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Financial ratio analysis

of Hindustan Unilever
Ltd.

Prepared By
BHARAT NARULA

SECTION: B
ROLL NO: 72

ACKNOWLEDGEMENT

Any task that is under taken reaches successful


completion not only by an Individual effort but also by
the guidance and support of many others. Here I
acknowledge my heartiest gratitude to a few of them
who have helped me to carry out this project work
successfully.
I express my sincere feelings of my gratitude to
Professor F.M.A. Khan, for her motivation, inspiration
and encouragement for the completion of this Project.
His guidance was immeasurable to the completion of
my project.
I am also grateful to my friends for giving support in my
project. Lastly, I would like to thank each and every
person who helped me in completing the project
especially my Parents.

BHARAT NARULA

CONTENTS

Objective
1. Introductions:
About the industry
About the company
2. Analysis of Company on the basis of ratios

EXECUTIVE SUMMARY

The ratio analysis is one of the most useful and common


method of analyzing financial statements. As compared to
other tools of financial analysis, the ratio analysis provides very
useful conclusions about various aspects of the working like
financial position, solvency, liquidity and profitability of an
enterprise. It is useful for inter-firm comparison so that the
companies can review their performance and also plan forward
to make necessary changes in their working styles
This study gives in detail the analysis of various financial ratios
based upon the past as well as the present performance of
Hindustan Unilever Ltd. expressed in financial data along with
its peer and industry.
Based upon the results from these financial ratios conclusions
are driven out that whether the company has been earning
profits or not and also that how much it has used these results
in its growth. So, the company can also manage each of its
current assets namely cash management, accounts receivable
management and also its liabilities like creditors, loans, bills
payables etc. so that it can maintain an identical financial ratio
for each of its business aspects like solvency ratios, turnover
ratios, profitability ratios etc.

OBJECTIVE OF THE STUDY

To know the financial as well as the profitability


position of Hindustan Unilever Ltd.
To know whether the financial ratios of the company
are ideal or not, which is the sign of a healthy
business enterprise.
To analyze and compare the performance of the
company with the help of these financial ratios from
other companies and competitors in the market.
To analyze the liquidity solvency position of the firm.
To study the working capital management of the
company.
To assess the factors influencing the financial
performance of the organization.

To understand the overall financial position of the


company.

About the Industry

The fast moving consumer goods (FMCG) segment is the fourth largest
sector in the Indian economy. The market size of FMCG in India is
estimated to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018.

Food products is the leading segment, accounting for 43 per cent of the
overall market. Personal care (22 per cent) and fabric care (12 per cent)
come next in terms of market share.

FMCG goods are popularly known as consumer packaged goods. Items in


this category include all consumables (other than groceries/pulses) people
buy at regular intervals. The most common in the list are toilet soaps,
detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain
electronic goods. These items are meant for daily of frequent consumption
and have a high return
Rural set to rise
Rural areas expected to be the major driver for FMCG, as growth continues
to be high in these regions. Rural areas saw a 16 per cent, as against 12
per cent rise in urban areas. Most companies rushed to capitalise on this,
as they quickly went about increasing direct distribution and providing
better infrastructure. Companies are also working towards creating
specific products specially targeted for the rural market.

The Government of India has also been supporting the rural population
with higher minimum support prices (MSPs), loan waivers, and
disbursements through the National Rural Employment Guarantee Act
(NREGA) programme. These measures have helped in reducing poverty
in rural India and given a boost to rural purchasing power.

Hence rural demand is set to rise with rising incomes and greater
awareness of brands.

Urban trends

With rise in disposable incomes, mid- and high-income consumers in


urban areas have shifted their purchasing trend from essential to premium
products. In response, firms have started enhancing their premium
products portfolio. Indian and multinational FMCG players are leveraging
India as a strategic sourcing hub for cost-competitive product
development and manufacturing to cater to international markets.

Top Companies

The top ten India FMCG brands are:

1.Hindustan Unilever Ltd.


