The indian FMCG sector

Chapter 1

1.1 Indian FMCG Sector in a nutshell: The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution network, intense competition between the organized and unorganized segments and low operational cost. Availability of key raw materials, cheaper labor costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capit consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products.

Growth is also likely to come from consumer ‘upgrading’ in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the food-processing industry. The Indian FMCG sector gives employment for three million people in downstream activities. Within the FMCG sector, the Indian food processing industry represented 6.3 per cent of GDP and accounted for 13 per cent of the country’s exports in 2003-04.A distinct feature of the FMCG industry is the presence of most global players through their subsidiaries (HLL, P&G, Nestle), which ensures new product launches in the Indian market from the parent’s portfolio.

1.2 What is in India for FMCG: FMCG Sector is expected to grow by over 60% by 2010. That will translate into an annual growth of 10% over a 5-year period. It has been estimated that FMCG sector will rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010. Hair care, household care, male grooming, female hygiene, and the chocolates and confectionery categories are estimated to be the fastest growing segments, says an HSBC report. Though the sector witnessed a slower growth in 2002-2004, it has been able to make a fine recovery since then. For example, Hindustan Unilver Limited (HUL) has shown a healthy growth in the last quarter. An estimated double-digit growth over the next few years shows that the good times are likely to continue.

1.3 Growth: With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain. FMCG sector is also likely to benefit from growing demand in the market. Because of the low per capita consumption for almost all the products in the country, FMCG companies have immense possibilities for growth. And if the companies are able to change the mindset of the consumers, i.e. if they are able to take the consumers to branded products and offer new generation products, they would be able to generate higher growth in the near future. It is expected that the rural income will rise in 2007, boosting purchasing power in the countryside. However, the demand in urban areas would be the key growth driver over the long term. Also, increase in the urban population, along with increase in income levels and the availability of new categories, would help the urban areas maintain their position in terms of consumption. At present, urban India accounts for 66% of total FMCG consumption, with rural India accounting for the remaining 34%. However, rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care, and hot beverages. In urban areas, home and personal care category, including skin care, household care and feminine hygiene, will keep growing at relatively attractive rates. Within the foods segment, it is estimated that processed foods, bakery, and dairy are long-term growth categories in both rural and urban.

1.4 Indian Competitiveness and Comparison with the World Markets:

The following factors make India a competitive player in FMCG sector:

• Availability of Raw Materials: Because of the diverse agro-climatic conditions in India, there is a large raw material base suitable for food processing industries. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and fruits &vegetables. India also produces caustic soda and soda ash, which are required for the production of soaps and detergents. The availability of these raw materials gives India the location advantage.
• Labour cost comparison: Low cost labour gives India a competitive advantage. India’s labour cost is amongst the lowest in the world, after China & Indonesia. Low labour costs give the advantage of low cost of production. Many MNC’s have established their plants in India to outsource for domestic and export markets.
• Presence across value chain: Indian companies have their presence across the value chain of FMCG sector, right from the supply of raw materials to packaged goods in the food-processing sector. This brings India a more cost competitive advantage. For example, Amul supplies milk as well as dairy products like cheese, butter, etc

Chapter 2

Introduction of Hindustan Uniliver Limited

(Formerly Hindustan Lever Limited)

Brief History: Hindustan Unilever Limited, erstwhile Hindustan Lever Limited (also called HLL), headquartered in Mumbai, is India’s largest consumer products company, formed in 1933 as Lever Brothers India Limited. Its 41,000 employees are headed by Mr.Harish Manwani, the non-executive chairman of the board. HLL is the market leader in Indian products such as tea, soaps, detergents, as its products have become daily household name in India. The Anglo-Dutch company Unilever owns a majority stake in Hindustan Lever Limited.

Recently in February 2007, the company has been renamed to “Hindustan Unilever Limited” to provide the optimum balance between maintaining the heritage of the Company and the future benefits and synergies of global alignment with the corporate name of “Unilever”.

Prominent Brands: Kwality Walls ice cream, Lifebuoy, Lux, Breeze, Liril, Rexona, Hamam, Moti soaps, Lipton tea, Brooke Bond tea, Bru Coffee, Pepsodent and Close Up toothpaste and brushes, and Surf, Rin and Wheel laundry detergents, Kissan squashes and jams, Pond’s talc and creams, Vaseline lotions, Fair & Lovely creams, Lakmé beauty products are some of the prominent brands of the company.

