Research Report under Dr. S.L. Gupta
A COMPARATIVE STUDY OF TOP INDIAN FMCG COMPANIES ON THE BASIS OF LIQUIDITY, PROFITABILITY & EFFICIENCY
By Sweta Suman & Vikas Sharma
Problem Statement & Objectives
Rationale of the Study
The basic purpose of this study is to understand about which FMCG company is more stable in terms of performance. With the help of Liquidity Ratio, Profitability Ratio & Efficiency Ratio.
Managerial usefulness of the Study
- To formulate better financial strategy in order to improve financial performance.
- It helps to acquire competitive position in current consumer goods industry.
- It can be help to focus on areas where both the companies are weak.
- It can help the top management to make forecasts and decisions related to the growth of these companies.
Problem statement & Objectives
Problem Statement: Comparison between the financial health of Dabur India and ITC India.
Objectives of the Study:
- To examine and make comparative analysis (in terms of liquidity and profitability) of Dabur and ITC.
- To find out financial ratios which will show which FMCG company is more stable in terms of performance. In which we will use inventory turnover ratio of efficiency ratio.
Scope of the Study
This project study is helpful in following aspects:
- It would be helpful to know the liquidity and profitability of Dabur and ITC.
- It would be helpful to know which FMCG company uses its resources more effectively and efficiently, Dabur or ITC.
- It will be helpful in study from investment point of view
Research Methodology
Research Design
In this project, the research design is descriptive because it was based on Secondary data that was collected through annual reports of Dabur & ITC. The study was conducted in the following steps:
- Understanding the figures of the financial statements of these FMCG companies.
- Analysis of the data by Ratios, which collected through financial statements.
- Interpretation of results of Ratios, to understand liquidity and probability of these companies.
Sources of Data collection
In this project, we have used the Official Annual Report 2021 of these FMCG companies to collect the data.
Sampling Procedure
Sampling Frame: The sample frame of this study was FMCG companies of India.
Sample Size: The sample size of the research was two companies of FMCG.
Technique: The technique used for the study was Accounting Ratios.
Limitations of the Study
The limitations of the project are:
Time Limit: Time was limited for this research work otherwise more ratios could have been analyzed.
Few Ratios: In this study, we have used only a few selected accounting ratios.
Analysis and Interpretations
Ratios of Dabur
Current Assets | Current liabilities | ||||
Inventories | 1,114.16 | Financial liabilities | |||
Financial Assets | Borrowings | 151.96 | |||
Investment | 451.51 | Trade Payables | |||
Trade Receivables | 281.24 | Due to micro & small enterprises | 117.56 | ||
Cash & cash equivalents | 11.37 | Due to others | 1363.14 | ||
Bank balance | 823.37 | Other financial liabilities | 165.25 | ||
Loans | 1.75 | Others current liabilities | 77.43 | ||
Others | 7.79 | Provisions | 134.43 | ||
Others current assets | 139.17 | Current tax liabilities | 26.63 | ||
Total | 2,830.36 | 2036.4 | |||
Current Ratio | 1.39 | ||||
Current Assets | Current liabilities | ||||
Inventories | Financial liabilities | ||||
Financial Assets | Borrowings | 151.96 | |||
Investment | 451.51 | Trade Payables | |||
Trade Receivables | 281.24 | Due to micro & small enterprises | 117.56 | ||
Cash & cash equivalents | 11.37 | Due to others | 1363.14 | ||
Bank balance | 823.37 | Other financial liabilities | 165.25 | ||
Loans | 1.75 | Others current liabilities | 77.43 | ||
Others | 7.79 | Provisions | 134.43 | ||
Others current assets | 139.17 | Current tax liabilities | 26.63 | ||
Total | 1,716.20 | 2036.4 | |||
Quick Ratio | 0.84 |
Revenue from operations | 7461.38 |
(Cost of Revenue from operations) | 5778.07 |
Gross Profit | 1683.31 |
Gross Profit Ratio | 22.56 |
Revenue from operations | 7461.38 |
(Cost of Revenue from operations) | 5778.07 |
(Tax) | 301.42 |
Net Profit | 1381.89 |
Net Profit Ratio | 18.52 |
Cost of Revenue from operations | 5778.07 |
Revenue from operations | 7461.38 |
Operating Ratio | 77.4 |
Opening Stock | 809.14 |
Closing Stock | 1114.16 |
Average Stock | 961.65 |
Cost of Revenue from operations | 5778.07 |
Inventory Turnover Ratio | 6.01 |
Borrowings | 19.62 |
Other financial liabilities | 1.37 |
Provisions | 55.55 |
Equity share capital | 176.74 |
Other equity | 5,214.48 |
Capital Employed | 5467.76 |
Profit before tax, interest & Dividend | 1,683.31 |
Return on Investment | 30.8 |
Ratios of ITC
Current Assets | Current liabilities | ||||
Inventories | 9,470.87 | Financial liabilities | |||
Financial Assets | |||||
Investment | 14046.71 | Trade Payables | |||
Trade Receivables | 2090.35 | Due to micro & small enterprises | 59.34 | ||