2. ITC (Indian Tobacco Company)
3. Nestl 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

What the millenniums expect

According to a study by TMW and Marketing Sciences that surveyed 2,000


people across different age groups ranging, young consumers are the
most rational and likely to spend more time weighing up potential
purchases. The survey also suggests that younger people are using
recommendations from their peers about products and services in order to
make rational purchase decisions. According to the study, shoppers aged
18 to 24 are 174 per cent more likely to use recommendations on social
media than shoppers aged 25 and over.

Another key factor today is speed. Today's consumer wants packaged


goods that work better, faster, and smarter. The need for speed" trend
highlights the importance of speed as a potentially decisive purchase
factor for packaged goods products in a world where distinctions between
products are shrinking.
Younger consumers express the greatest need for speed, not a huge
surprise for the smartphone generation. Datamonitor's 2013 Consumer
Survey found that younger consumers those in the 15-24 year old age
group were twice as likely to say that "results are achieved quickly" has a
"very high amount of influence" on their health and beauty product
choices than consumers in the oldest age group, those aged 65 or older.
Speed matters, and 2014 will almost certainly see the introduction of new
game-changing timesavers.

Road Ahead

The FMCG sector has grown at an annual average of about 11 per cent
over the last decade. The overall FMCG market is expected to increase at
(CAGR) of 14.7 per cent to touch US$ 110.4 billion during 2012-2020, with
the rural FMCG market anticipated to increase at a CAGR of 17.7 per cent
to reach US$ 100 billion during 2012-2025.Food products is the leading
segment, accounting for 43 per cent of the overall market. Personal care
(22 per cent) and fabric care (12 per cent) come next in terms of market
share.

Ratio and its significance


Ratio analysis is a powerful tool of financial analysisIn financial analysis, a
ratio is used as a benchmark for evaluating the financial position and
performance of the firm. It is a ratio between two accounting figures or
data expressing the relationship between the two. It is an expression of
the relation between different relevant accounting variables. The financial
statement of a business comprises of
(1) The Statement of profit & Loss and
(2) The Balance Sheet.
These include a mass of figures which make it difficult to deduce any
inference or decision. An accounting ratio is used to gauge the financial
solvency and profitability published by the business and it highlights in
arithmetical terms, the relationships that exist between various items
from the financial statement.
IMPORTANCE OF FINANCIAL RATIO ANALYSIS:
Ratio analysis helps decision makers in following way:
It helps the management to gauze the efficiency of performance
and assesses the financial health of the business.
It is an essential tool for checking the efficiency with which the
working capital is being used and managed.
Where ratios are based on analysis and scrutiny of past results, they
assist the management to formulate policy, to arrive at correct
decisions, to prepare budgets and plan for future.
Comparative ratio analysis injects trend analysis. The improvement
or deterioration of a business is clearly disclosed by ratio analysis.

It helps to make financial forecasts.


Moneylenders and creditors can ascertain whether a business will be
a desirable debtor or a potential investment zone.
It is an integral part for introduction of standard costing and
budgetary control.
Its inherent feature easiness is its greatest advantage. Ratio
analysis can easily made and easily understood.

TYPES OF RATIOS
In view of the requirements of the various users of ratios, we may classify them into
following four categories.

LIQUIDITY RATIOS
Liquidity ratios provide information about a firm's ability to meet its short-term financial
obligations. They are of particular interest to those extending short-term credit to the firm.
The objective of this ratio is to assess the ability of the firm to meet its
current/short tem obligations.

The concerned users of this ratio here are creditors, Banks, who are interested in the short
term solvency or liquidity of a firm
A) Current Ratio
B) Liquid / Quick Ratio
C) Super Quick Ratio

Current Ratio
Current ratio is a measure of firms short-term solvency. It indicates the availability of current
assets in rupees for every one rupee of current liability. It is also called Bankers Ratio or
working capital ratio (if expressed as a percentage). Standard ratio is 2:1.
Current Ratio =

Current Assets

___________________
Current Liabilities

Current Ratio of HUL

Current Ratio Of Hul


2015

2014

2013

2012

0.83
0.75

0.74

2011

0.86

0.76

HUL

As the conventional rule says it must in 2:1 ratio. But the trend just opposite if we compare
ratio with 2011 which was .86 and it has came down to .75 in 2015. Thus company has more
liabilities then assets. This is not good for company in long run. The trend shows that
company has increased its liabilities and others factors might be responsible for it. As we
know Indian economy was growing at its slowest pace and low availability of credit might be
the reason behind this .
COMPARISON OF CURRENT RATIO WITH INDUSTRY AND Colgate-Palmolive
(India) Ltd