Power Brands: In mid-2000 after M.S. Banga took over the reins at HLL, the company decided that it would focus on 30 odd ‘Power Brands’ and carefully plan its entry into new businesses. Intuitively this made sense, instead of spreading your resources all over the place concentrate on a few brands. But what it meant was that power brands had to grow at higher rates to compensate for the loss of sales from other brands. Unfortunately, the other brands have shrunk faster vis-à-vis the rate at which the power brands have grown. This has hit the top line of the company. The company’s Vanasapti brand, Dalda, is a case in point

Appointment of Doug Baille : The appointment of an expat, Doug Baillie, as the CEO of consumer heavyweight HLL is seen as an indication of the parent company’s desire to hasten the process of ‘Unileverising’ the Indian subsidiary, it is reliably learnt. Informed sources said Unilever was not very satisfied with the pace of harmonization of HLL vis-à-vis other global subsidiaries. Within Unilever, it was felt that there was some opposition from HLL’s senior management who wanted HLL’s ‘Indian ness’ to be maintained.

Project Shakti: It is an initiative take by the group as a way of fulfilling its social responsibility by empowering the less privileged sections of the society we live in. The objectives of Project Shakti are to create income-generating capabilities for underprivileged rural women by providing a small-scale enterprise opportunity, and to improve rural living standards through health and hygiene awareness.

Hindustan Lever Network: In February 2003 Hindustan Unilever Limited has launched a new division called Hindustan Lever Network. This division markets a wide range of Fast Moving Consumer Goods through Network Marketing. Network Marketing was pioneered in the United States of America in the 1940s by companies like Amway Corporation and operates by recruiting individuals as consultants. These consultants are paid a commission on the purchases made by them and on the purchases made by those recruited by them.

Performance Trends of the company:

This table has been taken from the annual report of the HUL for the year ended on 31st December 2006. This table contains key financial indicators which show the performance of the company in year 2006 and its performance trend for last 10 years.

Chapter 3

LITERATURE REVIEW

While green marketing came into prominence in the late 1980s and early 1990s, it was first discussed much earlier. The American Marketing Association (AMA) held the first workshop on “Ecological Marketing” in 1975. The proceedings of this workshop resulted in one of the first books on green marketing entitled “Ecological Marketing” (Henion and Kinnear 1976a). Since that time a number of other books on the topic have been published (Coddington 1993, and Ottman 1993). Green marketing incorporates a broad range of activities, including product modification, changes to the production process, packaging changes, as well as modifying advertising. (Polonsky, 1994) World-wide evidence indicates people are concerned about the environment and are changing their behavior accordingly. As a result there is a growing market for sustainable and socially responsible products and services. (Environmental protection agency -2000) Green consumerism is often discussed as a form of ‘pro-social’ consumer behavior (Wiener and Doesher, 1991). It may be viewed as a specific type of socially conscious (Anderson, 1988) or socially responsible (Antil, 1984) consumer behavior that involves an ‘environmentalist’ (Schlossberg, 1991) perspective and may thus be called ‘environmentally concerned consumption’ (Henion, 1976). A classic definition (Henion, 1976) describes ‘environmentally concerned consumers. Business organizations tend to concern about environments issues due to several reasons such as environmental pressure, governmental pressure, competitive pressure, cost or profit issues (Environmental protection agency -2000) Unfortunately, a majority of people believe that green marketing refers solely to the promotion or advertising of products with environmental characteristics. (Polonsky,1994) and terms like Phosphate Free, Recyclable, Refillable, Ozone Friendly, and Environmentally Friendly are some of the things consumers most often associate with green marketing. . (Polonsky,1994) While these terms are green marketing claims, in general green marketing is a much broader concept, one that can be applied to consumer goods, industrial goods and even services (Roberts and Bacon, 1997).

