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FINANCIAL PERFORMANCE OF ITC Ltd. USING
RATIO ANALYSIS
Ms.E.Dayana Chowdari , MBA, Sreenivasa Institute of Technology and Management Studies, Chittoor, A.P., India Dr.H.Viswa Kiran Associate Professor, Sreenivasa Institute of Technology and Management Studies, Chittoor, A.P., India Mr.P.Prasad Assistant Professor, Sreenivasa Institute of Technology and Management Studies, Chittoor, A.P., India Abstract ITC has a diversified presence across industries such as FMCG, hotels, software as ITC InfoTech, packaging, paperboards, specialty papers and agribusiness. ITC's diversified portfolio, commitment to quality, and focus on sustainable business practices have helped it maintain a prominent position in India's corporate landscape. The aim of this paper is to analyze the profitability, liquidity and leverage position of the ITC Ltd. during 2012- 13 to 2021-22. The overall financial performance of the ITC Company is not satisfactory. The company has to reduce debts or outsiders funds and also should concentrate to increase the profits and also the company needs to reduce the liabilities and try to improve the assets. Introduction ITC Limited is an Indian conglomerate company headquartered in Kolkata, West Bengal. ITC has a diversified presence across industries such as FMCG, hotels, software as ITC InfoTech, packaging, paperboards, specialty papers and agribusiness. The company has 13 businesses in 5 segments. It exports its products in 90 countries. Its products are available in 6 million retail outlets. ITC Limited, originally known as the Imperial Tobacco Company of India Limited, is a conglomerate based in India with a diversified presence across various sectors. Established in 1910, ITC has grown into one of India's foremost private sector companies with a significant global footprint. ITC operates in a multitude of industries, including fast-moving consumer goods (FMCG), hotels, paperboards and packaging, agri-business, and information technology. It's known for its iconic brands like Aashirvaad, Sunfeast, Bingo and Classmate, among others.
Apart from its business operations, ITC is widely recognized for its commitment to sustainability and social responsibility. The company has undertaken numerous initiatives focused on environmental conservation, rural development, and community welfare. ITC's diversified portfolio, commitment to quality, and focus on sustainable business practices have helped it maintain a prominent position in India's corporate landscape. ITC Competitors: Dabur, Nestle, HUL, Tata Review of Literature Idrish Alladdr. Mahendra H. Maisuria (2015) conducted research on an accounting technique of analysis and interpretation of Financial Statements and concluded that Comparison of different aspects of all the firms can be done effectively with this. It helps the clients to decide in which firm the risk is less or in which one they should invest so that maximumbenefit can be earned. Mohammed Nuhu (2014) conducted research on Role of Ratio Analysis in Business Decisions and concluded that the data Collected via the primary data sources were analyzed using simple averages and percentages. According to Igben (1999:423), “Accounting {or financial} ratio is a proportion or fraction or percentage expressing the relationship between one item in a set financial statements and another item in the financial statements. Sarfaraz Hashemkhani Zolfani and Prasenjit Chatterjee (2019) conducted research on Comparative Evaluation of Sustainable Design Based on Step-Wise Weight Assessment Ratio Analysis (SWARA) and Best Worst Method (BWM) Methods and concluded that the study contributes by applying two approaches based on MADM methods for weighting the criteria related to the sustainable design of household furnishing materials. Step- Wise Weight Assessment Ratio Analysis (SWARA) and Best Worst Method (BWM) are two specialized and new methodsfor weighting criteria with different approaches. Chnar Abdullah Rashid (2021) conducted research on The efficiency of financial ratios analysis to evaluate company’s profitability and concluded that the review discovered that profitability is the most important measure to evaluate companies’ performance. Prabhuraj Jayaraj conducted research on ratio analysis aims to analyze the position of the company using the financial tools and concluded that it helps to identify and give suggestion the area of weaker position of business transactions. Sangmi and Nazir (2010) conducted research on the financial performance of two key banks in India after a reform in the banking sector. The work was centered on a 5 year secondary data obtained from annual reports of the individual banks. The CAMEL model was used for the analysis. The authors established that relative to asset quality, liquidity, capital adequacy and management capability, the banks’ performance were sound and satisfactory and concluded that the performance of the two may not adequately proxy the overall impact of the reforms on Indianbanks.
