EXECUTIVE SUMMARY The project “Ratio Analysis: A Case Study of Dabur.” Aims to interpret the financial statement so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. For the purpose the data has been used, which was collected from the past financial records of the company i.e., balance sheet and profit and loss account, for three financial years(20013-14, 2014-15, 2015-16). The data collected broadly relate to the current assets and current liabilities of the company. The technique used to analyze the financial condition of the company is Ratio Analysis. For this purpose three years (2013-2014, 2014-2015 &2015-2016) ratios have been calculated of Dabur and out of them two years (2013-2014 &2014-2015) ratios have compare with other FMCG companies. The method of trend ratios has been adopted. The analysis process has been undertaken in two stages: a) Calculation of ratios b) Their interpretation The following ratios have been calculated: a) Liquidity Ratios The liquidity ratios represent excess of current assets over current liabilities. It is the ability of a firm to satisfy its short-term obligations as they become due. b) Leverage Ratios The leverage ratios measure the ratios of long-term or total debt to shareholders equity.
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c)
Profitability Ratios
The profitability ratios use to measures operating efficiency of a firm and its ability to ensure adequate returns to its shareholders depends ultimately on the profits earned by it. d)
Activity Ratios The activity ratios measure the speed with which various accounts/assets are converted into sales or cash. After making all the calculations each ratio has been interpreted and this can be summarized as follows: The net working capital of the company shows an increasing trend. The analysis also reveals a rising inventory turnover ratio and debtor’s turnover ratio and an improved debt collection period. At the same time the company also has a high current asset and quick ratio, which represents high liquidity. The project also gives information about the practices presently being followed in Dabur to manage their ratios. After making a thorough analysis of the various aspects related to the ratios the company conclusion has been drawn. The company has sufficient funds to meet its shortterm obligations as they become due. Finally on the basis of the analysis and the conclusions drawn a SWOT analysis has been done and recommendations given. Therefore, a financial analysis of the working capital of Dabur reveals that the company has been able to manage its working capital efficiently thereby strengthening its short-term financial position.
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CHAPTER -1 INTRODUCTION
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Fast Moving Consumer Goods is the booming industry in India. After all, it is an industry which touches every aspect of human life, from looks to hygiene to palate. Though the market scenario was very different before the liberalization of Indian economy the product quality as well as the competitiveness has immensely increased. After the liberalization the players like Pepsi and Coke has changed the rules of the game in the industry. One reason for the lagging behind of this industry was the spending power of people, the other reasons were like lack of innovation because of the closed market having high import duties, and the minuscule level of competition as their were not many players in the market. Earlier it was the sales era but at present customer has the final call. Categorization of FMCG Products Category
Products
Household Care
Fabric wash (laundry soaps and synthetic detergents), household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, Metal polish and furniture polish).
Food and Beverages
Health beverages, soft drinks, staples/cereals, bakery products (biscuits, bread, cakes), snack food, chocolates, ice cream, tea, coffee, soft drinks, processed fruits, vegetables, dairy Products, bottled water, branded flour, branded rice, branded sugar, juices etc.
Personal Care
Oral care, hair care, skin care, personal wash (soaps), cosmetics and toiletries, deodorants, Perfumes, feminine hygiene, paper products
Industry Segments The main segments of the FMCG sector are:
Personal Care: oral care; hair care; skin care; personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; paper products (tissues, diapers, sanitary); shoe care. Major companies active in this segment include Hindustan Lever; Godrej Soaps, ColgatePalmolive, Marico, Dabur and Procter & Gamble.
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Household Care: fabric wash (laundry soaps and synthetic detergents); household cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, metal polish and furniture polish). Major companies active in this segment include Hindustan Lever, Nirma and Reckitt & Colman.
Branded and Packaged Food and Beverages: health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread, cakes); snack food; chocolates; ice cream; tea; coffee; processed fruits, vegetables and meat; dairy products; bottled water; branded flour; branded rice; branded sugar; juices etc. Major companies active in this segment include Hindustan Lever, Nestle, Cadbury and Dabur.
Spirits and Tobacco Major companies active in this segment include ITC, Godfrey Philips, UB and Shaw Wallace. An exact product-wise sales break up for each of the items is difficult.
