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Individual Assignment

On
A financial ratio analysis with interpretations for the past five years
(2005-06 to 2009-10) of Hindustan Unilever Limited

By
Abhay Kumar ROLL NO-301
Abhijit Sah ROLL NO-302
Abhishek Singh ROLL NO-303
Akshat Nemani ROLL NO-305

PGDM (IB) Class of 2011-13

Under the Supervision of


F.M.A KHAN
ACCOUNTING FOR MANAGERS FACULTY

In Partial Fulfillment of Award of Post Graduate Diploma in


International Business

Table of Contents

LIQUIDITY RATIO ................................................. ................................................... ................................ 3


Current Ratio....................................................................................... ............................................... . 3
Interpretation....................................................................................... ........................................... 3
QUICK/LIQUID/ACID T EST RA T IO........................................................................................................ 4
Interpretation....................................................................................... ........................................... 4
P RO FITIBILITY RATIO ................................................. ................................................... .......................... 5
G ROSS PR OFIT MARGIN ...................................................................................................................... 5
Interpretation....................................................................................... ........................................... 5
NE T PR OFIT MARGIN................................................................................... ........................................ 6
Interpretation....................................................................................... ........................................... 6
OPERATING PR OFIT RA TIO.............................................................................. .................................... 7
Interpretation....................................................................................... ........................................... 7
R E T U R NO N C APIT A LEMPLOYED.......................................................................... .............................. 8
Interpretation....................................................................................... ........................................... 8
RETU R NO N EQUITY .................................................................................... ........................................ 9
Interpretation....................................................................................... ........................................... 9
E A RNING S PE R SHARE ....................................................................................................................... 10
Interpretation....................................................................................... ......................................... 10
TURNO VER RATIO ................................................. ................................................... ............................ 11
DE BTO R STURNO V E RR A TIO ............................................................................................................. 11
Interpretations ..................................................................................... ........................................ . 11
ST O C KT U RNO VER RA TIO................................................................................ .................................. 12
Interpretation....................................................................................... ......................................... 12
T O T A L SASE T STU RNO V E RR A T IO..................................................................................................... 13
Interpretation....................................................................................... ......................................... 13
L EVE RAGE RATIO ................................................. ................................................... .............................. 14
DE B TEQUITY RATIO ................................................................................... ....................................... 14
2

Interpretation....................................................................................... ......................................... 14
INT E R EST CO V E R A G R
E A TIO ............................................................................................................. 15
Interpretation....................................................................................... ......................................... 15
VALUATION RATIO ................................................. ................................................... ........................... 16
PR IC ET O C ASH FLOW R A TIO ............................................................................................................ 16
Interpretation....................................................................................... ......................................... 16
PR IC ET O E A RNING S RA TIO ............................................................................................................... 17
Interpretation....................................................................................... ......................................... 17

LIQUIDITY RATIO
Curr ent Ratio
Defined as ratio of current assets to current liabilities. The concept behind this ratio is to ascertain
whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables
and inventory) are readily available to pay off its short-term liabilities (notes payable, current
portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current
ratio, the better.

i.e.

INVENTORY + C ASH AND BANK + DEBTORS + BILLS RECIEVABLE


C REDITOR S + B IL LS PA Y A LBE + O/S EXPEN SE S + B ANK OVERDRAFTS

Year End
ITC
HUL
MA RICO

2010
2
1.01
3

2009
3
1.32
2

2008
3

2007
3
0.85
1

2006
2
0.99
2

2005
2
0.93
2

3.5
3
2.5
2

ITC
HUL

1.5

MARIC
O

1
0.5
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
Current Ratio of HUL is less than that of IT C and MA RIC O for the last 5 years and is close to 1 for
the entire period. However Cash and Bank Balance as a percentage of the Current Asset for HU L
(Cash and Bank Balance comprising almost 40% of Current Assets) is more than that of Current
Asset for IT C which have Cash and Bank Balance as 16% of current Assets.
4

QUICK/LIQUID/ACID TEST RATIO


A liquidity indicator that further refines the current ratio by measuring the amount of the
most liquid current assets there are to cover current liabilities. The quick ratio is more conservative
than the current ratio because it excludes inventory and other current assets, which are more
difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

Year End
ITC
HUL
MA RICO

2010
1
0.6
1

2009
1
0.72
1

2008
1

2007
1
0.35
1

2006
1
0.51
1

2005
1
0.49
1

1.2

0.8
ITC
HUL

0.6

MARICO

0.4
0.2

0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
Quick ratio for HUL is less than 1 for all years against the conventionally recommended value of
1.Also the ratio is less than that of IT C and MA RICO across last five years. Being a major player in
FMCG sector HUL do not have to worries in finding creditors. A small value of quick ratio also
signifies efficient utilization of cash.

