Financial Ratio Analysis

HUL
A financial ratio analysis with interpretations for the past five years (2005-06
to 2009-10) of industan nilever imited
Abhinav Singh Radhika Siddharth D. Shirshendu Jyotimani

Table of Contents
LIQUIDITY RATIO ................................................................
.................................................................... 3 Current R
atio ...........................................................................
............................................................ 3 Interpretation...
................................................................................
............................................... 3 QUICK/LIQUID/ACID TEST RATIO .
................................................................................
....................... 4 Interpretation........................................
................................................................................
.......... 4 PROFITIBILITY RATIO ...............................................
...............................................................................
5 GROSS PROFIT MARGIN ..........................................................
............................................................ 5 Interpretation...
................................................................................
............................................... 5 NET PROFIT MARGIN.............
................................................................................
.............................. 6 Interpretation.................................
................................................................................
................. 6 OPERATING PROFIT RATIO .....................................
............................................................................. 7
Interpretation..................................................................
................................................................ 7 RETURN ON CAP
ITAL EMPLOYED...................................................................
..................................... 8 Interpretation..........................
................................................................................
........................ 8 RETURN ON EQUITY ....................................
................................................................................
........ 9 Interpretation.......................................................
........................................................................... 9 EA
RNINGS PER SHARE ...............................................................
........................................................ 10 Interpretation......
................................................................................
.......................................... 10 TURNOVER RATIO ...................
................................................................................
............................. 11 DEBTORS TURNOVER RATIO ........................
................................................................................
..... 11 Interpretations .......................................................
....................................................................... 11 STOCK
TURNOVER RATIO ................................................................
.................................................. 12 Interpretation............
................................................................................
.................................... 12 TOTAL ASSETS TURNOVER RATIO ............
................................................................................
......... 13 Interpretation.....................................................
........................................................................... 13 L
EVERAGE RATIO ..................................................................
................................................................ 14 DEBT EQUITY
RATIO ..........................................................................
................................................ 14 Interpretation..............
................................................................................
.................................. 14 INTEREST COVERAGE RATIO ..................
................................................................................
........... 15 Interpretation...................................................
............................................................................. 15
VALUATION RATIO ...............................................................
................................................................ 16 PRICE TO CAS
H FLOW RATIO ...................................................................
......................................... 16 Interpretation.....................
................................................................................

........................... 16 1

PRICE TO EARNINGS RATIO ........................................................

....................................................... 17 Interpretation.......
................................................................................
......................................... 17
2

LIQUIDITY RATIO
Current Ratio
Defined as ratio of current assets to current liabilities. The concept behind th
is ratio is to ascertain whether a company's short-term assets (cash, cash equiv
alents, marketable securities, receivables and inventory) are readily available
to pay off its short-term liabilities (notes payable, current portion of term de
bt, payables, accrued expenses and taxes). In theory, the higher the current rat
io, the better.
i.e.
INVENTORY + CASH AND BANK + DEBTORS + BILLS RECIEVABLE CREDITORS + BILLS PAYABLE
+ O/S EXPENSES + BANK OVERDRAFTS
Year End ITC HUL MARICO
2010 2 1.01 3
2009 3 1.32 2
2008 3 2
2007 3 0.85 1
2006 2 0.99 2
2005 2 0.93 2
3.5 3 2.5 2 1.5 1 0.5 0 2004 ITC HUL MARICO
2005
2006
2007
2008
2009
2010
2011
Interpretation Current Ratio of HUL is less than that of ITC and MARICO for the
last 5 years and is close to 1 for the entire period. However Cash and Bank Bala
nce as a percentage of the Current Asset for HUL (Cash and Bank Balance comprisi
ng almost 40% of Current Assets) is more than that of Current Asset for ITC whic
h have Cash and Bank Balance as 16% of current Assets. Also as a company operati
ng in FMCG sector HUL need not have to maintain a huge volume of current asset a
gainst its current liabilities.A current ratio of close to 1 signifies efficient
utilization of current assets as compared to that of ITC.
3

