ACCOUNTING FOR MANAGERS
Q. Carry out a strategic financial analysis of any 2 companies within a particular industry segment, however one of the chosen companies should be The Market leader within the given industry segment. Collect data about the two companies from secondary sources; Compare and analyze the financial performance (the second company to be benchmarked against the industry leader) through calculation of financial ratios; liquidity, profitability and solvency ratios for the FYE 2010 and FYE 2009. The analysis should also include:
A brief background of each of the companies including a SWOT analysis
Vertical & horizontal Analysis of the financial statements
BISCUIT MANUFACTURING INDUSTRIES:
In this Biscuit Manufacturing Industries I took two Biscuit manufacturing companies BRITANNIA and ITC.
OVERVIEW OF BRITANNIA COMPANY:
In 1892 the Britannia biscuit company started in a nondescript house in Kolkata with initial investment of Rs. 295.
Fig a: Britannia company in
1892.
In 1997, it unveiled its corporate identity "Eat Healthy, Think Better". The core essence of Britannia is Healthy, Optimistic, Nutrition and delightful product range which offend variety and choice to consumers.
VISSION: The vision of Britannia company is that to dominate food and beverage market in India with distinctive range of Britannia brands.
OBJECTIVIES:
In the market it wants to be the lowest-cost producer.
In the bakery industry it wants to be the largest volume player.
SWOT ANALYSIS of Britannia Company:
STRENGTHS:
It has a widespread distribution network.
It main focus is on rural market.
It used Superior technology (SAP).
It had good Research and Development department.
Weakness:
The overhead cost is high.
It has more competition with other companies.
Opportunities:
It has more opportunity from rural market.
There is a price hike for 100-grams of Parle-G brand.
Threats:
There is rise in input cost.
There is more competition from ITC and HUL.
Some products of Britannia:
Fig b: Different products
OVERVIEW OF ITC COMPANY:
ITC Company was established in August 24, 1910 under the name Imperial Tobacco Company of India LTD. In 1970 name of ITC changed to India Tobacco Company LTD.
Sunfeast it is the name of umbrella brand the tagline of it is "Light Khao Light Raho".
The brand ambassador of Sunfeast is sun which reinforcing the position of brand "Spread the Smile". On July 30th, 2003 the ITC's food business announced to launch sunfeast in Kolkata with high quality and good tasting biscuits.
VISION OF ITC:
ITC's Vision is that it wants to be one the most valuable corporations through world class performance, creating value to Indian economy and companies stakeholders.
SWOT ANALYSIS of ITC:
Strengths:
ITC used traditional business for new segments to develop new brands.
ITC is a umbrella company which involved in different business sectors.
Weakness:
The ITC company is still dependent upon tobacco revenues.
The ITC's main business is tobacco. ITC stands for Imperial Tobacco Company of India LTD. The branding continues to use its original name, the negative connection of tobacco with premature death and poor health.
Opportunities:
Indian consumers use personal care products is lowest in the world offering an opportunity for ITC fragrances, soaps and shampoos.
The ITC company researches more to know the consumer tastes in North, West and East of India.
THREATS:
The ITC's threat is from competition both from domestic and international. The laws of economics dictate if competitors see that solid profit to be made in emerging consumer society ultimately new products and services will be made available.
Fig c: Different products of Sun Feast.
FINANCIAL RATIOS:
LIQUIDITY RATIOS: The term liquidity refers to ability of company to meet its current liabilities:
Current Ratio.
Quick Ratio.
CURRENT RATIO:
CURRENT RATIO = Current Assets ÷ Current Liabilities.
The current ratios two companies in years 2009 & 2010
Current Ratio of ITC Company in the year 2009
Current Ratio of ITC Company in the year 2010
1.42
0.92
Current Ratio of Britannia Company in the year 2009
Current Ratio of Britannia Company in the year 2010
1.27
0.94
QUICK RATIO:
QUICK RATIO = Liquid or Quick Assets ÷ Current Liabilities.