PROFITIBILITY RATIO
GROSS PROFIT MARGIN
Used to assess a firms financial health by revealing the proportion of money left over from
revenues after accounting for the cost of goods sold.

Year End

2006

2007

2008

2009

2010

ITC

35.98

34.05

28.44

29.17

29.74

HUL
Marico

15.8
9.72

15.86
11.21

12.06

13.5
13.13

14.7
15.37

40
35
30
25
IT C
20
HUL
15

Marico

10
5
0
2005

2006

2007

2008

2009

2010

2011

Interpretation
Gross profit margin of HUL is closed to 15 and is considerably less than that of ITC for the last 5
years. A S Gross profit margin represent the companys ability to efficiently utilize its raw
materials, labour and manufacturing-related fixed assets to generate profits, here HUL appears to
be less efficient as compared to ITC.

NET PROFIT MARGIN


Calculated as net income divided by revenues or net profits by sales.
It measure how much out of every dollars of sales a company actually keeps in earnings.

Net Profit Margin=

N et I n c o m e
Revenues

Year
End

2006

2007

2008

2009

2010

ITC

22.19

21.4

21.5

21.18

21.3

HUL

14.94

12.58

12.09

12.29

Marico

9.4

8.39

7.35

11.65

9.06

25

20

15

ITC
HUL

10

Marico

0
2005

2006

2007

2008

2009

2010

2011

Interpretation
Net Profit Margin of HUL is showing a decreasing trend except for the year 2010.Also it is less
than that of IT C for the last 5 years. Analysis of Income statement of HU L and IT C yields that
average revenues for HU L is less than that of IT C for the last 5 years. As Net Profit margin
represents a comprehensive view of the profitability of the company HU L seems to be less
profitable as compared to IT C.

OPERATING PROFIT RATIO


Operating profit means profit earned by the concern from its business operation and not from
other sources.
Operating Profit Ratio = Operating Profit
Net Sales
Whereas Operating Profit = Gross Profit Operating Expenses
And Net Sales = Total Sales Sales Return
Year
End
ITC

2006

2007

2008

2009

2010

34.36

32.51

31.57

32.84

33.02

HUL

14.74

14.95

14.46

15.74

Marico

12.9

13.77

14.01

16.63

13.26

40
35
30
25
ITC
20
HUL
15

Marico

10
5
0
2005

2006

2007

2008

2009

2010

2011

Interpretation
Operating Profit Ratio for HU L is consistent over the last 5 years and is considerably less than that
of ITC.Analysis of Income statement of IT C and HU L yields that for every year total sales of HU L is
less that of ITC . A s Operating Profit ratio is deemed to be more reliable than Net Profit ratio for
comparison between companies, HU L seems to be less profitable in its operational activities as
compared to IT C.

RETURN ON CAPITAL EMPLOYED


Indicates the efficiency and profitability of a companys capital investments.
=

Net Income
Capital Employed

Capital Employed: Avg Debt Liability + Avg Shareholder Equity


Year
End
ITC

2005

2006

2007

2008

2009

2010

42

38

40

40

37

44

HUL

57

85

109

152

111

Marico

33

27

37

35

33

42

160
140
120
100
ITC
HUL
Marico

80
60
40
20
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
R O C Efor HUL is showing an increasing trend except in 2010.Also its more than that of IT C and
Marico in last 5 years. Analysis of Balance sheet of HUL and IT C yields that total fund employed
for HU L is less than that of ITC for all 5 years. This ratio indicates that HUL is able to generate
more returns by using less capital as compared to IT Cand Marico.

