Description
Industrial Design is the use of both applied art and applied science to improve the aesthetics, ergonomics, functionality, and/or usability of a product, and it may also be used to improve the product's marketability and even production.
1. INTRODUCTION OF THE INDUSTRY AND INDUSRY TREND
By the turn of the 20th century, the face of the Indian retailing industry had changed significantly. The retailing industry, which, until the early 1990s, was dominated by the unorganized sector, witnessed a rapid growth in the organized sector with the entry of corporate groups such as Tata, RPG, ITC and Bennett Coleman & Company into the retailing market. With the liberalization and growth of the Indian economy since the early 1990s, the Indian customer witnessed an increasing exposure to new domestic and foreign products through different media, such as television and the Internet. Apart from this, social changes such as increase in the number of nuclear families and the growing number of working couples resulting in increased spending power also contributed to the increase in the Indian consumers'personal consumption. These changes had a positive impact, leading to the rapid growth in the retailing industry. Increased availability of retail space, rapid urbanization, and qualified manpower also boosted the growth of the organized retailing sector. Food retailing was a key area that saw some action at the national level, with players like Foodworld and Subhiksha, establishing stores all over India. While supermarket and departmental chains replaced traditional grocery and general store formats, introduction of fast foods (McDonalds), packaged foods (MTR, Namma MTR), vending machines and specialty beverage parlors (Nescafe, Tata Tea, Café Coffee and Barista) brought about significant changes in the eating habits of Indian consumers However, it was the non-food sector that saw tremendous action, with the introduction of new product segments. These segments mainly comprised lifestyle/apparel/ fashion/accessories (eg. Shoppers Stop, Westside, Lifestyle, Pantaloons, Reebok), books/music (Landmark and Crosswords), drugs and pharmacy and beauty (Health & Glow, CavinKare and Shahnaz Husain)... FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily deals with the production, distribution and marketing of consumer packaged goods. The Fast Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the consumers at a regular interval. Some of the prime activities of FMCG industry are selling, marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain, production and general management.
? FMCG industry economy
FMCG industry provides a wide range of consumables and accordingly the amount of money circulated against FMCG products is also very high. The competition among FMCG manufacturers is also growing and as a result of this, investment in FMCG industry is also increasing, specifically in India, where FMCG industry is regarded as the fourth largest sector with total market size of US$13.1 billion. FMCG Sector in India is estimated to grow 60% by 2010. FMCG industry is regarded as the largest sector in New Zealand which accounts for 5% of Gross Domestic Product (GDP).
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? Common FMCG products
Some common FMCG product categories include food and dairy products, glassware, paper products, pharmaceuticals, consumer electronics, packaged food products, plastic goods, printing and stationery, household products, photography, drinks etc. and some of the examples of FMCG products are coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco and cigarettes, watches, soaps etc. Market potentiality of FMCG industry Some of the merits of FMCG industry, which made this industry as a potential one are low operational cost, strong distribution networks, presence of renowned FMCG companies. Population growth is another factor which is responsible behind the success of this industry.
? Leading FMCG companies
Some of the well known FMCG companies are Sara Lee, Nestlé, Reckitt Benckiser, Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi and Mars etc.
? Job opportunities in FMCG industry
FMCG industry creates a wide range of job opportunities. This industry is a stable, diverse, challenging and high profile industry providing a wide range of job categories like sales, supply chain, finance, marketing, operations, purchasing, human resources, product development, general management.
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2. INTRODUCTION OF THE COMPANY:
? Their Mission
To provide Colgate with a significant competitive advantage by reducing total delivered cost, extending technology resources and developing excellence in purchasing, logistics and sourcing processes. • Driving Growth Worldwide • Building Market Leadership • Growing Profitability Colgate's long history of strong performance comes from absolute focus on our core global businesses: Oral Care, Personal Care, Home Care and Pet Nutrition. This has been combined with a successful worldwide financial strategy. Around the world, Colgate has consistently increased gross margin while at the same time reducing costs in order to fund growth initiatives, including new product development and increases in marketing spending. These, in turn, have generated greater profitability. Colgate managers around the world are dedicated to increasing market shares in all our core businesses. Colgate has achieved global leadership in toothpaste, hand dishwashing liquid, liquid hand soap and specialty pet food. 1806 William Colgate starts a starch, soap and candle business on Dutch Street in New York City. 1817 First Colgate advertisement appears in a New York newspaper. 1820 Colgate establishes a starch factory in Jersey City, New Jersey. 1857 Upon the death of founder William Colgate, the company is reorganized as Colgate & Company under the management of Samuel Colgate, his son.
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1864 B.J. Johnson opens a soap factory in Milwaukee, WI which later becomes the Palmolive Company. 1866 Colgate introduces perfumed soap and perfumes/essences. 1872 Peet Brothers establish soap company in Kansas City, Kansas where they make Crystal White soap. Cashmere Bouquet, the first milled perfumed toilet soap, is registered as a Colgate trademark. 1873 Colgate introduces toothpaste in jars. 1879 Gerhard Mennen establishes a pharmacy in Newark, NJ, later becoming the Mennen Company. 1896 Colgate introduces toothpaste in a collapsible tube. 1898 B.J. Johnson Soap Co. introduces Palmolive Soap. Today, the Palmolive equity is sold in over 88 countries in 54 variants. 1900 Colgate wins top honors for its fine soaps and perfumes at the World’s Fair in Paris. 1991 Colgate acquires Murphy Oil Soap, the leading wood cleaner in the U.S. Today, its product portfolio has expanded to include all-purpose cleaners, sprays and wipes. 1992 Colgate acquires the Mennen Company. Today, Mennen products are sold in over 52 countries. Colgate Total toothpaste introduced. 1995 Colgate enters Central Europe and Russia, expanding into fast-growing markets. Colgate acquires Kolynos Oral Care business in Latin America and launches marketleading Sorriso toothpaste.
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1996 Bright Smiles, Bright Futures oral health education program expands to 50 countries, and today reaches over 50 million children annually. 1997 Colgate Total toothpaste is introduced in the U.S. and quickly becomes the market leader. Only Colgate Total, with its 12-hour protection, fights a complete range of oral health problems. 2004 Colgate acquires the GABA oral care business in Europe, with its strength in the important European pharmacy channel and its ties with the dental community. 2006 Colgate enters the fast-growing Naturals segment by purchasing Tom’s of Maine, a leader in that market in the United States. Today … Today, with sales surpassing $13 billion, Colgate focuses on four core businesses: Oral Care, Personal Care, Home Care and Pet Nutrition. Colgate now sells its products in over 200 countries and territories worldwide.
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3.ORGANISATIONAL HIERARCHY
SHARE-HOLDERS
CHAIRMAN (J.SKALA)
BOARD OF DIRECTORS
COMPANY SECRATORY (K.V.VAIDYANATHAN)
FINANCE DIRECTOR (M.A.ELIAS)
SALES DIRECTOR (S.BHARATWAJ)
MANAGING DIRECTOR (R.D.CALMEYER)
R&D DIRECTOR (MR.S.MANEK)
LEGEL DIRECTOR (K.V.VAIDYANATHAN)
MARKETING DIRECTOR (MS.P.PARAMESWARAN)
MANUFACTURING & SUPPLY DIRECTOR (L.WHEELER) -6-
HUMAN RESOURCE DIRECTOR (D.ROY)
4.
FINANCIAL HIGHLIGHTS OF LAST 10 YEARS
4.1 Sales:
Year Sales
19981999 99822
19992000 108958
20002001 117688
20012002 1160898
20022003 105689
20032004 104208
20042005 107253
20052006 121750
20062007 138538
20072008 155321
.
Sales 1400000 1200000 1000000 800000 600000 400000 200000 0
19 98 19 1 99 99 9 20 2 00 00 0 20 2 00 01 1 20 2 00 02 2 20 2 00 03 3 20 2 00 04 4 20 2 00 05 5 20 2 00 06 6 20 2 00 07 7 -2 00 8
Sales ( Rs. in lacs)
Sales
Years
Analysis:
• The company sales increased in only the year 2001 - 2002, it was about 1160898 lacs.
•
The company continues to connect with consumers in new and different ways to better understand their wants and needs and to increase sales of the
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company’s products. The company also continues to conduct a variety of consumption building activities. One example is the very successful “Bright Smiles, Bright Futures” comprehensive oral health education initiatives which have provided oral health information and Colgate product samples to over 70 million children in India since the dental education program began 30 years ago.
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4.2 PROFIT AFTER TAX:
Year PAT 19981999 4567 19992000 5179 20002001 6250 20012002 6979 20022003 8866 20032004 10800 20042005 11329 20052006 13760 20062007 16017 20072008 23171
PAT 25000 20000 15000 10000 5000 0
19 98 -1 19 99 99 9 -2 20 00 00 0 -2 20 00 01 1 -2 20 00 02 2 -2 20 00 03 3 -2 20 00 04 4 -2 20 00 05 5 -2 20 00 06 6 -2 20 00 07 7 -2 00 8
PAT (Rs. in lacs)
PAT
Years
Analysis:
• Profit after tax of the company is steadily increased during the last financial years because of good performance in the turn over of the company which resulted into good profits.
•
The profit after tax was 4567 Lacs in 1998 – 1999 then, it increased 23171 in 2007 – 2008.
•
By the use of the chart of Profit after tax, it is clear that the company is making good performance.
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4.3 DIVIDEND PAY OUT
19981999 89.29 19992000 78.74 20002001 183.33 20012002 82.85 20022003 65.18 20032004 75.57 20042005 84.03 20052006 74.11 20062007 80.65 20072008 76.29
Year DPO
DPO
200 180 160 140 120 100 80 60 40 20 0
19 98 -1 19 99 99 9 -2 20 000 00 -2 20 00 01 1 -2 20 00 02 2 -2 20 00 03 3 -2 20 00 04 4 -2 20 005 05 -2 20 00 06 6 -2 20 00 07 7 -2 00 8
DPO
DPO(%)
Years
Analysis:
• Dividend pay out of the company is slightly decrease during the last financial year because of company’s stringent policy.
•
Dividend pay out showed where the company stands and it also gives the company’s performance.
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4.4 DIVIDEND PER SHARE
Year DPS 19981999 3 19992000 3 20002001 8.25 20012002 4.25 20022003 4.25 20032004 6 20042005 7 20052006 7.5 20062007 9.5 20072008 13
DPS 14 12 10 8 6 4 2 0
-1 19 99 99 9 -2 2 0 0 00 00 -2 20 0 0 01 1 -2 20 0 0 02 2 -2 2 0 0 03 03 -2 20 00 04 4 -2 20 0 0 05 5 -2 20 0 0 6 06 -2 20 0 0 07 7 -2 00 8
DPS ( In Rs.)
DPS
19 98
Years
Analysis:
•
Dividend Per Share of the company is steadily increased during the last financial years because of good performance in the turn over of the company which resulted into good profit and revenue of the company.
•
By the use of chart, it is clear that the company is progressing and making good performance in the market.
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4.5 EARNING PER SHARE:
Year EPS 19981999 3.36 19992000 3.81 20002001 4.5 20012002 5.13 20022003 6.52 20032004 7.94 20042005 8.33 20052006 10.12 20062007 11.78 20072008 17.04
EPS 18 16 14 12 10 8 6 4 2 0
-1 19 9 9 9 99 -2 20 0 00 00 -2 2 0 0 01 01 -2 20 0 02 02 -2 20 003 03 -2 2 0 0 04 04 -2 20 005 05 -2 20 0 06 06 -2 20 007 07 -2 00 8
EPS ( In RS.)
EPS
19 98
Years
Analysis:
• Earning per Share of the company is steadily increased during the last financial years because of the relative market share increased of the company.
•
Earning per Share of the company increased because of the another reason that the company’s turn over increased during the last financial years because of good performance in the turn over of the company
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4.6 BOOK VALUE PER SHARE:
19981999 21.97 19992000 22.57 20002001 25.89 20012002 18.89 20022003 20.38 20032004 18.12 20042005 18.66 20052006 20.25 20062007 20.94 20072008 12.27
Year BVPS
BVPS 30 BVPS (Rs. in lacs) 25 20 15 10 5 0
-1 19 99 99 9 -2 20 0 0 00 0 -2 20 0 0 01 1 -2 20 0 0 02 2 -2 20 0 0 03 3 -2 20 00 04 4 -2 20 0 0 05 5 -2 20 00 06 6 -2 20 0 0 07 7 -2 00 8
BVPS
19 98
Years
Analysis:
• As far as the Book value per Share is concerned, through the chart, it shows that it is fluctuate.
•
It means that the Book value of share is increased sometimes and it decresed sometimes
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4.7 NET WORTH:
Year Net worth 19981999 6.024 19992000 6.238 20002001 9.876 20012002 10.17 20022003 7.233 20032004 9.174 20042005 8.817 20052006 8.4008 20062007 8.862 20072008 9.579
Net worth 12 10 8 6 4 2 0
-1 19 99 99 9 -2 20 00 00 0 20 200 01 1 -2 20 0 0 02 2 -2 20 0 0 03 3 -2 20 0 0 04 4 -2 20 0 0 05 5 20 200 06 6 -2 20 0 0 07 7 -2 00 8
Net worth ( In Rs.)
Net worth
19 98
Years
Analysis:
• The net worth of the company is not increased regularly because the net worth of the company is increasing and decreasing sometimes.
•
The net worth of the company is increased in the year of 2001, 2002, 2004, and 2008, then the decreased of the company in the year of 1999, 2000, 2003.
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4.8 TOTAL ASSETS:
Year Total Assts 19981999 29887 19992000 30697 20002001 25216 20012002 256898 20022003 27716 20032004 24648 20042005 25375 20052006 27543 20062007 28480 20072008 16689
Total Assts Total Assets ( Rs. in lacs) 300000 250000 200000 150000 100000 50000 0
19 98 19 199 99 9 20 200 00 0 20 20 0 1 01 20 200 02 2 20 200 03 3 20 200 04 4 20 200 05 5 20 -20 06 06 20 200 07 7 -2 00 8
Total Assts
Years
Analysis:
• The Total Assets of the company is increased only one time in the financial year of 2001 – 2002.
•
Then the other side that the company decreased in so many financial years.
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5. ACCOUNTIG POLICES:
?
Basis of Accounting
The financial statements are prepared to comply in all material aspects with all the applicable accounting principles in India, the accounting standards notified under section 211 (3C) of the Companies Act, 1956 of India (the Act) and the relevant provisions of the Act. ? Fixed Assets Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all direct costs relating to the acquisition and installation of fixed assets. Interest on borrowed funds, if any, used to finance the acquisition of fixed assets, is capitalised up to the date the assets are ready for commercial use. Under utilised/ldle assets are recorded at estimated realisable value. Intangible Assets Goodwill and other Intangible Assets are amortised over the useful life of the assets, not exceeding 10 years. Tangible Assets Lease-hold land is being amortised over the period of lease. Depreciation is provided pro-rata to the period of use on straight-line method based on the estimated useful lives of the assets, as stated below: Assets Useful Lives Residential and Office Building * 40 Years Factory Building * 20 Years Plant and Machinery 7 Years to 21 Years Dies and Moulds 3 Years Furniture and Fixtures 5 Years Office Equipment 5 Years Computers 5 Years Vehicles 5 Years In respect of buildings acquired, estimated useful life is considered from the date of completion of construction. The useful lives of the assets are based on technical estimates approved by the Management, and are lower than the implied useful lives arrived on the basis of the rates prescribed under Schedule XIV to the Companies Act, 1956 of India. Assets individually costing less than Rs. 5,000 are fully depreciated in the year of acquisition. Impairment At each Balance Sheet date, the Company reviews the carrying value of tangible and intangible assets for any possible impairment. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is higher of the asset's net selling price or estimated future cash flows which
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are discounted to their present value based on appropriate discount rates. For the purpose of assessing impairment, assets are grouped at the levels for which there are separately identifiable cash flows (cash generating unit).
? Investments
Long term investments are valued at cost. Current investments are valued at lower of cost and fair value as on the date of the Balance Sheet. The Company provides for diminution in value of investments, other than temporary in nature.
? Finished goods
includes materials, labour and manufacturing overheads and other costs incurred in bringing the inventories to their present location. Cost is determined using standard cost method that approximates actual cost. The Company accrues for customs duty liability in respect of stocks of raw material lying in bond, and excise duty liability in respect of stocks of finished goods lying in bond and warehouses.
? Revenue Recognition
Sales are recognised upon delivery of goods and are recorded net of trade discounts, rebates, sales tax/value added tax and excise duty on own manufactured and outsourced products.
? Provisions and Contingent Liabilities
Provisions are recognised when the Company has a legal and constructive obligation as a result of a past event, for which it is probable that a cash outflow will be required and a reliable estimate can be made of the amount of the obligation. Contingent Liabilities are disclosed when the Company has a possible obligation or a present obligation and it is probable that a cash outflow will not be required to settle the obligation
? Expenditure
Advertising expenses are consistently accrued and recognised in the year in which the related activities are carried out. The Company has Defined Contribution Plan for its employees' retirement benefits comprising of Provident Fund and Superannuation Fund which are recognised by the Income Tax Authorities and administered through its trustees. The Company contributes to Provident Fund and Superannuation Fund for its employees. In respect of Provident Fund, interest rates payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investment of the trust and notified interest rate. The Company contributes to State Plans namely Employees' State Insurance Fund and Employees' Pension Scheme, 1995. The Company has Defined Benefit Plan comprising of Gratuity Fund and Pension Scheme. The Company contributes to the Gratuity Fund
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[A] Liquidity Ratios
? Introduction
The importance of adequate liquidity in the sense of the ability of a firm to meet current/short-term obligations when they become due for payment can hardly be overstressed. In fact, liquidity is a prerequisite for the very survival of a firm. The short-term creditors of the firm are interested in the short-term solvency or liquidity of a firm. But liquidity implies, from the viewpoint of utilization of the funds of the firm that funds are idle or they earn very little. A proper balance between the two contradictory requirements, that is, liquidity and profitability, is required for efficient financial management.