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HISTORY OF FMCG INDUSTRY Fast moving consumer goods (FMCG) industry has a long history. However, the Indian FMCG industry began to take shape only during the last fifty-odd years. To date, the Indian FMCG industry continues to suffer from a definitional dilemma. In fact, the industry is yet to crystallize in terms of definition and market size, among others. The definitional confusion that has marked the Indian FMCG industry is getting confounded. Some call it the FMCG industry, some others call it the CPG industry and some even call it the PMCG (Packaged Mass Consumption Goods) industry. The Indian FMCG industry has suffered because of this confusion. It was Dabur, which kick started in India what's today known as the fast moving consumer goods (FMCG) industry. It was some 115 years ago, much before Hindustan Lever (HLL) materialized on the scene. How has the FMCG industry metamorphosed in India? The dramatic nineties Things however began to change post-reforms during the nineties. The floodgates were opened. And MNCs with saturating home-markets who were hungrily looking for markets elsewhere rushed in. Categories within categories were created in products such as hair-oil and skincare, and many new product categories were also created. Untouched facets of the Indian consumer were explored. The FMCG players had in front of them not only a vast untapped market but also a market that was fast growing. Income-levels were rising. A new class of upwardly mobile was emerging. Television and, satellite and cable television were helping the market to grow further in rural areas by changing aspirations and lifestyles. The canvas did widen for the FMCG players, but so did the challenges. Rules of the game changed. Strategies, in their true sense, came to the fore. Quite unlike in the past, companies began looking for ways to expand their product-portfolios and distribution reach. Acquisition of brands became the order of the day as it gave the players easy options of attaining growth in the FMCG sector. That is true of the MNCs who are known for their deep pockets. Dabur, for instance unleashed brands in a way it had never done earlier. Just in a span of ten years, it gobbled up Food products, Health Care Products, was bought in the market. Dabur plan to increase the distribution channel although it already have good distribution channel. Current Scenario in FMCG At present the industry is on a roll. Following are some industry stats which prove it: The FMCG sector is the fourth-largest sector in the Indian economy At present the size of the industry is US $13.1 billion
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The industry is expected to grow at compounded rate of 9 % per annum The growth in the urban sector is 7% and in rural sector is 4% The top five companies HLL, ITC, Dabur, Britannia and Nestle of FMCG industry has grown at the rate of 15% this year. The combined performance chart for the year 2014 and 2015 of these companies is as following: (Rs m)
Sept'14
Sept'15
Change
Net Sales
58,822
67,813
15.3%
Expenditure
45,316
52,632
16.1%
Operating Profit (EBDIT)
13,506
15,181
12.4%
Operating Profit Margin (%)
23.0%
22.4%
Other Income
1,940
1,931
-0.5%
Interest
782
297
-62.0%
Depreciation
1,370
1,545
12.8%
Profit before Tax
13,294
15,270
14.9%
Tax
3,714
4,066
9.5%
Extraordinary items
427
(62)
Profit after Tax
10,007
11,142
11.3%
Future of the Industry Looking at the steps taken by the government to improve the picture of Indian industry we can say that there are immense growth opportunities for this sector. Following are some of the facts related to the bright future of this industry: The industry is expected to grow up to the size of US $33.4 billion. by the year 2025 The demand for FMCG products is expected to boom by 60% in 2020 and 100% by 2025 In the next few decades the production of foods by PMCG is expected to rise up to 70% from it’s current share of 11% Opening up of the retail sector for FDI. Currently the FDI in retail is 24% it may be further increased as looking at the growth rate of the industry in 2010 the industry is expected to need an investment of US $28 billion Government encouraging the export of FMCG products by reducing the export duty The per capita disposable income in India is expected to rise from US $556 in 2014 to US $1150 in 2025, which means the increase in purchasing power. It will lead to the growth in the sales of products like health care.
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India is the world’s largest producer of milk still only 15% of the milk is processed, a huge potential of growth lies in this segment of the industry. Currently the size of semi processed and ready to eat packaged food market is $70 billion which is the 15% of its potential, this part of FMCG also have an immense growth potential. By 2010, 200 million people are expected to shift to packaged and processed food There is only 45% penetration in the health care market and 55% of the market is still to be covered in this market. If we look at the distribution of Indian population around 47% of Indian population is below 20 years of age by 2025 which is expected to grow to 55% which means the consumer base of FMCG products like healthcare, hygiene, beverages etc will increase The rural market in India was not well penetrated by the FMCG industry till now but with the projects like HLL Shakti and ITC E-Chaupal the penetration has increased and this will lead to faster growth of this industry The emergence of the concept of ECR (Efficient Consumer Response) will the FMCG industry operate more efficiently by filling up the demand supply gap which coming up a major problem in this industry. Environmental Factors affecting the Industry There are various factors at Micro as well Macro level which influences the FMCG industry. The factors at micro level can be costs incurred in production, efficiency of the various departments in the companies of FMCG industry. At macro level following are the factors influencing FMCG industry: Economic Growth as it will lead to increase in the income of the people and so the expenditure on FMCG products Changes in demographic profile of people Government policies like : o Tax o FDI policies o Export Duties Entry of new players in the market as it rises the competition and leads to various changes in the way business is done The competition faced from unorganized sector as they get away without paying taxes and can have the competency at the price level Role of Dabur in this Industry Dabur Foods Limited (DFL) posted a record 53% sales growth for the financial year 2015-16 . This outstanding performance has resulted in DFL closing the year at Rs.190 crores (balance sheet figure) and this strong growth is reflected in the incremental turnover of Rs. 12.1 crores over budget and Rs. 61.5 crores over last year. The company recorded a PAT of Rs. 12.1 crores, which is 130.2% growth over LY and as a result PAT % to sales moved from 4.5% to 6.8%.
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Some of the key Highlights of the Year are:
Company earned additional revenue to the tune of Rs. 15 crores through its export operations, which is a 260% growth over LY and achieved the recognition of a Star Export House in 2 years.
New products launches have contributed to 20% of the turnover and contributed to 24% of our growth.
Real and Activ Brands together have clocked a turnover of Rs. 150 crores.
Replant of Activ has resulted in value sales of Rs 3040 lakhs resulting in a stupendous growth of 99% over last year and increased contribution from 13% to 17% of SBU sales. Dabur Foods Limited (DFL) a wholly owned subsidiary of Dabur India Limited (DIL), operates on the naturals platform with a product portfolio consisting mainly of packaged fruit juices, cooking pastes, sauces and items for institutional food purchases The business registered another year of fantastic performance in 2015-16 by growing sales by 48% and growing its profit by more than two times. This is the second year in a row that the business has grown over 48% in sales growth. The business recorded a turnover of Rs.192.53 crores registering a growth of 48% and profit after tax of Rs.12.1 crores. In line with the strategic path laid down, the following are the key highlights of performance:
Beverage portfolio growth at 50% driven by its segmentation strategy under Real.
Strong growth from new product launches and new channels which contributed to 24% of our total growth.
