.) Net sales of Britannia = 6185.15 (cr.) 259.88 Net profit ratio = 6185.15 * 100 = 4.20 % * 100

So we can see that net profit ratio Britannia is 4.20 % which shows the profitability of Britannia.

Calculation of operating profit ratio of Britannia:According to annual report (2013) of Britannia, operating profit and net sales are following:Operating profit of Britannia = 420.64(cr.) Net sales of Britannia = 6185.15 (cr.) Operating profit Operating profit ratio= Net sales * 100

420.64 Operating profit ratio = 22118.64 So we can see that operating profit ratio of Britannia is 1.90% * 100 = 1.90 %

4. Godrej Industries
According to annual report (2013) of Godrej Industries Ltd., net profit and net sales are following:Net profit NET PROFIT RATIO = Net sales Net profit of Godrej = 96.74 (cr.) Net sales of Godrej = 1464.63 (cr.) 96.74 Net profit ratio = 1464.63 * 100 = 6.60 % * 100

So we can see that net profit ratio Godrej is 6.60 % which shows the profitability of Godrej.

Calculation of operating profit ratio of Godrej:According to annual report (2013) of Godrej, operating profit and net sales are following:Operating profit of Godrej = 91.56(cr.) Net sales of Godrej = 1464.63 (cr.) Operating profit Operating profit ratio= Net sales * 100

91.56 Operating profit ratio = 1464.63 So we can see that operating profit ratio of Godrej is 6.25% * 100 = 6.25 %

5. DABUR
According to annual report (2013) of DABUR, net profit and net sales of DABUR are following: Net profit = 590.98 (cr.) Net sales = 4349.39 (cr.)

Net profit Net profit ratio = Net sales * 100

590.98 Net profit ratio = 4349.39 The net profit ratio of DABUR is 13.58 % which shows the profitability of DABUR. * 100 = 13.58 %

2. Calculation of operating profit ratio of DABUR :According to annual report (2013) of DABUR, operating profit and net sales are following:Operating profit of DABUR = 754.42(cr.) Net sales of DABUR = 4349.39 (cr.)

Operating profit Operating profit ratio= Net sales * 100

754.42 Operating profit ratio = 4349.39 * 100 = 17.34 %