ITC LTD – RATIO ANALYSIS

BY: ISHAM, SAI ROHIT, RAHUL AND DEEPESH

INTRODUCTION
 It is a multi-industry company headquartered in Kolkata, West Bengal.
 Established in 1910 as Imperial Tobacco Company LTD.
 Later changed to Indian Tobacco Company LTD generally known as ITC LTD.
 Its diversified business includes five segments: Fast-Moving Consumer Goods, Hotels, Paperboards &
Packaging, Agriculture Business & Information Technology.
 In 2012-13, had an annual turnover of US$8.31 billion and a market capitalization of US$45 billion.
 Employs over 25,000 people at more than 60 locations across India.
OBJECTIVES

 To analyse liquidity of ITC LTD.

 To analyse profitability of ITC LTD
 To analyse solvency.
 To analyse efficiency.
 To study growth of ITC LTD.
 FINANCIAL SUMMARY OF LAST 5 YEARS

Sales/Revenue Retained Earnings/Reserves and Surplus

450000 200000

400000 180000

350000 160000

140000
300000
Amount in $US

Amount in $US
120000
250000
100000
200000
80000
150000
60000
100000 40000
50000 20000

0 0
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Year 2013 - 2017 Year 2013 - 2017
 Net Profit/Income Before Taxation Net Worth
180000 600000

160000
500000
140000

120000 400000
Amount in $US

Amount in $US
100000
300000
80000

60000 200000

40000
100000
20000

0 0
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Year 2013 - 2017 Year 2013 - 2017
SHAREHOLDING PATTERN IN %
RATIO ANALYSIS

 Financial tool used by top management to conduct a quantitative analysis of information in a

company's financial statements.
 Ratios that are to be analysed will be in form of %, times and proportion.
 They are classified into:
1. Liquidity
2. Profitability
3. Activity or Efficiency
4. Solvency
 Not only useful to businessmen but also to the investors, suppliers, bankers and customers to
analyse performance of a company.
LIQUIDITY RATIOS

 Indicates short term solvency of the business. In other words: company’s ability to meet
current obligations.
 It includes:
 Current Ratio
 Quick Ratio
 Cash Ratio
 Working Capital
CURRENT RATIO

 It is the proportion of current assets to current liabilities. Expressed by the formula:

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

 Current assets: cash in hand, bank balance, debtors, bills receivable, stock, prepaid
expenses, accrued income, and short-term investments (marketable securities).
 Current liabilities: creditors, bills payable, outstanding expenses, provision for taxation net of
advance tax, bank overdraft, short-term loans, income received in advance, etc.
 Ideal value of current ratio is 2:1.
CURRENT RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Current Ratio 2.103 1.727 3.689

 Analysis:
 In 2015, ITC LTD approximately is having ideal current ratio value. Hence at this stage, it properly
makes use of available resources as well as not in danger of not paying short-term debt on time.
 In 2016, there is drop in the value of current ratio. It is lower than the standard value. This indicates
that ITC is in danger of not being able to pay short-term debt on time.
 In 2017, there has been rise in the value of current ratio. It is higher than the standard value which
indicates that the usage of resources is not proper and effects the profit.
QUICK RATIO

 Ratio of quick (or liquid) asset to current liabilities. It is expressed as:

𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
 Quick assets – assets quickly can be converted into cash.
 It is obtained by excluding inventories/stock and prepaid expenses.
 It is more better indicator to measure liquidity position of business as non-liquid current asset
is excluded.
 Ideal value is 1:1.
QUICK RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Liquid Ratio 1.397 1.114 2.471

 Analysis:
 Since prepaid expense wasn’t in the balance sheet, only inventories was excluded.
 In 2015, it had slightly higher than ideal value. This indicates that little extra resources are used.
 In 2016, the ratio is approximately equals ideal value. Hence ITC can pay off its short-term dues
without any flaw.
 In 2017, the ratio is very high in contrast to ideal value. This suggests that excess of resources are
used and hence will result in less profit.
CASH RATIO