COMPANY
Hul
Colgate &
Palmolive
Industry

201
201 201
5
2014
2013 2
1
0.75
0.74
0.76 0.83 0.86
0.80
2.55

0.85
1.98

1.07
1.93

1.09
1.68

1.12
1.78

Interpretation
As we can see from the above trend there has been significantly decrease
in Current ratio of Hul but less as compared to C&G. So it means although
it has decreased but very less . On the other hand Industry has
maintained Ratio. Now this reveals that the liquidity position of the company became
worse from last two years but HUL needs to maintain the industry standards to
maintain the supremacy in market.

Current ratio
3.00
2.50 2.55
2.00

1.98

HUL

Colgate&Pamolive
1.93

1.68

1.50
1.00
0.50

0.00
2015

2014

1.78
1.12
0.86

1.09
0.83

1.07
0.76

0.85
0.74

0.80
0.75

Industry

2013

2012

2011

LIQUID/QUICK RATIO
Liquid ratio is also termed as "Liquidity Ratio", "Acid Test Ratio" or "Quick
Ratio". The true liquidity refers to the ability of a firm to pay its short term
obligations as and when they become due. A standard of 1:1 absolute
liquidity ratio is considered an acceptable norm .
Quick Ratio =

Quick Assets
___________________
Current Liabilities

Quick Assets: CA - (Inventory + Prepaid Expenses)

Quick ratio of Hul


0.9
0.85
Hul

0.8
0.75
0.7
0.65
2011

2012

2013

2014

2015

Looking at the last five years trend it seems that Company is facing problem in short run as
the ratio is less than 1. Therefore, it indicates that the company did not have the ability to
repay all its debts by using its most liquid assets

COMPARISON OF Quick RATIO WITH INDUSTRY AND Colgate-Palmolive (India) Ltd


COMPANY
Hul
Colgate &
Pamolive
Industry

2015
.75

2014
.74

.99
2.55

1.13
1.98

2013
.76
1.48
1.93

2012
.83
1.49
1.68

2011
.86
1.23
1.73

Liquid /Quick ratio


3
2.5

Hul

Colgate & Pamolive

1.5

Industry

1
0.5
0
2011

2012

2013

2014

2015

Interpretation:
Over the past two years, the liquid ratio for HUL has been less than the accepted standard and
industry average. Also, HUL liquid ratio is less than 1.0 in the last 5 years. Therefore, it
indicates that the company did not have the ability to repay all its debts by using its most
liquid assets. But in case of C&G it has worsened and its alarming for the company in future.
On the one hand where Industry has improved its Quick ratio both the industry has
underperformed.

Super Quick / Acid Test Ratio


This ratio is the most strict and very conservative test of the firms
liquidity position
Super Quick Ratio =

Super Quick Assets


___________________
Quick Liabilities

Super Quick Assets: Cash and marketable Securities


Quick Liabilities:

Current Liabilities Bank Overdraft

Super quick asset does not include also debtors and bills receivable.
Bank overdraft being excluded because of its kind of permanent nature
with the Bank.

Again looking at the super quick, it can be seen the company very less
liquid assets. But there has been some improvement in last 2 years. Thus
company is moving in right direction and it will calm the nerves of
investor.

COMPANY
Hul
Colgate &
Pamolive
Industry

2015

2014
0.26

2013
2012
2011
0.23
0.19
0.25
0.22

0.27
1.45

0.32
0.92

0.52
0.89

0.45
0.53

0.6
0.67

Interpretation:
As the thumb rule says and Industry the quick ratio must be greater than
1 but both the leader and peer have decreasing trend in last five years .
But Hul has performed better than C&P in term of maintain the ratio . In
2011 C&P was following the industry but then it started decreasing where
industry improved its ratio.

