INTRODUCTION

COMPANY PROFILE
ITC: Organizational Profile ITC Limited is one of India's foremost private sector companies with a market capitalization in excess of US $ 16 billion and a turnover of more than US $ 3.5 billion. ITC ranks third in pre-tax profits among India's private sector corporations. ITC is ranked among the World's Best Big Companies and Asia's 'Fabulous 50' by Forbes magazine, among India's Most Respected Companies by Business World magazine and among India's Most Valuable Companies by Business Today magazine ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards & Stationery. The Company's successful strategy of creating multiple drivers of growth leveraging the diverse competencies residing in its portfolio of businesses is evident in its impressive track record of growth in the last decade and its strong debt-free balance sheet.

ITC CIGARETTE ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake. The Company has been able to build on its leadership position because of its single minded focus on value creation for the consumer through significant investments in product design, innovation, manufacturing technology, quality, marketing and distribution. All initiatives are therefore worked upon with the intent to fortify market standing in the long term. This in turns aids in designing products which are contemporary and relevant to the
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changing attitudes and evolving socio economic profile of the country. This strategic focus on the consumer has paid ITC handsome dividends. ITC's pursuit of international competitiveness is reflected in its initiatives in the overseas markets. In the extremely competitive US market, ITC offers high-quality, value-priced cigarettes and Roll-your-own solutions. In West Asia, ITC has become a key player in the GCC markets through growing volumes of its brands. ITC's cigarettes are produced in its state-of-the-art factories at Bengaluru , Munger, Saharanpur and Kolkata. These factories are known for their high levels of quality, contemporary technology and work environment.

AWARDS ITC's Cigarettes business has been winning numerous awards for its quality, environmental management systems and product excellence: Achieved 5 star Health and Safety Rating from the British Safety Council for its cigarette factories at Bengaluru , Munger, Kolkata and Saharanpur and the "Sword of Honor" for Bengaluru & Saharanpur for 2011-07. Bengaluru, Kolkata and Saharanpur cigarette factories won the prestigious Greentech Safety Gold Award for the year 2012 in the manufacturing sector. These awards are in recognition of the high level of performance that the units have achieved in Environment Health and Safety (EHS). Saharanpur along with Kolkata and Munger factories were honored with the same award in 2011.Bengaluru Factory has also received the Platinum Award for outstanding achievement in safety management in 2011. Bengaluru Factory has won the "Safety Innovation Award 2011" for Innovative Safety Management System from the Safety & Quality Forum (Institution of Engineers) and also Unnatha Suraksha Puraskara Award from NSC Karnataka Chapter. The cigarette factory at Kolkata was awarded the "1st National Security Today Award 2010" in the category of Best Maintained Fire Safety System. Bengaluru, Munger & Kolkata have won the prestigious Greentech Environment Excellence Gold Award for the year 2011. Munger factory won the Excellence in Water Management Award from CII-GBC for 2011.