Liquidity ratios Profitability ratios Financial performance Leverage ratios all the banks. Mahbuba and Farzana (2013) conducted research on how CSR relates to profitability of Dutch Bangla Bank Ltd. (DBBL) and concluded that the research found that 90.7% of the variations in profits of the bank were accountable to the benefits emanating from corporate social responsibility. Statement of the Problem Financial position of the organization is influenced by the financial activities like liquidity, profitability and leverage position. Frequent analysis of financial position is required for the company to monitor the progress of its achievements and to modify the existing methods if requited any. An attempt is required to analyze the financial performance of the company for the overall growth and success of the organization. Conceptual Model Objectives of the Study The following are the objectives of the present study. To analyze the profitability of the organization from 201 2 - 13 to 2021 - 2 2. To analyze the liquidity position of the organization from 2012 - 13 to 2021- 22. To analyze the leverage position of the organization from 2012 - 13 to 2021- 22. Scope of the Study The current study is undertaken for the purpose of evaluating the financial performance ofthe ITC Ltd., for the last ten years ( 2012 - 13 to 2021- 22 ) with the help of the ratio analysis. Need of the Study Ratio analysis is important for the company to analyze its financial position, liquidity, profitability, risk, solvency, efficiency, operations effectiveness, and proper utilization of funds which also indicates the trend or comparison of financial results that can be helpful for decision making for investment. Ratios measure the relationship between two or more components of financial statements. They are used most effectively when results over several periods are compared. This allows you to follow your company's performance
Gross profit ratio Profitability ratios Operating profit ratio Return on asset Net profit ratio Liquidity ratios Absolute liquidity ratio Working capital turnover ratio Quick ratio Current ratio over time and uncover signs of trouble. It provides significant information to users of accounting information regarding the performance of the business. It helps in comparison of two or more firms. It helps in determining both liquidity and long term solvency of the firm. Ratios measure companies' operational efficiency, liquidity, stability and profitability, giving investors more relevant information than raw financial data. Investors and analysts can gain profitable advantages in the stock market by using the widely popular, and arguably indispensable,technique of ratio analysis. Research Methodology For the current study only secondary data is applied. Sources of Secondary data: The secondary data was collected from the https://www.itcportal.com Tools
Quick Ratio The quick or liquidity ratio is to measure the firm’s liquidity. The ratio is established a relationship between quick assets and current liabilities. The quick ratio is calculated by dividing the total quick assets by total current liabilities. Quick Ratio =Quick Assets / Current Liabilities Table No. 2 : The Quick Ratio of ITC Ltd. Year Quick Assets Current Liabilities Ratios 2012 - 13 10991.27 10330.73 1. 2013 - 14 13569.19 11504.32 1. 2014 - 15 16118.27 11681.91 1. 2015 - 16 15614.92 14587.6 1. 2016 - 17 16673.4 6830.07 2. 2017 - 18 17265.85 8856.6 1. 2018 - 19 21981.72 9621.56 2. 2019 - 20 28468.84 9089.41 3. 2020 - 21 22344.55 10174.17 2. 2021 - 22 20944.24 11478.09 1. Source : Various Annual Reports of the ITC Ltd. Interpretation: During the period 2012 - 13 to 2021- 22 the quick ratio also fluctuating in an increasing and decreasing manner. The quick ratio should maintain at least 1:1 but it is not satisfying the rule. Absolute Liquidity Ratio It is used by creditors for determining the relative ease with which a company can clear short term liabilities. It is calculated by dividing the cash and cash equivalents by current liabilities. Absolute Liquidity Ratio = cash & cash equivalents / Current Liability Table No. 3 The Absolute Liquidity Ratio of ITC Ltd. Year Cash & Cash Equivalents Current Liability Ratios 2012 - 13 3615 10330.73 0. 2013 - 14 3289.37 11504.32 0. 2014 - 15 7588.61 11681.91 0. 2015 - 16 6563.95 14587.6 0. 2016 - 17 2747.27 6830.07 0. 2017 - 18 2594.88 8856.6 0. 2018 - 19 3768.73 9621.56 0. 2019 - 20 6843.27 9089.41 0. 2020 - 21 4001.5 10174.17 0. 2021 - 22 3877.94 11478.09 0. Source : Various Annual Reports of the ITC Ltd.
