HUL

Financial
Ratio
Analysis HUL
Abhinav Singh
Radhika
A financial ratio analysis with interpretations for the past five years
(2005-06 to 2009-10) of Hindustan Unilever Limited Siddharth D.
Shirshendu
Jyotimani
Table of Contents
LIQUIDITY RATIO .................................................................................................................................... 3
Current Ratio ....................................................................................................................................... 3
Interpretation.................................................................................................................................. 3
QUICK/LIQUID/ACID TEST RATIO ........................................................................................................ 4
Interpretation.................................................................................................................................. 4
PROFITIBILITY RATIO .............................................................................................................................. 5
GROSS PROFIT MARGIN ...................................................................................................................... 5
Interpretation.................................................................................................................................. 5
NET PROFIT MARGIN........................................................................................................................... 6
Interpretation.................................................................................................................................. 6
OPERATING PROFIT RATIO .................................................................................................................. 7
Interpretation.................................................................................................................................. 7
RETURN ON CAPITAL EMPLOYED........................................................................................................ 8
Interpretation.................................................................................................................................. 8
RETURN ON EQUITY ............................................................................................................................ 9
Interpretation.................................................................................................................................. 9
EARNINGS PER SHARE ....................................................................................................................... 10
Interpretation................................................................................................................................ 10
TURNOVER RATIO ................................................................................................................................ 11
DEBTORS TURNOVER RATIO ............................................................................................................. 11
Interpretations .............................................................................................................................. 11
STOCK TURNOVER RATIO .................................................................................................................. 12
Interpretation................................................................................................................................ 12
TOTAL ASSETS TURNOVER RATIO ..................................................................................................... 13
Interpretation................................................................................................................................ 13
LEVERAGE RATIO .................................................................................................................................. 14
DEBT EQUITY RATIO .......................................................................................................................... 14
Interpretation................................................................................................................................ 14
INTEREST COVERAGE RATIO ............................................................................................................. 15
Interpretation................................................................................................................................ 15
VALUATION RATIO ............................................................................................................................... 16
PRICE TO CASH FLOW RATIO ............................................................................................................ 16
Interpretation................................................................................................................................ 16

1
PRICE TO EARNINGS RATIO ............................................................................................................... 17
Interpretation................................................................................................................................ 17

2
LIQUIDITY RATIO

Current Ratio
Defined as ratio of current assets to current liabilities. The concept behind this ratio is to ascertain
whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables
and inventory) are readily available to pay off its short-term liabilities (notes payable, current
portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio,
the better.

i.e. INVENTORY + CASH AND BANK + DEBTORS + BILLS RECIEVABLE

CREDITORS + BILLS PAYABLE + O/S EXPENSES + BANK OVERDRAFTS

Year End 2010 2009 2008 2007 2006 2005

ITC 2 3 3 3 2 2
HUL 1.01 1.32 0.85 0.99 0.93
MARICO 3 2 2 1 2 2

3.5

2.5

2 ITC
HUL
1.5
MARICO
1

0.5

0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
Current Ratio of HUL is less than that of ITC and MARICO for the last 5 years and is close to 1 for the
entire period. However Cash and Bank Balance as a percentage of the Current Asset for HUL (Cash
and Bank Balance comprising almost 40% of Current Assets) is more than that of Current Asset for
ITC which have Cash and Bank Balance as 16% of current Assets.

Also as a company operating in FMCG sector HUL need not have to maintain a huge volume of
current asset against its current liabilities.A current ratio of close to 1 signifies efficient utilization of
current assets as compared to that of ITC.

3
QUICK/LIQUID/ACID TEST RATIO
A liquidity indicator that further refines the current ratio by measuring the amount of the
most liquid current assets there are to cover current liabilities. The quick ratio is more conservative
than the current ratio because it excludes inventory and other current assets, which are more
difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

Year End 2010 2009 2008 2007 2006 2005

ITC 1 1 1 1 1 1
HUL 0.6 0.72 0.35 0.51 0.49
MARICO 1 1 1 1 1 1

1.2

0.8
ITC
0.6
HUL

0.4 MARICO

0.2

0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
Quick ratio for HUL is less than 1 for all years against the conventionally recommended value of
1.Also the ratio is less than that of ITC and MARICO across last five years. Being a major player in
FMCG sector HUL do not have to worries in finding creditors. A small value of quick ratio also
signifies efficient utilization of cash.

