COMPANY ANALYSIS REPORT ON ITC LTD.
This project presents a report on company analysis.The organization taken is ITC LTD. It contains a detailed analysis on the company and its all the factors and components including the vision,mission,code of conduct of the company,its different product lines,factors in determining the demand,cost analysis,regression analysis,production function analysis and ratio analysis. user 11/15/2011
COMPANY OVERVIEW: ITC GROUP
ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and AgriExports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practises this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part." ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 2.8 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-toend IT solutions, including e-enabled services and business process outsourcing.
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ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 21,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 4,46,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder.”
HISTORY AND EVOLUTION
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then toI.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'. The Company?s beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks. Though the first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies witnessed the beginnings of a corporate transformation that would usher in momentous changes in the life of the Company.
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ITC's Packaging & Printing Business was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. It is today India's most sophisticated packaging house. In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's entry into the hotels business was rooted in the concept of creating value for the nation. ITC chose the hotels business for its potential to earn high levels of foreign exchange, create tourism infrastructure and generate large scale direct and indirect employment. Since then ITC's Hotels business has grown to occupy a position of leadership, with over 100 owned and managed properties spread across India. In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India. Bhadrachalam Paperboards amalgamated with the Company effective March 13, 2002 and became a Division of the Company, Bhadrachalam Paperboards Division. In November 2002, this division merged with the Company's Tribeni Tissues Division to form the Paperboards & Specialty Papers Division. ITC's paperboards' technology, productivity, quality and manufacturing processes are comparable to the best in the world. It has also made an immense contribution to the development of Sarapaka, an economically backward area in the state of Andhra Pradesh. It is directly involved in education, environmental protection and community development. In 2004, ITC acquired the paperboard manufacturing facility of BILT Industrial Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to improve customer service with reduced lead time and a wider product range. In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture. Since inception, its shares have been held by ITC, British American Tobacco and various independent shareholders in Nepal. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal). In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and a major supplier of tissue paper to the cigarette industry. The merged entity was named the Tribeni Tissues Division (TTD). To harness strategic and operational synergies, TTD was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002. Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri Business Division for export of agri-commodities. The Division is today one of
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India's largest exporters. ITC's unique and now widely acknowledged eChoupal initiative began in 2000 with soya farmers in Madhya Pradesh. Now it extends to 10 states covering over 4 million farmers. ITC's first rural mall, christened 'Choupal Saagar' was inaugurated in August 2004 at Sehore. On the rural retail front, 24 'Choupal Saagars' are now operational in the 3 states of Madhya Pradesh, Maharashtra and Uttar Pradesh. In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards. A line of premium range of notebooks under brand “Paperkraft”was launched in 2002. To augment its offering and to reach a wider student population, the popular range of notebooks was launched under brand “Classmate” in 2003. “Classmate” over the years has grown to become India’s largest notebook brand and has also increased its portfolio to occupy a greater share of the school bag. Years 2007- 2009 saw the launch of Children Books, Slam Books, Geometry Boxes, Pens and Pencils under the “Classmate” brand. In 2008, ITC repositioned the business as the Education and Stationery Products Business and launched India's first environment friendly premium business paper under the “Paperkraft” Brand. “Paperkraft” offers a diverse portfolio in the premium executive stationery and office consumables segment. Paperkraft entered new categories in the office consumable segment with the launch of Textliners, Permanent Ink Markers and White Board Markers in 2009. ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the popular segment with its men's wear brand, John Players, in 2002. In 2006, Wills Lifestyle became title partner of the country's most premier fashion event - Wills Lifestyle India Fashion Week - that has gained recognition from buyers and retailers as the single largest B-2-B platform for the Fashion Design industry. To mark the occasion, ITC launched a special 'Celebration Series', taking the event forward to consumers. In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area. Today ITC Infotech is one of India?s fastest growing global IT and IT-enabled services companies and has established itself as a key player in offshore outsourcing, providing outsourced IT solutions and services to leading global customers across key focus verticals - Manufacturing, BFSI (Banking, Financial Services & Insurance), CPG&R (Consumer Packaged Goods & Retail), THT (Travel, Hospitality and Transportation) and Media & Entertainment.
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ITC's foray into the Foods business is an outstanding example of successfully blending multiple internal competencies to create a new driver of business growth. It began in August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. In 2002, ITC entered the confectionery and staples segments with the launch of the brands minto and Candyman confectionery and Aashirvaadatta (wheat flour). 2003 witnessed the introduction of Sunfeast as the Company entered the biscuits segment. ITC's entered the fast growing branded snacks category with Bingo! in 2007. In eight years, the Foods business has grown to a significant size with over 200 differentiated products under six distinctive brands, with an enviable distribution reach, a rapidly growing market share and a solid market standing. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative. ITC now markets popular safety matchesbrands like iKno, Mangaldeep, Aim, Aim Mega and Aim Metro. ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector. ITC's popular agarbattis brands include Spriha and Mangaldeepacross a range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa. ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women in July 2005. Inizio, the signature range under Essenza Di Wills provides a comprehensive grooming regimen with distinct lines for men (Inizio Homme) and women (Inizio Femme). Continuing with its tradition of bringing world class products to Indian consumers the Company launched 'Fiama Di Wills', a premium range of Shampoos, Shower Gels and Soaps in September, October and December 2007 respectively. The Company also launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivelrange of soaps in February and Vivel range of shampoos in June 2008.
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ITC LEADERSHIP
Flowing from the concept and principles of Corporate Governance adopted by the Company, leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the wholetime Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. Each DMC is responsible for and totally focused on the management of its assigned business. This three-tiered interlinked leadership process creates a wholesome balance between the need for focus and executive freedom, and the need for supervision and control.
BOARD OF DIRECTORS
AUDIT COMMITTEE
SUSTAINABILITY COMMITTEE
COMPENSATION COMMITTEE
NOMINATIONS COMMITTEE
INVESTOR SERVICE COMMITTEE
Mr. Yogesh Chander Deveshwar is the present Chairman of ITC LTD.Along with the above 5 main committees,Corporate Management Committee forms a part of the management of the company.
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COMPANY VISION AMD MISSION
The ITC vision Susstain ITC's position as one of India's most valuable corporations through world class performance,creating growing value for the Indian economy and the Company?s stakeholders. The ITC mission To enhance the wealth generating capability of the enterprise in a globalising environment,delivering superior and sustainable stakeholder value.
CORPORATE GOVERNANCE
Preamble Over the years, ITC has evolved from a single product company to a multibusiness corporation. Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading. Each of these businesses is vastly different from the others in its type, the state of its evolution and the basic nature of its activity, all of which influence the choice of the form of governance. The challenge of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each of its businesses and yet strengthens the unity of purpose of the Company as a whole. Since the commencement of the liberalisation process, India's economic scenario has begun to alter radically. Globalisation will not only significantly heighten business risks, but will also compel Indian companies to adopt international norms of transparency and good governance. Equally, in the resultant competitive context, freedom of executive management and its ability to respond to the dynamics of a fast changing business environment will be the new success factors. ITC's governance policy recognises the challenge of this new business reality in India.
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Definition and Purpose ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, it believes that the governance process should ensure that these companies are managed in a manner that meets stakeholders aspirations and societal expectations. Core Principles ITC's Corporate Governance initiative is based on two core principles. These are : i. Management must have the executive freedom to drive the enterprise forward without undue restraints; and This freedom of management should be exercised within a framework of effective accountability.
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ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations. Cornerstones From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. Trusteeship ITC believes that large corporations like itself have both a social and economic purpose. They represent a coalition of interests, namely those of the shareholders, other providers of capital, business associates and employees. This belief therefore casts a responsibility of trusteeship on the Company's Board of Directors. They are to act as trustees to protect and enhance
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shareholder value, as well as to ensure that the Company fulfils its obligations and responsibilities to its other stakeholders. Inherent in the concept of trusteeship is the responsibility to ensure equity, namely, that the rights of all shareholders, large or small, are protected. Transparency ITC believes that transparency means explaining Company's policies and actions to those to whom it has responsibilities. Therefore transparency must lead to maximum appropriate disclosures without jeopardising the Company's strategic interests. Internally, transparency means openness in Company's relationship with its employees, as well as the conduct of its business in a manner that will bear scrutiny. It believes transparency enhances accountability. Empowerment and Accountability Empowerment is an essential concomitant of ITC's first core principle of governance that management must have the freedom to drive the enterprise forward. ITC believes that empowerment is a process of actualising the potential of its employees. Empowerment unleashes creativity and innovation throughout the organisation by truly vesting decision-making powers at the most appropriate levels in the organisational hierarchy. ITC believes that the Board of Directors are accountable to the shareholders, and the management is accountable to the Board of Directors. It believes that empowerment, combined with accountability, provides an impetus to performance and improves effectiveness, thereby enhancing shareholder value. Control ITC believes that control is a necessary concomitant of its second core principle of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. Control should prevent misuse of power, facilitate timely management response to change, and ensure that business risks are pre-emptively and effectively managed. Ethical Corporate Citizenship ITC believes that corporations like itself have a responsibility to set exemplary standards of ethical behaviour, both internally within the organisation, as well
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as in their external relationships. It believes that unethical behaviour corrupts organisational culture and undermines stakeholder value.
CODE OF CONDUCT
Preamble ITC?s Code of Conduct was circulated to the employees more than five years back and is posted on the Company?s corporate website. This Code has now been re-drafted for better presentation. This Code is derived from three interlinked fundamental principles, viz. good corporate governance, good corporate citizenship and exemplary personal conduct. Philosophy ITC is a professionally managed organisation and the core value underlying corporate philosophy is "trusteeship". They believe the organisation has been handed to us by the various stakeholders in "trust" and they as professionals are the "trustees" of these stakeholders. It is therefore their responsibility to ensure that the organisation is managed in a manner that protects and furthers the interests of our stakeholders. They recognise society as an important stakeholder in this enterprise and therefore it is part of our responsibility to practise good corporate citizenship. It is also their belief that in order to serve the interests of the stakeholders in perpetuity, they must build ITC into an institution whose dynamism and vitality are anchored in its core values. Corporate Citizenship In the conduct of the Company?s business, the practice of good corporate citizenship is a prerequisite and embraces the following: Dealing with People in the Organisation In dealing with each other, directors, senior management and employees shall uphold the values which are at the core of our HR Philosophy - trust, teamwork, mutuality and collaboration, meritocracy, objectivity, self respect and human dignity. Indeed, these values form the basis of HR management systems and processes. In selection and recruitment, while meritocracy will be a prime
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criterion, managers will scrupulously consider all factors that go towards securing the interests of the Company. ITC will focus on meritocracy, equity and upholding of Company values in all people processes including performance management systems, appraisals, remuneration and rewards. A Gender Friendly Workplace As a good corporate citizen, ITC is committed to a gender friendly workplace. It seeks to enhance equal opportunities for men and women, prevent/stop/redress sexual harassment at the workplace and institute good employment practices. Sexual harassment includes unwelcome sexually determined behaviour such as: unwelcome physical contact; a demand or request for sexual favours; sexually coloured remarks; showing pornography and any other unwelcome physical, verbal or non-verbal conduct of a sexual nature. ITC maintains an open door for reportees; encourages employees to report any harassment concerns and is responsive to employee complaints about harassment or other unwelcome and offensive conduct. A Grievance Committee on Gender Issues has been constituted to enquire into complaints and to recommend appropriate action, wherever required. ITC demands, demonstrates and promotes professional behaviour and respectful treatment of all employees. Relationships with Suppliers and Customers All directors, senior management and employees shall ensure that in their dealings with suppliers and customers, the Company?s interests are never compromised. Accepting gifts and presents of more than a nominal value, gratuity payments and other payments from suppliers or customers will be viewed as serious breach of discipline as this could lead to compromising the Company?s interests. Legal Compliance It is the Company?s policy to comply fully with all applicable laws and regulations. Ensuring legal and regulatory compliance is the responsibility of the Chief Executives of the Businesses and the Divisional Management Committees. The Company cannot accept practices which are unlawful or may be damaging to its reputation. Divisional Management Committees must satisfy
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themselves that sound and adequate arrangements exist to ensure that they comply with the legal and regulatory requirements impacting each business and identify and respond to developments in the regulatory environment in which they operate. In the event the implication of any law is not clear, the Company?s Legal Department shall be consulted for advice. Health and Safety The Company attaches great importance to a healthy and safe work environment. ITC is committed to provide good physical working conditions and encourages high standards of hygiene and housekeeping. Particular attention should be paid to training of employees to increase safety awareness and adoption of safe working methods, particularly designed to prevent serious or fatal accidents. Environment Policies The Company believes that commitment to sustainable development is a key component of responsible corporate citizenship and therefore deserves to be accorded the highest priority. Accordingly, the Company is committed to Best Practices in environmental matters arising out of its business activities and expects each business to fully demonstrate this commitment. In addition to complying with applicable laws and regulations, Businesses must establish procedures for assessing the environmental effects of their present and future activities. They should adopt Best Practices in their environmental policies and procedures. Personal Conduct All directors, senior management and employees have the obligation to conduct themselves in an honest and ethical manner and act in the best interest of the Company at all times. They are expected to demonstrate exemplary personal conduct through adherence to the following: Avoidance of Conflict of Interest All directors, senior management and employees must avoid situations in which their personal interest could conflict with the interest of the Company. This is an area in which it is impossible to provide comprehensive guidance but the
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guiding principle is that conflict, if any, or potential conflict must be disclosed to higher management for guidance and action as appropriate. Transparency and Auditability All directors, senior management and employees shall ensure that their actions in the conduct of business are totally transparent except where the needs of business security dictate otherwise. Such transparency shall be brought about through appropriate policies, systems and processes, including as appropriate, segregation of duties, tiered approval mechanism and involvement of more than one manager in key decisions and maintaining supporting records. It shall be necessary to voluntarily ensure that areas of operation are open to audit and the conduct of activities is totally auditable. Protection of Confidential Information No director, senior management and employee shall disclose or use any confidential information gained in the course of employment/ association with the Company for personal gain or for the advantage of any other person. No information either formally or informally shall be provided to the press, other publicity media or any other external agency except within approved policies. Company Facilities No director, senior management and employee shall misuse Company facilities. In the use of Company facilities, care shall be exercised to ensure that costs are reasonable and there is no wastage. Leading by Example The organisation?s directors and senior management set the professional tone for the Company. Through both their words and their actions, the organisation?s leadership conveys what is acceptable and unacceptable behaviour. ITC?s directors, senior management and employees must constantly reinforce through their actions and behaviour that ITC?s stated beliefs of responsible corporate citizenship are rooted in individual conviction and personal integrity. Waivers Any waiver of any provision of this Code of Conduct for a director, senior management or employee must be placed for approval before the Company?s Board of Directors/ Corporate Management Committee, as appropriate.
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Non Adherence Any instance of non-adherence to the Code of Conduct / any other observed unethical behaviour on the part of those covered under this Code should be brought to the attention of the immediate reporting authority, who shall in turn report the same to the Head of Corporate Human Resources. This Code of Conduct, as adopted by the Board of Directors of the Company on 26th March, 2005, was amended on 29th March, 2006.
POLICY ON HUMAN RIGHTS
ITC believes that all its employees must live with social and economic dignity and freedom, regardless of nationality, gender, race, economic status or religion. In the management of its businesses and operations therefore, ITC ensures that it upholds the spirit of human rights as enshrined in existing international standards such as the Universal Declaration and the Fundamental Human Rights Conventions of the ILO. Policy ITC upholds international human rights standards, does not condone human rights abuses, and creates and nurtures a working environment where human rights are respected without prejudice. Implementation The Corporate Human Resources function of ITC is responsible for the Human Rights Policy design, implementation and updation. The policy is implemented at all locations of ITC through a set of separate policies and procedures covering each of the main constituents of human rights applicable at the workplaces. Monitoring & Audit The assessment procedures for different constituents of this policy are defined against each specific policy.
