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A financial ratio analysis with interpretations for the past five years
(2005-06 to 2009-10) of Hindustan Unilever Limited
By
Abhay Kumar ROLL NO-301
Abhijit Sah ROLL NO-302
Abhishek Singh ROLL NO-303
Akshat Nemani ROLL NO-305
Table of Contents
Interpretation....................................................................................... ......................................... 14
INT E R EST CO V E R A G R
E A TIO ............................................................................................................. 15
Interpretation....................................................................................... ......................................... 15
VALUATION RATIO ................................................. ................................................... ........................... 16
PR IC ET O C ASH FLOW R A TIO ............................................................................................................ 16
Interpretation....................................................................................... ......................................... 16
PR IC ET O E A RNING S RA TIO ............................................................................................................... 17
Interpretation....................................................................................... ......................................... 17
LIQUIDITY RATIO
Curr ent Ratio
Defined as ratio of current assets to current liabilities. The concept behind this ratio is to ascertain
whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables
and inventory) are readily available to pay off its short-term liabilities (notes payable, current
portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current
ratio, the better.
i.e.
Year End
ITC
HUL
MA RICO
2010
2
1.01
3
2009
3
1.32
2
2008
3
2007
3
0.85
1
2006
2
0.99
2
2005
2
0.93
2
3.5
3
2.5
2
ITC
HUL
1.5
MARIC
O
1
0.5
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
Current Ratio of HUL is less than that of IT C and MA RIC O for the last 5 years and is close to 1 for
the entire period. However Cash and Bank Balance as a percentage of the Current Asset for HU L
(Cash and Bank Balance comprising almost 40% of Current Assets) is more than that of Current
Asset for IT C which have Cash and Bank Balance as 16% of current Assets.
4
Year End
ITC
HUL
MA RICO
2010
1
0.6
1
2009
1
0.72
1
2008
1
2007
1
0.35
1
2006
1
0.51
1
2005
1
0.49
1
1.2
0.8
ITC
HUL
0.6
MARICO
0.4
0.2
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
Quick ratio for HUL is less than 1 for all years against the conventionally recommended value of
1.Also the ratio is less than that of IT C and MA RICO across last five years. Being a major player in
FMCG sector HUL do not have to worries in finding creditors. A small value of quick ratio also
signifies efficient utilization of cash.
PROFITIBILITY RATIO
GROSS PROFIT MARGIN
Used to assess a firms financial health by revealing the proportion of money left over from
revenues after accounting for the cost of goods sold.
Year End
2006
2007
2008
2009
2010
ITC
35.98
34.05
28.44
29.17
29.74
HUL
Marico
15.8
9.72
15.86
11.21
12.06
13.5
13.13
14.7
15.37
40
35
30
25
IT C
20
HUL
15
Marico
10
5
0
2005
2006
2007
2008
2009
2010
2011
Interpretation
Gross profit margin of HUL is closed to 15 and is considerably less than that of ITC for the last 5
years. A S Gross profit margin represent the companys ability to efficiently utilize its raw
materials, labour and manufacturing-related fixed assets to generate profits, here HUL appears to
be less efficient as compared to ITC.
N et I n c o m e
Revenues
Year
End
2006
2007
2008
2009
2010
ITC
22.19
21.4
21.5
21.18
21.3
HUL
14.94
12.58
12.09
12.29
Marico
9.4
8.39
7.35
11.65
9.06
25
20
15
ITC
HUL
10
Marico
0
2005
2006
2007
2008
2009
2010
2011
Interpretation
Net Profit Margin of HUL is showing a decreasing trend except for the year 2010.Also it is less
than that of IT C for the last 5 years. Analysis of Income statement of HU L and IT C yields that
average revenues for HU L is less than that of IT C for the last 5 years. As Net Profit margin
represents a comprehensive view of the profitability of the company HU L seems to be less
profitable as compared to IT C.
2006
2007
2008
2009
2010
34.36
32.51
31.57
32.84
33.02
HUL
14.74
14.95
14.46
15.74
Marico
12.9
13.77
14.01
16.63
13.26
40
35
30
25
ITC
20
HUL
15
Marico
10
5
0
2005
2006
2007
2008
2009
2010
2011
Interpretation
Operating Profit Ratio for HU L is consistent over the last 5 years and is considerably less than that
of ITC.Analysis of Income statement of IT C and HU L yields that for every year total sales of HU L is
less that of ITC . A s Operating Profit ratio is deemed to be more reliable than Net Profit ratio for
comparison between companies, HU L seems to be less profitable in its operational activities as
compared to IT C.
Net Income
Capital Employed
2005
2006
2007
2008
2009
2010
42
38
40
40
37
44
HUL
57
85
109
152
111
Marico
33
27
37
35
33
42
160
140
120
100
ITC
HUL
Marico
80
60
40
20
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
R O C Efor HUL is showing an increasing trend except in 2010.Also its more than that of IT C and
Marico in last 5 years. Analysis of Balance sheet of HUL and IT C yields that total fund employed
for HU L is less than that of ITC for all 5 years. This ratio indicates that HUL is able to generate
more returns by using less capital as compared to IT Cand Marico.
RETURN ON EQUITY
Calculated as the amount of net income returned as a percentage of shareholders equity.
Return on Equity =
Net Income
Shareholder's Equity
Year
End
ITC
2005
2006
2007
2008
2009
2010
31
27
28
28
25
29
HUL
64
74
93
143
95
Marico
34
36
50
49
42
67
160
140
120
100
ITC
HUL
Marico
80
60
40
20
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
R O E for HUL is more than that of IT C and Marico in the last 5 years. R O E is showing an increasing
trend with a decrease in 2010. Analysis of balance sheet yields that both Net income and total
share capital for HU L is less than that of IT C for all years. However since ROE is the ratio of Net
Income to Equity, RO E ratio indicates that HU L is able to more effectively use its investor money as
compared to ITC in generating profit. Both for ITC and HU L share of equity in total capital is much
more than that of debt hence the ROE is an important ratio in determining their profitabilities.
