FINAL YEAR BBA(H) STUDY PAPER ON
“PROFITABILITY OF BRITANNIA INDUSTRIES LIMITED”
SUBMITTED BY:
GROUP MEMBERS
SUBHAJIT BHATTACHARYA (Roll: 15405015050)
SUSHMITA SAHA (Roll: 15405015061)
PRITAM DASGUPTA (Roll: 15405015023)
RADHIKA DUTTAGUPTA (Roll: 15405015025)
STREAM- BBA (H)
YEAR- 3rd (THIRD) SEMESTER – 6th (SIXTH)
SESSION- 2015-2018
COLLEGE- DINABANDHU ANDREWS INSTITUTE OF TECHNOLOGY AND MANAGEMENT
UNIVERSITY- MAULANA ABUL KALAM AZAD UNIVERSITY OF TECHNOLOGY, WEST BENGAL
INDEX TOPICS PAGE NUMBER INTRODUCTION 03 OBJECTIVES 04 SIGNIFICANCE OF 04 OBJECTIVES COMPANY PROFILE 04 BOARD OF DIRECTORS 07 PRODUCT LINE 08 THEORITICAL 20 FRAMEWORK RESEARCH METHODOLOGY 35 FINDINGS 36 SUGGESTION 44 CONCLUSION 45 BIBLIOGRAPHY 45 ANNEXURE 46
INTRODUCTION
This project is all about analysis of profitability of Britannia Industries Ltd. for last five years (2013-2017) through ratio analysis, where we have analysed company’s profitability & its impact to the business. Here, we have estimated the profitability of the company through changes in gross profit ratio, net profit ratio, operating profit ratio, net worth ratio & return on long term fund ratio.
OBJECTIVES
The objectives for this project are as follows: i) To enumerate the profitability of Britannia Industries ltd. through profitability ratio analysis. ii) To formulate some specific suggestion from the ratio analysis for the growth of Britannia Industries ltd. SIGNIFICANCE OF OBJECTIVES
• Measuring the profitability: Profitability is the profit earning capacity of the business. This can be measured by Gross Profit, Net Profit, Expenses and Other Ratios. If these ratios fall we can take corrective measures. • Facilitating comparative analysis: Present performance can be compared with past performance to discover the plus and minus points. Comparison with the performance of other competitive firms can also be made. • Budgeting and forecasting: Ratio analysis is of much help in financial forecasting and planning. Ratios calculated for a number of years work as a guide for the future. Meaningful conclusions can be drawn for future from these ratios.
COMPANY PROFILE
Britannia Industries is one of India’s leading food companies with a 100 year legacy and annual revenues in excess of Rs. 9000 Cr. Britannia is among the most trusted food brands, and manufactures India’s favorite brands like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold which are household names in India. Britannia’s product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy products including Cheese, Beverages, Milk and Yoghurt.
The company was established in 1892, with an investment of ₹265.[4] Initially, biscuits were manufactured in a small house in central Kolkata. Later, the enterprise was acquired by the Gupta brothers mainly Nalin Chandra Gupta, an attorney, and operated under V.K Brothers." In 1918, C.H. Holmes, an English businessman in Kolkata, was taken on as a partner and The Britannia Biscuit Company Limited (BBCo) was launched. The Mumbai factory was set up in 1924 and Peek Freans UK, acquired a controlling interest in BBCo. Biscuits were in high demand during World War II, which gave a boost to the company’s sales. The company name was changed to the current "Britannia Industries Limited" in 1979. In 1982 the American company Nabisco Brands, Inc. acquired the parent of Peek Freans and became a major foreign shareholder.
Britannia products are available across the country in close to 5 million retail outlets and have reached over 50% of Indian homes.The company’s Dairy business contributes close to 5 per cent of revenue and Britannia dairy products directly reach 100,000 outlets.
Britannia Bread is the largest brand in the organized bread market with an annual turnover of over 1 lakh tons in volume and Rs.450 crores in value. The business operates with 13 factories and 4 franchisees selling close to 1 million loaves daily across more than 100 cities and towns of India. They have a presence in more than 60 countries across the globe. Their international footprint includes presence in Middle East through local manufacturing in UAE and Oman, they are the No 2 biscuit player in UAE with a strong contention to leadership and has a similarly strong market position in the other GCC countries. They are also the market leaders in Nepal and are in the process of investing a manufacturing facility in the country. Britannia takes pride in having stayed true to its credo, ‘Eat Healthy, Think Better’. Having removed over 8500 tonnes of Trans Fats from products, Britannia became India’s first Zero Trans Fat Company. Over 50% of the Company’s portfolio is enriched with essential micro- nutrients which nourish the body. The company has set up the Britannia Nutrition Foundation in 2009, and began working on public private partnership to address malnutrition amongst under- privileged children and women. Their relentless focus on quality and freshness haswon them prestigious accolades including the Golden Peacock National Quality Award and the Ramakrishna Bajaj National Quality Award. However, the award that they cherish the most is the one given by theconsumers. Britannia is recognized as one of the most trusted, valuable and popular brands among Indian consumers in various reputed surveys.
BOARD OF DIRECTORS NUSLI N WADIA Chairman
VARUN BERRY Managing Director
A.K. HIRJEE Promoter Non-Executive Director
AVIJIT DEB Non Executive Independent Director
S S KELKAR Non Executive Independent Director
NIMESH N KAMPANI Non Executive Independent Director
JEH N WADIA Promoter Non Executive Director
KEKI DADISETH Non Executive Independent Director
DR. AJAI PURI Non Executive Independent Director
NESS N WADIA
Director PRODUCT LINE
The product line of Britannia Industries Ltd. Includes: ✓ Biscuits ✓ Breads ✓ Dairy ✓ Rusk ✓ Cakes
✓ Biscuits: i. Good Day:
It’s a Smile that makes it a Good Day! The smaller joys of life that can brighten up one’s life everyday often get ignored in the pursuit of larger joys. With its tagline of “Har cookie mein kayi Smiles.” Good Day will act as an enabler in enjoying all those small moments in everyday life! In its brand new tastier avatar, Britannia Good Day brings alive its philosophy of Smiles through its new Logo, packaging and cookie, the New Good Day cookie comes with a smiley design on it as well!