Consideration of Human Rights Impacts Across the Supply Chain
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As a large and multi-product enterprise whose products are benchmarked nationally and internationally, ITC's main supply chains can be grouped as follows: 1. For all its operations, technology, machinery and equipment are sourced from reputed and globally benchmarked suppliers/vendors who are expected to follow internationally accepted norms and standards on human rights. 2. ITC's major businesses are vertically integrated across several Divisions. A substantial part of the supply chain is therefore internal through strategic backward linkages. Common values relating to human rights performance are shared across this supply chain. 3. Being a major agri-based company, the agriculture sector is a major supplier of inputs for its operations. The bulk of agricultural commodities are procured from state controlled trading platforms and the open market. 4. A very small proportion of ITC's business consists of supply chains comprising local vendors and suppliers. The policy framework for such entities is enunciated separately in 'Policy to Ensure Respect for Human Rights across the Supply Chain'. Policy to Ensure Respect for Human Rights Policy across the Supply Chain ITC provides products and services of superior quality and value by sourcing its technologies, equipment and inputs from reputed international and Indian manufacturers and suppliers. Common values, relating to human rights performance, are shared across the entire supply chain because ITC is committed to the importance of a socially responsible and accountable supply chain. Policy ITC nurtures an internal working environment which respects human rights without prejudice. Likewise, it expects its business partners to establish a human rights compliant business environment at the workplace. Implementation The responsibility for implementation of this policy rests with the Divisional Chief Executive of the concerned business and the Unit Manager. The policy is
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communicated internally through policy manuals and intranet portals, and externally by the HR personnel of concerned units to vendors/suppliers. Monitoring & Audit ITC has established a policy intent for mapping/monitoring progress and performance of existing and potential vendors/suppliers on human rights performance. Policy to Prevent Discrimination at Workplace ITC acknowledges that every individual brings a different and unique set of perspectives and capabilities to the team. A discrimination-free workplace for employees provides the environment in which diverse talents can bloom and be nurtured. This is achieved by ensuring that a non-discrimination policy and practice is embedded across the Company in line with corporate principles and benchmarked business practices. Policy ITC's approach to its human resources is premised on the fundamental belief in fostering meritocracy in the organisation which, pari passu, promotes diversity and offers equality of opportunity to all employees. ITC does not engage in or support direct or indirect discrimination in recruitment, compensation, access to training, promotion, termination or retirement based on caste, religion, disability, gender, age, race, colour, ancestry, marital status or affiliation with a political, religious, or union organization or minority group. Implementation The policy is communicated to all employees through induction programmes, policy manuals and intranet portals. The custodian of this policy is the head of each operational unit and Divisional Chief Executives of the respective business. ITC's complaints resolution procedure is premised on the freedom of employees to approach higher officials beyond his/her immediate superior. For the unionised employees, compliance of the policy is ensured through a robust grievance handling procedure and the presence of a union that brings violations to the notice of the unit HR head. Monitoring & Auditing The accountability for the application of the non-discrimination employment
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policy rests with the Unit Head who reviews anti-discriminatory complaints annually or on a case-by-case basis. The Corporate Human Resources function conducts non-discrimination reviews annually on a sample basis with unit heads and through on-site assessments. Policy on Freedom of Association ITC's culture is characterized by cooperative relationships and high employee involvement that relies on building partnerships and interdependence. Adhering to these principles has helped build, sustain and strengthen harmonious employee relations in the organisation. Policy ITC respects the employees' right to organize themselves into interest groups as initiatives of the workers, independent from supervision by the management. In keeping with the spirit of this Policy, employees are not discriminated against for exercising this right. Implementation The policy is comunicated to all employees through induction programmes, policy manuals and intranet portals. The custodian of this policy is the HR head of each operational unit who reports directly to Unit Head on such issues. The actualisation of this policy is evident from the joint agreements and minutes that are signed between the union and the management. Monitoring & Audit Each ITC Unit has appropriate systems and checks to ensure compliance with the Policy and statutory provisions, including means for filing of grievances, collective bargaining agreements and minutes from worker meetings. Compliance with the Policy is regularly monitored by Divisional and Corporate HR. Policy Prohibiting Child Labour and Preventing Forced Labour from Workplace The foundation of ITC's "No Child or Forced Labour policy" is based on the Company's commitment to find practical, meaningful and culturally appropriate
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responses to support the elimination of such labour practices. It thus endorses the need for appropriate initiatives to progressively eliminate these abuses. Policy ITC does not employ any person below the age of eighteen years in the workplace. ITC prohibits the use of forced or compulsory labour at all its units. No employee is made to work against his/her will or work as bonded/forced labour, or subject to corporal punishment or coercion of any type related to work. Implementation This policy is publicly available throughout the Company and clearly communicated to all employees in a manner in which it can be understood through induction programmes, policy manuals and intranet portals. The responsibility for the implementation of the policy rests with the Units HR Department and the security staff who do not permit underage persons to enter the factory as workers. Employment contracts and other records documenting all relevant details of the employees, including age, are maintained at all units and are open to verification by any authorized personnel or relevant statutory body. Compliance with the policy is evident in the transparent system of recruitment and the policy of exit interviews which are undertaken by a manager not directly connected with the employee. For the unionised employees, compliance is also ensured through a robust grievance handling procedure and the presence of a union that brings violations to the notice of the unit HR head. Monitoring & Audit Sample checks of the records are undertaken annually by Corporate Human Resources function. Audit and assessment is undertaken annually by Corporate Internal Audit and the Environment, Occupation Health and Safety function.
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POLICY ON INFORMATION AND CONSULTATION ON CHANGES
ITC's core values support an employee engagement process that aligns its employees with a shared vision and purpose of the Company in the belief that every individual brings a different perspective and capability to the team. ITC thus harnesses the creative potential of all its employees by promoting a culture of partnerships to unleash relevant synergies between different groups of employees. Policy All major changes in operations involving work processes, manning norms and other productivity linked issues are carried out after discussions with the employees and the recognized unions at each location. Implementation Business plans are shared with employees at all units through a series of formal communication meetings, and through the intranet portals. Unionised employees at the concerned units are informed of all major changes well in advance through their representatives. The responsibility for the implementation of the policy rests with the Unit's HR Department in the case of unionized employees and with the concerned Divisional Management Committees for other employees.The employees are given enough time to consider the implications of change and an opportunity to discuss their apprehensions, if any, with the management.The Policy is actualised through consultative meetings with representatives of employees, culminating in joint minutes/agreements. Monitoring & Auditing Compliance with the Policy is regularly monitored by the Unit Head. HIV/AIDS: Policy Guidelines Background ITC is committed to providing a safe and healthy work environment to all its employees. These policy guidelines on HIV/AIDS are an endorsement of this commitment and, in particular, of the Company's commitment to specific programmes and actions in response to the HIV epidemic.
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The Company's position is based on scientific and epidemiological evidence that people with HIV/AIDS do not pose a risk of transmission of the virus to coworkers by casual, non-sexual contact in the normal work setting. Policy Guidelines 1. Compliance The Company's policies on HIV/AIDS with regard to its employees will, at a minimum, comply with all relevant Central and State legislation and the Company will implement all policies and directions of the Government regarding HIV/AIDS whenever issued. 2. Prevention through Awareness The Company will provide to all its employees sensitive, accurate and the latest information about risk reduction strategies in their personal lives, with the objectives of reducing the stigma of HIV/AIDS, encouraging safe behaviour and improving understanding of treatment. 3. Safe and Healthy Workplace The Company is committed to providing a safe and healthy workplace to all its employees. It is the Company's objective that employees will have access to health services to prevent and manage HIV/AIDS. 4. Non-discrimination The Company will not discriminate against any employee infected by HIV/AIDS with regard to promotions, training and other privileges and benefits as applicable to all employees. 1. A HIV positive employee will be allowed to continue to work in his/her job unless medical conditions interfere with the specific job being done, in which case reasonable alternative working arrangements will be made; or The employee is incapacitated to perform his/her duties and is declared medically unfit by a medical doctor, in which case the employee will be assisted to rehabilitate himself/herself outside the Company. 2. The Company will not make pre-employment HIV/AIDS screening mandatory as part of its fitness to work assessment. Screening of this kind refers to direct methods (HIV testing), indirect methods (assessment of risk behaviour), and questions about HIV tests already taken. 3. HIV/AIDS test will not be part of the annual health check-ups unless specifically requested for by an employee.
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5. Confidentiality Voluntary testing for HIV/AIDS when requested for by the employee, will be carried out by private or community health services and not at the workplace.There will no obligation on the part of the employees to inform the Company about their clinical status in relation to HIV/AIDS. Information on clinical diagnosis of an employees' status in terms of his/her HIV/AIDS status if advised to the Company, will be kept strictly confidential.
ITC IT E-Waste Policy
ITC?s achievements across all three dimensions of the "Triple Bottom Line" – economic , social and environmental is well known and recognized globally. Being a pioneer in environmentally sustainable operations ( e.g Carbon and Water positive , solid waste recycling positive), we need to meet demanding standards of responsible waste management in all aspects of our operations. With pervasive use of electrical and electronic equipments in their daily operations, disposal of obsolete equipments is increasingly posing a threat to our environment . There is therefore a need to handle such disposals – referred to as E-Waste – in a responsible manner in line with emerging global best practices and standards IT E-Waste is a subset of E-Waste and covers the following IT equipments Sl. No. 1. Category Computers Items Server / Desktop computer (CPU, Monitor, Keyboard and Mouse), Laptop, Notebook, Dumb terminal, etc or similar items Printer, Scanner, Printer Cartridge, Toner, etc or similar items Routers, Switches, Patch panel, Modem, Converter, VSAT equipments, etc or similar items
2. 3. 4.
Printer & Accessories Network equipments
IT Accessories TV Tuner box, Floppy, CD and DVD, Pen Drive,
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External Hard disk, External CD / DVD writer, DAT Drive, Speaker, Laptop Battery, Hand Held device, VC equipments, Data Cartridge, etc or similar items 5. Associated Electrical items Power cable, Data cable, UPS, etc or similar items
IT E-WASTE POLICY The lifecycle of all IT assets spanning from acquisition to disposal shall be managed in a manner which conforms to sound environmental norms as detailed in the IT E-Waste guidelines. This includes :
?
Preferential dealing with IT vendors having sound E-Waste management processes Extending the useful life of IT assets to postpone / minimize generation of E-Waste Responsible disposal processes conforming to regulatory requirements and best practices
?
?
IT E-waste management guidelines Regulatory environment
?
Different government bodies have published regulatory framework for handling E-waste. Similarly, different trade and industry bodies are also evolving the best practices to deal with IT E-Waste. CIO Office scans the evolving code of practice and keep updating this policy document (supported by Corporate EHS) in line with the best practices for disposal of IT E-Waste. This is done once a year, or more frequently if deemed necessary. The appropriate government bodies, e.g., Ministry of Environments & Forests / Central or State pollution control boards in India, etc. have initiated the process of approving and authorizing E-Waste Recyclers. CIO Office shall identify authorized Recyclers, publish a list of such EWaste Recyclers and enter into appropriate agreements covering all aspects of the E-Waste disposal. The list of authorized Recyclers and the agreed terms and conditions have been circulated to the DMMs.
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?
IT E-waste minimization process
?
It shall be the endeavor of every user to maximize utilization of all IT assets to their full productive life. Apart from internal re-use, option to extend use outside ITC through donation to bonafide philanthropic institutions will also extend the useful life of IT assets. Only such IT assets which are non-operational and can not be reused for any other alternate purpose should be considered as IT E-waste for disposal. The DMM will certify this position.
?
Compliance reporting As part of Quarterly IT Policy Compliance, the DMM shall report the Division?s compliance to E-Waste Policy to the CIO, who in turn will present Companywide consolidated status to the Corporate IT Steering Committee.
THE CHAIRMAN SPEECH
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GLOBAL HONOURS
ITC constantly endeavours to benchmark its products, services and processes to global standards. The Company's pursuit of excellence has earned it national and international honours. ITC is one of the eight Indian companies to figure in Forbes A-List for 2004, featuring 400 of "the world's best big companies". Forbes has also named ITC among Asia's'Fab 50' and the World's Most Reputable Companies. ITC has several firsts to its credit:ITC is the first from India and among the first 10 companies in the world to publish its Sustainability Report in compliance (at the highest A+ level) with the latest G3 guidelines of the Netherlands-based Global Reporting Initiative (GRI), a UN-backed, multistakeholder international initiative to develop and disseminate globally applicable Sustainability Reporting Guidelines. ? ITC is the first Indian company and the second in the world to win the prestigious Development Gateway Award. It won the $100,000 Award for the year 2005 for its trailblazing ITC e-Choupal initiative which has achieved the scale of a movement in rural India. The Development Gateway Award recognizes ITC's e-Choupal as the most exemplary contribution in the field of Information and Communication Technologies (ICT) for development during the last 10 years. ITC e-Choupal won the Award for the importance of its contribution to development priorities like poverty reduction, its scale and replicability, sustainability and transparency. ? ITC has won the inaugural 'World Business Award', the worldwide business award recognising companies who have made significant efforts to create sustainable livelihood opportunities and enduring wealth in developing countries. The award has been instituted jointly by the United Nations Development Programme (UNDP), International Chamber of Commerce (ICC) and the HRH Prince of Wales International Business Leaders Forum (IBLF). ? ITC is the first Corporate to receive the Annual FICCI Outstanding Vision Corporate Triple Impact Award in 2007 for its invaluable contribution to the triple bottom line benchmarks of building economic, social and natural capital for the nation. ? ITC has won the Golden Peacock Awards for 'Corporate Social Responsibility (Asia)' in 2007, the Award for 'CSR in Emerging Economies 2005' and 'Excellence in Corporate Governance' in the same year. These Awards have been instituted by the Institute of Directors,
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? ? ? ? ? ? ? ?
?
New Delhi, in association with the World Council for Corporate Governance and Centre for Corporate Governance. ITC Hotel Gardenia, Bengaluru is the first Indian Hotel and world's largest, to get the LEED Platinum rating - thehighest green building certification globally. The Company's Green Leaf Threshing plants at Chirala and Anaparti in Andhra Pradesh are the first units of their kind in the world to get ISO 14001environment management systems certification. ITC's cigarette factory in Kolkatais the first such unit in India to get ISO 9000quality certification and the first among cigarette factories in the world to be awarded the ISO 14001 certification. ITC Maurya in New Delhi is the first hotel in India to get the coveted ISO 14001Environment Management Systems certification. ITC Filtrona is the first cigarette filter company in the world to obtain ISO 14001. ITC Infotech finds pride of place among a select group of SEI CMM Level 5companies in the world. ITC's Green Leaf Threshing plant in Chirala is the first in India and among the first 10 units in the world to bag the Social Accountability (SA 8000) certification. ITC's R&D Centre at Peenya, Bengaluru has the distinction of being the first independent R&D centre in India to get ISO 9001 accreditation and certified with ISO 14001 for Environment Management Systems by DNV. The R&D Centre is also certified for the standard ISO/IEC17025:2005, by National Accreditation Board for Testing and Calibration Laboratories (NABL). This certification is awarded for "General requirement for the competence of Testing & Callibration Laboratories". ITC Chairman Y C Deveshwar has received several honours over the years. Notable among them are:
Year Award The Padma Bhushan, one of the highest civilian awards in the country by 2011 the Government of India in recognition of his distinguished service of a high order to the Nation. 2010 The U.S.-India Business Council (USIBC) Award for Global Leadership. 2007 SAM/SPG Sustainability Leadership Award conferred at the International Sustainability Leadership Symposium, Zurich.
2006 Business Person of the Year from UK Trade & Investment, the UK
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Government organisation that supports overseas businesses in that country. 2006 Inducted into the `Hall of Pride' by the 93rd Indian Science Congress. 2005 Honoured with the Teacher's Lifetime Achievement Award. Manager Entrepreneur of the Year from Ernst & Young. 2001 Retail Visionary of the Year from Images, India's only fashion and retail trade magazine. 1998 Honorary Fellowship from the All India Management Association 1996 Distinguished Alumni Award from IIT, Delhi. 1994 Marketing Man of the Year from A&M, the leading marketing magazine. 1986 Meridien Hotelier of the Year. Some of the other notable recognitions are: ? The Stockholm Challenge 2006 for the e-Choupal initiative. This award is for usingInformation Technology for the economic development of rural communities. ? United Nations Industrial Development Organisation (UNIDO) Award at the international conference on Sharing Innovative Agribusiness Solutions 2008 at Cairo for ITC's exemplary initiatives in agri business through the e-Choupal. ? The Corporate Social Responsibility Crown Award for Water Practices from UNESCOand Water Digestfor its distinguished work carried out in the water sector in India. ITC also received the National Award for Excellence in Water Management 2007 in the 'beyond the fence' category from the CII Sohrabji Godrej Green Business Centre for its leadership role in implementing water and watershed management practices. ? The watershed programme also won the Asian CSR Award 2007 for Environmental Excellence given by the Asian Institute of Management. The Award recognizes and honours Asian companies for outstanding, innovative and world-class projects. The Company also received the Ryutaro Hashimoto Incentive Prize 2007 for Environment & Development from the Asia Pacific Forum. This Award aims at promoting information dissemination of good practices towards sustainable development in the Asia-Pacific region. ? The Readers' Digest Pegasus Award for corporate social responsibility, recognising outstanding work done by socially conscious companies.