Hopes for green products also have been hurt by the perception that such products are of lower quality or don’t really deliver on their environmental promises. And yet the news isn’t all bad, as the growing number of people willing to pay a premium for green products – from organic foods to energy-efficient appliances – attests. (D’Souza et al. 2004)Green or Environmental Marketing consists of all activities designed to generate and facilitate any exchanges intended to satisfy human needs or wants, such that the satisfaction of these needs and wants occurs, with minimal detrimental impact on the natural environment. [Polonsky 1994b, 2] Green marketing has not lived up to the hopes and dreams of many managers and activists. Although public opinion polls consistently show that consumers would prefer to choose a green product over one that is less friendly to the environment when all other things are equal, those “other things” are rarely equal in the minds of consumers. (Hackett, 2000)

They must always keep in mind that consumers are unlikely to compromise on traditional product attributes, such as convenience, availability, price, quality and performance. It’s even more important to realize, however, that there is no single green-marketing strategy that is right for every company. (Prothero,, and McDonagh, 1992) Despite the increasing eco-awareness in contemporary market economies, it is generally recognized that there are still considerable barriers to the diffusion of more ecologically oriented consumption styles. In lay discourse as well as in much of consumer research, these barriers are usually attributed to the motivational and practical complexity of green consumption (Hackett, 2000). Increased use of Green Marketing is depending on five possible reasons. (Polonsky 1994b)

• Organizations perceive environmental marketing to be an opportunity that can be used to achieve its objectives [Keller 1987, Shearer 1990]
• Organizations believe they have a moral obligation to be more socially responsible [Davis 1992, Keller 1987,]
• Governmental bodies are forcing firms to become more responsible [Davis 1992];
• Competitors’ environmental activities pressure firms to change their environmental marketing activities [Davis 1992]
• Cost factors associated with waste disposal, or reductions in material usage forces firms to modify their behavior [Keller, K.L. (1993]

Moreover, environmentally responsible behavior usually involves difficult motivational conflicts, arising from the fundamental incompatibility of environmental protection-related collective goals and individual consumers’ personal or self-interested benefits and the resulting free-rider problem (Wiener and Doesher, 1991) Public policymakers will continue to develop more efficient ways to regulate waste and pollution, and scientists will continue to gather information about the environmental risks from various substances or practices. As they do, pricing structures will evolve that communicate even more accurate information to manufacturers and entrepreneurs about the true cost of commercial activities and the potential rewards from innovative solutions to environmental problems. This definition incorporates much of the traditional components of the marketing definition that is “All activities designed to generate and facilitate any exchanges intended to satisfy human needs or wants” (Schlegelmilch et al,1996). There are usually severe external constraints to green consumerism, arising from the cultural, infrastructural, political and economic circumstances in the markets and society (McIntosh, A. 1991). Both individual and industrial are becoming more concerned and aware about the natural environment. In a 1992 study of 16 countries, more than 50% of consumers in each country, other than Singapore, indicated they were concerned about the environment (Ottman 1993). A 1994 study in Australia found that 84.6% of the sample believed all individuals had a responsibility to care for the environment. A further 80% of this sample indicated that they had modified their behavior, including their purchasing behavior, due to environmental reasons (EPA-NSW 1994).

Owing to the conceptual and moral complexity of ‘ecologically responsible consumer behavior’ and to the perplexity of ecological information, different consumers have different conceptions of ecologically oriented consumer behavior and, thus, myriad ways of acting out their primary motivation for being green consumers (Antil, 1984). These innovations aren’t being pursued simply to reduce package waste. (Prothero, 1990) Food manufacturers also want to improve food preservation to enhance the taste and freshness of their products. The cost of the foods would be lower; consumers could enjoy the convenience of pre-sliced ingredients, and waste peelings (Prothero, 1990). It can be assumed that firms marketing goods with environmental characteristics will have a competitive advantage over firms marketing non-environmentally responsible alternatives. There are numerous examples of firms who have strived to become more environmentally responsible, in an attempt to better satisfy their consumer needs. (Schwepker, and Cornwell, 1991) While governmental regulation is designed to give consumers the opportunity to make better decisions or to motivate them to be more environmentally responsible, there is difficulty in establishing policies that will address all environmental issues. (Schwepker, and Cornwell, 1991). Hence, environment-friendly consumption may be characterized as highly a complex form of consumer behavior, both intellectually and morally as well as in practice.

Chapter 4

Objective of the Study

1. To study the growth in FMCG sector in India.
2. Interpret the results using graphs and calculating various ratios to show growth in FMCG sector with regards to HUL.