ii. NutriChoice:
Britannia NutriChoice is one of India’s leading health brands today, changing the way Indians think, feel and behave about health and healthy living. NutriChoice provides a range of ‘power packed’ snacks specially created for people who seek a healthy way of life. NutriChoice Oat cookies made with crunchy Almonds and zesty Oranges, a delicious new way to have Oats.
iii. Marie Gold:
Tea times are incomplete without a packet of Britannia Marie biscuits. As today’s woman packs in more each day while caring for her family, these low fat and zero cholesterol biscuits are her tea time mates. Each Marie Gold biscuit is crisp and light, and is packed with the goodness of Vitamins and Minerals that make for healthier teatimes.
iv. Tiger:
Britannia Tiger has created biscuits which are high in nutrition, and great in taste. A delicious biscuit, fortified with 25% Daily Growth Nutrients like Iron, Calcium and Vitamins, help moms keep their little Tigers strong and roaring. v. Jim Jam+Treat:
In 2002, Britannia lovingly baked a Treat for little pranksters. An irresistible range of yummy, creamy biscuits to fuel their tricks. Its lip-smacking flavours, cool shapes and soft cream famous with the kids and in the market. Jimmy and Jammy come together to give you a twin Treat of Masti Cream and Naughty Jam in a pack of Treat Jim Jam. The combo of thick vanilla or cunning chocolate cream sandwiched between crisp biscuits, topped with a dollop of Jam and sugar crystals, makes Jim Jam the king of the Treat range.
vi. Bourbon:
Britannia Bourbon is all about showing off your wickedly smooth side. It has always been the chocolate lover’s favourite guilt trip. One bite of this smooth, luscious chocolate cream enveloped in crunchy, sugary chocolate biscuit and the smooth operator in you will be unleashed!
Other biscuit products of Britannia Industries Ltd. Include: vii. Milk Bikis:
viii. Crackers:
ix. Little Hearts:
x. Pure Magic:
xi. Nice Time:
✓ Breads: i.Daily Breads:
Made from hand-picked ingredients to create flavours which are innovative, delectable and elevating... this new range is bread but not quite! This vitamin enriched, wholewheat Bread is made with wheat flour, gram flour and turmeric flavoured just right with a blend of choicest Indian spices - ajwain, methi, coriander, jeera, chilli, this is bread, but not quite! Enjoy it simply toasted with butter or have it with chole or any subzi of your choice. This is Missi in a pack! ii. Whole Wheat Breads:
Britannia’s range of wholesome and delicious breads is filled with the goodness you need to keep your body healthy and happy.
Being the largest selling brand of breads in India, we rise every day to bake fresh, high-quality products so that you can start your day on a nourishing and delightful note. Ready-to-eat 100% Atta Kulcha - Toast it with Butter, wrap it with an Indian curry or spread it with Jam. And get ‘Healthy Khana without Pakana’. Available in two variants – Atta and Maida.
iii. White Sandwich Breads:
Soft white sandwich bread that'll treat your palate to delicious taste and B Vitamin to your tummy. iv. Bread assortment:
Ready-to-eat Kulcha - your no-fuss, meal companion. Toast it with butter, wrap it with Chole or bake it Pizza-style to enjoy these soft and delicious Kulchas. Available in two variants – Atta and Maida.
✓ Dairy: i. Cheese:
Britannia Cheese proudly offers the widest range of cheese in India- Slices, Cubes, Blocks, Spreads, Pizza Cheese, Low-fat cheese and Cream Cheese. Super nutritious slices, each with the goodness of a glass of cow’s milk. Wrapped individually to preserve its taste, nutrition and freshness. ii. Fresh Dairy:
Full of the goodness of cow’s milk, Britannia UHT milk is fresh cows’ milk, packaged to deliver the promise of purity. The unique processing of milk in state of the manufacturing facilities and its high quality packing ensures you taste nature's goodness with every sip! New Britannia Milk is fresh cows’ milk, packed to retain the freshness, purity and goodness of milk. Other such fresh dairy products include- Dahi, Flavored yoghurt, Masala chass.
iii. Accompaniments:
Britannia Ghee has loads of freshness, purity and aroma which are retained even when not refrigerated for a year. Britannia Ghee comes in different variants - Cow’s milk Ghee, ‘Danedar’ ghee which is grainy in texture and 'High Aroma' Cow Ghee. Available in pet jars, cartons and tins.
✓ Rusk: i. Premium Bake:
There's something curiously charming about having tea. Rusk. Not just any rusk. The crunchiest, tastiest rusk by Britannia.
✓ Cakes: i. Bar Cakes:
Soft and delicious cake slices with the goodness of milk fruit and eggs. Available in six exciting flavours - Fruit, Chocolate, Orange, Milk, Butter and Pineapple. ii. Veg Cakes:
Presenting 100% vegetarian sliced cakes from Britannia. Available in Fruit and a new exciting Chocolate flavor.
iii. Chunk Cake:
Yummy chunks of cake infused with the goodness of milk and egg and filled with surprising fruit bits. iv. Nut & Raisin Romance:
Crunchy almonds and soft raisins come together with a hint of orange peel to tease your senses, in this delicious cake. v. Muffills:
Little muffins with gooey centres in your favourite flavours.
Theoritical Framework: Meaning of Ratio Analysis
An analysis of financial statements with the help of ‘ratio’ is termed as ratio analysis .In other words, it is a technique of calculation of a number of ratios from the data contained in the financial statements, the comparison of the accounting ratios with those of the previous years or with other businesses concerns engaged in similar line of activities or with those of standard or ideal ratios and the interpretation of the comparison. Meaning of ratios
Ratio simply means one figure expressed in terms of another. A ratio is a mathematical relationship between two items expressed in a quantitative form. Ratio is also called ‘accounting ratio’ or ‘financial ratio’. In other words of J. Batty, the term ‘accounting ratio’ is used to describe significant relationship between figures shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of accounting organization. In other words, accounting ratio is a quantitative relationship between two or more items of the financial statements connected with each other. Arithmetically, ratio is a comparison of the numerator with the denominator. Significance or importance of ratio analysis
1) It helps in evaluating the firm’s performance;
With the help of ratio analysis conclusion can be drawn regarding several aspects such as financial help, profitability and operational efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the firm’s assets correctly, to increase the investor’s wealth. It ensures a fair return to its owners and secures optimum utilization of firm’s assets.