4
PROFITIBILITY RATIO

GROSS PROFIT MARGIN

Used to assess a firm’s financial health by revealing the proportion of money left over from revenues
after accounting for the cost of goods sold.

Year End 2006 2007 2008 2009 2010

ITC 35.98 34.05 28.44 29.17 29.74
HUL 15.8 15.86 13.5 14.7
Marico 9.72 11.21 12.06 13.13 15.37

40

35

30

25
ITC
20
HUL
15 Marico

10

0
2005 2006 2007 2008 2009 2010 2011

Interpretation
Gross profit margin of HUL is closed to 15 and is considerably less than that of ITC for the last 5
years. AS Gross profit margin represent the company’s ability to efficiently utilize its raw materials,
labour and manufacturing-related fixed assets to generate profits, here HUL appears to be less
efficient as compared to ITC.

5
NET PROFIT MARGIN
Calculated as net income divided by revenues or net profits by sales.

It measure how much out of every dollars of sales a company actually keeps in earnings.

Net Profit Margin= Net Income

Revenues

Year 2006 2007 2008 2009 2010

End

ITC 22.19 21.4 21.5 21.18 21.3

HUL 14.94 12.58 12.09 12.29
Marico 9.4 8.39 9.06 7.35 11.65
25

20

15 ITC
HUL
10
Marico

0
2005 2006 2007 2008 2009 2010 2011

Interpretation
Net Profit Margin of HUL is showing a decreasing trend except for the year 2010.Also it is less than
that of ITC for the last 5 years. Analysis of Income statement of HUL and ITC yields that average
revenues for HUL is less than that of ITC for the last 5 years. As Net Profit margin represents a
comprehensive view of the profitability of the company HUL seems to be less profitable as
compared to ITC.

6
OPERATING PROFIT RATIO
Operating profit means profit earned by the concern from its business operation and not from other
sources.

Operating Profit Ratio = Operating Profit

Net Sales

Whereas Operating Profit = Gross Profit – Operating Expenses

And Net Sales = Total Sales – Sales Return

Year 2006 2007 2008 2009 2010

End
ITC 34.36 32.51 31.57 32.84 33.02
HUL 14.74 14.95 14.46 15.74
Marico 12.9 13.77 13.26 14.01 16.63

40

35

30

25
ITC
20
HUL
15 Marico

10

0
2005 2006 2007 2008 2009 2010 2011

Interpretation
Operating Profit Ratio for HUL is consistent over the last 5 years and is considerably less than that of
ITC.Analysis of Income statement of ITC and HUL yields that for every year total sales of HUL is less
that of ITC. As Operating Profit ratio is deemed to be more reliable than Net Profit ratio for
comparison between companies, HUL seems to be less profitable in its operational activities as
compared to ITC.

7
RETURN ON CAPITAL EMPLOYED
Indicates the efficiency and profitability of a company’s capital investments.

= Net Income

Capital Employed

Capital Employed: Avg Debt Liability + Avg Shareholder Equity

Year 2005 2006 2007 2008 2009 2010

End
ITC 42 38 40 40 37 44
HUL 57 85 109 152 111
Marico 33 27 37 42 35 33

160

140

120

100
ITC
80
HUL
60 Marico
40

20

0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
ROCE for HUL is showing an increasing trend except in 2010.Also it’s more than that of ITC and
Marico in last 5 years. Analysis of Balance sheet of HUL and ITC yields that total fund employed for
HUL is less than that of ITC for all 5 years. This ratio indicates that HUL is able to generate more
returns by using less capital as compared to ITC and Marico.