 Ratio of cash and cash equivalents of a company to its current liabilities. It is expressed as:

𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

𝐶𝑎𝑠ℎ 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
 Extreme liquidity ratio since only cash and cash equivalents are compared with the current
liabilities.
 Measures the ability of a business to repay its current liabilities by only using its cash and
cash equivalents.
 Idea value is 1:1. This indicates that the company will be able to pay all of the short debts
using cash equivalents.
CASH RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Cash Ratio 0.6494 0.4692 0.4167

 Analysis:
 For all of three years: 2015, 2016 and 2017, the cash ratio is less than 1. This indicates current
liabilities are greater than cash and cash equivalents.
 So ITC LTD will require more cash reserves in future to avoid delay of paying of short-term debts.
WORKING CAPITAL

 Financial metric which represents operating liquidity available to a business, organisation or

other entity, including governmental entity.
 It is a measure of both efficiency and its short-term financial health of an organization.
 It is expressed by:
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
 Positive working capital ensures that a firm is able to continue its operations and that it has
sufficient funds to satisfy both short-term debt and upcoming operational expenses.
 If working capital is negative, then company may run into trouble paying back creditors in the
short term. The worst-case scenario is bankruptcy.
WORKING CAPITAL OF 2015, 2016 AND 2017

Year 2015 2016 2017

Working Capital in $US 134,145 108,661 191,481

 Analysis:
 In all three of the years, ITC LTD had positive working capital. So company is in the safe position.
 Though in 2016, the company will have slight difficulty in order to pay off short-debts compared to
2015 and 2017 as working capital value is least.
 In 2017, the company will have least financial difficulties as working capital value is highest.
PROFITABILITY RATIO

 It is used to measure the overall performance of a company.

 Profitability ratios to be discussed in relation to sales:
 Gross Profit Ratio
 Operating Margin/Operation Profit Ratio
 Profit Margin/Net Profit Ratio
 Profitability ratio to be discussed in relation to investment:
 Return on Investment Ratio
GROSS PROFIT RATIO

 Used to assess a company's financial health and business model by revealing the proportion
of money left over from revenues after accounting for the cost of goods sold. It is expressed
by:

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑅𝑎𝑡𝑖𝑜 = × 100
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑜𝑟 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
 No standard value for comparison.
 Indicates margin available to cover operating expenses, non-operating expenses, etc.
 High gross profit ratio indicates that the firm has higher profitability.
 Also, reflects effective standard of performance of firm’s business.
 Low gross profit ratio may indicate unfavourable purchasing and mark-up policies.
GROSS PROFIT RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Gross Profit Ratio 61.35 65.11 63.89

 Analysis:
 From 2015 to 2016, there has been rise in gross profit ratio by 3.76%.
 From 2016 to 2017, there has been decline in gross profit ratio by 1.21%.
 This decline is not by large value so the company is not in an unfavourable position in 2017.
 In 2016, the company is doing better in terms financial health and performance compared to 2015
and 2017 as revenue is higher without increase in cost of goods.
OPERATING MARGIN/OPERATION PROFIT RATIO

 It is used to measure a company's pricing strategy and operating efficiency. It is expressed

by:

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝐼𝑛𝑐𝑜𝑚𝑒

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑀𝑎𝑟𝑔𝑖𝑛 = × 100
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑜𝑟 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
 It is very useful for inter-firm as well as intra-firm comparisons.
 Lower operating margin is a very healthy sign.
OPERATING MARGIN OF 2015, 2016 AND 2017

Year 2015 2016 2017

Operating Margin 34.68 36.64 35.22

 Analysis:
 For all of three years – 2015, 2016 and 2017, operating margin is comparatively low in contrast to
gross profit ratio.
 Hence, the data indicates company is healthy financially.
PROFIT MARGIN/NET PROFIT RATIO

 It reveals the firm's overall efficiency in operating the business.