2) It helps in inter-firm comparison;
Ratio analysis helps in inter-firm comparison by providing necessary data. An inter-firm comparison indicates relative position. It provides the relevant data for the comparison of the performance of different departments .If comparison shows a variance, the possible reasons of variations maybe identified and if results are negative, the action maybe initiated immediately to bring them in line.
3) It simplifies financial statement;
The information given in the basic financial statements serves no useful purpose unless it is interrupted and analyzed in some comparable terms. The ratio analysis is one of the tools in the hands of those who want to know something more from the financial statements in the simplified manner.
4) It helps in determining the financial position of the concern;
Ratio analysis facilitates the management to know whether the firm’s financial position is improving or deteriorating or is constant over the years by setting a trend with the help of ratios. The analysis with the help of ratio analysis can know the direction of the trend of strategic ratio may help the management in the task of planning, forecasting and controlling.
5) It is helpful in budgeting and forecasting;
Accounting ratios provide a reliable data, which can be compared, studied and analyzed. These ratios provide sound footing for future prospectus. The ratios can also serve as a basis for preparing budgeting future line of action.
6) It is helpful in determining liquidity position;
With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. The ability to meet short term liabilities is reflected in the liquidity ratio of a firm.
Advantages of Ratio Analysis
Ratio analysis serves the purpose of various parties who are interested in financial statements. It simplifies, summarizes and systematizes a long array of figures contained in the financial statements. It is an instrument for diagnosis of the health of the business concern. The advantages are:
❖ Ratio analysis facilitates the comprehension of financial statements and thereby evaluation of several aspects such as financial health, profitability and operational efficiency.
❖ It makes it easy to grasp the relationship between various items and helps in understanding the financial statements. ❖ It helps in providing a comparative study of various business concerns.
❖ It helps in understanding the changes that have taken place between two periods of time.
❖ It helps in investment decisions in the case of investors and lending decisions in the case of bankers and financial institutions.
❖ It is an important tool in the hands of management to evaluate its policies. For instance, budgeting and controlling depends on it. It helps management to take remedial measures
❖ Ratios indicate trends in important items which help in forecasting.
❖ ‘Ideal ratios’ may be constructed and the relationship found between strategic ratios can be used for achieving the ‘desired co-ordination’.
Classification of Ratios
Accounting ratios may be classified as under: 1. Traditional ratios 2. Functional ratios Traditional Ratios:
Traditional accounting ratios are classified on the basis of the origin of the figures used in the accounting ratios i.e., on the basis of the financial statements from which ratios are derived. The following ratios are usually included in this type of classification:
1) Balance sheet ratios or financial ratios: These ratios deals with the relationship between two items or group of items which find place in the balance sheet example, current ratio, liquid ratio , debt- equity ratio, proprietary ratio, fixed assets ratio. 2) Profit and loss account ratios or operating ratios: These ratios deal with the relationship between the items or group of items which are available in the profit and loss account example, gross profit ratio, operating ratio, operating profit ratio, expenses ratio, net profit ratio, etc. 3) Composite or inter-statement ratios: These ratios deal with the relationship between items, either from the profit and loss account or from balance sheet example, stock turnover ratio, debtors turnover ratio, creditors turnover ratio, fixed assets turnover ratio, return on capital employed, etc. Functional Ratios:
This is the most widely accepted classification of accounting ratios. Under this classification, accounting ratios are classified on the basis of functions. Normally, these ratios are used to assess the profitability, activity or operating efficiency and financial position of a business concern. The following ratios are included in this classification: 1) Profitability ratios 2) Activity / turnover/performance ratios 3) Liquidity ratios 4) Solvency ratios Profitability Ratios
Every business concern aims at earning maximum profit. Profit refers to the absolute quantum of profits, whereas profitability refers to the ability to earn profits. Profitability ratios are the ratios which are computed to evaluate the performance and efficiency of the business concern. Profitability ratios are mainly used by owners that is, shareholders and the management. Equity shareholders are very much interested in the capital appreciation of their investment and dividend per share. Management employs profitability ratio to assess the operational performance of the business concern. Profitability ratios may be classified as under: 1. Profitability ratios related to sales: Profitability ratios as related to sales are computed to evaluate the operational efficiency of the business concern that is the efficiency with which the operations of the business concern have been carried on. Following are the important profitability ratios related to sales:
• Gross profit ratio:This ratio is also known as “Gross margin ratio” or “Trading margin ratio”. It shows the relationship between the gross profit to net sales and is generally expressed in percentage. In other words, it expresses the gross margin as a percentage of sales. It serves as an indicator of general profitability of the business concern. A high gross profit ratio implies better profitability of the products sold by the business concern. It is calculated as under:
• Gross profit ratio= (Gross profit / Net Sales ) x 100
• Net profit ratio: - This ratio is also known as the “the net profit to sales ratio” or net profit margin”. It measures the rate of the net profit per unit of sales. It is determined by dividing the net profit to the net sales for the period. Its formula is as follows: • Net profit ratio= (Net profit /Net sales) x 100
• Operating profit ratio: Operating profit ratio is a variation of net profit ratio. It measures the relationship between operating profits and sales .It may be calculated as below: • Operating profit ratio = (Operating profit / Net sales) x 100
• Operating ratio: This ratio measures the extent of cost incurred for making the sale. In other words, this ratio matches cost of goods sold plus other operating expenses, on the one hand, with the net sales, on the other hand. It is calculated as below: • Operating ratio= (C.O.G.S+ operating expenses)/Net sales x 100 Where C.O.G.S means cost of goods sold
• Expenses ratio:Expenses ratios are those ratios which are computed to ascertain the relationship between various components of cost and sales. The ratios disclose the portion of sales revenue consumed by various expenses. Following are the various expenses ratio:
• Raw materials used to sales=(Direct material cost/Net sales) x 100
• Ratio of labour to sales=(Direct labour cost/Net sales) x 100
• Ratio of factory expenses to sales= (Factory expenses/Net sales) x 100
• Ratio of office and Administration expenses to sales =(Office and administration expense /Net sales) x 100
