Research Project On “COMPARATIVE RATIO ANALYSIS OF PROFITABILITY RATIO’S OF BRITANNIA AND CADBURY INDIA LTD.” By JITHIN JOHN MBA-B
Guided by Prof. Gayatri Khedkar
Vishwakarma Institute of Management Pune
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ACKNOWLEDGEMENT
It is great pleasure for me to acknowledge the kind of help and guidance received to me during my project work. I was fortunate enough to get support from a large number of people to whom I shall always remain grateful. I would like to express my sincere gratitude to Prof. Gayatri Khedkar for giving me this opportunity to undergo this lucrative project for her great guidance and advice on this project, without which I will not be able to complete this project.
I am very thankful to Prof. Abhijeet Kelkar for giving me valuable suggestion and encouragement to bring out a good project.
Master. Jithin John.
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INDEX
CHAPTER PARTICULARS NO. 1 INTRODUCTION
PAGE NO. 04
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OBJECTIVE OF THE STUDY
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3
COMPANY PROFILE
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4
RESEARCH METHODOLOGY
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5
10
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UNDERSTANDING THEROTICAL FRAMEWORK DATA ANALYSIS & INTERPRETATION OBSERVATION AND FINDINGS
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SUGGESTION & CONCLUSIONS
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9
LIMITATIONS
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BIBLIOGRAGHY
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INTRODUCTION
This project report covers all the aspects relating to the PROFITABILITY ratios of BRITANNIA and CADBURY INDIA LTD interpreted according to standards. This project was done with the help of secondary data as research in finance subjects is done on performance and not potential. The project selected by me is to do comparative PROFITABILITY ratio analysis for the above mentioned two companies using various financial statements. The main intention was to group or regroup the various figures and information appearing on the financial statement (either profitability statement or balance sheet or both) to draw the fruitful conclusions there from. I found that by comparing PROFITABILITY ratios of both the companies unveils why one company is more efficient in its activity as compared to the other. PROFITABILITY ratios are valuable as they depict how are you utilizing and managing your resources. All and all it was a good experience doing this project and will be of great help to me in future.
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OBJECTIVES OF THE STUDY
To identify the comparative financial strengths and weakness of Britannia industries and Cadbury india Ltd.
Through the net profit ratio and other profitability ratio, understand the profitability position of the company.
To know the liquidity position of the company, with the help of Current ratio.
To find out the utility of financial ratio in credit analysis and determining the financial capability of the firm.
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COMPANY PROFILE
BRITANNIA Britannia was incorporated in 1918 as Britannia Biscuits Co LTD in Calcutta. In 1924, Pea Frean UK acquired a controlling stake, which later passed on to the Associated Biscuits International (ABI) an UK based company. During the 50’s and 60’s, Britannia expanded operations to Mumbai, Delhi and Chennai. In 1989, J M Pillai, a Singapore based NRI businessman along with the Group Danone acquired Asian operations of Nabisco, thus acquiring controlling stake in Britannia. Later, Group Danone and Nusli Wadia took over Pillai’s holdings. Britannia Industries Limited (Britannia) is one of the largest biscuit manufacturing companies in India. The company is engaged in the manufacture of biscuits, rusks, cookies and cakes. Britannia operates in a single segment, foods including bakery products such as biscuits, bread, cakes, rusk, and dairy products. The company is headquarted in Kolkata, India and employs 2,358 people Global Markets Direct, the leading business information provider, presents an in-depth business, strategic and financial analysis of Britannia Industries Ltd. The report provides a comprehensive insight into the company, including business structure and operations, executive biographies and key competitors. The hallmark of the report is the detailed strategic analysis and Global Markets Direct’s views on the company. Britannia's plants are located in the 4 major metro cities – Kolkata, Mumbai, Delhi, and Chennai. A large part of products arealso outsourced from third party producers. Dairy products are outsourced from three producers - Dynamic Dairy based in Baramati, Maharashtra, and Modern Dairy at Karnal in Haryana and Thacker Dairy Products at Howrah in West Bengal.