Cash & cash equivalents | 231.25 | Due to others | 4060.19 | ||
Bank balance | 3770.25 | Lease liabilities | 51.36 | ||
Loans | 2.77 | Other financial liabilities | 1248.17 | ||
Others | 1197.15 | Others current liabilities | 4369 | ||
Others current assets | 1006.07 | Provisions | 169.05 | ||
Current tax liabilities | 217.06 | ||||
Total | 31,815.42 | 10174.2 | |||
Current Ratio | 3.13 |
Current Assets | Current liabilities | ||||
Inventories | Financial liabilities | ||||
Financial Assets | |||||
Investment | 14046.71 | Trade Payables | |||
Trade Receivables | 2090.35 | Due to micro & small enterprises | 59.34 | ||
Cash & cash equivalents | 231.25 | Due to others | 4060.19 | ||
Bank balance | 3770.25 | Lease liabilities | 51.36 | ||
Loans | 2.77 | Other financial liabilities | 1248.17 | ||
Others | 1197.15 | Others current liabilities | 4369 | ||
Others current assets | 1006.07 | Provisions | 169.05 | ||
Current tax liabilities | 217.06 | ||||
Total | 22,344.55 | 10174.2 | |||
Quick Ratio | 2.20 |
Revenue from operations | 51775.53 |
(Cost of Revenue from operations) | 34611.38 |
Gross Profit | 17164.15 |
Gross Profit Ratio | 33.15 |
Revenue from operations | 51775.5 |
(Cost of Revenue from operations) | 34611.4 |
(Tax) | 4132.51 |
Net Profit | 13031.6 |
Net Profit Ratio | 25.17 |
Cost of Revenue from operations | 34611.4 |
Revenue from operations | 51775.5 |
Operating Ratio | 66.8 |
Opening Stock | 8038.07 |
Closing Stock | 9470.87 |
Average Stock | 8754.47 |
Cost of Revenue from operations | 34611.38 |
Inventory Turnover Ratio | 3.95 |
Borrowings | 5.28 |
Other financial liabilities | 239.35 |
Provisions | 157.07 |
Equity share capital | 1230.88 |
Other equity | 57773.7 |
Lease Liabilities | 272.36 |
Deferred tax liabilities (Net) | 1727.73 |
Capital Employed | 59161.65 |
Profit before tax, interest & Dividend | 17,164.15 |
Return on Investment | 29.0 |
Interpretation for Dabur:
- Current Ratio of Dabur is 1.39.
- Quick Ratio of Dabur is 0.84.
- Gross Profit Ratio of Dabur is 22.56 percentage.
- Net Profit Ratio of Dabur is 18.52 percentage.
- Operating Ratio of Dabur is 77.4 percentage.
- Inventory Turnover Ratio of Dabur is 6.01 times.
- Return on Investment of Dabur is 30.8 percentage.
Interpretation for ITC:
- Current Ratio of ITC is 3.13.
- Quick Ratio of ITC is 2.20.
- Gross Profit Ratio of ITC is 33.15 percentage.
- Net Profit Ratio of ITC is 25.17 percentage.
- Operating Ratio of ITC is 66.8 percentage.
- Inventory Turnover Ratio of ITC is 3.95 times.
- Return on Investment of ITC is 29 percentage.
Findings, Conclusion & Recommendations
Findings
- Through chart current ratio of Dabur is less than ITC.
- Through chart quick ratio of Dabur is also less than ITC.
- By way of chart gross profit ratio of Dabur is lower than ITC.
- By way of chart Dabur's net profit ratio is also less than ITC.
- By way of chat Dabur’s Inventory turnover ratio is more than ITC.
- Through chart ROI of Dabur is more than ITC.
- Through chart operating ratio of Dabur is more than ITC.
Conclusion
With the help of the findings of this study through ratio analysis, we got to know the performance and financial health of two of the most popular FMCG companies in India.
In this study we have calculated some accounting ratios which shows the profitability, liquidity and efficiency of these two companies. Like Current Ratio, Quick Ratio, ROI, Gross Profit, Net Profit, Inventory Turnover Ratio and Operating Ratio.
According to the analysis of this study, the current ratio of Dabur is less than 2 and that of ITC is more than 2. The ideal ratio of current to current is 2:1. Dabur's quick ratio is less than 1 and ITC's quick ratio is more than 1. The ideal ratio for a quick ratio is 1:1. Hence, ITC is more stable in liquidity than Dabur. Dabur's operating ratio is also higher than ITC. Hence, Dabur does not utilize the resources in an optimized manner.
Now, let us discuss the profitability, Gross Profit Ratio and Net Profit Ratio of Dabur is less than ITC but ROI is higher than ITC. That is, Dabur is better than ITC in terms of returns but ITC is better in terms of profit margins.
Now knowing about the efficiency, Inventory Turnover Ratio of Dabur is higher than ITC. That is, in a year, Dabur's sales are faster than ITC. This means lower inventory costs. Hence Dabur is more efficient than ITC.
Finally, we got the answer to our question. ITC is overall more stable in performance than Dabur as ITC has a good score in ratio analysis as compared to Dabur.
Recommendations
- Dabur can use those surplus funds which saved by lower inventory costs for many purposes. Like expansion, marketing etc.
- Dabur should increase the liquidity of its company.
- Dabur should decrease the operating costs of its company.
- ITC should focus on sales of its company.
- ITC should increase return on investment of its company. To gain more investors in future.
Bibliography
https://www.dabur.com/digital-annual-report/reports/standalone-financial-statements.pdf