The line extensions of Home made also continued to drive the growth.
Exports grew by over 100%.
The primary growth driver of your business was its fruit beverage portfolio. The segmentation strategy put into place by Sanjay and his team to differentiate the 3 brands has been successfully implemented. Real, Activ and Coolers are now differentiated in terms of appeal, benefit, variants and packaging. Real continued to grow by over 35%. The major success of the year was Real Activ which doubled it's sales over last year. The extension to the innovative fruit and vegetable variants has been widely accepted by the Indian consumers. Both these brand have firmly strengthen Dabur Foods leadership in the fruit juices market coupled with the excellent retail distribution by KG and his team.
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"Coolers" - The range of drinks is based on traditional Indian formulations, which have a cooling effect on the body - grew by 58%. It added 3 new flavors - Muskmelon, Lemon Barley and Jamun. The Home made brand grew by 28 per cent in 2015-16. These growth rates were possible by the excellent performance of Coconut Milk & Tomato Pure. Besides the retails channel, the product is extensively distributed in the food services channel. In view of the growing size of this channel a dedicated structure headed by Jyotiroop has been set up to service the customer. The company continued to dominate this channel by making it available in the best hotels, restaurants, airlines and several institutions like business houses to Indian army.
CHAPTER-2 COMPANIES PROFILE
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Dabur India Limited established in 1884 by Dr. S. K. Burman, physician of vision and limitless compassion – Brought Ayurvedic medicines to the ailing mass of Bengal. It is one of the leading FMCG Company in India. The company was formed by way of amalgamation in Oct.'86. Prior to this, the company was operating under the name Dabur (S K Burman) Pvt Ltd, since 1930. The FMCG industry in India is very unpredictable which ultimately affects the profitability of any company in the sector. The success of Dabur is based on dedication to nature, corporate, and process hygiene, dynamic leadership and commitment to the partners and stakeholders. It provides differentiated products with strong Herbal and Nature profile. Over more than 100 years it is dedicated to providing nature based solution for a healthy and holistic lifestyle through Ayurveda. Leading consumer goods Company in India, holding position among the large turnover companies:
3 major strategies business units (SBU) - Family Product Division (FPD), Health Care Products Division (HCPD), and Dabur Ayurvedic Specialties limited (DASL). 5 Subsidiary Group Companies – Dabur Foods, Dabur Nepal, Dabur Oncology, Dabur Pharma and Dabur Egypt. Production market in over 50 countries. Dabur became the first Ayurvedic products company to get ISO 9002 certification for its superior quality standards. Dabur Nepal, a subsidiary of Dabur India, has set up fully automated greenhouses in Nepal. This helps to produce saplings of rare medicinal plants that are under threat of extinction due to ecological degradation.
The company has various brand leaders in different market segments -- Dabur Chyawanprash, a health tonic and Hajmola, a digestive tablet,. Two new brands, Real and Home made, launched during 1996-97 have also carved out a niche in the market. Dabur added a new variant to its
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Pudin Hara range. Its key pharmaceutical brand New Livfit recorded a growth of more than 100%. To compete in the market and to retain its position, company is focusing on different strategies and taking initiative for efficiency:
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OBJECTIVES OF THE PROJECT OBJECTIVES: Finding out the ground realities of the competitors of Dabur India Limited. Analyzing the superiority of Dabur over its competitors. Analyzing the position of Dabur in the minds of customers. Finding out the Ratio Analysis and procedures of calculation. DELIVERABLES: Identified the competitors in the market. Identified opportunities: new segment and consumer needs. Identified the problem faced by Dabur India Limited consumers. Identified the rules and regulation. Recommendation
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CHAPTER-3 RESEARCH METHODOLOGY
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The project work has done in two parts: 1) Calculation of ratios 2) Explain with graph 3) Their interpretations
1) Calculation of Ratio- To analysizing the financial condition of the company, Dabur India Limited, different ratios has been calculated of different FMCG companies on the basis of available data. The ratios has been calculated on yearly basis, of three years (2013-2014, 2014-2015 & 2015-2016). 2) Explain with graph- After calculating the ratios, the data has shown in graphs, in order to explain it. 3) Interpretations- After calculating the ratios and showing it in graphs, the interpretation has been made of each and every ratios. This helps to analysizing the financial condition of the company.
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RATIO ANALYSIS Ratio analysis is an excellent method for determining the overall financial condition of a business. It puts the information from a financial statement into perspective, helping to spot financial patterns that may threaten the health of a company. Ratios are also very useful for making comparisons between our business and other businesses in same industry. For example, comparing ratios can indicate whether a business is holding too much inventory or collecting receivable too slowly. This comparison provides a window into ways in which our business can improve its operations. The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of our business. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them. It is also a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time. It is based upon accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis, to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further.
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Conditional Use of Financial Ratio Analysis: Financial ratio analysis is frequently used to measure the performance of various sectors of a business. If properly used (its limitations understood), it can be a very useful management aid. Following are a few reasons why ratio analysis is being used so extensively: a) Ratios are easy to calculate - Most ratios compare two statistics which are normally provided in the income statement or the balance sheet. Because these data are readily available at a more-or- less fixed cost, not much time or expense is required to compute a ratio. b) Ratios allow easy comparison - They allow comparison of a firm’s past with its present performance, as well as comparisons between similar firms at one time. c) Ratios are easily understood - Not all members of the management team are financial sophisticates and ratios provide simple overview information to all types of management personnel. d) Ratios communicate a firm’s financial position- The ratios communicate a firm’s financial position to interested parties outside of management - for example, financial authorities may rely on ratios to determine a firm’s credit worthiness.