Super Quick Ratio of HUL vs C&P vs Industry


3.5
3
2.5
2
1.5
1
0.5
0
2011

Hul
Colgate & Pamolive
Industry

2012

2013

2014

2015

CAPITAL STRUCTURE / LEVERAGE


RATIOS
Leverage ratios are also known as capital structure ratio. These ratios indicate mix of funds
provided by owners & lenders. As a general rule these should be appropriate mix debt &
owners equity in financing the firms assets. Leverage ratios are calculated to judge the long
long-term financial position of the company. Some of the popular leverage ratios are
So ratios here focus on the long term solvency of the company.
The various ratios discussed under this head are as follows:
A) Debt Equity Ratio
B) Interest Coverage Ratio
C) Dividend coverage Ratio
D) Capital Gearing Ratio

Debt Equity Ratio


This ratio reflects the proportion of owners stake in the business. Excess liabilities tend to
cause insolvency and working capital problem.
A high debt/equity ratio generally means that a company has been aggressive in financing its
growth with debt. This can result in volatile earnings as a result of the additional interest
expense

Debt Equity Ratio Of HUL


3.31

3.5
3

2.97

2.82

2.5

2.66
2.12

2
1.5
1
0.5
0

2011

2012

2013

2014

2015

HUL

As the thumb rule says this ratio tells that how much firm has ability to pay its debt and if
equity is more than the total debt of the firm so firm will face low risk. Now if we see the
trend over 5 years it shows us that company has huge debt . Huge in the term as HUL is one
of the largest FMCG Company. So if the ratio is more than 2 it means the debt was more than
equity . But it is declining which is a good sign for the company and shareholders. Now let us
compare it with its peer and industry to really know where the company stand.
COMPARISON OF Debt to Equity RATIO WITH INDUSTRY AND Colgate-Palmolive
(India) Ltd

HUL
Colgate &
Pamolive
Industry

2011
2.82

2012
2.12

2013
3.31

2014
2.97

2015
2.66

1.72
1.23

1.59
1.07

1.67
1.17

1.48
1.01

1.21
0.89

Debt to equity Ratio HUL vs C&P vs Industry


3.5
3
2.5

HUL
Colgate & Pamolive

Industry

1.5
1
0.5
0
2011

2012

2013

2014

2015

It looks like HUL has high debt as compared to its peer. It was at its peak in 2013 but slowly
it started to come down which means it is reducing its debt. The graph shows that company is
financing its activities by introducing equity shareholders. But if we look at Colgate &
Palmolive it is known to be following industry trend and thus increasing investors confidence
in it . its good have low D/E ratio as in future it might be bigger worry for company .

Interest Coverage Ratio


The interest coverage ratio or time-interest-earned is used to test the firms debt-servicing
Capacity. The interest coverage ratio is computed by dividing earnings before interest and
taxes by Interest Charges

EBIT
___________________
Interest coverage ratio =
Fixed interest charges

Interest Coverage ratio of HUL

Interest Coverage ratio of HUL


12000
10000 11376.83
8000

HUL

6000
4000
2000
0

2702.74
2011

2012

173.94
2013

134.21
2014

329.37
2015

A large value of this ratio means that company has huge surplus of money but it was not
using it for the expansion. But from 2011 we have seen a decline in trend which means
company is going for investment. Also high ratio means company is able to meet its
obligations to paying its interest in time. This is good news for long term investors because it
means the company future is secure. Now let us compare it with the industry and its peer.

IR ratio of HUL vs C&P vs Industry


12000
10000
HUL

8000

Colgate & Palmolive

6000

Industry

4000
2000
0
2011

2012

2013

2014

2015

Interpretation :
Now we can only HUL has a good Interest Coverage ratio even exceeding the industry by a
great margin. Although its good but it means that company is sitting under a lot of cash but it
is not doing investment. If we look at year 2011, in the same year we have a lot of corruptions
& scandals which made a lot of fear in the industry about the functioning of the government.
As the sentiments improved we have a seen a steep decline ICR which is good where as C&G
has good ICR.

Dividend coverage Ratio


This ratio shows the ability of a firm to pay fix amount of dividend on preference shares.
Like the interest coverage ratio, this ratio also ascertains the margin available to Preference
Share Holders.

Earnings after tax


___________________
Interest coverage ratio =
Preference Dividend

Since know of the Company give preference dividend thus it cannot be calculated.