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CADBURY INDIA LTD. Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenues of approximately $50 billion, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. We employ approximately 140,000 people and have operations in more than 70 countries. In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Currently, Cadbury India operates in four categories viz. Chocolate Confectionery, Milk Food Drinks, Candy and Gum category. In the Chocolate Confectionery business, Cadbury has maintained its undisputed leadership over the years. Some of the key brands in India are Cadbury Dairy Milk, 5 Star, Perk, Éclairs and Celebrations. Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world! Our billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" for chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer. Today, as a combined company with an unmatched portfolio in confectionery, snacking and quick meals, we are poised in our leap towards quantum growth. We are the world's No.1 Confectionery Company. And we will continue to “make today delicious”!
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RESEARCH METHODOLOGY Research Methodology is a way to systematically solve the problems. It may be understood to study how research is done scientifically. In this, we study various steps that are generally adopted by the researcher in studying research problems along with the logic behind them, to understand why we are using particular method or technique so that the research results are capable of being evaluated. During my project work, I have used a lot of data to understand concept of Ratio Analysis. The data collected was interpreted and then used as information in project.
DEFINITON 1) Redman and Mory:“Systematized effort to gain new knowledge”
2) D. sliesinger and M.stephonson:“The manipulation of things, concept or symbol for the purpose of generalizing to the extend, correct or verify knowledge, whether that knowledge aids in construction of theory or in practice of an art.”
3) The Advanced Learner’s Dictionary of Current English:“A careful investigation or inquiry especially through search for new facts in any branch of knowledge.”
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SOURCES OF DATA COLLECTION
Data for this project is collected through Secondary sources. Secondary data is collected with the help of following –
1. Annual report Majority of information gathered from data exhibited in the annual reports of the company. These includes annual reports of the year 2005-06,2006-07,2007-08,2008-09 and 2009-10.
2. Reference Books Theory relating to the subject matter and various concepts taken from various financial reference books.
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UNDERSTANDING THEORETICAL BACKGROUND
RATIO ANALYSIS: INTRODUCTION:Ratio analysis is an important technique, which is widely used for interpreting financial statement. The technique serves as a tool for assessing the current and long-term financial soundness of a business. It is also used to analysis various aspects of operating efficiency and level of profitability. A German scholar used ratios for the first time in 1919.
DEFINITION:1)
Wixon, Kell and Bedford, “Ratio is an expression of quantitative relationship
2)
between figures drawn from financial statements”. Hunt, Willant Donaldosa, “Ratios are simply a means of highlighting in arithmetical terms, of relationship between figures drawn from financial statements.”
Conclusion: - Financial ratios are useful because they summarize briefly the result of detailed and computation.
IMPORTANCE OF RATIO ANALYSIS Ratios are useful for the following reasons:1) Helpful in Forecasting: - The ratio can be used by financial managers for future financial planning. Ratio calculated for a number of years work as a guide for the future. 2) Useful in Co-ordination: - Ratios are useful in co-ordination, which is very much needed in business. The efficiency and weakness of an enterprise if communicated properly, will establish a better co-ordination among areas of appreciation and control.
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3) Helpful in Control: - The most important aspect of ratio analysis is that is very useful in controlling the areas of inefficiencies or weakness. It can be use by the management as a technique of correction. 4) Helpful in Communication: - Ratios are used for communication weak and good point to the concerned parties. 5) Helpful in Efficiency Appraisal: - Ratios are the scale of comparison; here the variations in financial statement, if they need appreciation, are brought to limelight. 6) Helpful in Evaluation of Financial Position: - The ratio analysis is useful for financial diagnosis of an enterprise. The under mentioned ratios will make the above clear: Current Ratio: - It speaks about the working capital the company is having and the funds to pay-off its short-term commitments.
Solvency Ratio: - Profitability Ratio, Capital Gearing Ratio are all such ratio that can evaluate the financial soundless or weakness of a company.
7) Helpful to Investors, Financial Institutions and Employees: - The ratios are economic barometer useful to all mentioned above as they can know the good and bad position of a company by making a comparative study of financial statement.
VARIOUS TYPES OF FINANCIAL STATEMENTS:Classification of ratio is made based on requirement by end users and they indicate symptoms as characteristic of the company.