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CHAPTER-4 DATA INTERPRETATION
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Liquidity Ratios
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STATEMENT SHOWING CURRENT RATIO AS ON 31ST MARCH 2014 Companies
Dabur
HLL
Nestle
Current Ratio
1.27
0.90
0.67
Godrej 0.68
Cadbury 1.24
Britannia 0.89
Colgate
P&G
1.12
1.71
Current Ratio= Current Assets/Current Liabilities
INTERPRETATION: The ratio is used to assess the short term financial position of the business concern. It is an indicator of the firm’s ability to meet its short-term obligations. As a conventional, rule a current ratio of 2:1 is considered ideal. Dabur has a current ratio is 1.27 which is an average ratio that the company current assets are more then current liabilities in year 2013-14 increase in current assets and decrease in current liabilities. The company has a sufficient fund to pay its liabilities on time and meet other day to day expenses.
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STATEMENT SHOWING CURRENT RATIO AS ON 31ST MARCH 2015 Companie s Current Ratio
Dabur 0.79
HLL
Nestle
Godrej
0.82
0.65
0.66
Cadbur y 0.91
Britannia 0.86
Colgate 1.29
P&G 1.52
Current Ratio= Current Assets/Current Liabilities
INTERPRETATION: The ratio is used to assess the short term financial position of the business concern. It is an indicator of the firm’s ability to meet its short-term obligations. As a conventional, rule a current ratio of 2:1 is considered ideal. Dabur has a current ratio is 0.79 which is far away from the ideal ratio that the company current assets are very less then current liabilities in year 2014-15 decrease in current assets and increase in current liabilities.The company don’t have a sufficient funds to pay its liabilities on time and meet other day to day expenses.
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Criteria for Analyzing Liquidity Ratios The liquidity ratios measure the ability of the company to meet its current obligations. The liquidity ratios by establishing a relationship between cash and other current assets to current obligation provide a quick measure of liquidity. Current Ratio: - The current ratio of 2:1 or more is considered satisfaction. Dabur India limited has the current ratio 1.27 in the year 2013-20114 and 0.79 in the year 2014-20115 therefore it may be interpreted to be sufficiently liquid. But among all the companies Dabur has secured 2 nd rank in the year 2013-20114 and 6th rank in the year 2014-20115 . The current ratio represents a margin of safety for creditors. The higher the current ratio, the greater the margin of safety.
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Leverage Ratios
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STATEMENT SHOWING DEBT EQUITY RATIO AS ON 31ST MARCH 2014 Companies
Dabur
HLL
Nestle
Debt Equity Ratio
0.22
0.75
0.02
Godrej 0.48
Cadbury 0.03
Britannia
Colgate
P&G
0.24
0.02
0.20
Debt –Equity Ratio = Long-term Loans\ Shareholders’ Fund
INTERPRETATION: The debt-equity ratio is an important tool of finance analysis to appraise the financial structure of the firm. It has important from the viewpoint of creditors, owner and the firm itself. The ratio reflects the relative contribution of creditors and owners of the business in its financing. A high ratio shows a large share of financing by the creditors of the firm; a low ratio implies a small claim of creditors. The debt-equity ratio indicates the margin of safety to the creditors. The shareholders of the firm would, however stand to gain in two ways: (i) with a limited stake, they would be able to retain control of the firm and (ii) the return to them would be magnified. With a larger proportion of debt in the financial structure, the earnings available to the owner would increase more than proportionately with the increase in the operating profits of the firm.
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STATEMENT SHOWING DEBT EQUITY RATIO AS ON 31ST MARCH 2015 Companie Dabur s Debt Equity 0.15 Ratio
HLL
Nestle
Godrej
0.35
0.03
0.33
Cadbur y 0.02
Britanni a 0.05
Colgate
P&G
0.03
0.19
Debt –Equity Ratio = Long-term Loans\ Shareholders’ Fund
INTERPRETATION: The debt-equity ratio is an important tool of finance analysis to appraise the financial structure of the firm. It has important from the viewpoint of creditors, owner and the firm itself. The ratio reflects the relative contribution of creditors and owners of the business in its financing. A high ratio shows a large share of financing by the creditors of the firm; a low ratio implies a small claim of creditors. The debt-equity ratio indicates the margin of safety to the creditors. The shareholders of the firm would, however stand to gain in two ways: (i) with a limited stake, they would be able to retain control of the firm and (ii) the return to them would be magnified. With a larger proportion of debt in the financial structure, the earnings available to the owner would increase more than proportionately with the increase in the operating profits of the firm.
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STATEMENT SHOWING LONG TERM DEBT EQUITY RATIO AS ON 31ST MARCH 2014 Companie s LLong Term Debt Equity Ratio
Dabur
HLL
Nestle
Godrej
0.17
0.63
0.00
0.35
Cadbur y 0.01
Britanni a 0.06
Colgate
P&G
0.01
0.85
Long Term Debt Equity Ratio= Long Term Debt Long Term Debt + Shareholders’ Equity
INTERPRETATION: The long term debt-equity ratio is also an important tool of finance analysis to appraise the financial structure of the firm. It’s again important from the viewpoint of creditors, owner and the firm itself. The ratio reflects the relative contribution of creditors and owners of the business in its financing, but this time it has done for long term financing. A high ratio shows a large share of financing by the creditors of the firm; a low ratio implies a small claim of creditors. The long term debt equity ratio provides large number of debts for the company. It increases the operating profit of a company.