Liquid Assets = Current Assets - (Stock + Prepared Expenses).
Quick Ratio of two companies in the years 2009 & 2010
Quick ratio of ITC company in year 2009
Quick ratio of ITC company in year 2010
0.61
0.39
Quick ratio of Britannia company in year 2009
Quick ratio of Britannia company in year 2010
0.65
0.43
SOLVENCY RATIOS:
It refers to ability of a firm to meet its long term obligations. These ratios indicate firm's ability to meet the fixed interest, its cost and repayment schedules associated with long term borrowings.
Debt Equity Ratio.
Proprietary Ratio.
Debt Equity Ratio:
Debt Equity Ratio = Outsiders Funds ÷ Shareholders Funds.
COMPARISION BETWEEN TWO COMPANIES
Debt Equity Ratio of ITC in year 2009
Debt Equity Ratio of ITC in year 2010
0.01
0.01
Debt Equity Ratio of Britannia in year 2009
Debt Equity Ratio of Britannia in year 2010
0.03
1.08
PROPRIETARY RATIO:
Proprietary Ratio = Shareholders Funds ÷ Total Assets
Shareholder Funds = Share Capital + Reserves.
COMPARISION BETWEEN TWO COMPANIES:
Proprietary Ratio of ITC in year 2009
Proprietary Ratio of ITC in year 2010
13,912.63
14,172.09
Proprietary Ratio of Britannia in year 2009
Proprietary Ratio of Britannia in year 2010
0.03
1.08
PROFITABILITY RATIO:
It is used to know how much profit has been earned with the help of the amount invested in the business:
Gross Profit Ratio.
Net Profit Ratio.
Operating Profit Ratio.
Return on Investment Ratio.
Gross Profit Ratio:
Gross Profit Ratio = (Gross Profit ÷ Net Sales) * 100
COMPARISION BETWEEN TWO COMPANIES
Gross Profit Ratio of ITC in year 2009
Gross Profit Ratio of ITC in year 2010
29.17
29.74
Gross Profit Ratio of Britannia in year 2009
Gross Profit Ratio of Britannia in year 2010
6.17
4.89
Operating Profit Ratio:
Operating Profit Ratio = (Operating Profit ÷ Net Sales) * 100
COMPARISON BETWEEN TWO COMPANIES:
Operating Profit Ratio of ITC in year 2009
Operating Profit Ratio Of ITC IN year 2010
32.84
33.08
Operating Profit Ratio of Britannia in year 2009
Operating Profit Ratio of Britannia in year 2010
7.20
5.99
Net Profit Ratio:
Net Profit Ratio = (Net Profit ÷ Net Sales)* 100
COMPARISION BETWEEN TWO COMPANIES:
Net Profit Ratio of ITC in year 2009
Net Profit Ratio of ITC in year 2010
21.18
21.30
Net Profit Ratio of Britannia in year 2009
Net Profit Ratio of Britannia in year 2010
5.75
3.38
Return on Investment Ratio:
ROI = (Net Profit before Interest, Tax and Dividend ÷ Capital Employed) * 100
COMPARISION BETWEEN TWO COMPANIES
ROI of ITC in year 2009
ROI of ITC in year 2010
34.62
42.98
ROI of Britannia in year 2009
ROI of Britannia in year 2010
26.13
14.80
GRAPH:
Fig d: Performance Trends of Britannia.