Research Methodology

Research methodology used for calculating the growth rate in FMCG sector is trend analysis in which various important ratios have been calculated and shown by graphs and interpreted.

Data collection:-

Research has collected necessary information to fulfil this report through secondary data.

• Secondary Data: – The data in this study are derived from the CAPITALINE database.

Some of the data has been collected from various other company websites.

Chapter 5

Ratio Analysis: Time Series Analysis

Liquidity Ratios: Liquidity Ratios indicate the company’s ability to meet its short-term liability. These ratios indicate the availability of liquid asset to meet short term obligations. Creditors usually check this ratio to assess the ability of firm to meet its short term obligations.

Current Ratio: Current ratio is obtained by dividing Current Assets by Current Liabilities. Current ratio gives a quick understanding of the company’s liquidity position but is subjected to window dressing. Current asset consists of Cash, Inventory and Debtors as major items. Though Inventory and Debtors are considered liquid asset, the company may find itself unable to collect debt at right time and convert inventory into cash when it has to pay its creditors. Hence this ratio alone can not provide a clear picture of firm’s liquidity position.

Liquid Ratio: Liquid ratio is a better measure of Liquidity because inventory, which might not get converted into cash when required to do so, is taken out of the current asset for calculating this ratio.

Absolute Cash Ratio: It is the best measure of the liquidity since only cash and near cash items are taken for calculating this ratio. Debtors and Inventory are taken out of the Current Asset and thus left part of current asset give a better idea of liquidity of the firm.

Working Capital: It is net current asset that a company has to have in order to smoothly run its day to day operation.Net Current Asset is difference between CA and CL. It also indicates how the firm is financing its assets. For example if a company has CL more than CA, i.e. Negative Working Capital, it implies that the company is financing its long term asset from short term funds. Generally CL does not carry any cost and hence it increases the profitability of the firm.

Working Capital Days: Working capital days indicate the time taken in completion of the operating cycle. It is a measure of firm’s policy of collecting debt, making payment to creditors and average inventory holding period. The goods are purchased either in cash or on credit, then it remains with the firm as inventory for some days, then it is sold and debtors are created, then the cash is collected from debtors. So, WCD is Debtors Days + Inventory Days- Creditor Days.

Debtors Days: Time taken to convert debtor into cash. It indicates how efficiently the firm is collecting its debt

.

Creditor Days: It indicates how fast the firm is paying back to its creditors.

Inventory Days: How efficiently the firm converts its inventory into debtors, i.e. how efficient the sales are. It also indicates for how long (on an average) goods are stocked.

Analysis of Liquidity Ratios: Current ratio of HUL has been less than 1 for all the 3 years taken for analysis. This implies that working capital of HUL is always negative. This is generally considered an aggressive strategy i.e. to financing its long term asset by short term sources that increases profitability because current liabilities are non interest bearing items. There is significant difference between CR and LR which indicates that the current asset of HUL consists of good amount of inventory. Value of sundry debtors is quite low since there is minor difference between LR and ACR. The liquidity ratios have decreased from previous year which shows that HUL has reduced its liquidity further. On analyzing the operating cycle it can be said that HUL takes good amount of time to pay its creditors and this is how it manage to run its operations with negative working capital.

Solvency Ratio: Solvency Ratios indicate the company’s ability to meet its Long-term liability. These ratios indicate the ability of the firm to return the investment made by its owners and debt providers in the business, in case the company is closed down. These ratios are usually seen by the debt providers or financial institutions in order to assess the risk involved in the business. If the firm is closed down then first it is liable to pay back its loan and then if it is left with something that belongs to the share holders.

Debt Equity Ratio: Debt Equity ratio is obtained by dividing Long Term outside Liability (Debt) by Net Worth. This ratio indicates the risk involved for loan givers. If it is too high then the owner may not be that much concerned for profit making since he has invested less in the business and hence getting less return. If the company makes loss ad closed down subsequently, then the owner does not loose much and loan givers will have to bear relatively more losses. This ratio also determines EPS.

Interest Coverage Ratio: ICR indicates the firm’s ability to pay the interest of the loans taken. It is ratio of PBIT to Interest.