 It is used to measure relationship between net profit(after tax and interest) and sales. It is
expressed by:

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = × 100
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑜𝑟 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
 Non-operating incomes(dividend, received, interest on investment, profit on sales of fixed
assets, commission received, discount received etc) and profits are included in net profit.
 Net profit indicates margin available after deduction cost of production, other operating
expenses, and income tax from the sales revenue.
 Higher profit margin implies standard performance of a company.
NET PROFIT RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Net Profit Ratio 24.88 25.14 24.04

 Analysis:
 The percentage difference in all of these 3 years are very less. Therefore, the performance of
company is more or less approximately the same.
 From 2015 to 2016, there has been increase in net profit ratio as well similar to gross profit and
operating profit ratios.
 Hence at 2016, it indicates that the company is performing little better financially compared to 2015
and 2017.
RETURN ON INVESTMENT RATIO

 It measures a return on the owner's or shareholders’ investment.

 It establishes the relationship between net profit after interest and taxes and the owner's
investment. Expressed as percentage and formula is expressed as:

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 (𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥 𝑎𝑛𝑑 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡)

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = ′
× 100
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑠 𝐹𝑢𝑛𝑑𝑠
 It highlights how successful business from the owner’s point of view.
 Helps to measure income on the shareholder’s investments.
 Allows to determine efficiently handling of owner’s investment.
RETURN ON INVESTMENT RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Return on Investment Ratio 30.45 29.18 22.17

 Analysis:
 From the table above, we can observe that Return on Investment Ratio has been on decline.
 This indicates that there has been decline in the profitability as well.
 In the year 2015, ROI is highest compared to 2016 and 2017.
 In 2016, though ROI is slightly less compared to 2015.
 But in 2017, there has been significant drop in the value of ROI, indicating profitability is least at
present compared to past 2 years.
ACTIVITY OR EFFICIENCY RATIO

 Highlights the different aspect of financial statement to satisfy the requirements of different
parties interested in the business.
 Indicates the effectiveness with which different assets are vitalized in a business.
 Turnover means the number of times assets are converted or turned over into sales. Higher
turnover ratio means better utilisation of assets and signifies improved efficiency and
profitability.
 Activity ratio to be discussed such as:
 Inventory Turnover Ratio
 Debt Turnover Ratio
 Creditor’s Turnover Ratio
 Fixed Assets Turnover Ratio
INVENTORY TURNOVER RATIO

 Determines the number of times stock is turned in sales during the accounting period under
consideration.
 Expresses the relationship between the cost of goods sold and stock of goods using formula:

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑

𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
 Determines how many times stock is purchased or replaced during a year.
 Lower ratio may be due to bad buying, obsolete stock, etc. Therefore indicates efficiency
management of stock is low.
 High turnover is good but it must be carefully interpreted as it may be due to buying in small
lots or selling quickly at low margin to realise cash. Therefore this indicates efficiency
management is high.
INVENTORY TURNOVER RATIOS OF 2015, 2016 AND 2017

Year 2015 2016 2017

Inventory Turnover Ratio 1.789 1.550 1.734

 Analysis:
 From 2015 to 2016, there is decrease in the value of inventory turnover ratio.
 This indicates the management of stock was not properly done in 2016 in comparison to 2015.
 From 2016 to 2017, there has been rise in the value of inventory turnover ratio.
 This indicates the company was able to improve their efficiency management of stock.
DEBTORS TURNOVER RATIO/DEBTOR'S VELOCITY

 Indicates the number of times the receivables are turned over in business during a particular
period.

 This ratio establishes the relationship between receivables and sales.

𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠

𝐷𝑒𝑏𝑡𝑜𝑟𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠

 It is used to measure the liquidity position of a concern.

 This ratios can be used to judge a firm's liquidity position on the basis of efficiency of credit
collection and credit policy.
DEBTOR TURNOVER RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Debtor Turnover Ratio 17.56 20.20 19.48

 From 2015 to 2016 there is an increase and again a fall in 2017.

