INTRODUCTION

RATIONALE OF THE STUDY

Financial statement analysis is a methodical and critical process aimed at comprehending the
financial information presented in financial statements. The objective is to gain a thorough
understanding of the financial health, performance, and position of an entity. This analysis
involves the examination of individual items within the financial statements, establishing
their relationships with other relevant figures, and sometimes reorganizing the data using
various tools to enhance understanding
According to Belverd Needles, financial statement analysis encompasses all the techniques
used by users of financial statements to reveal important relationships embedded in the
financial data. In essence, it is akin to conducting an X-ray on the financial position and
performance of the enterprise. Kennedy and Muller, in their rephrasing, highlight that the
analysis and interpretation of financial statements are efforts to discern the significance and
meaning of financial data.
This process aims to enable forecasting of future earnings, assessing the ability to meet
interest and debt obligations, and evaluating the profitability of adopting a prudent dividend
policy. In summary, financial statement analysis involves a systematic evaluation of financial
information, with the ultimate goal of understanding an entity& financial standing, predicting
future performance, and making informed decisions about its prospects and viability.

THEORITICAL BACKGROUND

MEANING OF RATIO ANAYLSIS :

Ratio analysis is a quantitative procedure of obtaining a look into a firm’s functional

efficiency, liquidity, revenues, and profitability by analysing its financial records and
statements. Ratio analysis is a very important factor that will help in doing an analysis of
the fundamentals of equity.Analysts and investors make use of the methods for ratio
analysis to study and evaluate the fiscal wellbeing of businesses by closely examining the
historical performance and monetary statements.

ADVANTAGES OF RATIO ANALYSIS :

 Helps in forecasting and planning by performing trend analysis.

 Helps in estimating budget for the firm by analysing previous trends.
 It helps in determining how efficiently a firm or an organisation is operating.
 It provides significant information to users of accounting information regarding the
performance of the business.
  It helps in comparison of two or more firms.
 It helps in determining both liquidity and long term solvency of the firm.

DISADVANTAGES OF RATIO ANALYSIS :

 The primary limitation of ratio analysis is that it is a process and not a solution in
itself. This process lacks a value of its own unless decision makers use this to take
effective directions.
 The methods of ratio analysis differ for various companies. Therefore, due to the lack
of uniformity in the process, the data gathered are often incompatible. For example,
certain firms may or may not consider current liabilities in the process of calculating
their current ratio.
 One of the major disadvantages of ratio analysis is that it considers only the monetary
inclinations of a business. Therefore, it blatantly ignores the qualitative aspects of a
firm such as productivity and working conditions of the employees.
 Ratio analysis illustrates the associations between prior data while users are more
concerned about current and future data.

TYPES OF RATIO ANALYSIS :

LIQUIDITY RATIO : liquidity ratios measures the short term solvency of a business and
for this purpose following ratio can be compared.

a)Current ratio = current ratio is a most widely used ratio to judge short term financial
position or solvency of a firm. it can be defined as relationship between current assets and
current liabilities.

Current Ratio = current assets/current liabilities

b) Liquid Ratio it is also called as Quick ratio or Acid test ratio, measures the ability of
business to pay its short term liabilities by having assets that are readily converted into cash.

Liquid ratio = quick assets/current liabilities

SOLVENCY RATIO :

 Solvency ratio - This ratio shows the relationship between total assets and external
liabilities of the firm. The main ratio of this category are as follows.

 Debt equity Ratio - this ratio reflects the long term financial position of a firm and is
calculated in the form of relationship between external equities or outsider's funds and
internal equities or shareholders fund.
Debt Equity Ratio = long term debts/shareholder funds

 Proprietary ratio- This ratio indicates the relationship between proprietors fund and
total assets. Greater is the proprietor funds better is the position of the creditor.

Proprietary ratio = proprietary funds or shareholders funds/Total assets

 Profitability ratio - Profitability ratio is used to evaluate the company's ability to

generate income compared to its expenses and other cost associated with the
generation of income during a particular period.,The main category of this ratio are:

 Gross profit ratio- This ratio measures the marginal profit of the company. A high
ratio represents the greater profit margin and it’s good for the company.