Debt to Total Funds: This ratio indicates the share of the debt in total sources used to fund the business. Since total sources are equal to total assets, this ratio is analyzed to assess the firm’s ability to meet its long term liability i.e. ability to pay back its loan, in case the company is closed down. Reserves and Surplus to Total Fund: This ratio indicates the share of the Reserves and Surplus in total sources used to fund the business. Since total source are equal to total assets, this ratio is used to assess the firm’s ability to meet its long term liability towards its owner that is, ability to return the share profit made by the business that belongs to shareholders, in case the company is closed down.

Analysis of Solvency Ratios: The loans taken by HUL were high in 2004 which is indicated by high debt to total source ratio and this is why its ICR ratio was low (as compared to ICR in 2005 and 2006). It has decreased its loan and currently it is financing its business mostly by net worth and current liability. Debt to equity ratio has decreased over the years as it has reduced the loans. Its RS to Total source has increased which indicates that HUL invests accumulated profit into business with decreasing debt. Now HUL’s assets are financed by net worth and current liability with debt being a small component of total source.

Profitability Ratio: Profitability Ratios show how successful a company is in terms of generating returns or profits on the Investment that has been made in the business i.e. the Profitability ratios indicates the ability of the firm to generate and distribute the profit. It can be broadly categorized into profit generating ability (PGA) ratios and profit distributing ability (PDA) ratios. It can be said the higher these ratios the better it is for the company.

PBIT to Sales: This ratio is obtained by dividing Profit before Interest and Tax by Sales. This ratio is a measure of the company’s profit generating ability on a given volume of sales. This is the most basic ratio of profit generating ability on sales i.e. sales margin because it does not take into account the interest and taxes which the company has to pay.

PBT to Sales: This ratio is obtained by dividing Profit before Tax by Sales. This ratio gives the company’s profit generating ability on a given volume of sales. This ratio takes the profit after paying the interest in order to assess profit made (profit margin) after all the expenses except tax.

Operating Expenses to Sales: It is a measure of the expenses that are incurred on a particular volume of sales. This ratio can be used to analyze the cost incurred and find out the ways to reduce the operational cost without decreasing the sales volume.

Return on Net worth (RONW): This ratio gives an indication about the profit being made by the firm on the investment made by the owner. This ratio is used to analyze the business from the perspective of the owner. RONW is an indicator of profit distributing ability of a firm.

Return on Capital Employed (ROCE): This ratio indicates the profit making ability of the firm on total capital employed which consists of owners fund and debt. This is a profit generating ability ratio which is seen by owners and debt providers.

Return on Total Asset: ROTA tells how efficiently the firm is using its assets or total sources of fund to generate profit. It is a profit generating ability ratio.

Earning Per Share: EPS is an indicator of profit distributing ability of a firm. This ratio tells how much profit the firm is making on owner’s investment on a single share of the company.

Dividend per Share: DPS ratio gives an idea of the actual distribution of profit to the owners i.e. profit distributed to shareholders per share.

CFO to PAT: CFO to PAT compares the net cash generated from operational activities with net profit made by the firm. It gives an idea as to how much profit is realized and how it is being used in different activities(Investment, financial, Operational)

Some of the profitability ratio in this report do not match with the values given in HUL’S summary of performance because the sales figures taken here are after excise duty whereas the sales figures taken by HUL for calculating these ratios are before excise duty i.e. Gross Sales.

Analysis of Profitability Ratios: PBIT as percentage of sales is moderately good and there has not been any significant change in it during last three years. Similar is the case of PBT/Sales. PBT/Sales are higher than the PBIT/Sales for year 2006 and 2005 which indicate that PBT is more than PBIT. This implies that interest paid by the company is negative. On closely watching the financial statement, it has been found that Net Income from Interest for HUL is positive for the years 2006 and 2005 making PBT higher than PBIT. That is because Income Received by the company is more than that to be paid. There has not been any significant change in operating expense as percentage of sales in last three years. For FMCG business the operating expense to sales ratio around 30% can be considered good as the company has to spend heavily on its distribution network and promotional activities. The profit distributing ability of the firm is excellent with return on net worth (RONW) being around 58% over the years. The profit generating ability similar to the profit distributing ability is pretty good with ROCE over 60% during the year 2005 and 2006. ROCE in year 2005 has increased from the figure of 2004, perhaps because of the decrease in debt (change in capital structure) and increase in current liability (non interest bearing item). Return on total asset (ROTA) has been moderately good with almost constant value of around 22% over the years.