HORIZONTAL:
Profit and Loss account of Britannia Company in the years 2009 & 2010 Rs in crore:
Debit
2009
2010
Credit
2009
2010
Expenditure
Raw materials
Depreciation
Interest
Equity Dividend
Preference Dividend
Power and fuel
Corporate Dividend Tax
Reported Net Profits
Transfer to capital account
To Net profit
1936.66
33.46
16.01
95.56
0
21.47
16.24
180.40
863.4
3163.2
2197.74
37.54
8.21
59.73
0
22.38
9.92
116.51
926.54
3378.57
Income:
Sales turnover
Excise duty
Net sales
Other income
Stock adjustment
3142.89
30.51
3112.38
31.38
19.44
3163.2
3424.58
23.27
3401.31
-44.19
21.45
3378.57
Balance sheet of Britannia Company in the years 2009 & 2010 Rs in crore:
Liabilities
2009
2010
Assets
2009
2010
Sources of funds:
Total share capital
Share application money
Preference share capital
Reserves
Revolution reserves
Securied Loans
Unsecuried loans
Current Liabilities:
Provisions
Total
23.89
0
0
800.65
0
2.20
22.97
290.06
147.48
1287.25
23.89
0
0
371.36
0
408.10
21.51
345.08
241.17
1412.11
Gross Block
Less: Accumulator Depreciation
Investments
Current Assets:
Inventories
Sundary Deters
Cash& Bank balance
Loans& advances
Fixed deposits
Miscellaneous expenses
Capital working progress
511.50
233.67
423.10
253.63
49.61
40.56
209.61
0.24
26.64
6.02
1287.25
547.83
266.33
566.79
268.34
39.49
18.11
221.0
5.25
0
11.64
1412.11
Cash Flows of Britannia Company for years 2009 & 2010 Rs in crore:
SOURCES
2009
2010
Applications
2009
2010
Cash Opening Balance
Cash from Operations
Net Cash from Investment activities
Net Cash from Financing activities
Total
224.81
232.52
12.28
-45.77
423.84
338.09
120.78
-109.69
-184.05
279.64
Closing Cash Equivalent
338.09
338.09
279.64
279.64
Profit and loss account of ITC Company in year 2009 & 2010 Rs in crore:
Debit
2009
2010
Credit
2009
2010
Expenditure
Raw materials
Depreciation
Interest
Equity Dividend
Preference Dividend
Power and fuel
Corporate Dividend Tax
Reported Net Profits
Transfer to capital account
To Net Profit
6864.96
549.41
47.65
0
0
394.12
237.34
3263.59
36218.82
47575.89
7140.69
608.71
90.28
0
0
387.34
634.15
4061.00
39974.6
52896.77
Income:
Sales turnover
Excise duty
Net sales
Other income
Stock adjustment
23247.84
8262.03
14,985.81
426.21
630.00
47575.89
26,399.63
7832.18
18,567.45
545.05
-447.54
52896.77
Balance sheet of ITC Company in the year 2009 & 2010 Rs in crore:
Liabilities
2009
2010
Assets
2009
2010
Sources of funds:
Total share capital
Share application money
Preference share capital
Reserves
Revolution reserves
Securied Loans
Unsecuried loans
Current Liabilities:
Provisions
Total
377.44
0
0
13,302.55
55.09
11.63
165.92
4121.59
1740.49
19774.71
381.82
0
0
13,628.17
54.39
0
107.71
4619.54
4549.94
23341.57
Gross Block
Less: Accumulator Depreciation
Investments
Current Assets:
Inventories
Sundary Deters
Cash& Bank balance
Loans& advances
Fixed deposits
Miscellaneous expenses
Capital working progress
10,558.65
3286.74
2837.75
4599.72
668.67
68.73
2150.21
963.66
0
1214.06
19774.71
11,967.86
3825.46
5726.87
4549.07
858.80
120.16
1929.16
1006.12