RETURN ON EQUITY
Calculated as the amount of net income returned as a percentage of shareholders equity.
Return on Equity =

Net Income
Shareholder's Equity

Year
End
ITC

2005

2006

2007

2008

2009

2010

31

27

28

28

25

29

HUL

64

74

93

143

95

Marico

34

36

50

49

42

67

160
140
120
100
ITC
HUL
Marico

80
60
40
20
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
R O E for HUL is more than that of IT C and Marico in the last 5 years. R O E is showing an increasing
trend with a decrease in 2010. Analysis of balance sheet yields that both Net income and total
share capital for HU L is less than that of IT C for all years. However since ROE is the ratio of Net
Income to Equity, RO E ratio indicates that HU L is able to more effectively use its investor money as
compared to ITC in generating profit. Both for ITC and HU L share of equity in total capital is much
more than that of debt hence the ROE is an important ratio in determining their profitabilities.

EARNINGS PER SHARE


Calculated as the portion of companys profit allocated to each outstanding share of common stock.

EPS

Net income- Dividend on Preferred Stock


Average Outstanding shares

Year
End
ITC

2010

2009

2008

2007

2006

2005

11

88

HUL

10

11

Marico

15

12

100
90
80
70
60
ITC
HUL
Marico

50
40
30
20
10
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
Earnings per share for HU L is gradually increasing in the last 5 years and is almost equivalent to IT C
in last 4 years, however IT C employs more capital in comparison to HU L in generating for
generating he earnings hence HU L earnings are not efficient in comparison to IT C.

10

TURNOVER RATIO
Turnover ratio measures the degree to which assets are efficiently employed in the firm. There
are also known as activity ratio or asset management ratio and they are important for a business
concern to find out how well the facilities at the disposal of the concern are being used.

DEBTORS TURNOVER RATIO


It is a measure as to how well the debtors are being used as current assets or how well assets have
been employed in the firm. It is an activity ratio which reflects upon the efficiency of the asset in
generating sales flow.
DE BTO R STURNO V E RR A TIO =

Year End
ITC
HUL
MA RICO

2010
34
29.98
20

2009
32
44.17
24

SALES
DEBTORS
2008
31
25

2007
32
33.4
27

2006
30
27.07
26

2005
34
23.67
28

50
45
40
35
30
ITC HUL
MARICO

25
20
15
10
5
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretations
Here, the above table indicates that while it was managing its debtors in an increasing more
efficient fashion before 2008, there seems to have been a jump due to changing in their accounting
practises. Right after the change, in 2009-10, the company returned to a more normalized pattern.
However, IT C is still tops when it comes to keeping debtors low and payments high.

STOCK TURNOVER RATIO


It is an indicator as to with what efficiency and rapidity a firm is able to move its merchandise. It
is basically a measure of liquidity of firms inventory.
STOCK TURNOVER RATIO =

Year End
ITC
HUL
MA RICO

2010
6
7.74
7

2009
5
9.66
8

COSTS OF GOODS SOLD


A VER A G E
STOCK
2008
6
8

2007
6
8.43
9

2006
7
9.09
9

2005
8
8.58
9

12

10

8
ITC
6
HUL
MARICO

0
2005

2006

2007

2008

2009

2010

Interpretation
As can be seen above, HUL has a higher Stock Turnover Ratio than both IT C and Marico. This means
that money is tied up for less time on stocks. A quicker stock turnover also indicates that HU L
makes profits on its stocks quicker than the others, pointing towards a more competitive
organisation.

TOTAL ASSETS TURNOVER RATIO


It is an indicator that defines whether a firm is utilising its assets efficiently or not. It is an activity
ratio which suggests that whether the assets of the firm are operating as desired and is contributing
to the sales of the firm.
TOTAL ASSETS TURNOVE R R ATIO =

Year End
ITC
HUL
MA RICO

2010
3
7.19
7

2009
3
10.79
8

SALES
TOTAL ASSETS

2008
3
8

2007
3
6.83
9

2006
3
5.05
9

2005
4
4.04
9

12

10

8
ITC
6
HUL
MARICO

0
2005

2006

2007

2008

2009

2010

Interpretation
In the period under consideration, HU L achieved its best turnover ratio in the year 2007, when a
sharp decrease in total assets did not affect the growth of sales. In 2008, HU L made a heavy
investment of about Rs. 900 crore for asset acquisition. However, it used those assets well, making
a large jump of Rs. 6200 crore in sales.