All its factories are certified by Det Norske Veritas (DNV) for ISO 14001, for their Environment Management Systems, OHSAS 18001 for their Occupational Health and Safety Management Systems (OHSMS) and the ISO 9000-2000 for Quality Management Systems. The Kolkata factory is the first cigarette factory in India to be awarded the SA 8000 Certificate for Social Accountability by Diet Norske Veritas (DNV) in June 2009. ITC's R&D Centre at Peenya, Bengaluru has the distinction of being the first independent R&D centre in India to get ISO 9001 accreditation and certified with ISO 14001 for Environment Management Systems by DNV. The R&D Centre is also certified for the standard ISO/IEC17025:2010, by National Accreditation Board for Testing and Calibration Laboratories (NABL). This certification is awarded for "General requirement for the competence of Testing & Calibration Laboratories" ITC PRODUCTS FMCG It is a measure of the continued trust reposed in the Company by its consumers that the top two FMCG brands in the country today belong to ITC. The Company's FMCG businesses leverage one of the largest retail networks in the country, consisting of about 2 million directly serviced dealers. Its reach covers a wide range of the retail spectrum, from premium outlets in the metros to small shops in the interiors of rural India. The Cigarette business continues to occupy its position of leadership on the strength of continued value addition. The Company rapidly scaled up the Branded Packaged Foods business during the year in the four current categories - Snack Foods, Staples, Confectionery and Ready-to-Eat now offering over 100 distinctive products. In the Staples category, 'Aashirvaad Atta' further consolidated its position as the clear leader amongst national branded players with market share touching 45%. The year marked the expansion of the 'Sunfeast' range of biscuits with the launch of Cookies ('Sunfeast Golden Bakes') in 3 variants and Sweet & Salt Crackers ('Sunfeast Snacky') in 2 variants. During the year, outsourced and distributed manufacturing capacities were geared up to support the increase in scale of operations. The business is in the process of establishing its own production facilities across the country with a view to servicing proximal markets in an efficient and cost-effective manner. The year also saw the roll out to target markets of 'Sunfeast Pasta Treat', a whole-wheat based non-fried product. Product range in the 'Confectionery' segment was expanded with the
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launch of 'mint-o masti blue' in a new pack design and 'Cofitino' in the hitherto unrepresented Toffees segment. The Ready-to- Eat product portfolio was augmented with the introduction of Instant Mixes in the 'popular' range under the 'Aashirvaad ReadyMeals' banner, launch of new variants of cooking pastes under the 'Aashirvaad' umbrella brand and a range of packaged desserts, conserves and chutneys under the flagship brand 'Kitchens of India'. The 'wills lifestyle' range was further augmented during the year with the extension of 'essenza di wills', an exclusive line of prestige fragrance products, to select 'wills lifestyle' stores. The products have met with encouraging response from discerning consumers. The year also marked the launch of the 'wills lifestyle india fashion week' (wifw), billed as the country's premier fashion event. In the popular segment, the 'john players' brand delivered a strong performance during the year and created a buzz among its youthful target audience. The year witnessed the rapid scale-up of the stationery business with volumes of 'classmate' notebooks trebling over last year - making 'classmate' the most widely distributed notebook brand across the country. The 'expressions' brand of greeting cards sustained its leadership status in multi-brand outlets across the country. In the safety matches business, the company's brands, including 'aim' which is the largest selling brand of matches in the country, continued to enjoy strong consumer preference, resulting in enhanced market standing. The year also witnessed the successful acquisition of wimco by a wholly owned subsidiary of the company. The Company's incense sticks (Agarbatti) business made rapid gains during the year with the 'Mangaldeep' brand emerging as the only national brand in its first full year of operations Hotels During 2010-06, the Hotels business posted a strong financial performance with Segment Revenues growing by 35.7%. ITC Grand Central, the Companys second property in Mumbai, which was commissioned in January 2010, posted an impressive performance to record a positive bottom line in its first full year of operations. The business also progressed a product upgradation programme during the year with a view to maintaining the contemporariness of the Companys properties. Paperboards and Packaging The Paperboards, Specialty Paper and Packaging segment recorded strong growth during the year both in terms of sales and operating profits. The year marked significant growth in the Paperboards segment on the back of enhanced capacity utilization at the Kovai unit and the addition of Paper Machine V (capacity 75,000 TPA) at the Bhadrachalam mill. In fulfillment
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of its commitment to a cleaner environment, the Companys Elemental Chlorine Free (ECF) pulp mill, the only one of its kind in the country, continues to meet world-class environmental standards. The superior quality of the ECF pulp has enabled expansion of the market for value-added paperboards. The Packaging and Printing business leveraged its recent investments in technology up gradation to expand its range of offerings to include a wider variety of contemporary packaging formats. During the year, the business entered the high growth flexible packaging business with the induction of world-class equipment. Agri Business In the Agri Business segment, ITC is engaged in innovatively leveraging digital technology to transform the rural sector, and strengthening its position in domestic and global markets as a leading supplier of high quality, identity-preserved agri commodities. This digital infrastructure, known as e-Choupal, constitutes the basis for the Companys deeper engagement with the rural economy through the progressive development of low cost, broadband fulfillment capability for two-way flow of goods and services. This pioneering initiative comprising nearly 6,000 choupals, currently reaches out to over 3.5 million farmers in the States of Madhya Pradesh, Haryana, Uttaranchal, Uttar Pradesh, Rajasthan, Karnataka, Maharashtra, Andhra Pradesh and Kerala. The Companys investments in creating rural infrastructure to support this two-way flow of goods and services is being strengthened through the creation of rural hubs, christened Choupal Saagar. 10 Choupal Saagars are operational in the 3 states of Madhya Pradesh, Maharashtra and Uttar Pradesh while 9 more are in an advanced stage of construction. These Choupal Saagars, in synergistic combination with the e-Choupal network, would serve as the core infrastructure to support ITC's rural distribution strategy

INFORMATION TECHNOLOGY ITC's wholly owned information technology subsidiary, ITC InfoTech, is one of India's fastest growing IT and IT-enabled outsourced solutions providers. The Company leverages domain knowledge from its parent's market-leading position in Manufacturing, CPG & Retail and Travel & Hospitality, as well as in other domains like Banking, Financial Services & Insurance, to devise business solutions for global customers. ITC InfoTech is a US $ 64 million company with over 1,700 employees. In addition to IT Solutions, Services and Co-

sourcing, the Company has a joint venture with Client Logic in the BPO space that offers a technical helpdesk with over 2,500 employees. ITC InfoTech has offices in the United States, Europe and the Asia Pacific, serving Fortune-listed customers across 42 countries.

OVERSEAS SUBSIDIARY Sunray Nepal Private Limited (SNPL) is an Indo-Nepal-UK joint venture, which started operations in Nepal in 1986. SNPL is the largest private sector enterprise in Nepal and a subsidiary of ITC Limited. Its businesses include manufacture and marketing of cigarettes and readymade garments, as well as export of readymade garments with a total turnover of US $ 60 million and a pre-tax profit of US $ 8 million.

Other Major market players-

THE TOP 10 COMPANIES IN FMCG SECTOR

1. Hindustan Unilever Ltd 2. ITC (Indian Tobacco Company) 3. Nestle India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7. Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10. Marico Industries

NEED FOR THE STUDY

1. The study has great significance and provides benefits to various parties whom directly or indirectly interact with the company. 2. It is beneficial to management of the company by providing crystal clear picture regarding important aspects like liquidity, leverage, activity and profitability. 3. The study is also beneficial to employees and offers motivation by showing how actively they are contributing for companys growth. 4. The investors who are interested in investing in the companys shares will also get benefited by going through the study and can easily take a decision whether to invest or not to invest in the companys shares.

OBJECTIVES
The major objectives of the resent study are to know about financial strengths and weakness of ITC LTD. through FINANCIAL RATIO ANALYSIS. The main objectives of resent study aimed as: To evaluate the performance of the company by using ratios as a yardstick to measure the efficiency of the company. To understand the liquidity, profitability and efficiency positions of the company during the study period. To evaluate and analyze various facts of the financial performance of the company. To make comparisons between the ratios during different periods. OBJECTIVES 1. To study the present financial system at ITC LTD. 2. To determine the Profitability, Liquidity Ratios. 3. To analyze the capital structure of the company with the help of Leverage ratio.

4. To offer appropriate suggestions for the better performance of the organization

RESEARCH METHODOLOGY
The basic task of research is to generate accurate information for use in decision-making. Research can be defined as the systematic and objective process of gathering, recording and analyzing data for aid in making business decisions. As the project involves analyzing of financial structure, the research is exploratory in nature, covering financial parameters and come of the important ratios to carry out research. There are basically two techniques adopted for obtaining information: Primary Data. Secondary Data.