EPS
Year
End
ITC
2010
2009
2008
2007
2006
2005
11
88
HUL
10
11
Marico
15
12
100
90
80
70
60
ITC
HUL
Marico
50
40
30
20
10
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
Earnings per share for HU L is gradually increasing in the last 5 years and is almost equivalent to IT C
in last 4 years, however IT C employs more capital in comparison to HU L in generating for
generating he earnings hence HU L earnings are not efficient in comparison to IT C.
10
TURNOVER RATIO
Turnover ratio measures the degree to which assets are efficiently employed in the firm. There
are also known as activity ratio or asset management ratio and they are important for a business
concern to find out how well the facilities at the disposal of the concern are being used.
Year End
ITC
HUL
MA RICO
2010
34
29.98
20
2009
32
44.17
24
SALES
DEBTORS
2008
31
25
2007
32
33.4
27
2006
30
27.07
26
2005
34
23.67
28
50
45
40
35
30
ITC HUL
MARICO
25
20
15
10
5
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretations
Here, the above table indicates that while it was managing its debtors in an increasing more
efficient fashion before 2008, there seems to have been a jump due to changing in their accounting
practises. Right after the change, in 2009-10, the company returned to a more normalized pattern.
However, IT C is still tops when it comes to keeping debtors low and payments high.
Year End
ITC
HUL
MA RICO
2010
6
7.74
7
2009
5
9.66
8
2007
6
8.43
9
2006
7
9.09
9
2005
8
8.58
9
12
10
8
ITC
6
HUL
MARICO
0
2005
2006
2007
2008
2009
2010
Interpretation
As can be seen above, HUL has a higher Stock Turnover Ratio than both IT C and Marico. This means
that money is tied up for less time on stocks. A quicker stock turnover also indicates that HU L
makes profits on its stocks quicker than the others, pointing towards a more competitive
organisation.
Year End
ITC
HUL
MA RICO
2010
3
7.19
7
2009
3
10.79
8
SALES
TOTAL ASSETS
2008
3
8
2007
3
6.83
9
2006
3
5.05
9
2005
4
4.04
9
12
10
8
ITC
6
HUL
MARICO
0
2005
2006
2007
2008
2009
2010
Interpretation
In the period under consideration, HU L achieved its best turnover ratio in the year 2007, when a
sharp decrease in total assets did not affect the growth of sales. In 2008, HU L made a heavy
investment of about Rs. 900 crore for asset acquisition. However, it used those assets well, making
a large jump of Rs. 6200 crore in sales.
LEVERAGE RATIO
Leverage Ratio used to calculate the financial leverage of the company to get an idea of the
companys methods of financing or measure its ability to meet financial obligations.
2010
0
0.09
1
2009
0
0.15
1
2008
0
1
2007
0
0.04
1
2006
0
0.03
1
2005
0
0.35
0
1.2
0.8
ITC HUL
MARICO
0.6
0.4
0.2
0
2005
2006
2007
2008
2009
2010
Interpretation
Debt/Equity ratio for HU L is not following a trend over the last years. It is much lower than MARICO
for the last five years. Analysis of balance sheet of HUL reveals that capital of HUL is funded
majorly through equity rather than debt.
Year End
ITC
HUL
MA RICO
2010
68
403.07
13
2009
102
120.29
7
EBIT
nterest to
I be paid
2008
187
8
2007
246
92.81
7
2006
154
203.86
16
2005
61
87.39
23
450
400
350
300
250
ITC HUL
MARICO
200
150
100
50
0
2005
2006
2007
2008
2009
2010
Interpretation
Interest Coverage ratio for HU L is much more than that of HU L and MA R IC Ofor all years except
2007. This indicates that HU L can easily meet its interest expense. Analysis of Income statement
for HU L yields that Interest paid is much less Rs(Cr)6.98 in comparison to E BIT Rs(Cr) 2,997.43
resulting in high value of Interest Coverage Ratio.
VALUATION RATIO
Valuation ratio measure how cheap or expensive security is as compared to some measure of profit
or value.
Year End
ITC
HUL
Marico
2010
11
5.11
13
2009
11
9.98
13
2008
14
2007
13
8.05
8
13
2006
19
7.43
7
2005
1
5.91
19
20
18
16
14
12
ITC
HUL
Marico
10
8
6
4
2
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
Price/Cash flow ratio for HU L is showing an increasing trend other than in 2010 when it has
decreased/Cf ratio for HU L is less than that of IT C and MA R IC Ofor all years. In 2010 there is a
drastic increase in Cash Flow from operating activities (Rs (Cr)20128 in 2009 to Rs (Cr) 3432 in
2010) which is the reason of decrease in the value of Price/Cash flow ratio in 2010.
201003
12
24.06
28
200903
10
20.69
26
200803
12
29
200703
10
24.27
33
200603
16
25.24
32
200503
0
31.92
19
35
30
25
20
ITC
HUL
15
Marico
10
5
0
2004
2005
2006
2007
2008
2009
2010
2011
Interpretation
P/E ratio for HUL is showing a decreasing trend except in 2010 when it has increased. Also P/E ratio
for HUL is more than that of IT C in all years indicating a higher confidence of investors in HU L as
compared to ITC.Analysis of Income statement of HUL yields that earning has decreased from Rs
(Cr)
2500 to Rs (Cr) 2202 which is the reason for decrease in EPS in 2010.