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STATEMENT SHOWING LONG TERM DEBT EQUITY RATIO AS ON 31ST MARCH 2015 Companies Dabur
HLL
Nestle
Godrej
Long Term Debt Equity Ratio
0.30
0.00
0.17
0.11
Cadbur y 0.01
Britanni a _
Colgate
P&G
0.02
0.16
Long Term Debt Equity Ratio= Long Term Debt Long Term Debt + Shareholders’ Equity
INTERPRETATION: The long term debt-equity ratio is also an important tool of finance analysis to appraise the financial structure of the firm. It’s again important from the viewpoint of creditors, owner and the firm itself. The ratio reflects the relative contribution of creditors and owners of the business in its financing, but this time it has done for long term financing. A high ratio shows a large share of financing by the creditors of the firm; a low ratio implies a small claim of creditors. The long term debt equity ratio provides large number of debts for the company. It increases the operating profit of a company.
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Criteria for Analyzing Leverage Ratios The second category of ratios is Leverage Ratios; the solvency of a company can be examined by using leverage ratios. Debt- equity ratio measure the ratio of long-term or total debt to shareholders equity. Debt Equity Ratio: - The relationship of lenders and owner describe the lenders and owners’ contribution for each rupee of the owner’s contribution is called Debt equity ratio. The Dabur India ltd. has debt equity ratio of 0.22 in the year 2013-20114 and 0.15 in the year 2014-20115 and by this it has secured 4th rank in both years. Long Term Debt Equity Ratio:- The long term debt-equity ratio is a important tool for financial structure of the company. The percentage of this ratio shows the share of financing by the creditors of the company. The dabur India ltd. has long term debt equity ratio of 0.17 in the year 2013-20114 and 0.11 in the year 2014-20115 and by this it has secured 4th rank in both years. .
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Profitability Ratios
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STATEMENT SHOWING GROSS PROFIT MARGIN AS ON 31ST MARCH 2014 Companie Dabur s Gross Profit 11.25 Margin
HLL
Nestle
Godrej
14.94
18.36
15.67
Cadbur y 11.01
Britanni a 12.24
Colgate
P&G
24.54
29.73
Gross Profit Ratio= Gross Profit* 100 Net Sales
INTERPRETATION: Gross profit is the result of the relation between prices, sales volume and cost. A change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. Further, the gross profit ratio can also be used to determining the extent of loss caused by theft, spoilage, damage, and so on in the case of those firms which follow the policy of fixed gross profit ratio in pricing their products. A very high and rising gross margin may be the result of unsatisfactory basis of evaluation of stock, that is, overvalued of closing stock and undervalued of opening stock. But a low gross margin is also a danger signal, warranting a careful, detailed analysis of the factors responsible for it.
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STATEMENT SHOWING GROSS PROFIT MARGIN AS ON 31ST MARCH 2015 Companies
Dabur
HLL
Nestle
Gross Profit Margin
14.35
14.90
19.89
Godrej Cadbur y 17.30 12.55
Britanni a 12.57
Colgat e 25.82
P&G 26.21
Gross Profit Ratio= Gross Profit* 100 Net Sales
INTERPRETATION: Gross profit is the result of the relation between prices, sales volume and cost. A change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. Further, the gross profit ratio can also be used to determining the extent of loss caused by theft, spoilage, damage, and so on in the case of those firms which follow the policy of fixed gross profit ratio in pricing their products. A very high and rising gross margin may be the result of unsatisfactory basis of evaluation of stock, that is, overvalued of closing stock and undervalued of opening stock. But a low gross margin is also a danger signal, warranting a careful, detailed analysis of the factors responsible for it.
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STATEMENT SHOWING PROFIT BEFORE INTEREST & TAX MARGIN AS ON 31ST MARCH 2014 Companies
Dabur
Profit Before 10.54 Interest & Tax Margin
HLL 15.02
Nestle 16.32
Godrej Cadbur y 14.43 7.45
Britanni a 11.13
Colgat e 14.02
P&G 13.66
Profit Before Interest & Tax Margin= Gross Profit Margin – Depreciation
INTERPRETATION: The profit which comes out after subtracting the depreciation from total profit is called profit before interest & tax (PBIT). It shows the real position of a company, because interest & tax is included in this figure which subtract later on.
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STATEMENT SHOWING PROFIT BEFORE INTEREST & TAX MARGIN AS ON 31ST MARCH 2015 Companies
Dabur
Profit Before Interest & Tax Margin
13.37
HLL 14.02
Nestle 17.75
Godrej Cadbur y 16.05 9.33
Britanni a 11.53
Colgat e 15.12
P&G 13.97
Profit Before Interest & Tax Margin= Gross Profit Margin – Depreciation
INTERPRETATION: The profit which comes out after subtracting the depreciation from total profit is called profit before interest & tax (PBIT). It shows the real position of a company, because interest & tax is included in this figure which subtract later on.
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Criteria for Analyzing Profitability Ratios Gross Profit Margin: - The gross profit margin reflects the efficiency with which management product each unit of product. The gross profit margin relative to the industry average implies that the company is able to product at relatively lower cost. Dabur India Ltd. have secured 7th & 6th ranks in the ending year 2013-20114 and in 2014-20115 so Dabur should reduce the variable costs. Net Profit Margin: - The net ratio shows the earning left for shareholders (both equity & preference) as a % of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. It provides a valuable understanding of the cost and profit structure of the cost and profit structure of the company. In dabur India ltd. has 8.82% net profit margins in the year 2013-20114 and 11.67 in the year 2014-20115 which is very low in comparison to the other companies. Profit Before Tax & Interest Margin: - It’s calculated by subtracting the depreciation from gross profit margin. Dabur India has secured 7 th and 6th rank in these two financial years.