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? The Corporate Award for Social Responsibility 2008 from The Energy and Resources Institute (TERI) in recognition of its exemplary initiatives in implementing integrated watershed development programmes across 7 states in India. The company also won the award in 2004 for its eChoupal initiative. The Award provides impetus to sustainable development and encourages ongoing social responsibility processes within the corporate sector. ? The 'Enterprise Business Transformation Award' for Asia Pacific (Apac), instituted by Infosys Technologies and Wharton School of the University of Pennsylvania for its celebrated e-Choupal initiative. ? The Best Corporate Social Responsibility Practice Award 2008 jointly instituted by the Bombay Stock Exchange, Times Foundation and the NASSCOM Foundation. ? The NASSCOM - CNBC IT User Award 2008 in the Retail & Logistics category. The Company has been recognised for its pro-active and holistic approach to IT adoption and the seamless alignment of IT with business strategy. This is the fourth time that ITC has won Nasscom's Best IT User Award since it was instituted in 2003. ? The Institute of Chartered Accountants of India Award for Excellence in Financial Reporting with its Annual Report and Accounts, adjudged as a commendable entry under the Category 'Manufacturing and Trading Enterprises'. ? The Business Today Award for the Best Managed Company in recognition of its outstanding initiatives in the consumer products segment. ? The only Indian FMCG company to have featured in the Forbes 2000 list. The Forbes 2000 is a comprehensive ranking of the world's biggest companies, measured by a composite of sales, profits, assets and market value. The list spans 51 countries and 27 industries. ? The NDTV Profit Business Leadership Award for being the Best Food Company of 2007. The Award has been instituted to recognise organisational excellence. ? The CNBC-TV18's International Trade Award 2008 for Outstanding Exporter of the Year in the FMCG & Food category. ? ITC continues its dominance of The Economic Times' Brand Equity listing of India's 100 Biggest FMCG Brands, with three brands from its stable making it to the top five. Gold Flake remains India's biggest FMCG brand in terms of sales. Navy Cut ranks at No. 4. ITC's Scissors brand ranks at No 5 and is the only new entrant into the top 10. ? Restaurant magazine has chosen Bukhara at the ITC Maurya, New Delhi as thebest Indian restaurant in the world and the best restaurant in Asia. Bukhara has also been adjudged one of the top 50 restaurants in the
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world by the London based magazine 'The Good Food Guide'. Bukhara is the only South Asian restaurant to figure in the list. ? The "Best Supply Chain Practices Award" for time-effective and costefficient Logistics Management in Organized Retail to ITC's Lifestyle Retailing Business Division (LRBD). The awards were organized by Retailers Association of India (RAI) in association with ITW Signode the International leaders in packaging solutions.
RESEARCH AND DEVELOPMENT
ITC is committed to delivering world-class products and services. This requires a clear focus on continuously striving to create a higher value to customers by achieving excellence in all Company's operations. Business excellence calls for a passionate focus on technology, products, services, processes and an operating environment firmly anchored to an impregnable foundation of Quality.
ITC firmly believes that quality is not a specifically assignable task. It needs to be firmly rooted and institutionalized in the culture and value system of the Company. ITC nurtures a culture of striving for continuous improvement in quality, be it in products, services, systems or performance. The Company is committed to the establishment of systems and processes to promote organisational creativity and innovation. ITC's development of its Integrated Quality Management System (IQMS) is based on its strong foundation of implementing ISO 9001:2000, ISO 14001, OHSAS 18001, SA 8000, HACCP (for Foods) and IQRS (performance rating and benchmarking of the quality management system). Likewise, ITC's strategic initiatives for developing its people have been based on participative management concepts like QC (Quality Control), TQM (Total Quality Management), KSS (Kaizen Suggestion Scheme), 5S, Six Sigma. All ITC manufacturing units have ISO quality certification. Almost all contract manufacturing units in the Foods Business and all large hotels have food safety
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and quality systems certified by accredited 'third party' in accordance with 'Hazard Analysis Critical Control Points' (HACCP) standards. Additionally, the quality of all FMCG products of the Company is regularly monitored through 'Product Quality Rating System' (PQRS). The Leaf Tobacco and Printing & Packaging businesses have achieved world-class ratings in the 'International Quality Rating System' (IQRS) for business excellence in which key processes are rated against international benchmarks and certified by accredited 'third party' independent assurance providers. ITC's Research & Development Centres
At ITC's Research & Development Centres at Bengaluru, Bhadrachalam and Rajahmundry, the Company has assembled a pool of world-class scientists focused on providing the requisite R&D support to its established and new businesses enabling the Company to consistently attain internationally benchmarked quality standards and constantly offer product innovations. ITC R&D Centre at Bengaluru provides systemized service to the entire range of ITC's businesses through Product Technology Cells, Common Service Modules, Advanced Research Initiatives and networking with national and international R&D centres. Product Technology Cells (PTCs) are product-specific. Each PTC caters to the needs of the businesses through Market Intelligence, Product Testing & PQRS services, Prototyping services through advanced pilot plants, flavour and fragrance development services, periodic audit of factory quality systems and Product Knowledge and Training Workshops. PTCs assist businesses through sensory evaluations by highly trained and specialised panelists. Common service modules like Packaging and Advanced Analytical labs offer their services across all businesses.
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ITC R&D Centres are manned by highly qualified and trained scientists specialised in their fields. The labs and pilot plants have ultra modern, state-ofthe-art testing and prototyping facilities. The laboratory at Bengaluru has obtainedaccreditation from NABL (National Accreditation Board for Testing & Calibration of Laboratories) for ISO 17025 for key testing protocols. ITC Corporate R&D located in Bengaluru undertakes research programs for multiple ITC businesses built on a common set of core competencies. The initial sets of core competency areas identified are: Plant Breeding and Genetics, Agronomy, Microbiology, Molecular Biology, Silviculture, Cell Biology, Proteomics, Genomics, Biochemistry and Ingredient Sciences. The facility aims to create 'Centres of Excellence' in these areas.
ITC's R&D programme at Bhadrachalam is the core of the Company's fibre strategy for its Paperboards and Specialty Papers business. This state-of-the-art research centre is consistently striving to improve the productivity of several tree species, in order to give attractive land-use alternatives to traditional farmers and wasteland owners. So far, more than 100 high-yielding, fastgrowing and disease resistant 'Bhadrachalam' clones have been produced on a commercial scale, including 23 site-specific clones adapted to problematic soils. The productivity of these saplings is 6-9 times that of normal seedlings.
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ITC's comprehensive R&D facilities at Rajahmundry in Andhra Pradesh cover all aspects of tobacco crop cultivation. In collaboration with the Central Tobacco Research Institute and the Tobacco Board, ITC pioneered FCV tobacco cultivation in India and introduced the Burley and HDBRG varieties. ITC's continued focus on crop development has resulted in new varieties of seeds and hybrids in Andhra Pradesh and Karnataka, which have significantly improved farm yields and helped fulfill the demands of a dynamic global market. The Company's R&D team collaborates with other centres of excellence, and leverages expertise from several leading institutes including the University of Agricultural Science, Bengaluru; Indian Institute of Science, Bengaluru; CSIOR, Australia and CSIR, South Africa. Catering to the need of ITC's Lifestyle Business is a contemporary master Design Facility at Gurgaon. It offers R&D facilities that have enabled the Company to offer internationally benchmarked fashion collection every season.
ITC LTD. BUSINESSES
? FMCG ? Cigarettes & Cigars ? Foods ? Lifestyle Retailing ? Personal Care ? Education and Stationery ? Safety Matches ? Agarbattis ? Hotels ? Paperboards and packaging
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? Paperboards and ? Specialty Papers ? Packaging ? Agribusiness ? Agri Commodities & Rural Services ? e-Choupal ? Leaf Tobacco, Spices ? Agri Inputs ? Information technology
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DEMAND DETERMINANTS OF FMCG SECTOR
? Taste ( the consumer preferences) :-For example, in a same store, there are two kinds of shampoos, HUL company brand and ITC brand.The consumers preference decides the demand of the product. ? Quality of product –It is the most important factor which determines the demand of the product.A good quality product always helps to in crease the demand. ? Shelf-life of product-Since the FMCG products are consumer products and perishable in nature,it is very important to manufacture products of better shelf life so that they can be used for a longer period. ? Better finish of products-Finishing of FMCG products is very important factor in deciding the buyimg behaviour of the consumers and finally ttheir demand for the product. ? Good looks and stylish packaging-Packaging of the product leads an important role in the demand of a product.So unlike earlier companies have started to pay attention on the packaging and the appearance of the product as well. ? Quantity of the product-If the quantity of teh product is not enough according to the price demanded by the company for its product then the
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consumers would not buy that product.So it is necessary that a right combination of price along with the quantity of the product is sold to the consumers. ? Expectations of the consumers-After using a FMCG product the consumer tend to establish an opinion and expectations from the product of a certain quality and if that expectations of the consumers is not fulfilled then the demand for that product falls. ? Changing lifestyles: With improving domestic living standards, demand for better consumer goods has increased.Moreover, the bent of young generation towards better lifestyle has increased the demand of these goods. ? Increasing competition in the market-ITC has been facing tough competition from other companies in the FMCG sector like HUL,Dabur Ltd,Emami,Palmolive etc. ? ? ? ? ? ? ? Availability of Substitutes Some other determinants include: Population growth Level of literacy Public and private spending on education Level of business activity Growing economy
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COST ANALYSIS
The cost analysis of the company can be done by taking various factors and comparing them with a common factor which helps us to know the relationship between those factors.The different factors taken into account here are:? Electricity & fuel expenses ? Salaries & wages expenses ? Raw materials costs ? Advertisement expenses 1. TAKING ELECTRICITY EXPENSES INTO ACCOUNT:Electricity expenses and sales of the company for the previous 6 years is as follows: 2. YEAR GROSS ELECTRICITY& % RATIO SALES FUEL (EXPENSES/SALES*100) (IN EXPENSES CRORES) (IN CRORES) 2005 14177.58 227.26 1.602953395 2006 17222.25 260.84 1.514552396 2007 19894.89 290.40 1.459671303 2008 21355.94 309.90 1.451118518 2009 23143.53 387.34 1.673642698 2010 26259.60 394.12 1.500860638
To compare the sales and electricity & fuel expenes,a pivot chart is prepared and a graph is plotted between year and % ratio to see the variation of % ratio of electricity and fuel expenses to sales.
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140000 120000 100000 80000 60000 40000 20000 0 2005 2006 2007 2008 2009 2010 Total Sum of GROSS SALES CRORES) (IN
Sum of ELECTRICITY& FUEL EXPENSES (IN CRORES)
2012 2010 2008 2006 2004 2002 2000 1 2 3 4 5 6
% RATIO 1.602953395 1.514552396 1.459671303 1.451118518 1.673642698 1.500860638 (EXPENSES/SALES*100) YEAR 2005 2006 2007 2008 2009 2010
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2.TAKING SALARIES AND WAGES INTO ACCOUNT:- Salaries& wages of the workers and sales of the company for the previous 6 years is as follows:
YEAR
2005 2006 2007 2008 2009 2010
GROSS SALARIES % RATIO SALES (IN AND WAGES (EXPENSES/SALES*100) CRORES) (IN CRORES) 14177.58 380.87 2.686425 17222.25 454.93 2.641525 19894.89 588.46 2.957845 21355.94 610.24 2.857472 23143.53 733.57 3.169655 26259.60 794.31 2.686425
To compare the sales and salaries& wages expenses ,a pivot table is plotdrawn and a graph is plotted between year and % ratio to see the variation of % ratio of salaries and wages expenses to sales.
140000 120000 100000 80000 60000 40000 20000 0 2005 2006 2007 2008 2009 2010 TOTAL SUM Sum of SALARIES AND WAGES (IN CRORES) Sum of GROSS SALES (IN CRORES)
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3000 2500 2000 1500 1000 500 0 SALARIES AND WAGES (IN CRORES) YEAR 1 2 380.87 2005 3 454.93 2006 4 588.46 2007 5 610.24 2008 6 733.57 2009 7 794.31 2010
3. TAKING RAW MATERIALS COST INTO ACCOUNT:- Raw materials costs and sales of the company for the previous 6 years is as follows:
YEAR
2005 2006 2007 2008 2009 2010
GROSS SALES (IN CRORES) 14177.58 17222.25 19894.89 21355.94 23143.53 26259.60
RAW MATERIALS COSTS (IN CRORES) 2785.26 4018.97 5384.86 6016.70 6446.78 6971.40
% RATIO (EXPENSES/SALES*100)
19.64552 23.33592 27.06655 28.17343 27.85565 26.54801
To compare the sales and salaries& wages expenses ,a pivot chart is drawn and a graph is plotted between year and % ratio to see the variation of % ratio of raw materials to sales.
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30000 25000 20000
8000 7000 6000 5000 4000 3000 GROSS SALES 2000 1000 0 2005 2006 2007 2008 2009 2010
GROSS 15000 SALES
10000 5000 0
RAW MATERIAL
2040 2030 2020 2010 2000 1990 1980 % RATIO YEAR 1 19.64552 2005 2 23.33592 2006 3 27.06655 2007 4 28.17343 2008 5 27.85565 2009
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4.. TAKING ADVERTISEMENT EXPENSES INTO ACCOUNT:- :Advertisements costs and sales of the company for the previous 6 years is as follows: YEAR GROSS SALES (IN CRORES) 14177.58 17222.25 19894.89 21355.94 23143.53 26259.60 ADVERTISEMENT % RATIO EXPENSES (EXPENSES/SALES*100) (IN CRORES) 229.92 238.25 288.15 377.54 502.30 514.66 1.621715 1.383385 1.448362 1.767845 2.170369 1.959893
2005 2006 2007 2008 2009 2010
To compare the sales and advertisement expenses ,a graph is plotted . a graph is plotted between year and % ratio to see the variation of % ratio of advertisement expenses to sales.
30000 25000 20000 15000 10000 5000 0 2005 2006 2007 2008 2009 2010
600 500 400 Sum of GROSS SALES 300 200 100 0 Sum of ADVERTISEMENT EXPENSES (IN CRORES)
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2014 2012 2010 2008 2006 2004 2002 2000 % RATIO YEAR 1 1.621715 2005 2 1.383385 2006 3 1.448362 2007 4 1.767845 2008 5 2.170369 2009 6 1.959893 2010
So,from the above comparisons and graphs,we can see that raw material expenses account for the maximum expenses in the company followed by the salaries and wages expenses.Advertisement expenses have been increasing continuosly at a large rate as compared to the fuel expenses.The graphs show a particular rise in sales ratio with the coming years but there was a small drift or plateau from the year 2008-2009.The cause of this drift may have been the recession period in the economy and in some cases,sales are trying to recover from that drift to rise to the normal.
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REGRESSION ANALYSIS
Introduction to Regression Analysis Regression analysis is a statistical tool for the investigation of relationships between variables. Regression analysis includes any techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables. More specifically, regression analysis helps one understand how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed. Regression analysis is widely used for prediction and forecasting, where its use has substantial overlap with the field of machine learning. Regression analysis is also used to understand which among the independent variables are related to the dependent variable, and to explore the forms of these relationships. In restricted circumstances, regression analysis can be used to infer causal relationships between the independent and dependent variables. A large body of techniques for carrying out regression analysis has been developed. Familiar methods such as linear regression and ordinary least squares regression are parametric, in that the regression function is defined in terms of a finite number of unknown parameters that are estimated from the data. Nonparametric regression refers to techniques that allow the regression function to lie in a specified set of functions, which may be infinitedimensional. Linear regression Linear regression is an approach to modeling the relationship between a scalar variable y and one or more variables denoted X. In linear regression, data are modeled using linear functions, and unknown model parameters are estimated from the data. Such models are called linear models. The various regression equations which can be used for forecasting exercise are: Fitting Simple Linear Regression: In this case a straight line is fitted to the data containing one dependent variable and only one independent variable, e.g., Sales = a + b*(Price)
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Fitting of the straight line can be done by following methods: i. ii. i. Graphical Method Least Squares Method Graphical Method: In graphical method, we plot the sets of data of the two variable (dependent and independent variable) on the graph and a line is drawn through all the points. Thereafter, the movement of the series is assessed and future values of the variable are forecasted.
Figure 1.0 shows how to project trend by graphical method, using the figures on sales for FMCG products from the numerical example of ITC Limited cited below:
YEAR 2002 2003 2004 2005 2006 2007 2008 2009 2010
35000 30000 25000 20000 15000 10000 5000 0
SALES(IN CRORES) 9843.16 11028.41 11819.66 13360.24 16236.42 19519.99 21467.38 23247.84 26399.63
Total
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 9843.16 11028.41 11819.66 13360.24 16236.42 19519.99 21467.38 23247.84 26399.63 30633.57
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Least Squares Method: Least squares estimation is a powerful tool to estimate the coefficients of a linear function. It is based on the minimisation of squared deviations between the best fitting line and the original observations given. In this method, we fit the data on demand and time in the form of equations and then project the demand for the future period. These equations are termed as normal equations and the task of least square method is to find out the values of the coefficients in these equations.