? Definition
The liquidity ratios measure the ability of a firm to meet its short-term obligations and reflect the short-term financial strength/solvency of a firm.
? Types of liquidity ratios
The ratios which indicate the liquidity of a firm are: 1. Net Working Capital 2. Current Ratios 3. Acid Test/Quick Ratios 4. Super Quick Ratios 5. Turnover Ratios 6. Defensive-interval Ratios Now, for understanding the liquidity of Colgate-Palmolive Industries Limited, I have found the following liquidity ratios: 1. Current Ratio 2. Quick Ratio (Acid Test Ratio) Now, let us see them in detailed to get the information of the liquidity of a firm for the last three financial years. Also, analyze the short-term financial strength/solvency of a firm with the help of last three years financial data.
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1. Current Ratio
1.1 Meaning:
Current ratio establishes a relationship between Current Assets and Current Liabilities.
1.2 Objective:
The objective is for calculating this ratio is to measure the ability of the firm to meet its short term obligations and to reflect the short term financial solvency of a firm. In other words, it is calculated to measure margin of safety for short term creditors.
1.3 Formula: Current Assets Current Liabilities Current Ratio =
1.4 Financial Data of the Colgate- Palmolive Company: Particulars Current Assets Current Liabilities & Provisions Current Ratio 2005-2006 30145.54 35109.57 0.8586:1 (Rs. In Lacs) 2006-2007 2007-2008 35442.57 42065.67 0.8425:1 40168.55 53420.09 0.7519:1
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2007-2008
current ratio
2006-2007
current ratio
2005-2006
0.65
0.7
0.75
0.8
0.85
0.9
Years
1.5 Analysis:
? It is clear from the Table that the company’s Current ratios were 0.8586:1, 10.8425:1 and 0.7519:1 for the financial years 2005, 2006 and 2007 respectively.
? From the above calculations suggest that the Company’s Current Ratio was too, below t that means the Company has sound position for the financial years 2006, 2007 and 2008 in term of its Current Asset.
? Now looking at the Inventories amount which were Rs. (In Lacs.) 7435.72, 8032.63, and 7563.85 for the financial years 2006 , 2007 and 2008 respectively.
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2. Quick Ratio [Acid Test Ratio]
2.1 Meaning:
Quick ratio establishes a relationship between Quick Assets and Liquid Liabilities.
2.2Objective:
Quick ratio is calculated to measure absolute liquidity by comparing Quick Assets with Liquid Liabilities.
2.3 Formula: Quick Ratio = Current Assets - Inventories Current Liabilities
2.4 Financial Data of the Colgate- Palmolive Company: Particulars Current Assets - Inventories Current Liabilities & Provisions 2005-2006 20709.82 35109.57 (Rs. In Lacs) 2006-2007 2007-2008 27409.94 32604.7 42065.67 53420.09
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Quick Ratio
0.6468:1
0.6515:1
0.6103:1
2007-2008
Years
2006-2007
Quick Ratio
2005-2006
0.58
0.6
0.62 Quick Ratio
0.64
0.66
2.5 Analysis:
? It is clear from the Table that the Company’s Quick ratios were 0.6468:1, 6515:1 and 0.6103:1 for the financial years 2006, 2007 and 2008 respectively.
? Above calculations suggest that the Company’s Quick ratios was slightly above in the financial year 2006. That means the company is not able to pay its Current Liabilities immediately and having a good liquidity position./
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Leverage Ratios
? Introduction
The second category of financial ratios is leverage or capital structure ratios. The long-term creditors would judge the soundness of a firm on the basis of the long-term financial strength measured in terms of its ability to pay the interest regularly as well as repay the installment of the principal on due dates or in one lump sum at the time of maturity. The long-term solvency of a firm can be examined by using leverage or capital structure ratios.
? Definition
The leverage or capital structure ratios may be defined as financial ratios which throw light on the long-term solvency of a firm as reflected in its ability to assure the longterm creditors with regard to 1. periodic payment of interest during the period of the loan and 2. repayment of principal on maturity or in predetermined installments at due dates. There are, thus, two aspects of the long-term solvency of a firm: 1. ability to repay the principal when due, and 2. regular payment of the interest.
? Types of leverage ratios
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Accordingly, there are two different, but mutually dependent and interrelated, types of leverage ratios. First, ratios which are based on the relationship between borrowed funds and owner’s capital. These ratios are computed from the balance sheet and have many variations such as: 1. Debt-Equity Ratio 2. Debt-Assets Ratio 3. Equity-Assets Ratio and so on. The second type of capital structure ratios, popularly called coverage ratios, is calculated from the profit and loss account. Included in this category are: 1. Interest Coverage Ratio 2. Dividend Coverage Ratio 3. Total Fixed charges Coverage Ratio 4. Cash Flow Coverage Ratio, and 5. Debt Services Coverage Ratio. Now, for understanding the long-term solvency of Colgate-Palmolive Industries Limited, I have found the following leverage ratios: 1. Debt-Equity Ratio 2. Capital Employed to Net Worth Ratio 3. Fixed Interest Coverage Ratio
1. Debt-Equity Ratio
1.1 Meaning:
The relationship between borrowed funds and owner’s capital is popular measure of the long-term financial solvency of a firm. This relationship is shown by the debt-equity ratios.
1.2 Objective:
This ratio reflects the relative claims of creditors and shareholders against the assets of the firm. Alternatively, this ratio indicates the relative proportions of debt and equity in financing the assets of a firm.
1.3 Formula: Total Debt Net Worth excluding Preference Share Capital Debt-Equity Ratio = 1.4 Financial Data of the Colgate-Palmolive Company: Particulars Total Debt 2005-2006 647.60
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2006-2007 932.63
(Rs. In Lacs) 2007-2008 918.55
Net Worth Debt-Equity Ratio
27107.00 0.024:1
28052.66 0.033:1
16220.62 0.057:1
2007-2008
Years
2006-2007
Debt-Equity ratio
2005-2006
0
0.02
0.04
0.06
Debt Equity Ratio
1.5 Analysis:
? It is clear from the Table that the Company’s Debt-Equity ratios were 0.024:1, 0.033:1 and 0.057:1 for the financial years 2005, 2006 and 2007 respectively.
? It is needed that a ratio which strikes a proper balance between debt and equity. The general proposition is: other’s money should be in reasonable proportion to the owner’s capital and the owners should have sufficient stake in the fortunes of the enterprise.
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? A high ratio shows a large share of financing by the creditors of the firm; a low ratio implies a smaller claim of creditors. This ratio indicates the margin of safety to the creditors.
? From above calculations suggest that the Company would be able to meet the creditors claims because the one-half of the owners during last three financial years. So it is a good sound position of the Company we can see in term of safety to the creditors.
2. Capital Employed to Net Worth Ratio
2.1 Meaning:
The ratio establishes the relationship between capital employed and net worth.
2.2 Objective:
To know how company is using it share capital paid by the share holders. It helps to know the efficiency of the company. The high ratio indicates efficient use of the share capital paid by the share holders.
2.3 Formula: Capital Employed to Net worth Ratio = Capital Employed Net Worth including Preference Share Capital
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2.4 Financial Data of the Colgate-Palmolive Company: Particulars Capital Employed Net Worth Capital Employed to Net Worth Ratio 2005-2006 27542.52 27107.00 1.016:1 (Rs. In Lacs) 2006-2007 2007-2008 28480.16 28052.66 1.015:1 16689.37 16220.60 1.029:1
2007-2008
Years
2006-2007
capital empolyed to net worth ratio
2005-2006
1.00 1.01 1.01 1.02 1.02 1.03 1.03 5 5 5 capital empolyed to5net worth ratio
2.5 Analysis:
? It is clear from the Table that the Company’s Capital Employed to Net Worth ratios was 1.016:1, 1.015:1 and 1.029:1 for the financial years 2006, 2007 and 2008 respectively.
? From the above calculations suggest that the other’s money were in reasonable proportion to the owner’s capital and owners have sufficient stake in the fortunes of the company.
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? It is sound position that the company has in term of contribution provided by the creditors and the owners and the share holders of the company.
3. Fixed Interest Coverage Ratio
3.1 Meaning:
This ratio measures the debt servicing capacity of a firm insofar as fixed interest on long-term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes (EBIT) by the fixed interest charges on loans. It is also known as ‘time-interest-earned ratio’.
3.2 Objective:
It indicates the extent to which a fall in EBIT is tolerable in the sense that the ability of the firm to service its interest payments would not be adversely affected.
3.3 Formula: Earning before Interest and Tax Interest Fixed Interest Coverage Ratio =
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3.4 Financial Data of the Colgate-Palmolive Company: Particulars EBIT Interest Fixed Interest Coverage Ratio 2005-2006 18846.54 58.61 321.56 (Rs. In Lacs) 2006-2007 2007-2008 20258.63 98.04 206.64 29348.42 143.51 204.50
2007-2008
Years
2006-2007
Fixed interest coverage ratio
2005-2006
0
100
200
300
400
Fixed interest coverage ratio
3.5 Analysis:
? From the above Table, it is clear that the Company’s Fixed Interest Coverage ratios were 321.56 times, 206.64 times and 204.50 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio shows how many times the interest charges are covered by the EBIT out of which they will be paid.
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? However, too high a ratio implies unused debt capacity. And a low ratio is danger signal that the firm is using excessive debt and does not have the ability to offer assured payment of interest to the creditors.
? Above calculations suggest that the Company has medium ability to handle fixed- charge liabilities and the more assured is the payment of interest to the creditors. But the ratio is becoming higher gradually which shows unused debt capacity of the company. Overall it is good enough for the company.
[C] Profitability Ratios
? Introduction
Apart from the creditors, both short-term and long-term, also interested in the financial soundness of a firm are the owners and management or the company itself. The management of the firm is naturally eager to measure its operating efficiency. Similarly, the owners invest their funds in the expectation of reasonable returns. The operating efficiency of a firm and its ability to ensure adequate returns to its shareholders depends ultimately on the profits earned by it. The profitability of a firm can be measured by its profitability ratios. Profit is the difference between revenues and expenses over a period of time. Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits. Therefore, the financial manager should continuously evaluate the efficiency of its company in term of profits.
? Definition
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The ratios which measure the operating efficiency of the company are called profitability ratios.
? Types of profitability ratios
Generally, two major types of profitability ratios are calculated: • Profitability in relation to sales I Profit margin II Expenses ratio • Profitability in relation to investment I Return on assets II Return on capital employed III Return on shareholders’ equity. Now, for understanding the profitability of Colgate-Palmolive Industries Limited, I have found the following profitability ratios: 1. 2. 3. 4. 5. 6. 7. 8. Gross Profit Ratio Net Profit Ratio Operating Profit Ratio Operating Ratio Expenses Ratio Return on Shareholders’ Funds or Return on Net Worth Return on Total Assets Return on Capital Employed
1. Gross Profit Ratio
1.1 Meaning:
The Gross Profit Ratio measures the relationship between Gross Profit and Net Sales.
1.2 Objective:
To determine the efficiency with which production or purchase operations are carried out.
1.3 Formula: (Sales - Cost of Goods Sold) *100 Net Sales Gross Profit Ratio =
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1.4 Financial Data of the Colgate-Palmolive Company: Particulars Sales - Cost of Goods Sold *100 Net Sales Gross Profit Ratio 2005-2006 7121380 112419 63.35% (Rs. In Lacs) 2006-2007 2007-2008 3587.59 6652.61 62.46% 4863.76 8603.59 62.47%
2007-2008
Years
2006-2007
Gross Profit Ratio
2005-2006
62
62.5
63
63.5
Gross Profit Ratio
1.5 Analysis:
? It is clear from the Table that the Company’s Gross Profit ratios were 63.35%, 62.46% and 62.47% for the financial years 2005, 2006 and 2007 respectively.
? This ratio indicates: Average gross profit margin earned on a sale of Rs.100, the portion of sale left to cover operating and non-operating expenses.
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? If the ratio is high , it is more effective to the production or purchase management of the company.
?
A high gross profit ratio sale is sign of a good management as it implies that the cost of production of the firm is relatively low. A relatively low gross profit ratio is definitely a danger sign towards the company.
? From the above calculations it is analyzed that the Gross Profit ratio of the company is steadily increased during the last financial year which shows good management in term of production or purchase.
2. Net Profit Ratio
2.1 Meaning:
Net Profit ratio measures the relationship between Net Profit and Net Sales of a firm.
2.2 Objective:
The objective of this ratio is to determine the overall profitability due to various factors such as operational efficiency and trading on equity.
2.3 Formula: Profit after Tax *100 Net Sales Net Profit Ratio =
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2.4 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax*100 Net Sales Net Profit Ratio 2005-2006 1376000 112419 12.24% 2006-2007 1601700 129514 12.37% (Rs. In Lacs) 2007-2008 2317100 147338 15.73%
2007-2008
Years
2006-2007
Net Profit Ratio
2005-2006
0
5
10 Net Profit Ratio
15
20
2.5 Analysis:
? It is clear from the Table that the Company’s Net Profit ratios were 12.24%, 12.37% and 15.73% for the financial years 2005, 2006 and 2007 respectively. ? This ratio indicates: Average net margin earned on a sale of Rs.100. And which portion of sales is left to pay dividend and create reserve.
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? Higher the ratio, greater the firms capacity to withstand adverse economic conditions and vice-versa.
? From the above calculations, it is clear that the net profit ratio is continuously increasing from the year 2006. Overall it is good sign for the company that the cost of the production is low because of good management of the company.
3. Operating Profit Ratio
3.1 Meaning:
Operating profit ratio means profit earned by the concern from its business operation and not from other sources. This ratio gives an accurate idea of how much money is being made through primary business operating. By looking at this ratio over time we get a fix on whether costs are trending up or down.
3.2 Objective:
The objective of this ratio is to measure the amount of profit made by actual trading or real business.
3.3 Formula:
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(EBIT - Other Income) *100 Net Sales Operating Profit Ratio = 3.4 Financial Data of the Colgate-Palmolive Company: Particulars EBIT - Other Income *100 Net Sales Operating Profit Ratio 2005-2006 1423759 112419 12.66% (Rs. In Lacs) 2006-2007 2007-2008 1355860 2087030 129514 147338 10.47% 14.16%
2007-2008
Years
2006-2007
Operating Ratio
2005-2006
0
5
10
15
Operating Ratio
3.5 Analysis:
? It is clear from the Table that the Operating Profit ratios of the Company were 12.66%, 10.47% and 14.16% for the financial years 2006, 2007 and 2008 respectively.
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? This ratio shows the incomes earned by actual business or trading business. So the other incomes which are not related to trading of the business are deducted.
? If the ratio is high, it is better for sales with lower expenses and vice-versa.
? From the above calculation, it is clear that the operating profit ratio of the company was decreased in the year 2007, but again increased in the year 2007 which indicates good sales and low expenses. Overall it is good enough for the company’s trading point of view.
4. Operating Ratio
4.1 Meaning:
The Operating ratio measures the relationship between Operating Costs and Net Sales of a firm.
4.2 Objective:
The objective of operating ratio is to determine the operational efficiency with which the production and/or purchases carried on.
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4.3 Formula: Operating Ratio = 100 - Operating Profit Ratio
4.4 Financial Data of the Colgate-Palmolive Company: Particulars 100 - Operating Profit Ratio Operating Ratio 2004-2005 100 – 12.66 87.35% 2005-2006 100– 10.47 89.53% 2006-2007 100 – 14.16 85.84%
2007-2008
Years
2006-2007
Operating Ratio
2205-2006
82
84
86 Operating Ratio
88
90
4.5 Analysis:
? It is clear from the Table that the operating ratio of the Company was 87.35%, 89.53% and 85.84% for the financial years 2006, 2007 and 2008 respectively.
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? This ratio indicates the average operating costs incurred on sales of Rs.100.
? If the ratio is low the then the operating profit will be high to cover nonoperating expenditure, to pay dividend and to create reserves and viceversa.
? From the above calculations, it is clear that the Company has high average operating costs incurred on sales. The operating ratio of the company was increased in the year 2007 but decreased in the year 2007 which shows good come back to cover non-operating expenditure of the company.
5. Expenses Ratio
5.1 Meaning:
Another profitability ratio related to sales is the expenses ratio. It is computed by dividing expenses by sales. The term ‘expenses’ includes cost of goods sold, administrative expenses, selling and distribution expenses, financial expenses but excludes taxes, dividends and extraordinary losses due to theft of goods, good destroyed by fire and so on.
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5.2 Objective:
The expenses ratio is very important for analyzing the profitability of a firm. It should be compared over a period of time with the industry average as well as firms of similar type. As a working proposition, a low ratio is favorable, while a high one is unfavorable.
5.3 Formula: Total Expenses *100 Net Sales Expenses Ratio = 5.4 Financial Data of the Colgate-Palmolive Company: Particulars Total Expenses *100 Net Sales Expenses Ratio 2005-2006 9824005 112419 87.38% 2006-2007 11605364 129514 89.61% (Rs. In Lacs) 2007-2008 11661111 147338 85.93%
2007-2008
Years
2006-2007
Expence Ratio
2005-2006
84
85
86
87
88
89
90
Expence Ratio
5.5 Analysis:
? It is clear from the Table that the expenses ratio of the Company was 87.38%, 89.61%, and 85.93% for the financial years 2006, 2007 and 2008 respectively.