• Ratio of selling and distribution expenses to sales =(Selling and distribution expenses / Net sales) x 100
2. Profitability ratios related to investments
Profitability of a business concern is very much related to investments. As such, profitability ratios may also be calculated on the basis of investments. From the view point of analysis, the term ‘investment’ has many concepts, important being assets, capital employed, net worth and shareholders’ equity. Following are various profitability ratios related to investments:
• Return on investment (ROI):- It is calculated by establishing a relationship between the total profit earned and the capital employed. It is an indicator of the earning capacity of the capital invested in the business. The following formula is used to calculate the ratio: • Return on investment= (Operating profit/Capital employed) x 100
• Return on shareholders’ fund: This ratio establishes the profitability from the shareholders point of view. It is calculated by: • Return on shareholders’ funds = (Net profit after interest & tax /Shareholders’ funds) x 100
• Return on equity: This ratio signifies the return on the shareholders’ funds. The rate of return on equity capital is an important factor in determining the market value of the equity share, that is, the price at which it can be sold. A comparison of the rate with similar companies also indicates the performance of equity capital. It is calculated as below: • Return on equity = (Net profit after tax and preference div. / Equity shareholders’ funds) x 100
• Return on total assets:This ratio is also known as “the profit to assets ratio”. It is calculated to measure the productivity of total assets. It can be calculated in two ways as given below: • Return on total assets= (Net profit after tax / Total assets) x 100 OR • Return on total assets = (Net profit after / Total assets less) x 100 Interest and tax fictitious assets
• Earnings per share(EPS):This ratio is calculated to assess the availability of total profits per share. EPS throws light on the overall profitability and helps in determining the market price of the equity shares. It reflects upon the capacity of the business concern to pay dividend to its equity shareholders. It is calculated as below:
• EPS= (Net profit after tax, interest / Number of equity) and preference dividend shares
• Price earnings ratio (PER): This ratio indicates the number of times the earning per share is covered by its market price. The formula is:
• PER= (Market price per share/Earnings per equity share)
• Payout ratio:This ratio is also known as “rate of dividend to net profit”. This ratio indicates the portion of the earnings which has been used for the payment of dividend. It is calculated as below:
• Payout ratio= (Equity dividend /Net profit after tax and preference div.) x 100
= (Dividend per equity share/Earnings per equity share
• Retained earnings ratio: This ratio reveals the proportion of profits retained in the business out of the current year’s profit. In fact the total of the payout ratio and retained earnings should be equal to 100. It is calculated as below:
• Retained earnings ratio= (Retained earnings / Earnings per ) x 100 per equity share equity share
• Dividend yield ratio: This ratio refers to the percentage or ratio of dividend paid per share to the market price per share. This ratio measures the return in relation to the market price per share and is generally used by the investors who are mainly interested in dividend income. It is calculates as:
• Dividend yield ratio= (Dividend per share/Market value per share) Where
Dividend per share= (Dividend paid to shareholders/number of shares)
• Cover for equity dividend- This ratio refers to the number of times the dividend is covered by the amount of profit available for equity shareholders that is net profit after tax less preference dividend. This is calculated as below: • Equity dividend cover= (Net profit after tax & preference dividend / Equity dividend)
OR
=Earnings per equity share (Rs.)/ Dividend per equity share (Rs.)
Activity/turnover/performance ratios
The performance of a company is generally evaluated on the basis of turnover. Higher turnover means better performance which indicates optimum utilisation of resources. The turnover or activity ratios reveal how well and efficiently the assets of the company are being utilised. These ratios disclose the relationship between the level of sales a cost of goods sold and the investments in various assets. Following are the various turnover ratios; • Capital turnover ratio: This ratio shows the efficiency of capital employed in the business by computing how many times capital is turned over in a stated period. This ratio ensures whether the capital employed has been effectively used or not. It also shows the profitability and efficiency of management .The ratio is calculated by using the following formula: • Capital turnover ratio= (cost of goods sold or sales / capital employed)
• Fixed assets turnover ratio: This ratio establishes the relationship between sales or cost of goods sold and fixed assets. It determines whether the investments made in fixed assets have really helped in generating sales. It is used to effect improvement, if any, in sales due to increased investment in fixed assets. This ratio is highly useful in measuring the efficiency and profit earning capacity of the company. It is calculated using the following formula: • Fixed assets turnover ratio= (Cost of goods sold or sales /net fixed assets)
• Working capital turnover ratio: Working capital means excess of current assets over current liabilities. Working capital turnover ratio indicates the number of times the working capital is converted into sales. The higher the ratio, the lower is the investment in working capital and greater are the profits. It is calculated with the help of the following formula: • Working capital turnover ratio= (Cost of goods sold /Net working capital)
• Stock turnover ratio: This ratio is also known as “Inventory turnover ratio” or “Stock velocity ratio”. It establishes relationship between average stock at cost and cost of goods sold .This ratio is employed to measure how quickly stock is converted into sales. It is calculated by using the following formula: • Stock turnover ratio= (cost of goods sold /average stock)
• Debtor’s turnover ratio: This ratio is also known as “Ratio of net sales to Gross receivable” or “Receivable turnover” or “Debtors velocity”. It expresses the relationship between net credit sales and average accounts receivable. It measures the number of times the receivables are rotated in a year in terms of sales. It is calculated by using the following formula: • Debtors turnover ratio= (Net credit sales /average accounts receivable)
• Average collection period: It is a variation of debtors’ turnover ratio. It represents the time- segment which is generally required to recover the debts due from the customers and amounts realizable on bills. It is calculated by using any one of the formulae: • Average collection period = Days(months)in a year/debtors turnover • Average collection period = (Average accounts receivable /credit sales) x 365days • Average collection period = Accounts receivable /average monthly or daily credit sale
• Creditors turnover ratio: This ratio is also known as accounts payable ratio or creditor’s velocity. It expresses the relationship between credit purchases and average accounts payable.It may be calculated as under: • Creditors turnover ratio= (Net credit purchases /average accounts payable)