Primary Data is gathered specifically for the project at hand through personal interviews with the accounts officers. Secondary data is previously collected and assembled for some project other than the one at hand. It is gathered and recorded by someone else prior to current needs of the researcher. It is less expensive than the primary date. Secondary Data can be obtained from both external and internal sources. External data may be collected from books and periodicals, government sources, media and other commercial sources. Internal data is that secondary data, which is created, recorded or generated by the organization. As the project is explanatory in nature secondary data is collected from the reports of the company, books, journals and interest. Secondary data is gathered from annual reports, official records and standing orders of the units. DATA SIZE- Data of 5 years(2008-2012) have been studied through various tools and techniques. TOOLS & TECHNIQYES UESD- The data has been analyzed through ratios.

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LIMITATIONS OF STUDY

1 . This study is mainly based on secondary data derived from annual reports of industry . the reliability and the finding are contingent upon the data published in annual report.

2 . Accounting ratios have its own limitation, which also applied to the study .

3 .Financial analysis do not depict those facts which cannot be expressed in terms of money , example efficiency of workers , reputation , prestige of management.

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RATIO ANALYSIS
FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strengths and weaknesses of the firm and establishing relationship between the items of the balance sheet and profit & loss account. Financial ratio analysis is the calculation and comparison of ratios, which are derived from the information in a companys financial statements. The level and historical trends of these ratios can be used to make inferences about a companys financial condition, its operations and attractiveness as an investment. The information in the statements is used by Trade creditors, to identify the firms ability to meet their claims i.e. liquidity position of the company. Investors, to know about the present and future profitability of the company and its financial structure. Management, in every aspect of the financial analysis. It is the responsibility of the management to maintain sound financial condition in the company.

RATIO ANALYSIS The term Ratio refers to the numerical and quantitative relationship between two items or variables. This relationship can be exposed as Percentages Fractions Proportion of numbers Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements. So that the strengths and weaknesses of a firm, as well as its historical performance and current financial condition can be determined. Ratio reflects a quantitative relationship helps to form a quantitative judgment.

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STEPS IN RATIO ANALYSIS The first task of the financial analysis is to select the information relevant to the decision under consideration from the statements and calculates appropriate ratios. To compare the calculated ratios with the ratios of the same firm relating to the pas6t or with the industry ratios. It facilitates in assessing success or failure of the firm. Third step is to interpretation, drawing of inferences and report writing conclusions are drawn after comparison in the shape of report or recommended courses of action.

BASIS OR STANDARDS OF COMPARISON Ratios are relative figures reflecting the relation between variables. They enable analyst to draw conclusions regarding financial operations. They use of ratios as a tool of financial analysis involves the comparison with related facts. This is the basis of ratio analysis. The basis of ratio analysis is of four types. Past ratios, calculated from past financial statements of the firm. Competitors ratio, of the some most progressive and successful competitor firm at the same point of time. Industry ratio, the industry ratios to which the firm belongs to Projected ratios, ratios of the future developed from the projected or pro forma financial statements

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NATURE OF RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is only a means of understanding of financial strengths and weaknesses of a firm. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios. The following are the four steps involved in the ratio analysis. Selection of relevant data from the financial statements depending upon the objective of the analysis. Calculation of appropriate ratios from the above data. Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs.

INTERPRETATION OF THE RATIOS The interpretation of ratios is an important factor. The inherent limitations of ratio analysis should be kept in mind while interpreting them. The impact of factors such as price level changes, change in accounting policies, window dressing etc., should also be kept in mind when attempting to interpret ratios. The interpretation of ratios can be made in the following ways. Single absolute ratio Group of ratios Historical comparison Projected ratios Inter-firm comparison

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GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS The calculation of ratios may not be a difficult task but their use is not easy. Following guidelines or factors may be kept in mind while interpreting various ratios are Accuracy of financial statements Objective or purpose of analysis Selection of ratios Use of standards Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS Aid to measure general efficiency Aid to measure financial solvency Aid in forecasting and planning Facilitate decision making Aid in corrective action Aid in intra-firm comparison Act as a good communication Evaluation of efficiency Effective tool

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LIMITATIONS OF RATIO ANALYSIS Differences in definitions Limitations of accounting records Lack of proper standards No allowances for price level changes Changes in accounting procedures Quantitative factors are ignored Limited use of single ratio Background is over looked Limited use Personal bias

CLASSIFICATIONS OF RATIOS The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. Various accounting ratios can be classified as follows: 1. Traditional Classification 2. Functional Classification 3. Significance ratios

1. Traditional Classification It includes the following. Balance sheet (or) position statement ratio: They deal with the relationship between two balance sheet items, e.g. the ratio of current assets to current liabilities etc., both the items must, however, pertain to the same balance sheet.

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Profit & loss account (or) revenue statement ratios: These ratios deal with the relationship between two profit & loss account items, e.g. the ratio of gross profit to sales etc.,

Composite (or) inter statement ratios: These ratios exhibit the relation between a profit & loss account or income statement item and a balance sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales.

2. Functional Classification These include liquidity ratios, long term solvency and leverage ratios, activity ratios and profitability ratios.

3. Significance ratios Some ratios are important than others and the firm may classify them as primary and secondary ratios. The primary ratio is one, which is of the prime importance to a concern. The other ratios that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE 1. Liquidity ratio 2. Leverage ratio 3. Activity ratio 4. Profitability ratio

1. LIQUIDITY RATIOS Liquidity refers to the ability of a concern to meet its current obligations as & when there becomes due. The short term obligations of a firm can be met only when there are sufficient liquid assets. The short term obligations are met by realizing amounts from current, floating (or) circulating assets The current assets should either be calculated liquid (or) near liquidity. They should be convertible into cash for paying obligations of short term nature. The sufficiency (or) insufficiency of current assets should be assessed by comparing them

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with short-term current liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. To measure the liquidity of a firm the following ratios can be calculated Current ratio Quick (or) Acid-test (or) Liquid ratio Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO: Current ratio may be defined as the relationship between current assets and current liabilities. This ratio also known as Working capital ratio is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position (or) liquidity of a firm.