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? If a ratio is too high than it is not good for the company and if it is too low than it is also not good for the company.
? From the above calculations, it is analyzed that the expenses ratio of the Company was increased in the year 2007, but decreased in the year 2008 which shows good sign to the company for meeting financial liabilities.
? Overall it is good enough for the company the expenses ratio was decreased in the last financial year.
6. Return on Shareholders’ Funds or Return on Net Worth
6.1 Meaning:
A return on Shareholders’ equity is calculated to see the profitability of owners’ investment. The shareholders’ equity or net worth includes paid-up share capital, share premium and reserves and surplus less accumulated losses. Net worth can also be found by subtracting total liabilities from total assets. - 41 -
6.2 Objective:
The objective of this ratio is to judge whether the firm has earned a satisfactory return for its equity-holders or not.
6.3 Formula: Profit after Tax *100 Share holders Fund Return on Shareholders’ Funds = 6.4 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax *100 Shareholders' Funds Return on Shareholders' Funds 2005-2006 1376000 27107.00 50.76% (Rs. In Lacs) 2006-2007 2007-2008 1601700 28052.66 57.09% 2317100 16220.62 142.85%
2007-2008
2006-2007
Return on share holder's fund
Year
2005-2006
0
50
100
150
Return on share holder's fund
6.5 Analysis:
? It is clear from the Table that the return on shareholders’ funds ratio of the Company was 50.76%, 57.09% and 142.85% for the financial years 2006, 2007 and 2008 respectively.
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? This ratio indicates the ability to generate return per rupee invested by the shareholders or the owners and to evaluate the investment decisions of the company.
? From the above calculations, the return on shareholders’ funds ratio of the company was increasing from 2006 which shows good sign from the company point of view that the company is able to generate high return invested by share holders or the owners of the company.
7. Return on Total Assets
7.1 Meaning:
This ratio indicates the return a company will generate on the firm's investments and its assets. It establishes a relationship between net profit and assets. The ROA may also be called as profit to assets ratio. The ROA measures the profitability of the total funds/investments of a firm. It however
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throws no light on the profitability of the different sources of funds which finance the total assets these aspects are covered by ROI. This helps the firms to decide how they should invest in the future project and what return they will get.
7.2 Formula: Return on Total Assets = Profit after Tax *100 (Fixed Assets + Investment + Current Assets)
7.3 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax * 100 Fixed Assets + Investment + Current Assets Return on Total Assets 2005-2006 1376000 61890.63 22.23% (Rs. In Lacs) 2006-2007 2007-2008 1601700 67978.88 23.56% 2317100 67326.74 34.41%
2007-2008
Years
2006-2007
Return on total assets
2005-2006
0
10
20
30
40
Return on total assets
7.4 Analysis:
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? It is clear from the Table that the return on total assets ratio of the Company was 22.23%, 23.56% and 34.41% for the financial years 2006, 2007 and 2008 respectively.
? This ratio indicates the company’s ability to earn the profit from funds or investment made by the investors and profitability earned from the other sources. The high ratio indicates high profitability from invested funds or investments.
? From the above calculations, it is analyzed that the return on total assets ratio of the Company was increasing from the year 2006, which indicates that the company is able to earn the profit from funds or investment made by the investors and also the profitability of the company earned from the other sources.
8. Return on Capital Employed
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8.1 Meaning:
In this ratio profit are related to the total capital employed. The term capital employed refers to the long term funds supplied by the creditors and owners of the firm. The term capital employed includes share capital, reserve and surplus and long term loans. The higher the ratio, the more efficient is the use of capital employed.
8.2 Objective:
The ratio indicates the percentages of return on the total capital employed in the business. This ratio is very important ratio from the management point of view to judge the success of the enter price.
8.3 Formula: Profit after Tax *100 Total Capital Employed Return on Capital Employed = 8.4 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax * 100 Total Capital Employed Return on Capital Employed 2005-2006 1376000 27543 49.96% (Rs. In Lacs) 2006-2007 2007-2008 1601700 28480 56.24% 2317100 16689 138.84%
2007-2008
Years
2006-2007
Return on capital employed
2005-2006
0
50
100
150
Return on capital employed
8.5 Analysis:
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? It is clear from the Table that the return on capital employed ratio of the Company was 49.96%, 56.24% and 138.84% for the financial years 2006, 2007 and 2008 respectively.
? If the ratio is high than the use of capital employed is more efficient. From the share holders’ point of view it indicates how much the company is earning in the capital.
? From the above calculations, it is analyzed that the return on capital employed ratio of the company was highest in the year 2008 which shows better efficient use of the capital employed of the company.
? So it is good enough for the company that the ratio is increased in the last financial year.
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[D] Turnover Ratios
? Introduction
Turnover ratios are concerned with measuring the efficiency in asset management. These ratios are called activity ratios or efficiency ratios or asset utilization ratios. The efficiency with which the assets are used would be reflected in the speed and rapidity with which assets are converted into sales. The greater is the rate of turnover or conversion, the more efficient is the utilization/management, other things being equal. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Turnover ratios, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well.
? Definition
1. Turnover ratios are defined as a test of the relationship between sales (more appropriately with cost of sales) and the various assets of a firm. 2. Turnover ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets and to indicate the speed with which assets are being converted or turned over into sales.
? Types of turnover ratios
Depending upon the various types of assets, there are various types of turnover ratios can be calculated to judge the effectiveness of asset utilization. 1. Inventory (or Stock) Turnover Ratio 2. Debtors (or Receivables Turnover Ratio 3. Assets Turnover Ratio ? Total Assets Turnover Ratio ? Fixed Assets Turnover Ratio ? Capital Turnover Ratio ? Current Assets Turnover Ratio ? Working Capital Turnover Ratio Now, for understanding the effectiveness of asset utilization of Colgate-Palmolive Industries Limited, I have found the following turnover ratios: 1. Inventory Turnover Ratio 2. Fixed Assets Turnover Ratio 3. Working Capital Turnover Ratio 4. Total Assets Turnover Ratio 5. Net Worth Turnover Ratio 6. Debtors Turnover Ratio
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1. Inventory Turnover Ratio
1.1 Meaning:
Inventory (Stock) Turnover ratio establishes the relationship between cost of goods sold (COGS) and average stock.
1.2 Objective:
The objective of this ratio is to determine the efficiency with which the inventory is utilized.
1.3 Formula: Cost of Goods Sold Average Stock Inventory Turnover Ratio = 1.4 Financial Data of the Colgate-Palmolive Company: Particulars Cost of Goods Sold Average Stock Inventory Turnover Ratio 2005-2006 50536 7436 6.79 (Rs. In Lacs) 2006-2007 2007-2008 57637 8032 7.17 63278 7563 8.36
2007-2008
Years
2006-2007
inventory Turnover Ratio
2005-2006
0
2
4
6
8
10
inventory Turnover Ratio
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1.5 Analysis:
? It is clear from the Table that the inventory turnover ratio of the Company was 6.79 times, 7.17 times and 8.36 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio indicates the speed with which the stock is converted into sales. The high stock turnover ratio may be the result of very low stock levels and frequent stock-outs. On the other hand, too low stock turnover ratio may be the result of excessive inventory levels that may result into higher carrying or obsolete inventory.
? From the above calculations, it is analyzed that the company has efficient performance in term of its stock turnover ratio because the stock turnover ratio of the company is increasing during its last three financial years. So it shows sound position in term of the sales of the company and it is a good sign for the company.
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2. Fixed Assets Turnover Ratio
2.1 Meaning:
Fixed assets turnover ratio establishes the relationship between net sales and net fixed assets. The ratio indicates how well the fixed assets are being utilized.
2.2 Objective:
The ratio expresses the number of times fixed assets is turned over a stated period. It measures the efficiency with which fixed assets are being employed. Assets are used to generate sales therefore the company should manage its assets efficiently to maximize sales.
2.3 Formula: Net Sales Net Fixed Assets Fixed Assets Turnover Ratio = 2.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Net Fixed Assets Fixed Assets Turnover Ratio 2005-2006 112419 16002 7.025 (Rs. In Lacs) 2006-2007 2007-2008 129514 16768 7.723 147338 19140 7.697
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2007-2008
Years
2006-2007
Fixed assets turnover ratio
2005-2006
6.5
7
7.5
8
Fixed assets turnover ratio
2.5 Analysis:
? It is clear from the Table that the fixed assets turnover ratio of the Company was 7.025 times, 7.723 times and 7.697 times for the financial years 2006, 2007 and 2008 respectively.
?
The higher the ratio, the more efficient is the management and utilization of the assets while low ratios are indicative of underutilization of available resources and presence of idle capacity.
? From the above calculations, it is analyzed that the fixed turnover ratio of the Company was 3 times in the last financial years, and it is increasing from the year 2008 and that was highest during its last three financial years.
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? So it indicates good sign from the point of view of the company that it is efficiently utilized its assets and also signs sound level of its activity. Overall, it is good enough for the company.
3. Working Capital Turnover Ratio
3.1 Meaning:
Working Capital Turnover ratio establishes the relationship between net sales and net working capital. Net working capital is the difference between the current assets and currents liabilities.
3.2 Objective:
To indicate how efficiently the company is utilizes its net working capital. It means number of times the working capital turned over in the course of the year.
3.3 Formula: Net Sales Net Working Capital Working Capital Turnover Ratio = 3.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Net Working Capital Working Capital Turnover Ratio 2005-2006 112149 4964 22.65 (Rs. In Lacs) 2006-2007 2007-2008 129514 6623 19.56 147338 13257 11.11
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2007-2008
Years
2006-2007
Working capital turnover ratio
2005-2006
0
5
10
15
20
25
Working capital turnover ratio
3.5 Analysis:
? It is clear from the Table that the working capital turnover ratio of the Company was 22.65 times, 19.56 times and 11.11 times for the financial years 2006, 2007 and 2008 respectively.
? Working capital is a measure of the margin of protection for current creditors. It reflects the ability to finance current operations. Relating the level of sales arising from operations to the underlying working capital measures how efficiently working capital is employed. A low ratio may indicate an inefficient use of working capital, while a very high ratio often signifies overtrading—a vulnerable position for creditors.
? From the above calculations, it is analyzed that the working capital turnover ratio of the Company was 22.65 times in the financial year 2008 and lowest during its last three financial years which implies that the working capital of the company is not efficiently employed. - 54 -
4. Total Assets Turnover Ratio
4.1 Meaning:
The ratio which shows the firm’s ability in generating sales from all financial resources committed to total assets is called Total Assets Turnover ratio.
4.2 Objective:
The objective of this ratio is to compute the total assets turnover in addition to or instead of the net assets turnover. Total assets include net fixed assets (NFA) and current assets (CA). [Therefore, TA = NFA + CA + Investments]
4.3 Formula: Net Sales Total Assets Total Assets Turnover Ratio = 4.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Total Assets Total Assets Turnover Ratio 2005-2006 112419 61892 1.82 (Rs. In Lacs) 2006-2007 2007-2008 129514 67980 1.91 147338 67327 2.19
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2007-2008
Years
2006-2007
Total assets turnover ratio
2005-2006
0
0.5
1
1.5
2
2.5
Total assets turnover ratio
4.5 Analysis:
? It is clear from the Table that the total assets turnover ratio of the Company was 1.82 times, 1.91 times and 2.19 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio is a general measure of a firm's ability to generate sales in relation to total assets.
? From the above calculations, it is analyzed that the total assets turnover ratio of the Company is steadily increasing during its last three financial years which indicates that the Company is using its capital efficiently and it is able to generate a good turnover by it each unit of investment and also indicates that the Company is not using assets efficiently to maximize its sales. - 56 -
? So it is good enough for the company.
5. Net Worth Turnover Ratio
5.1 Meaning:
The net worth turnover ratio establishes the relationship between the net sales and net worth. Net worth includes equity share capital, reserves and surplus and excludes preference share capital.
5.2 Objective:
The objective of this ratio is to indicate how well the company is using its funds provided by the owner of the company to generate sales.
5.3 Formula: Net Sales Net Worth excluding Preference Share Capital Net Worth Turnover Ratio = 5.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Net Worth Net Worth Turnover Ratio 2005-2006 112419 27107.00 4.15 (Rs. In Lacs) 2006-2007 2007-2008 129514 28052.66 4.62 147338 16220.62 9.08
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2007-2008
Years
2006-2007
Net worth Turnover ratio
2005-2006
0
2
4
6
8
10
Net worth Turnover ratio
5.5 Analysis:
? It is clear from the Table that the net worth turnover ratio of the Company was 4.15 times, 4.62 times and 9.08 times for the financial years 2006, 2007 and 2008 respectively.
? Higher a ratio, better use of funds provided by the owner of the company to generate sales.
? From the above calculations, it is analyzed that the net worth turnover ratio of the Company is constantly increasing from the year 2006. It indicates that the Company is not using the funds provided by the owner not very well.
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6. Debtors Turnover Ratio
6.1 Meaning:
Debtors (Receivables) Turnover ratio establishes the relationship between net sales and trade debtors of a firm.
6.2 Objective:
The objective of this ratio is to determine the efficiency with which the debtors are managed. In other words, it shows how quickly debtors or receivables are converted into cash.
6.3 Formula: Net Sales Debtors + Bills Receivable Debtors Turnover Ratio = 6.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Debtors + Bills Receivables Debtors Turnover Ratio 2005-2006 112419 647.60 137.59 2006-2007 129514 932.63 138.87 (Rs. In Lacs) 2007-2008 147338 918.55 160.40
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2007-2008
Years
2006-2007
Debtors turnover ratio
2005-2006
120
130
140
150
160
170
Debtors turnover ratio
6.5 Analysis:
? It is clear from the Table that the debtors’ turnover ratio of the Company was 137.59 times, 138.87 times and 160.40 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio indicates the speed at which the debtors’ turnover takes place. However, too high and too low ratio calls for further investigation as too high ratio would result into higher working capital requirement and greater risk of bad debts. And too low ratio may result into restrictive credit and lesser sales.
? From the above calculations, it is analyzed that the debtors’ turnover ratio of the Company was decreasing from the year 2007. which was slightly
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increased than the previous year. But it indicates good liquidity of the debtors of the company.
[E] Valuation Ratios
? Introduction
The process of determine the value of an asset company. There are many techniques for valuation, and it is often partially objective and partially subjective. A valuation ratio is measure of how cheap or expensive security is that calculated by dividing a measure of cost by measure of value or profits. In that case price will show the same companies as being relatively cheap and expensive as a discounted free cash flow valuation will. The valuation ratio is to compare the cost of security to the benefits of owing it.
? Definition
The ratios which measure of how cheap or expensive security is that calculated by dividing a measure of cost by measure of value or profits.
? Types of valuation ratios
The following are some various types of valuation ratios 1. Dividend yield ratio 2. Dividend payout ratio 3. Price-earnings ratio 4. Earning per share 5. Dividend per share Now, for understanding the cost of security of Colgate-Palmolive Industries Limited, I have found the following valuation ratios: - 61 -
1. 2. 3. 4. 5.
Dividend yield ratio Dividend payout ratio Price-earnings ratio Earning per share Dividend per share
Now, let us see in detailed information related about the comparison of the cost of security to the benefits of owing it of a firm with the help of last three years financial data of a firm.
1. Dividend Yield Ratio
1.1 Meaning:
The dividend yield ratio is the dividends per share divided by the average market value per share. Dividend per share (DPS) are based on the book value per share, the yield is expressed in term of the average market value per share (MPS).
1.2 Objective:
The objective of this ratio is to evaluate the shareholders’ return in relation to the market value of the share.
1.3 Formula: Dividend per share Average market value per share Dividend Yield Ratio = 1.4 Financial Data of the Colgate-Palmolive Company: Particulars Dividend per share (Rs./Share) Average Market value per share (In Rs.) Dividend Yield Ratio 2006-2007 2007-2008 9.50 13.00 476.03 409.53 0.019% 0.032%
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2007-2008 Years
Dividend yield ratio
2006-2007
0
0.01
0.02
0.03
0.04
Dividend yield ratio
1.5 Analysis:
? It is clear from the Table that the dividend yield ratio of the Company was 0.019%, 0.032% for the financial years 2007 and 2008 respectively.
? A very high dividend yield ratio signals potential financial difficulties and possible of dividend payout. Dividend yield ratio is the percentage rate of return by investing in shares at current market price.
? From the above calculations, it is analyzed that the dividend yield ratio of the Company was 0.019% in the financial year 2007 which was slightly increased comparing with the financial year 2008. of the company. It is not good for the company.
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2. Dividend Payout Ratio
2.1 Meaning:
Dividend payout ratio (or simply payout ratio) is dividend per share (or total dividends) divided by the earning per share (or total shareholders’ earnings).
2.2 Objective:
The objective of this ratio is show what percentage share of the net profits after taxes and preference dividend is paid out as dividend to the equity holders.
2.3 Formula: Dividend per share Earning per share Dividend Payout Ratio = 2.4 Financial Data of the Colgate-Palmolive Company: Particulars Dividend per share Earning per share Dividend Payout Ratio 2005-2006 7.50 10.12 0.74% (Rs. /Share) 2006-2007 2007-2008 9.50 13.00 11.78 17.04 0.81% 0.76%
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2007-2008
Years
2006-2007
Dividend Payout Ratio
2005-2006
0.7
0.75
0.8
0.85
Dividend Payout Ratio
2.5 Analysis:
? It is clear from the Table that the dividend payout ratio of the Company was 0.74%, 0.81% and 0.76% for the financial years 2006, 2007 and 2008 respectively.
? Higher a ratio, better ability of the company to make good profit from the invested capital of the shareholders and to pay high dividend to equity shareholders.