Gross Profit ratio = gross sales/sales x 100

 Net profit ratio - This ratio measures the overall profitability of company considering
all direct as well as indirect cost. A high ratio represents a positive return in the
company and better the

Net profit ratio = Net Profit/Sales x 100

 Operating ratio : this ratio measures the proportion of an enterprise’s cost of revenue
from operations and operating expenses in comparison to its revenue from operations.

Operating ratio = cost of revenue from operations + operating expenses – operating

income/ revenue from operations x 100

 Return on capital employed- Return on capital employed (ROCE) is a financial ratio

that can be used in assessing a company's profitability and capital efficiency.

Return on capital employed (ROCE) = Net Profit Before Interest And Tax/Capital Employed
x 100

 Operating profit ratio establishes a relationship between operating Profit earned and
net revenue generated from operations .

Operating Profit Ratio = Operating Profit/Net Sales X 100

TURNOVER RATIO:

 Inventory Turnover Ratio : This ratio indicates how many times a company sells and
replaces its inventory over a period.

Inventory Turnover Ratio= Cost of Goods Sold (COGS)/ average inventory

 Trade Receivable Turnover Ratio :This ratio measures how effectively a company
collects its receivables. A higher ratio indicates efficient collection processes.

Trade receivable turnover ratio = net credit sales/average trade receivables

 Trade Payable Turnover Ratio : This ratio assesses how quickly a company pays off its
suppliers. A lower ratio may indicate that the company is taking longer to pay its debts,
which could be a sign of cash flow issues.

Trade payables turnover ratio = net credit purchases/average trade payables

 INTRODUCTION TO THE ITC COMPANY

INDIAN TOBACCO COMPANY (ITC) was incorporated on August 24, 1920 under the
name Imperial Tobacco Company of India Limited. In recognition of the ITC’S multi
business portfolio encompassing a wide range of business. Established in 1910, ITC limited
is a diversified conglomerate with business spanning fast moving consumer goods,
comprising foods, personal care, cigarettes and cigar, branded apparel, education & stationary
products, incense sticks and safety matches, hotels, paperboards and packaging, Agri
business and information technology.

ITC’s aspiration to be an exemplar in sustainability practices is manifest in its status as the

only in the world, of its size and diversity, to be carbon, water and solid waste recycling
positive. ITC’s business and value chains create sustainable livelihoods for more than 6
million people, a majority of whom represent the poorest in rural India. ITC is the country’s
leading FMCG marketer, the clear market leader in the Indian paperboard and packaging
industry, a globally acknowledged pioneer in farmer empowerment through its wide-reaching
Agri business, a prominent noted chain in India that is trail blazed in “responsible luxury”

The competitiveness of ITC’s diverse business rest on the strong foundations of institutional
strength derived from in deep consumer insights, cutting-edge Research and Development,
differentiated product development capacity, brand building capacity, world-class
manufacturing infrastructure, extensive rural linkages, efficient trade marketing and
distribution network and dedicated human resources. ITC’s ability to leverage internal
synergies residing across its diverse business lends a unique source of competitive advantage
to its products and services.
 HISTORY AND EVOLUTION

Established in 1910, ITC Limited is a diversified conglomerate with

businesses spanning Fast Moving Consumer Goods comprising Foods,
Personal Care, Cigarettes and Cigars, Education & Stationery Products,
Incense Sticks and Safety Matches; Hotels, Paperboards and Packaging,
Agri Business and Information Technology.

The Company was incorporated on August 24, 1910 under the name
Imperial Tobacco Company of India Limited. As the Company's ownership
progressively Indianised, the name of the Company was changed to India
Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974.

In recognition of the ITC's multi-business portfolio encompassing a wide

range of businesses, the full stops in the Company's name were removed
effective September 18, 2001. The Company now stands rechristened 'ITC
Limited,' where 'ITC' is today no longer an acronym or an initialize XZd
form.