8
RETURN ON EQUITY
Ccalculated as the amount of net income returned as a percentage of shareholders equity.

Return on Equity = Net Income

Shareholder's Equity

Year 2005 2006 2007 2008 2009 2010

End
ITC 31 27 28 28 25 29
HUL 64 74 93 143 95
Marico 34 36 50 67 49 42

160

140

120

100
ITC
80
HUL
60 Marico
40

20

0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
ROE for HUL is more than that of ITC and Marico in the last 5 years. ROE is showing an increasing
trend with a decrease in 2010. Analysis of balance sheet yields that both Net income and total share
capital for HUL is less than that of ITC for all years. However since ROE is the ratio of Net Income to
Equity, ROE ratio indicates that HUL is able to more effectively use its investor money as compared
to ITC in generating profit. Both for ITC and HUL share of equity in total capital is much more than
that of debt hence the ROE is an important ratio in determining their profitabilities.

9
EARNINGS PER SHARE
Calculated as the portion of company’s profit allocated to each outstanding share of common stock.

EPS = Net income- Dividend on Preferred Stock

Average Outstanding shares

Year 2010 2009 2008 2007 2006 2005

End
ITC 11 9 8 7 6 88
HUL 10 11 9 8 6
Marico 4 3 3 2 15 12

100
90
80
70
60
ITC
50
HUL
40
Marico
30
20
10
0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
Earnings per share for HUL is gradually increasing in the last 5 years and is almost equivalent to ITC
in last 4 years, however ITC employs more capital in comparison to HUL in generating for generating
he earnings hence HUL earnings are not efficient in comparison to ITC.

10
TURNOVER RATIO
Turnover ratio measures the degree to which assets are efficiently employed in the firm. There are
also known as activity ratio or asset management ratio and they are important for a business
concern to find out how well the facilities at the disposal of the concern are being used.

DEBTORS TURNOVER RATIO

It is a measure as to how well the debtors are being used as current assets or how well assets have
been employed in the firm. It is an activity ratio which reflects upon the efficiency of the asset in
generating sales flow.

DEBTORS TURNOVER RATIO = SALES

DEBTORS

Year End 2010 2009 2008 2007 2006 2005

ITC 34 32 31 32 30 34
HUL 29.98 44.17 33.4 27.07 23.67
MARICO 20 24 25 27 26 28

50
45
40
35
30
ITC
25
HUL
20
MARICO
15
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretations
Here, the above table indicates that while it was managing it’s debtors in an increasing more
efficient fashion before 2008, there seems to have been a jump due to changing in their accounting
practises. Right after the change, in 2009-10, the company returned to a more normalized pattern.
However, ITC is still tops when it comes to keeping debtors low and payments high.

11
STOCK TURNOVER RATIO
It is an indicator as to with what efficiency and rapidity a firm is able to move its merchandise. It is
basically a measure of liquidity of firm’s inventory.

STOCK TURNOVER RATIO = COSTS OF GOODS SOLD

AVERAGE STOCK

Year End 2010 2009 2008 2007 2006 2005

ITC 6 5 6 6 7 8
HUL 7.74 9.66 8.43 9.09 8.58
MARICO 7 8 8 9 9 9

12

10

8
ITC
6
HUL

4 MARICO

0
2005 2006 2007 2008 2009 2010

Interpretation
As can be seen above, HUL has a higher Stock Turnover Ratio than both ITC and Marico. This means
that money is tied up for less time on stocks. A quicker stock turnover also indicates that HUL makes
profits on its stocks quicker than the others, pointing towards a more competitive organisation.

12
TOTAL ASSETS TURNOVER RATIO
It is an indicator that defines whether a firm is utilising its assets efficiently or not. It is an activity
ratio which suggests that whether the assets of the firm are operating as desired and is contributing
to the sales of the firm.

TOTAL ASSETS TURNOVER RATIO = SALES

TOTAL ASSETS

Year End 2010 2009 2008 2007 2006 2005

ITC 3 3 3 3 3 4
HUL 7.19 10.79 6.83 5.05 4.04
MARICO 7 8 8 9 9 9

12

10

8
ITC
6
HUL

4 MARICO

0
2005 2006 2007 2008 2009 2010

Interpretation
In the period under consideration, HUL achieved its best turnover ratio in the year 2007, when a
sharp decrease in total assets did not affect the growth of sales. In 2008, HUL made a heavy
investment of about Rs. 900 crore for asset acquisition. However, it used those assets well, making a
large jump of Rs. 6200 crore in sales.