The Equation of the linear trend is given by: Y =a + b X, where a is the intercept of the demand curve, b is the slope of the curve(a and b are known as regression coefficients) and X is the deviation from mean of independent variable. We can find the values of a and b using the normal equations: ?Y= na + b?X ?Y.X= a?X + b?X2 Let us explain linear trend projection with the help of a numerical example, data is given below:
YEAR 2002 2003 2004 2005 2006 2007 2008 2009 2010
SALES(IN CRORES) 9843.16 11028.41 11819.66 13360.24 16236.42 19519.99 21467.38 23247.84 26399.63
ADVERTISEMENT EXPENSES
83.67 116.5 168.23 201.98 238.25 311.39 454.48 532.37 514.66
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SUMMARY OUTPUT Regression Statistics Multiple R 0.982948 R Square 0.966186 Adjusted R Square 0.96196 Standard Error 1377.206 Observations 10 ANOVA df Regression Residual Total SS MS F Significance F 1 4.34E+08 4.34E+08 228.5905 3.62E-07 8 15173574 1896697 9 4.49E+08
Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 6880.843 875.0321 7.863531 4.94E-05 4863.015 8898.67 4863.015 8898.67 X Variable 1 35.02597 2.316654 15.11921 3.62E-07 29.68376 40.36818 29.68376 40.36818
Y= 6880.843 + 35.026 X
SUMMARY OUTPUT Regression Statistics Multiple R 0.982948 R Square 0.966186 Adjusted R Square 0.96196 Standard Error 1377.206 Observations 10 ANOVA df Regression Residual Total SS MS F Significance F 1 4.34E+08 4.34E+08 228.5905 3.62E-07 8 15173574 1896697 9 4.49E+08
Y=sales and X=advertisement expenses
Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 6880.843 875.0321 7.863531 4.94E-05 4863.015 8898.67 4863.015 8898.67 X Variable 1 35.02597 2.316654 15.11921 3.62E-07 29.68376 40.36818 29.68376 40.36818
Y= 6880.843 + 35.026 X
Y=sales and X=advertisement expenses
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Now here the independent variable is the advertisement expenses and sales data is the dependent variable. Using the method of regression analysis,we find the regression coefficients a and b. By calculating the coefficients here we get a value of a=6880.843 and b= 35.026 Thus the regression equation becomes:Y=6880.843+35.026X The regression equation establishes a relationship between the variables taken here and can also be used for further calculating the different values of Y at different known values of X in future.
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PRODUCTION ANALYSIS
Production is the process of transformation of inputs into goods and services of utility to consumers and/or producers.Production process depends upon the technology and fixed and variable inputs. Economists have used the term “factors of production” for identifying the broad categories of inputs.The factors of production are:i. ii. iii. iv. v. Land Labour Capital Enterprise Organisation
Production function Production function is defined as the relationship between quantities of inputs used and maximum quantity of output that can be produced, given current knowledge about technology and organization. Production function with two variables -a production function that uses only labor and capital: q = f (L, K) to produce the maximum amount of output given efficient production. The production function for ITC LTD. has to be calculated. The various factors which are required in the production analysis are: Output: - The output for ITC is being depicted by the total income of the company. Labour Cost: - The total labour cost is being taken as the total compensation that is paid to the employees of the ITC. Capital: - The total capital cost that is taken into the ITC is the sum of raw materials and power fuel.
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The data for the following is given below:2008
14,581.16
2009
16,042.32
18,664.96
94.83
309.9 376.86 6,307.79
108.43
394.12
2011 22,205.01 102.3 130.43
421.68
2010
387.34 381.82 7,140.69
377.44
6,864.96
773.81
8,601.13
35,000.00 30,000.00 25,000.00 Raw materials 20,000.00 15,000.00 10,000.00 5,000.00 0.00 Total capital Power fuel Labour Income
Now we plot the function of labour/Income and capital/Income
Labour/Income Graph
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Labour/Income 0.005315695 0.005043809 0.005805019 0.006417247 0.006592544 0.006096952 0.006503598 0.006758997 0.005480858 0.0058739
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Labour/Income
2012 2010 2008 2006 2004 2002 2000 1998 1996 2002 2003 2004 2005 Year 2006 2007 2008 2009 2010 2011 Labour/Income
Capital/income graph
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Capital/Income 0.046457434 0.04143356 0.036043797 0.029975329 0.037043723 0.029134958 0.02584568 0.023527769 0.020456513 0.034848442
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Capital/Income
2012 2010 2008 2006 2004 2002 2000 1998 1996 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Capital/Income Year
Analysis: -So, we plot the labour/output (total income) and we observe that the ratio is decreasing for most of the corresponding years and there is a sudden sharp decrease in the year 2005-06. This means that the organization is spending more on technology advancement i.e capital and less on labour to increase the output. This also shows that due to computerization the workforce was reducing which is shown from the years. We see that the ratio capital/output is constant for initial few years and then it decreased for few years and after 2005 , ratio is increasing which means that the organization has increased the capital spending over the time. This also explains the decrease in the labour/output ratio. Now, we find the output as function of labour and capital using the function Output = f(L,K) Where L is the labour cost and K is the capital cost. We define O = A* L^? * K^? To obtain the values of alpha and beta we have to use the regression analysis. To do so we take log on both the sides. Log O = ? log L + ? Log K + Log A. The various values for the logarithms are given. Then we use regression analysis to calculate the values thereof.
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Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Log(Total Income) 3.722837039 3.7762405 3.837060399 3.91807282 4.005918443 4.111027487 4.163792076 4.205267175 4.271027064 4.346450973
Log(Labour) 3.722837039 1.478999132 1.600864036 1.72542155 1.824971461 1.896140251 1.976945751 2.035149458 2.009875634 2.115377494
Log(Capital) 2.389892255 2.39359275 2.393890939 2.394836771 2.574633072 2.575441879 2.576180044 2.576847924 2.581858673 2.888634338
Putting this information in to regression analysis software we get the values of A, alpha and beta. The values observed are as follows. A = 0.627 ? = 0.246 ? = 0.915 ?+ ? = 1.161 so, we get the function as O = 0.62 * L0.246 * K0.915 So, we observe that the value of ?+ ? is less than 1 so, we observe increasing return to scale in this case.
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RATIO ANALYSIS
Objective To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm. Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. Meaning of ratio:A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “ so many times”. As accounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements. Meaning of ratio analysis: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented.Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. . Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure
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a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. Objective of ratios Ratio is work out to analyze the following aspects of business organizationA) Solvency1) Long term 2) Short term 3) Immediate B) Stability C) Profitability D) Operational efficiency E) Credit standing F) Structural analysis G) Effective utilization of resources H) Leverage or external financing STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry?s average ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.
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I.
Classification of ratio CLASSIFICATION OF RATIO
BASED ON FINANCIAL USER STATEMENT
BASED ON FUNCTION
BASED ON
1] BALANCE SHEET FOR RATIO 2] REVENUE STATEMENT RATIO SHAREHOLDER 3] COMPOSITE RATIO MANAGEMENT
1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY
1] RATIOS
SHORT TERM CREDITORS 2] RATIO FOR RATIO
5] COVERAGE
3] RATIOS FOR RATIO
4] RATIO FOR LONG TERM CREDITORS
Based on financial statement Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& P A/C, or both. Oneway of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid
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ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio. 3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios.
Based on function:Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios. 3] Activity ratios:It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios. 4] Profitability ratios:It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios.It shows the relationship between profit & investment e.g. return on investment, return on equity capital. 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.
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Based on user: 1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders:Return on proprietors fund, return on equity capital 3] Ratios for management:Return on capital employed, turnover ratios, operating ratios, expenses ratios 4] Ratios for long-term creditors
ebt equity ratios, return on capital employed, proprietor ratios.
(1) Liquidity ratio:Liquidity refers to the ability of a firm to meet its shortterm (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below2)Current ratio:This ratio compares the current assests with the current liabilities. It is also known as „working capital ratio? or „ solvency ratio?. It is expressed in the form of pure ratio. The current assests of a firm represents those assets which can be, in the ordinary course of business, converted into cash within a short period time, normally not exceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met, as originally contemplated, with in a year. Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current assets include cash and bank balances; inventory of raw materials, semi-finished and finished goods; marketable securities; debtors (net
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of provision for bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its shortterm debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within approximately twelve months with liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is under utilizing its current assets. Liquid ratio:Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio.The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value. Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments. Cash ratio:This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. Since cash and bank balances and short term marketable securities are the most liquid assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm.
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(2)
Investment / shareholder ratio
Earning per share:-Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per share are determined by dividing net profit by the number of equity shares.EPS measures the profits available to the equity shareholders on each share held. EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business Dividend per share:-DPS shows how much is paid as dividend to the shareholders on each share held. Gearing ratio:Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio.
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B.
3.Profitability Ratio
These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin. Gross Profit Ratio:-This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit. Net profit ratio:-Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage.This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm. Return on capital employed:-The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus longterm debts. Alternatively it can also be defined as fixed assets plus net working capital.Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized.
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FINANCIAL RATIO
(i) These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets. The important turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described below: B)Debtors Turnover Ratio (Dto) DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better is. C)Inventory Or Stock Turnover Ratio (Itr) ITR refers to the number of times the inventory is sold and replaced during the accounting period.ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories). D)Fixed Assets Turnover (Fat):The FAT ratio measures the net sales per rupee of investment in fixed assets. ts This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).
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Proprietors Ratio
roprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company. II)Debt Equity Ratio:This ratio compares the long-term debts with shareholders fund. The relationship between borrowed funds & owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratio indicates the relative proportion of debt & equity in financing the assets of the firm. It is usually expressed as a pure ratio. Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the equity shareholders return through the use of debt. Leverage is also known as „gearing? or „trading on equity?. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity. Return On Proprietor Fund:Return on proprietors fund is also known as „return on proprietors equity? or „return on shareholders investment? or „ investment ratio?. This ratio indicates the relationship between net profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the concern is in managing the owner?s fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors.
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The various ratios for the years 2002-20011 are given below
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Key financial ratios Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times Earnings Per Share Book Value
Mar '02 10 13.5 78.17 204.77 149.05 82.56 38.17 33.42 38.23 26.97 26.4 23.12 22.54 39.69 27.34 26.67 16.42 16.56 40.19 1.26 0.74 0.07 0.05 25.79 0.07 26.23 18.86 4.36 35 8.92 2.11 1.09 1.37 159.71 46.25 58.14 41.41 18.86 6.95 18.85 28.08 24.07 71.21 75.41 0.21 Mar '02 48.48 177.23
Mar '03 10 15 89.07 237.13 188.92 81.86 37.56 32.98 37.96 26.97 26.09 22.99 22.11 38.03 25.86 24.86 15.82 15.93 38.4 1.19 0.7 0.02 0.01 58.88 0.02 57.13 40.97 4.76 30.02 9.4 1.97 1.09 1.39 182.29 37.89 43.17 39.87 20.56 7.25 22.04 30.54 26.03 68.25 73.09 0.08 Mar '03 55.41 214.29
Mar '04 10 20 96.11 258.89 231.39 81.81 37.12 32.33 38.59 27.73 27.01 24.08 23.36 36.17 25.09 24.33 14.92 15 36.48 0.95 0.47 0.02 0.01 80.18 0.02 75.54 54.67 4.31 29.35 8.16 1.94 0.99 1.36 144.66 59.26 -7.59 41.8 14.83 8.04 16.8 35.08 30.46 63.84 68.73 0.07 Mar '04 64.31 256.35
Mar '05 10 31 111.55 306.4 290.89 81.63 36.4 31.39 37.56 32 25.67 28 21.67 33.09 27.97 21.64 18.65 18.75 33.8 0.97 0.43 0.03 0.01 56.01 0.03 58.8 50.3 3.91 20.07 6.99 2.01 0.95 1.33 212.57 53.53 6.12 38.95 18.66 7 16.68 40.29 35.25 47.94 56.05 0.12 Mar '05 88.28 315.63
Mar '06 1 2.65 8.97 26.09 22 87.29 34.36 30.13 35.98 25.49 25.73 22.19 22.43 36.26 24.83 25.09 16.8 16.87 36.36 1.25 0.57 0.01 0.01 209.63 0.01 172.52 122.69 3.82 18.22 6.43 2.31 1.08 1.59 223.31 48.89 40.51 43.53 16.35 6.39 18.3 50.76 44.19 49.78 56.22 0.05 Mar '06 5.95 23.97
Mar '07 1 3.1 10.64 32.73 25.62 87.12 32.51 28.86 34.05 24.28 23.98 21.4 21.1 37.24 26.01 25.64 27.59 27.74 37.51 1.33 0.58 0.02 0.01 456.67 0.02 268.33 191.95 3.76 20.79 6.05 2.42 1.17 1.75 213.12 52.68 49.56 47.16 16.92 6.52 18.54 50.53 44.54 48.75 54.9 0.07 Mar '07 7.18 27.59
Mar '08 1 3.5 11.76 37.23 29.88 86.98 31.57 27.5 28.44 23.45 23.45 21.5 21.5 36.6 25.99 24.71 31.85 32 36.88 1.36 0.56 0.02 0.01 258.92 0.02 199.51 145.6 5.51 20.43 5.51 1.59 1.16 1.59 220.61 43.88 52.39 44.95 12.78 7.44 15.45 49.45 43.36 47.98 54.68 0.06 Mar '08 8.28 31.85
Mar '09 1 3.7 13.04 39.7 34.27 86.84 32.84 28.37 29.17 24.22 24.22 21.18 21.18 34.6 23.85 23.26 36.24 36.39 34.75 1.42 0.61 0.01 0.01 168.97 0.01 112.17 81.02 5.26 21.32 5.26 1.44 1.09 1.44 185.08 64.35 62.19 45.8 12.98 7.12 14.85 50.06 42.84 48.67 56.23 0.05 Mar '09 8.65 36.24
Mar '10 1 10 16.06 48.63 34.73 85.85 33.02 28.97 29.74 23.98 23.98 21.3 21.3 42.64 28.98 28.29 36.69 36.84 42.64 0.92 0.39 0.01 0.01 82.46 0.01 73.42 52.72 6.04 24.31 6.04 1.58 1.33 1.58 193.81 36.33 -13.69 38.45 12.03 6.66 12.68 109.63 95.34 -12.31 2.64 0.02 Mar '10 10.64 36.69
Mar '11 1 4.45 9.3 27.29 19.07 91.81 34.08 30.05 30.97 25.17 25.17 22.91 22.91 44.94 31.36 30.34 20.55 20.62 44.95 1.08 0.5 0.01 0.01 123.3 0.01 100.46 73.25 6.05 23.91 6.05 1.69 1.34 1.69 184.53 40.67 13.97 40.72 13.34 6.8 13.32 80.24 70.91 17.06 26.99 0.02 Mar '11 6.45 20.55
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Advantages of Ratio Analysis Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows: ? Ratios facilitate conducting trend analysis, which is important for decision making and forecasting. ? Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and solvency of a firm. ? Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. ? The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm. Limitations of Ratio Analysis Ratio analysis has its limitations. These limitations are described below: 1] Information problems ? Ratios require quantitative information for analysis but it is not decisive about analytical output . ? The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the company?s current financial position. ? Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful for decision-making. 2] Comparison of performance over time ? When comparing performance over time, there is need to consider the changes in price. The movement in performance should be in line with the changes in price. ? When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology. ? Changes in accounting policy may affect the comparison of results between different accounting years as misleading.
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3] Inter-firm comparison ? Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis. ? Selective application of government incentives to various companies may also distort intercompany comparison. comparing the performance of two enterprises may be misleading. ? Inter-firm comparison may not be useful unless the firms compared are of the same size and age, and employ similar production methods and accounting practices. ? Even within a company, comparisons can be distorted by changes in the price level. ? Ratios provide only quantitative information, not qualitative information. Ratios are calculated on the basis of past financial statements. They do not indicate future trends and they do not consider economic conditions.
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REFERENCES
1)www.itcportal.com 2)www.moneycontrol.com 3)www.google.com
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doc_331466769.docx
This project presents a report on company analysis.The organization taken is ITC LTD. It contains a detailed analysis on the company and its all the factors and components including the vision,mission,code of conduct of the company,its different product lines,factors in determining the demand,cost analysis,regression analysis,production function analysis and ratio analysis. user 11/15/2011
COMPANY OVERVIEW: ITC GROUP
ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC also ranks among India's top 10 `Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and AgriExports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practises this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part." ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 2.8 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-toend IT solutions, including e-enabled services and business process outsourcing.
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ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating. ITC employs over 21,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 4,46,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the nation. For the Shareholder.”
HISTORY AND EVOLUTION
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then toI.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'. The Company?s beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more ways than one. It was to mark the beginning of a long and eventful journey into India's future. The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks. Though the first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies witnessed the beginnings of a corporate transformation that would usher in momentous changes in the life of the Company.