LEVERAGE RATIO
Leverage Ratio used to calculate the financial leverage of the company to get an idea of the
companys methods of financing or measure its ability to meet financial obligations.

DEBT EQUITY RATIO


The debt-equity ratio is a leverage ratio that compares a company's total liabilities to its
total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors
and obligors have committed to the company versus what the shareholders have committed.
D EBT EQUITY RAT IO =
AL LONG TERM LOANS
E Q UITY SHA REHOLDERS CAPITAL
Year End
ITC
HUL
MA RICO

2010
0
0.09
1

2009
0
0.15
1

2008
0
1

2007
0
0.04
1

2006
0
0.03
1

2005
0
0.35
0

1.2

0.8
ITC HUL
MARICO

0.6

0.4
0.2

0
2005

2006

2007

2008

2009

2010

Interpretation
Debt/Equity ratio for HU L is not following a trend over the last years. It is much lower than MARICO
for the last five years. Analysis of balance sheet of HUL reveals that capital of HUL is funded
majorly through equity rather than debt.

INTEREST COVERAGE RATIO


It is the measure that determines whether the firm would be able to service its debt. The ratio is
the test of solvency for the firm.
INTEREST COVERAGE RAT IO =

Year End
ITC
HUL
MA RICO

2010
68
403.07
13

2009
102
120.29
7

EBIT
nterest to
I be paid
2008
187
8

2007
246
92.81
7

2006
154
203.86
16

2005
61
87.39
23

450
400
350
300
250

ITC HUL
MARICO

200
150
100
50
0
2005

2006

2007

2008

2009

2010

Interpretation
Interest Coverage ratio for HU L is much more than that of HU L and MA R IC Ofor all years except
2007. This indicates that HU L can easily meet its interest expense. Analysis of Income statement
for HU L yields that Interest paid is much less Rs(Cr)6.98 in comparison to E BIT Rs(Cr) 2,997.43
resulting in high value of Interest Coverage Ratio.

VALUATION RATIO
Valuation ratio measure how cheap or expensive security is as compared to some measure of profit
or value.

PRICE TO CASH FLOW RATIO


The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a
value standpoint, of a company's stock. This metric compares the stock's market price to the amount
of cash flow the company generates on a per-share basis. Higher the ratio better will be the
valuation
of the company. Price/cash flow ratio (P/CF) is seen by some as a more reliable basis than
earnings per share to evaluate the acceptability, or lack thereof, of a stock's current pricing as it is
not easily
Manipulated .

Year End
ITC
HUL
Marico

2010
11
5.11
13

2009
11
9.98
13

2008
14

2007
13
8.05
8

13

2006
19
7.43
7

2005
1
5.91
19

20
18
16
14
12
ITC
HUL
Marico

10
8
6
4
2
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
Price/Cash flow ratio for HU L is showing an increasing trend other than in 2010 when it has
decreased/Cf ratio for HU L is less than that of IT C and MA R IC Ofor all years. In 2010 there is a
drastic increase in Cash Flow from operating activities (Rs (Cr)20128 in 2009 to Rs (Cr) 3432 in

2010) which is the reason of decrease in the value of Price/Cash flow ratio in 2010.

PRICE TO EARNINGS RATIO


The PE ratio indicates the growth prospects, risk characteristics, degree of liquidity, shareholder
orientation and corporate image of a company.
A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in
the future compared to the overall market, as investors are paying more for today's earnings in
anticipation of future earnings growth.
P/E ratio = Price per share / Earnings per share
Year End
ITC
HUL
Marico

201003
12
24.06
28

200903
10
20.69
26

200803
12
29

200703
10
24.27
33

200603
16
25.24
32

200503
0
31.92
19

35
30
25
20

ITC
HUL

15

Marico
10
5
0
2004

2005

2006

2007

2008

2009

2010

2011

Interpretation
P/E ratio for HUL is showing a decreasing trend except in 2010 when it has increased. Also P/E ratio
for HUL is more than that of IT C in all years indicating a higher confidence of investors in HU L as
compared to ITC.Analysis of Income statement of HUL yields that earning has decreased from Rs
(Cr)
2500 to Rs (Cr) 2202 which is the reason for decrease in EPS in 2010.