ACTIVITY RATIO

Activity ratios are employed to evaluate the efficiency with which the firm
managers and utilizes its assets. These ratios are also called turnover

ratios because they indicate the speed with which assets are being
converted or turned over into sales. Activity ratios, thus, involve a
relationship between sales and asset.
The various ratios to be discussed under this head are follows :
1)
2)
3)
4)
5)
6)

Debtors Turnover Ratio


Creditors Turnover Ratio
Inventory Turnover Ratio
Working Capital Turnover Ratio
Fixed Assets Turnover Ratio
Proprietary Ratio

DEBTORS TURNOVER RATIO


Debtors turnover is found out by dividing credit sales by average debtors

Net Credit Sales


___________________
Debtors turnover ratio =
Average Debtors
Debtors turnover indicates the number of times debtors turnover each year. Generally, the
higher the value of debtors turnover, the more efficient is the management of credit

Debt turnover Ratio of Hul


60
40
20
0

20.92
2011

32.57

30.97

34.32

39.35

2012

2013

2014

2015

Hul

As we see the ratio is showing an increasing trend ,we can say the company is giving less
time to its creditors for payment . It seems that company liquidity resources are sufficient to
tackle any situation
Now let us compare it with Industry and its peer

Debt Turnover
ratio

Hul
Colgate &
Palmoliv
Industry

2011
20.92

2012
32.57

2013
30.97

2014
34.32

2015
39.35

53.18

30.8

38.96

65.39

70.26

139.08

99.53

173.67

57.18
139.3
4

Debt turnover Ratio of Hul vs C&P vs Industry


200
150

Hul
Colgate & Palmoliv

100

Industry

50
0
2011

2012

2013

2014

2015

Interpretation :
Well it seems as Colgate & Palmolive is doing much better from last 2 years but it is much
lower than the industry standard. So Hul needs to increase it debt turnover ratio so that it
could utilize it for others things.
This shows that the management has implemented an optimum credit policy for generating
sales as well as converting the debtors into cash as soon as possible in the industry. This
shows a positive sign for the managements activity as per debtors turnover ratio is
concerned

Inventory Turnover Ratio


This ratio shows how fast the inventory can be sold. Actually inventory is always seen as
less liquid able item and it costs the company.

Cost of Goods sold


___________________
Inventory turnover ratio =
Average Inventory

Inventory Turnover ratio of HUL


8
6

HUL

4
2
0
2011

2012

2013

2014

2015

No if we compare the ratio from 2011 it seems it has improved significantly which means the
company is having less inventory. It is good for the company as it will save a lot of money
and increase profit. Now let us compare the Inventory turnover ratio with industry and its
peer
Inventory Turnover ratio

HUL
Colgate &
Pamolive

2011
2.74

2012
4.66

2013
5.52

2014
5.52

2015
6.06

4.73

5.34

6.42

6.69

6.09

Industry

4.09

5.98

6.61

6.64

7.51

Inventory Turnover ratio


8
HUL

Colgate & Pamolive

Industry

2
0
2011

2012

2013

2014

2015

Interpretation:
Looking at the last 5 year trend we can see HUL has outperformed its peer and approaching
industry standards . Whereas the C&G ITR has declined if we look the last year ratio raising
worry sign for the management. We cannot say that HUL has outperformed but approaching
Industry standards. In long run Investors will be excited to invest in a company which has
fewer inventories .

Working Capital Turnover Ratio


The ratio shows the number of times the working capital is turned over in
the course of the year.
Cost of Goods sold
__________________________
Working Capital turnover ratio =
Average Working Capital

Working Capital turnover ratio of HUL


8
6

HUL

4
2
0
2011

2012

2013

2014

2015

Since HUL is showing a decreasing trend over last five years which seems
some bad decisions taken by management due to which Working Capital
is decreasing which includes your assets and liabilities .