PROFITABILITY RATIO:Measures that indicate how well a firm is performing interms of its ability to generate profit. Formulae of some of the common ratios are as follows: (1) Book Value Per share: Total common (ordinary) equity ÷ Number of common (ordinary) shares issued and outstanding. (2)Dividends Per Share: Dividends paid ÷ Number of common (ordinary) shares issued and outstanding. (3) Earnings Per Share: (Net income - preferred stock or preference shareinterest) ÷ Number of common (ordinary) shares issued and outstanding. (4) Gross profit percentage: Total cost ofsales in a period x 100 ÷ Total sales revenue for that period. (5) Net income percentage: Net income for a period x 100 ÷ Total sales revenue for that period. (6) Operating profit percentage: Earnings before interest and taxes (EBIT) in a period x 100 ÷ Total sales revenue in the sameperiod. (7) Return On Common 11
equity: (Net income for a period - Dividends) ÷ (Common equity - Preferred stock). (8) Return On Investment: Net income ÷ Total assets.
1] GROSS PROFIT RATIO:GROSS PROFIT RATIO = GROSS PROFIT X 100 SALES
In 2008-09,the Gross Profit Ratio was 7.85 and it went to 6.12 next year.As there is no standard Ratio,company has to determine its standard ratio based on past GP ratios or GP ratios of other concern.The Ratio if we compare it shows that1)Failure in managing purchases,production,sales and inventory 2)Loose control over direct costs of labour,fuel,freights etc. 3)Lower productivity and lower margin to meet other expenses
2] OPERATING RATIO:OPERATING RATIO = COGS + OPERATING EXPENSES X 100 SALES
In 2008-09,the Operating Ratio was 8.97 and it went to 7.2 next year.It indicates the cost of Expenses.As there is no standard Ratio,company has to determine its standard ratio based on past GP ratios or GP ratios of other concern.The Ratio if we compare it shows that1) High efficiency in managing the Operations of the concern like purchases made at lower prices,optimum level of production,good inventory management and good control of direct cost of labour,fuel,freight etc. 2) 2) A very good Margin available to meet non-operating Expenses.
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3] NET PROFIT RATIO:NET PROFIT RATIO = NPAT X 100 SALES
In 2008-09,the Net profit Ratio was 7.31 and it went to 5.75 next year.It indicates the relationship between net profit and sales.As there is no standard Ratio,company has to determine its standard ratio based on past NP ratios or NP ratios of other concern.The Ratio if we compare it shows that1) 2) 3) 4) 5)
Inefficiency in managing its activities like trading.production,financing and investment. unsatisfactory control over operating as well as non operating costs unusual losses like loss by fire,flood etc. Low increase in the net worth or the proprietors funds. Weak capacity of the concern to face bad economic situation.
4] EXPENSES RATIO:EXPENSES RATIO = EXPENSES
X 100
NET SALES
Expense ratios indicate the relationship of various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Hence, expense ratios are calculated by dividing each item of expenses or group of expense with the net sales to analyze the cause of variation of the operating ratio. The ratio can be calculated for individual items of expense or a group of items of a particular type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and higher the operating ratio, lower is the profitability. 13
DATA INTERPRETATION
COMPARATIVE ANALYSIS OF BRITANNIA INDUSTRIES LTD AND CADBURY PROFITABILITY RATIOS:-
1] GROSS PROFIT RATIO:GROSS PROFIT RATIO = GROSS PROFIT X 100 SALES
14 12 10 8 6 4 2 0
BRITANNIA CADBURY
2010 2009 2008 2007 2006
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars BRITANNIA CADBURY
2010 4.89 11.54
2009 6.12 6.12
2008 7.85 7.85
2007 4,7 4.7
2006 10.46 10.46
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INTERPRETATION:The above table shows that the In Britannia Gross profit ratio is decreasing year by year from 2006 to 2010. This is due to increase in cost of sales and in Cadbury india Ltd, gross profit is increasing as compared to previous years.
2] OPERATING RATIO:OPERATING RATIO = COGS + OPERATING EXPENSES X 100 SALES
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10 BRITANNIA CADBURY
5
0 2010
2009
2008
2007
2006
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars BRITANNIA CADBURY
2010 5.99
2009 7.20
2008 8.97
2007 5.85
2006 11.72
13.81
13.75
13.27
13.16
11.25
INTERPRETATION:-
The above table shows that in Britannia, Operating ratio is decreasing year by year from 2006 to 2010 and in Cadbury india Ltd there is no major change in operating ratios from 2006 to 2010.As we compare we come to know that Cadbury is performing well than Britannia.