? From the above calculations, it is analyzed that the dividend payout ratio of the Company was 0.81% in 2007 which was increased comparing with the other two financial years of the Company. It indicates not good profit from the invested capital. But it decreased in the very next year 2008. So,
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the Company can get the confidence of the shareholders by giving good dividend to equity shareholders.
? It is good enough for the company point of view.
3. Price-Earnings Ratio
3.1 Meaning:
The reciprocal of the earnings yield is called the Price-Earnings ratio.
3.2 Objective:
The objective of this ratio is to value the firm’s performance as expected by business. The ratio reflects investors’ expectations about the growth in the firm’s earnings.
3.3 Formula: Average market value per share Earning per share Price-Earnings Ratio = 3.4 Financial Data of the Colgate-Palmolive Company: Particulars Average Market value per share (In Rs.) Earning per share (Rs./Share) Price-Earnings Ratio 2006-2007 2007-2008 476.03 409.53 11.78 17.04 40.41 24.03
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2007-2008
Price
Price Earning Ratio
2006-2007
0
10
20
30
40
50
Price Earning Ratio
3.5 Analysis:
? It is clear from the Table that the price-equity ratio of the Company was 40.41%, 24.03% and for the financial years 2007 and 2008 respectively.
? From the above calculations, it is analyzed that the price-earning ratio of the Company was 24.03% in the financial year 2008 which was slightly decreased comparing with the previous year. Overall, It is not so good for the Company point of view.
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4. Earning Per Share
4.1 Meaning:
The Earning per Share is calculated by dividing the profit after taxes by the total number of common shares outstanding. The earning per share of the company simply shows the profitability of the firm on a per share basis; it does not reflect how much is paid as a dividend and how much is retained in business.
4.2 Objective:
The objective of this ratio is to know the company’s turnover.
4.3 Formula: PAT No of equity shares Earning per share ratio = 4.4 Financial Data of the Colgate-Palmolive Company:
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Particulars PAT No of equity shares Earning per share ratio
2005-2006 2006-2007 2007-2008 13759.79 16016.77 23171.02 1360 1360 1360 10.12 11.78 17.04
2007-2008
Years
2006-2007
Earning Per Share ratio
2005-2006
0
5
10
15
20
Earning Per Share ratio
4.5 Analysis: ? It is clear from the table that the Earning per share ratio of the
Company was 10.12, 11.78 and 17.04 for the financial years 2006, 20067 and 2008 respectively.
? Earning Pre Share of the company induces the potentially of the
company towards its relative its relative market share and management.
? From the above calculations, it is analyzed that the Earning per share
ratio of the Company was increasing from last three financial years. It is increasing because the company’s turnover increased during the
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various financial years and because of that the profit of the company also increased.
5.Dividend Per Share Ratio
5.1 Meaning:
The dividend per share is the earnings distributed to common shareholders divided by the number of common shares outstanding.
5.2 Objective:
The objective of this ratio to know the revenues and profits strength of the company.
5.3 Formula: Dividend per share ratio = Interim Dividend + Final Dividend No. of Shares
- 70 -
5.4 Financial Data of the Colgate-Palmolive company: Particulars Total dividend declared No of shares Dividend per share ratio 2005-2006 2006-2007 2007-2008 10200 12919 17679 1360 1360 1360 7.50 9.50 13.00
2007-2008
Years
2006-2007
Dividend Per share ratio
2005-2006
0
5
10
15
Dividend Per share ratio
5.5 Analysis: ? It is clear from the table that the Dividend per share ratio of the
Company was 7.50, 9.50 and 13.00 for the financial years 2006, 2007 and 2008 respectively.
? From the above calculations, it is analyzed that the Dividend per
share ratio of the Company was increasing from the last three financial years. Because of the revenues and profits strength of the company.
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? From the above calculation it is clear concept mentioned about the
progress and performance of the company.
7. CAPITAL STRUCTURE ANALYSIS:
MEANING:
• The different amounts and types of stocks and shares which make up a trust’s capital and the amount of the ordinary and preference shares, debentures and unsecured loan stock, etc, those are in issue.
•
The capital structure of a company refers to the relationship between how much of their financing came from debt compared to common or preferred stock or retained earnings.
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•
The capital structure of a company is the way in which that entity finance itself by some combination of equity sales, options, bonds, and loans.
7.1 CAPITAL STRUCTURE FOR THE YEAR 2006:
Capital Structure Year 06 (%) Share Capital 49.38 Reserves & Surplus 49.04 Unsecured Loans 1.58
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CAPITAL STRUCTURE 2006
Share Capital Reserves & Surplus Unsecured Loans
7.2 CAPITAL STRUCTURE FOR THE YEAR 2007:
Capital Structure Year 07
Share Capital 47.75
Reserves & Surplus 50.75
Unsecured Loans 1.5
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CAPITAL STRUCTURE 2007
Share Capital Reserves & Surplus Unsecured Loans
7.3 CAPITAL STRUCTURE FOR THE YEAR 2008:
Capital Structure Year 08 Share Capital 8.15 Reserves & Surplus 89.04 Unsecured Loans 2.81
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CAPITAL STRUCTURE 2008
Share Capital Reserves & Surplus Unsecured Loans
Analysis:
• The capital Structure analysis for the year 2006 Shows that Share Capital is 49.38%,the reserves and surplus is 49.04%, the unsecured loans is 58%.
•
The capital structure analysis for the year 2007 shows that Share Capital is 47.75%, the reserves and surplus is 50.75% and the unsecured loans is 1.50%.
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•
The capital structure analysis for the year 2008 shows that Share capital is 8.15%, The reserves and surplus is 89.04% and the unsecured loans is 2.81%.
•
From the three analysis of the capital structure of the company for three financial years’ shows that share capital is slightly decreased. Reserves and surplus was slightly increased. And the unsecured loans were slightly decreased.
8. SHARE HOLDING PATTERN:
MEANING:
Share Holding Pattern gives the contributed proportion of company’s equity by promoters and promoter group, mutual funds, FIs and Banks, etc.
8.1 Share Holding Pattern for the year 2007:
CATEGORY %
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Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions
51 25 11.85 0.28 1.89 0 2.16 7.76
SHARE HOLDING PATTERN 2007
Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions
8.2 Share Holding Pattern for the Year 2008:
CATEGORY Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions % 51 23.71 7.04 0.25 4.24 0 5.4 7.56
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SHARE HOLDING PATTERN 2008
Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions
9. CASH FLOW STATEMENT ANALYSIS:
MEANING:
• A financial statement that the inflow of revenue vs. The outflow of expenses resulting from operating, investing, and financing activities during a specific time period.
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9.1 CASH FLOW STATEMENT ANALYSIS:
Cash Flow Statement A. Operating Activities B.Investing Activities C. Financing Activities 11532.22 13604.09 27495.24 3744.84 555.45 2609.32 2005-2006(Rs. In Lacs) 18459.8 2006-2007(Rs. In Lacs) 15423.82 2007-2008(Rs. In Lacs) 28140.29
10. COMMON SIZE STATEMENTS:
MEANING:
• A statement in which all items are expressed as a percentage of a base figure, useful for purpose of analyzing trends and changing relationship among financial statement items.
10.1COMMON SIZE BALANCE SHEET:
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2006 (Rs. In Lacs) Sources of Funds Shareholders' Funds Share capital Resurves & Surplus Loan Funds Un secured Loans TOTAL Application of Funds Fixed Assets Gross Block Less
epriciation/ Amortiation Net Block Capital workl in progress and advances for capital Expenditure Investments Deffered Taax assets (Net) Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Interest Accrued on Investments/ Deposits Loans and Advances Less: Current liabilities and Provisions Liabilities Provisions Net Current Asstes TOTAL
2006(%)
2007 ( Rs.In Lacs)
2007 (%)
2008 ( Rs. In Lacs)
2008 (%)
13599.28 13507.72 435.52 27542.52
49.38 49.04 1.58 100
13599.28 14453.38 427.5 28480.16
47.75 50.75 1.5 100
1359.93 14860.69 468.75 16689.37
8.15 89.04 2.81 100
40353.52 24350.98 16002.54
58.1
41145.91 24377.58 16768.33
58.88
44959.43 25818.85 19140.58
909.02 14833.53 761.46 7435.72 647.6 8796.73 424.04 12841.45
3.3 53.86 2.76
2434.45 13333.53 2566.95 8032.63 932.63 11171.91 386.32 14919.08
8.55 46.82 9.01
758.84 7258.77 2782.72 7563.85 918.55 14426.28 264.2 16995.67 40168.55 34693.43 18726.66 53420.09 16689.37
4.55 43.49 16.67
28235.86 6873.71 4964.03 27542.52
18.02
31571.85 10493.82 6623.1 28480.16
23.26
79.4
10.2 COMMONSIZE PROFIT AND LOSS ACCOUNT
Particulers Income Sales Less: Excise duty Net Sales Other Income Expenditure - 81 121750.88 9331.85 112419.03 4608.95 96.06 3.94 138538.29 9024.09 129514.2 6700.03 95.08 4.92 155321.1 7983.2 147337.9 8478.12 94.56 5.44 2006(Rs.in lacs) 2006% 2007 (Rs. In lacs) 2007% 2008 ( Rs. In lacs) 2008%
Cost of goods sold Employee costs Other Expences Depriciation Profit before Taxation Current Tax Differed Tax Fringe Benefit Tax Profit after tax
50536.2 9688.82 34872.28 3142.75 98240.05 18787.93 4686.6 -258.46 600 13759.79
43.18 8.28 29.8 2.69 83.95 16.05
57636.74 16993.08 39898.03 1525.79 116053.64 20160.59 53.97.85 -1674.03 420
42.31 12.48 29.29 1.12 85.2 14.8 3.96 1.23 0.31 11.76
63277.65 11827.68 49521.29 1984.49 126611.11 29204.91 5824.66 -215.77 425 23171.02
40.61 7.59 31.78 1.27 81.26 18.74 3.74 0.14 0.27 14.87
11.76
16016.77
11. AWARDS AND ACHIEVEMENTS :
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11.1 A New World Record: Colgate Brush-Up Challenge
The Colgate Oral Health Month is now into its 4th year. Every year the scope and reach has increased reaffirming Colgate's commitment to oral health care in India. In 2007 it took a giant leap over previous editions by expanding its reach from 102 towns and cities in 2006 to 200 cities and towns in 2007 with free dental check-ups conducted in each of these 200 cities.
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The Colgate Oral Health Month is an intensive month-long effort aimed at generating and building awareness so that people understand the benefits of preventive oral health care. Dental experts around the world agree that brushing twice a day is critical to one's oral health and in developing countries like India, it is best to start the process early. Towards this Colgate partners the Indian Dental Association each year to conduct this program among school children. A special event to generate mass awareness about the benefits of brushing - the Colgate Brush-Up Challenge - was created where school children across schools in India participated in a record-breaking attempt to create the new Guinness World RecordTM for children brushing at the same time across multiple venues. Shattering the previous record of 41,038 held by the Philippines, 177,003 school children in India from 380 locations across 23 cities helped create a new world record. The centre stage was a special event at a school in New Delhi where over 5,000 children gathered together encouraged by the Colgate Brand Ambassador, So if Ali Khan. In December 2007, Colgate India received a certificate from the Guinness World Records™ awarding Colgate India the World Record for "the most people brushing their teeth simultaneously." Colgate, India's # 1 brand ... India's Most Trusted brand and now, a Guinness World Record™ holder. It is another milestone as Colgate India celebrates 70 years of spreading smiles in India.
11.2 Achievements and Past Successes:
They strive for continuous improvements with our supplier teams. • A multidisciplinary team from Colgate and JM Huber, a key oral care raw material supplier, identified potential savings across the supply chain. This team realized savings in excess of hundreds of thousands of dollars. This supplier relationship was featured in a Colgate-Palmolive Company Annual Report and is one example of the several preferred suppliers teaming with Colgate.
12. HUMAN RESOURCE ANALYSIS:
Global Human Resources Development Program
Colgate HR Associates are given the opportunity to contribute to HR initiatives at the corporate, division and operating unit levels, both domestically and internationally.
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Our HR professionals are treated as strategic business partners and integral members of the management team. They are encouraged to learn as much as possible about many areas of our company.
HR Program provides:
• • • A “Learn by Doing” approach 4 to 6 rotations over a 12 to 18 month period Possible assignments in Compensation, HR Information Center,
Manufacturing, Sales and an International Division
Requirements:
• • • • • Graduate degree in Human Resources Management, Organizational
Psychology, or Industrial Labor Relations
Excellent interpersonal, communication and analytical skills Desire for an international career (previous experience abroad is a plus) Prior work experience in human resources preferred Ability to thrive on change
Global Human Resources Summer Internship
Colgate offers summer internships for those interested in a global human resources management career. Interns will join a functional Colgate HR team and will help manage one or more project areas such as: • Compensation • • • • • • Employee Relations Global Leadership Development Education and Training Sales & Marketing Research & Development Or within an International Division
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Interns gain firsthand knowledge of our company through exposure to HR senior management and business leaders. Successful interns will demonstrate strong team building and communication skills, as well as the ability to plan and prioritize.
Requirements:
• Completion of first year of a graduate program in Human Resources management, Organizational Psychology, or Industrial Labor Relations • • Prior experience in human resources is desirable Strong interpersonal, communication and analytical skills
13. CONCLISION
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?
As far as I have make project I can understand that the sound position of the company is very good.
? ?
The company has good market shares also. The company is giving special dividend sometimes. So, it is a good sign for the company.
?
Though the company is very old, it has a good market position in our company.
?
So, the company is profit making company.
14. BIBLIOGRAPHY
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TITLE
AUTHER
BOOK NAME Theory and Problems in Financial Management Financial Management
PRINT
PUBLISHING HOUSE
EDITION
YEAR OF PRINT
PAGE NO.
Financial Management Financial Management
Khan.M.Y & Jain.P.K
Fourth
Tata Mcgraw Hills Vikas Publishing House Pvt. Ltd.
Second
2001
2.1-2.5
Pandey.I.M.
Reprint1995
2001
70 106113 116117 120132
15. SOURCES OF INFORMATION:
?
www.colgate.com
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? ? ?
www.moneypore.com www.indiainfoline.com Annual Reports of the company.
16. ANNEXURE:
15.1 PROFIT & LOSS ACCOUNT FOR LAST THREE YEARS:
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2006 INCOME Sales Less: Excise Duty Other income EXPENDITURE Cost Of Goods Sold Employee Costs Other Expenses Depriciation/Amortisation PROFIT BEFORE TAX Current Tax Differed Tax Fringe Benefit Tax PROFIT AFTER TAX Balance Brought Forward PROFIT AVAILABLE for Appropriation APPROPRIATION First Interim Dividend Second Interim Dividend Special Dividend-Proposed Third Interim Dividend Dividend Tax Transfer To General Reserve Balance Carried Forward EARNING PER EQUITY SHARE(RS.) (Face Value OF Rs. 10 per equity share) Basic and Diluted ( Refer schedule 24) 121750.9 9331.85 4608.95 117028 50536.2 9688.82 34872.28 3142.75 98240.05 187.93 4686.6 -258.46 600 5028.14 13759.79 2130 15889.79 3739.8 4079.78 2379.87 1430.47 1375.98 2883.89 15889.79
2007 138538.3 9024.09 6700.03 136214.2 57636.74 16993.08 39898.03 1525.79 116053.6 20160.59 5397.85 -1674.03 420 4143.82 16016.77 2883.89 18900.66
2008 155321.1 7983.2 8478.12 155816 63277.65 11827.68 49521.29 1984.49 126611.1 29204.91 5824.66 -215.77 425 6033.89 23171.02 2486.96 25657.98
5779.68 8159.57 4419.77 2719.86 9519.5 1892.71 5084.64 1601.68 2317.1 2486.96 577.17 18900.66 25657.98
10.12
11.78
17.04
15.2
BALANCE SHEET FOR LAST THREE YEARS:
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2006 Sources of Funds Shareholders' Funds Share capital Reserves & Surplus Loan Funds Un secured Loans TOTAL Application of Funds Fixed Assets Gross Block Lessepriciation/ Amortization Net Block Capital work in progress and advances for capital Expenditure Investments Differed Tax assets (Net) Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Interest Accrued on Investments/ Deposits Loans and Advances Less: Current liabilities and Provisions Liabilities Provisions Net Current Assets TOTAL
2007
2008
13599.28 13507.72 27107 435.52 27542.52
13599.28 14453.38 28052.66 427.5 28480.16
1359.93 14860.69 16220.62 468.75 16689.37
40353.52 24350.98 16002.54 909.02 16911.56 14833.53 761.46 7435.72 647.6 8796.73 424.04 12841.45 30145.54.
41145.91 24377.58 16768.33 2434.45 19202.78 13333.53 2566.95 8032.63 932.63 11171.91 386.32 14919.08 35442.57
44959.43 25818.85 19140.58 758.84 19899.42 7258.77 2782.72 7563.85 918.55 14426.28 264.2 16995.67 40168.55
28235.86 6873.71 35109.57 -4964.03 27542.52
31571.85 10493.82 42065.67 -6623.1 28480.16
34693.43 18726.66 53420.09 -13251.5 16689.37
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doc_458565154.doc
Industrial Design is the use of both applied art and applied science to improve the aesthetics, ergonomics, functionality, and/or usability of a product, and it may also be used to improve the product's marketability and even production.