Working Capital
turnover ratio

HUL
Colgate
&
Pamoliv
e
Industr
y

2011
6.1

2012
6.71

2013
5.83

2014
5.37

2015
5.08

5.64

6.27

6.52

6.8

6.22

4.9

6.34

6.68

6.64

7.35

Working Capital Turnover ratio


8

HUL

Colgate &
Pamolive

Industry

2
0
2011

2012

Interpretation:

2013

2014

2015

Looking at the data we can say HUL is not able to utilized its working
capital properly as compared to industry and C&G. It is showing a
negative trend since last 3 years where as industry and its peer is way
ahead. It can be due to some internal factors. Management has to think
how they can get optimum and efficient utilization of the assets or all
resources of the firm, leading to more profitable activities. The firm may
not have high working capital ratio as that of the industry but has a
sustained its turnover ratio in a stable manner with optimum levels of
working capital available at all times, unlike its peer which has shown
volatile performance of working capital ratio.

Fixed Assets Turnover Ratio

This ratio shows the extent to which the investment in fixed asset
contributes to sales. A higher ratio shows fixed assets are properly
utilized.
This ratio indicates the speed with which assets are converted or turned
over into sales.

Fixed Assests Turnover Ratio


8
7
6
5
4
3
2
1
0

HUL

2011

2012

2013

2014

2015

HUL is performing well over last few years. As this ratio indicated
how quickly the company is able to convert its fixed assets into
sales .
High ratio means shows fixed assets are properly utilized.

Fixed assets turnover ratio


2012
2013
2014
6.2
6.67
6.73

2011
5.59

HUL
Colgate &
Pamolive
Industry

3.94
4.18

5.14
4.27

5.43
4.52

3.97
4.37

2015
6.95
3.34
4.49

Interpretation:
The data shows HUL is the start performer even outperforming the
whole industry.
It means the management is able to liquefy the inventories so that it
can be properly utilized and help in the expansion of business .

Fixed Assests Turnover Ratio


8
7
6

HUL

Colgate & Pamolive

Industry

3
2
1
0
2011

2012

Proprietary Ratio

2013

2014

2015

This ratio represents out of rupee one of shareholders funds, how much
has been invested in assets. In other words, company aims at maximum
amount of shareholders funds should be utilized against fixed assets.

Proprietary ratio of HUL


0.1
0.08
0.06
0.04
0.02
0

HUL

2011

2012

2013

2014

2015

Since the ratio is less than 1 it means the HUL is borrowing more money to fund itself
In the long run its is not good for the company and shareholders

Proprietary ratio
0.12
0.1

HUL

0.08

Colgate & Palmolive

0.06

Industry

0.04
0.02
0
2011 2012 2013 2014 2015

HUL
Colgate &
Palmolive
Industry

2011
0.08
0.04
0.1

Proprietary ratio
2012
2013
0.06
0.08
0.03
0.08

0.03
0.07

2014
0.07

2015
0.06

0.02
0.06

0.02
0.05

PROFITABILITY RATIOS
The profitability ratios are calculated to measure the operating efficiency
of the company. Besides management of the company, creditors and
owners are also interested in the profitability of the firm. Creditors want to
get interest and repayment of principal regularly. Owners want to get a
required rate of return on their investments. This is possible only when the
company earns enough profits.
Generally the ratios under this head are broadly classified under two
heads:
1) Profit ratios based on Turnover
2) Profit ratios based on Investment

1) Profit Ratios Based on Turnover:


The various ratios under this category are as follows:

Gross Profit Ratio


G.P.Ratio measures the relationship between gross profits & sales

Gross profit
__________________________
Gross profit ratio =
Net sales
Gross profit = Net Sales - Cost of goods sold

A high gross profit ratio is a sign of good management and it also


gives an idea as to how far the operating and non-operating
expenses can be tolerated.

A low gross profit ratio may point towards danger signals like a
higher cost of production, lower selling price and many more.

Gross Profit of HUL


0.8
0.6
0.4 0.61
0.2
0
2011

HUL
0.44

0.46

0.48

0.47

2012

2013

2014

2015

Gross profit
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011

2012

2013

2014

2015

Interpretation :
A lower Gross profit ration indicates high production cost, low selling
prices etc . Whereas Colgate is following industry standards and is neck to
neck with industry.
Although it has decreased and remained volatile while Colgate performed
really well in last five years. Low ratio might be due to increasing rate of cost of
goods the firm.

Net Profit Ratio


Net profit margin is calculated by dividing the net profit after
taxes by the sales means after paying the taxes you are
earning some of the profit it means firm is doing its business
well. This ratio is used as a measure of overall profitability & it
helps in determining the efficiency of the firm to carry on its
business.