Current assets Current ratio = Current liabilities

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Components of current ratio CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

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(b) QUICK RATIO Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short-term obligations as & when they become due. Quick ratio may be defined as the relationship between quick or liquid assets and current liabilities. An asset is said to be liquid if it is converted into cash with in a short period without loss of value.

Quick or liquid assets Quick ratio = Current liabilities

Components of quick or liquid ratio QUICK ASSETS Cash in hand Cash at bank Bills receivable Sundry debtors Marketable securities Temporary investments CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income tax payable

(c) ABSOLUTE LIQUID RATIO Although receivable, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, absolute liquid ratio should also be calculated together with current ratio and quick ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets.

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Absolute liquid assets Absolute liquid ratio = Current liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth current liabilities in time as all the creditors are nor accepted to demand cash at the same time and then cash may also be realized from debtors and inventories.

Components of Absolute Liquid Ratio ABSOLUTE LIQUID ASSETS Cash in hand Cash at bank Interest on Fixed Deposit CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income tax payable

2. LEVERAGE RATIOS The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations. Accordingly, long term solvency ratios indicate firms ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings. The following ratio serves the purpose of determining the solvency of the concern. Proprietory ratio (a) PROPRIETORY RATIO A variant to the debt-equity ratio is the proprietory ratio which is also known as equity ratio. This ratio establishes relationship between share holders funds to total assets of the firm.

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Shareholders funds Proprietary ratio = Total assets

SHARE HOLDERS FUND Share Capital Reserves & Surplus

TOTAL ASSETS Fixed Assets Current Assets Cash in hand & at bank Bills receivable Inventories Marketable securities Short-term investments Sundry debtors Prepaid Expenses

3. ACTIVITY RATIOS Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly effect the volume of sales. Activity ratios measure the efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios are also called Turn over ratios because they indicate the speed with which assets are converted or turned over into sales. Working capital turnover ratio Fixed assets turnover ratio Capital turnover ratio Current assets to fixed assets ratio

(a) WORKING CAPITAL TURNOVER RATIO Working capital of a concern is directly related to sales. Working capital = Current assets - Current liabilities

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It indicates the velocity of the utilization of net working capital. This indicates the no. of times the working capital is turned over in the course of a year. A higher ratio indicates efficient utilization of working capital and a lower ratio indicates inefficient utilization. Working capital turnover ratio=cost of goods sold/working capital. Components of Working Capital CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses CURRENT LIABILITIES Out standing or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

(b) FIXED ASSETS TURNOVER RATIO It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets. Cost of Sales Fixed assets turnover ratio = Net fixed assets

Cost of Sales = Income from Services

Net Fixed Assets = Fixed Assets - Depreciation

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(c) CAPITAL TURNOVER RATIOS Sometimes the efficiency and effectiveness of the operations are judged by comparing the cost of sales or sales with amount of capital invested in the business and not with assets held in the business, though in both cases the same result is expected. Capital invested in the business may be classified as long-term and short-term capital or as fixed capital and working capital or Owned Capital and Loaned Capital. All Capital Turnovers are calculated to study the uses of various types of capital.

Cost of goods sold Capital turnover ratio = Capital employed

Cost of Goods Sold = Income from Services

Capital Employed = Capital + Reserves & Surplus

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(d) CURRENT ASSETS TO FIXED ASSETS RATIO This ratio differs from industry to industry. The increase in the ratio means that trading is slack or mechanization has been used. A decline in the ratio means that debtors and stocks are increased too much or fixed assets are more intensively used. If current assets increase with the corresponding increase in profit, it will show that the business is expanding. Current Assets Current Assets to Fixed Assets Ratio = Fixed Assets

Component of Current Assets to Fixed Assets Ratio CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses Machinery Buildings Plant Vehicles FIXED ASSETS

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4. PROFITABILITY RATIOS The primary objectives of business undertaking are to earn profits. Because profit is the engine, that drives the business enterprise. Net profit ratio Return on total assets Reserves and surplus to capital ratio Earnings per share Operating profit ratio Price earning ratio Return on investments

(a) NET PROFIT RATIO Net profit ratio establishes a relationship between net profit (after tax) and sales and indicates the efficiency of the management in manufacturing, selling administrative and other activities of the firm.

Net profit after tax Net profit ratio= Net sales

Net Profit after Tax = Net Profit () Depreciation () Interest () Income Tax

Net Sales = Income from Services It also indicates the firms capacity to face adverse economic conditions such as price competitors, low demand etc. Obviously higher the ratio, the better is the profitability.

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(b) RETURN ON TOTAL ASSETS Profitability can be measured in terms of relationship between net profit and assets. This ratio is also known as profit-to-assets ratio. It measures the profitability of investments. The overall profitability can be known.

Net profit Return on assets = Total assets

Net Profit = Earnings before Interest and Tax

Total Assets = Fixed Assets + Current Assets

(c) RESERVES AND SURPLUS TO CAPITAL RATIO It reveals the policy pursued by the company with regard to growth shares. A very high ratio indicates a conservative dividend policy and increased ploughing back to profit. Higher the ratio better will be the position.

Reserves& surplus Reserves & surplus to capital = Capital

(d) EARNINGS PER SHARE Earnings per share is a small verification of return of equity and is calculated by dividing the net profits earned by the company and those profits after taxes and preference dividend by total no. of equity shares.