 This ratio indicates the efficiency of firm’s credit collection and efficiency of credit policy.

 From 2016 to 2017 the companies adequacy of liquidity came down.

 This indicates that liquidity position of this firm came down.

CREDITOR'S TURNOVER RATIO

 Creditor’s turnover ratio is also called as Payable Turnover Ratio or Creditor’s Velocity.

 This ratio establishes the relationship between the net credit purchases and the average trade
creditors.

𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠

𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟 ′ 𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒

 It indicates the number of times with which the payment is made to supplier in respect of
credit purchase.
CREDITOR TURNOVER RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Creditor Turnover Ratio 7.434 6.474 5.913

 Analysis:
 At 2015, the creditors turnover ratio is highest in comparison to 2016 and 2017.
 This indicates that in 2015, the company paid its creditors punctually compared to 2016 and 2017.
 Punctuality of payment to the company’s creditors declines as years passed by.
FIXED ASSETS TURNOVER RATIO

 This ratio indicates the efficiency of assets management.

 It is used to measure the utilization of fixed assets.

 This ratio establishes the relationship between cost of goods sold and total fixed assets

𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑

𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠

 Higher the ratio highlights a firms has successfully utilized the fixed assets.

 If the ratio is depressed, it indicates the under utilization of fixed assets.

FIXED ASSETS TURNOVER RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Fixed AssetsTurnover Ratio 2.252 2.210 2.259

 Analysis:
 As per the table, it can be observed that all three years, 2015, 2016 and 2017, fixed assets turnover
ratio is approximately constant.
 Hence the utilization of fixed assets by ITC is approximately constant in all of these three years.
 In 2017, efficiency of asset utilization by the company is slightly, higher compared to 2015 and 2016.
SOLVENCY RATIO

 The term ‘Solvency’ generally refers to the capacity of the business to meet its short-term and
long term obligations.
 Short term obligations include creditors, bank loans and bills payable etc. Long term
obligations consists of debenture, long-term loans, and long-term creditors etc.
 It indicates the sound financial position of a concern to carry on its business smoothly and
meet its all obligations.
 Some of the important ratios are given below to determine the long-term solvency of the
concern :
 Debt-Equity Ratio
 Proprietary Ratio
 Capital Gearing Ratio
 Debt Service Ratio or Interest Coverage Ratio
DEBT- EQUITY RATIO

 This ratio also termed as External-Internal Equity Ratio

 This ratio is calculated to ascertain the firm’s obligation to creditors to creditors in relation to
funds invested by the owners.

𝑇𝑜𝑡𝑎𝑙 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝐷𝑒𝑏𝑡

𝐷𝑒𝑏𝑡 − 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝑆ℎ𝑎𝑟𝑒 𝐻𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐹𝑢𝑛𝑑

 The ideal Debt Equity Ratio is 1:1.

 The Long-Term Debt refers to outside debt including debenture and long-term loans raised
from banks.

 This ratio indicates all external liabilities to owner recorded claims.

DEBT- EQUITY RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Debt- equity Ratio 0.0660 0.0693 0.0519

 Analysis:
 In all of the three years, it can be observed that the debt-equity ratio is very low.
 This indicates that the company very low in debt.
 Therefore, in all of the three years, company is in the least state of risk to repay loans to its lenders.
PROPRIETARY RATIO

 Proprietary ratio is also known as Capital Ratio or Net worth to Total Asset Ratio.

 This is one of the variant of Debt-Equity Ratio.

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐹𝑢𝑛𝑑
𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑎𝑟𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

 This ratio shows the relationship between shareholders fund and total assets.

 This ratio is used to determine the financial stability of the concerned firm in general.

 It indicates the share of owners in the total assets of the company.

PROPRIETARY RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Proprietary Ratio 0.690040182 0.662541599 0.829641798

 Analysis:
 Ratio below 0.5 is alarming to the creditors.
 In all of the three years, proprietary ratio is higher than 0.5. So it can be stated that the company is
on the safe side in order to pay to its creditors.
 Though in 2017, the company has highest proprietary ratio compared to 2015 and 2016. So in this
year, company is at least risk to its creditors.
CAPITAL GEARING RATIO

 This ratio also called as Capitalization or Leverage Ratio.