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Activity Ratios
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STATEMENT SHOWING DEBTORS TURNOVER RATIO AS ON 31ST MARCH 2014 Companies
Dabur
Debtors 14.46 Turnover Ratio
HLL 22.65
Nestle 82.01
Godrej Cadbur y 31.25 36.35
Britanni a 60.93
Colgat e 28.79
P&G 47.36
Debtors Turnover Ratio = Total Sales Debtors + Bill Receivable
INTERPRETATION: A company can sell its goods on credit also. It is used as a marketing tool by a number of companies. When the company extends credits to its customers, it will increase more debtors. Debtor’s turnover ratio indicates the number of time debtor’s turnover each year. Generally the higher the value of debtor’s turnover, the more efficient is the management of credit.
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STATEMENT SHOWING DEBTORS TURNOVER RATIO AS ON 31ST MARCH 2015 Companies
Dabur
Debtors 27.78 Turnover Ratio
HLL 23.64
Nestle 93.28
Godrej Cadbur y 65.49 57.06
Britanni a 52.20
Colgat e 55.20
P&G 53.72
Debtors Turnover Ratio= Total Sales Debtors + Bill Receivable
INTERPRETATION: A company can sell its goods on credit also. It is used as a marketing tool by a number of companies. When the company extends credits to its customers, it will increase more debtors. Debtor’s turnover ratio indicates the number of time debtor’s turnover each year. Generally the higher the value of debtor’s turnover, the more efficient is the management of credit.
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STATEMENT SHOWING FIXED ASSETS TURNOVER RATIO AS ON 31ST MARCH 2014 Companies
Dabur
Fixed Assets 4.06 Turnover Ratio
HLL 4.88
Nestle 2.92
Godrej Cadbur y 12.68 2.61
Britanni a 5.34
Colgat e 8.10
P&G 7.04
Fixed Assets Turnover Ratio= Sales Fixed Assets
INTERPRETATION: The company may wish to know its efficiency of utilizing fixed assets. This ratio indicates the extent to which the investment in fixed assets contributes towards sales. If compared with the previous period, it indicates whether the investment in fixed assets has been judicious or not.
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STATEMENT SHOWING FIXED ASSETS TURNOVER RATIO AS ON 31ST MARCH 2015 Companies
Dabur
Fixed Assets 4.33 Turnover Ratio
HLL 5.10
Nestle 2.96
Godrej Cadbur y 9.81 2.61
Britanni a 6.17
Colgat e 7.84
P&G 7.66
Fixed Assets Turnover Ratio= Sales Fixed Assets
INTERPRETATION: The company may wish to know its efficiency of utilizing fixed assets. This ratio indicates the extent to which the investment in fixed assets contributes towards sales. If compared with the previous period, it indicates whether the investment in fixed assets has been judicious or not.
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Criteria of Analyzing the Activity Ratios Inventory Turnover Ratio: - The inventory turnover ratio measure how fast the inventory is moving through the company and generating sales. It reflects the efficiency of inventory management. The higher the ratio, the more efficient but this may not always true. The high inventory turnover may be caused by a low level of inventory which may result in frequent stock outs. So its ranking is very difficult. Dabur India Ltd has secured 7th and 5th rank in 2013-20114 and in 2014-20115 . Debtors Turnover Ratio: - The debtors’ turnover ratio shows how quickly receivables or debtors are converted into cash. It is a test of the liquidity of the debtors of a company. It shows the relationship between credit sales and debtors of a company. Dabur India Ltd has secured 8 th and 7th rank in 2013-20114 and in 2014-20115 which is very low in compare to other FMCG companies. Fixed Assets Turnover Ratio: - The fixed assets turnover ratio measures the efficiency with which fixed assets are employed- a high ratio indicates a high degree of efficiency in assets utilization. For improve the fixed assets turnover Dabur should fully utilize all the assets. It has secured 6th rank in both the financial year. Total Assets Turnover Ratio: - The total assets turnover ratio shows the company’s ability in generating sales from all financial resources committed to total assets. Dabur India Ltd has secured 6th rank in both the financial year.
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CHAPTER-5 FINDINGS AND CONCLUSIONS
41
On the basis of data and available information. Certain findings arrived that relates the Ratio Analysis of the company.
It is observe that the Dabur India Ltd. has good profit margin and company’s liquidity is also good. It has important from the viewpoint of creditors and shareholders’ that company have sufficient fund to pay them.
In the comparison of profitability ratio in Dabur India Ltd. the gross profit ratio 14.35% and net profit ratio 11.67% both are increases in the year 2015-2016 in compare to last two year.
The current ratio 1.47% is also increase in the year 2015-2016 in compare to last two year. It shows that current assets increase over current liabilities.
The debt equity ratio 0.45% is also increase in the year 2015-2016 in compare to last two year. It shows that a large share of financing by creditors in the company, which is positive sign for the company.
The return on capital employed 49.47% is having little bit of decrease in 20152016 in compare to last year. But then also its better then some other FMCG companies. It shows that Dabur India Ltd. have sufficient sources of the long term funds.
The fixed assets turnover ratio 6.88% has increases in 2015-2016 compare to last two years. It shows the efficiency of Dabur India Ltd. in utilizing the fixed assets of the company, comparing with the previous period. It also shows that company has increases its investment in fixed assets.
The debtors’ turnover ratio 50.83% has increases in 2015-2016 in compare to last two years, which shows that Dabur India Ltd. is managing its management of credit very well.
The average collection period is decreases to 10.16% in compare to last two years. This low average collection period shows a low cost in extending credit to customers from Dabur India Ltd.