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Net profit after tax Earnings per share = Number of Equity shares

The Earnings per share is a good measure of profitability when compared with EPS of similar other components (or) companies, it gives a view of the comparative earnings of a firm. (e) OPERATING PROFIT RATIO Operating ratio establishes the relationship between cost of goods sold and other operating expenses on the one hand and the sales on the other. Operating cost Operation ratio = Net sales

However 75 to 85% may be considered to be a good ratio in case of a manufacturing under taking. Operating profit ratio is calculated by dividing operating profit by sales. Operating profit = Net sales - Operating cost

Operating profit Operating profit ratio = Sales

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(f) PRICE - EARNING RATIO Price earning ratio is the ratio between market price per equity share and earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether (or) not to buy shares in a particular company. Generally, higher the price-earning ratio, the better it is. If the price earning ratio falls, the management should look into the causes that have resulted into the fall of the ratio.

Market Price per Share Price Earning Ratio = Earnings per Share

Capital + Reserves & Surplus Market Price per Share = Number of Equity Shares

Earnings before Interest and Tax Earnings per Share = Number of Equity Shares

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(g) RETURN ON INVESTMENTS Return on share holders investment, popularly known as Return on investments (or) return on share holders or proprietors funds is the relationship between net profit (after interest and tax) and the proprietors funds.

Net profit (after interest and tax) Return on shareholders investment = Shareholders funds

The ratio is generally calculated as percentages by multiplying the above with 100.

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DATA ANALYSIS
LIQUIDITY RATIO 1. CURRENT RATIO (Amount in Rs.) Current Ratio Year 2008 2009 2010 2011 2012 Current Assets 58,574,151 69,765,346 72,021,081 91,328,208 115,642,068 Current Liabilities 7,903,952 31,884,616 16,065,621 47,117,199 30,266,661 Ratio 7.41 2.19 4.48 1.94 3.82

Interpretation As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm. When compared with 2011, there is an increase in the provision for tax, because the debtors are raised and for that the provision is created. The current liabilities majorly included ITC GROUP of company for consultancy additional services.The sundry debtors have increased due to the increase to corporate taxes.In the year 2011, the cash and bank balance is reduced because that is used for payment of dividends. In the year 2012, the loans and advances include majorly the advances to employees and deposits to government. The loans and advances reduced because the employees set off their claims. The other current assets include the interest attained from the deposits. The deposits reduced due to the declaration of dividends. So the other current assets decreased.The huge increase in sundry debtors resulted an increase in the ratio, which is above the benchmark level of 2:1 which shows the comfortable position of the firm.

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GRAPHICAL REPRESENTATION

CURRENT RATIO 8.00 7.00 6.00 5.00 Ratio 4.00 3.00 2.00 1.00 0.00 2003 2004 2005 Years 2006 2007 2.19 1.94 Ratio 4.48 3.82

7.41

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2. QUICK RATIO (Amount in Rs.) Quick Ratio Year 2008 2009 2010 2011 2012 Quick Assets 58,574,151 52,470,336 69,883,268 89,433,596 115,431,868 Current Liabilities 7,903,952 31,884,616 16,065,620 47,117,199 30,266,661 Ratio 7.41 1.65 4.35 1.9 3.81

Interpretation Quick assets are those assets which can be converted into cash with in a short period of time, say to six months. So, here the sundry debtors which are with the long period does not include in the quick assets. Compare with 2011, the Quick ratio is increased because the sundry debtors are increased due to the increase in the corporate tax and for that the provision created is also increased. So, the ratio is also increased with the 2011.

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GRAPHICAL REPRESENTATION

QUICK RATIO
8.00 7.00 6.00 5.00 Ratio 4.00 3.00 2.00 1.00 0.00 2003 2004 2005 Years 2006 2007 1.65 1.90 Ratios 4.35 3.81 7.41

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3. ABOSULTE LIQUIDITY RATIO (Amount in Rs.) Absolute Cash Ratio Year 2008 2009 2010 2011 2012 Absolute Liquid Assets 31,004,027 10,859,778 39,466,542 53,850,852 35,649,070 Current Liabilities 7,903,952 31,884,616 16,065,620 47,117,199 30,266,661 Ratio 3.92 0.34 2.46 1.14 1.18

Interpretation The current assets which are ready in the form of cash are considered as absolute liquid assets. Here, the cash and bank balance and the interest on fixed assts are absolute liquid assets. In the year 2011, the cash and bank balance is decreased due to decrease in the deposits and the current liabilities are also reduced because of the payment of dividend. That causes a slight increase in the current years ratio.

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GRAPHICAL REPRESENTATION

ABSOLUTE CASH RATIO

4 3.5 3 2.5 Ratios 2 1.5 1 0.5 0 2003 2004 2005 2006 2007 Years 0.34 1.14 1.18 Ratios 2.46 3.92

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LEVERAGE RATIOS 4. PROPRIETORY RATIO (Amount in Rs.) Proprietory Ratio Year 2008 2009 2010 2011 2012 Share Holders Funds 67,679,219 53,301,834 70,231,061 56,473,652 97,060,013 Total Assets 78,572,171 88,438,107 89,158,391 106,385,201 129,805,102 Ratio 0.86 0.6 0.79 0.53 0.75

Interpretation The proprietary ratio establishes the relationship between shareholders funds to total assets. It determines the long-term solvency of the firm. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the company. There is no increase in the capital from the year2009. The share holders funds include capital and reserves and surplus. The reserves and surplus is increased due to the increase in balance in profit and loss account, which is caused by the increase of income from services. Total assets, includes fixed and current assets. The fixed assets are reduced because of the depreciation and there are no major increments in the fixed assets. The current assets are increased compared with the year 2011. Total assets are also increased than precious year, which resulted an increase in the ratio than older.