13
LEVERAGE RATIO
Leverage Ratio used to calculate the financial leverage of the company to get an idea of the
company’s methods of financing or measure its ability to meet financial obligations.

DEBT EQUITY RATIO

The debt-equity ratio is a leverage ratio that compares a company's total liabilities to its
total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and
obligors have committed to the company versus what the shareholders have committed.

DEBT EQUITY RATIO =

ALL LONG TERM LOANS

EQUITY SHAREHOLDERS CAPITAL

Year End 2010 2009 2008 2007 2006 2005

ITC 0 0 0 0 0 0
HUL 0.09 0.15 0.04 0.03 0.35
MARICO 1 1 1 1 1 0

1.2

0.8
ITC
0.6
HUL

0.4 MARICO

0.2

0
2005 2006 2007 2008 2009 2010

Interpretation
Debt/Equity ratio for HUL is not following a trend over the last years. It is much lower than MARICO
for the last five years. Analysis of balance sheet of HUL reveals that capital of HUL is funded majorly
through equity rather than debt.

14
INTEREST COVERAGE RATIO
It is the measure that determines whether the firm would be able to service its debt. The ratio is the
test of solvency for the firm.

INTEREST COVERAGE RATIO = EBIT

Interest to be paid

Year End 2010 2009 2008 2007 2006 2005

ITC 68 102 187 246 154 61
HUL 403.07 120.29 92.81 203.86 87.39
MARICO 13 7 8 7 16 23

450
400

350

300

250 ITC

200 HUL

150 MARICO

100

50

0
2005 2006 2007 2008 2009 2010

Interpretation
Interest Coverage ratio for HUL is much more than that of HUL and MARICO for all years except
2007. This indicates that HUL can easily meet its interest expense. Analysis of Income statement for
HUL yields that Interest paid is much less Rs(Cr)6.98 in comparison to EBIT Rs(Cr) 2,997.43 resulting
in high value of Interest Coverage Ratio.

15
VALUATION RATIO
Valuation ratio measure how cheap or expensive security is as compared to some measure of profit
or value.

PRICE TO CASH FLOW RATIO

The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a value
standpoint, of a company's stock. This metric compares the stock's market price to the amount of
cash flow the company generates on a per-share basis. Higher the ratio better will be the valuation
of the company. Price/cash flow ratio (P/CF) is seen by some as a more reliable basis than earnings
per share to evaluate the acceptability, or lack thereof, of a stock's current pricing as it is not easily
manipulated.

Year End 2010 2009 2008 2007 2006 2005

ITC 11 11 14 13 19 1
HUL 5.11 9.98 8.05 7.43 5.91
Marico 13 13 13 8 7 19

20
18
16
14
12
ITC
10
HUL
8
Marico
6
4
2
0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
Price/Cash flow ratio for HUL is showing an increasing trend other than in 2010 when it has
decreased.P/Cf ratio for HUL is less than that of ITC and MARICO for all years. In 2010 there is a
drastic increase in Cash Flow from operating activities (Rs(Cr) 20128 in 2009 to Rs(Cr)3432 in 2010)
which is the reason of decrease in the value of Price/Cash flow ratio in 2010.

16
PRICE TO EARNINGS RATIO
The PE ratio indicates the growth prospects, risk characteristics, degree of liquidity, shareholder
orientation and corporate image of a company.

A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the
future compared to the overall market, as investors are paying more for today's earnings in
anticipation of future earnings growth.

P/E ratio = Price per share / Earnings per share

Year End 201003 200903 200803 200703 200603 200503

ITC 12 10 12 10 16 0
HUL 24.06 20.69 24.27 25.24 31.92
Marico 28 26 29 33 32 19

35

30

25

20 ITC
HUL
15
Marico
10

0
2004 2005 2006 2007 2008 2009 2010 2011

Interpretation
P/E ratio for HUL is showing a decreasing trend except in 2010 when it has increased.Also P/E ratio
for HUL is more than that of ITC in all years indicating a higher confidence of investors in HUL as
compared to ITC.Analysis of Income statement of HUL yields that earning has decreased from Rs(Cr)
2500 to Rs(Cr)2202 which is the reason for decrease in EPS in 2010.

17