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COMPARATIVE ANALYSIS OF DABUR STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3 YEARS… Years Current Ratio
2013-2014 1.27
2014-2015 0.79
2015-2016 1.47
Current Ratio 1.6 1.4 1.2
Current Ratio
1 0.8 0.6 0.4 0.2 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: Current ratio comes under the liquidity ratios which means the ability of the company to meet its current obligations. This year(20052006) current ratio has increased in compare to the last two years which means that company have sufficient money for its current obligation. It is 1.47% this year.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Debt Equity Ratio
2013-2014 0.22
2014-2015 0.15
2015-2016 0.45
Debt Equity Ratio 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
Debt Equity Ratio
2013-2014
2014-2015
2015-2016
INTERPRETATION: Debt equity ratio comes under the leverage ratios and shows the relationship between creditors and owners of the company. This year (2005-2006) ratio goes very high, which is 0.45% in compare to the last two years. This shows a large share of financing by the creditors of the firm. This ratio also indicates the margin of safety to the creditors.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Long Term Debt Equity Ratio
2013-2014 0.17
Long Term Debt
2014-2015 0.11
2015-2016 0.31
Equity Ratio
0.35 0.3 0.25
Long Term Debt Equity Ratio
0.2 0.15 0.1 0.05 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: Long term debt equity ratio also comes under the leverage ratios and shows the relationship between creditors and owners of the company. This year (2005-2006) goes very high, which is 0.31% in compare to the last two years. This shows a large share of financing by the creditors of the firm. This ratio also indicates the margin of safety to the creditors.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Gross Profit Ratio
2013-2014 11.25
2014-2015 14.35
2015-2016 15.64
Gross Profit Ratio 16 14 12
Gross Profit Ratio
10 8 6 4 2 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: The gross profit ratio comes under the profitability ratios and this year (2005-2006) it has increase in compare to last two years. It is 15.64% this year. It represents the limit beyond which fall in sales prices are outside the tolerance limits.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Net Profit Ratio
2013-2014 8.82
2014-2015 11.67
2015-2016 13.80
Net Profit Ratio 14 12 10
Net Profit Ratio
8 6 4 2 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: The net profit ratio also comes under the profitability ratios and this year (2005-2006) it has increase in compare to last two years. It is 13.80% this year . This high net profit margin would ensure adequate return to the owner as well as enable a firm to withstand adverse economic condition when selling price is declining.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Return on Capital Employed
2013-2014 29.50
2014-2015 49.70
2015-2016 49.47
Return on Capital Employed 50 40 Return on Capital Employed
30 20 10 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: The return on capital employed also comes under the profitability ratios and this year (2005-2006) there is little bit of decrease in compare to last years. It is 49.47% this year . It refers to the long term funds supplied by the lenders and owner of the firm. It is equal to non-current liabilities plus owner’s equity. So it shows that Dabur have sufficient sources of the long term funds.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Debtors Turnover Ratio
2013-2014 14.46
2014-2015 27.78
2015-2016 50.83
Debtors Turnover Ratio 60 50 40
Debtors Turnover Ratio
30 20 10 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: Debtors turnover ratio comes under the activity ratios and this year (2005-2006) it has increases in compare to last two years. It is 50.83% this year . The debtors turnover ratio take place when company sell its goods on credit also. It is used as a marketing tool by a number of companies. This high Debtor’s turnover ratio indicates the number of time debtor’s turnover of last year in Dabur India Ltd. So it shows that Dabur India Ltd is very efficient in its management of credit.
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STATEMENT SHOWING THE RATIO CAMPARISON OF DABUR OF LAST 3YEARS… Years Fixed Assets Turnover Ratio
2013-2014 4.06
2014-2015 4.33
2015-2016 6.88
Fixed Assets Turnover Ratio 7 6 5
Fixed Assets Turnover Ratio
4 3 2 1 0 2013-2014
2014-2015
2015-2016
INTERPRETATION: Fixed assets turnover ratio comes under the activity ratios and this year (2005-2006) it has increases in compare to last two years. It is 6.88% this year. This ratio shows the efficiency of utilizing fixed assets of the company. Comparing with the previous period, it indicates that the investment in fixed assets has been made by the company, Dabur India Limited.
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CHAPTER-6 RECOMMENDATIONS AND SUGGESTIONS
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Through the ratio analysis of seven admired companies in the same sector. The various positive and negative results came out, on the basis of these results I would like to recommend that
The company should try to increase the duration of the average collection period to compete with its competitors, by offering the customer high cost in credit sales.
The company should try to maintain its net worth for having satisfactory fund for equity share holders.
The company should give more emphasis to sufficient utilization of the resources and funds.
The company should improve the return on capital employed, as a source of long term fund.
The company should reduce its variable cost to increase gross profit margin which is very low relatively other FMCG companies.