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ITC's Packaging & Printing Business was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. It is today India's most sophisticated packaging house. In 1975 the Company launched its Hotels business with the acquisition of a hotel in Chennai which was rechristened 'ITC-Welcomgroup Hotel Chola'. The objective of ITC's entry into the hotels business was rooted in the concept of creating value for the nation. ITC chose the hotels business for its potential to earn high levels of foreign exchange, create tourism infrastructure and generate large scale direct and indirect employment. Since then ITC's Hotels business has grown to occupy a position of leadership, with over 100 owned and managed properties spread across India. In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards Limited, which today has become the market leader in India. Bhadrachalam Paperboards amalgamated with the Company effective March 13, 2002 and became a Division of the Company, Bhadrachalam Paperboards Division. In November 2002, this division merged with the Company's Tribeni Tissues Division to form the Paperboards & Specialty Papers Division. ITC's paperboards' technology, productivity, quality and manufacturing processes are comparable to the best in the world. It has also made an immense contribution to the development of Sarapaka, an economically backward area in the state of Andhra Pradesh. It is directly involved in education, environmental protection and community development. In 2004, ITC acquired the paperboard manufacturing facility of BILT Industrial Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to improve customer service with reduced lead time and a wider product range. In 1985, ITC set up Surya Tobacco Co. in Nepal as an Indo-Nepal and British joint venture. Since inception, its shares have been held by ITC, British American Tobacco and various independent shareholders in Nepal. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and its name was changed to Surya Nepal Private Limited (Surya Nepal). In 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing company and a major supplier of tissue paper to the cigarette industry. The merged entity was named the Tribeni Tissues Division (TTD). To harness strategic and operational synergies, TTD was merged with the Bhadrachalam Paperboards Division to form the Paperboards & Specialty Papers Division in November 2002. Also in 1990, leveraging its agri-sourcing competency, ITC set up the Agri Business Division for export of agri-commodities. The Division is today one of
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India's largest exporters. ITC's unique and now widely acknowledged eChoupal initiative began in 2000 with soya farmers in Madhya Pradesh. Now it extends to 10 states covering over 4 million farmers. ITC's first rural mall, christened 'Choupal Saagar' was inaugurated in August 2004 at Sehore. On the rural retail front, 24 'Choupal Saagars' are now operational in the 3 states of Madhya Pradesh, Maharashtra and Uttar Pradesh. In 2000, ITC forayed into the Greeting, Gifting and Stationery products business with the launch of Expressions range of greeting cards. A line of premium range of notebooks under brand “Paperkraft”was launched in 2002. To augment its offering and to reach a wider student population, the popular range of notebooks was launched under brand “Classmate” in 2003. “Classmate” over the years has grown to become India’s largest notebook brand and has also increased its portfolio to occupy a greater share of the school bag. Years 2007- 2009 saw the launch of Children Books, Slam Books, Geometry Boxes, Pens and Pencils under the “Classmate” brand. In 2008, ITC repositioned the business as the Education and Stationery Products Business and launched India's first environment friendly premium business paper under the “Paperkraft” Brand. “Paperkraft” offers a diverse portfolio in the premium executive stationery and office consumables segment. Paperkraft entered new categories in the office consumable segment with the launch of Textliners, Permanent Ink Markers and White Board Markers in 2009. ITC also entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the popular segment with its men's wear brand, John Players, in 2002. In 2006, Wills Lifestyle became title partner of the country's most premier fashion event - Wills Lifestyle India Fashion Week - that has gained recognition from buyers and retailers as the single largest B-2-B platform for the Fashion Design industry. To mark the occasion, ITC launched a special 'Celebration Series', taking the event forward to consumers. In 2000, ITC spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited, to more aggressively pursue emerging opportunities in this area. Today ITC Infotech is one of India?s fastest growing global IT and IT-enabled services companies and has established itself as a key player in offshore outsourcing, providing outsourced IT solutions and services to leading global customers across key focus verticals - Manufacturing, BFSI (Banking, Financial Services & Insurance), CPG&R (Consumer Packaged Goods & Retail), THT (Travel, Hospitality and Transportation) and Media & Entertainment.
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ITC's foray into the Foods business is an outstanding example of successfully blending multiple internal competencies to create a new driver of business growth. It began in August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. In 2002, ITC entered the confectionery and staples segments with the launch of the brands minto and Candyman confectionery and Aashirvaadatta (wheat flour). 2003 witnessed the introduction of Sunfeast as the Company entered the biscuits segment. ITC's entered the fast growing branded snacks category with Bingo! in 2007. In eight years, the Foods business has grown to a significant size with over 200 differentiated products under six distinctive brands, with an enviable distribution reach, a rapidly growing market share and a solid market standing. In 2002, ITC's philosophy of contributing to enhancing the competitiveness of the entire value chain found yet another expression in the Safety Matches initiative. ITC now markets popular safety matchesbrands like iKno, Mangaldeep, Aim, Aim Mega and Aim Metro. ITC's foray into the marketing of Agarbattis (incense sticks) in 2003 marked the manifestation of its partnership with the cottage sector. ITC's popular agarbattis brands include Spriha and Mangaldeepacross a range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa. ITC introduced Essenza Di Wills, an exclusive range of fine fragrances and bath & body care products for men and women in July 2005. Inizio, the signature range under Essenza Di Wills provides a comprehensive grooming regimen with distinct lines for men (Inizio Homme) and women (Inizio Femme). Continuing with its tradition of bringing world class products to Indian consumers the Company launched 'Fiama Di Wills', a premium range of Shampoos, Shower Gels and Soaps in September, October and December 2007 respectively. The Company also launched the 'Superia' range of Soaps and Shampoos in the mass-market segment at select markets in October 2007 and Vivel De Wills & Vivelrange of soaps in February and Vivel range of shampoos in June 2008.
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ITC LEADERSHIP
Flowing from the concept and principles of Corporate Governance adopted by the Company, leadership within ITC is exercised at three levels. The Board of Directors at the apex, as trustee of shareholders, carries the responsibility for strategic supervision of the Company. The strategic management of the Company rests with the Corporate Management Committee comprising the wholetime Directors and members drawn from senior management. The executive management of each business division is vested with the Divisional Management Committee (DMC), headed by the Chief Executive. Each DMC is responsible for and totally focused on the management of its assigned business. This three-tiered interlinked leadership process creates a wholesome balance between the need for focus and executive freedom, and the need for supervision and control.
BOARD OF DIRECTORS
AUDIT COMMITTEE
SUSTAINABILITY COMMITTEE
COMPENSATION COMMITTEE
NOMINATIONS COMMITTEE
INVESTOR SERVICE COMMITTEE
Mr. Yogesh Chander Deveshwar is the present Chairman of ITC LTD.Along with the above 5 main committees,Corporate Management Committee forms a part of the management of the company.
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COMPANY VISION AMD MISSION
The ITC vision Susstain ITC's position as one of India's most valuable corporations through world class performance,creating growing value for the Indian economy and the Company?s stakeholders. The ITC mission To enhance the wealth generating capability of the enterprise in a globalising environment,delivering superior and sustainable stakeholder value.
CORPORATE GOVERNANCE
Preamble Over the years, ITC has evolved from a single product company to a multibusiness corporation. Its businesses are spread over a wide spectrum, ranging from cigarettes and tobacco to hotels, packaging, paper and paperboards and international commodities trading. Each of these businesses is vastly different from the others in its type, the state of its evolution and the basic nature of its activity, all of which influence the choice of the form of governance. The challenge of governance for ITC therefore lies in fashioning a model that addresses the uniqueness of each of its businesses and yet strengthens the unity of purpose of the Company as a whole. Since the commencement of the liberalisation process, India's economic scenario has begun to alter radically. Globalisation will not only significantly heighten business risks, but will also compel Indian companies to adopt international norms of transparency and good governance. Equally, in the resultant competitive context, freedom of executive management and its ability to respond to the dynamics of a fast changing business environment will be the new success factors. ITC's governance policy recognises the challenge of this new business reality in India.
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Definition and Purpose ITC defines Corporate Governance as a systemic process by which companies are directed and controlled to enhance their wealth generating capacity. Since large corporations employ vast quantum of societal resources, it believes that the governance process should ensure that these companies are managed in a manner that meets stakeholders aspirations and societal expectations. Core Principles ITC's Corporate Governance initiative is based on two core principles. These are : i. Management must have the executive freedom to drive the enterprise forward without undue restraints; and This freedom of management should be exercised within a framework of effective accountability.
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ITC believes that any meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only not misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations. Cornerstones From the above definition and core principles of Corporate Governance emerge the cornerstones of ITC's governance philosophy, namely trusteeship, transparency, empowerment and accountability, control and ethical corporate citizenship. ITC believes that the practice of each of these leads to the creation of the right corporate culture in which the company is managed in a manner that fulfils the purpose of Corporate Governance. Trusteeship ITC believes that large corporations like itself have both a social and economic purpose. They represent a coalition of interests, namely those of the shareholders, other providers of capital, business associates and employees. This belief therefore casts a responsibility of trusteeship on the Company's Board of Directors. They are to act as trustees to protect and enhance
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shareholder value, as well as to ensure that the Company fulfils its obligations and responsibilities to its other stakeholders. Inherent in the concept of trusteeship is the responsibility to ensure equity, namely, that the rights of all shareholders, large or small, are protected. Transparency ITC believes that transparency means explaining Company's policies and actions to those to whom it has responsibilities. Therefore transparency must lead to maximum appropriate disclosures without jeopardising the Company's strategic interests. Internally, transparency means openness in Company's relationship with its employees, as well as the conduct of its business in a manner that will bear scrutiny. It believes transparency enhances accountability. Empowerment and Accountability Empowerment is an essential concomitant of ITC's first core principle of governance that management must have the freedom to drive the enterprise forward. ITC believes that empowerment is a process of actualising the potential of its employees. Empowerment unleashes creativity and innovation throughout the organisation by truly vesting decision-making powers at the most appropriate levels in the organisational hierarchy. ITC believes that the Board of Directors are accountable to the shareholders, and the management is accountable to the Board of Directors. It believes that empowerment, combined with accountability, provides an impetus to performance and improves effectiveness, thereby enhancing shareholder value. Control ITC believes that control is a necessary concomitant of its second core principle of governance that the freedom of management should be exercised within a framework of appropriate checks and balances. Control should prevent misuse of power, facilitate timely management response to change, and ensure that business risks are pre-emptively and effectively managed. Ethical Corporate Citizenship ITC believes that corporations like itself have a responsibility to set exemplary standards of ethical behaviour, both internally within the organisation, as well
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as in their external relationships. It believes that unethical behaviour corrupts organisational culture and undermines stakeholder value.
CODE OF CONDUCT
Preamble ITC?s Code of Conduct was circulated to the employees more than five years back and is posted on the Company?s corporate website. This Code has now been re-drafted for better presentation. This Code is derived from three interlinked fundamental principles, viz. good corporate governance, good corporate citizenship and exemplary personal conduct. Philosophy ITC is a professionally managed organisation and the core value underlying corporate philosophy is "trusteeship". They believe the organisation has been handed to us by the various stakeholders in "trust" and they as professionals are the "trustees" of these stakeholders. It is therefore their responsibility to ensure that the organisation is managed in a manner that protects and furthers the interests of our stakeholders. They recognise society as an important stakeholder in this enterprise and therefore it is part of our responsibility to practise good corporate citizenship. It is also their belief that in order to serve the interests of the stakeholders in perpetuity, they must build ITC into an institution whose dynamism and vitality are anchored in its core values. Corporate Citizenship In the conduct of the Company?s business, the practice of good corporate citizenship is a prerequisite and embraces the following: Dealing with People in the Organisation In dealing with each other, directors, senior management and employees shall uphold the values which are at the core of our HR Philosophy - trust, teamwork, mutuality and collaboration, meritocracy, objectivity, self respect and human dignity. Indeed, these values form the basis of HR management systems and processes. In selection and recruitment, while meritocracy will be a prime
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criterion, managers will scrupulously consider all factors that go towards securing the interests of the Company. ITC will focus on meritocracy, equity and upholding of Company values in all people processes including performance management systems, appraisals, remuneration and rewards. A Gender Friendly Workplace As a good corporate citizen, ITC is committed to a gender friendly workplace. It seeks to enhance equal opportunities for men and women, prevent/stop/redress sexual harassment at the workplace and institute good employment practices. Sexual harassment includes unwelcome sexually determined behaviour such as: unwelcome physical contact; a demand or request for sexual favours; sexually coloured remarks; showing pornography and any other unwelcome physical, verbal or non-verbal conduct of a sexual nature. ITC maintains an open door for reportees; encourages employees to report any harassment concerns and is responsive to employee complaints about harassment or other unwelcome and offensive conduct. A Grievance Committee on Gender Issues has been constituted to enquire into complaints and to recommend appropriate action, wherever required. ITC demands, demonstrates and promotes professional behaviour and respectful treatment of all employees. Relationships with Suppliers and Customers All directors, senior management and employees shall ensure that in their dealings with suppliers and customers, the Company?s interests are never compromised. Accepting gifts and presents of more than a nominal value, gratuity payments and other payments from suppliers or customers will be viewed as serious breach of discipline as this could lead to compromising the Company?s interests. Legal Compliance It is the Company?s policy to comply fully with all applicable laws and regulations. Ensuring legal and regulatory compliance is the responsibility of the Chief Executives of the Businesses and the Divisional Management Committees. The Company cannot accept practices which are unlawful or may be damaging to its reputation. Divisional Management Committees must satisfy
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themselves that sound and adequate arrangements exist to ensure that they comply with the legal and regulatory requirements impacting each business and identify and respond to developments in the regulatory environment in which they operate. In the event the implication of any law is not clear, the Company?s Legal Department shall be consulted for advice. Health and Safety The Company attaches great importance to a healthy and safe work environment. ITC is committed to provide good physical working conditions and encourages high standards of hygiene and housekeeping. Particular attention should be paid to training of employees to increase safety awareness and adoption of safe working methods, particularly designed to prevent serious or fatal accidents. Environment Policies The Company believes that commitment to sustainable development is a key component of responsible corporate citizenship and therefore deserves to be accorded the highest priority. Accordingly, the Company is committed to Best Practices in environmental matters arising out of its business activities and expects each business to fully demonstrate this commitment. In addition to complying with applicable laws and regulations, Businesses must establish procedures for assessing the environmental effects of their present and future activities. They should adopt Best Practices in their environmental policies and procedures. Personal Conduct All directors, senior management and employees have the obligation to conduct themselves in an honest and ethical manner and act in the best interest of the Company at all times. They are expected to demonstrate exemplary personal conduct through adherence to the following: Avoidance of Conflict of Interest All directors, senior management and employees must avoid situations in which their personal interest could conflict with the interest of the Company. This is an area in which it is impossible to provide comprehensive guidance but the
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guiding principle is that conflict, if any, or potential conflict must be disclosed to higher management for guidance and action as appropriate. Transparency and Auditability All directors, senior management and employees shall ensure that their actions in the conduct of business are totally transparent except where the needs of business security dictate otherwise. Such transparency shall be brought about through appropriate policies, systems and processes, including as appropriate, segregation of duties, tiered approval mechanism and involvement of more than one manager in key decisions and maintaining supporting records. It shall be necessary to voluntarily ensure that areas of operation are open to audit and the conduct of activities is totally auditable. Protection of Confidential Information No director, senior management and employee shall disclose or use any confidential information gained in the course of employment/ association with the Company for personal gain or for the advantage of any other person. No information either formally or informally shall be provided to the press, other publicity media or any other external agency except within approved policies. Company Facilities No director, senior management and employee shall misuse Company facilities. In the use of Company facilities, care shall be exercised to ensure that costs are reasonable and there is no wastage. Leading by Example The organisation?s directors and senior management set the professional tone for the Company. Through both their words and their actions, the organisation?s leadership conveys what is acceptable and unacceptable behaviour. ITC?s directors, senior management and employees must constantly reinforce through their actions and behaviour that ITC?s stated beliefs of responsible corporate citizenship are rooted in individual conviction and personal integrity. Waivers Any waiver of any provision of this Code of Conduct for a director, senior management or employee must be placed for approval before the Company?s Board of Directors/ Corporate Management Committee, as appropriate.
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Non Adherence Any instance of non-adherence to the Code of Conduct / any other observed unethical behaviour on the part of those covered under this Code should be brought to the attention of the immediate reporting authority, who shall in turn report the same to the Head of Corporate Human Resources. This Code of Conduct, as adopted by the Board of Directors of the Company on 26th March, 2005, was amended on 29th March, 2006.
POLICY ON HUMAN RIGHTS
ITC believes that all its employees must live with social and economic dignity and freedom, regardless of nationality, gender, race, economic status or religion. In the management of its businesses and operations therefore, ITC ensures that it upholds the spirit of human rights as enshrined in existing international standards such as the Universal Declaration and the Fundamental Human Rights Conventions of the ILO. Policy ITC upholds international human rights standards, does not condone human rights abuses, and creates and nurtures a working environment where human rights are respected without prejudice. Implementation The Corporate Human Resources function of ITC is responsible for the Human Rights Policy design, implementation and updation. The policy is implemented at all locations of ITC through a set of separate policies and procedures covering each of the main constituents of human rights applicable at the workplaces. Monitoring & Audit The assessment procedures for different constituents of this policy are defined against each specific policy.