1. INTRODUCTION OF THE INDUSTRY AND INDUSRY TREND
By the turn of the 20th century, the face of the Indian retailing industry had changed significantly. The retailing industry, which, until the early 1990s, was dominated by the unorganized sector, witnessed a rapid growth in the organized sector with the entry of corporate groups such as Tata, RPG, ITC and Bennett Coleman & Company into the retailing market. With the liberalization and growth of the Indian economy since the early 1990s, the Indian customer witnessed an increasing exposure to new domestic and foreign products through different media, such as television and the Internet. Apart from this, social changes such as increase in the number of nuclear families and the growing number of working couples resulting in increased spending power also contributed to the increase in the Indian consumers'personal consumption. These changes had a positive impact, leading to the rapid growth in the retailing industry. Increased availability of retail space, rapid urbanization, and qualified manpower also boosted the growth of the organized retailing sector. Food retailing was a key area that saw some action at the national level, with players like Foodworld and Subhiksha, establishing stores all over India. While supermarket and departmental chains replaced traditional grocery and general store formats, introduction of fast foods (McDonalds), packaged foods (MTR, Namma MTR), vending machines and specialty beverage parlors (Nescafe, Tata Tea, Café Coffee and Barista) brought about significant changes in the eating habits of Indian consumers However, it was the non-food sector that saw tremendous action, with the introduction of new product segments. These segments mainly comprised lifestyle/apparel/ fashion/accessories (eg. Shoppers Stop, Westside, Lifestyle, Pantaloons, Reebok), books/music (Landmark and Crosswords), drugs and pharmacy and beauty (Health & Glow, CavinKare and Shahnaz Husain)... FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily deals with the production, distribution and marketing of consumer packaged goods. The Fast Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the consumers at a regular interval. Some of the prime activities of FMCG industry are selling, marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain, production and general management.
? FMCG industry economy
FMCG industry provides a wide range of consumables and accordingly the amount of money circulated against FMCG products is also very high. The competition among FMCG manufacturers is also growing and as a result of this, investment in FMCG industry is also increasing, specifically in India, where FMCG industry is regarded as the fourth largest sector with total market size of US$13.1 billion. FMCG Sector in India is estimated to grow 60% by 2010. FMCG industry is regarded as the largest sector in New Zealand which accounts for 5% of Gross Domestic Product (GDP).
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? Common FMCG products
Some common FMCG product categories include food and dairy products, glassware, paper products, pharmaceuticals, consumer electronics, packaged food products, plastic goods, printing and stationery, household products, photography, drinks etc. and some of the examples of FMCG products are coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco and cigarettes, watches, soaps etc. Market potentiality of FMCG industry Some of the merits of FMCG industry, which made this industry as a potential one are low operational cost, strong distribution networks, presence of renowned FMCG companies. Population growth is another factor which is responsible behind the success of this industry.
? Leading FMCG companies
Some of the well known FMCG companies are Sara Lee, Nestlé, Reckitt Benckiser, Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi and Mars etc.
? Job opportunities in FMCG industry
FMCG industry creates a wide range of job opportunities. This industry is a stable, diverse, challenging and high profile industry providing a wide range of job categories like sales, supply chain, finance, marketing, operations, purchasing, human resources, product development, general management.
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2. INTRODUCTION OF THE COMPANY:
? Their Mission
To provide Colgate with a significant competitive advantage by reducing total delivered cost, extending technology resources and developing excellence in purchasing, logistics and sourcing processes. • Driving Growth Worldwide • Building Market Leadership • Growing Profitability Colgate's long history of strong performance comes from absolute focus on our core global businesses: Oral Care, Personal Care, Home Care and Pet Nutrition. This has been combined with a successful worldwide financial strategy. Around the world, Colgate has consistently increased gross margin while at the same time reducing costs in order to fund growth initiatives, including new product development and increases in marketing spending. These, in turn, have generated greater profitability. Colgate managers around the world are dedicated to increasing market shares in all our core businesses. Colgate has achieved global leadership in toothpaste, hand dishwashing liquid, liquid hand soap and specialty pet food. 1806 William Colgate starts a starch, soap and candle business on Dutch Street in New York City. 1817 First Colgate advertisement appears in a New York newspaper. 1820 Colgate establishes a starch factory in Jersey City, New Jersey. 1857 Upon the death of founder William Colgate, the company is reorganized as Colgate & Company under the management of Samuel Colgate, his son.
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1864 B.J. Johnson opens a soap factory in Milwaukee, WI which later becomes the Palmolive Company. 1866 Colgate introduces perfumed soap and perfumes/essences. 1872 Peet Brothers establish soap company in Kansas City, Kansas where they make Crystal White soap. Cashmere Bouquet, the first milled perfumed toilet soap, is registered as a Colgate trademark. 1873 Colgate introduces toothpaste in jars. 1879 Gerhard Mennen establishes a pharmacy in Newark, NJ, later becoming the Mennen Company. 1896 Colgate introduces toothpaste in a collapsible tube. 1898 B.J. Johnson Soap Co. introduces Palmolive Soap. Today, the Palmolive equity is sold in over 88 countries in 54 variants. 1900 Colgate wins top honors for its fine soaps and perfumes at the World’s Fair in Paris. 1991 Colgate acquires Murphy Oil Soap, the leading wood cleaner in the U.S. Today, its product portfolio has expanded to include all-purpose cleaners, sprays and wipes. 1992 Colgate acquires the Mennen Company. Today, Mennen products are sold in over 52 countries. Colgate Total toothpaste introduced. 1995 Colgate enters Central Europe and Russia, expanding into fast-growing markets. Colgate acquires Kolynos Oral Care business in Latin America and launches marketleading Sorriso toothpaste.
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1996 Bright Smiles, Bright Futures oral health education program expands to 50 countries, and today reaches over 50 million children annually. 1997 Colgate Total toothpaste is introduced in the U.S. and quickly becomes the market leader. Only Colgate Total, with its 12-hour protection, fights a complete range of oral health problems. 2004 Colgate acquires the GABA oral care business in Europe, with its strength in the important European pharmacy channel and its ties with the dental community. 2006 Colgate enters the fast-growing Naturals segment by purchasing Tom’s of Maine, a leader in that market in the United States. Today … Today, with sales surpassing $13 billion, Colgate focuses on four core businesses: Oral Care, Personal Care, Home Care and Pet Nutrition. Colgate now sells its products in over 200 countries and territories worldwide.
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3.ORGANISATIONAL HIERARCHY
SHARE-HOLDERS
CHAIRMAN (J.SKALA)
BOARD OF DIRECTORS
COMPANY SECRATORY (K.V.VAIDYANATHAN)
FINANCE DIRECTOR (M.A.ELIAS)
SALES DIRECTOR (S.BHARATWAJ)
MANAGING DIRECTOR (R.D.CALMEYER)
R&D DIRECTOR (MR.S.MANEK)
LEGEL DIRECTOR (K.V.VAIDYANATHAN)
MARKETING DIRECTOR (MS.P.PARAMESWARAN)
MANUFACTURING & SUPPLY DIRECTOR (L.WHEELER) -6-
HUMAN RESOURCE DIRECTOR (D.ROY)
4.
FINANCIAL HIGHLIGHTS OF LAST 10 YEARS
4.1 Sales:
Year Sales
19981999 99822
19992000 108958
20002001 117688
20012002 1160898
20022003 105689
20032004 104208
20042005 107253
20052006 121750
20062007 138538
20072008 155321
.
Sales 1400000 1200000 1000000 800000 600000 400000 200000 0
19 98 19 1 99 99 9 20 2 00 00 0 20 2 00 01 1 20 2 00 02 2 20 2 00 03 3 20 2 00 04 4 20 2 00 05 5 20 2 00 06 6 20 2 00 07 7 -2 00 8
Sales ( Rs. in lacs)
Sales
Years
Analysis:
• The company sales increased in only the year 2001 - 2002, it was about 1160898 lacs.
•
The company continues to connect with consumers in new and different ways to better understand their wants and needs and to increase sales of the
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company’s products. The company also continues to conduct a variety of consumption building activities. One example is the very successful “Bright Smiles, Bright Futures” comprehensive oral health education initiatives which have provided oral health information and Colgate product samples to over 70 million children in India since the dental education program began 30 years ago.
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4.2 PROFIT AFTER TAX:
Year PAT 19981999 4567 19992000 5179 20002001 6250 20012002 6979 20022003 8866 20032004 10800 20042005 11329 20052006 13760 20062007 16017 20072008 23171
PAT 25000 20000 15000 10000 5000 0
19 98 -1 19 99 99 9 -2 20 00 00 0 -2 20 00 01 1 -2 20 00 02 2 -2 20 00 03 3 -2 20 00 04 4 -2 20 00 05 5 -2 20 00 06 6 -2 20 00 07 7 -2 00 8
PAT (Rs. in lacs)
PAT
Years
Analysis:
• Profit after tax of the company is steadily increased during the last financial years because of good performance in the turn over of the company which resulted into good profits.
•
The profit after tax was 4567 Lacs in 1998 – 1999 then, it increased 23171 in 2007 – 2008.
•
By the use of the chart of Profit after tax, it is clear that the company is making good performance.
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4.3 DIVIDEND PAY OUT
19981999 89.29 19992000 78.74 20002001 183.33 20012002 82.85 20022003 65.18 20032004 75.57 20042005 84.03 20052006 74.11 20062007 80.65 20072008 76.29
Year DPO
DPO
200 180 160 140 120 100 80 60 40 20 0
19 98 -1 19 99 99 9 -2 20 000 00 -2 20 00 01 1 -2 20 00 02 2 -2 20 00 03 3 -2 20 00 04 4 -2 20 005 05 -2 20 00 06 6 -2 20 00 07 7 -2 00 8
DPO
DPO(%)
Years
Analysis:
• Dividend pay out of the company is slightly decrease during the last financial year because of company’s stringent policy.
•
Dividend pay out showed where the company stands and it also gives the company’s performance.
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4.4 DIVIDEND PER SHARE
Year DPS 19981999 3 19992000 3 20002001 8.25 20012002 4.25 20022003 4.25 20032004 6 20042005 7 20052006 7.5 20062007 9.5 20072008 13
DPS 14 12 10 8 6 4 2 0
-1 19 99 99 9 -2 2 0 0 00 00 -2 20 0 0 01 1 -2 20 0 0 02 2 -2 2 0 0 03 03 -2 20 00 04 4 -2 20 0 0 05 5 -2 20 0 0 6 06 -2 20 0 0 07 7 -2 00 8
DPS ( In Rs.)
DPS
19 98
Years
Analysis:
•
Dividend Per Share of the company is steadily increased during the last financial years because of good performance in the turn over of the company which resulted into good profit and revenue of the company.
•
By the use of chart, it is clear that the company is progressing and making good performance in the market.
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4.5 EARNING PER SHARE:
Year EPS 19981999 3.36 19992000 3.81 20002001 4.5 20012002 5.13 20022003 6.52 20032004 7.94 20042005 8.33 20052006 10.12 20062007 11.78 20072008 17.04
EPS 18 16 14 12 10 8 6 4 2 0
-1 19 9 9 9 99 -2 20 0 00 00 -2 2 0 0 01 01 -2 20 0 02 02 -2 20 003 03 -2 2 0 0 04 04 -2 20 005 05 -2 20 0 06 06 -2 20 007 07 -2 00 8
EPS ( In RS.)
EPS
19 98
Years
Analysis:
• Earning per Share of the company is steadily increased during the last financial years because of the relative market share increased of the company.
•
Earning per Share of the company increased because of the another reason that the company’s turn over increased during the last financial years because of good performance in the turn over of the company
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4.6 BOOK VALUE PER SHARE:
19981999 21.97 19992000 22.57 20002001 25.89 20012002 18.89 20022003 20.38 20032004 18.12 20042005 18.66 20052006 20.25 20062007 20.94 20072008 12.27
Year BVPS
BVPS 30 BVPS (Rs. in lacs) 25 20 15 10 5 0
-1 19 99 99 9 -2 20 0 0 00 0 -2 20 0 0 01 1 -2 20 0 0 02 2 -2 20 0 0 03 3 -2 20 00 04 4 -2 20 0 0 05 5 -2 20 00 06 6 -2 20 0 0 07 7 -2 00 8
BVPS
19 98
Years
Analysis:
• As far as the Book value per Share is concerned, through the chart, it shows that it is fluctuate.
•
It means that the Book value of share is increased sometimes and it decresed sometimes
- 13 -
4.7 NET WORTH:
Year Net worth 19981999 6.024 19992000 6.238 20002001 9.876 20012002 10.17 20022003 7.233 20032004 9.174 20042005 8.817 20052006 8.4008 20062007 8.862 20072008 9.579
Net worth 12 10 8 6 4 2 0
-1 19 99 99 9 -2 20 00 00 0 20 200 01 1 -2 20 0 0 02 2 -2 20 0 0 03 3 -2 20 0 0 04 4 -2 20 0 0 05 5 20 200 06 6 -2 20 0 0 07 7 -2 00 8
Net worth ( In Rs.)
Net worth
19 98
Years
Analysis:
• The net worth of the company is not increased regularly because the net worth of the company is increasing and decreasing sometimes.
•
The net worth of the company is increased in the year of 2001, 2002, 2004, and 2008, then the decreased of the company in the year of 1999, 2000, 2003.
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4.8 TOTAL ASSETS:
Year Total Assts 19981999 29887 19992000 30697 20002001 25216 20012002 256898 20022003 27716 20032004 24648 20042005 25375 20052006 27543 20062007 28480 20072008 16689
Total Assts Total Assets ( Rs. in lacs) 300000 250000 200000 150000 100000 50000 0
19 98 19 199 99 9 20 200 00 0 20 20 0 1 01 20 200 02 2 20 200 03 3 20 200 04 4 20 200 05 5 20 -20 06 06 20 200 07 7 -2 00 8
Total Assts
Years
Analysis:
• The Total Assets of the company is increased only one time in the financial year of 2001 – 2002.
•
Then the other side that the company decreased in so many financial years.
- 15 -
5. ACCOUNTIG POLICES:
?
Basis of Accounting
The financial statements are prepared to comply in all material aspects with all the applicable accounting principles in India, the accounting standards notified under section 211 (3C) of the Companies Act, 1956 of India (the Act) and the relevant provisions of the Act. ? Fixed Assets Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all direct costs relating to the acquisition and installation of fixed assets. Interest on borrowed funds, if any, used to finance the acquisition of fixed assets, is capitalised up to the date the assets are ready for commercial use. Under utilised/ldle assets are recorded at estimated realisable value. Intangible Assets Goodwill and other Intangible Assets are amortised over the useful life of the assets, not exceeding 10 years. Tangible Assets Lease-hold land is being amortised over the period of lease. Depreciation is provided pro-rata to the period of use on straight-line method based on the estimated useful lives of the assets, as stated below: Assets Useful Lives Residential and Office Building * 40 Years Factory Building * 20 Years Plant and Machinery 7 Years to 21 Years Dies and Moulds 3 Years Furniture and Fixtures 5 Years Office Equipment 5 Years Computers 5 Years Vehicles 5 Years In respect of buildings acquired, estimated useful life is considered from the date of completion of construction. The useful lives of the assets are based on technical estimates approved by the Management, and are lower than the implied useful lives arrived on the basis of the rates prescribed under Schedule XIV to the Companies Act, 1956 of India. Assets individually costing less than Rs. 5,000 are fully depreciated in the year of acquisition. Impairment At each Balance Sheet date, the Company reviews the carrying value of tangible and intangible assets for any possible impairment. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is higher of the asset's net selling price or estimated future cash flows which
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are discounted to their present value based on appropriate discount rates. For the purpose of assessing impairment, assets are grouped at the levels for which there are separately identifiable cash flows (cash generating unit).
? Investments
Long term investments are valued at cost. Current investments are valued at lower of cost and fair value as on the date of the Balance Sheet. The Company provides for diminution in value of investments, other than temporary in nature.
? Finished goods
includes materials, labour and manufacturing overheads and other costs incurred in bringing the inventories to their present location. Cost is determined using standard cost method that approximates actual cost. The Company accrues for customs duty liability in respect of stocks of raw material lying in bond, and excise duty liability in respect of stocks of finished goods lying in bond and warehouses.
? Revenue Recognition
Sales are recognised upon delivery of goods and are recorded net of trade discounts, rebates, sales tax/value added tax and excise duty on own manufactured and outsourced products.
? Provisions and Contingent Liabilities
Provisions are recognised when the Company has a legal and constructive obligation as a result of a past event, for which it is probable that a cash outflow will be required and a reliable estimate can be made of the amount of the obligation. Contingent Liabilities are disclosed when the Company has a possible obligation or a present obligation and it is probable that a cash outflow will not be required to settle the obligation
? Expenditure
Advertising expenses are consistently accrued and recognised in the year in which the related activities are carried out. The Company has Defined Contribution Plan for its employees' retirement benefits comprising of Provident Fund and Superannuation Fund which are recognised by the Income Tax Authorities and administered through its trustees. The Company contributes to Provident Fund and Superannuation Fund for its employees. In respect of Provident Fund, interest rates payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investment of the trust and notified interest rate. The Company contributes to State Plans namely Employees' State Insurance Fund and Employees' Pension Scheme, 1995. The Company has Defined Benefit Plan comprising of Gratuity Fund and Pension Scheme. The Company contributes to the Gratuity Fund
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[A] Liquidity Ratios
? Introduction
The importance of adequate liquidity in the sense of the ability of a firm to meet current/short-term obligations when they become due for payment can hardly be overstressed. In fact, liquidity is a prerequisite for the very survival of a firm. The short-term creditors of the firm are interested in the short-term solvency or liquidity of a firm. But liquidity implies, from the viewpoint of utilization of the funds of the firm that funds are idle or they earn very little. A proper balance between the two contradictory requirements, that is, liquidity and profitability, is required for efficient financial management.
? Definition
The liquidity ratios measure the ability of a firm to meet its short-term obligations and reflect the short-term financial strength/solvency of a firm.