37

GRAPHICAL REPRESENTATION

PROPRIETORY RATIO
0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2003 2004 2005 Years 2006 2007 0.60 0.53 0.86 0.79

0.75

Ratios

Ratios

38

ACTIVITY RATIOS 5. WORKING CAPITAL TURNOVER RATIO (Amount in Rs.) Working Capital Turnover Ratio Year 2008 2009 2010 2011 2012 Income From Services 36,309,834 53,899,084 72,728,759 55,550,649 96,654,902 Working Capital 50,670,199 37,880,730 55,355,460 44,211,009 85,375,407 Ratio 0.72 1.42 1.31 1.26 1.13

Interpretation Income from services is greatly increased due to the extra invoice for Operations & Maintenance fee and the working capital is also increased greater due to the increase in from services because the huge increase in current assets. The income from services is raised and the current assets are also raised together resulted in the decrease of the ratio of 2012 compared with 2011.

39

GRAPHICAL REPRESENTATION

WORKING CAPITAL TURNOVER RATIO

1.60 1.40 1.20 1.00 Ratio 0.80 0.60 0.40 0.20 0.00 2003 0.72

1.42

1.31

1.26

1.13

Ratio

2004

2005 Years

2006

2007

40

6. FIXED ASSETS TURNOVER RATIO (Amount in Rs.) Fixed Assets Turnover Ratio Year 2008 2009 2010 2011 2012 Income From Services 36,309,834 53,899,084 72,728,759 55,550,649 96,654,902 Net Fixed Assets 28,834,317 29,568,279 17,137,310 15,056,993 14,163,034 Ratio 1.26 1.82 4.24 3.69 6.82

Interpretation Fixed assets are used in the business for producing the goods to be sold. This ratio shows the firms ability in generating sales from all financial resources committed to total assets. The ratio indicates the account of one rupee investment in fixed assets. The income from services is greaterly increased in the current year due to the increase in the Operations & Maintenance fee due to the increase in extra invoice and the net fixed assets are reduced because of the increased charge of depreciation. Finally, that effected a huge increase in the ratio compared with the previous years ratio.

41

GRAPHICAL REPRSENTATION

FIXED ASSETS TURNOVER RATIO

6.82 7.00 6.00 5.00 Ratios 4.00 3.00 2.00 1.00 0.00 2003 2004 2005 Years 2006 2007 1.26 1.82 Ratios 4.24 3.69

42

7. CAPITAL TURNOVER RATIO (Amount in Rs.) Capital Turnover Ratio Year 2008 2009 2010 2011 2012 Income From Services 36,309,834 53,899,084 72,728,759 55,550,649 96,654,902 Capital Employed 37,175,892 53,301,834 70,231,061 56,473,652 97,060,013 Ratio 0.98 1.01 1.04 0.98 1.00

Interpretation This is another ratio to judge the efficiency and effectiveness of the company like profitability ratio. The income from services is greaterly increased compared with the previous year and the total capital employed includes capital and reserves & surplus. Due to huge increase in the net profit the capital employed is also increased along with income from services. Both are effected in the increment of the ratio of current year.

43

GRAPHICAL REPRESENTATION

CAPITAL TURNOVER RATIO

1.04 1.03 1.02 1.01 1.00 Ratios 0.99 0.98 0.97 0.96 0.95 0.94 1.04 1.01 1.00 0.98 0.98 Ratios

2003

2004

2005 Years

2006

2007

44

8. CURRENT ASSETS TO FIXED ASSETS RATIO (Amount in Rs.) Current Assets To Fixed Assets Ratio Year 2008 2009 2010 2011 2012 Current Assets 58,524,151 69,765,346 72,021,081 91,328,208 115,642,068 Fixed Assets 19,998,020 18,672,761 17,137,310 15,056,993 14,163,034 Ratio 2.93 3.74 4.20 6.07 8.17

Interpretation Current assets are increased due to the increase in the sundry debtors and the net fixed assets of the firm are decreased due to the charge of depreciation and there is no major increment in the fixed assets. The increment in current assets and the decrease in fixed assets resulted an increase in the ratio compared with the previous year

45

GRAPHICAL REPRESENTATION
CURRENT ASSETS TO FIXED ASSETS RATIO

9.00 8.00 7.00 6.00 Ratios 5.00 4.00 3.00 2.00 1.00 0.00 2003 2004 2005 Years 2006 2.93 3.74 4.20 6.07

8.17

Ratios

2007

46

PROFITABILITY RATIOS GENERAL PROFITABILITY RATIOS 9. NET PROFIT RATIO (Amount in Rs.) Net Profit Ratio Year 2008 2009 2010 2011 2012 Net Profit After Tax 21,123,474 16,125,942 16,929,227 18,259,580 40,586,359 Income from Services 36,039,834 53,899,084 72,728,759 55,550,649 96,654,902 Ratio 0.59 0.30 0.23 0.33 0.42

Interpretation The net profit ratio is the overall measure of the firms ability to turn each rupee of income from services in net profit. If the net margin is inadequate the firm will fail to achieve return on shareholders funds. High net profit ratio will help the firm service in the fall of income from services, rise in cost of production or declining demand. The net profit is increased because the income from services is increased. The increment resulted a slight increase in 2012 ratio compared with the year 2011.

47

GRAPHICAL REPRESENTATION

NET PROFIT RATIO

0.59 0.60 0.50 0.40 Ratios 0.30 0.20 0.10 0.00 2003 2004 2005 Years 2006 2007 0.30 0.23 Ratios 0.33 0.42

48

10. OPERATING PROFIT (Amount in Rs.) Operating Profit Year 2008 2009 2010 2011 2012 Operating Profit 36,094,877 27,576,814 29,540,599 31,586,718 67,192,677 Income From Services 36,309,834 53,899,084 72,728,759 55,550,649 96,654,902 Ratio 0.99 0.51 0.41 0.57 0.70

Interpretation The operating profit ratio is used to measure the relationship between net profits and sales of a firm. Depending on the concept, it will decide. The operating profit ratio is increased compared with the last year. The earnings are increased due to the increase in the income from services because of Operations & Maintenance fee. So, the ratio is increased slightly compared with the previous year.