QUICK/LIQUID/ACID TEST RATIO

A liquidity indicator that further refines the current ratio by measuring the am
ount of the most liquid current assets there are to cover current liabilities. T
he quick ratio is more conservative than the current ratio because it excludes i
nventory and other current assets, which are more difficult to turn into cash. T
herefore, a higher ratio means a more liquid current position.
Year End ITC HUL MARICO
2010 1 0.6 1
2009 1 0.72 1
2008 1 1
2007 1 0.35 1
2006 1 0.51 1
2005 1 0.49 1
1.2 1 0.8 ITC 0.6 0.4 0.2 0 2004 HUL MARICO
2005
2006
2007
2008
2009
2010
2011
Interpretation Quick ratio for HUL is less than 1 for all years against the conv
entionally recommended value of 1.Also the ratio is less than that of ITC 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 ef
ficient utilization of cash.
4

PROFITIBILITY RATIO
GROSS PROFIT MARGIN
Used to assess a firm s financial health by revealing the proportion of money left o
ver from revenues after accounting for the cost of goods sold.
Year End ITC HUL Marico
2006 35.98 15.8 9.72
2007 34.05 15.86 11.21
2008 28.44 12.06
2009 29.17 13.5 13.13
2010 29.74 14.7 15.37
40 35 30 25 ITC 20 15 10 5 0 2005 HUL Marico
2006
2007
2008
2009
2010
2011
Interpretation Gross profit margin of HUL
ss than that of ITC for the last 5 years.
ompany s ability to efficiently utilize
related fixed assets to generate profits,
as compared to ITC.
5

is closed to 15 and is considerably le

AS Gross profit margin represent the c
its raw materials, labour and manufacturinghere HUL appears to be less efficient

NET PROFIT MARGIN

Calculated as net income divided by revenues or net profits by sales. It measure
how much out of every dollars of sales a company actually keeps in earnings.
Net Profit Margin=
Net Income Revenues
Year End ITC HUL Marico
25
2006
2007
2008
2009
2010
22.19 14.94 9.4
21.4 12.58 8.39
21.5 9.06
21.18 12.09 7.35
21.3 12.29 11.65
20
15
ITC HUL
10
Marico
5
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 ITC for the last 5 years. Analysis o
f Income statement of HUL and ITC yields that average revenues for HUL is less t

han that of ITC for the last 5 years. As Net Profit margin represents a comprehe
nsive view of the profitability of the company HUL seems to be less profitable a
s compared to ITC.
6

OPERATING PROFIT RATIO

Operating profit means profit earned by the concern from its business operation
and not from other sources. Operating Profit Ratio = Operating Profit Net Sales
Whereas Operating Profit = Gross Profit Operating Expenses And Net Sales = Total S
ales
Sales Return Year End ITC HUL Marico 2006 34.36 14.74 12.9 2007 32.51 14.95 1
3.77 13.26 2008 31.57 2009 32.84 14.46 14.01 2010 33.02 15.74 16.63
40 35 30 25 ITC 20 15 10 5 0 2005 HUL Marico
2006
2007
2008
2009
2010
2011
Interpretation Operating Profit Ratio for HUL is consistent over the last 5 year
s and is considerably less than that of ITC.Analysis of Income statement of ITC
and HUL yields that for every year total sales of HUL is less that of ITC. As Op
erating Profit ratio is deemed to be more reliable than Net Profit ratio for com
parison between companies, HUL seems to be less profitable in its operational ac
tivities as compared to ITC.
7

RETURN ON CAPITAL EMPLOYED

Indicates the efficiency and profitability of a company s capital investments. = Net
Income Capital Employed Capital Employed: Avg Debt Liability + Avg Shareholder
Equity Year End ITC HUL Marico 2005 42 57 33 2006 38 85 27 2007 40 109 37 42 200
8 40 2009 37 152 35 2010 44 111 33
160 140 120 100 ITC 80 60 40 20 0 2004 HUL Marico
2005
2006
2007
2008
2009
2010
2011
Interpretation ROCE for HUL is showing an increasing trend except in 2010.Also i
t s more than that of ITC and Marico in last 5 years. Analysis of Balance sheet of H
UL and ITC yields that total fund employed for HUL is less than that of ITC for
all 5 years. This ratio indicates that HUL is able to generate more returns by u
sing less capital as compared to ITC and Marico.
8