LIST OF ITC PRODUCTS :

FOODS

 Aashirvaad
 Sunfeast
 Bingo!
 Kitchens of India
 YiPPee!
 B Natural
 Sunfeast Milkshake
 mint-o
 Candyman
 Jelimals
 GumOn

 Fabelle
 Sunbean
 ITC Master Chef
 Farmland
 Sunrise

· EDUCATION

 Classmate
 Paperkraft
· MATCHES & AGARBATTI

 AIM
 Mangaldeep
 Homelites
 ITC (CHAIRMAN AND EXECUTIVE DIRECTOR)

Sanjiv Puri (61), DIN: 00280529, is the Chairman & Managing Director of ITC Limited. Puri
was appointed as a Wholetime Director on the Board of ITC with effect from December 6,
2015, Chief Executive Officer in February 2017 and re-designated as the Managing Director
in May 2018. He was appointed as the Chairman effective May 13, 2019.

He is an alumnus of the Indian Institute of Technology, Kanpur, and the Wharton School of
Business, USA. Puri joined ITC in January 1986. During his career of close to four decades
at ITC and its subsidiaries, he has held several business leadership positions and also handled
a wide range of responsibilities in manufacturing, operations and information & digital
technology.

Puri served as the Chief Operating Officer (‘COO’) of ITC between July 2016 and January
2017, and prior to that as President - FMCG Businesses since December 2014. Earlier, he
was the Divisional Chief Executive of the Tobacco Division since December 2009, with
additional responsibility for the Company’s Trade Marketing & Distribution (‘TM&D’)
Vertical from August 2012. He led ITC Infotech India Limited, a wholly owned subsidiary of
ITC, as its Managing Director from May 2006 to August 2009.

Puri served between October 2001 and April 2006 as the Managing Director of Surya Nepal
Private Limited, a joint venture subsidiary company of ITC in Nepal. Spearheading the ‘ITC
Next’ vision, Puri has driven an extensive strategy reset to define new vectors of growth for
each business with greater focus on consumer-centricity, agility, resilience and innovation to
build an even more competitive, future-ready, climate positive and inclusive enterprise.
BALANCE SHEET AS ON 31ST MARCH , 2024
 ANALYSIS AND INTERPRETATION

1.CURRENT RATIO :

Current ratio = current assets/current liabilities

Current ratio = Inventories + Financial Assets + Investments + Trade receivables + Cash

and cash equivalents + Other Bank Balances + Loans + Others + Other current assets /
Borrowings + Lease liabilities + Trade payables + Total outstanding dues of micro
enterprises and small enterprises + Total outstanding dues of creditors other than micro
enterprises and small enterprises + Other financial liabilities + Other current liabilities +
Provisions + Current Tax Liabilities (Net).

= 12631.51 + 11916.88 + 3311.45+ 197.63 + 6020.06 + 9.10 + 849.86 + 1134.18/1.52 +

46.74 + 206.85 + 4282.70 + 1659.33 + 5389.75 + 68.72 + 760.00.

= 36070.67/12415.61

= 2.9 : 1

2.QUICK RATIO :

Quick ratio = quick assets / current liabilities

Quick ratio = current assests – inventory/ current liabilities

= 23439.16 – 1263.51/ 12415.61

3.DEBT EQUITY RATIO :

Debt equity ratio = debt/ shareholder’s fund

Debt equity ratio = Borrowings + Lease liabilities + Other financial liabilities + Provisions +
Deferred tax liabilities (Net)/ Equity Share capital + Other Equity

= 1.76 + 261.95 + 109.87 + 221.45 + 2083.66 / 1248.47 + 70984.83

= 2678.69/ 72233.30

= 0.03 : 1

4. DEBT TO ASSET RATIO :

Debt to asset ratio = debt/total asset

= 2678.69/ 91826.16

= 0.02 :1

5. PROPREITORY RATIO :

Propreitory ratio = equity / total assets

= 72233.30/ 91826.16

= 0.78 : 1
MEANING OF CASH FLOW STATEMENT :

A cash flow statement is a financial statement that exhibits the flow of incoming and
outgoing cash in an enterprise. This statement is used to assess the ability to generate and
utilize cash by assessing business gains from continuous progress and external sources for
cash inflow as well as a cash outflow in terms of payments made and other input charges in
the business. In short, a cash flow statement records the cash flow in a business

IMPORTANCE OF CASH FLOW STATEMENT :

Cash flow is a critical indicator of financial health as it shows how effectively money is
managed within a business or personal finances. It helps assess the ability to meet financial
obligations, invest in growth opportunities, and sustain day-to-day operations.