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3] NET PROFIT RATIO :NET PROFIT RATIO = NPAT X 100 SALES
12 10 8 6
BRITANNIA
4
CADBURY
2 0 2010
2009
2008
2007
2006
Norm: - Higher the ratio shows higher efficiency and vice versa. Particulars BRITANNIA CADBURY
2010 3.38 9.68
2009 5.75 10.27
2008 7.31 8.94
2007 4.86 6.42
2006 8.48 5.11
OBSERVATIONS/ INTERPRETATION:-
The above table shows that in Britannia ,the net profit is decreasing year by year like it in 2006, it was 8.48 and it went up to 3.38 in 2010.whereas in Cadbury net profit is increasing year by year.
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4] RETURN ON NETWORTH:RETURN ON NETWORTH =
NPAT
X 100
SHAREHOLDERS FUND
60 50 40 BRITANNIA
30
CADBURY
20 10 0 2010
2009
2008
2007
2006
Norm: - Higher the ratio shows higher efficiency and vice versa.
Particulars BRITANNIA CADBURY
2010 48.27 35.53
2009 18.40 35.69
2008 24.06 27.77
2007 16.87 19.42
2006 24.99 11.30
OBSERVATIONS/ INTERPRETATION:The above ratio indicates that in Britannia, the net profit available to equity shareholder is rising from 2006 to 2010 whereas in Cadbury also return on networth is rising from 11.30 in 2006 to 35.53 in 2010.
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OBSERVATION AND FINDINGS
In this project I calculate some ratios; these ratios are very useful to interpret financial position of the company. From that it is clear that the Britannia and Cadbury india Ltd are in advanced stage. From the ratios calculated above following conclusions can be drawn.
The gross profit earned by the both the companies are declining every year. From 2006 to 2010, it is fluctuating a lot which is due to failure in managing purchases, production, sales and inventory or loses control over direct costs of labor, fuel, freights etc.
Operating ratio of Britannia going down from 2006 to 2010 which is nothing but due to certain reasons like low efficiency in managing the operations of the company or low margin available to meet non-operating expenses whereas as compared to Cadbury the fluctuations are not much.
The net profit is nothing but profit earned by the company after deducting interest and taxes. The graph is showing that in Britannia from 2006 to 2010,the net profit is declining which is due to inefficiency in managing its activities like trading, production, financing and investment or unsatisfactory control over operating or non operating costs whereas in Cadbury its rising from year year.
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SUGGESTIONS AND CONCLUSION:-
The in-depth analysis of key financial ratios in this project helps in measuring the financial strength, liquidity conditions and operating efficiency of the company. It also provides valuable interpretation separately for each ratio that helps organization implementing the findings that would help the organization to increase its efficiency. Ratios are only post mortem analysis of what has happened between two balance sheet dates. For one thing the position of the company in the interim period not revealed by analysis, moreover they give no clue about the future. Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather than as an end itself. From the analysis it is evident that the gross profit ratio is good, whereas the operating ratio is around optimum level to the industry standards. As a whole the liquidity position of the company is good. The company not very well used its fixed assets efficiently company has reduce it in order to invest the major portion in working capital or investment in current assets. This is one of the reason for profit fluctuation. Thus finally the company must try to improve its profit margins as they are below industry levels. This improvement may also bring up its return on investment and overall efficiency to the company. The business environment of both the company is reasonably good. The company’s track record is always oriented towards profitable growth and with strong fundamentals
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LIMITATIONS Though the every researcher tries his/her best to fulfill the objectives of his, her study, but still there are some limitation.
The authority and genuinely of the data received cannot be tested as every company does not disclose al l of its records on internet or discloses bon the financial statement. False result Accounting ratio is based on data drawn from accounting records. In this case if data is correct, then only the ratio will be correct. The data therefore must be absolutely correct. Effect of price level changes Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of the assets. The comparison is rendered difficult because of differences in situations of one company as compared to the other. Ratios are tool of quantitative analysis only. Normally qualitative factors are needed to draw conclusions. Ratio Analysis is only the beginning as it gives only a little information for the purpose of decision making.
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BIBLIOGRAPHY Following books were referred for carrying out the project: 1. Financial Management by N.M. Venchalekar. 2. Financial Management by KHAN AND JAIN. 3. Annual Reports of Britannia and Cadbury India Ltd. 4. Financial Management by Ainapure Ainapure
Following websites were referred: 1. 2. 3. 4.
www.money.rediff.com www.cadburyindia.com www.wikipedia.com www.cadbury.com
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