RETURN ON EQUITY
Ccalculated as the amount of net income returned as a percentage of shareholders
equity. Return on Equity = Net Income Shareholder's Equity Year End ITC HUL Mar
ico 2005 31 64 34 2006 27 74 36 2007 28 93 50 67 2008 28 2009 25 143 49 2010 29
95 42
160 140 120 100 ITC 80 60 40 20 0 2004 HUL Marico
2005
2006
2007
2008
2009
2010
2011
Interpretation ROE for HUL is more than that of ITC and Marico in the last 5 yea
rs. ROE is showing an increasing trend with a decrease in 2010. Analysis of bala
nce sheet yields that both Net income and total share capital for HUL is less th
an that of ITC for all years. However since ROE is the ratio of Net Income to Eq
uity, ROE ratio indicates that HUL is able to more effectively use its investor
money as compared to ITC in generating profit. Both for ITC and HUL share of equ
ity in total capital is much more than that of debt hence the ROE is an importan
t ratio in determining their profitabilities.
9

EARNINGS PER SHARE

Calculated as the portion of company s profit allocated to each outstanding share of
common stock.
EPS =
Net income- Dividend on Preferred Stock Average Outstanding shares
Year End ITC HUL Marico
2010 11 10 4
2009 9 11 3
2008 8 3
2007 7 9 2
2006 6 8 15
2005 88 6 12
100 90 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 ITC HUL
Marico
Interpretation Earnings per share for HUL is gradually increasing in the last 5
years and is almost equivalent to ITC in last 4 years, however ITC employs more
capital in comparison to HUL in generating for generating he earnings hence HUL
earnings are not efficient in comparison to ITC.
10

TURNOVER RATIO
Turnover ratio measures the degree to which assets are efficiently employed in t
he firm. There are also known as activity ratio or asset management ratio and th
ey are important for a business concern to find out how well the facilities at t
he disposal of the concern are being used.
DEBTORS TURNOVER RATIO
It is a measure as to how well the debtors are being used as current assets or h
ow well assets have been employed in the firm. It is an activity ratio which ref
lects upon the efficiency of the asset in generating sales flow. DEBTORS TURNOVE
R RATIO = SALES DEBTORS Year End ITC HUL MARICO 2010 34 29.98 20 2009 32 44.17 2
4 2008 31 25 2007 32 33.4 27 2006 30 27.07 26 2005 34 23.67 28
50 45 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 ITC HUL M
ARICO
Interpretations Here, the above table indicates that while it was managing it s debt
ors in an increasing more efficient fashion before 2008, there seems to have bee
n 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, ITC is s
till tops when it comes to keeping debtors low and payments high.
11

STOCK TURNOVER RATIO

It is an indicator as to with what efficiency and rapidity a
e its merchandise. It is basically a measure of liquidity of
TURNOVER RATIO = COSTS OF GOODS SOLD AVERAGE STOCK Year End
6 7.74 7 2009 5 9.66 8 2008 6 8 2007 6 8.43 9 2006 7 9.09 9

firm is able to mov

firm s inventory. STOCK
ITC HUL MARICO 2010
2005 8 8.58 9

12 10 8 ITC 6 4 2 0 2005 2006 2007 2008 2009 2010 HUL MARICO

Interpretation As can be seen above, HUL has a higher Stock Turnover Ratio than
both ITC and Marico. This means that money is tied up for less time on stocks. A
quicker stock turnover also indicates that HUL makes profits on its stocks quic
ker than the others, pointing towards a more competitive organisation.
12