Net profit after tax


__________________________
Gross profit ratio =
Net sales

General Interpretation:
- A high net profit ratio is a good sign as it ensures sufficient
return to owners, more coverage for additional expenses, etc.
- A low net profit ratio gives a bad sign but the company may earn
more profit by selling more quantities. Pricing in a competitive
market is guided by this phenomenon.

Net profit of HUL


0.14

0.1

HUL

0.13

0.12
0.11
2011

0.12

0.12

2012

2013

0.12
2014

2015

Net profit Ratio


0.25
0.2
0.15
0.1
0.05
0
2011

2012

2013

2014

2015

Interpretation:
Hul is again performing badly with its net profit ratio
remain stagnate all 5 years. Its alarming bell for the
management to look into the matter as quickly as
possible to increase investors confidence. Colgate has
also performed bad as compared to industry. Both the
company need to look in their expenses

C) Operating Ratio
This ratio mainly deals with operating cost incurred during opearions . it is
calculated as :
COGS + Operating Expenses
__________________________
Operating ratio =
Net sales

Operating ratio of HUL


1
0.8

0.81

0.79

0.78

0.78

2012

2013

2014

2015

0.67

0.6
0.4
0.2
0

2011

HUL

Operating Ratio
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011

2012

2013

2014

2015

Interpretations :
Looking at the trend and the net and gross profit ,it can be
predicted that Hul margins are decreasing due to rise in COGS
and other expenses .Where as Colgate is approaching Industry to
give positive affect in market
D) Expenses Ratio :
This ratio talks about the various expenses by breaking them
down

Cost of goods sold


__________________________
COGS ratio =
Net sales

Operating expenses
Operating Expense ratio =

____________________________________
Net sales

Administrative Expenses

__________________________
Administrative Exp ratio =
Net sales

Selling Expenses
__________________________
Selling Expense ratio =
Net sales

HUL
Colgate &
Palmolive
Industry

HUL
Colgate &
Palmolive
Industry

Hul
Colgate &
Palmoliv
Industry

2011
0.38
0.32
0.32

Cost of Good Sold


Ratio
2012
2013
0.55
0.53

2014
0.51

2015
0.52

0.37
0.45

0.41
0.43

0.38
0.41

0.37
0.41

Administrative
ratio
2011
2012
0.28
0.25

2013
0.25

2014
0.26

2015
0.26

0.31
0.28

0.35
0.29

0.35
0.28

Operating profit ratio


2011
2012
2013
0.33
0.19
0.21

2014
0.22

2015
0.22

0.26
0.29

0.28
0.3

0.06
0.12

0.38
0.37

0.25
0.24

0.32
0.25

0.28
0.28

COGS Ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2011

2012

2013

2014

2015

Operating profit ratio


1.2
1
0.8
0.6
0.4
0.2
0
2011

2012

2013

2014

2015

Administrative ratio
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011

2012

2013

2014

2015

Interpretation:

As we have seen there continues increase in operating cost due to margins have
decreased.
Although there has been decrease in operating profit but HUL has shown more
decrease than others
Similarly Colgate has followed the industry and HUL has remained volatile

Profit ratios based on Investment


Return on Capital Employed
Return on Capital Employed is sometimes referred to as the "primary ratio". It tells us what
returns management has made on the resources made available to them before making any
Distribution of those returns. It judges the overall performance of the concern. In other
words, it evaluates the earning capacity of the net assets of the business. Higher the ratio the
more efficient is the management and utilization of capital employed
Net profit after tax
________________________
Return on Capital Employed ratio =
Average Capital Employed

Return on capital employed of HUL


2.5
2
HUL

1.5
1
0.5
0
2011

2012

2013

2014

2015

Although return on capital employed has decreased comparing the last 5 years but it good if
we look at industry trend. Thus HUL is properly utilizing the money of creditors and owners.
Higher ratio is good for company and management.