? Types of liquidity ratios
The ratios which indicate the liquidity of a firm are: 1. Net Working Capital 2. Current Ratios 3. Acid Test/Quick Ratios 4. Super Quick Ratios 5. Turnover Ratios 6. Defensive-interval Ratios Now, for understanding the liquidity of Colgate-Palmolive Industries Limited, I have found the following liquidity ratios: 1. Current Ratio 2. Quick Ratio (Acid Test Ratio) Now, let us see them in detailed to get the information of the liquidity of a firm for the last three financial years. Also, analyze the short-term financial strength/solvency of a firm with the help of last three years financial data.
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1. Current Ratio
1.1 Meaning:
Current ratio establishes a relationship between Current Assets and Current Liabilities.
1.2 Objective:
The objective is for calculating this ratio is to measure the ability of the firm to meet its short term obligations and to reflect the short term financial solvency of a firm. In other words, it is calculated to measure margin of safety for short term creditors.
1.3 Formula: Current Assets Current Liabilities Current Ratio =
1.4 Financial Data of the Colgate- Palmolive Company: Particulars Current Assets Current Liabilities & Provisions Current Ratio 2005-2006 30145.54 35109.57 0.8586:1 (Rs. In Lacs) 2006-2007 2007-2008 35442.57 42065.67 0.8425:1 40168.55 53420.09 0.7519:1
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2007-2008
current ratio
2006-2007
current ratio
2005-2006
0.65
0.7
0.75
0.8
0.85
0.9
Years
1.5 Analysis:
? It is clear from the Table that the company’s Current ratios were 0.8586:1, 10.8425:1 and 0.7519:1 for the financial years 2005, 2006 and 2007 respectively.
? From the above calculations suggest that the Company’s Current Ratio was too, below t that means the Company has sound position for the financial years 2006, 2007 and 2008 in term of its Current Asset.
? Now looking at the Inventories amount which were Rs. (In Lacs.) 7435.72, 8032.63, and 7563.85 for the financial years 2006 , 2007 and 2008 respectively.
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2. Quick Ratio [Acid Test Ratio]
2.1 Meaning:
Quick ratio establishes a relationship between Quick Assets and Liquid Liabilities.
2.2Objective:
Quick ratio is calculated to measure absolute liquidity by comparing Quick Assets with Liquid Liabilities.
2.3 Formula: Quick Ratio = Current Assets - Inventories Current Liabilities
2.4 Financial Data of the Colgate- Palmolive Company: Particulars Current Assets - Inventories Current Liabilities & Provisions 2005-2006 20709.82 35109.57 (Rs. In Lacs) 2006-2007 2007-2008 27409.94 32604.7 42065.67 53420.09
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Quick Ratio
0.6468:1
0.6515:1
0.6103:1
2007-2008
Years
2006-2007
Quick Ratio
2005-2006
0.58
0.6
0.62 Quick Ratio
0.64
0.66
2.5 Analysis:
? It is clear from the Table that the Company’s Quick ratios were 0.6468:1, 6515:1 and 0.6103:1 for the financial years 2006, 2007 and 2008 respectively.
? Above calculations suggest that the Company’s Quick ratios was slightly above in the financial year 2006. That means the company is not able to pay its Current Liabilities immediately and having a good liquidity position./
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Leverage Ratios
? Introduction
The second category of financial ratios is leverage or capital structure ratios. The long-term creditors would judge the soundness of a firm on the basis of the long-term financial strength measured in terms of its ability to pay the interest regularly as well as repay the installment of the principal on due dates or in one lump sum at the time of maturity. The long-term solvency of a firm can be examined by using leverage or capital structure ratios.
? Definition
The leverage or capital structure ratios may be defined as financial ratios which throw light on the long-term solvency of a firm as reflected in its ability to assure the longterm creditors with regard to 1. periodic payment of interest during the period of the loan and 2. repayment of principal on maturity or in predetermined installments at due dates. There are, thus, two aspects of the long-term solvency of a firm: 1. ability to repay the principal when due, and 2. regular payment of the interest.
? Types of leverage ratios
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Accordingly, there are two different, but mutually dependent and interrelated, types of leverage ratios. First, ratios which are based on the relationship between borrowed funds and owner’s capital. These ratios are computed from the balance sheet and have many variations such as: 1. Debt-Equity Ratio 2. Debt-Assets Ratio 3. Equity-Assets Ratio and so on. The second type of capital structure ratios, popularly called coverage ratios, is calculated from the profit and loss account. Included in this category are: 1. Interest Coverage Ratio 2. Dividend Coverage Ratio 3. Total Fixed charges Coverage Ratio 4. Cash Flow Coverage Ratio, and 5. Debt Services Coverage Ratio. Now, for understanding the long-term solvency of Colgate-Palmolive Industries Limited, I have found the following leverage ratios: 1. Debt-Equity Ratio 2. Capital Employed to Net Worth Ratio 3. Fixed Interest Coverage Ratio
1. Debt-Equity Ratio
1.1 Meaning:
The relationship between borrowed funds and owner’s capital is popular measure of the long-term financial solvency of a firm. This relationship is shown by the debt-equity ratios.
1.2 Objective:
This ratio reflects the relative claims of creditors and shareholders against the assets of the firm. Alternatively, this ratio indicates the relative proportions of debt and equity in financing the assets of a firm.
1.3 Formula: Total Debt Net Worth excluding Preference Share Capital Debt-Equity Ratio = 1.4 Financial Data of the Colgate-Palmolive Company: Particulars Total Debt 2005-2006 647.60
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2006-2007 932.63
(Rs. In Lacs) 2007-2008 918.55
Net Worth Debt-Equity Ratio
27107.00 0.024:1
28052.66 0.033:1
16220.62 0.057:1
2007-2008
Years
2006-2007
Debt-Equity ratio
2005-2006
0
0.02
0.04
0.06
Debt Equity Ratio
1.5 Analysis:
? It is clear from the Table that the Company’s Debt-Equity ratios were 0.024:1, 0.033:1 and 0.057:1 for the financial years 2005, 2006 and 2007 respectively.
? It is needed that a ratio which strikes a proper balance between debt and equity. The general proposition is: other’s money should be in reasonable proportion to the owner’s capital and the owners should have sufficient stake in the fortunes of the enterprise.
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? A high ratio shows a large share of financing by the creditors of the firm; a low ratio implies a smaller claim of creditors. This ratio indicates the margin of safety to the creditors.
? From above calculations suggest that the Company would be able to meet the creditors claims because the one-half of the owners during last three financial years. So it is a good sound position of the Company we can see in term of safety to the creditors.
2. Capital Employed to Net Worth Ratio
2.1 Meaning:
The ratio establishes the relationship between capital employed and net worth.
2.2 Objective:
To know how company is using it share capital paid by the share holders. It helps to know the efficiency of the company. The high ratio indicates efficient use of the share capital paid by the share holders.
2.3 Formula: Capital Employed to Net worth Ratio = Capital Employed Net Worth including Preference Share Capital
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2.4 Financial Data of the Colgate-Palmolive Company: Particulars Capital Employed Net Worth Capital Employed to Net Worth Ratio 2005-2006 27542.52 27107.00 1.016:1 (Rs. In Lacs) 2006-2007 2007-2008 28480.16 28052.66 1.015:1 16689.37 16220.60 1.029:1
2007-2008
Years
2006-2007
capital empolyed to net worth ratio
2005-2006
1.00 1.01 1.01 1.02 1.02 1.03 1.03 5 5 5 capital empolyed to5net worth ratio
2.5 Analysis:
? It is clear from the Table that the Company’s Capital Employed to Net Worth ratios was 1.016:1, 1.015:1 and 1.029:1 for the financial years 2006, 2007 and 2008 respectively.
? From the above calculations suggest that the other’s money were in reasonable proportion to the owner’s capital and owners have sufficient stake in the fortunes of the company.
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? It is sound position that the company has in term of contribution provided by the creditors and the owners and the share holders of the company.
3. Fixed Interest Coverage Ratio
3.1 Meaning:
This ratio measures the debt servicing capacity of a firm insofar as fixed interest on long-term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes (EBIT) by the fixed interest charges on loans. It is also known as ‘time-interest-earned ratio’.
3.2 Objective:
It indicates the extent to which a fall in EBIT is tolerable in the sense that the ability of the firm to service its interest payments would not be adversely affected.
3.3 Formula: Earning before Interest and Tax Interest Fixed Interest Coverage Ratio =
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3.4 Financial Data of the Colgate-Palmolive Company: Particulars EBIT Interest Fixed Interest Coverage Ratio 2005-2006 18846.54 58.61 321.56 (Rs. In Lacs) 2006-2007 2007-2008 20258.63 98.04 206.64 29348.42 143.51 204.50
2007-2008
Years
2006-2007
Fixed interest coverage ratio
2005-2006
0
100
200
300
400
Fixed interest coverage ratio
3.5 Analysis:
? From the above Table, it is clear that the Company’s Fixed Interest Coverage ratios were 321.56 times, 206.64 times and 204.50 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio shows how many times the interest charges are covered by the EBIT out of which they will be paid.
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? However, too high a ratio implies unused debt capacity. And a low ratio is danger signal that the firm is using excessive debt and does not have the ability to offer assured payment of interest to the creditors.
? Above calculations suggest that the Company has medium ability to handle fixed- charge liabilities and the more assured is the payment of interest to the creditors. But the ratio is becoming higher gradually which shows unused debt capacity of the company. Overall it is good enough for the company.
[C] Profitability Ratios
? Introduction
Apart from the creditors, both short-term and long-term, also interested in the financial soundness of a firm are the owners and management or the company itself. The management of the firm is naturally eager to measure its operating efficiency. Similarly, the owners invest their funds in the expectation of reasonable returns. The operating efficiency of a firm and its ability to ensure adequate returns to its shareholders depends ultimately on the profits earned by it. The profitability of a firm can be measured by its profitability ratios. Profit is the difference between revenues and expenses over a period of time. Profit is the ultimate output of a company, and it will have no future if it fails to make sufficient profits. Therefore, the financial manager should continuously evaluate the efficiency of its company in term of profits.
? Definition
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The ratios which measure the operating efficiency of the company are called profitability ratios.
? Types of profitability ratios
Generally, two major types of profitability ratios are calculated: • Profitability in relation to sales I Profit margin II Expenses ratio • Profitability in relation to investment I Return on assets II Return on capital employed III Return on shareholders’ equity. Now, for understanding the profitability of Colgate-Palmolive Industries Limited, I have found the following profitability ratios: 1. 2. 3. 4. 5. 6. 7. 8. Gross Profit Ratio Net Profit Ratio Operating Profit Ratio Operating Ratio Expenses Ratio Return on Shareholders’ Funds or Return on Net Worth Return on Total Assets Return on Capital Employed
1. Gross Profit Ratio
1.1 Meaning:
The Gross Profit Ratio measures the relationship between Gross Profit and Net Sales.
1.2 Objective:
To determine the efficiency with which production or purchase operations are carried out.
1.3 Formula: (Sales - Cost of Goods Sold) *100 Net Sales Gross Profit Ratio =
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1.4 Financial Data of the Colgate-Palmolive Company: Particulars Sales - Cost of Goods Sold *100 Net Sales Gross Profit Ratio 2005-2006 7121380 112419 63.35% (Rs. In Lacs) 2006-2007 2007-2008 3587.59 6652.61 62.46% 4863.76 8603.59 62.47%
2007-2008
Years
2006-2007
Gross Profit Ratio
2005-2006
62
62.5
63
63.5
Gross Profit Ratio
1.5 Analysis:
? It is clear from the Table that the Company’s Gross Profit ratios were 63.35%, 62.46% and 62.47% for the financial years 2005, 2006 and 2007 respectively.
? This ratio indicates: Average gross profit margin earned on a sale of Rs.100, the portion of sale left to cover operating and non-operating expenses.
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? If the ratio is high , it is more effective to the production or purchase management of the company.
?
A high gross profit ratio sale is sign of a good management as it implies that the cost of production of the firm is relatively low. A relatively low gross profit ratio is definitely a danger sign towards the company.
? From the above calculations it is analyzed that the Gross Profit ratio of the company is steadily increased during the last financial year which shows good management in term of production or purchase.
2. Net Profit Ratio
2.1 Meaning:
Net Profit ratio measures the relationship between Net Profit and Net Sales of a firm.
2.2 Objective:
The objective of this ratio is to determine the overall profitability due to various factors such as operational efficiency and trading on equity.
2.3 Formula: Profit after Tax *100 Net Sales Net Profit Ratio =
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2.4 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax*100 Net Sales Net Profit Ratio 2005-2006 1376000 112419 12.24% 2006-2007 1601700 129514 12.37% (Rs. In Lacs) 2007-2008 2317100 147338 15.73%
2007-2008
Years
2006-2007
Net Profit Ratio
2005-2006
0
5
10 Net Profit Ratio
15
20
2.5 Analysis:
? It is clear from the Table that the Company’s Net Profit ratios were 12.24%, 12.37% and 15.73% for the financial years 2005, 2006 and 2007 respectively. ? This ratio indicates: Average net margin earned on a sale of Rs.100. And which portion of sales is left to pay dividend and create reserve.
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? Higher the ratio, greater the firms capacity to withstand adverse economic conditions and vice-versa.
? From the above calculations, it is clear that the net profit ratio is continuously increasing from the year 2006. Overall it is good sign for the company that the cost of the production is low because of good management of the company.
3. Operating Profit Ratio
3.1 Meaning:
Operating profit ratio means profit earned by the concern from its business operation and not from other sources. This ratio gives an accurate idea of how much money is being made through primary business operating. By looking at this ratio over time we get a fix on whether costs are trending up or down.
3.2 Objective:
The objective of this ratio is to measure the amount of profit made by actual trading or real business.
3.3 Formula:
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(EBIT - Other Income) *100 Net Sales Operating Profit Ratio = 3.4 Financial Data of the Colgate-Palmolive Company: Particulars EBIT - Other Income *100 Net Sales Operating Profit Ratio 2005-2006 1423759 112419 12.66% (Rs. In Lacs) 2006-2007 2007-2008 1355860 2087030 129514 147338 10.47% 14.16%
2007-2008
Years
2006-2007
Operating Ratio
2005-2006
0
5
10
15
Operating Ratio
3.5 Analysis:
? It is clear from the Table that the Operating Profit ratios of the Company were 12.66%, 10.47% and 14.16% for the financial years 2006, 2007 and 2008 respectively.
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? This ratio shows the incomes earned by actual business or trading business. So the other incomes which are not related to trading of the business are deducted.
? If the ratio is high, it is better for sales with lower expenses and vice-versa.
? From the above calculation, it is clear that the operating profit ratio of the company was decreased in the year 2007, but again increased in the year 2007 which indicates good sales and low expenses. Overall it is good enough for the company’s trading point of view.
4. Operating Ratio
4.1 Meaning:
The Operating ratio measures the relationship between Operating Costs and Net Sales of a firm.
4.2 Objective:
The objective of operating ratio is to determine the operational efficiency with which the production and/or purchases carried on.
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4.3 Formula: Operating Ratio = 100 - Operating Profit Ratio
4.4 Financial Data of the Colgate-Palmolive Company: Particulars 100 - Operating Profit Ratio Operating Ratio 2004-2005 100 – 12.66 87.35% 2005-2006 100– 10.47 89.53% 2006-2007 100 – 14.16 85.84%
2007-2008
Years
2006-2007
Operating Ratio
2205-2006
82
84
86 Operating Ratio
88
90
4.5 Analysis:
? It is clear from the Table that the operating ratio of the Company was 87.35%, 89.53% and 85.84% for the financial years 2006, 2007 and 2008 respectively.
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? This ratio indicates the average operating costs incurred on sales of Rs.100.
? If the ratio is low the then the operating profit will be high to cover nonoperating expenditure, to pay dividend and to create reserves and viceversa.
? From the above calculations, it is clear that the Company has high average operating costs incurred on sales. The operating ratio of the company was increased in the year 2007 but decreased in the year 2007 which shows good come back to cover non-operating expenditure of the company.
5. Expenses Ratio
5.1 Meaning:
Another profitability ratio related to sales is the expenses ratio. It is computed by dividing expenses by sales. The term ‘expenses’ includes cost of goods sold, administrative expenses, selling and distribution expenses, financial expenses but excludes taxes, dividends and extraordinary losses due to theft of goods, good destroyed by fire and so on.
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5.2 Objective:
The expenses ratio is very important for analyzing the profitability of a firm. It should be compared over a period of time with the industry average as well as firms of similar type. As a working proposition, a low ratio is favorable, while a high one is unfavorable.
5.3 Formula: Total Expenses *100 Net Sales Expenses Ratio = 5.4 Financial Data of the Colgate-Palmolive Company: Particulars Total Expenses *100 Net Sales Expenses Ratio 2005-2006 9824005 112419 87.38% 2006-2007 11605364 129514 89.61% (Rs. In Lacs) 2007-2008 11661111 147338 85.93%
2007-2008
Years
2006-2007
Expence Ratio
2005-2006
84
85
86
87
88
89
90
Expence Ratio
5.5 Analysis:
? It is clear from the Table that the expenses ratio of the Company was 87.38%, 89.61%, and 85.93% for the financial years 2006, 2007 and 2008 respectively.
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? If a ratio is too high than it is not good for the company and if it is too low than it is also not good for the company.
? From the above calculations, it is analyzed that the expenses ratio of the Company was increased in the year 2007, but decreased in the year 2008 which shows good sign to the company for meeting financial liabilities.
? Overall it is good enough for the company the expenses ratio was decreased in the last financial year.