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SWOT ANALYSIS STRENGTHS
A trusted, successful & globally known brand
Maintain its quality (achieved ISO 9000 certificate and other quality related awards)
Old brand recognition
Wide R & D department
WEAKNESSES
Less Economies of scale Poor Advertising of Dabur Nature Care
OPPORTUNITIES
Increasing health consciousness among people
Increasing Market share
Brand Loyalty among people
Entry in international retail chain through FDI
THREATS
Well-established Competitors
Brands like Colgate, Pepsodent &Close up has
High brand image & Consumer Awareness
To accelerate growth and maintain margins
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LIMITATIONS Although it has been my endeavor to take all necessary precautions to ensure that the information gathered is authentic and maximum facts are presented but I faced certain constraints while doing so. The constraints and limitations faced are as mentioned below: 1) Time: The nature of the report required detailed and meticulous information gathering. In this sense time was a limiting factor and a major constraint to accomplish the given task. Also sometimes the information was not available on time. This caused a lot of pilferage of time unnecessary of duplication of effort. 2) Human error: The feedback provided by the company executives, consumers and others approached has been assumed to be correct. But there might have been wrong and biased facts given. The opinion of few cannot be generalized in any manner. 3) Non cooperation: While by and large the people approached were helpful some people were non-cooperative. Also a lot of information was withheld due to its sensitive nature. 4) Calculation error: The report required calculation of figures and at last have to analysis them also, so mistake can be arises during calculations. 5) Difficulty in comparison: One serious limitation of ratio analysis arises out of the difficulty associated with their comparability. Such comparisons are vitiated by different procedures adopted by various companies. The difference may relate to: Difference in the basis of inventory valuation (eg. Last in first out, first in first out and average cost) Different depreciation methods (eg. Straight line v/s written down basis) Estimated working life of assets, particularly of plant and assets. Treatment of extraordinary items of income and expenditure, and so on. 6) Conceptual Diversity: The other limitation of ratio analysis is that there is different of opinion regarding the various concepts used to compute the ratios. There is always room for diversity of opinion as to what constitutes shareholders’ equity, debt, assets, profit and so on. Different companies may be use these terms in different senses or the same company may use them to mean different things at different times.
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ANNEXURES
55
Balance Sheet As At 31st March 2014
56
AS AT 31st MARCH, 2014 (Rs. lac)
SCHEDULE SOURCES OF FUNDS: SHAREHOLDERS’ FUNDS A) SHARE CAPITAL B) RESERVES AND SURPLUS LOAN FUNDS: A) SECURED LOANS B) UNSECURED LOANS
2,862.49 24,003.32
26,865.81
1,909.37 2,071.91
3,981.28 796.95
DEFERRED TAX LIABILITY
TOTAL APPLICATION OF FUNDS:
31,644.04
FIXED ASSETS A) GROSS BLOCK B) LESS: DEPRECIATION C) NET BLOCK
27,450.18 -11,955.85
15,494.33 17,122.67
INVESTMENTS
57.01
DEFERRED TAX ASSETS CURRENT ASSETS, LOANS AND ADVANCES: A) INVENTORIES B) SUNDRY DEBTORS C) CASH & BANK BALANCES D) LOANS & ADVANCES
10,951.93 4,207.22 1,188.72 5,584.34 21,932.21
LESS: CURRENT LIABITIES AND PROVISION A) LIABILITIES B) PROVISIONS
16,452.07 7,169.81 23,621.88 (1,689.67) 659.70
NET CURRENT ASSETS MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted)
31,644.04
TOTAL
Balance Sheet As At 31st March 2015 57
AS AT 31st MARCH, 2015 (Rs. lac)
SCHEDULE SOURCES OF FUNDS: SHAREHOLDERS’ FUNDS C) SHARE CAPITAL D) RESERVES AND SURPLUS LOAN FUNDS: C) SECURED LOANS D) UNSECURED LOANS
2,864.20 30,943.15
33,807.35
1570.38 3,292.60
4,862.98
DEFERRED TAX LIABILITY
1,277.51
TOTAL APPLICATION OF FUNDS:
39,947.84
FIXED ASSETS D) GROSS BLOCK E) LESS: DEPRECIATION F) NET BLOCK
32,672.44 -13,511.83
19,160.61 27, 094.25
INVESTMENTS
131.75
DEFERRED TAX ASSETS CURRENT ASSETS, LOANS AND ADVANCES: E) INVENTORIES F) SUNDRY DEBTORS G) CASH & BANK BALANCES H) LOANS & ADVANCES
12,802.57 4,928.27 1,065.38 6,400.96 25,197.18
LESS: CURRENT LIABITIES AND PROVISION C) LIABILITIES D) PROVISIONS
23,838.05 8,384.94 32,222.99 (7,025.81) 581.04
NET CURRENT ASSETS MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted)
TOTAL
39,947.84
Balance Sheet As At 31st March 2016 58
59
AS AT 31st MARCH, 2016 (Rs. lac)
SCHEDULE SOURCES OF FUNDS: SHAREHOLDERS’ FUNDS E) SHARE CAPITAL F) RESERVES AND SURPLUS LOAN FUNDS: E) SECURED LOANS F) UNSECURED LOANS
5,733.03 39,053.84
44,786.87
1,923.23 134.29
2,057.52 1,671.50
DEFERRED TAX LIABILITY
TOTAL APPLICATION OF FUNDS:
48515.89
FIXED ASSETS G) GROSS BLOCK H) LESS: DEPRECIATION I) NET BLOCK
34,129.37 -14,245.69
INVESTMENTS
19,883.37 27, 507.77
DEFERRED TAX ASSETS CURRENT ASSETS, LOANS AND ADVANCES: I) INVENTORIES J) SUNDRY DEBTORS K) CASH & BANK BALANCES L) LOANS & ADVANCES
131.74 11,560,90 2,694,25
LESS: CURRENT LIABITIES AND PROVISION E) LIABILITIES F) PROVISIONS
3,804,41 10,376.66
NET CURRENT ASSETS MISCELLANEOUS EXPENDITURE (To the extent not written off or adjusted)
28,436.22
TOTAL 19,342.06 11,388.94 60
30,731.00
48,515.89
(2,294.78) 3,287.48
BIBLIOGRAPHY ZIPSIP.COM Google.COM Investopedia.COM Moneycontrol.COM DABUR.COM SBIMF.com Book on “Portfolio Management” by ICFAI Press Business world investmart.com 61
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