Interpretation During the period 2012 - 13 to 2021- 22 the absolute liquidity ratio was below 1 with an increasingand decreasing manner. But in 2020 the ratio was highest 0.75% overall the ratio is not satisfactory. Proprietary Ratio Proprietary ratio is a type of solvency ratio that is useful for determining the amount or contribution of shareholders or proprietors towards the total assets of the business. It is also known as equity ratio or shareholder equity ratio or net worth ratio. Proprietary Ratio = Shareholders Funds / Total Tangible Assets Table No. 4 : The Proprietary Ratio of ITC Ltd. Year Shareholders’ Funds Total Tangible Assets Ratios 2012 - 13 22287.85 11118.55 2. 2013 - 14 26262.02 11948.69 2. 2014 - 15 30735.69 13777.14 2. 2015 - 16 32929 13816.77 2. 2016 - 17 45340.96 14469.32 3. 2017 - 18 51400.07 15120 3. 2018 - 19 57949.79 17945.65 3. 2019 - 20 64029.16 19612.74 3. 2020 - 21 59004.58 19216.75 3. 2021 - 22 61399.57 24973.95 2. Source : Various Annual Reports of the ITC Ltd. Interpretation: During the period 2013-2018 the proprietary ratio was increasing year by year graduallyfrom 2% to 3.40% but from 2019-2022 the ratio was decreasing fom3.23% to 2.6%.But higher the ratio the long term position will be good. Debt Equity Ratio The Debt-to-equity (D/E) ratio indicates how much debt a company is using to finance itsassets relative to the value of shareholders' equity. Debt Equity=Total debt/Total shareholders’ equity Table No. 5 Table showing the Debt Equity Ratio of ITC Ltd. Year Total Debt Total Equity Ratios 2012 - 13 11729.58 22287.85 0. 2013 - 14 12967.37 26262.02 0. 2014 - 15 13459.97 30735.69 0. 2015 - 16 16589.43 32929 0. 2016 - 17 8874.99 45340.96 0. 2017 - 18 10981.24 51400.07 0. 2018 - 19 11848.13 57949.79 0.
Source : Various Annual Reports of the ITC Ltd. Interpretation During the period the 2013-2020 the net profit ratio was increasing gradually from 24.60% to 31.12% and from 2021 & 2022 the ratio was decreasing from 26.7% to 24.16%. Gross Profit Ratio Gross profit ratio is a profitability measure that is calculated as the ratio of Gross Profit (GP) to Net Sales and therefore shows how much profit the company generates after deducting its cost of revenues. GPR = Gross profit / Net sales × 100 Table No. 8 : The Gross Profit Ratio of ITC Ltd. Year Gross Profit Net Sales Ratios 2012 - 13 10684.18 30839.27 34. 2013 - 14 12659.11 34345.74 36. 2014 - 15 13997.52 38050.53 36. 2015 - 16 14958.39 38641.13 38. 2016 - 17 15502.96 42074.59 36. 2017 - 18 16438.8 42757.38 38. 2018 - 19 18444.16 47480.19 38. 2019 - 20 19298.92 48633.36 39. 2020 - 21 17164.15 48736.1 35. 2021 - 22 19829.53 62335.53 31. Source : Various Annual Reports of the ITC Ltd. Interpretation During the period 2013 - 16 the gross profit ratio was increasing from 34.64% to 38.71% and in 2017 it decreased and in 2020 it was 39.68% and from 2021 - 22 it decrease from 35.22% to31.81%. Operating Profit Ratio Operating profit ratio establishes a relationship between operating Profit earned and net revenue generated from operations (net sales). Operating profit ratio is a type of profitability ratiowhich is expressed as a percentage. OPR = Operating Profit / Sales * 100 Table No. 9 : The Operating Profit Ratio of ITC Ltd. Year Operating profit Sales Ratios 2012 - 13 29901.27 30839.27 0. 2013 - 14 33238.6 34345.74 0. 2014 - 15 36507.4 38050.53 0. 2015 - 16 36837.39 38641.13 0. 2016 - 17 40088.68 42074.59 0.