Consideration of Human Rights Impacts Across the Supply Chain
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As a large and multi-product enterprise whose products are benchmarked nationally and internationally, ITC's main supply chains can be grouped as follows: 1. For all its operations, technology, machinery and equipment are sourced from reputed and globally benchmarked suppliers/vendors who are expected to follow internationally accepted norms and standards on human rights. 2. ITC's major businesses are vertically integrated across several Divisions. A substantial part of the supply chain is therefore internal through strategic backward linkages. Common values relating to human rights performance are shared across this supply chain. 3. Being a major agri-based company, the agriculture sector is a major supplier of inputs for its operations. The bulk of agricultural commodities are procured from state controlled trading platforms and the open market. 4. A very small proportion of ITC's business consists of supply chains comprising local vendors and suppliers. The policy framework for such entities is enunciated separately in 'Policy to Ensure Respect for Human Rights across the Supply Chain'. Policy to Ensure Respect for Human Rights Policy across the Supply Chain ITC provides products and services of superior quality and value by sourcing its technologies, equipment and inputs from reputed international and Indian manufacturers and suppliers. Common values, relating to human rights performance, are shared across the entire supply chain because ITC is committed to the importance of a socially responsible and accountable supply chain. Policy ITC nurtures an internal working environment which respects human rights without prejudice. Likewise, it expects its business partners to establish a human rights compliant business environment at the workplace. Implementation The responsibility for implementation of this policy rests with the Divisional Chief Executive of the concerned business and the Unit Manager. The policy is
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communicated internally through policy manuals and intranet portals, and externally by the HR personnel of concerned units to vendors/suppliers. Monitoring & Audit ITC has established a policy intent for mapping/monitoring progress and performance of existing and potential vendors/suppliers on human rights performance. Policy to Prevent Discrimination at Workplace ITC acknowledges that every individual brings a different and unique set of perspectives and capabilities to the team. A discrimination-free workplace for employees provides the environment in which diverse talents can bloom and be nurtured. This is achieved by ensuring that a non-discrimination policy and practice is embedded across the Company in line with corporate principles and benchmarked business practices. Policy ITC's approach to its human resources is premised on the fundamental belief in fostering meritocracy in the organisation which, pari passu, promotes diversity and offers equality of opportunity to all employees. ITC does not engage in or support direct or indirect discrimination in recruitment, compensation, access to training, promotion, termination or retirement based on caste, religion, disability, gender, age, race, colour, ancestry, marital status or affiliation with a political, religious, or union organization or minority group. Implementation The policy is communicated to all employees through induction programmes, policy manuals and intranet portals. The custodian of this policy is the head of each operational unit and Divisional Chief Executives of the respective business. ITC's complaints resolution procedure is premised on the freedom of employees to approach higher officials beyond his/her immediate superior. For the unionised employees, compliance of the policy is ensured through a robust grievance handling procedure and the presence of a union that brings violations to the notice of the unit HR head. Monitoring & Auditing The accountability for the application of the non-discrimination employment
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policy rests with the Unit Head who reviews anti-discriminatory complaints annually or on a case-by-case basis. The Corporate Human Resources function conducts non-discrimination reviews annually on a sample basis with unit heads and through on-site assessments. Policy on Freedom of Association ITC's culture is characterized by cooperative relationships and high employee involvement that relies on building partnerships and interdependence. Adhering to these principles has helped build, sustain and strengthen harmonious employee relations in the organisation. Policy ITC respects the employees' right to organize themselves into interest groups as initiatives of the workers, independent from supervision by the management. In keeping with the spirit of this Policy, employees are not discriminated against for exercising this right. Implementation The policy is comunicated to all employees through induction programmes, policy manuals and intranet portals. The custodian of this policy is the HR head of each operational unit who reports directly to Unit Head on such issues. The actualisation of this policy is evident from the joint agreements and minutes that are signed between the union and the management. Monitoring & Audit Each ITC Unit has appropriate systems and checks to ensure compliance with the Policy and statutory provisions, including means for filing of grievances, collective bargaining agreements and minutes from worker meetings. Compliance with the Policy is regularly monitored by Divisional and Corporate HR. Policy Prohibiting Child Labour and Preventing Forced Labour from Workplace The foundation of ITC's "No Child or Forced Labour policy" is based on the Company's commitment to find practical, meaningful and culturally appropriate
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responses to support the elimination of such labour practices. It thus endorses the need for appropriate initiatives to progressively eliminate these abuses. Policy ITC does not employ any person below the age of eighteen years in the workplace. ITC prohibits the use of forced or compulsory labour at all its units. No employee is made to work against his/her will or work as bonded/forced labour, or subject to corporal punishment or coercion of any type related to work. Implementation This policy is publicly available throughout the Company and clearly communicated to all employees in a manner in which it can be understood through induction programmes, policy manuals and intranet portals. The responsibility for the implementation of the policy rests with the Units HR Department and the security staff who do not permit underage persons to enter the factory as workers. Employment contracts and other records documenting all relevant details of the employees, including age, are maintained at all units and are open to verification by any authorized personnel or relevant statutory body. Compliance with the policy is evident in the transparent system of recruitment and the policy of exit interviews which are undertaken by a manager not directly connected with the employee. For the unionised employees, compliance is also ensured through a robust grievance handling procedure and the presence of a union that brings violations to the notice of the unit HR head. Monitoring & Audit Sample checks of the records are undertaken annually by Corporate Human Resources function. Audit and assessment is undertaken annually by Corporate Internal Audit and the Environment, Occupation Health and Safety function.
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POLICY ON INFORMATION AND CONSULTATION ON CHANGES
ITC's core values support an employee engagement process that aligns its employees with a shared vision and purpose of the Company in the belief that every individual brings a different perspective and capability to the team. ITC thus harnesses the creative potential of all its employees by promoting a culture of partnerships to unleash relevant synergies between different groups of employees. Policy All major changes in operations involving work processes, manning norms and other productivity linked issues are carried out after discussions with the employees and the recognized unions at each location. Implementation Business plans are shared with employees at all units through a series of formal communication meetings, and through the intranet portals. Unionised employees at the concerned units are informed of all major changes well in advance through their representatives. The responsibility for the implementation of the policy rests with the Unit's HR Department in the case of unionized employees and with the concerned Divisional Management Committees for other employees.The employees are given enough time to consider the implications of change and an opportunity to discuss their apprehensions, if any, with the management.The Policy is actualised through consultative meetings with representatives of employees, culminating in joint minutes/agreements. Monitoring & Auditing Compliance with the Policy is regularly monitored by the Unit Head. HIV/AIDS: Policy Guidelines Background ITC is committed to providing a safe and healthy work environment to all its employees. These policy guidelines on HIV/AIDS are an endorsement of this commitment and, in particular, of the Company's commitment to specific programmes and actions in response to the HIV epidemic.
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The Company's position is based on scientific and epidemiological evidence that people with HIV/AIDS do not pose a risk of transmission of the virus to coworkers by casual, non-sexual contact in the normal work setting. Policy Guidelines 1. Compliance The Company's policies on HIV/AIDS with regard to its employees will, at a minimum, comply with all relevant Central and State legislation and the Company will implement all policies and directions of the Government regarding HIV/AIDS whenever issued. 2. Prevention through Awareness The Company will provide to all its employees sensitive, accurate and the latest information about risk reduction strategies in their personal lives, with the objectives of reducing the stigma of HIV/AIDS, encouraging safe behaviour and improving understanding of treatment. 3. Safe and Healthy Workplace The Company is committed to providing a safe and healthy workplace to all its employees. It is the Company's objective that employees will have access to health services to prevent and manage HIV/AIDS. 4. Non-discrimination The Company will not discriminate against any employee infected by HIV/AIDS with regard to promotions, training and other privileges and benefits as applicable to all employees. 1. A HIV positive employee will be allowed to continue to work in his/her job unless medical conditions interfere with the specific job being done, in which case reasonable alternative working arrangements will be made; or The employee is incapacitated to perform his/her duties and is declared medically unfit by a medical doctor, in which case the employee will be assisted to rehabilitate himself/herself outside the Company. 2. The Company will not make pre-employment HIV/AIDS screening mandatory as part of its fitness to work assessment. Screening of this kind refers to direct methods (HIV testing), indirect methods (assessment of risk behaviour), and questions about HIV tests already taken. 3. HIV/AIDS test will not be part of the annual health check-ups unless specifically requested for by an employee.
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5. Confidentiality Voluntary testing for HIV/AIDS when requested for by the employee, will be carried out by private or community health services and not at the workplace.There will no obligation on the part of the employees to inform the Company about their clinical status in relation to HIV/AIDS. Information on clinical diagnosis of an employees' status in terms of his/her HIV/AIDS status if advised to the Company, will be kept strictly confidential.
ITC IT E-Waste Policy
ITC?s achievements across all three dimensions of the "Triple Bottom Line" – economic , social and environmental is well known and recognized globally. Being a pioneer in environmentally sustainable operations ( e.g Carbon and Water positive , solid waste recycling positive), we need to meet demanding standards of responsible waste management in all aspects of our operations. With pervasive use of electrical and electronic equipments in their daily operations, disposal of obsolete equipments is increasingly posing a threat to our environment . There is therefore a need to handle such disposals – referred to as E-Waste – in a responsible manner in line with emerging global best practices and standards IT E-Waste is a subset of E-Waste and covers the following IT equipments Sl. No. 1. Category Computers Items Server / Desktop computer (CPU, Monitor, Keyboard and Mouse), Laptop, Notebook, Dumb terminal, etc or similar items Printer, Scanner, Printer Cartridge, Toner, etc or similar items Routers, Switches, Patch panel, Modem, Converter, VSAT equipments, etc or similar items
2. 3. 4.
Printer & Accessories Network equipments
IT Accessories TV Tuner box, Floppy, CD and DVD, Pen Drive,
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External Hard disk, External CD / DVD writer, DAT Drive, Speaker, Laptop Battery, Hand Held device, VC equipments, Data Cartridge, etc or similar items 5. Associated Electrical items Power cable, Data cable, UPS, etc or similar items
IT E-WASTE POLICY The lifecycle of all IT assets spanning from acquisition to disposal shall be managed in a manner which conforms to sound environmental norms as detailed in the IT E-Waste guidelines. This includes :
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Preferential dealing with IT vendors having sound E-Waste management processes Extending the useful life of IT assets to postpone / minimize generation of E-Waste Responsible disposal processes conforming to regulatory requirements and best practices
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IT E-waste management guidelines Regulatory environment
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Different government bodies have published regulatory framework for handling E-waste. Similarly, different trade and industry bodies are also evolving the best practices to deal with IT E-Waste. CIO Office scans the evolving code of practice and keep updating this policy document (supported by Corporate EHS) in line with the best practices for disposal of IT E-Waste. This is done once a year, or more frequently if deemed necessary. The appropriate government bodies, e.g., Ministry of Environments & Forests / Central or State pollution control boards in India, etc. have initiated the process of approving and authorizing E-Waste Recyclers. CIO Office shall identify authorized Recyclers, publish a list of such EWaste Recyclers and enter into appropriate agreements covering all aspects of the E-Waste disposal. The list of authorized Recyclers and the agreed terms and conditions have been circulated to the DMMs.
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IT E-waste minimization process
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It shall be the endeavor of every user to maximize utilization of all IT assets to their full productive life. Apart from internal re-use, option to extend use outside ITC through donation to bonafide philanthropic institutions will also extend the useful life of IT assets. Only such IT assets which are non-operational and can not be reused for any other alternate purpose should be considered as IT E-waste for disposal. The DMM will certify this position.
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Compliance reporting As part of Quarterly IT Policy Compliance, the DMM shall report the Division?s compliance to E-Waste Policy to the CIO, who in turn will present Companywide consolidated status to the Corporate IT Steering Committee.
THE CHAIRMAN SPEECH
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GLOBAL HONOURS
ITC constantly endeavours to benchmark its products, services and processes to global standards. The Company's pursuit of excellence has earned it national and international honours. ITC is one of the eight Indian companies to figure in Forbes A-List for 2004, featuring 400 of "the world's best big companies". Forbes has also named ITC among Asia's'Fab 50' and the World's Most Reputable Companies. ITC has several firsts to its credit:ITC is the first from India and among the first 10 companies in the world to publish its Sustainability Report in compliance (at the highest A+ level) with the latest G3 guidelines of the Netherlands-based Global Reporting Initiative (GRI), a UN-backed, multistakeholder international initiative to develop and disseminate globally applicable Sustainability Reporting Guidelines. ? ITC is the first Indian company and the second in the world to win the prestigious Development Gateway Award. It won the $100,000 Award for the year 2005 for its trailblazing ITC e-Choupal initiative which has achieved the scale of a movement in rural India. The Development Gateway Award recognizes ITC's e-Choupal as the most exemplary contribution in the field of Information and Communication Technologies (ICT) for development during the last 10 years. ITC e-Choupal won the Award for the importance of its contribution to development priorities like poverty reduction, its scale and replicability, sustainability and transparency. ? ITC has won the inaugural 'World Business Award', the worldwide business award recognising companies who have made significant efforts to create sustainable livelihood opportunities and enduring wealth in developing countries. The award has been instituted jointly by the United Nations Development Programme (UNDP), International Chamber of Commerce (ICC) and the HRH Prince of Wales International Business Leaders Forum (IBLF). ? ITC is the first Corporate to receive the Annual FICCI Outstanding Vision Corporate Triple Impact Award in 2007 for its invaluable contribution to the triple bottom line benchmarks of building economic, social and natural capital for the nation. ? ITC has won the Golden Peacock Awards for 'Corporate Social Responsibility (Asia)' in 2007, the Award for 'CSR in Emerging Economies 2005' and 'Excellence in Corporate Governance' in the same year. These Awards have been instituted by the Institute of Directors,
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? ? ? ? ? ? ? ?
?
New Delhi, in association with the World Council for Corporate Governance and Centre for Corporate Governance. ITC Hotel Gardenia, Bengaluru is the first Indian Hotel and world's largest, to get the LEED Platinum rating - thehighest green building certification globally. The Company's Green Leaf Threshing plants at Chirala and Anaparti in Andhra Pradesh are the first units of their kind in the world to get ISO 14001environment management systems certification. ITC's cigarette factory in Kolkatais the first such unit in India to get ISO 9000quality certification and the first among cigarette factories in the world to be awarded the ISO 14001 certification. ITC Maurya in New Delhi is the first hotel in India to get the coveted ISO 14001Environment Management Systems certification. ITC Filtrona is the first cigarette filter company in the world to obtain ISO 14001. ITC Infotech finds pride of place among a select group of SEI CMM Level 5companies in the world. ITC's Green Leaf Threshing plant in Chirala is the first in India and among the first 10 units in the world to bag the Social Accountability (SA 8000) certification. ITC's R&D Centre at Peenya, Bengaluru has the distinction of being the first independent R&D centre in India to get ISO 9001 accreditation and certified with ISO 14001 for Environment Management Systems by DNV. The R&D Centre is also certified for the standard ISO/IEC17025:2005, by National Accreditation Board for Testing and Calibration Laboratories (NABL). This certification is awarded for "General requirement for the competence of Testing & Callibration Laboratories". ITC Chairman Y C Deveshwar has received several honours over the years. Notable among them are:
Year Award The Padma Bhushan, one of the highest civilian awards in the country by 2011 the Government of India in recognition of his distinguished service of a high order to the Nation. 2010 The U.S.-India Business Council (USIBC) Award for Global Leadership. 2007 SAM/SPG Sustainability Leadership Award conferred at the International Sustainability Leadership Symposium, Zurich.
2006 Business Person of the Year from UK Trade & Investment, the UK
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Government organisation that supports overseas businesses in that country. 2006 Inducted into the `Hall of Pride' by the 93rd Indian Science Congress. 2005 Honoured with the Teacher's Lifetime Achievement Award. Manager Entrepreneur of the Year from Ernst & Young. 2001 Retail Visionary of the Year from Images, India's only fashion and retail trade magazine. 1998 Honorary Fellowship from the All India Management Association 1996 Distinguished Alumni Award from IIT, Delhi. 1994 Marketing Man of the Year from A&M, the leading marketing magazine. 1986 Meridien Hotelier of the Year. Some of the other notable recognitions are: ? The Stockholm Challenge 2006 for the e-Choupal initiative. This award is for usingInformation Technology for the economic development of rural communities. ? United Nations Industrial Development Organisation (UNIDO) Award at the international conference on Sharing Innovative Agribusiness Solutions 2008 at Cairo for ITC's exemplary initiatives in agri business through the e-Choupal. ? The Corporate Social Responsibility Crown Award for Water Practices from UNESCOand Water Digestfor its distinguished work carried out in the water sector in India. ITC also received the National Award for Excellence in Water Management 2007 in the 'beyond the fence' category from the CII Sohrabji Godrej Green Business Centre for its leadership role in implementing water and watershed management practices. ? The watershed programme also won the Asian CSR Award 2007 for Environmental Excellence given by the Asian Institute of Management. The Award recognizes and honours Asian companies for outstanding, innovative and world-class projects. The Company also received the Ryutaro Hashimoto Incentive Prize 2007 for Environment & Development from the Asia Pacific Forum. This Award aims at promoting information dissemination of good practices towards sustainable development in the Asia-Pacific region. ? The Readers' Digest Pegasus Award for corporate social responsibility, recognising outstanding work done by socially conscious companies.