49

GRAPHICAL REPRESENTATION

OPERATING PROFIT RATIO

0.99 1.00 0.90 0.80 0.70 0.60 Ratios 0.50 0.40 0.30 0.20 0.10 0.00 2003

0.70 0.51 0.41 Ratios 0.57

2004

2005 Years

2006

2007

50

11. RETURN ON TOTAL ASSETS RATIO (Amount in Rs.) Return on Total Assets Ratio Year 2008 2009 2010 2011 2012 Net Profit After Tax 21,123,474 16,125,942 16,929,227 18,259,580 40,586,359 Total Assets 78,572,171 88,438,107 89,158,391 106,385,201 129,805,102 Ratio 0.27 0.18 0.19 0.17 0.31

Interpretation This is the ratio between net profit and total assets. The ratio indicates the return on total assets in the form of profits. The net profit is increased in the current year because of the increment in the income from services due to the increase in Operations & Maintenance fee. The fixed assets are reduced due to the charge of depreciation and no major increments in fixed assets but the current assets are increased because of sundry debtors and that effects an increase in the ratio compared with the last year i.e. 2011.

51

GRAPHICAL REPRESENTATION

RETURN ON TOTAL ASSETS

0.35 0.30 0.25 0.20 Ratios 0.15 0.10 0.05 0.00 2003 2004 2005 Years 2006 2007 Ratios 0.18 0.19 0.17 0.27 0.31

52

12. RESERVES & SURPLUS TO CAPITAL RATIO (Amount in Rs.) Reserves & Surplus To Capital Ratio Year 2008 2009 2010 2011 2012 Reserves & Surplus 65,599,299 34,582,554 51,511,781 37,754,372 78,340,733 Capital 2,079,920 18,719,280 18,719,280 18,719,280 18,719,280 Ratio 31.54 1.85 2.75 2.02 4.19

Interpretation The ratio is used to reveal the policy pursued by the company a very high ratio indicates a conservative dividend policy and vice-versa. Higher the ratio better will be the position. The reserves & surplus is decreased in the year 2011, due to the payment of dividends and in the year 2012 the profit is increased. But the capital is remaining constant from the year 2009. So the increase in the reserves & surplus caused a greater increase in the current years ratio compared with the older.

53

GRAPHICAL REPRESENTATION
RESERVES & SRUPLUS TO CAPITAL RATIO

35.00 30.00 25.00 20.00 Ratios 15.00 10.00 5.00 -

31.54

Ratios 1.85 2.75 2.02 4.19

2003

2004

2005 Years

2006

2007

54

OVERALL PROFITABILITY RATIOS

13. EARNINGS PER SHARE (Amount in Rs.) Earnings Per Share Year 2008 2009 2010 2011 2012 Net Profit After Tax 21,123,474 16,125,942 16,929,227 18,259,580 40,586,359 No of Equity Shares 207,992 1,871,928 1,871,928 1,871,928 1,871,928 Ratio 101.56 8.61 9.04 9.75 21.68

Interpretation Earnings per share ratio are used to find out the return that the shareholders earn from their shares. After charging depreciation and after payment of tax, the remaining amount will be distributed by all the shareholders. Net profit after tax is increased due to the huge increase in the income from services. That is the amount which is available to the shareholders to take. There are 1,871,928 shares of Rs.10/- each. The share capital is constant from the year 2009. Due to the huge increase in net profit the earnings per share is greaterly increased in 2012.

55

GRAPHICAL REPRESENTATION

EARNINGS PER SHARE

120.00 100.00 80.00 Ratios 60.00 40.00 8.61 20.00 0.00 2003 2004 2005 Years 2006 2007 9.04 9.75 21.68 Ratios

101.56

56

14. PRICE EARNINGS (P/E) RATIO (Amount in Rs.) Price Earning (P/E) Ratio Year 2008 2009 2010 2011 2012 Market Price Per Share 32.54 28.47 37.52 30.17 51.85 Earnings Per Share 101.56 8.61 9.04 9.75 21.68 Ratio 0.32 3.30 4.15 3.09 2.39

Interpretation The ratio is calculated to make an estimate of application in the value of share of a company. The market price per share is increased due to the increase in the reserves & surplus. The earnings per share are also increased greaterly compared with the last year because of increase in the net profit. So, the ratio is decreased compared with the previous year.

57

GRAPHICAL REPRESENTATION

P/E RATIO
4.50 4.00 3.50 3.00 Ratios 2.50 2.00 1.50 1.00 0.50 0.00 2003 2004 2005 Years 2006 2007 0.32 Ratios 3.30 4.15

3.09 2.39

58

15. RETURN ON INVESTMENT (Amount in Rs.) Return on Investment Year 2008 2009 2010 2011 2012 Net Profit After Tax 21,123,474 16,125,942 16,929,227 18,259,580 40,586,359 Share Holders Fund 67,679,219 53,301,834 70,231,061 56,473,652 97,060,013 Ratio 0.31 0.3 0.24 0.32 0.42

Interpretation This is the ratio between net profits and shareholders funds. The ratio is generally calculated as percentage multiplying with 100. The net profit is increased due to the increase in the income from services ant the shareholders funds are increased because of reserve & surplus. So, the ratio is increased in the current year.