6. Return on Shareholders’ Funds or Return on Net Worth
6.1 Meaning:
A return on Shareholders’ equity is calculated to see the profitability of owners’ investment. The shareholders’ equity or net worth includes paid-up share capital, share premium and reserves and surplus less accumulated losses. Net worth can also be found by subtracting total liabilities from total assets. - 41 -
6.2 Objective:
The objective of this ratio is to judge whether the firm has earned a satisfactory return for its equity-holders or not.
6.3 Formula: Profit after Tax *100 Share holders Fund Return on Shareholders’ Funds = 6.4 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax *100 Shareholders' Funds Return on Shareholders' Funds 2005-2006 1376000 27107.00 50.76% (Rs. In Lacs) 2006-2007 2007-2008 1601700 28052.66 57.09% 2317100 16220.62 142.85%
2007-2008
2006-2007
Return on share holder's fund
Year
2005-2006
0
50
100
150
Return on share holder's fund
6.5 Analysis:
? It is clear from the Table that the return on shareholders’ funds ratio of the Company was 50.76%, 57.09% and 142.85% for the financial years 2006, 2007 and 2008 respectively.
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? This ratio indicates the ability to generate return per rupee invested by the shareholders or the owners and to evaluate the investment decisions of the company.
? From the above calculations, the return on shareholders’ funds ratio of the company was increasing from 2006 which shows good sign from the company point of view that the company is able to generate high return invested by share holders or the owners of the company.
7. Return on Total Assets
7.1 Meaning:
This ratio indicates the return a company will generate on the firm's investments and its assets. It establishes a relationship between net profit and assets. The ROA may also be called as profit to assets ratio. The ROA measures the profitability of the total funds/investments of a firm. It however
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throws no light on the profitability of the different sources of funds which finance the total assets these aspects are covered by ROI. This helps the firms to decide how they should invest in the future project and what return they will get.
7.2 Formula: Return on Total Assets = Profit after Tax *100 (Fixed Assets + Investment + Current Assets)
7.3 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax * 100 Fixed Assets + Investment + Current Assets Return on Total Assets 2005-2006 1376000 61890.63 22.23% (Rs. In Lacs) 2006-2007 2007-2008 1601700 67978.88 23.56% 2317100 67326.74 34.41%
2007-2008
Years
2006-2007
Return on total assets
2005-2006
0
10
20
30
40
Return on total assets
7.4 Analysis:
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? It is clear from the Table that the return on total assets ratio of the Company was 22.23%, 23.56% and 34.41% for the financial years 2006, 2007 and 2008 respectively.
? This ratio indicates the company’s ability to earn the profit from funds or investment made by the investors and profitability earned from the other sources. The high ratio indicates high profitability from invested funds or investments.
? From the above calculations, it is analyzed that the return on total assets ratio of the Company was increasing from the year 2006, which indicates that the company is able to earn the profit from funds or investment made by the investors and also the profitability of the company earned from the other sources.
8. Return on Capital Employed
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8.1 Meaning:
In this ratio profit are related to the total capital employed. The term capital employed refers to the long term funds supplied by the creditors and owners of the firm. The term capital employed includes share capital, reserve and surplus and long term loans. The higher the ratio, the more efficient is the use of capital employed.
8.2 Objective:
The ratio indicates the percentages of return on the total capital employed in the business. This ratio is very important ratio from the management point of view to judge the success of the enter price.
8.3 Formula: Profit after Tax *100 Total Capital Employed Return on Capital Employed = 8.4 Financial Data of the Colgate-Palmolive Company: Particulars Profit after Tax * 100 Total Capital Employed Return on Capital Employed 2005-2006 1376000 27543 49.96% (Rs. In Lacs) 2006-2007 2007-2008 1601700 28480 56.24% 2317100 16689 138.84%
2007-2008
Years
2006-2007
Return on capital employed
2005-2006
0
50
100
150
Return on capital employed
8.5 Analysis:
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? It is clear from the Table that the return on capital employed ratio of the Company was 49.96%, 56.24% and 138.84% for the financial years 2006, 2007 and 2008 respectively.
? If the ratio is high than the use of capital employed is more efficient. From the share holders’ point of view it indicates how much the company is earning in the capital.
? From the above calculations, it is analyzed that the return on capital employed ratio of the company was highest in the year 2008 which shows better efficient use of the capital employed of the company.
? So it is good enough for the company that the ratio is increased in the last financial year.
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[D] Turnover Ratios
? Introduction
Turnover ratios are concerned with measuring the efficiency in asset management. These ratios are called activity ratios or efficiency ratios or asset utilization ratios. The efficiency with which the assets are used would be reflected in the speed and rapidity with which assets are converted into sales. The greater is the rate of turnover or conversion, the more efficient is the utilization/management, other things being equal. Turnover is the primary mode for measuring the extent of efficient employment of assets by relating the assets to sales. Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets, the larger the amount of sales. Turnover ratios, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well.
? Definition
1. Turnover ratios are defined as a test of the relationship between sales (more appropriately with cost of sales) and the various assets of a firm. 2. Turnover ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets and to indicate the speed with which assets are being converted or turned over into sales.
? Types of turnover ratios
Depending upon the various types of assets, there are various types of turnover ratios can be calculated to judge the effectiveness of asset utilization. 1. Inventory (or Stock) Turnover Ratio 2. Debtors (or Receivables Turnover Ratio 3. Assets Turnover Ratio ? Total Assets Turnover Ratio ? Fixed Assets Turnover Ratio ? Capital Turnover Ratio ? Current Assets Turnover Ratio ? Working Capital Turnover Ratio Now, for understanding the effectiveness of asset utilization of Colgate-Palmolive Industries Limited, I have found the following turnover ratios: 1. Inventory Turnover Ratio 2. Fixed Assets Turnover Ratio 3. Working Capital Turnover Ratio 4. Total Assets Turnover Ratio 5. Net Worth Turnover Ratio 6. Debtors Turnover Ratio
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1. Inventory Turnover Ratio
1.1 Meaning:
Inventory (Stock) Turnover ratio establishes the relationship between cost of goods sold (COGS) and average stock.
1.2 Objective:
The objective of this ratio is to determine the efficiency with which the inventory is utilized.
1.3 Formula: Cost of Goods Sold Average Stock Inventory Turnover Ratio = 1.4 Financial Data of the Colgate-Palmolive Company: Particulars Cost of Goods Sold Average Stock Inventory Turnover Ratio 2005-2006 50536 7436 6.79 (Rs. In Lacs) 2006-2007 2007-2008 57637 8032 7.17 63278 7563 8.36
2007-2008
Years
2006-2007
inventory Turnover Ratio
2005-2006
0
2
4
6
8
10
inventory Turnover Ratio
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1.5 Analysis:
? It is clear from the Table that the inventory turnover ratio of the Company was 6.79 times, 7.17 times and 8.36 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio indicates the speed with which the stock is converted into sales. The high stock turnover ratio may be the result of very low stock levels and frequent stock-outs. On the other hand, too low stock turnover ratio may be the result of excessive inventory levels that may result into higher carrying or obsolete inventory.
? From the above calculations, it is analyzed that the company has efficient performance in term of its stock turnover ratio because the stock turnover ratio of the company is increasing during its last three financial years. So it shows sound position in term of the sales of the company and it is a good sign for the company.
- 50 -
2. Fixed Assets Turnover Ratio
2.1 Meaning:
Fixed assets turnover ratio establishes the relationship between net sales and net fixed assets. The ratio indicates how well the fixed assets are being utilized.
2.2 Objective:
The ratio expresses the number of times fixed assets is turned over a stated period. It measures the efficiency with which fixed assets are being employed. Assets are used to generate sales therefore the company should manage its assets efficiently to maximize sales.
2.3 Formula: Net Sales Net Fixed Assets Fixed Assets Turnover Ratio = 2.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Net Fixed Assets Fixed Assets Turnover Ratio 2005-2006 112419 16002 7.025 (Rs. In Lacs) 2006-2007 2007-2008 129514 16768 7.723 147338 19140 7.697
- 51 -
2007-2008
Years
2006-2007
Fixed assets turnover ratio
2005-2006
6.5
7
7.5
8
Fixed assets turnover ratio
2.5 Analysis:
? It is clear from the Table that the fixed assets turnover ratio of the Company was 7.025 times, 7.723 times and 7.697 times for the financial years 2006, 2007 and 2008 respectively.
?
The higher the ratio, the more efficient is the management and utilization of the assets while low ratios are indicative of underutilization of available resources and presence of idle capacity.
? From the above calculations, it is analyzed that the fixed turnover ratio of the Company was 3 times in the last financial years, and it is increasing from the year 2008 and that was highest during its last three financial years.
- 52 -
? So it indicates good sign from the point of view of the company that it is efficiently utilized its assets and also signs sound level of its activity. Overall, it is good enough for the company.
3. Working Capital Turnover Ratio
3.1 Meaning:
Working Capital Turnover ratio establishes the relationship between net sales and net working capital. Net working capital is the difference between the current assets and currents liabilities.
3.2 Objective:
To indicate how efficiently the company is utilizes its net working capital. It means number of times the working capital turned over in the course of the year.
3.3 Formula: Net Sales Net Working Capital Working Capital Turnover Ratio = 3.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Net Working Capital Working Capital Turnover Ratio 2005-2006 112149 4964 22.65 (Rs. In Lacs) 2006-2007 2007-2008 129514 6623 19.56 147338 13257 11.11
- 53 -
2007-2008
Years
2006-2007
Working capital turnover ratio
2005-2006
0
5
10
15
20
25
Working capital turnover ratio
3.5 Analysis:
? It is clear from the Table that the working capital turnover ratio of the Company was 22.65 times, 19.56 times and 11.11 times for the financial years 2006, 2007 and 2008 respectively.
? Working capital is a measure of the margin of protection for current creditors. It reflects the ability to finance current operations. Relating the level of sales arising from operations to the underlying working capital measures how efficiently working capital is employed. A low ratio may indicate an inefficient use of working capital, while a very high ratio often signifies overtrading—a vulnerable position for creditors.
? From the above calculations, it is analyzed that the working capital turnover ratio of the Company was 22.65 times in the financial year 2008 and lowest during its last three financial years which implies that the working capital of the company is not efficiently employed. - 54 -
4. Total Assets Turnover Ratio
4.1 Meaning:
The ratio which shows the firm’s ability in generating sales from all financial resources committed to total assets is called Total Assets Turnover ratio.
4.2 Objective:
The objective of this ratio is to compute the total assets turnover in addition to or instead of the net assets turnover. Total assets include net fixed assets (NFA) and current assets (CA). [Therefore, TA = NFA + CA + Investments]
4.3 Formula: Net Sales Total Assets Total Assets Turnover Ratio = 4.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Total Assets Total Assets Turnover Ratio 2005-2006 112419 61892 1.82 (Rs. In Lacs) 2006-2007 2007-2008 129514 67980 1.91 147338 67327 2.19
- 55 -
2007-2008
Years
2006-2007
Total assets turnover ratio
2005-2006
0
0.5
1
1.5
2
2.5
Total assets turnover ratio
4.5 Analysis:
? It is clear from the Table that the total assets turnover ratio of the Company was 1.82 times, 1.91 times and 2.19 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio is a general measure of a firm's ability to generate sales in relation to total assets.
? From the above calculations, it is analyzed that the total assets turnover ratio of the Company is steadily increasing during its last three financial years which indicates that the Company is using its capital efficiently and it is able to generate a good turnover by it each unit of investment and also indicates that the Company is not using assets efficiently to maximize its sales. - 56 -
? So it is good enough for the company.
5. Net Worth Turnover Ratio
5.1 Meaning:
The net worth turnover ratio establishes the relationship between the net sales and net worth. Net worth includes equity share capital, reserves and surplus and excludes preference share capital.
5.2 Objective:
The objective of this ratio is to indicate how well the company is using its funds provided by the owner of the company to generate sales.
5.3 Formula: Net Sales Net Worth excluding Preference Share Capital Net Worth Turnover Ratio = 5.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Net Worth Net Worth Turnover Ratio 2005-2006 112419 27107.00 4.15 (Rs. In Lacs) 2006-2007 2007-2008 129514 28052.66 4.62 147338 16220.62 9.08
- 57 -
2007-2008
Years
2006-2007
Net worth Turnover ratio
2005-2006
0
2
4
6
8
10
Net worth Turnover ratio
5.5 Analysis:
? It is clear from the Table that the net worth turnover ratio of the Company was 4.15 times, 4.62 times and 9.08 times for the financial years 2006, 2007 and 2008 respectively.
? Higher a ratio, better use of funds provided by the owner of the company to generate sales.
? From the above calculations, it is analyzed that the net worth turnover ratio of the Company is constantly increasing from the year 2006. It indicates that the Company is not using the funds provided by the owner not very well.
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6. Debtors Turnover Ratio
6.1 Meaning:
Debtors (Receivables) Turnover ratio establishes the relationship between net sales and trade debtors of a firm.
6.2 Objective:
The objective of this ratio is to determine the efficiency with which the debtors are managed. In other words, it shows how quickly debtors or receivables are converted into cash.
6.3 Formula: Net Sales Debtors + Bills Receivable Debtors Turnover Ratio = 6.4 Financial Data of the Colgate-Palmolive Company: Particulars Net Sales Debtors + Bills Receivables Debtors Turnover Ratio 2005-2006 112419 647.60 137.59 2006-2007 129514 932.63 138.87 (Rs. In Lacs) 2007-2008 147338 918.55 160.40
- 59 -
2007-2008
Years
2006-2007
Debtors turnover ratio
2005-2006
120
130
140
150
160
170
Debtors turnover ratio
6.5 Analysis:
? It is clear from the Table that the debtors’ turnover ratio of the Company was 137.59 times, 138.87 times and 160.40 times for the financial years 2006, 2007 and 2008 respectively.
? This ratio indicates the speed at which the debtors’ turnover takes place. However, too high and too low ratio calls for further investigation as too high ratio would result into higher working capital requirement and greater risk of bad debts. And too low ratio may result into restrictive credit and lesser sales.
? From the above calculations, it is analyzed that the debtors’ turnover ratio of the Company was decreasing from the year 2007. which was slightly
- 60 -
increased than the previous year. But it indicates good liquidity of the debtors of the company.
[E] Valuation Ratios
? Introduction
The process of determine the value of an asset company. There are many techniques for valuation, and it is often partially objective and partially subjective. A valuation ratio is measure of how cheap or expensive security is that calculated by dividing a measure of cost by measure of value or profits. In that case price will show the same companies as being relatively cheap and expensive as a discounted free cash flow valuation will. The valuation ratio is to compare the cost of security to the benefits of owing it.
? Definition
The ratios which measure of how cheap or expensive security is that calculated by dividing a measure of cost by measure of value or profits.
? Types of valuation ratios
The following are some various types of valuation ratios 1. Dividend yield ratio 2. Dividend payout ratio 3. Price-earnings ratio 4. Earning per share 5. Dividend per share Now, for understanding the cost of security of Colgate-Palmolive Industries Limited, I have found the following valuation ratios: - 61 -
1. 2. 3. 4. 5.
Dividend yield ratio Dividend payout ratio Price-earnings ratio Earning per share Dividend per share
Now, let us see in detailed information related about the comparison of the cost of security to the benefits of owing it of a firm with the help of last three years financial data of a firm.
1. Dividend Yield Ratio
1.1 Meaning:
The dividend yield ratio is the dividends per share divided by the average market value per share. Dividend per share (DPS) are based on the book value per share, the yield is expressed in term of the average market value per share (MPS).
1.2 Objective:
The objective of this ratio is to evaluate the shareholders’ return in relation to the market value of the share.
1.3 Formula: Dividend per share Average market value per share Dividend Yield Ratio = 1.4 Financial Data of the Colgate-Palmolive Company: Particulars Dividend per share (Rs./Share) Average Market value per share (In Rs.) Dividend Yield Ratio 2006-2007 2007-2008 9.50 13.00 476.03 409.53 0.019% 0.032%
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2007-2008 Years
Dividend yield ratio
2006-2007
0
0.01
0.02
0.03
0.04
Dividend yield ratio
1.5 Analysis:
? It is clear from the Table that the dividend yield ratio of the Company was 0.019%, 0.032% for the financial years 2007 and 2008 respectively.
? A very high dividend yield ratio signals potential financial difficulties and possible of dividend payout. Dividend yield ratio is the percentage rate of return by investing in shares at current market price.
? From the above calculations, it is analyzed that the dividend yield ratio of the Company was 0.019% in the financial year 2007 which was slightly increased comparing with the financial year 2008. of the company. It is not good for the company.
- 63 -
2. Dividend Payout Ratio
2.1 Meaning:
Dividend payout ratio (or simply payout ratio) is dividend per share (or total dividends) divided by the earning per share (or total shareholders’ earnings).
2.2 Objective:
The objective of this ratio is show what percentage share of the net profits after taxes and preference dividend is paid out as dividend to the equity holders.
2.3 Formula: Dividend per share Earning per share Dividend Payout Ratio = 2.4 Financial Data of the Colgate-Palmolive Company: Particulars Dividend per share Earning per share Dividend Payout Ratio 2005-2006 7.50 10.12 0.74% (Rs. /Share) 2006-2007 2007-2008 9.50 13.00 11.78 17.04 0.81% 0.76%
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2007-2008
Years
2006-2007
Dividend Payout Ratio
2005-2006
0.7
0.75
0.8
0.85
Dividend Payout Ratio
2.5 Analysis:
? It is clear from the Table that the dividend payout ratio of the Company was 0.74%, 0.81% and 0.76% for the financial years 2006, 2007 and 2008 respectively.
? Higher a ratio, better ability of the company to make good profit from the invested capital of the shareholders and to pay high dividend to equity shareholders.