0
1008.99
23341.57
Cash flows of ITC Company in years 2009 & 2010 Rs in crore:
SOURCES
2009
2010
Applications
2009
2010
Cash Opening Balance
Cash from Operations
Net Cash from Investment activities
Net Cash from Financing activities
Total
570.25
3279.03
-1260.74
-1556.15
1032.39
993.70
4630.65
-3531.56
-1009.86
1082.93
Closing Cash Equivalent
1032.39
1032.39
1082.93
1082.93
VERTICAL ANALYSIS:
Profit & Loss account of Britannia in year 2009 & 2010 Rs in crore:
March 2009 March 2010
Income
Sales Turnover
3,142.89
3,424.58
Excise Duty
30.51
23.27
Net Sales
3,112.38
3,401.31
Other Income
31.38
-44.19
Stock Adjustments
19.44
21.45
Total Income
3,163.20
3,378.57
Expenditure
Raw Materials
1,936.66
2,197.74
Power & Fuel Cost
21.47
22.38
Employee Cost
96.02
99.52
Other Manufacturing Expenses
281.37
304.86
Selling and Admin Expenses
499.69
513.99
Miscellaneous Expenses
72.45
80.21
Preoperative Exp Capitalised
0.00
0.00
Total Expenses
2,907.66
3,218.70
Mar '09
Mar '10
Operating Profit
224.16
204.06
PBDIT
255.54
159.87
Interest
16.01
8.21
PBDT
239.53
151.66
Depreciation
33.46
37.54
Other Written Off
0.00
0.00
Profit Before Tax
206.07
114.12
Extra-ordinary items
26.42
6.65
PBT (Post Extra-ord Items)
232.49
120.77
Tax
52.12
4.27
Reported Net Profit
180.40
116.51
Total Value Addition
970.99
1,020.96
Preference Dividend
0.00
0.00
Equity Dividend
95.56
59.73
Corporate Dividend Tax
16.24
9.92
Per share data (annualised)
Shares in issue (lakhs)
238.90
238.90
Earning Per Share (Rs)
75.51
48.77
Equity Dividend (%)
400.00
250.00
Book Value (Rs)
345.14
165.86
BALANCE SHEET of Britannia Company in years 2009 & 2010 Rs in crore:
2009 2010
Sources Of Funds
Total Share Capital
23.89
23.89
Equity Share Capital
23.89
23.89
Share Application Money
0.00
0.00
Preference Share Capital
0.00
0.00
Reserves
800.65
372.36
Revaluation Reserves
0.00
0.00
Networth
824.54
396.25
Secured Loans
2.20
408.10
Unsecured Loans
22.97
21.51
Total Debt
25.17
429.61
Total Liabilities
849.71
825.86
Mar '09
Mar '10
Application Of Funds
Gross Block
511.50
547.83
Less: Accum. Depreciation
233.67
266.33
Net Block
277.83
281.50
Capital Work in Progress
6.02
11.64
Investments
423.10
566.79
Inventories
253.63
268.34
Sundry Debtors
49.61
39.49
Cash and Bank Balance
40.56
18.11
Total Current Assets
343.80
325.94
Loans and Advances
209.61
221.00
Fixed Deposits
0.24
5.25
Total CA, Loans & Advances
553.65
552.19
Deffered Credit
0.00
0.00
Current Liabilities
290.06
345.08
Provisions
147.48
241.17
Total CL & Provisions
437.54
586.25
Net Current Assets
116.11
-34.06
Miscellaneous Expenses
26.64
0.00
Total Assets
849.70
825.87
Contingent Liabilities
329.05
318.67
Book Value (Rs)
345.14
165.86
Cash Flows of Britannia company in years 2009 & 2010 Rs in crore:
2009 2010
Net Profit Before Tax
232.52
120.78
Net Cash From Operating Activities
246.78
235.29
Net Cash (used in)/from
Investing Activities
12.28
-109.69
Net Cash (used in)/from Financing Activities
-145.77
-184.05
Net (decrease)/increase In Cash and Cash Equivalents
113.28
-58.45