59

GRAPHICAL REPRESENTATION

RETURN ON INVESTMENT RATIO

0.45 0.40 0.35 0.30 Ratios 0.25 0.20 0.15 0.10 0.05 0.00 2003 2004 2005 Years 2006 2007 RatioS 0.31 0.30 0.24 0.32 0.42

60

FINDINGS OF THE STUDY

1. The current ratio has shown in a fluctuating trend as 7.41, 2.19, 4.48, 1.98, and 3.82 during 2012 of which indicates a continuous increase in both current assets and current liabilities.. 2. The proprietary ratio has shown a fluctuating trend. The proprietary ratio is increased compared with the last year. So, the long term solvency of the firm is increased. 3. The working capital increased from 0.72 to 1.13 in the year 2012 11. 4. The fixed assets turnover ratio is in increasing trend from the year 2012 11 (1.26, 1.82, 4.24, 3.69, and 6.82). It indicates that the company is efficiently utilizing the fixed assets. 5. The capital turnover ratio is increased form 2012 05 (0.98, 1.01, and 1.04) and decreased in 2011 to 0.98. It increased in the current year as 1.00. 6. The current assets to fixed assets ratio is increasing gradually from 2012 11 as 2.93, 3.74, 4.20, 6.11 and 8.17. It shows that the current assets are increased than fixed assets. 7. The net profit is increased greater in the current year. So the return on total assets ratio is increased from 0.17 to 0.31. 8. Price Earnings ratio is reduced when compared with the last year. It is reduced from 3.09 to 2.39, because the earnings per share is increased. 9. The return on investment is increased from 0.32 to 0.42 compared with the previous year. Both the profit and shareholders funds increase cause an increase in the ratio.

61

SUGGESTIONS
1) After the analysis of Financial Statements, the company status is better, because the Net working capital of the company is doubled from the last years position. 2) The company profits are huge in the current year; it is better to declare the dividend to shareholders. 3) The company is utilising the fixed assets, which majorly help to the growth of the organisation. The company should maintain that perfectly. 4) The company fixed deposits are raised from the inception, it gives the other income i.e., Interest on fixed deposits. 5) On seeing turnover, fixed assets and current assets turnover of company goes on

increasing which is a good indicator as it brings commensurate gain and also the average collection goes on decreasing but management should take more efficient step to reduce it. 6) On seeing the profitability of ITC LTD . its overall performance is very good . a continuous increase in values of EPS and DPS results , investors feel safe to invest money in ITC LTD . 7) One main thing which we noticed that the company is mainly focused on the quality of the product. But in this case sometimes it bears some losses also .

62

CONCLUSION

The companies overall positions is at a good position particularly the current year position is well due to raise in the profit level from the last year position. It is better for the organization to diversify the funds to different sectors in the present market scenario.

63

BIBLIOGRAPHY
REFFERED BOOKS FINANCIAL MANAGEMENT - I. M. PANDEY MANAGEMENT ACCOUNTANCY - PILLAI & BAGAVATI MANAGEMENT ACCOUNTING SHARMA & GUPTA

INTERNET SITE

www.moneycontrol.com www.investopedia.com www.itcportal.com www.wikipedia.com

64

APPENDIX Balance sheet as on 31st March 2012 (Amount in Rs.) Particulars SOURCES OF FUNDS : 1) SHAREHOLDERS' FUNDS (a) Capital (b) Reserves and Surplus 2) DEFFERED TAX LIABILITY TOTAL APPLICATION OF FUNDS : 1) FIXED ASSETS (a) Gross Block (b) Less: Depreciation (c) Net Block 2) CURRENT ASSETS, LOANS AND ADVANCES (a) Sundry Debtors (b) Cash and Bank Balances (c) Other Current Assets (d) Loans and Advances LESS : CURRENT LIABILITIES AND PROVISIONS (a) Liabilities (b) Provisions NET CURRENT ASSETS TOTAL 2011 - 07 2010 - 06

18,719,280 78,340,733 97,060,013 2,478,428 99,538,441

18,719,280 37,754,372 56,473,652 2,794,350 59,268,002

31,057,596 16,894,562 14,163,034 80,712,804 34,043,520 152,228 733,516 115,642,068 21,596,916 8,669,745 30,266,661 85,375,407 99,538,441

29,767,979 14,710,986 15,056,993 37,856,420 51,690,326 857,753 923,709 91,328,208 38,591,265 8,525,934 47,117,199 44,211,009 59,268,002

65

Profit and Loss Account for the period ended on 31st March 2012 (Amount in Rs.) Particulars I.INCOME Income from Services Other Income TOTAL II.EXPENDITURE Administrative and Other Expenses Less: Expenditure Reimbursable under Operations and Maintenance Agreement TOTAL III. PROFIT BEFORE DEPRECIATION AND TAXATION Provision for Depreciation IV. PROFIT BEFORE TAXATION Provision for Taxation - Current - Deferred - Fringe Benefits V. PROFIT AFTER TAXATION Surplus brought forward from Previous Year VI. PROFIT AVAIALABLE FOR APPROPRIATIONS Transfer to General Reserve Interim Dividend Rs.15 per equity Share (2010- NIL) Provision for Dividend Distribution Tax VII. BALANCE CARRIED TO BALANCE SHEET 2011 - 07 96,654,902 2,398,220 99,053,122 81,334,750 81,334,750 49,474,305 31,860,445 67,192,677 2,183,576 65,009,101 24,292,000 (315,922) 446,663 40,586,359 26,699,257 67,285,617 67,285,617 2010 06 55,550,649 2,285,896 57,836,545 75,599,719 75,599,719 49,349,892 26,249,827 31,586,718 2,279,917 29,306,801 10,680,440 (67,359) 434,140 18,259,580 44,951,851 63,211,431 4,495,185 28,078,920 3,938,069 26,699,257

Earnings Per Share - Basic & Diluted

22

10

66