• Average payment period: It is a variation of creditor’s turnover ratio. It is calculated to indicate the speed with which the payments for credit purchases are made to creditors. This ratio indicates the promptness or otherwise with which the payment is made to the suppliers in respect of credit purchases .It can be calculated by using any one of the following formulae: • Average payment period = Months (days) in a year/ creditors turnover • Average payment period = (Average accounts payable /credit purchases in the year) x365 days • Average payment period = Accounts payable /average monthly (or daily) credit purchase
Liquidity ratios
Liquidity or short –term solvency refers to the ability of a business concern to pay off its short-term liabilities .Liquidity ratios are those ratios which are computed to evaluate the capacity of the company to repay its short term liabilities. These ratios are basically used by the short term creditors which are the suppliers, bankers, lenders, etc. Following are the liquidity ratios: • Current ratio: This ratio is also called the ‘working capital ratio’. It is used to assess the short –term financial position of the business concern. In other words, it is an indicator of the company’s ability to meet its short –term obligations.It matches the total current assets of the company against its current liabilities. It is calculated using the following formula: • Current ratio= (current assets / current liabilities)
• Liquid ratio: This ratio is also known as the “acid test ratio” or the “quick ratio” or the “near money ratio”. It is only a variation of current ratio. Like current ratio it measures the ability of the company to meet its current obligations. The formula of calculating liquid ratio is: • Liquid ratio = (Liquid assets/liquid liabilities) • Liquid assets= Current asset- stock- prepaid expenses • Liquid liabilities= Current liabilities- bank overdraft
• Absolute liquidity ratio: This ratio is also called ‘cash position ratio’ or ‘cash ratio’ or ‘super quick ratio’. This ratio establishes relationship between absolute liquid assets and current liabilities. This ratio is computed with the help of the following formula: • Absolute liquidity ratio= (Cash in hand and cash at bank + marketable securities) /liquid liabilities
• Ratio of inventory to working capital: In order to ascertain that there is no overstocking, this ratio is calculated. This ratio can be calculated by using the following formula: • Ratio of inventory to working capital = Inventory or stock/working capital
Solvency ratios
The term “Solvency ratios” refers to those ratios which deals with the company’s ability to meet long term liabilities. Long term creditors include debenture holders, vendors selling equipments on hire purchase basis and other financiers supplying long term loans. Following are some important solvency ratios:
• Debt equity ratio:This ratio is also called as “External-Internal Equity ratio”. It is mainly calculated to assess the soundness of long term financial policies and to determine the relative stakes of outsiders and owners .It determines the relationship between debt and equity. It can be computed using many formulas, one of which is as follows:
• Debt-equity ratio=Total long term debt/Shareholders’ funds Where, • Total long term debt= Debentures+ Term loans +Loan on mortgage+ Loans from financial institutions+ Other long-term loans+ Redeemable preference share capital.
• Shareholders’ funds=Equity share capital+ Irredeemable preference share capital+ capital reserves + retained earnings+ any earmarked surplus like provision for contingencies etc. – Fictitious assets
• Debt-equity ratio = (Outsiders’ funds/ Shareholders’ funds) Where, • Outsiders’ funds= Debentures+ Term loans +Loan on mortgage+ Loans from financial institutions+ other long-term loans+ Redeemable preference share capital + all current liabilities.
• Interest coverage or debt service ratio or fixed charges cover:This ratio indicates the company’s ability to pay off interest on debt fund used in the capital structure out of profit earned during the year. This ratio establishes the relationship between profit before interest and tax and fixed interest charges. It can be computed as below: • Interest coverage ratio = (Net profit before / Interest on long-term) Interest & tax loans or debentures
• Fixed dividends coverage ratio:Dividend coverage ratio seeks to justify the ability of the company to pay dividend on preference shares at a slated rate. It indicates how secure the dividends are for the preference shareholders. It reveals the interest coverage ratio and the safety margin available to preference shareholders. It can be calculated as:
• Dividend coverage ratio = (Net profit after interest & tax but before dividend /Preference dividend)
• Fixed assets ratio:This ratio is called ratio of capital or long-term funds to fixed assets. It establishes the relationship between fixed assets and long- term funds. The main purpose of calculating this ratio is to find out the proportion of long term funds invested in fixed assets. It is calculated as follows: • Fixed assets ratio= (Net fixed assets / Long-term funds)
Where,
• Net fixed assets= Gross fixed assets - Total depreciation And • Long-term funds= Equity share capital + Preference share capital + Reserves and surplus + Debentures + Other long-term loans
Proprietary ratio:This ratio is also called “Equity ratio” or “Owners fund ratio” or “Net worth ratio” or “Shareholders’ equity ratio”. This ratio points out the relationship between the shareholders funds and total tangible assets. The formula for this is given below:
• Proprietary ratio = (Shareholders’ funds/Total tangible assets) Where, • Shareholders’ funds=Equity share capital + Preference share capital + reserves and surplus – Fictitious assets. And • Total tangible assets=Fixed assets + Current assets.
• Ratio of fixed assets to proprietors’ funds: This is also known as fixed assets to net worth. It establishes the relationship between fixed assets and shareholders’ funds. The main object of calculating this ratio is to ascertain the percentage of owners funds invested in fixed assets. This ratio indicates as to what extent the shareholders’ funds have been invested in fixed assets which constitute the main structure of the business. It can be calculated as below: • Fixed assets to proprietors funds = (Fixed assets after/Shareholders’) Depreciation funds
• Ratio of current assets to proprietors’ funds:This ratio points out the relationship between current assets and shareholders’ funds. The object of calculating this ratio is to calculate the percentage of shareholders funds invested in current assets. It is calculated as below: • Current assets to proprietors’ fund = (Current assets / Shareholders’ funds)
• Reserves to capital ratio:This ratio points out the relationship between reserves and equity share capital. This ratio indicates the extent of profits that are usually retained by the company for future growth. The formula is: • Reserves to capital ratio = (Reserves/ Equity share capital) x 100
• Ratio of current assets to fixed assets:This ratio establishes the relationship between fixed assets and current assets. It is worked out as given below: • Ratio of fixed assets to current assets= (Fixed assets / Current assets) x 100
• Capital gearing ratio: This ratio is also known as “Capital structure ratio” or “Leverage ratio” or “Capitalization ratio”. It is used to analyze the capital structure of the company. It establishes the relationship between fixed interest, dividend bearing securities and equity shareholders’ funds. This ratio shows the proportion of various items of long-term funds employed in the business. Its main emphasis is on the indication of the proportion between owner’s funds and non-owner’s fund. RESEARCH METHODS
Research methodology means the data which is collected from either primary or secondary sources of data for analysis.