 This ratio describes the relationship between fixed and/or fixed dividend bearing securities
and the equity shareholder’s fund.

𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 =
𝐹𝑖𝑥𝑒𝑑 𝐼𝑛𝑡𝑡𝑒𝑟𝑒𝑠𝑡 𝐵𝑒𝑎𝑟𝑖𝑛𝑔 𝐹𝑢𝑛𝑑𝑠

 A high ratio indicates that company is having large funds bearing fixed interest and/or fixed
dividend as compared to equity share capital.

 A low ratio indicates that preference share capital and other fixed interest bearing loans are
less than equity share capital.
CAPITAL GEARING RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Capital Gearing Ratio 15.15 14.43 19.26

 Analysis:
 In 2017, capital gearing ratio is the highest compared to 2015 and 2016.
 Therefore, at present the company is having highest funds bearing fixed interest or fixed dividend as
compared to equity share capital.
 In 2016, capital gearing ratio is the least compared to 2015 and 2017. So at this stage, company is
having least funds.
INTEREST COVERAGE RATIO

 Interest Coverage Ratio is also termed as Debt Service Ratio.

 This ratio establishes the relation between the amount of net profit before deduction of interest and tax
and the fixed interest charges.
 It is used as a yardstick for the lenders to know the business concern will be able to pay its interest
periodically.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝐹𝑖𝑥𝑒𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒𝑠
 Higher the ratio the more secure the debenture holders and other lenders would be with respect to their
periodical interest income.
 Lower ratio indicates that the company is not in a position to pay the interest but also to repay the
principal loan on time.
INTEREST COVERAGE RATIO OF 2015, 2016 AND 2017

Year 2015 2016 2017

Interest coverage Ratio #DIV/0! 269.5 620.3

 Analysis:-
In 2015 the ratio is infinite which means the debenture holders and other lender are secured than in
2016 and 2017.
Compared to 2016, 2017 is more secured for debenture holders and lenders.
CONCLUSION

 Overall, there has been increase in sales, reserves and surplus, net income and net worth continuously
for 5 years.
 As per the analysis of ratios, overall, the company in 2016 is in better position compared to 2017.
 Even then at present, the company’s financial state is sound.
 In 2016, the overall liquidity and profitability of the company is doing better compared to 2015 and 2017.
 In 2015 and 2017, the overall liquidity, profitability, activity and solvency of the company is varying.
 Since the company is not in danger of any credential risks, the company will again be able to gain back
its form like it was in 2016 or better if they are able to maintain the optimal ratios.
REFERENCES

ITC >> Shareholding Pattern - March 2017. 2018. ITC >> Shareholding Pattern - March 2017. [ONLINE]
Available at: http://www.moneycontrol.com/company-facts/itc/shareholding-pattern/ITC. [Accessed 04 January
2018].
Investopedia. 2018. UK Home | Investopedia. [ONLINE] Available at: https://www.investopedia.com. [Accessed
04 January 2018].
Periasamy, P., 2010. A Textbook of Financial Cost and Management Accounting. revised ed. India: Himalaya
Publishing House.
Balance Sheet for ITC Ltd (ITC) from Morningstar.com. 2018. Balance Sheet for ITC Ltd (ITC) from
Morningstar.com. [ONLINE] Available at: http://financials.morningstar.com/balance-
sheet/bs.html?t=ITC®ion=ind&culture=en-US. [Accessed 04 January 2018].
Income Statement for ITC Ltd (ITC) from Morningstar.com. 2018. Income Statement for ITC Ltd (ITC) from
Morningstar.com. [ONLINE] Available at: http://financials.morningstar.com/income-
statement/is.html?t=ITC®ion=ind&culture=en-US. [Accessed 04 January 2018].