? From the above calculations, it is analyzed that the dividend payout ratio of the Company was 0.81% in 2007 which was increased comparing with the other two financial years of the Company. It indicates not good profit from the invested capital. But it decreased in the very next year 2008. So,
- 65 -
the Company can get the confidence of the shareholders by giving good dividend to equity shareholders.
? It is good enough for the company point of view.
3. Price-Earnings Ratio
3.1 Meaning:
The reciprocal of the earnings yield is called the Price-Earnings ratio.
3.2 Objective:
The objective of this ratio is to value the firm’s performance as expected by business. The ratio reflects investors’ expectations about the growth in the firm’s earnings.
3.3 Formula: Average market value per share Earning per share Price-Earnings Ratio = 3.4 Financial Data of the Colgate-Palmolive Company: Particulars Average Market value per share (In Rs.) Earning per share (Rs./Share) Price-Earnings Ratio 2006-2007 2007-2008 476.03 409.53 11.78 17.04 40.41 24.03
- 66 -
2007-2008
Price
Price Earning Ratio
2006-2007
0
10
20
30
40
50
Price Earning Ratio
3.5 Analysis:
? It is clear from the Table that the price-equity ratio of the Company was 40.41%, 24.03% and for the financial years 2007 and 2008 respectively.
? From the above calculations, it is analyzed that the price-earning ratio of the Company was 24.03% in the financial year 2008 which was slightly decreased comparing with the previous year. Overall, It is not so good for the Company point of view.
- 67 -
4. Earning Per Share
4.1 Meaning:
The Earning per Share is calculated by dividing the profit after taxes by the total number of common shares outstanding. The earning per share of the company simply shows the profitability of the firm on a per share basis; it does not reflect how much is paid as a dividend and how much is retained in business.
4.2 Objective:
The objective of this ratio is to know the company’s turnover.
4.3 Formula: PAT No of equity shares Earning per share ratio = 4.4 Financial Data of the Colgate-Palmolive Company:
- 68 -
Particulars PAT No of equity shares Earning per share ratio
2005-2006 2006-2007 2007-2008 13759.79 16016.77 23171.02 1360 1360 1360 10.12 11.78 17.04
2007-2008
Years
2006-2007
Earning Per Share ratio
2005-2006
0
5
10
15
20
Earning Per Share ratio
4.5 Analysis: ? It is clear from the table that the Earning per share ratio of the
Company was 10.12, 11.78 and 17.04 for the financial years 2006, 20067 and 2008 respectively.
? Earning Pre Share of the company induces the potentially of the
company towards its relative its relative market share and management.
? From the above calculations, it is analyzed that the Earning per share
ratio of the Company was increasing from last three financial years. It is increasing because the company’s turnover increased during the
- 69 -
various financial years and because of that the profit of the company also increased.
5.Dividend Per Share Ratio
5.1 Meaning:
The dividend per share is the earnings distributed to common shareholders divided by the number of common shares outstanding.
5.2 Objective:
The objective of this ratio to know the revenues and profits strength of the company.
5.3 Formula: Dividend per share ratio = Interim Dividend + Final Dividend No. of Shares
- 70 -
5.4 Financial Data of the Colgate-Palmolive company: Particulars Total dividend declared No of shares Dividend per share ratio 2005-2006 2006-2007 2007-2008 10200 12919 17679 1360 1360 1360 7.50 9.50 13.00
2007-2008
Years
2006-2007
Dividend Per share ratio
2005-2006
0
5
10
15
Dividend Per share ratio
5.5 Analysis: ? It is clear from the table that the Dividend per share ratio of the
Company was 7.50, 9.50 and 13.00 for the financial years 2006, 2007 and 2008 respectively.
? From the above calculations, it is analyzed that the Dividend per
share ratio of the Company was increasing from the last three financial years. Because of the revenues and profits strength of the company.
- 71 -
? From the above calculation it is clear concept mentioned about the
progress and performance of the company.
7. CAPITAL STRUCTURE ANALYSIS:
MEANING:
• The different amounts and types of stocks and shares which make up a trust’s capital and the amount of the ordinary and preference shares, debentures and unsecured loan stock, etc, those are in issue.
•
The capital structure of a company refers to the relationship between how much of their financing came from debt compared to common or preferred stock or retained earnings.
- 72 -
•
The capital structure of a company is the way in which that entity finance itself by some combination of equity sales, options, bonds, and loans.
7.1 CAPITAL STRUCTURE FOR THE YEAR 2006:
Capital Structure Year 06 (%) Share Capital 49.38 Reserves & Surplus 49.04 Unsecured Loans 1.58
- 73 -
CAPITAL STRUCTURE 2006
Share Capital Reserves & Surplus Unsecured Loans
7.2 CAPITAL STRUCTURE FOR THE YEAR 2007:
Capital Structure Year 07
Share Capital 47.75
Reserves & Surplus 50.75
Unsecured Loans 1.5
- 74 -
CAPITAL STRUCTURE 2007
Share Capital Reserves & Surplus Unsecured Loans
7.3 CAPITAL STRUCTURE FOR THE YEAR 2008:
Capital Structure Year 08 Share Capital 8.15 Reserves & Surplus 89.04 Unsecured Loans 2.81
- 75 -
CAPITAL STRUCTURE 2008
Share Capital Reserves & Surplus Unsecured Loans
Analysis:
• The capital Structure analysis for the year 2006 Shows that Share Capital is 49.38%,the reserves and surplus is 49.04%, the unsecured loans is 58%.
•
The capital structure analysis for the year 2007 shows that Share Capital is 47.75%, the reserves and surplus is 50.75% and the unsecured loans is 1.50%.
- 76 -
•
The capital structure analysis for the year 2008 shows that Share capital is 8.15%, The reserves and surplus is 89.04% and the unsecured loans is 2.81%.
•
From the three analysis of the capital structure of the company for three financial years’ shows that share capital is slightly decreased. Reserves and surplus was slightly increased. And the unsecured loans were slightly decreased.
8. SHARE HOLDING PATTERN:
MEANING:
Share Holding Pattern gives the contributed proportion of company’s equity by promoters and promoter group, mutual funds, FIs and Banks, etc.
8.1 Share Holding Pattern for the year 2007:
CATEGORY %
- 77 -
Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions
51 25 11.85 0.28 1.89 0 2.16 7.76
SHARE HOLDING PATTERN 2007
Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions
8.2 Share Holding Pattern for the Year 2008:
CATEGORY Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions % 51 23.71 7.04 0.25 4.24 0 5.4 7.56
- 78 -
SHARE HOLDING PATTERN 2008
Foreign Collaboration Resident Individuals Foreign Instituional Investors NRIs / OCBs Domestic Companies Non-Domestic Companies Banks and Mutual Funds Financial Institutions
9. CASH FLOW STATEMENT ANALYSIS:
MEANING:
• A financial statement that the inflow of revenue vs. The outflow of expenses resulting from operating, investing, and financing activities during a specific time period.
- 79 -
9.1 CASH FLOW STATEMENT ANALYSIS:
Cash Flow Statement A. Operating Activities B.Investing Activities C. Financing Activities 11532.22 13604.09 27495.24 3744.84 555.45 2609.32 2005-2006(Rs. In Lacs) 18459.8 2006-2007(Rs. In Lacs) 15423.82 2007-2008(Rs. In Lacs) 28140.29
10. COMMON SIZE STATEMENTS:
MEANING:
• A statement in which all items are expressed as a percentage of a base figure, useful for purpose of analyzing trends and changing relationship among financial statement items.
10.1COMMON SIZE BALANCE SHEET:
- 80 -
2006 (Rs. In Lacs) Sources of Funds Shareholders' Funds Share capital Resurves & Surplus Loan Funds Un secured Loans TOTAL Application of Funds Fixed Assets Gross Block Less
epriciation/ Amortiation Net Block Capital workl in progress and advances for capital Expenditure Investments Deffered Taax assets (Net) Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Interest Accrued on Investments/ Deposits Loans and Advances Less: Current liabilities and Provisions Liabilities Provisions Net Current Asstes TOTAL2006(%)
2007 ( Rs.In Lacs)
2007 (%)
2008 ( Rs. In Lacs)
2008 (%)
13599.28 13507.72 435.52 27542.52
49.38 49.04 1.58 100
13599.28 14453.38 427.5 28480.16
47.75 50.75 1.5 100
1359.93 14860.69 468.75 16689.37
8.15 89.04 2.81 100
40353.52 24350.98 16002.54
58.1
41145.91 24377.58 16768.33
58.88
44959.43 25818.85 19140.58
909.02 14833.53 761.46 7435.72 647.6 8796.73 424.04 12841.45
3.3 53.86 2.76
2434.45 13333.53 2566.95 8032.63 932.63 11171.91 386.32 14919.08
8.55 46.82 9.01
758.84 7258.77 2782.72 7563.85 918.55 14426.28 264.2 16995.67 40168.55 34693.43 18726.66 53420.09 16689.37
4.55 43.49 16.67
28235.86 6873.71 4964.03 27542.52
18.02
31571.85 10493.82 6623.1 28480.16
23.26
79.4
10.2 COMMONSIZE PROFIT AND LOSS ACCOUNT
Particulers Income Sales Less: Excise duty Net Sales Other Income Expenditure - 81 121750.88 9331.85 112419.03 4608.95 96.06 3.94 138538.29 9024.09 129514.2 6700.03 95.08 4.92 155321.1 7983.2 147337.9 8478.12 94.56 5.44 2006(Rs.in lacs) 2006% 2007 (Rs. In lacs) 2007% 2008 ( Rs. In lacs) 2008%
Cost of goods sold Employee costs Other Expences Depriciation Profit before Taxation Current Tax Differed Tax Fringe Benefit Tax Profit after tax
50536.2 9688.82 34872.28 3142.75 98240.05 18787.93 4686.6 -258.46 600 13759.79
43.18 8.28 29.8 2.69 83.95 16.05
57636.74 16993.08 39898.03 1525.79 116053.64 20160.59 53.97.85 -1674.03 420
42.31 12.48 29.29 1.12 85.2 14.8 3.96 1.23 0.31 11.76
63277.65 11827.68 49521.29 1984.49 126611.11 29204.91 5824.66 -215.77 425 23171.02
40.61 7.59 31.78 1.27 81.26 18.74 3.74 0.14 0.27 14.87
11.76
16016.77
11. AWARDS AND ACHIEVEMENTS :
- 82 -
11.1 A New World Record: Colgate Brush-Up Challenge
The Colgate Oral Health Month is now into its 4th year. Every year the scope and reach has increased reaffirming Colgate's commitment to oral health care in India. In 2007 it took a giant leap over previous editions by expanding its reach from 102 towns and cities in 2006 to 200 cities and towns in 2007 with free dental check-ups conducted in each of these 200 cities.
- 83 -
The Colgate Oral Health Month is an intensive month-long effort aimed at generating and building awareness so that people understand the benefits of preventive oral health care. Dental experts around the world agree that brushing twice a day is critical to one's oral health and in developing countries like India, it is best to start the process early. Towards this Colgate partners the Indian Dental Association each year to conduct this program among school children. A special event to generate mass awareness about the benefits of brushing - the Colgate Brush-Up Challenge - was created where school children across schools in India participated in a record-breaking attempt to create the new Guinness World RecordTM for children brushing at the same time across multiple venues. Shattering the previous record of 41,038 held by the Philippines, 177,003 school children in India from 380 locations across 23 cities helped create a new world record. The centre stage was a special event at a school in New Delhi where over 5,000 children gathered together encouraged by the Colgate Brand Ambassador, So if Ali Khan. In December 2007, Colgate India received a certificate from the Guinness World Records™ awarding Colgate India the World Record for "the most people brushing their teeth simultaneously." Colgate, India's # 1 brand ... India's Most Trusted brand and now, a Guinness World Record™ holder. It is another milestone as Colgate India celebrates 70 years of spreading smiles in India.
11.2 Achievements and Past Successes:
They strive for continuous improvements with our supplier teams. • A multidisciplinary team from Colgate and JM Huber, a key oral care raw material supplier, identified potential savings across the supply chain. This team realized savings in excess of hundreds of thousands of dollars. This supplier relationship was featured in a Colgate-Palmolive Company Annual Report and is one example of the several preferred suppliers teaming with Colgate.
12. HUMAN RESOURCE ANALYSIS:
Global Human Resources Development Program
Colgate HR Associates are given the opportunity to contribute to HR initiatives at the corporate, division and operating unit levels, both domestically and internationally.
- 84 -
Our HR professionals are treated as strategic business partners and integral members of the management team. They are encouraged to learn as much as possible about many areas of our company.
HR Program provides:
• • • A “Learn by Doing” approach 4 to 6 rotations over a 12 to 18 month period Possible assignments in Compensation, HR Information Center,
Manufacturing, Sales and an International Division
Requirements:
• • • • • Graduate degree in Human Resources Management, Organizational
Psychology, or Industrial Labor Relations
Excellent interpersonal, communication and analytical skills Desire for an international career (previous experience abroad is a plus) Prior work experience in human resources preferred Ability to thrive on change
Global Human Resources Summer Internship
Colgate offers summer internships for those interested in a global human resources management career. Interns will join a functional Colgate HR team and will help manage one or more project areas such as: • Compensation • • • • • • Employee Relations Global Leadership Development Education and Training Sales & Marketing Research & Development Or within an International Division
- 85 -
Interns gain firsthand knowledge of our company through exposure to HR senior management and business leaders. Successful interns will demonstrate strong team building and communication skills, as well as the ability to plan and prioritize.
Requirements:
• Completion of first year of a graduate program in Human Resources management, Organizational Psychology, or Industrial Labor Relations • • Prior experience in human resources is desirable Strong interpersonal, communication and analytical skills
13. CONCLISION
- 86 -
?
As far as I have make project I can understand that the sound position of the company is very good.
? ?
The company has good market shares also. The company is giving special dividend sometimes. So, it is a good sign for the company.
?
Though the company is very old, it has a good market position in our company.
?
So, the company is profit making company.
14. BIBLIOGRAPHY
- 87 -
TITLE
AUTHER
BOOK NAME Theory and Problems in Financial Management Financial Management
PUBLISHING HOUSE
EDITION
YEAR OF PRINT
PAGE NO.
Financial Management Financial Management
Khan.M.Y & Jain.P.K
Fourth
Tata Mcgraw Hills Vikas Publishing House Pvt. Ltd.
Second
2001
2.1-2.5
Pandey.I.M.
Reprint1995
2001
70 106113 116117 120132
15. SOURCES OF INFORMATION:
?
www.colgate.com
- 88 -
? ? ?
www.moneypore.com www.indiainfoline.com Annual Reports of the company.
16. ANNEXURE:
15.1 PROFIT & LOSS ACCOUNT FOR LAST THREE YEARS:
- 89 -
2006 INCOME Sales Less: Excise Duty Other income EXPENDITURE Cost Of Goods Sold Employee Costs Other Expenses Depriciation/Amortisation PROFIT BEFORE TAX Current Tax Differed Tax Fringe Benefit Tax PROFIT AFTER TAX Balance Brought Forward PROFIT AVAILABLE for Appropriation APPROPRIATION First Interim Dividend Second Interim Dividend Special Dividend-Proposed Third Interim Dividend Dividend Tax Transfer To General Reserve Balance Carried Forward EARNING PER EQUITY SHARE(RS.) (Face Value OF Rs. 10 per equity share) Basic and Diluted ( Refer schedule 24) 121750.9 9331.85 4608.95 117028 50536.2 9688.82 34872.28 3142.75 98240.05 187.93 4686.6 -258.46 600 5028.14 13759.79 2130 15889.79 3739.8 4079.78 2379.87 1430.47 1375.98 2883.89 15889.79
2007 138538.3 9024.09 6700.03 136214.2 57636.74 16993.08 39898.03 1525.79 116053.6 20160.59 5397.85 -1674.03 420 4143.82 16016.77 2883.89 18900.66
2008 155321.1 7983.2 8478.12 155816 63277.65 11827.68 49521.29 1984.49 126611.1 29204.91 5824.66 -215.77 425 6033.89 23171.02 2486.96 25657.98
5779.68 8159.57 4419.77 2719.86 9519.5 1892.71 5084.64 1601.68 2317.1 2486.96 577.17 18900.66 25657.98
10.12
11.78
17.04
15.2
BALANCE SHEET FOR LAST THREE YEARS:
- 90 -
2006 Sources of Funds Shareholders' Funds Share capital Reserves & Surplus Loan Funds Un secured Loans TOTAL Application of Funds Fixed Assets Gross Block Less
epriciation/ Amortization Net Block Capital work in progress and advances for capital Expenditure Investments Differed Tax assets (Net) Current Assets, Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Interest Accrued on Investments/ Deposits Loans and Advances Less: Current liabilities and Provisions Liabilities Provisions Net Current Assets TOTAL2007
2008
13599.28 13507.72 27107 435.52 27542.52
13599.28 14453.38 28052.66 427.5 28480.16
1359.93 14860.69 16220.62 468.75 16689.37
40353.52 24350.98 16002.54 909.02 16911.56 14833.53 761.46 7435.72 647.6 8796.73 424.04 12841.45 30145.54.
41145.91 24377.58 16768.33 2434.45 19202.78 13333.53 2566.95 8032.63 932.63 11171.91 386.32 14919.08 35442.57
44959.43 25818.85 19140.58 758.84 19899.42 7258.77 2782.72 7563.85 918.55 14426.28 264.2 16995.67 40168.55
28235.86 6873.71 35109.57 -4964.03 27542.52
31571.85 10493.82 42065.67 -6623.1 28480.16
34693.43 18726.66 53420.09 -13251.5 16689.37
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doc_458565154.doc