Primary data is data originated for the first time by the researcher through direct efforts and experience, specifically for the purpose of addressing his research problem. Also known as the first hand or raw data. The data can be collected through various methods like surveys, observations, physical testing, mailed questionnaires, questionnaire filled and sent by enumerators, personal interviews, telephonic interviews, focus groups, case studies, etc.
Secondary data implies second-hand information which is already collected and recorded by any person other than the user for a purpose, not relating to the current research problem. It is the readily available form of data collected from various sources like censuses, government publications, internal records of the organisation, reports, books, journal articles, websites and so on.
The data for profitability ratio analysis of Britannia Industries Ltd. is the last five years’ secondary data of Gross profit, net profit, operating profit, net worth, long term fund/debt from rediffmoney.com. Research type will be analytical in nature, through this process, we will conclude profitability of the company from the analysis of profitability ratios.
FINDINGS Estimation of profitability ratios of Britannia Industries Ltd.
Gross profit ratio:
Gross profit ratio= (Gross profit/Net sales) x100
Annual results in brief (Rs. Crore) Mar’17 Mar’16 Mar’15 Mar’14 Mar’13 Sales 8414.37 7731.70 7175.99 6307.39 5615.49 Gross profit 1347.59 1236.92 856.82 626.00 389.26 Cost of goods sold 7066.78 6434.78 6319.17 5681.39 5226.23 Gross profit ratio 16.01% 15.998% 11.94% 9.92% 6.93%
Analysis:
For the last five years, the gross profit ratio of Britannia Industries Ltd. has been grown upwards consistently. The growth rate in gross profit ratio for the last five years are 3.01%, 2.02%, 4.058% &0.012% respectively. So, we can conclude that during the year 2015-16, the growth rate is maximum (4.058%), whereas in the year 2016-17, the growth rate is minimum (0.012%). The cause of the minimal growth rate is due to the unchanged ratio between sales and cost of goods sold in the final results of 2016 and 2017 i.e., 1.20 &1.19. That means, cost of goods sold has also considerably increased with increasing sales figure. For that reason, the gross profit ratio for the last two years remains at same position.
Net profit ratio: Net profit ratio= (Net profit/Net sales) x 100
Annual Results in brief
(Rs. Crore)
Mar’17 Mar’16 Mar’15 Mar’14 Mar’13
Sales 8414.37 7731.70 7175.99 6307.39 5615.49
Net profit 843.69 763.31 622.41 363.89 233.87
Net profit ratio 10.02% 9.42% 8.67% 5.76% 4.16%
Analysis:
The upward growths in net profit ratio for the last five years are 1.6%, 2.91%, 0.75% &0.60% respectively. As in the gross profit ratio, we can see that, for the last two years, the net profit hasn’t increased so much.
Operating profit ratio: Operating profit ratio= (Operating profit/Net sales)x 100
Operating ratio= (Cost of goods sold+ Operating expenses) x100/Net sales
Annual results in brief
(Rs. Crore)
Mar’17 Mar’16 Mar’15 Mar’14 Mar’13
Sales 8414.37 7731.70 7175.99 6307.39 5615.49
Gross profit 1347.59 1236.92 856.82 626.00 389.26
Operating profit 1204.15 1118.34 770.50 596.62 371.53
Cost of goods sold 7066.78 6434.78 6319.17 5681.39 5226.23
Operating expenses 143.44 118.58 86.32 29.38 17.73
Operating ratio 85.68% 84.76% 89.26% 90.54% 93.38%
Operating profit ratio 14.31% 14.46% 10.74% 9.46% 6.62%
Analysis:
For running any firm, the operating profit acts as the backbone of the firm, as it shows the true value of the firm, & the growth in operating profit ratio in Britannia Industries Ltd. for the last five years are 2.84%, 1.28%, 3.72% &(-)0.15%. Here, we can see that, during the last year, the company’s operating profit has been declined to 0.15%. If we estimate change in sales for last five years, taking 2013 as base year, it estimates like this: 12.321%, 27.79%, 37.69%, 49.84%; & if we estimate change in (cost of goods sold+ operating expenses), it estimates: 8.902%, 22.15%, 24.97%, 37.50%. So, here we can see that, compared to increase in sales figure, the sum of cost of goods sold & operating expenses have been increased more in respect to previous years.
Net worth ratio:
Net worth ratio= (Profit after tax/Net worth) x 100
Net worth= Share capital (equity &preference) +Reserves & surplus
Annual results in brief
(Rs. Crore)
Mar’17 Mar’16 Mar’15 Mar’14 Mar’13
Profit after tax 843.69 759.42 480.35 389.83 233.87
Equity share capital 24.00 24.00 23.99 23.99 23.91
Preference share capital _ _ _ _ _
Reserves & Surplus 2557.98 1676.16 1211.63 829.47 612.50
Net worth 2581.98 1700.16 1235.62 853.46 636.41
Net worth ratio 32.67% 44.66% 38.87% 45.68% 36.75%
Analysis:
The net worth ratio states the return that shareholders could receive on their investment in a company, if all of the profit earned were to be passed through directly to them. Thus, the ratio is developed from the perspective of the shareholder, not the company, and is used to analyze investors’ returns. The ratio is useful as a measure of how well a company is utilizing the shareholder investment to create returns for them, and can be used for comparison purposes with competitors in the same industry. The curve we got in the net worth ratio for the last five years is unstable in nature. The value of net worth ratio for the last five years are: 36.75%, 45.68%, 38.87%, 44.66% & 32.67%. thus the increase/decrease in net worth ratio for the last five years are: 8.93%, (-)6.81%, 5.79%, (-)11.99%.We know that, the overall net worth is lowered if risk of unsecured debt increases, & in the last year the net worth ratio has been lowered to 11.99%.