Opening Cash & Cash Equivalents
224.81
338.09
Closing Cash & Cash Equivalents
338.09
279.64
Profit & Loss account of ITC Company in year 2009 & 2010 Rs in crore:
2009 2010
Income
Sales Turnover
23,247.84
26,399.63
Excise Duty
8,262.03
7,832.18
Net Sales
14,985.81
18,567.45
Other Income
426.21
545.05
Stock Adjustments
630.30
-447.54
Total Income
16,042.32
18,664.96
Expenditure
Raw Materials
6,864.96
7,140.69
Power & Fuel Cost
394.12
387.34
Employee Cost
903.37
1,014.87
Other Manufacturing Expenses
402.88
413.79
Selling and Admin Expenses
1,684.41
2,093.87
Miscellaneous Expenses
516.90
1,008.91
Preoperative Exp Capitalised
-72.55
-71.88
Total Expenses
10,694.09
11,987.59
Mar '09
Mar '10
Operating Profit
4,922.02
6,132.32
PBDIT
5,348.23
6,677.37
Interest
47.65
90.28
PBDT
5,300.58
6,587.09
Depreciation
549.41
608.71
Other Written Off
0.00
0.00
Profit Before Tax
4,751.17
5,978.38
Extra-ordinary items
81.52
48.65
PBT (Post Extra-ord Items)
4,832.69
6,027.03
Tax
1,565.13
1,965.43
Reported Net Profit
3,263.59
4,061.00
Total Value Addition
3,829.13
4,846.90
Preference Dividend
0.00
0.00
Equity Dividend
1,396.53
3,818.18
Corporate Dividend Tax
237.34
634.15
Per share data (annualised)
Shares in issue (lakhs)
37,744.00
38,181.77
Earning Per Share (Rs)
8.65
10.64
Equity Dividend (%)
370.00
1,000.00
Book Value (Rs)
36.24
36.69
BALANCE SHEET OF ITC COMPANY IN YEAR 2009 & 2010 Rs in Crore:
2009 2010
Sources Of Funds
Total Share Capital
377.44
381.82
Equity Share Capital
377.44
381.82
Share Application Money
0.00
0.00
Preference Share Capital
0.00
0.00
Reserves
13,302.55
13,628.17
Revaluation Reserves
55.09
54.39
Networth
13,735.08
14,064.38
Secured Loans
11.63
0.00
Unsecured Loans
165.92
107.71
Total Debt
177.55
107.71
Total Liabilities
13,912.63
14,172.09
Application Of Funds
Gross Block
10,558.65
11,967.86
Less: Accum. Depreciation
3,286.74
3,825.46
Net Block
7,271.91
8,142.40
Capital Work in Progress
1,214.06
1,008.99
Investments
2,837.75
5,726.87
Inventories
4,599.72
4,549.07
Sundry Debtors
668.67
858.80
Cash and Bank Balance
68.73
120.16
Total Current Assets
5,337.12
5,528.03
Loans and Advances
2,150.21
1,929.16
Fixed Deposits
963.66
1,006.12
Total CA, Loans & Advances
8,450.99
8,463.31
Deffered Credit
0.00
0.00
Current Liabilities
4,121.59
4,619.54
Provisions
1,740.49
4,549.94
Total CL & Provisions
5,862.08
9,169.48
Net Current Assets
2,588.91
-706.17
Miscellaneous Expenses
0.00
0.00
Total Assets
13,912.63
14,172.09
Contingent Liabilities
261.36
258.73
Book Value (Rs)
36.24
36.6
Cash Flows of ITC Company in year 2009 & 2010 Rs in crore:
2009 2010
Net Profit Before Tax
4825.74
6015.31
Net Cash From Operating Activities
3279.03
4630.65
Net Cash (used in)/from
Investing Activities
-1260.74
-3531.56
Net Cash (used in)/from Financing Activities
-1556.15
-1009.86
Net (decrease)/increase In Cash and Cash Equivalents
462.14
89.23
Opening Cash & Cash Equivalents
570.25
993.70
Closing Cash & Cash Equivalents
1032.39
1082.93
CONCULSION:
According to research the
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