By

- Sashikant Yenika- Maheshkumar Dontul- Chandankuma Singh

Contents

1) Abstract

2) Methodology

3) Sales turnover

4) Current ratio

5) Quick Ratio

6) Gross profit Margins

7) Operating Profit Margin

8) Inventory holding period

9) Debt Equity Ratio

10) Collection Period

11) Conclusion

1) Abstract: Fast moving consumer goods (FMCG) – or Consumer Packaged

Goods (CPG) – products that are sold quickly and at relatively low cost.

Examples include non-durable goods such as soft drinks, toiletries, and

grocery items. Though the absolute profit made on FMCG products is

relatively small, they generally sell in large quantities, so the cumulative profit

on such products can be large. An analysis of the top three FMCG companies

in India are selected for analysis of their financial positions and comparison

among the same is presented in form of graph.

Objectives: To study the financial position of top three FMCG companies in India

and present the comparison among them based on various efficiency parameters

/ratios.

2) Methodology: Top three FMGC companies are selected based on their

turnover and their financial statements are scrutinized on the following

parameters.

1) Sales Turnover

2) Gross profit Margin

3) Operating profit Margin

4) Inventory Turnover Period

5) Credit period

6) Current Ratio

7) Quick ratio

Top three companies based on their sales are:

1) Hindustan unilevers Ltd.

2) ITC Ltd

3) Nestle India Ltd.

3) Sales Turn-over:

Definition:

Total dollar amount collected for goods and services provided. While payment is not

necessary for recognition of sales on company financial statements, there are strict

accounting guidelines stating when sales can be recognized. The basic principle is

that a sale can only be recognized when the transaction is already realized, of quite

easily realized.

ITC has highest sales turnover that includes the cigarettes business

also.

HUL has a huge turnover .

Nestle is on third and far behind the top two.

4) Current Ratio:

An indication of a company’s ability to meet short-term debt obligation: the higher the

ratio, the more liquid the company is. Current ratio is equal to current assets divided

by current liabilities. If the current assets of a company are more than twice the

current liabilities, then that company is generally considered to have good short-term

financial strength. If current liabilities exceed current assets, then the company may

have problems meeting its short-term obligations.

ITC is having highest current ratio and they have quite recently they are

moving into negative working capital.

Nestle has lowest current ratio that means they don’t have to spend on

working capital interest

HUL is slightly higher than Nestle and that has increased in last three years

this is because they have amassed cash in last three years that can be

invested.

5) Quick Ratio:

Definition:

A measure of a company’s liquidity and ability to meet its obligations. Quick ratio,

often referred as acid-test ratio, is obtained by subtracting inventories from current

assets and then dividing by current liabilities. Quick ratio is viewed as a sign of

company’s financial strength (higher number means stronger, lower number means

weaker).

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Quick Ratio

ITC Current ratioNestle Current ratioHUL Current ratio

ITC is again showing highest quick ratio again showing good financial

strength of the company

HUL has lower quick ratio than Nestle compared to current ratio where it was

vice-versa indicating HUL had greater prepaid expenses and inventory.

6) Gross Profit Margin:

Definition:

What remains from sales after a company pays out the cost of goods sold. To obtain

gross profit margin divide gross profit by sales. Gross profit margin is expressed as a

percentage.

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

30%32%34%36%38%40%42%44%46%48%50%

Gross profit Margin

HUL Gross Profit magin in %Nestle Gross profit magin in %ITC Gross profit magin in %

Perc

enta

ge

ITC has the highest gross profit margin in the range of 42-46% showing a very

high profit margin to cover its basic operating costs and profit margin.

As the gross profit margin represents company’s ability to utilize raw

materials, labour and manufacturing related assets to generate profits. Here

HUL appears to be less efficient than ITC.

Nestle was able to maintain its profit range constant thought the period

performance was least among the three but consistent.

7) Operating Profit margin:

Definition:

A measure of a company’s earning power from ongoing operations, equal to

earnings before deduction of interest payments and income taxes also called EBIT

(earnings before interest and taxes) or operating income.

HUL in spite of having grater gross profit margin then Nestle shows less

operating profit margin showing that they have huge operating cost.

Nestle is not showing growth in profit or nor it is showing decline it is more or

less constant hovering around 20% again showing consistent performance.

ITC is showing an increasing trend in profit except its decline in 2007-2008. It

has shown a tremendous increase in profit %(30-35%) than its counter parts

and showing an increasing trend there afterwards indicating its high

ambitions.

8) Inventory holding period:

Average inventory period is also referred to as Days Inventory and Inventory

Holding Period. This ratio calculates average time inventory is held

Average inventory period shuld be compared to competitors, the average

inventory period is included in the financial statement ratio analysis.

HUL is showing the least Inventory period of holding on an average indicating

it makes profit on stocks quicker than others pointing towards more

competitive organization.

Nestle is close second and is competitor to HUL in terms of inventory holding

period showing money tied up for less time in stocks

ITC is the worst among the three showing an average inventory holding

period of around 65 days meaning money is tied up for around 50% more time

in stocks than its counterparts

9) Debt-equity ratio:

Definition:

A measure of a company’s financial leverage. Debt/equity ratio is equal to long-term

debt divided by common shareholder’s equity. Typically the data from the prior fiscal

year is used in the calculation investing in a company with a higher debt/equity ratio

is equal to long-term debt divided by common shareholder’s equity. Typically the

data from the prior fiscal year is used in the calculation investing in a company with a

higher debt/equity ratio may be riskier, espically in times of rising interest rates due

to additional interest has to be paid our for the debt.

ITC has a debt-equity ratio hovering around 0-0.5 indicating almost negligible

liabilities compared to its equity. Reason behind this must be it being Public

sector unit.

HUL also is seen to have much less debt-equity ratio indicating it liabilities

being less. Inspite of being Private entity having such a low debt-equity ratio

shows it is funded majorly through equity and negligible debt.

Nestle shows a good Debt-equity ratio hovers around 1 indicating its equity

and liability are almost equal. And its performance in the five years shows that

they want to keep it that way.

10) Credit Period:

Definition:

The period of time during which a firm grants credit to a customer. At the end of the

credit period, the customer is expected to have paid for all goods or services he/she

has purchased.

HUL shows highest credit period of around 140 to 160 days shows that it has

a very good reputation in market or else it would not have got such high credit

continuously for 5 yerars

Nestle shows an average credit period of 80 days showing its competitive

ness

ITC shows low credit period again inidication of Public unit.

11) Conclusion

All the three companies are solvent and are able to honour all its

commitments by liquidating all of its assets, i.e. if it ceases its operations and

puts all its assets up for sale. Net assets, i.e. the difference between assets

and total liabilities, are the traditional measure of a company's solvency.

Comparision of all the three companies shows that ITC being an psu is in

better position than the other two.

However all the three companies have shown their performances at par and

are good companies to invest in.