Return on long term funds:
Return on long term funds= Profit before tax/ (Equity share capital+ Reserves &surplus) x 100
Annual results in brief
(Rs. Crore)
Mar’17 Mar’16 Mar’15 Mar’14 Mar’13
Profit before tax 1251.16 1141.89 740.55 562.62 332.18
Equity share capital 24.00 24.00 23.99 23.99 23.91
Reserves & Surplus 2557.98 1676.16 1211.63 829.47 612.50
Net worth 2581.98 1700.16 1235.62 853.46 636.41
Return on long term funds 48.46% 67.16% 59.93% 65.92% 52.19%
Analysis: Return on long term funds or return on net capital employed means how much return from profit (before tax) we can estimate in comparison with share capital & reserves & surplus in the company. For the last five years, the value of return on long term fund estimates like: 52.19%, 65.92%, 59.93%, 67.16%, 48.46%. The change in return on long term fund ratio in last five years are 18.7%, (-)7.23%, 5.99%, (-)13.73%. A low return on long term fund ratio indicates that a lower amount of profits isinvested back into the company, which again generates a lower rate of return, which produces lower earnings per share growth. Though there is sound increase in reserves & surplus, the return on long term fund somewhat decreases due to the lower margin increase in operating profit. This happened due to more increase in operating expenses & cost of goods sold rather than increase in sales.
SUGGESTION FROM THE FINDINGS ON THE COMPANY’S PROFITABILITY
From the findings and analysis of profitability for the last five years of Britannia Industries Ltd., we can conclude some suggestions for the company so that the company can be more efficient to generate profit. The suggestions are given below:
• From the above analysis, we can suggest that the company can earn more profit (gross, net & operating) by two ways- either the company has to cut on their expenses (operating & other expenses) or either they have to increase their sales in comparison with the costs of manufacturing that product, in that case, product diversification is a good option. Through this process, the company can increase their growth in gross profit ratio & will be able to recover the fluctuation in operating profit. • In case of net worth & return on long term funds, the company should maintain a stable uprising curve & so that the shareholders of the company can get a suitable amount of dividend from the company. Through that, the company can also utilize the shareholders’ investment & can generate more profit. If the company can minimize their cost of goods sold & operating expenses, they can generate more marginal profit.
CONCLUSION
After doing the analysis of Britannia Industries Ltd. We have derived that the trend of gross profit, operating profit and net profit, curve have been seen to be uprising throughout the last five years (2013-17).
To maintain this uprising trend in the following years, it is advisable to the company to control and limit the cost incurred behind production, promotion and selling of goods. Increase in productivity and sales can also play a major role in increasing the profitability of the firm.
Company should also maintain a stable curve in net worth ratio and return on long term fund ratio so that the shareholders can receive a suitable amount of dividend & the company can utilize its capital well.
BIBLIOGRAPHY
❖ http://britannia.co.in/ ❖ https://en.wikipedia.org/wiki/Britannia_Industries ❖ https://money.rediff.com/companies/Britannia-Industries- Ltd/11120001/results-annual ❖ https://money.rediff.com/companies/Britannia-Industries- Ltd/11120001/ratio ❖ https://money.rediff.com/companies/Britannia-Industries- Ltd/11120001/profit-and-loss ❖ https://money.rediff.com/companies/Britannia-Industries- Ltd/11120001/balance-sheet ❖ https://keydifferences.com/difference-between-primary-and-secondary- data.html ❖ https://www.xamidea.in/learning/accountancy/5/ratio- analysis/84/objectives-of-ratio-analysis/title/10000547
❖ A Murthy ; S Gurusamy : Management Accounting 2nd Edition ❖ S.Kr. Paul; Chandrani Paul : Financial Management Vol. III ANNEXURE Balance Sheet of last five years of Britannia Industries Ltd.
Balance sheet (Rs crore) Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Sources of funds Owner's fund Equity share capital 24.00 24.00 23.99 23.99 23.91 Share application money - - - - 2.29 Preference share capital - - - - - Reserves & surplus 2,557.98 1,676.16 1,211.63 829.47 612.50 Loan funds Secured loans 0.44 3.35 4.30 4.62 5.23 Unsecured loans - - - - 189.24 Total 2,582.42 1,703.51 1,239.92 858.08 833.17 Uses of funds Fixed assets Gross block 966.96 1,176.06 986.66 929.10 777.53 Less : revaluation reserve - - - - - Less : accumulated depreciation 142.89 536.67 460.71 383.44 325.85 Net block 824.07 639.39 525.95 545.66 451.68 Capital work-in-progress 15.25 - 48.22 97.22 128.44 Investments 599.91 894.88 661.04 372.99 279.60 Net current assets Current assets, loans & advances 2,227.14 1,458.49 1,226.78 828.57 823.31 Less : current liabilities & provisions 1,113.72 1,363.75 1,222.07 986.36 849.86 Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Total net current assets 1,113.42 94.74 4.71 -157.79 -26.55 Miscellaneous expenses not written - - - - - Total 2,552.65 1,629.01 1,239.92 858.08 833.17 Notes: Book value of unquoted investments 485.80 780.77 636.04 341.53 248.14 Market value of quoted investments 114.11 114.11 25.00 41.51 39.49 Contingent liabilities 401.33 389.87 324.22 250.36 351.20 Number of equity shares outstanding (Lacs) 1200.01 1199.76 1199.26 1199.26 1195.26
Profit-loss account for the last five years of Britannia Industries Ltd.