Return on capital
employed Share
2011
2012
2.22
1.39

HUL
COLGATE
&PALMOLIVE
Industry

3.84
2.47

1.99
1.22

2013
1.79

2014
1.83

2015
1.95

1.88
1.41

1.23
1.38

0.96
1.59

Return on capital employed


4.5
4
3.5

HUL

COLGATE
&PALMOLIVE

2.5
2

Industry

1.5
1
0.5
0
2011

2012

2013

2014

2015

Interpretation :
Comparing the HUL, C&P and industry we have seen HUL is performing better then
its peer and Industry. C&P is showing a decreasing trend.

Return on Shareholders Investment


This ratio speaks about how profitably the owners funds have been utilized.
- As already stated, the ratio to be compared with industrial average and over the years, to
have a meaningful conclusion
Net profit after tax
________________________
Return On Shareholders investment =
Average Shareholders fund

HUL
COLGATE
&PALMOLIVE
Industry

Return on shareholder
fund
2011
2012
2.05
1.09
2.67
1.39

1.43
0.68

2013
1.41

2014
1.61

2015
1.58

1.43
0.74

1.22
0.73

1.14
0.74

Return on Shareholder Fund of HUL


2.5
2
1.5

HUL

1
0.5
0
2011

2012

2013

2014

2015

As this ratio has Profit in the numerator it means higher the ratio it is good for the company.
Also the trend shows it almost stagnant. The picture will become clearer once we compare it
with the industry to do more accurate analysis.

Return on Shareholder Fund


3
2.5
2
Axis Title 1.5
1
0.5
0
2011

2012

2013

2014

2015

Interpretation
If we compare all three we see earlier they have shown some decline but then it has
consolidated its position. Again HUL has taken the lead and performed better but
comparing the profit are low. It will be good to see that management has to quickly do
some reforms in order to regain its supremacy.

Dividend payout ratio


As the ratio itself speaks, this ratio tries to establish the relationship between the profit
belonging to equity shareholders and amount paid to them
Dividend per Share
_________________________
Dividend payout ratio

=
Earnings per Share

Dividend pay ratio of HUL


120
100
80

HUL

60
40
20
0
2011

2012

2013

2014

2015

Hul is showing a decreasing trend over last 2years but still it is ahead of its rival and industry
but it is linked to high operating cost and low profit which has put pressures on HUL margins.

Dividend Pay ratio


120
100
80
60
40
20
0
2011

2012

2013

2014

2015

Interpretation
HUL is again the leader leading the industry but it is decreasing which is not a good sign . If
we look at the industry we see that HUL is performing good because industry is also showing
a decreasing trend

Earnings Per Share


The earnings per share is calculated by dividing profit after tax by total number of
outstanding.
EPS simply shows the profitability of the firm on a per share basis, it does not reflect how
much is paid as dividend and how much is retained in business

Net Profit available to Equity shareholders


____________________________________
Earnings per ratio

=
Number of Equity Shares

Earning per share of HUL


25
20
15

HUL

10
5
0
2011

2012

2013

2014

2015

Looking at the trend it is showing an increasing trend which is a good sign for the
management. Although it shows that company profit are increasing but it doesnt tell how
much the dividend will be payed to Shareholders

Earning per Share


45
40
35
30
25
20
15
10
5
0
2011

2012

2013

2014

2015

Interpretation
Looking at the trend we see although it is a healthy trend but below par with industry
and peers. There is a huge difference between its peers and industry. The same trend
was shown in Profitability of the company.

Dividend Per Share


Dividend per share is a simple and intuitive number. It is the amount of the dividend that
Shareholders have (or will) receive for each share they own. A larger number of present and
Potential investors may be interested in DPS rather than EPS. DPS is the earnings distributed
to ordinary shareholders divided by the number of ordinary shares outstanding.

Dividend per Share of HUL


20
15

HUL

10
5
0
2011

2012

2013

2014

2015

Now looking at the trend we can see there has been 10% decline in the 2015 as compared to
2014 due to decline in profit as compared to previous year. This is not a good sign as
investors confidence will decrease and they will invest money in other company.

Dividend Per share


25
20
15
10
5
0
2011

2012

2013

2014

2015

Interpretation
Hul has increased its dividend per share issue as compared to previous years but
looking at the C&P it is way ahead. It means the investors will be attracted more
towards the C&P rather than HUL. So the management need to fix this thing in order
to convince share holders in investing in HUL.