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? The Corporate Award for Social Responsibility 2008 from The Energy and Resources Institute (TERI) in recognition of its exemplary initiatives in implementing integrated watershed development programmes across 7 states in India. The company also won the award in 2004 for its eChoupal initiative. The Award provides impetus to sustainable development and encourages ongoing social responsibility processes within the corporate sector. ? The 'Enterprise Business Transformation Award' for Asia Pacific (Apac), instituted by Infosys Technologies and Wharton School of the University of Pennsylvania for its celebrated e-Choupal initiative. ? The Best Corporate Social Responsibility Practice Award 2008 jointly instituted by the Bombay Stock Exchange, Times Foundation and the NASSCOM Foundation. ? The NASSCOM - CNBC IT User Award 2008 in the Retail & Logistics category. The Company has been recognised for its pro-active and holistic approach to IT adoption and the seamless alignment of IT with business strategy. This is the fourth time that ITC has won Nasscom's Best IT User Award since it was instituted in 2003. ? The Institute of Chartered Accountants of India Award for Excellence in Financial Reporting with its Annual Report and Accounts, adjudged as a commendable entry under the Category 'Manufacturing and Trading Enterprises'. ? The Business Today Award for the Best Managed Company in recognition of its outstanding initiatives in the consumer products segment. ? The only Indian FMCG company to have featured in the Forbes 2000 list. The Forbes 2000 is a comprehensive ranking of the world's biggest companies, measured by a composite of sales, profits, assets and market value. The list spans 51 countries and 27 industries. ? The NDTV Profit Business Leadership Award for being the Best Food Company of 2007. The Award has been instituted to recognise organisational excellence. ? The CNBC-TV18's International Trade Award 2008 for Outstanding Exporter of the Year in the FMCG & Food category. ? ITC continues its dominance of The Economic Times' Brand Equity listing of India's 100 Biggest FMCG Brands, with three brands from its stable making it to the top five. Gold Flake remains India's biggest FMCG brand in terms of sales. Navy Cut ranks at No. 4. ITC's Scissors brand ranks at No 5 and is the only new entrant into the top 10. ? Restaurant magazine has chosen Bukhara at the ITC Maurya, New Delhi as thebest Indian restaurant in the world and the best restaurant in Asia. Bukhara has also been adjudged one of the top 50 restaurants in the
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world by the London based magazine 'The Good Food Guide'. Bukhara is the only South Asian restaurant to figure in the list. ? The "Best Supply Chain Practices Award" for time-effective and costefficient Logistics Management in Organized Retail to ITC's Lifestyle Retailing Business Division (LRBD). The awards were organized by Retailers Association of India (RAI) in association with ITW Signode the International leaders in packaging solutions.
RESEARCH AND DEVELOPMENT
ITC is committed to delivering world-class products and services. This requires a clear focus on continuously striving to create a higher value to customers by achieving excellence in all Company's operations. Business excellence calls for a passionate focus on technology, products, services, processes and an operating environment firmly anchored to an impregnable foundation of Quality.
ITC firmly believes that quality is not a specifically assignable task. It needs to be firmly rooted and institutionalized in the culture and value system of the Company. ITC nurtures a culture of striving for continuous improvement in quality, be it in products, services, systems or performance. The Company is committed to the establishment of systems and processes to promote organisational creativity and innovation. ITC's development of its Integrated Quality Management System (IQMS) is based on its strong foundation of implementing ISO 9001:2000, ISO 14001, OHSAS 18001, SA 8000, HACCP (for Foods) and IQRS (performance rating and benchmarking of the quality management system). Likewise, ITC's strategic initiatives for developing its people have been based on participative management concepts like QC (Quality Control), TQM (Total Quality Management), KSS (Kaizen Suggestion Scheme), 5S, Six Sigma. All ITC manufacturing units have ISO quality certification. Almost all contract manufacturing units in the Foods Business and all large hotels have food safety
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and quality systems certified by accredited 'third party' in accordance with 'Hazard Analysis Critical Control Points' (HACCP) standards. Additionally, the quality of all FMCG products of the Company is regularly monitored through 'Product Quality Rating System' (PQRS). The Leaf Tobacco and Printing & Packaging businesses have achieved world-class ratings in the 'International Quality Rating System' (IQRS) for business excellence in which key processes are rated against international benchmarks and certified by accredited 'third party' independent assurance providers. ITC's Research & Development Centres
At ITC's Research & Development Centres at Bengaluru, Bhadrachalam and Rajahmundry, the Company has assembled a pool of world-class scientists focused on providing the requisite R&D support to its established and new businesses enabling the Company to consistently attain internationally benchmarked quality standards and constantly offer product innovations. ITC R&D Centre at Bengaluru provides systemized service to the entire range of ITC's businesses through Product Technology Cells, Common Service Modules, Advanced Research Initiatives and networking with national and international R&D centres. Product Technology Cells (PTCs) are product-specific. Each PTC caters to the needs of the businesses through Market Intelligence, Product Testing & PQRS services, Prototyping services through advanced pilot plants, flavour and fragrance development services, periodic audit of factory quality systems and Product Knowledge and Training Workshops. PTCs assist businesses through sensory evaluations by highly trained and specialised panelists. Common service modules like Packaging and Advanced Analytical labs offer their services across all businesses.
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ITC R&D Centres are manned by highly qualified and trained scientists specialised in their fields. The labs and pilot plants have ultra modern, state-ofthe-art testing and prototyping facilities. The laboratory at Bengaluru has obtainedaccreditation from NABL (National Accreditation Board for Testing & Calibration of Laboratories) for ISO 17025 for key testing protocols. ITC Corporate R&D located in Bengaluru undertakes research programs for multiple ITC businesses built on a common set of core competencies. The initial sets of core competency areas identified are: Plant Breeding and Genetics, Agronomy, Microbiology, Molecular Biology, Silviculture, Cell Biology, Proteomics, Genomics, Biochemistry and Ingredient Sciences. The facility aims to create 'Centres of Excellence' in these areas.
ITC's R&D programme at Bhadrachalam is the core of the Company's fibre strategy for its Paperboards and Specialty Papers business. This state-of-the-art research centre is consistently striving to improve the productivity of several tree species, in order to give attractive land-use alternatives to traditional farmers and wasteland owners. So far, more than 100 high-yielding, fastgrowing and disease resistant 'Bhadrachalam' clones have been produced on a commercial scale, including 23 site-specific clones adapted to problematic soils. The productivity of these saplings is 6-9 times that of normal seedlings.
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ITC's comprehensive R&D facilities at Rajahmundry in Andhra Pradesh cover all aspects of tobacco crop cultivation. In collaboration with the Central Tobacco Research Institute and the Tobacco Board, ITC pioneered FCV tobacco cultivation in India and introduced the Burley and HDBRG varieties. ITC's continued focus on crop development has resulted in new varieties of seeds and hybrids in Andhra Pradesh and Karnataka, which have significantly improved farm yields and helped fulfill the demands of a dynamic global market. The Company's R&D team collaborates with other centres of excellence, and leverages expertise from several leading institutes including the University of Agricultural Science, Bengaluru; Indian Institute of Science, Bengaluru; CSIOR, Australia and CSIR, South Africa. Catering to the need of ITC's Lifestyle Business is a contemporary master Design Facility at Gurgaon. It offers R&D facilities that have enabled the Company to offer internationally benchmarked fashion collection every season.
ITC LTD. BUSINESSES
? FMCG ? Cigarettes & Cigars ? Foods ? Lifestyle Retailing ? Personal Care ? Education and Stationery ? Safety Matches ? Agarbattis ? Hotels ? Paperboards and packaging
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? Paperboards and ? Specialty Papers ? Packaging ? Agribusiness ? Agri Commodities & Rural Services ? e-Choupal ? Leaf Tobacco, Spices ? Agri Inputs ? Information technology
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DEMAND DETERMINANTS OF FMCG SECTOR
? Taste ( the consumer preferences) :-For example, in a same store, there are two kinds of shampoos, HUL company brand and ITC brand.The consumers preference decides the demand of the product. ? Quality of product –It is the most important factor which determines the demand of the product.A good quality product always helps to in crease the demand. ? Shelf-life of product-Since the FMCG products are consumer products and perishable in nature,it is very important to manufacture products of better shelf life so that they can be used for a longer period. ? Better finish of products-Finishing of FMCG products is very important factor in deciding the buyimg behaviour of the consumers and finally ttheir demand for the product. ? Good looks and stylish packaging-Packaging of the product leads an important role in the demand of a product.So unlike earlier companies have started to pay attention on the packaging and the appearance of the product as well. ? Quantity of the product-If the quantity of teh product is not enough according to the price demanded by the company for its product then the
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consumers would not buy that product.So it is necessary that a right combination of price along with the quantity of the product is sold to the consumers. ? Expectations of the consumers-After using a FMCG product the consumer tend to establish an opinion and expectations from the product of a certain quality and if that expectations of the consumers is not fulfilled then the demand for that product falls. ? Changing lifestyles: With improving domestic living standards, demand for better consumer goods has increased.Moreover, the bent of young generation towards better lifestyle has increased the demand of these goods. ? Increasing competition in the market-ITC has been facing tough competition from other companies in the FMCG sector like HUL,Dabur Ltd,Emami,Palmolive etc. ? ? ? ? ? ? ? Availability of Substitutes Some other determinants include: Population growth Level of literacy Public and private spending on education Level of business activity Growing economy
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COST ANALYSIS
The cost analysis of the company can be done by taking various factors and comparing them with a common factor which helps us to know the relationship between those factors.The different factors taken into account here are:? Electricity & fuel expenses ? Salaries & wages expenses ? Raw materials costs ? Advertisement expenses 1. TAKING ELECTRICITY EXPENSES INTO ACCOUNT:Electricity expenses and sales of the company for the previous 6 years is as follows: 2. YEAR GROSS ELECTRICITY& % RATIO SALES FUEL (EXPENSES/SALES*100) (IN EXPENSES CRORES) (IN CRORES) 2005 14177.58 227.26 1.602953395 2006 17222.25 260.84 1.514552396 2007 19894.89 290.40 1.459671303 2008 21355.94 309.90 1.451118518 2009 23143.53 387.34 1.673642698 2010 26259.60 394.12 1.500860638
To compare the sales and electricity & fuel expenes,a pivot chart is prepared and a graph is plotted between year and % ratio to see the variation of % ratio of electricity and fuel expenses to sales.
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140000 120000 100000 80000 60000 40000 20000 0 2005 2006 2007 2008 2009 2010 Total Sum of GROSS SALES CRORES) (IN
Sum of ELECTRICITY& FUEL EXPENSES (IN CRORES)
2012 2010 2008 2006 2004 2002 2000 1 2 3 4 5 6
% RATIO 1.602953395 1.514552396 1.459671303 1.451118518 1.673642698 1.500860638 (EXPENSES/SALES*100) YEAR 2005 2006 2007 2008 2009 2010
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2.TAKING SALARIES AND WAGES INTO ACCOUNT:- Salaries& wages of the workers and sales of the company for the previous 6 years is as follows:
YEAR
2005 2006 2007 2008 2009 2010
GROSS SALARIES % RATIO SALES (IN AND WAGES (EXPENSES/SALES*100) CRORES) (IN CRORES) 14177.58 380.87 2.686425 17222.25 454.93 2.641525 19894.89 588.46 2.957845 21355.94 610.24 2.857472 23143.53 733.57 3.169655 26259.60 794.31 2.686425
To compare the sales and salaries& wages expenses ,a pivot table is plotdrawn and a graph is plotted between year and % ratio to see the variation of % ratio of salaries and wages expenses to sales.
140000 120000 100000 80000 60000 40000 20000 0 2005 2006 2007 2008 2009 2010 TOTAL SUM Sum of SALARIES AND WAGES (IN CRORES) Sum of GROSS SALES (IN CRORES)
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3000 2500 2000 1500 1000 500 0 SALARIES AND WAGES (IN CRORES) YEAR 1 2 380.87 2005 3 454.93 2006 4 588.46 2007 5 610.24 2008 6 733.57 2009 7 794.31 2010
3. TAKING RAW MATERIALS COST INTO ACCOUNT:- Raw materials costs and sales of the company for the previous 6 years is as follows:
YEAR
2005 2006 2007 2008 2009 2010
GROSS SALES (IN CRORES) 14177.58 17222.25 19894.89 21355.94 23143.53 26259.60
RAW MATERIALS COSTS (IN CRORES) 2785.26 4018.97 5384.86 6016.70 6446.78 6971.40
% RATIO (EXPENSES/SALES*100)
19.64552 23.33592 27.06655 28.17343 27.85565 26.54801
To compare the sales and salaries& wages expenses ,a pivot chart is drawn and a graph is plotted between year and % ratio to see the variation of % ratio of raw materials to sales.
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30000 25000 20000
8000 7000 6000 5000 4000 3000 GROSS SALES 2000 1000 0 2005 2006 2007 2008 2009 2010
GROSS 15000 SALES
10000 5000 0
RAW MATERIAL
2040 2030 2020 2010 2000 1990 1980 % RATIO YEAR 1 19.64552 2005 2 23.33592 2006 3 27.06655 2007 4 28.17343 2008 5 27.85565 2009
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4.. TAKING ADVERTISEMENT EXPENSES INTO ACCOUNT:- :Advertisements costs and sales of the company for the previous 6 years is as follows: YEAR GROSS SALES (IN CRORES) 14177.58 17222.25 19894.89 21355.94 23143.53 26259.60 ADVERTISEMENT % RATIO EXPENSES (EXPENSES/SALES*100) (IN CRORES) 229.92 238.25 288.15 377.54 502.30 514.66 1.621715 1.383385 1.448362 1.767845 2.170369 1.959893
2005 2006 2007 2008 2009 2010
To compare the sales and advertisement expenses ,a graph is plotted . a graph is plotted between year and % ratio to see the variation of % ratio of advertisement expenses to sales.
30000 25000 20000 15000 10000 5000 0 2005 2006 2007 2008 2009 2010
600 500 400 Sum of GROSS SALES 300 200 100 0 Sum of ADVERTISEMENT EXPENSES (IN CRORES)
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2014 2012 2010 2008 2006 2004 2002 2000 % RATIO YEAR 1 1.621715 2005 2 1.383385 2006 3 1.448362 2007 4 1.767845 2008 5 2.170369 2009 6 1.959893 2010
So,from the above comparisons and graphs,we can see that raw material expenses account for the maximum expenses in the company followed by the salaries and wages expenses.Advertisement expenses have been increasing continuosly at a large rate as compared to the fuel expenses.The graphs show a particular rise in sales ratio with the coming years but there was a small drift or plateau from the year 2008-2009.The cause of this drift may have been the recession period in the economy and in some cases,sales are trying to recover from that drift to rise to the normal.
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REGRESSION ANALYSIS
Introduction to Regression Analysis Regression analysis is a statistical tool for the investigation of relationships between variables. Regression analysis includes any techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables. More specifically, regression analysis helps one understand how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed. Regression analysis is widely used for prediction and forecasting, where its use has substantial overlap with the field of machine learning. Regression analysis is also used to understand which among the independent variables are related to the dependent variable, and to explore the forms of these relationships. In restricted circumstances, regression analysis can be used to infer causal relationships between the independent and dependent variables. A large body of techniques for carrying out regression analysis has been developed. Familiar methods such as linear regression and ordinary least squares regression are parametric, in that the regression function is defined in terms of a finite number of unknown parameters that are estimated from the data. Nonparametric regression refers to techniques that allow the regression function to lie in a specified set of functions, which may be infinitedimensional. Linear regression Linear regression is an approach to modeling the relationship between a scalar variable y and one or more variables denoted X. In linear regression, data are modeled using linear functions, and unknown model parameters are estimated from the data. Such models are called linear models. The various regression equations which can be used for forecasting exercise are: Fitting Simple Linear Regression: In this case a straight line is fitted to the data containing one dependent variable and only one independent variable, e.g., Sales = a + b*(Price)
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Fitting of the straight line can be done by following methods: i. ii. i. Graphical Method Least Squares Method Graphical Method: In graphical method, we plot the sets of data of the two variable (dependent and independent variable) on the graph and a line is drawn through all the points. Thereafter, the movement of the series is assessed and future values of the variable are forecasted.