TOTAL ASSETS TURNOVER RATIO

It is an indicator that defines whether a firm is utilising its assets efficient
ly or not. It is an activity ratio which suggests that whether the assets of the
firm are operating as desired and is contributing to the sales of the firm. TOT
AL ASSETS TURNOVER RATIO = SALES TOTAL ASSETS Year End ITC HUL MARICO 2010 3 7.1
9 7 2009 3 10.79 8 2008 3 8 2007 3 6.83 9 2006 3 5.05 9 2005 4 4.04 9
12 10 8 ITC 6 4 2 0 2005 2006 2007 2008 2009 2010 HUL MARICO
Interpretation In the period under consideration, HUL achieved its best turnover
ratio in the year 2007, when a sharp decrease in total assets did not affect th
e growth of sales. In 2008, HUL made a heavy investment of about Rs. 900 crore f
or asset acquisition. However, it used those assets well, making a large jump of
Rs. 6200 crore in sales.
13

LEVERAGE RATIO
Leverage Ratio used to calculate the financial leverage of the company to get an
idea of the company s methods of financing or measure its ability to meet financial
obligations.
DEBT EQUITY RATIO
The debt-equity ratio is a leverage ratio that compares a company's total liabil
ities to its total shareholders' equity. This is a measurement of how much suppl
iers, lenders, creditors and obligors have committed to the company versus what
the shareholders have committed. DEBT EQUITY RATIO = ALL LONG TERM LOANS EQUITY
SHAREHOLDERS CAPITAL Year End ITC HUL MARICO 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 1 0.8 ITC 0.6 0.4 0.2 0 2005 2006 2007 2008 2009 2010 HUL MARICO
Interpretation Debt/Equity ratio for HUL 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 rathe
r than debt.
14

INTEREST COVERAGE RATIO

It is the measure that determines whether the firm would be able to service its
debt. The ratio is the test of solvency for the firm. INTEREST COVERAGE RATIO =
EBIT Interest to be paid Year End ITC HUL MARICO 2010 68 403.07 13 2009 102 120.
29 7 2008 187 8 2007 246 92.81 7 2006 154 203.86 16 2005 61 87.39 23
450 400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 ITC HUL MARIC
O
Interpretation Interest Coverage ratio for HUL is much more than that of HUL and
MARICO for all years except 2007. This indicates that HUL can easily meet its i
nterest expense. Analysis of Income statement for HUL yields that Interest paid
is much less Rs(Cr)6.98 in comparison to EBIT Rs(Cr) 2,997.43 resulting in high
value of Interest Coverage Ratio.
15

VALUATION RATIO
Valuation ratio measure how cheap or expensive security is as compared to some m
easure of profit or value.
PRICE TO CASH FLOW RATIO
The price/cash flow ratio is used by investors to evaluate the investment attrac
tiveness, from a value standpoint, of a company's stock. This metric compares th
e stock's market price to the amount of cash flow the company generates on a per
-share basis. Higher the ratio better will be the valuation of the company. Pric
e/cash flow ratio (P/CF) is seen by some as a more reliable basis than earnings
per share to evaluate the acceptability, or lack thereof, of a stock's current p
ricing as it is not easily manipulated.
Year End ITC HUL Marico
2010 11 5.11 13
2009 11 9.98 13
2008 14 13
2007 13 8.05 8
2006 19 7.43 7
2005 1 5.91 19
20 18 16 14 12 10 8 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 2011 ITC HUL Mari
co
Interpretation Price/Cash flow ratio for HUL is showing an increasing trend othe
r than in 2010 when it has decreased.P/Cf ratio for HUL is less than that of ITC
and MARICO for 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.
16

PRICE TO EARNINGS RATIO

The PE ratio indicates the growth prospects, risk characteristics, degree of liq
uidity, shareholder orientation and corporate image of a company. A stock with a
high P/E ratio suggests that investors are expecting higher earnings growth in
the future compared to the overall market, as investors are paying more for toda
y's earnings in anticipation of future earnings growth. P/E ratio = Price per sh
are / Earnings per share Year End ITC HUL Marico 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 15 10 5 0 2004 ITC HUL Marico
2005
2006
2007
2008
2009
2010
2011
Interpretation P/E ratio for HUL is showing a decreasing trend except in 2010 wh
en it has increased.Also P/E ratio for HUL is more than that of ITC in all years
indicating a higher confidence of investors in HUL 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.
17