The face value of Equity Share of HUL is Rs. 1. Analyzing the EPS and DPS, which are profit distributing ability ratios, for HUL we can see that it has been generating more than 500% times profit for its shareholders over the years. The EPS increased over the years from Rs.5.xx in year 2004 to Rs. 8.xx in year 2006. It has been generous in distributing the profit in form of dividend with DPS Rs 6 in year 2004 and Rs. 5 in year 2005 and 2006.

The trend of CFO/PBIT is worth analyzing since the company’s CFO is close to its PBIT which indicates that almost entire profit of HUL comes from its operation and the profit is realized. In year 2005 the CFO is higher than PBIT indicating the negative CFF or CFI i.e. the company has realized the profit(in form of cash) and invested in long term assets or paid its long term outside liabilities(loans).

Market Based Returns: Market based return figures indicate the firm’s position in the market and the benefits associated with the investment in company. A small investor, if interested in purchasing the shares of a company, first looks at the market capitalization of the company and return that he can expect on the price paid for the share.

Price to Earning Ratio: Return associated with the shares on its market price. Since the investors buy the share at its market price and not at face value or book value, this ratio gives information about the actual return on investment.

Market Cap to Net worth (Price to Book Value Ratio): Comparison of market value of the firm with the owners fund. This can give an idea about the success of the company in increasing the value of owner’s investment.

Market Capitalization: Market value of the firm. Market capitalization gives an indication of the company’s financial status in the market. Market capitalization is used to compare the size of the organization in term of market value.

Average Market Capitalization: Average Market value of the firm over the year. Average is taken because the market value of shares keeps on changing and so is market capitalization.

Analysis of Market Based Returns: PER ratio for HUL is not so good with values over 30 in year 2006 and 2005 and somewhat better with value around 25 in the year 2004. It means an investor will get return around 1/30 times on his actual investment. Market capitalization of HUL has increased after 2004.

Ratio Analysis: Inter Company Analysis -HUL and ITC

Comparison of Liquidity Position: Current Ratio for HUL is negative whereas it is positive for ITC. This indicates that HUL has negative working capital and ITC has positive working capital. ITC is funding its short term asset by long term funds and HUL funding its long term asset by its short term non-interest bearing sources (CL). One more difference in liquidity position of the two companies can be seen through the difference between the CR and ACR. There is huge difference in ACR and CR of ITC which shows that it has less cash or near cash items in its current liabilities whereas for HUL the difference is moderate. Working Capital Days for ITC is positive and WCD for HUL is negative. It can be said that HUL has more current liability to source its asset and ITC has high current asset which is sourced by long term sources of fund.

Comparison of Solvency Position: Two companies are similar in terms of their solvency position as indicated by various solvency ratios.

Comparison of Profitability: Both the PBIT/Sales and PAT/Sales are higher for ITC than HUL and the difference in these ratios is quite high which indicates that ITC has higher profit margin on sales than HUL. Depreciation/Sales ratio of ITC is almost double of that for HUL indicating higher depreciation and amortization charged by ITC than HUL. The ROTA figure for ITC is higher than it is for HUL which shows that ITC is generating more profit than HUL on total asset (or total sources of funds). The other profit generating ability ratios shows a different picture. ROCE for HUL is higher than that for ITC which is because HUL is using more current liabilities to fund its assets hence making more profit on its capital employed. The RONW for HUL is also higher than that for ITC because of the same reason. So, it can be inferred that HUL is generating more profit for on its owners fund than ITC. The difference between PBIT /Sales and PAT/ Sales is lower in case of HUL due to its net income from interest being positive i.e. it has earned more interest than it has paid.

Chapter 6

Conclusion

The aim of the FA course was to make us understand the business decisions behind financial transaction that results into a financial statement, which we feel have been achieved. Financial statements use a different terminology that we have understood while working on this project. The ratio analysis helps one to know the financial health/position of the company and compare the firm’s current performance with its previous performance (Time Series Analysis) and its performance with the other firm’s performance operating in same industry (Inter Company Analysis).While working on this project we learned to analyze the ratios in order to arrive at a conclusion about the company’s performance and its financial position.

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