Figure 1.0 shows how to project trend by graphical method, using the figures on sales for FMCG products from the numerical example of ITC Limited cited below:
YEAR 2002 2003 2004 2005 2006 2007 2008 2009 2010
35000 30000 25000 20000 15000 10000 5000 0
SALES(IN CRORES) 9843.16 11028.41 11819.66 13360.24 16236.42 19519.99 21467.38 23247.84 26399.63
Total
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 9843.16 11028.41 11819.66 13360.24 16236.42 19519.99 21467.38 23247.84 26399.63 30633.57
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Least Squares Method: Least squares estimation is a powerful tool to estimate the coefficients of a linear function. It is based on the minimisation of squared deviations between the best fitting line and the original observations given. In this method, we fit the data on demand and time in the form of equations and then project the demand for the future period. These equations are termed as normal equations and the task of least square method is to find out the values of the coefficients in these equations.
The Equation of the linear trend is given by: Y =a + b X, where a is the intercept of the demand curve, b is the slope of the curve(a and b are known as regression coefficients) and X is the deviation from mean of independent variable. We can find the values of a and b using the normal equations: ?Y= na + b?X ?Y.X= a?X + b?X2 Let us explain linear trend projection with the help of a numerical example, data is given below:
YEAR 2002 2003 2004 2005 2006 2007 2008 2009 2010
SALES(IN CRORES) 9843.16 11028.41 11819.66 13360.24 16236.42 19519.99 21467.38 23247.84 26399.63
ADVERTISEMENT EXPENSES
83.67 116.5 168.23 201.98 238.25 311.39 454.48 532.37 514.66
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SUMMARY OUTPUT Regression Statistics Multiple R 0.982948 R Square 0.966186 Adjusted R Square 0.96196 Standard Error 1377.206 Observations 10 ANOVA df Regression Residual Total SS MS F Significance F 1 4.34E+08 4.34E+08 228.5905 3.62E-07 8 15173574 1896697 9 4.49E+08
Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 6880.843 875.0321 7.863531 4.94E-05 4863.015 8898.67 4863.015 8898.67 X Variable 1 35.02597 2.316654 15.11921 3.62E-07 29.68376 40.36818 29.68376 40.36818
Y= 6880.843 + 35.026 X
SUMMARY OUTPUT Regression Statistics Multiple R 0.982948 R Square 0.966186 Adjusted R Square 0.96196 Standard Error 1377.206 Observations 10 ANOVA df Regression Residual Total SS MS F Significance F 1 4.34E+08 4.34E+08 228.5905 3.62E-07 8 15173574 1896697 9 4.49E+08
Y=sales and X=advertisement expenses
Coefficients Standard Error t Stat P-value Lower 95%Upper 95% Lower 95.0% Upper 95.0% Intercept 6880.843 875.0321 7.863531 4.94E-05 4863.015 8898.67 4863.015 8898.67 X Variable 1 35.02597 2.316654 15.11921 3.62E-07 29.68376 40.36818 29.68376 40.36818
Y= 6880.843 + 35.026 X
Y=sales and X=advertisement expenses
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Now here the independent variable is the advertisement expenses and sales data is the dependent variable. Using the method of regression analysis,we find the regression coefficients a and b. By calculating the coefficients here we get a value of a=6880.843 and b= 35.026 Thus the regression equation becomes:Y=6880.843+35.026X The regression equation establishes a relationship between the variables taken here and can also be used for further calculating the different values of Y at different known values of X in future.
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PRODUCTION ANALYSIS
Production is the process of transformation of inputs into goods and services of utility to consumers and/or producers.Production process depends upon the technology and fixed and variable inputs. Economists have used the term “factors of production” for identifying the broad categories of inputs.The factors of production are:i. ii. iii. iv. v. Land Labour Capital Enterprise Organisation
Production function Production function is defined as the relationship between quantities of inputs used and maximum quantity of output that can be produced, given current knowledge about technology and organization. Production function with two variables -a production function that uses only labor and capital: q = f (L, K) to produce the maximum amount of output given efficient production. The production function for ITC LTD. has to be calculated. The various factors which are required in the production analysis are: Output: - The output for ITC is being depicted by the total income of the company. Labour Cost: - The total labour cost is being taken as the total compensation that is paid to the employees of the ITC. Capital: - The total capital cost that is taken into the ITC is the sum of raw materials and power fuel.
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The data for the following is given below:2008
14,581.16
2009
16,042.32
18,664.96
94.83
309.9 376.86 6,307.79
108.43
394.12
2011 22,205.01 102.3 130.43
421.68
2010
387.34 381.82 7,140.69
377.44
6,864.96
773.81
8,601.13
35,000.00 30,000.00 25,000.00 Raw materials 20,000.00 15,000.00 10,000.00 5,000.00 0.00 Total capital Power fuel Labour Income
Now we plot the function of labour/Income and capital/Income
Labour/Income Graph
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Labour/Income 0.005315695 0.005043809 0.005805019 0.006417247 0.006592544 0.006096952 0.006503598 0.006758997 0.005480858 0.0058739
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Labour/Income
2012 2010 2008 2006 2004 2002 2000 1998 1996 2002 2003 2004 2005 Year 2006 2007 2008 2009 2010 2011 Labour/Income
Capital/income graph
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Capital/Income 0.046457434 0.04143356 0.036043797 0.029975329 0.037043723 0.029134958 0.02584568 0.023527769 0.020456513 0.034848442
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Capital/Income
2012 2010 2008 2006 2004 2002 2000 1998 1996 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Capital/Income Year
Analysis: -So, we plot the labour/output (total income) and we observe that the ratio is decreasing for most of the corresponding years and there is a sudden sharp decrease in the year 2005-06. This means that the organization is spending more on technology advancement i.e capital and less on labour to increase the output. This also shows that due to computerization the workforce was reducing which is shown from the years. We see that the ratio capital/output is constant for initial few years and then it decreased for few years and after 2005 , ratio is increasing which means that the organization has increased the capital spending over the time. This also explains the decrease in the labour/output ratio. Now, we find the output as function of labour and capital using the function Output = f(L,K) Where L is the labour cost and K is the capital cost. We define O = A* L^? * K^? To obtain the values of alpha and beta we have to use the regression analysis. To do so we take log on both the sides. Log O = ? log L + ? Log K + Log A. The various values for the logarithms are given. Then we use regression analysis to calculate the values thereof.
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Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Log(Total Income) 3.722837039 3.7762405 3.837060399 3.91807282 4.005918443 4.111027487 4.163792076 4.205267175 4.271027064 4.346450973
Log(Labour) 3.722837039 1.478999132 1.600864036 1.72542155 1.824971461 1.896140251 1.976945751 2.035149458 2.009875634 2.115377494
Log(Capital) 2.389892255 2.39359275 2.393890939 2.394836771 2.574633072 2.575441879 2.576180044 2.576847924 2.581858673 2.888634338
Putting this information in to regression analysis software we get the values of A, alpha and beta. The values observed are as follows. A = 0.627 ? = 0.246 ? = 0.915 ?+ ? = 1.161 so, we get the function as O = 0.62 * L0.246 * K0.915 So, we observe that the value of ?+ ? is less than 1 so, we observe increasing return to scale in this case.
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RATIO ANALYSIS
Objective To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm. Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. Meaning of ratio:A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “ so many times”. As accounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements. Meaning of ratio analysis: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented.Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. . Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure
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a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. Objective of ratios Ratio is work out to analyze the following aspects of business organizationA) Solvency1) Long term 2) Short term 3) Immediate B) Stability C) Profitability D) Operational efficiency E) Credit standing F) Structural analysis G) Effective utilization of resources H) Leverage or external financing STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry?s average ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.
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I.
Classification of ratio CLASSIFICATION OF RATIO
BASED ON FINANCIAL USER STATEMENT
BASED ON FUNCTION
BASED ON
1] BALANCE SHEET FOR RATIO 2] REVENUE STATEMENT RATIO SHAREHOLDER 3] COMPOSITE RATIO MANAGEMENT
1] LIQUIDITY RATIO 2] LEVERAGE RATIO 3] ACTIVITY RATIO 4] PROFITABILITY
1] RATIOS
SHORT TERM CREDITORS 2] RATIO FOR RATIO
5] COVERAGE
3] RATIOS FOR RATIO
4] RATIO FOR LONG TERM CREDITORS
Based on financial statement Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& P A/C, or both. Oneway of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid
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ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio. 3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios.
Based on function:Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios. 3] Activity ratios:It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios. 4] Profitability ratios:It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios.It shows the relationship between profit & investment e.g. return on investment, return on equity capital. 5] Coverage ratios: It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.
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Based on user: 1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders:Return on proprietors fund, return on equity capital 3] Ratios for management:Return on capital employed, turnover ratios, operating ratios, expenses ratios 4] Ratios for long-term creditors

(1) Liquidity ratio:Liquidity refers to the ability of a firm to meet its shortterm (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below2)Current ratio:This ratio compares the current assests with the current liabilities. It is also known as „working capital ratio? or „ solvency ratio?. It is expressed in the form of pure ratio. The current assests of a firm represents those assets which can be, in the ordinary course of business, converted into cash within a short period time, normally not exceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met, as originally contemplated, with in a year. Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current assets include cash and bank balances; inventory of raw materials, semi-finished and finished goods; marketable securities; debtors (net
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of provision for bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its shortterm debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within approximately twelve months with liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is under utilizing its current assets. Liquid ratio:Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio.The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value. Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments. Cash ratio:This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. Since cash and bank balances and short term marketable securities are the most liquid assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to the current liabilities then it may affect the profitability of the firm.
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(2)
Investment / shareholder ratio
Earning per share:-Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per share are determined by dividing net profit by the number of equity shares.EPS measures the profits available to the equity shareholders on each share held. EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business Dividend per share:-DPS shows how much is paid as dividend to the shareholders on each share held. Gearing ratio:Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio.
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B.
3.Profitability Ratio
These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin. Gross Profit Ratio:-This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit. Net profit ratio:-Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage.This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm. Return on capital employed:-The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus longterm debts. Alternatively it can also be defined as fixed assets plus net working capital.Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized.
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FINANCIAL RATIO
(i) These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets. The important turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described below: B)Debtors Turnover Ratio (Dto) DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better is. C)Inventory Or Stock Turnover Ratio (Itr) ITR refers to the number of times the inventory is sold and replaced during the accounting period.ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories). D)Fixed Assets Turnover (Fat):The FAT ratio measures the net sales per rupee of investment in fixed assets. ts This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).
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Proprietors Ratio

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The various ratios for the years 2002-20011 are given below
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Key financial ratios Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times Earnings Per Share Book Value
Mar '02 10 13.5 78.17 204.77 149.05 82.56 38.17 33.42 38.23 26.97 26.4 23.12 22.54 39.69 27.34 26.67 16.42 16.56 40.19 1.26 0.74 0.07 0.05 25.79 0.07 26.23 18.86 4.36 35 8.92 2.11 1.09 1.37 159.71 46.25 58.14 41.41 18.86 6.95 18.85 28.08 24.07 71.21 75.41 0.21 Mar '02 48.48 177.23
Mar '03 10 15 89.07 237.13 188.92 81.86 37.56 32.98 37.96 26.97 26.09 22.99 22.11 38.03 25.86 24.86 15.82 15.93 38.4 1.19 0.7 0.02 0.01 58.88 0.02 57.13 40.97 4.76 30.02 9.4 1.97 1.09 1.39 182.29 37.89 43.17 39.87 20.56 7.25 22.04 30.54 26.03 68.25 73.09 0.08 Mar '03 55.41 214.29
Mar '04 10 20 96.11 258.89 231.39 81.81 37.12 32.33 38.59 27.73 27.01 24.08 23.36 36.17 25.09 24.33 14.92 15 36.48 0.95 0.47 0.02 0.01 80.18 0.02 75.54 54.67 4.31 29.35 8.16 1.94 0.99 1.36 144.66 59.26 -7.59 41.8 14.83 8.04 16.8 35.08 30.46 63.84 68.73 0.07 Mar '04 64.31 256.35
Mar '05 10 31 111.55 306.4 290.89 81.63 36.4 31.39 37.56 32 25.67 28 21.67 33.09 27.97 21.64 18.65 18.75 33.8 0.97 0.43 0.03 0.01 56.01 0.03 58.8 50.3 3.91 20.07 6.99 2.01 0.95 1.33 212.57 53.53 6.12 38.95 18.66 7 16.68 40.29 35.25 47.94 56.05 0.12 Mar '05 88.28 315.63
Mar '06 1 2.65 8.97 26.09 22 87.29 34.36 30.13 35.98 25.49 25.73 22.19 22.43 36.26 24.83 25.09 16.8 16.87 36.36 1.25 0.57 0.01 0.01 209.63 0.01 172.52 122.69 3.82 18.22 6.43 2.31 1.08 1.59 223.31 48.89 40.51 43.53 16.35 6.39 18.3 50.76 44.19 49.78 56.22 0.05 Mar '06 5.95 23.97
Mar '07 1 3.1 10.64 32.73 25.62 87.12 32.51 28.86 34.05 24.28 23.98 21.4 21.1 37.24 26.01 25.64 27.59 27.74 37.51 1.33 0.58 0.02 0.01 456.67 0.02 268.33 191.95 3.76 20.79 6.05 2.42 1.17 1.75 213.12 52.68 49.56 47.16 16.92 6.52 18.54 50.53 44.54 48.75 54.9 0.07 Mar '07 7.18 27.59
Mar '08 1 3.5 11.76 37.23 29.88 86.98 31.57 27.5 28.44 23.45 23.45 21.5 21.5 36.6 25.99 24.71 31.85 32 36.88 1.36 0.56 0.02 0.01 258.92 0.02 199.51 145.6 5.51 20.43 5.51 1.59 1.16 1.59 220.61 43.88 52.39 44.95 12.78 7.44 15.45 49.45 43.36 47.98 54.68 0.06 Mar '08 8.28 31.85
Mar '09 1 3.7 13.04 39.7 34.27 86.84 32.84 28.37 29.17 24.22 24.22 21.18 21.18 34.6 23.85 23.26 36.24 36.39 34.75 1.42 0.61 0.01 0.01 168.97 0.01 112.17 81.02 5.26 21.32 5.26 1.44 1.09 1.44 185.08 64.35 62.19 45.8 12.98 7.12 14.85 50.06 42.84 48.67 56.23 0.05 Mar '09 8.65 36.24
Mar '10 1 10 16.06 48.63 34.73 85.85 33.02 28.97 29.74 23.98 23.98 21.3 21.3 42.64 28.98 28.29 36.69 36.84 42.64 0.92 0.39 0.01 0.01 82.46 0.01 73.42 52.72 6.04 24.31 6.04 1.58 1.33 1.58 193.81 36.33 -13.69 38.45 12.03 6.66 12.68 109.63 95.34 -12.31 2.64 0.02 Mar '10 10.64 36.69
Mar '11 1 4.45 9.3 27.29 19.07 91.81 34.08 30.05 30.97 25.17 25.17 22.91 22.91 44.94 31.36 30.34 20.55 20.62 44.95 1.08 0.5 0.01 0.01 123.3 0.01 100.46 73.25 6.05 23.91 6.05 1.69 1.34 1.69 184.53 40.67 13.97 40.72 13.34 6.8 13.32 80.24 70.91 17.06 26.99 0.02 Mar '11 6.45 20.55
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Advantages of Ratio Analysis Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows: ? Ratios facilitate conducting trend analysis, which is important for decision making and forecasting. ? Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and solvency of a firm. ? Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons. ? The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm. Limitations of Ratio Analysis Ratio analysis has its limitations. These limitations are described below: 1] Information problems ? Ratios require quantitative information for analysis but it is not decisive about analytical output . ? The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the company?s current financial position. ? Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful for decision-making. 2] Comparison of performance over time ? When comparing performance over time, there is need to consider the changes in price. The movement in performance should be in line with the changes in price. ? When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology. ? Changes in accounting policy may affect the comparison of results between different accounting years as misleading.
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3] Inter-firm comparison ? Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis. ? Selective application of government incentives to various companies may also distort intercompany comparison. comparing the performance of two enterprises may be misleading. ? Inter-firm comparison may not be useful unless the firms compared are of the same size and age, and employ similar production methods and accounting practices. ? Even within a company, comparisons can be distorted by changes in the price level. ? Ratios provide only quantitative information, not qualitative information. Ratios are calculated on the basis of past financial statements. They do not indicate future trends and they do not consider economic conditions.
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REFERENCES
1)www.itcportal.com 2)www.moneycontrol.com 3)www.google.com
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