Source : Various Annual Reports of the ITC Ltd. Interpretation Duing the period 2013 - 2021 the operating profit ratio was decreasing from 0.97% to 0.93% and in 2022 it increased to 0.96%. Working Capital Turnover Ratio Working capital turnover ratio is the ratio between the net revenue or turnover of abusiness and its working capital. WCT Ratio = Sales / Net Working Capital Table No. 10 : The WCT Ratio of ITC Ltd. Year Sales Networking Capital Ratios 2012 - 13 30839.27 7260.74 4. 2013 - 14 34345.74 9424.41 3. 2014 - 15 38050.53 12273.12 3. 2015 - 16 38641.13 9546.88 4. 2016 - 17 42074.59 17707.32 2. 2017 - 18 42757.38 15646.4 2. 2018 - 19 47480.19 19947.4 2. 2019 - 20 48633.36 27417.5 1. 2020 - 21 48736.1 21641.25 2. 2021 - 22 62335.53 27064.07 2. Source : Various Annual Reports of the ITC Ltd. Interpretation During the period 2013-15 the working capital turnover ratio was in decreasing manner from 4.25% to 3.10% and in 2016 it increased to 4.05% and from 2017 2022 the ratio was fluctuating with an increasing and decreasing manner. The working capital turnover ratio is to be improved. Return on Assets The term return on assets (ROA) refers to financial ratio that indicates how profitable acompany is in relation to its total assets. ROA= Net income/Total assets Table No. 11 : The Return on assets of ITC Ltd. Year Net Income Total assets Ratios 2012 - 13 7418.39 34017.43 0. 2013 - 14 8785.21 39229.39 0.
thumb rule (1:1). The quick ratio values are fluctuating every year. Only in 2018, 2022 it is nearly satisfying but in 2017,19,20,21 the ratio values are more than 1:1 and the remaining years it is less than 1:1. Hence it is noticed that ITC Company is not satisfying the quick ratio. It is observed that the absolute liquidity ratio of ITC Company for the study period i.e., 2012 - 13 to 2021- 22 the most favorable liquidity ratio should be 1:2 but from 2012 - 13 to 2021- 22 the absolute liquidity ratio is below 1. So it is observe that ITC Company is not satisfactory with the absolute liquidity ratio. It is found that the working capital turnover ratio of ITC Company for the study period i.e., 2012 - 13 to 2021- 22 is found that it is maintaining above 1.5 so the ITC Company indicates a solid financial ground in terms of liquidity. It is observed that the gross profit ratio of ITC Company for the study period i.e., 2013- 2022 the values are fluctuating every year. Only in 2020 the ratio was highest i.e., 39.68% and the remaining years it was less. The gross profit should be more when compared to netprofit. So it satisfies the gross profit ratio. It is analyzed that the net profit ratio of ITC Company for the study period i.e., 2012 - 13 to 2021- 22 the ratios are fluctuating every year. Only in 2020 the ratio was highest i.e., 31.12.So the net profit ratio was in an increasing manner from 2013 - 2020. It is found that the operating profit ratio of ITC Company for the study period i.e., 2013- 2022. The ratios are fluctuating every year. In 2013 &14 the ratio was highest and the remaining years are less but it satisfies the operating ratio margin 20%. It is analyzed that the return on asset ratio of ITC Company for the study period i.e., 2013 - 2022 the values are fluctuating every year but in 2018,19,22 it was not satisfying but the remaining years it satisfies the return on asset ratio. It is observed that the debt to total assets of ITC Company for the study period i.e., 2013- 2022 the investors and creditors look for a company which has less than 0.5 of debt to assets. So the ratio between the period 2013 - 22 the debt to total asset is satisfying becauseit is less than 0.5. So it is satisfactory. It is found that the debt to equity ratio of ITC Company for the study period i.e., 2012 - 13 to 2021- 22 the ratio should be greater than 40 or 50 % only in 2015 it is nearly satisfying and the remaining years it is less. Hence it is noticed that the ITC Company is not satisfying the debt to equity ratio. It is observed that the asset to equity ratio of ITC Company for the study period i.e., 2013 - 2022 the ratio should maintain 100% but from 2013 to 2022 the asset to equity ratio is notsatisfying. It is found that the proprietary ratio of ITC Company for the study period i.e., 2013-2022. The ratios are fluctuating every year and it is not constant in any year. But when the ratio is high the long term position of the company will be good. Suggestions
- The liabilities of ITC Company are more so it is not good for the company. So the company should try to reduce
their liabilities in the coming years.
- The ITC Company should use more borrowers fund than the owners fund to attain the idealdebt equity ratio.
- The ITC Company should try to reduce the current assets for increasing the value of thefinancial resources. Conclusion It is analyzed that the overall financial performance of the ITC Company is not satisfactory. The company has to reduce debts or outsiders funds and also should concentrate to increase the profits and also the company needs to reduce the liabilities and try to improve the assets. References
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