Profit loss account (Rs crore) Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Income Operating income 8,414.37 7,947.90 7,175.99 6,307.39 5,615.49 Expenses Material consumed 5,213.99 4,635.98 4,330.96 3,822.76 3,529.67 Manufacturing expenses 75.04 57.06 67.42 65.12 52.27 Personnel expenses 241.68 209.21 176.79 172.45 143.50 Selling expenses 322.07 384.25 - - - Administrative expenses 1,357.44 1,529.58 1,829.32 1,650.44 1,518.52 Expenses capitalised - - - - - Cost of sales 7,210.22 6,816.08 6,404.49 5,710.77 5,243.96 Operating profit 1,204.15 1,131.82 771.50 596.62 371.53 Other recurring income 144.78 98.21 87.53 34.82 55.47 Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Adjusted PBDIT 1,348.93 1,230.03 859.03 631.44 427.00 Financial expenses 1.34 1.25 1.21 5.44 37.74 Depreciation 96.43 86.89 117.27 63.38 57.08 Other write offs - - - - - Adjusted PBT 1,251.16 1,141.89 740.55 562.62 332.18 Tax charges 407.47 382.47 260.20 172.79 98.31 Adjusted PAT 843.69 759.42 480.35 389.83 233.87 Nonrecurring items - -10.33 142.06 -20.00 - Other non cash adjustments - - - - - Reported net profit 843.69 749.09 622.41 369.83 233.87 Earnings before appropriation 2,353.03 1,560.16 1,113.56 696.72 469.22 Equity dividend 191.10 191.10 152.82 119.45 84.38 Preference dividend - - - - - Dividend tax 48.85 48.85 39.06 24.46 17.28 Retained earnings 2,113.08 1,320.21 921.68 552.81 367.56
Annual results for the last five years of Britannia Industries Ltd.
Annual results in brief (Rs crore) Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Sales 8,414.37 7,731.70 7,175.99 6,307.39 5,615.49 Operating profit 1,204.15 1,118.34 770.50 596.62 371.53 Interest 1.34 1.25 1.21 5.44 37.74 Gross profit 1,347.59 1,236.92 856.82 626.00 389.26 EPS (Rs) 70.31 63.61 51.89 30.83 19.56
Annual results in details Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Other income 144.78 119.83 87.53 34.82 55.47 Stock adjustment -49.25 -7.12 -25.48 -12.58 -10.16 Raw material 4,342.78 3,812.06 3,592.99 3,165.53 2,890.42 Power and fuel - - - - - Employee expenses 241.68 216.24 176.79 172.45 143.50 Excise - - - - - Admin and selling expenses - - - 502.91 463.62 Research and development expenses - - - - - Expenses capitalised - - - - - Other expenses 2,675.01 2,592.18 2,661.19 1,882.46 1,756.58 Provisions made - - - - - Depreciation 96.43 87.79 117.27 63.38 57.08 Taxation 407.47 385.82 260.20 172.79 98.31 Net profit / loss 843.69 763.31 622.41 369.83 233.87 Extra ordinary item - - 143.06 -20.00 - Prior year adjustments - - - - - Equity capital 24.00 24.00 23.99 23.99 23.91 Equity dividend rate - - - - - Agg.of non-prom. shares (Lacs) - - 590.57 590.57 586.57 Agg.of non promotoholding (%) - - 49.25 49.25 49.08 OPM (%) 14.31 14.46 10.74 9.46 6.62 GPM (%) 15.74 15.75 11.80 9.87 6.86 NPM (%) 9.86 9.72 8.57 5.83 4.12
All ratios for the last five years of Britannia Industries Ltd. Ratios (Rs crore) Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Per share ratios Adjusted EPS (Rs) 70.31 63.30 40.05 32.51 19.57 Adjusted cash EPS (Rs) 78.34 70.54 49.83 37.79 24.34 Reported EPS (Rs) 70.31 62.44 51.90 30.84 19.57 Reported cash EPS (Rs) 78.34 69.68 61.68 36.12 24.34 Dividend per share 22.00 20.00 16.00 12.00 8.50 Operating profit per share (Rs) 100.35 94.34 64.33 49.75 31.08 Book value (excl rev res) per share EPS (Rs) 215.16 141.71 103.03 71.17 53.24 Book value (incl rev res) per share EPS (Rs) 215.16 141.71 103.03 71.17 53.24 Net operating income per share EPS (Rs) 701.19 662.46 598.37 525.94 469.81 Free reserves per share EPS (Rs) - - - - - Profitability ratios Operating margin (%) 14.31 14.24 10.75 9.45 6.61 Gross profit margin (%) 13.16 13.14 9.11 8.45 5.59 Net profit margin (%) 10.02 9.42 8.67 5.83 4.12 Adjusted cash margin (%) 10.98 10.51 8.22 7.14 5.13 Adjusted return on net worth (%) 32.67 44.66 38.87 45.67 36.74 Reported return on net worth (%) 32.67 44.05 50.37 43.33 36.74 Return on long term funds (%) 48.50 67.10 59.82 66.20 57.65 Leverage ratios Long term debt / Equity - - - 0.01 0.01 Total debt/equity - - - 0.01 0.30 Owners fund as % of total source 99.98 99.80 99.65 99.46 76.59 Fixed assets turnover ratio 4.02 5.54 6.84 7.46 8.13 Mar ' 17 Mar ' 16 Mar ' 15 Mar ' 14 Mar ' 13
Liquidity ratios Current ratio 2.00 1.07 1.00 0.84 0.96 Current ratio (inc. st loans) 2.00 1.07 1.00 0.84 0.79 Quick ratio 1.45 0.77 0.70 0.46 0.57 Inventory turnover ratio 14.41 21.29 21.24 17.19 16.94 Payout ratios Dividend payout ratio (net profit) 28.44 32.03 30.82 38.91 43.46 Dividend payout ratio (cash profit) 25.52 28.70 25.94 33.21 34.94 Earning retention ratio 71.56 68.41 60.06 63.09 56.54 Cash earnings retention ratio 74.48 71.65 67.90 68.25 65.06 Coverage ratios
Adjusted cash flow time total debt - - 0.01 0.01 0.66 Financial charges coverage ratio 1,006.66 984.02 709.94 116.07 11.31 Fin. charges cov.ratio (post tax) 702.58 669.78 612.31 80.63 8.71 Component ratios Material cost component (% earnings) 62.55 58.41 60.70 60.80 63.03 Selling cost Component 3.82 4.83 - - - Exports as percent of total sales - 2.18 1.77 1.98 1.71 Import comp. in raw mat. consumed - 0.11 0.20 0.25 0.21 Long term assets / total Assets 0.39 0.51 0.49 0.54 0.50 Bonus component in equity capital (%) 91.41 91.41 91.45 91.45 91.76