By looking at cash flow, individuals and businesses can spot trends, predict cash shortages or
surpluses, and make smart financial choices. A positive cash flow means there’s money
available for reinvestment and growth, while negative cash flow might signal the need to
adjust spending or operations.

Managing cash flow effectively is essential for keeping enough money on hand, making
timely payments, and planning for the future. By regularly monitoring cash flow, both
businesses and individuals can better handle economic ups and downs and work towards
long-term financial success.

ADVANTAGES OF CASH FLOW STATEMENT :

 A cash flow statement helps a business owner assess net assets.

 It helps in evaluating the cash-generating capability of a firm.
 Aids in planning policies for profit-maximizing.
 Understanding and assessing the cash flow of a firm helps in optimizing profit and
sustainability.
 Helps investors get an idea and judge the risk of investing in the firm.
 Helps creditors understand a firm's resources in terms of liquidity and other assets as
well as plan a budget for the firm's operational budget and other expenses and debts.

DISADVANTAGES OF CASH FLOW STATEMENT :

 It is mostly based on secondary data

 It does not take non-cash transactions into account
 It does not adhere to the fundamental accounting principles
 It is not a substitute for the income statement of a business
 It is not totally useful in gauging the profitability of a business.

CASH FLOW STATEMENT OF ITC COMPANY

 For the year ended 31st march , 2024(In
crores)
PROFIT BEFORE TAX 26315.77
ADJUSTMENTS FOR :
Depreciation and amortization expense 1647.82
Share based payments to employees 103.10
Finance costs 45.73
Interest Income (1592.41)
Dividend Income (990.35)
(Gain)/Loss on sale of property, plant and (54.07)
equipment, lease termination - Net
Inventory write-offs/write-downs (net of 149.62
reversals)
Doubtful and bad debts 9.23
Doubtful and bad advances, loans and 25.03
deposits
Gain recognised on divestment of shares held (9.49)
in joint venture
Net gain arising on financial instruments (784.82)
measured at amortised cost
Foreign currency translations and ( 6.28) (1456.89)
transactions
OPERATING PROFIT BEFORE 24858.88
WORKING CAPITAL CHANGES
ADJUSTMENTS FOR:
Trade receivables, advances and other assets (887.87)

Inventories (2187.23)
Trade payables, other liabilities and 17.30 (3057.80)
provisions
CASH GENERATED FROM 21801.08
OPERATIONS
Income tax paid (net of refunds) (5682.85)
NET CASH FROM OPERATING 16118.23
ACTIVITIES
B. Cash Flow from Investing Activities
Purchase of property, plant and equipment, (2647.23)
intangibles, ROU asset etc.
Sale of property, plant and equipment 100.85
Purchase of current investments (64931.45)
Redemption of current investments 67992.14
Dividend received 990.35
Investment in subsidiaries (1050.35)
Investment in associates (86.26)
Investment in joint venture (0.90)
Sale of non-current investments 2622.86
Interest received 1016.53
Investment in bank deposits (3578.11)
Redemption of bank deposits 4446.34
Loans given (12.22)
Loans realised 10.51
Purchase of non-current investments (2745.51)

NET CASH INVESTING ACTIVITIES 2127.55

Proceeds from issue of share capital 1442.83
Repayment of non-current borrowings (1.26)
Principal payment of lease liabilities (56.64)
Interest paid (46.02)
Net increase in statutory restricted accounts 12.12
CONCLUSION : ITC Company stands as a robust example of strategic diversification and
sustainable growth in the fast-moving consumer goods (FMCG) sector. Through its
commitment to innovation, quality, and sustainability, ITC has not only strengthened its
market position but has also contributed positively to the economy and community
development.